 Ladies and gentlemen, a very good afternoon to you all. Thank you very much for coming. We're delighted to see you all here. I'm sorry, excuse me, organizing my papers which I thought I had in order, but I don't, but there we are. So welcome. We're delighted to see you all here. We have an excellent panel and an excellent report. As you know, we launched this morning the World Intellectual Property Report for 2015. It's the third in the series. Previous editions four years ago was on innovation, the changing face of innovation, and two years ago on brands, reputation, and image in the global marketplace. This year, it's on breakthrough innovations and economic growth. So what's all this about? Well, the panel will tell you much more. And Carsten Fink, the chief economist, will certainly introduce this. But we're all aware that economic growth is something that everyone is interested in in different ways and different, with different perceptions of it. But essentially, it's extremely important for the improvement in our quality of life. It's extremely important for job creation. It's not a panacea and for poverty alleviation. It's not a panacea, but it's certainly extremely important. We have the question before us, I think, since the global financial crisis. And here are some experts who can illuminate that question and the responses to it. Are we experiencing a different norm of economic growth? Because since the global financial crisis, economic growth rates around the world have continued to disappoint, have consistently disappointed us. Well, part of the answer lies with innovation because there is a well-known connection between technological progress and innovation and economic growth. And as we know, intellectual property is an important part of innovation. It's a necessary but not sufficient condition of a healthy innovation ecosystem. And that is what draws us and draws, drew our colleagues in the chief economist's office to the theme of breakthrough innovation and economic growth this year to shed light on these questions and the connections between them and in particular the role of intellectual property in relation to innovation. And I think what emerges is a rather nuanced picture and a very interesting picture. The report contains additionally six case studies, three of them dealing with what we perceived to be very important historical cases of breakthrough innovation which created new markets and really transformed economic growth or led to expansion of economic growth in a number of ways. And they are aeroplanes, antibiotics and semiconductors. And three of them deal with areas that our colleagues perceived to be potential areas of breakthrough innovation, namely 3D printing, nanotechnology and robotics. What are some of the main findings of the report? I'll just be very brief about this because Carsten will enlighten us about the report. But some of the main findings are that of course it again underlines the elements of successful innovation ecosystems, namely government funding for scientific research and support in this perilous journey for the movement of technology from the laboratory to the marketplace, competitive market forces that support, encourage firms to innovate, supported by vibrant financial markets and sound regulation and fluid linkages between the public and private innovation actors. Secondly, we have found that breakthrough innovation remains geographically concentrated in particular. 75% of all patenting activity, and this relies on some original research done by our colleagues through patent mapping. Six countries are responsible for 75% of all time patent filings in the areas of 3D printing, nanotechnology and robotics. And those six countries are United States, Germany, France, United Kingdom and the Republic of Korea and I omitted Japan in that list, so I add Japan in. And that is perhaps not surprising. What also emerges from the report is that China is approaching this group of six countries and this is apparent in more recent patent mapping from 2005 onwards and in particular, we see that Chinese entities account for about a quarter of patents worldwide in the areas of 3D printing and robotics since 2005. Another finding of interest in the report is the increasingly important role of research, institutions and universities, underlining perhaps the trend of science and technology coming closer together. We see that with 3D printing, nanotechnology and robotics where academic patenting occupies a higher share than in other fields and nanotechnology stands out in particular as one such case with about a quarter of patenting worldwide coming from academic applicants. Perhaps a final thing to say is that the case studies also document how innovation has flourished as a result of knowledge sharing mechanisms and this is very important, whether it be from the very early aeroplane enthusiasts' clubs or through to more modern models of innovation such as open innovation in the fields of 3D printing and robotics. So where does this leave us? Well, we'll hear first of all from Kastin Fink who is going to present the report and then each of our extremely distinguished panelists is going to speak for a period of about 15 minutes and I'm really delighted to be able to present to you these panelists and I really would like to thank them for all of the effort. They have extraordinarily busy schedules. So seated to my left, your right as we look at it is Diane Coyle. Those of you who read the New York, International New York Times would have seen an editorial comment from Diane yesterday on centred candles and economic growth. Amongst other things, amongst so many publications is a brief history, a brief and affectionate history of GDP and then seated immediately to my right, left as you look at it is Jonathan Haskell who's a professor at the Imperial College Business School, an extremely well-known author and an expert in particular in the fields of intangibles and on my far right, we have Bart Van Arc who is the senior vice president and chief economist at the conference board and I'm sure you're all very familiar with the research that is put out by the conference board which is a global research organization headquartered in New York City and also a professor of industrial economics and technological change, if I'm not mistaken, at Greningen University. So each of those will be speaking after Karsten. Karsten, great pleasure to give you the floor. Thank you very much, Director General and good afternoon to everyone. It's my great pleasure this afternoon to present to you our World Intellectual Property Report 2015. As usual, when we come out with a report like this, I get to present it, but the development of this report really involved a large number of individuals. I cannot thank them all, you would find their names in the acknowledgement page but I would like to at least acknowledge the contributions of the economists in Wipo's Economic Statistics Division, Intern Hamdan Livramento, Julio Raffer and Sasha Wunsch-Masson. I also would like to especially thank Samir Figueiredo and Katarina