 Well, ladies and gentlemen, it's my great pleasure to welcome you to this joint ECB MIT conference on fostering innovation and entrepreneurship in the Euro area. I'm especially pleased because, as probably you know, I'm an alumnus of MIT. Frankly, I think the years I spent there were the most important years of my life. So this might, at first glance, seem an unusual topic for a central bank conference since monetary policy principally operates through the demand side of the economy. But the long-term supply picture evidently also affects our ability to deliver on our mandate. Much of the debate today about the true level of the real equilibrium interest rate, for example, is a debate about the outlook for productivity growth, which of course depends in large part on innovation and entrepreneurship. Higher productivity growth is also vital to safeguard Europe's economic model of high wages and social protection, and hence to counter the sense of economic insecurity that is currently prevalent in several advanced economies. But aggregate productivity growth is more than just the development and application of innovation and new technologies which enhance or even revolutionize production processes. New technologies invented elsewhere need to be adopted by firms into their own production processes to make them more efficient. In short, productivity growth depends not only on the creation of new ideas, but also on their diffusion. To raise productivity growth, which has load in the euro area in many other economies in recent years, we need to focus on both areas. There is a lively debate underway as to whether the rate of innovation has slowed out or not. Some argue that the great innovations of the past, electricity, railways, et cetera, will not be matched in the future or that we have exhausted the gains from the information and communication technology revolution. Others remain more optimistic that the current's lowdown in productivity reflects a transition to a knowledge-based economy and that general purpose technology, such as ICT, improve over time and generate complementary innovations. My view on the topic is that we should not be overly gloomy about the global prospects for innovation for two reasons. The first is that we clearly have potential to boost innovative capacity in the euro area. Consider, for example, the persistent gap between R&D spending in Europe and other major advanced economies. According to the World Economic Forum's global competitiveness indicator, only three euro area countries are in the world top 10 for innovation. So there is work to do in Europe before we reach the ceiling. So if, as the world's second largest economic area, we were to dismantle barriers to innovative activity in the euro area, it would clearly give a boost to global innovation. I will not go into detail here about what policies this might entail, but clearly government support for innovation matters. In Europe, differences in innovative capacity between countries are closely related to public spending on R&D, particularly in basic research. The second reason why I'm reasonably optimistic is that there is no clear evidence yet of a slowdown in innovation. The available data in terms of global R&D spending and the ongoing historical high rate of high tech patent registrations seem to challenge this perception. Moreover, despite the global slowdown in aggregate productivity, firms at the global productivity frontier have continued to post strong productivity gains over the past decade. The performance of euro area businesses at the global frontier is on a par with businesses in other developed economies, particularly in manufacturing. It is the performance of firms away from the frontier that has been lagging. Although this is a common feature for all OECD countries, it is particularly the case for euro area services, where productivity growth for the laggard firms has stagnated. It seems, therefore, that a large contributing factor to the slowdown in aggregate productivity is the second link in the chain, the lack of diffusion of innovation. This is a longstanding issue for the euro area. Better adoption of ICT in the United States appears to explain most of the productivity gap between EUS and the EU-15 from 1995 to 2007. The contribution to aggregate productivity growth from known ICT sources of capital deepening and total factor productivity growth over that period was broadly equivalent in the two regions. But what is now becoming clearer is where the diffusion gaps lie. Recent work carried out by ECB using microdata shows that the difference in productivity between the most productive and the least productive firms in each narrow two-digit sector is considerable. The top 10% of firms in terms of productivity are, on average, three times more productive than the firms in the bottom 10%. Similar differentials occur in the United States. This massive intra-industry productivity differential dwarfs inter-industry differential. For comparison, firms active in the tradable sector are, on average, around 50% more productive than those producing mainly non-tradables. How then can we improve the diffusion of innovation from the frontier to the laggard firms, especially within sectors? Research suggests three main areas that will improve the capacity of incentives for firms to adopt new technology. First, investing in human capital and managerial ability. Second, investing in intangibles. And third, improving economic dynamism. Investment in human capital and management. First, there is now an extensive literature on complementarities between technology and workforce skills, and how better human capital increases the capacity to absorb technologies. Human capital includes not just formal education, but also on the job training and job security. Firms with a large proportion of workers on temporary contracts underperform in terms of innovation. Managerial ability is also key for the adoption of technology. New technologies often require new structures and a reorganization of production to maximize efficiency gains. While managerial quality is hard to quantify, the existing studies find a statistically strong correlation between a firm's managerial quality and its total factor productivity. One of the channels through which managerial practices enhance firm performance has been found to be the increased capability of