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H2020

ISIGrowth Report Summary

Project ID: 649186
Funded under: H2020-EU.3.6.

Periodic Reporting for period 1 - ISIGrowth (Innovation-fuelled, Sustainable, Inclusive Growth)

Reporting period: 2015-05-01 to 2016-04-30

Summary of the context and overall objectives of the project

ISIGrowth addresses the topic “EURO-2-2014: The European growth agenda” and in particular the dimensions 2 (“Innovation-based growth strategy for Europe”) and 3 (“Global production and innovation networks – costs and benefits for Europe”) of its scope.

The main goal of ISIGrowth is twofold. First, we will provide novel and comprehensive diagnostics of the relationships between innovation, employment dynamics and growth in an increasingly globalized and financialised world economy. Second, on the grounds of such diagnostics, we will elaborate policy scenarios and we will deliver a coherent policy toolkit to achieve the Europe 2020 objectives of smart, sustainable and inclusive growth.

In order to deliver our comprehensive diagnostics and coherent set of policy tools, we will undertake the analysis from several, highly complementary, angles, namely (i) we will analyse the long-term dynamics of European economies, considering especially their degrees of innovativeness, their patterns of structural transformation, and their growth performances (WP 1); (ii) we will assess the position of European economies in the global production and financial networks, in order to study the effect of increasing globalisation of production and finance on the emerging de-industrialisation patterns observed in some European regions (WP 2 and 3); (iii) we shall analyse the nature and drivers of the observed increasing inequality in an attempt to disentangle purported ‘skill biases’ of technical change, ‘globalisation effects’, ‘financialisation effects’ and possible broader institutional causes (WP 3 and 4); (iv) we will address the multiple links between the financial sector and the real economy, which are important for the rates of innovation, growth and income distribution (WP 4); (v) we will explore the dual role of innovation as a driver of income and employment growth and a labour-saving factor, relating the ensuing patterns to the flows of job creation and destruction (WP 5); (vi) we shall study the links between ‘Schumpeterian’ patterns of innovation and ‘Keynesian’ mechanisms of demand generation, and study the conditions under which their combination and different ensembles of policies can drive socially inclusive and environmentally sustainable growth. (WP 6 and 7).

Our analysis addresses these points from both a theoretical and an empirical, intensively data-driven perspective. In particular, we use the idea that the economy and its main domains (e.g., technologies, agents, social relations and institutions) should be studied considering their complex system nature. More specifically, we will employ (i) state-of-the-art econometric techniques combining rich micro, industry, market-, regional and country level data together with ‘theory-informed’ historical case studies of key industry actors in particular sectors; (ii) network approach to stuy the possible dynamics that are crucial to growth (e.g. mitigating financialisation and deindustrialisation, fostering innovation and sustainable development); (iii) empirically-grounded models as laboratories for policy analysis exploring the conditions under which smart and sustainable growth (as described above) can be achieved by different combinations of innovation, industry, fiscal and monetary policies.

The Great Recession has brought to the fore the longer-term structural imbalances that have accumulated over the last three decades in Europe, also showing by the ineffectiveness of standard policy instruments to put bank EU economies on steady growth paths. More than ever, it is evident that markets alone cannot ensure the strong economic growth required to approach full employment, even in the presence of extraordinary and unconventional policy support. ‘Animal spirits’ of business cannot be assumed; they must be created. This poses massive challenges for public policy beyond fixing markets. Markets must be actively shaped and created (Mazzucato,