Vales-Galmez for the administrative support that they have provided throughout the development of the report and also our friends from the communications divisions who have done an extraordinary job producing the report and as always working with an entirely unreasonable deadlines. So here is what I would like to present this afternoon. I'm going to set the scene. I'm essentially going to give you a five-minute snapshot of centuries of innovation-driven growth. I'm then going to turn to what is the really original contribution of our report, which are case studies on selected breakthrough innovations. And in the end, I will introduce the topic of future prospects for innovation-driven growth and that very much as an introduction into the panel discussion that will follow. Now let me start with the history of innovation-driven growth. Daily journalistic coverage of short-term growth performance is something that we are exposed to every day. Whenever the International Monetary Fund or the OECD come up with new growth forecasts, that usually gets quite a bit of media attention. However, it is worth once in a while to lean back and look at the world economy's long-run growth performance and ask, well, where do we stand in light of centuries of growth experience? This is done in this chart. What you see here is essentially real GDP per capita and how it has grown at the frontier. And the frontier is defined as the country with the highest GDP per capita at any given point in time, which up to the year 1900 is England, and Great Britain, and the United Kingdom. And after 1900, it is in the United States. Now, this is the picture that emerges by looking at what, especially if you go far back in histories, are sometimes quite rough estimates of GDP per capita. One can broadly divide this period into three different sub-periods, and this is what at least some economic historians have done. The first period lasting from about 1300 to the early 19th century, with average annual growth of 0.21%. And I think that's the first thing to notice that prior to the onset of the Industrial Revolution, there was very little growth on this planet. That changed with the onset of the Industrial Revolution. Growth accelerated to around 1.1% a year. And after the Second World War, it accelerated further to an average of around 2.1% per year. So in light of centuries of history, the growth performance that we've seen since the Second World War really emerges as quite exceptional and quite spectacular. Now, this growth of the world economy has gone hand in hand with a changing face of the world economy. Probably one of the most important shifts has taken place in the sectoral composition of economic output. This is illustrated in this chart here, which for data reason focuses on the different shares of employment in the United States. And what you see is that still in the mid-19th century, close to half of the workforce was employed in the agricultural sector. Subsequently, as economic growth intensified, you have seen a shift of labor from the agricultural sector, first to industry and service, and later on entirely to services, so that these days agriculture really presents less than 2% of employment in most high income countries. And the service sector represents somewhat like 75% of economic output. Now, this is largely the picture of growth in frontier economies, as I have introduced them. How about the rest of the world? Here, the growth performance has been quite mixed. The big picture, if you take countries as the unit of economic analysis, it's a picture of divergence. So it's not that poor countries have necessarily caught up on rich countries. The gap between the poorest economies and the richest economies has widened over time. However, that does not mean, and I admit that at first may appear somewhat counterintuitively, that the world's distribution of income has necessarily become more unequal. There are studies, and here you see one estimate of the global income distribution, that show largely that China and India have been equalizing forces in the world distribution of income. These are the two most populous economies, and due to their fast growth, at least over the last four decades, the income distribution has equalized. In addition, if you look at absolute poverty, it, I think, emerges from the data that the absolute poverty count has fallen. There's some controversy of what is the right measure of the absolute poverty count here, but regardless of which measure you apply, you would find a reduction in the total number of poor people. And I think economic growth can largely be credited for that. Now, how has innovation spurred growth? In the report, we distinguish among four different channels through which innovation affects long-run economic growth. One is capital deepening as new technologies emerge, are introduced, those technologies typically raise the returns to investment, and deep companies to invest more. Second important channel concerns the other production factor is growth in the labor force and human capital. Third important channel is firm productivity growth, that leads firms to find more efficient way of employing capital and labor and generates growth. And the fourth channel is the transformation of economic structure. That in the long term is probably one of the most important channels driving growth. We're talking about the creation of new supply chains. We're talking about the birth of entirely new industries that really are at the forefront of economic growth. And in practical terms, as I described earlier, that has meant resources moving away from agriculture and industry towards the service sector. Now, that is largely the story about how innovation drives growth. Now, in any national economy, it's not the case that innovation is homegrown. Even for the United States, which is probably the economy with the most vibrant innovation system, studies estimates that more than 50% of the innovations that contribute to economic growth come from other countries. You look at a country like Switzerland, which is one of the richest countries in the world, and probably the great majority of technology you see in this country has foreign origins. Probably virtually all of the technology you see in this room has not been invented in Switzerland. So that's why the diffusion of technology is really key. And one really important thing, especially if one thinks about diverging levels of per capita income around the world, is the question, to what extent does technology diffuse to developing economies? And that is obviously a big question. I just want to present two charts that come from empirical work that was done not too long ago by an economist called Diego Komen and some of his co-authors. And they have essentially looked at when were different technologies adopted around the world and how far did they spread? And I suppose they have good news and bad news. The good news you see in the first slide. And that is that the technologies that were introduced at a later stage have seen faster adoption. So in this slide on the vertical axis, you