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The Norwegian R&D Puzzle

In 2007, the OECD review board visited Norway for their usual country economic survey report. What they found perplexed them. Norway spent less on research and development than most OECD countries, yet was higher in productivity. They called the phenomena...

The linear mode of thinking goes: the more you spend on science, the more innovative, the more productive, and hence the wealthier you are.

But that was not the case in Norway. The country spent 1.5% of gross domestic product (GDP) growth on research and development in 2005/2006, compared to Sweden with 4 % and Finland 3.6 %, yet had high productivity and economic prosperity. The Swedish paradox was that it had high very high R&D investments, but lower productivity and economic growth.

The OECD also found that Norway had a less innovative tendency, based on calculations according to the Oslo Manual, an OECD innovation indicator developed by among others Keith Smith at the STEP Centre for Innovation Research in Oslo (now NIFU STEP) for collecting and interpreting innovation data.

“It was clear to me that the analysts in the OECD were very confused what was happening in Norway,” said Per Koch, an advisor at Norwegian Ministry of Education and Research. “In science policy circles you had the idea that research automatically led to economic growth.”

The Disconnect

Koch was one of the Norwegian researchers at NIFU STEP (the Norwegian Institute for Studies in Innovation, Research and Education), and later at the Research Council of Norway, who was working on this Norwegian paradox. There seemed to be no connection between investment in innovation and outcome. The question was whether the country was going to lag behind Sweden, with its car industry, and Finland, which had Nokia.

Norwegian researchers looked at primary industries like fish and other low-tech industries such as petroleum, given their prominent role in the Norwegian economy. They noted that the very term low tech – as defined and used by the OECD – was understood as companies reporting low investments in R&D as a percentage of turnover. As a result, farming, fishing boats and the oil and gas industry – the latter because its turnover is so large – were considered low tech.

Johannes Hauknes, Svein Olav Nås and others at NIFU STEP argued that this terminology was misleading. The oil industry is in fact very technologically advanced and invested much into innovation, although maybe not the traditional white lab coat type. And even if a fisherman does no research, the ship he used was packed with high tech appliances. The traditional R&D statistics did not capture this dimension.

There were other problems as well. The Norwegian telecom company Telenor was concerned about they way it calculated its own R&D and innovation investments. Telenor reported NOK 400 million in R&D costs to Statistics Norway, compared to some 2 billion at Telia, its Swedish competitor.

Telenor started a new mapping of its R&D and innovation activities and ended up with a figure closer to NOK 1.5 billion. Even if it was using a different definition than the traditional R&D statistics, it seemed that some companies underestimated their investments in both R&D and innovation dramatically.

“The problem is that when company employees were given a questionnaire about R&D, they started looking at the people in white coats, and not counting the blue hard hats,” said Koch.

R&D expenditures as a share of GDP in selected countries by performing sector in 2007 or latest year of available data.
Source: Research Council of Norway’s Report on Science & Technology Indicators for Norway 2009

The Science Project

The European Union has set a goal for 3% of GDP to be spent toward R&D. Currently, OECD countries spend about 2.4% of GDP on R&D. In the EU, the number is much lower. The Norwegian Government has acknowledged the goal, but is still at only about 1.7%, according to the Research Council’s 2009 Science & Technology Indicators.

However, it is not just about throwing money at the problem. It is also important to see what it is being spent on and what affect it has on society. The Norwegian Ministry of Education and Research is acutely aware of the problem, and has even established a commission led by economist Jan Fagerberg that is to look into parts of this problem.

The Government appointed the Fagerberg committee in December to consider the public-funded research in Norway, with particular emphasis on whether there is consistency between resource commitment and results, and whether the system and the instruments are well designed and effective. The committee will recommend changes that can lead to the highest economic benefit in the broad sense of publicly funded research.

The Science Project, an internal project at the Norwegian Ministry of Education and Research being led by Koch, will look at how science interacts with society, and what kind of policies you need given the complexity of research, learning and innovation. It will look at the organization of the R&D community, and how ministries coordinate research and interact with colleges and the Research Council.

The project will for example look at the interaction between national funding and EU funding and whether there are potential overlaps. It also examines the interaction between research and society. The project should be finalized by November 2011. The results could be used as the basis for any eventual future White Papers from the ministry.

“The Science Project is to help develop a knowledge base for a more coherent policy for R&D and higher education policy and to draw a line between the different dots of the policy areas,” said Koch.

R&D Highlights

• Norwegian expenditure on R&D amounted in nominal terms to NOK 37.4 billion in 2007. Compared to 2005 this represents a real increase of 17.1%, the largest increase in R&D expenditure since the mid-1980s.
• As a proportion of GDP, R&D expenditures amounted to 1.6% in 2007 compared to 1.5% in 2005 and 2006.
• R&D expenditures corresponded to 3.6% of GDP in Sweden, 3.5% in Finland, 2.8 percent in Iceland and in Denmark, 2.6 percent. The OECD average was 2.3 percent in 2007.
• Norway spent NOK 7,950 per capita on R&D in 2007. This is the lowest level in the Nordic area. Sweden spent NOK 11,950, Finland NOK 10,910, Iceland NOK 8,870 and Denmark NOK 8,870 per capita on R&D in 2005. The OECD average was NOK 6,770, and the EU 15 average was NOK 5,750 for that year.

Source: Research Council of Norway’s Report on Science & Technology Indicators for Norway 2009