firms to absorb new technologies. Certainly, there is a potential to improve education systems in Euro area and thereby to give greater numbers of graduates the necessary technical and scientific skills. Our co-host today, MIT, came top of the latest QS World University rankings. There are nine UK universities and two Swiss universities in the top 50 of those rankings, but only one Euro area university. And education is not just for the young. Improving the provision of lifelong learning and retraining programs will aid the flow of skilled labor towards more productive businesses. Second, the investment in intangibles. Second, numerous studies have shown that firms which invest more in intangibles are in a better position to understand and benefit from new technologies. Such investment includes conducting their own R&D and developing their own intellectual property as well as investment in branding, software, and databases. Investment in intangibles also appears low in the Euro area compared with a number of other advanced economies, although it's been on an upward trend. The aggregate number also mass a wide country-level disparity with the lack of intangibles investment particularly acute in some countries. Increasing the resources devoted to R&D will improve the ability of Euro area firms to absorb more innovation. Third, economic dynamism. This main factor increasing absorptive capacity is the framework in which the business operates. Greater economic dynamism from competition to higher rates of business entry plays an important role in giving firms incentives to adopt new technologies. Ensuring that failed firms are able to smoothly exit the market is also key to enabling capital and labor to be allocated to where it can be more productively used. Business churn, the combined rate of business formation and closure, has been declining in Europe and the United States since just before the crisis. In lockstep with the decline in churn, evidence suggests that capital misallocation has been rising in both regions. As an example of barriers to business creation, it takes on average about 10 days to start a new business in the Euro area. Depending on the country, it can take between four days and almost a month. Yet in the global best performer, New Zealand, it is possible to set up a business in less than a day. There are barriers as well to the orderly exit of firms. Resolving insolvency takes on average almost two years in the Euro area, three times longer than in the best three performing countries. This is why we talk frequently about the need for structural reforms of regulatory and judicial processes to bolster business dynamism, as well as the need to complete the single market. This is especially true in services where the laggard firms are noticeably behind the frontier. Of course, creating the right regulatory framework and market conditions to nurture innovation and promote its transformation into new products and processes is complex. And there is no particular established winning formula. But there are a number of countries in the Euro area that have proven relatively more successful at putting in place an effective innovation ecosystem. One of the aims of this conference is to investigate international and Euro area best practice and facilitate the sharing of that knowledge to countries where an effective ecosystem has yet to be established. Let me now conclude. There are many reasons why it is a priority today in the Euro area to address weak productivity growth. But while some progress can be made in innovation, it is not in my view the sole issue. Equally important for the Euro areas to facilitate and encourage the spread of new technology from the frontier to the laggard firms. Simply by diffusing better the technology we already have in the Euro area, we could make sizable gains in productivity. In other words, there is much we can still do to reverse the aggregate productivity slow down and dispel the pessimism about our future. Thank you. I'd like to welcome the provost from MIT, Martin Schmidt. Please join me. Thank you, Kathy. Let me say on behalf of my MIT colleagues how delighted we are to be here to participate in this important discussion regarding fostering innovation and entrepreneurship. In the next few minutes, I'd like to share my thoughts on this important area through the MIT lens, and I'll take a micro approach to that perspective. First of all, MIT was established in 1861 by our founding president, William Barton Rogers, in response to the increasing industrialization of the United States. And Rogers sense that a new type of university was needed to educate men and women for this era of industrialization. MIT's motto is men's at mannus, mind and hand. And indeed, our educational construct to this day blends theory with extensive laboratory experience. Another hallmark of MIT is our historically strong links to industry. Indeed, when the campus was moved from across the Charles River from Boston to Cambridge 100 years ago, it located us amongst many of the industrial firms of the day and helped promote interactions. We continue to benefit from physical proximity to industry as it exists today in Kendall Square. At MIT, we think of innovation as the process of moving ideas to impact. And we recognize that we as an institution must play a role in this translation. Generating great ideas on our campus is not enough that they do not move out into the world to produce positive impacts by fueling economic growth and social progress. In addition to actively engaging in this translation activity, we've also worked to systematically develop the science of innovation, understanding the innovation process, and the factors that make innovation ecosystems effective. You will hear from my colleagues throughout this conference on their work on this important topic. A principal element of what we have studied is the importance of robust ecosystems to support innovation. But more than study it, we have worked hard to create it in partnership with key stakeholders. Today, we are blessed to have a very strong innovation ecosystem in Kendall Square and Greater Boston. And President Draghi, I think you would find Kendall Square to be a little different from when you and I first arrived at MIT as graduate students. But it is quite vibrant. Many would argue that there is no stronger biotech ecosystem in