see the average adoption lag since first invention, which in the case of steam and motor ships was more than 100 years. However, you look at cell phones in the internet and it essentially shows you that within a few years after their introduction in the high-income countries, you see cell phones and internet around the world. Now, the bad news follows in the next slide, which looks at how intensively new technologies are used in different countries. And what we see there is that for the newer technologies, we essentially see wider differences, wider use gaps. This is all here in relation to high-income countries, but essentially the difference in the degree to which cell phones, internet, the later technologies are used in developing economies is sharper compared to some of the technologies that emerged some two centuries ago, which again seems a bit surprising if you think of how widely cell phones and the internet has spread to many parts of the developing economies, but the data tell us that they are just used far more intensively in the rich world. So this is intended to set the scene. The core of our report focuses on specific breakthrough innovations and we have in total six case studies on these breakthrough innovations. Now, why did we choose this approach of focusing on specific breakthrough innovations? Well, so case studies, one can first of all appreciate the diverse circumstances and the differing historical context in which innovations take place. One can account for the varying nature of technology and also from our viewpoint, we're quite interested in the role of intellectual property and we can explore that role in rather concrete ways. Now, of course, a non-obvious question that we faced at the outset was which innovations should we focus on? In the end, we settled on three historical innovations and three current innovations that are generally thought to hold breakthrough potential. So you see them here, we focused on airplanes, anti-biotics, semiconductors and the current innovations are 3D printing, nanotechnology and robotics. How did we end up with those? Well, we did a lot of reading and I think it's fair to say that, you know, I would say the growth impact at least at a qualitative level is demonstrated in the case of all of these innovations. I think especially in the case of semiconductors and the information and communication technology revolution, there's also lots of empirical evidence and for the contemporaneous ones, the only thing I can say is that, you know, certainly they appear on lots of lists that are thought to include technologies with future that possibly in the future can contribute to growth. Of course, you know, there remains an element of arbitrariness in the selection of those innovations we do not want to pretend that, you know, we believe these are necessarily the most important ones and we can't claim generality but as I hope I can convince you by having this specific focus on innovations we can actually learn quite a bit. Now all the case studies are structured the same way. We're asking three questions. How did the innovations contribute to growth? In which innovation ecosystem did they flourish and what role did the intellectual property system play? Now we worked with a number of academics who provided stimulating background papers for our case studies and we also essentially used our access to patent records to identify all the patents that are linked to these six fields of innovations to learn, well, where has innovation taken place and who are the entities that are innovators in this field. Now unfortunately I won't have time to go through all of these case studies in detail. What I will do instead is I will focus on these three questions and present you bits and pieces of interesting evidence emerging from the different case studies. So let me start with a growth contribution and early on I referred to capital deepening, capital investment, capital accumulation as one important channel through which innovation affects growth and that's something that's especially well documented in the case of semiconductors and the resulting information and communication technologies which really shows up in the data starting in the 1970s and where you reached a peak in the 1990s with companies investing heavily in ICT equipment and that's being one force behind quite decent growth in the 1990s. Second channel is growth in labor force and human capital and the one case study that really showcases that channel is antibiotics. Antibiotics contributed greatly to expanded life expectancy and promoted a larger and more productive labor force. You see this in this chart here where you see the decline in mortality due to infectious and cardiovascular diseases in the 20th century and you especially see the rapid decline in the case of infectious diseases in the first half of the 20th century that is not entirely due to antibiotics. Other public health measures contributed to that but on that one there is convincing evidence that antibiotics really made profound contributions to the decline in mortality. Firm productivity growth, I think it's quite intuitive that airplanes and various ICT applications led to product innovations that really revolutionized the way firms did business and contributed greatly to productivity. Looking at some of today's breakthrough innovations, the one nano technology that has already found a lot of application is nano electronics. So probably in every smartphone that you have in your pocket, there are ICT components that rely on nano technology research and they really reinforced Moore's law. I'm sure many of you are familiar with that Moore's law that the number of transistors in a computer chip doubles every two years. Robotics is also not a new innovation. The first robotics were introduced long ago and it's especially in the auto industry where you have demonstrated productivity gains. I think looking into the future and looking especially at 3D printing and the new generation of robotics and some of the nano materials, I think they're very plausible stories and you would find them in our case studies on how these technologies could contribute to future productivity growth. Maybe one observation, there are lots of writings especially on 3D printing and robotics on how they might revolutionize the manufacturing process. I think if those innovations were really limited to manufacturing, their productivity impacts for the economy as a whole may be limited in a sense that the manufacturing sector as I showed earlier represents a declining and minority share of gross domestic product. I think the really big question is to what extent do these technologies find widespread application throughout the economy, especially in the service sector where really the bang for the buck in terms of the growth dividend would be much higher. And certainly there's evidence that in the case of ICT products that widespread impact took place. Finally, transformation of economic structures. Again, I think in the case of airplanes, semiconductors, it's quite intuitive that they were at