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

After slightly more than one year, the project has significantly advanced along all the foregoing directions.
Major contributions on the “diagnostic” side include
(i) The characterization of the different European “Systems of innovation” in a comparative perspective. Together, the findings further document the absence of any “European paradox” (Europe supposedly strong in science, but relatively weak in technology transfer to industry…) (WP 1)
(ii) Further evidence on the changing international division of labour, characterized by an overall European de-industrialization but with notable exceptions, in primis Germany , and some Eastern European countries ) ( WP 1 and 2)
(iii) A dramatic ‘finacialization’ of all economies, albeit at different rates (WP 2 and 4) and its effects on the real sector of the economy
(iv) Novel comparative insights on macro to micro links – from macro policies to microeconomic and sectoral patterns of innovation and structural change, also building on the comparison between the experiences of Latin America and the Far East (WP 2)
(v) Significant inroads on the debunking of the purported link between supposedly ‘skill-biased’ technical change and increasing inequality (WP 3)
(vi) The evidence on the micro and sectoral relations between innovation and the dynamics of labour demand (admittedly still short of a “General Disequilibrium” view…, WP 5)
On the theory side, in WP6 major advances have been made on the modelling and exploration of
(i) The links between ‘Schumpeterian’ innovation processes and the “Keynesian” demand-generation mechanisms
(ii) The relations between finance and real dynamics (“Minsky meeting Keynes meeting Schumpeter…”)
(iii) The impact of labour market organization upon aggregate dynamic patterns, and the related debunking of the magic of ‘structural reforms’
Finally, on the policy side, the project has already offered important insights on
(i) the crucial role of publicly sponsored “mission oriented” programs both as engines of innovation and drivers of macro growth (WP 1 and 4)
(ii) the importance of (expansionary) fiscal policies, and, conversely, the self-defeating impact of austerity ones (WP 6)
(iii) the design and impact of ‘green’ policies (WP 1 and 6)
The policy impact of the project has been magnified by the release of the first ISIGrowth policy brief “Jumpstarting growth in Europe: from austerity to industrial and innovation policies” and the organization of the conference at the European Commission “Europe beyond austerity: a discussion on how to restore innovation-fuelled growth”, where ISIGrowth researchers have discussed the consequences of Europe’s fiscal austerity and possible alternative solutions with top macroeconomic experts, representatives of the European Commission and members of the European Parliament.
The diagnostic, theoretical and policy results of the ISIGrowth project has benefit from the consultation and discussion with stakeholders and representatives of the civil society.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The work carried out in the Work Packages 1-8 of ISIGrowth has allowed pursuing the expected impact of the project in line with the Section 2.1 of the DoA.
The first Business forum meeting will be organized in the next months (possibly before the end of 2016) during an ISIGrowth workshop on the impact of industrial policies.
The ISIGrowth project had organized the conference “Europe beyond austerity: a discussion on how to restore innovation-fuelled growth” in Brussel on June 1st 2016 where ISIGrowth researchers have discussed the consequences of Europe’s fiscal austerity and possible alternative solutions with top macroeconomic experts and policy makers. In particular, during the meeting a roundtable “Towards an era of renewed innovation-driven growth: some tentative policy suggestions” has been organized with representatives of the European Commission and members of the European Parliament.
During the first period of the ISIGrowth project, the following policy briefs and reports have been released:
- Mazzucato, M. and Penna, C. Eds (2015) “Mission-Oriented Finance for Innovation: New Ideas for Investment-Led Growth”, Rowman & Littlefield, Book, ISBN 978-1-78348-495-9 http://www.policy-network.net/publications/4860/Mission-Oriented-Finance-for-Innovation
- Ciarli, T. and Savona, M. (2015) “From Quadratic to Exponential Changes: The Relations between Economic Structure and Sustainability”, Report Commissioned by UN-ECLAC.
- Dosi G., Pereira M., Roventini A., Virgilito M., “Labour Market Flexibility: More a Source of Macroeconomic Fragility than a Recipe for Growth”
- Dosi G., Mazzucato M., Roventini A., “Jumpstarting growth in Europe: from austerity to industrial and innovation policies”
- Mazzucato, M. and Penna (2016), “The Brazilian Innovation System: A Mission-Oriented Policy Proposal’, Report for the Brazilian Government, commissioned by the Brazilian Ministry for Science, Technology and Innovation through the Centre for Strategic Management and Studies, (06/04/2016), https://www.cgee.org.br/the-brazilian-innovation-system

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