the world than in our region. So what is it that makes that so? In our view, it is the collaboration of the key stakeholders, research universities, large companies, startups, venture capital, and government. Over the course of just a few decades, each of these stakeholders has played a major role. MIT undertook a significant repositioning towards the life sciences, starting with our biology department's pivot to molecular biology in the 70s, but progressing to a point where life science research permeates nearly every science and engineering department on our campus. In addition, we succeeded in attracting large biotech companies to the area. A robust venture capital sector has formed with specific domain expertise in biotech. And to this day, that sector continues to develop innovative new models to support startups. We have developed the infrastructure to nurture startups in the region with spaces designed for their stages of development. And lastly, the Commonwealth of Massachusetts have made major investments in infrastructure elements, such as workforce training, shared facilities, and other economic development grants and policies that support this industry. And as President Draghi mentioned earlier, the importance of basic research support from the federal government has been an absolute underpinning element. However, each of these by themselves is not sufficient. The parts must interconnect. Seasoned executives from large firms must move into a startup to provide unique skills and knowledge in the area. Scientists from MIT and elsewhere should collaborate with large companies and participate in founding startups. These same people will populate the economic development offices in Massachusetts and serve as advisors to the venture firms. Over time, we have built up an ecosystem by collaboration and collective contribution to the commons. The frictionless motion of ideas, people, and capital are critical to the success of this ecosystem. Our situation is not unique, as there are a number of examples of vibrant ecosystems, but from our perspective, they all share these common attributes. So with all this exciting activity, what keeps us up at night? What trends do we see, which are causing us to adapt our approach to innovation? I can share a few thoughts. First, the speed of innovation is increasing dramatically. We see this most clearly in software and social media where an idea can go to an app, can go to a million smartphones in under a month. And that's not just true in software. An inventor anywhere in the world today can design a physical device, maybe an internet of things device, and can have that device manufactured in volume after just a few short months of prototype development in Shenzhen. Much of this is the result of the capacity that has been built in that region to burst manufacture the newest smartphone or wearable device. We need to link to these ecosystems, and indeed, this is why MIT recently established an innovation node in Hong Kong. We have also worked to develop new advanced manufacturing technologies like 3D printing, which enable rapid scalable manufacturing in a highly distributed means. Second, we need to maintain local production ecosystems to support innovation. MIT completed a study several years ago entitled the production in the innovation economy. This study was intended to answer the question, is it critical to have production capacity nearby to enable innovation? Our strong conclusion is that it is very important, and indeed this fact was the motivation for the Obama administration's investment in creating a network of manufacturing innovation institutes, something which MIT actively participated in. Third, we need to focus on how we support so-called hard tech innovations, those things that require some disruptive new technology, material or process. These types of new companies are not well matched to established venture capital models. They're capital intensive, and they take long periods of time to develop to market. And yet some, and that these companies are the ones that will give us some of the greatest societal benefit by introducing new clean energy sources, early diagnostic tests, new ways to supply clean water and abundant food around the world. Today these companies struggle to get off the ground. We've been focused on in this area, and in fact just this past year, MIT announced the formation of The Engine, a new venture that will provide support to these hard tech startups and address the gap that currently exists in the ecosystem. Finally, and connected to the third point, we see the need to drive new partnership models between universities, large companies and startups. It's never been easier to bring a new idea to market than through a startup. And this is now the increasingly preferred path for ideas to leave MIT. In addition, and competing with that, we've seen a decline in the amount of internal innovation activities in large firms, in part because they have significantly reduced their R&D activities. This has adversely impact transfer of technologies from universities to large companies. So what does this mean for innovation in large companies? Interestingly, there's been a very significant increase just in the past few years in the number of corporate venture capital firms that have been formed, many of them created by older established firms. These firms are beginning to look to startups as a source of innovation. We see this as a very exciting development. It does require the corporation to restructure internally to leverage these new innovation pipelines effectively, and some firms struggle this with this. However, we see strong synergies if large companies, startups and universities can work together to develop these innovation pipelines. But new university industry partnership models are needed to make this happen. Let me close by saying that from our perspective, it is clear that vibrant ecosystems are critical to the process of innovation. It's equally clear that these ecosystems need to dynamically evolve. We believe that they will evolve if all the stakeholders contribute to the commons and participate in this evolution. I want to thank you for the opportunity to speak today. I want to particularly thank the European Central Bank and its president, Mario Draghi, for collaborating with us to hold this important discussion. Thank you very much.