the root of profound economic restructuring. Airplanes really revolutionized international trade. Airplanes were at the root of the growth of the tourism industry and in the case of ICT products, just think of the way Amazon has transformed supply chains. These are really profound economic restructurings with important growth effects. Certainly looking into the future, again, robotics and 3D printing hold promising potential. They're quite plausible stories of how they might lead to the transformation of economic structures in the future. But of course, that remains to be seen. Now, turning to the innovation ecosystem, in which innovation ecosystems did these innovations take place? The director already, general already mentioned the fundamental role of governments, both in providing the funding for scientific research as well as moving promising technology from the laboratory to the production stage. Competitive market forces and efforts of companies were important, especially in scaling up production, finding cost reductions and developing applications that really promoted the dissemination of the new innovations. Finally, linkages between the various innovation actors met a great deal. On the one hand, that means researchers, regardless of whether they work in industry or in academia, sharing thoughts, exchanging knowledge, but also at the more institutional level that means linkages among companies as well as linkages between companies and scientific institutions. The one thing that clearly emerges from our case studies, especially if one compares what happened in different countries and across different technologies, is the importance of initial conditions, initial policies method and the historical context method a great deal. To give you one example, the early days of airplane development, even though there's a bit of controversy, but it's generally believed that the first flights took place in the United States by the Wright brothers, but it was really then subsequently that Germany developed a technological lead in airplane development. Now why was that the case, and one of the reasons the case study argued it was the case because Germany had a strong scientific system that supported airplane development. You had lots of pilots with a scientific background and the entrepreneurs in Germany driving airplane development had relatively close ties to academia. So there was a very fertile science driven environment in Germany that contributed a lot to early day airplane development. And interestingly, after the Second World War, where then a lot of airplane development took place in the United States, was to a good extent based on German scientists that emigrated to the United States after the Second World War. Also very different developments in the case of, or also very different industrial focus in the case of semiconductors in Europe and Japan, which largely focused on consumer electronics compared to the United States, where you had a lot more funding from the US government for defense purposes and also a much more fertile environment for startups. So in the United States, in that sense, you saw more radical innovations in the semiconductor areas. So the overall policy frameworks and the initial conditions met at a great deal. Innovation ecosystems evolve. That also comes out quite clearly in our case studies. The director general already mentioned early airplane innovation, which was largely the domain of hobbyists. You had these clubs of airplane inventors that largely shared their knowledge amongst each other. And once the flying machine was proven, once it was proven that it could fly, you had a lot of public and private investment going into airplane development. And the whole innovation system evolved into one often industrial research consortium. Finally, antibiotics. Antibiotics shows a very interesting dynamic interplay between innovation and regulation. And in that sense, antibiotics are really important for the foundation of the pharmaceutical industry the way we know it today. So when the first antibiotics products became available, there were emerging concerns about quality of products sold in the marketplace. There were concerns about side effect, which led to a first wave of regulation in the industry that required clinical trials, that required the submission of information on the efficacy of pharmaceutical products, very much the way the pharmaceutical industry works today. That in turn shaped the direction of innovation. In many ways, it shaped public-private partnerships with hospitals and pharmaceutical companies. So in that sense, the early days of antibiotics were important for the development of the pharmaceutical industry the way we know it today. Looking across all of our case studies, two common trends emerge. One is that as technology becomes more complex, innovation actors specialize. Maybe the one exception here is pharmaceuticals, where you've seen the emergence of sort of vertically integrated, large multinational companies. And secondly, as technology matures, innovation shifts towards optimizing different users and adapting it to the needs of the marketplace. And that goes to show that the follow-up innovation, which is often organizational business type of innovation, can be as important for sort of harvesting the growth benefits of innovation than the original technological breakthroughs. The Director-General already pointed to the geographic concentration of patent rights. So here you have the picture underlining that. So the United States, Japan, Germany, France, the United Kingdom and the Republic of Korea have accounted for 75% or more of first patent filings across all these six fields of breakthrough innovation. The only country that is closing in on this group of advanced industrial nations is China. If one looks at patenting data since 2005, one finds that China indeed accounts for the majority of first filings in the area of 3D printing and robotics. And they are the third largest patent filers in the case of nanotechnology. Rise of academic patenting. So what we did here is we identified all the universities and public research organizations in patent applications and looked at their share in total patent filings by the most important origins. And what we see there is that, first of all, for the newer innovations, for the areas of 3D printing, nanotechnology, and robotics, we generally see higher shares of academic patenting compared to past innovations. Now, one way to interpret this is that the innovation system today has become more science-based. And that may be because solving increasingly complex technological challenge really requires the inputs of basic science. Now, some people may object to this chart and say, well, that may to some extent reflect simply greater incentives that universities have to file patents. But one could also argue that these incentives and these policy efforts precisely reflect the recognition that upstream scientific research is important for downstream innovation. Nanotechnology is the field that emerges as the most scientifically-based innovation field among our three contemporaneous fields of breakthrough innovation. And what is also interesting in the case of China, and China across the board shows higher shares of academic patenting than the other patenting origins. Finally, we also use our patent mapping to look at the destination of patent families. So the charts that I just showed you essentially asks, where do the patents originate, which correlates quite closely with where innovation takes place? These numbers give you an idea of where do the innovators seek protection when they have an original invention to protect. And what we see there is that there's actually close correlation between where innovation originates and where it is protected. So the United States, Japan, Germany, France, UK, Republic of Korea, and China are also the countries where you see most patent filings where companies want to protect their technologies, which at a certain level is not too surprising. These are also the largest markets, and these are precisely also the countries which shows the technologically most sophisticated competitors. Still, it's worth noting that generally less than 3% of the global patent families in these areas have equivalent patent applications in low and middle income countries, on average, at least. Finally, a few words about the role of the IP system. I think I need to come slowly to an end, but I do want to say one or two things about this. First of all, we need to make the caveats that generally applies in the social science. Unfortunately, we do not observe a counterfactual history with different IP policies. So that is an important limitation one naturally faces in case studies like the ones we conducted. However, we do observe that innovators frequently relied on the intellectual property system to protect the fruits of their innovative activities. And we get a glimpse at that through our patent mappings where we identify the patents that are linked to the different fields of innovation. So we came across this one, which caught quite a bit of tension in the research team, which is a patent that was granted in 1889. And it was a patent on a flying machine by an individual called RJ Spaulding. Now you look at it, and obviously it's quite humorous from today's perspective, realizing that this is not the direction in which airplanes turned out to or not the direction that airplane research turned out to be successful in. But it goes to show essentially that when innovators had interesting ideas where they thought they hold commercial potential, they turned to the patent system. And indeed, that is what we find throughout our case studies. Really evidence that IP rights helped appropriate R&D investments. They were not the only vehicle for which companies benefited from investments in research and development. But IP rights were clearly present. Also, the director general also mentioned the importance of knowledge sharing and technology markets. And there are really various models, proprietary, non-proprietary models of knowledge sharing. Starting with the airplane hobbyists, you have vibrant open source communities in 3D printing and robotics. You saw lots of specialization in the 1920s in Germany in airplane development, lots of licensing. People back then did not talk about technology markets, but technology markets, de facto, did exist. In the case of semiconductors, you had lots of cross-licensing of semiconductor patents that ensured that companies could commercialize technologies that relied on someone else's inventions. And also, that was really important for follow-on innovations. Now, what we generally conclude, and there are lots of nuances in the report, that IP rights enable technology markets by sort of setting the legal foundation. However, what we also found is that social norms were quite important, social norms in terms of companies sharing knowledge on a reciprocal basis. Clearly recognizing this is knowledge that we can share and this is knowledge that in some sense, we better guard. Now, finally, on the IP system, of course, the IP system also saw a lot of evolution. At the outset, and that we find in many of the case studies, patent officers and courts face difficult decisions on the scope of patentability. So, for example, the original Wright brother patents were interpreted differently by the courts in the United States and in Europe. There were important questions in pharmaceuticals about the patentability of chemical entities. And that is also something that's relevant for nanotechnology and robotics today. What exactly can be patented in new fields of innovation? There's a really interesting place of the creation of a new intellectual property right in the case of semiconductors in the 1980s, the layout designs for Integrated Circuit, which is somewhat ironic because there were a lot of efforts made to create this right, but subsequently it was hardly used, partly for technical reasons because it turned out to be quite easy to invent around this new form of intellectual property, but also for business reasons, the production of semiconductors became more and more capital intensive, product cycles shortened, and relying on someone else's chip design just wasn't an effective business strategy anymore. OK, so that brings me to the end, which is the topic of our panel discussion, is the future prospects for innovation-driven growth. And I think the director general at the outset outlines the situation in which we currently live in. So in this chart here, I depicted GDP per capita in the high-income OECD countries from the mid-1980s to 2007. And the annual growth rate that you see here is exactly, and not by design, it's exactly the 2.1% that I showed you in the earlier chart that covered the full post-Second World War period. Now then the economic crisis happens in 2008, which led to a marked decline in economic output. And average unreal growth since 2010 is essentially 0.9%. It's half the growth rate that we have seen prior to the crisis. So that has led to many questions. Well, what is behind that? And is this the beginning of the end of fast growth? Now, what I'm going to do is I'm just going to outline use some of the arguments that has been put forward by those who believe that no, it's not the end, and there are good reasons to believe that faster growth will resume. And then I'm going to outline some of the arguments that has been put forward by the more pessimistic camp. Now, the optimists would submit that we still suffer from a post-financial crisis debt overhang that eventually will resolve itself. And faster growth will resume. And it will be based on economy's fundamental production capacity. And we can expect economies to resume their long-run growth path the way it happened before the crisis. There are other reasons to be optimistic. There are unprecedented investments in innovation. If you, for example, look at R&D expenditure statistics. And we have a much more diversified innovation landscape than it was the case 20 or 50 years ago, with especially China and the Republic of Korea as new sources of innovation. There are also reasons to be hopeful about the continued growth contribution of information and communications technologies. If history is any guide, major innovations, it usually took several decades for them for the full growth impact to materialize. And certainly, you can look at the current generation of ICTs, artificial intelligence, and come up with plausible stories of how that might drive future productivity growth. And in addition to ICTs, there are lots of other fields of innovation with promising growth potential. Of course, 3D printing nanotechnology robotics that we cover in the report, but also genetic engineering nearing new materials and renewable energy are fields that are frequently mentioned in that regard. And finally, for optimists, there is sort of a productive interplay between science and technology that generates a self-reinforcing dynamic that seems unbounded. You look at the application of ICTs to research things like simulation analysis, big data analysis is used in a large number of scientific fields, and has the potential to spur the productivity of research. Turning to the pessimists, the first point the pessimists would make is that we are in a state of secular stagnation. I think it was the economist, Lauren Summers, who coined or at least popularized this term over the last few years. The technical definition of secular stagnation is that only negative real interest rates would equate savings with investments consistent with full employment in the economy. And what that means is that with policy interest rates being stuck at the zero lower bounds, central banks essentially are constrained from stimulating economic growth, which leads to growth to persistently fall short of its potential. Now, that does not necessarily mean that innovation can't contribute to future growth, but it means that the transmission channels through which innovation affects growth just don't work as effectively anymore. Finally, and I think Mr. Van Aak will be able to enlighten us on this, if one looks at economy-wide productivity data, there has been a marked slowdown in productivity following the high growth of the 1990s, starting in the early 2000s, and what is important before the financial crisis really hit. So some people argue that the slowdown in growth is really something that started before the financial crisis. There are also economists who argue that the ICT growth contribution has been largely realized, and it will be hard to match past technological achievements, for example, when it comes to improving life expectancy, when it comes to improving the speed of travel, when it comes to forms of communication. And finally, one can also be pessimistic about R&D productivity. I mentioned earlier that some people think that there is this productive interplay between science and technology, but certainly technological problems are growing more complex to solve, and one can argue that the low-hanging fruit has been plucked, and maybe it's just becoming much harder to come up with new breakthroughs. The final slide is devoted to what I call the measurement question. I think the measurement question has gained a lot of attention, especially this year, one sees a lot of economists making that point. And I would say that that point comes in at least two different forms. Some people question whether the tools of statisticians increasingly fall short of capturing quality improvements and new forms of economic output. The other form of the argument is to say, well, even if GDP were measured correctly, the concept of GDP just isn't suited anymore to capture the societal wealth against associated with today's innovation. So if one looks at digital innovation these days, the argument is that innovations take a lot of resources, a lot of money to develop, but once they are developed, they can be produced quite cheaply or even replicated for free. They hold great societal benefits, but they just don't show up in GDP statistics. Now, again, there is a more skeptical can who would argue, well, that's all fine, but GDP under-measurement just isn't a new phenomenon. And there is no convincing systematic evidence that under-measurement is necessarily worse today than it is in the past. And deliberately being a bit provocative, hoping that our panelists will react to that. So that's, I think, all I wanted to say. What do you think? Do you think low growth is here to stay? Do you think faster growth will eventually resume? Or do you think we should all be happier than GDP statistics tell us? Thank you very much. Thank you very much, Kastens. My pleasure to introduce Professor Bart Wernark. Thank you very much. And let me start with congratulating the world and let your property organization, Director General Curie, as well as Kerstin Finke and your team for putting together a very, very impressive study. I've been participating in various of those panels around the world frequently. And sometimes you think, oh, it's more of the same, but here is indeed six extraordinary, original case studies that are all very interesting in themselves and that I would highly recommend to all of you to read. There's a lot of new material, I think, for all of us. None of us can be experts in all those six areas. But secondly, the report also is putting it into the broader context in the way that Kerstin set it up so great at the end of his presentation. The broader context of what does this all mean for economic growth? So I'd really admire you for this work and I'm glad to have a hard copy. And during my travels, I will continue to read it. I've been asked to basically comment a little bit on the bigger picture. Basically, where Kerstin ended, what is going on with economic growth and how does innovation fit in this perspective of growth pessimism that is around? You follow the last couple of weeks. This is the season of economic outlooks that various organizations do, including ourselves. And there is all these outlooks give us a sense of growth pessimism that is around. And we really have to think about, but with all this innovation that we're talking about, what does that all mean then in terms of the prospects for growth, for productivity, and also very importantly for capital income? What you're seeing in this slide, I usually don't spend a lot of time on an opening slide, but in this time I do is an airplane. Yes, it is an airplane. It's raining, that's the pessimistic part of this. But I also wanted to pay some attention to this because actually the flight analogy has had a lot of tradition in economic history when it was about economic growth. Walt Rostow, for example, in the 1950s and 60s, an era of growth optimism, talked about the take-off and he was describing literally how planes would be taking off and all countries would ultimately show the same path of getting on the runway, take-off, and get up high in the sky and everything would be great. Now I think over the years, we have learned a lot about drivers of economic growth and found out that capital accumulation is important, but certainly not the only thing, and that it is not a straight line of progress and not mechanistic, but as Karsten already implied in his comments, very much determined by political, social, and cultural conditions that countries are facing and that is so well described. The way that I look at this flight analogy is that I think there are basically two things going on in a flight. First of all, yes, you do get continuously to higher altitude, and even in this era of growth pessimism, we shouldn't forget that the global economy is still growing, that the income is still increasing every year, so we are gaining height and we are increasing wealth. That's the first trend, so we go from one phase to another, but what then happens as a second trend is that sometimes you get stuck at an altitude for a period of time, and during that altitude, there are all sorts of reasons why you don't ascend further, sometimes you even descend a little bit, and that is a phase that you can be in and there can be all sorts of reasons for that, there can be economic forces causing this, there can be political, social, and cultural forces causing this when they come together that can really lead to a long period of stagnation in what I would call a holding pattern. And indeed, when you look at the literature, you see these long, these traditions of long cycles of innovation, think of Kondratchev and Schoen-Peter and so on, who've all been talking about these kinds of trends that you're seeing in the economy, these kinds of cycles, and that seems to make historically a lot more sense than the continuously rapid ascents, so I think that's the way we have to think about it. Yes, economies are growing, but sometimes they grow faster than others and sometimes they get stuck. Indeed, I do think that currently we are in a phase of what I would call a holding pattern of the global economy. We are out of this global economic financial crisis and we are indeed trying to find our way in terms of how can we get on the next, how can we get towards the next altitude? And really what is happening at the moment is that there are a couple of forces that are keeping each other in balance. One, which is the main topic for today, of course, is the huge advance of technology innovation and it's been so well described in this report. I do a fair amount of work on technology innovation myself and I must say that in the past couple of, particularly the past two years that I'm talking to companies, there is really an acceleration of the speed by which technology and innovation is emerging in the economy. So why doesn't it get us out of this holding pattern? Well, that has to do with a general lack of business confidence that we see around the world that leads to a very cautious approach toward investment, which, as Karsten said, is a driver of an important vehicle to drive innovation. That in turn leads to very slow productivity growth, which I will talk a little bit about in a minute, even in innovation leaders like the US, we are seeing productivity growth at the moment that are lower over the past 40 years than have ever been outside the recession period and we see this pretty much around the world. And underlying that, causing this weak business confidence is a whole series of unfulfilled business and policy challenges that you see on this slide, things around global trade deals or the lack of it, immigration, environment, inequality issues, and so on and so forth. And there is, of course, no time to go more deeply into this. But I think that is where we are right now. We see positive forces, we see negative forces that seem to keep holding each other in balance. And the question really is, how can we break out of this? At which point in the next 10 years or so do we get to a crossroads where we can make a difference? One way to look at this is indeed take a historical perspective, which again, the report is doing so greatly. We do it here in this chart. The blue line here is the growth rate of the global economy, the GDP growth rate. And then the green line is the growth rate of the emerging markets and the emerging and developing economies, whereas the red line is all the advanced and mature economies. And when you just focus on the last couple of years to say, well, that doesn't look very good. Indeed, emerging markets have come down very rapidly. This is not just China, but also other emerging markets that are significantly slowing. And yes, mature economies that are improving a little bit, but it's really not enough to accelerate global growth. When you take a historical perspective, however, when you look back over time, then you say, well, it doesn't look all that bad. I mean, compared to some other decades, yes, the 1990s and 2000s had much faster growth. But most of the 1970s and the 1980s were pretty much what I like today, at least in terms of the average growth rate. Of course, conditions were different and all those kind of things. So what this really means is you can think about two ways about the current phase. And that's where the optimism and the pessimism come in. You can just focus on the recent period and say, OK, this is going to be long-term stagnation. We're going to be in this mess for another five or 10 years. Or you could say, well, maybe just like in the 1970s and particularly in the 1980s, under the radar screen, there is a lot going on. And that may ultimately change everything. I would like to quote the quote that was included in the report by Keynes. It's a fantastic quote. This is saying, in 1931, we are suffering just now from a bad attack of economic pessimism. The prevailing world depression, the enormous anomaly of unemployment in the world of many ones blind us to what is going on under the surface to the two interpretation of the trend of things. Now, after 1931, we didn't get in fantastic shape. It took a while before we got there. But also, when you look at the history during the 1920s and the 1930s, there was an enormous amount of technological change that unfortunately first required a big crisis in terms of the Second World War before it really was going to pay off in terms of economic growth. So that is driving and changing the perspective here in terms of economic growth. Now, when we now look forward, and this I come to my own globally economic outlook of the conference board, here you just see very quickly the main regions in the world and their growth rates as we have modeled them over the next five and the next 10 years. To the experts, this is an extrapolated growth accounting kind of methodology where we model labor growth, investment growth, and total factor productivity growth. And what you see here, we don't have to go through country by country, but what you see here is that in most cases, we're beginning to see a slowdown of the global economy, which is ongoing for the next five and even for the next 10 years. So that's a long time, and that may possibly put you in the pessimistic camp of how you're going to look at this. But I want to put really a little bit more detail on this. What is going on under the surface here? First of all, what is very important under the surface is the very significant slowdown in terms of the growth of the working age population around the world. This chart is showing you the growth of everybody in the age group 16 to 65. So this is not everybody who will work, but it's everybody who can potentially work. And the blue bars of this chart are showing you the growth rate of that working age population in the last 10 years. So what you're seeing is that about one-third of the countries on the left-hand side, Japan is there, Russia is there, Germany is there, already have seen a slowdown in the growth rate of the working age population. When you go to the right-hand side, still two-thirds of the countries in this chart in the last 10 years have seen still an increase in terms of the working age population. Now the orange bar is the cumulative additional effect of this growth rate of the working age population over the next 10 years, 2015 to 25. What you see now is that actually two-thirds of the countries are going to see a slowdown in labor supply in working age population, which will include the United States, which will include China and a few other countries. And yes, on the right-hand side, luckily, we still have a whole group of emerging and developing economies that still are growing their working age population, but are also beginning to slow a little. There are so countries on here who are not there, smaller economies, generally, who still have the fastest population growth. I mean, we're going from seven to nine billion people, so they need to see somewhere, but many of them are in smaller economies. There are the economies that, exactly according to this report, are not the economies where we see the most rapid penetration of these new technologies. So we have a big challenge ahead of us, slower growth of labor supply, more inequality in the economy, and that is creating a huge challenge for driving growth forward. The other source of growth is productivity growth, right? Employment growth plus productivity growth is GDP growth, by definition. And as Carsten already said, and this is a very, very smooth picture, I mean, productivity is very volatile over time, but if you smooth it out over time, it's been very clear that over the past decades, we have seen a very significant slowdown in productivity growth in the United States, in other mature economies, and also very importantly, in the case of emerging markets. You've seen how rapidly emerging markets have increased their productivity in the 1990s and 2000s, growth optimism, this was. A lot of technology out of the 1980s that was beginning to pay off. In addition, we had a lot of globalization, fantastic trade deals like China entering the WTO in 2001, this all added to a very rapid catch-up growth in these emerging markets. That phase is over. They are now significantly slowing. They're still growing much faster in productivity than mature economies do, but they just enter a new era. You're closer to the frontier to use their terminology. And when you're closer to the frontier, and when your economy is more driven by consumers and by services than by investment and productivity, and investment and exports and industry, growth is, productivity growth is bound to be significantly slower. So what's going on here? What are the causes of this slowdown? Well, first of all, yes, there is the crisis of 2008 or 2009, but I think the literature has very clearly shown that the crisis of 2008 or 2009 is not the main cause. The slowdown of productivity happened already before 2008 or 2009. It basically starts around the mid-2000s. The crisis obviously made it worse. Remember my comment on weak investment and lack of business confidence? So it doesn't help you to push things through so it has lengthened this holding pattern that we're in, but it's not the cause, not the primary cause of the productivity slowdown. Emerging markets becoming richer, that is an important reason for the productivity slowdown in that part of the world, and to some extent we shouldn't cry about it. That is what development is about. When economies become more advanced and are closer to the frontier, it just gets harder. As long as you keep growing, then growth at the lower pace may be significantly more sustainable. There's lots of complaints, particularly in the business sector, about the regulatory environment to make productivity growth be very slow. Now, the recreation is never good for productivity, at least most of the time it is not good for productivity, but if you want to explain the productivity slowdown, then actually you have to argue that regulation needs to have become worse over the past couple of years. Now, there are some reasons for that. For example, regulation in the financial sector may have made it harder for startups to invest new innovations. Regulation in the digital sector may have made it more difficult to spread the advantages of the digital economy across countries, and those may have certain effects. But I think the most important effect has to do with the fact that technology and innovation takes a significant amount of time and sometimes more and sometimes less before it is going to pay off. That is what the literature on general purpose technologies is telling us that you need to take your time because it's not just about the investment in the technology, it is also about the investment in the people, the investment in the intangibles that Jonathan will be talking about, investments in the organizations that make it necessary to implement those technologies in order to get the productivity gains from it. And this is, I think, again, where the optimists and the pessimists differ. The optimists would be saying, just give it some time, it will happen. The pessimists will say, there's just nothing there, just don't hope for it, it's all going to be bad. And then there's a group in the middle where I find myself and say, well, I think it will come, but be careful because you can mess it up. I mean, we usually look at innovations and technologies from the perspective of the winners. We don't quite often talk about the technologies. We don't have, I think, in this report, correct me if I'm wrong, technologies that failed. And technologies can fail and we can mess it up, so we do need to think about what some of the implications are for that in going forward. Now, one good thing coming out of our modeling, and that is indeed that we do find that productivity will probably recover somewhat out to 2025. It will recover somewhat in the emerging markets, perhaps it will stabilize. Other mature economies will definitely be able to continue to catch up on the United States and even the US as a leader will still begin to increase some increase in productivity. The question is whether it is enough to offset the slowdown in the labor supply, right? Is it jobs or is it more productive jobs? Can we create sufficiently more productive jobs to offset the overall slowdown that we're seeing in the labor supply due to aging and due to significantly declines in birth rates that we're seeing around the world? That is the big question we have to ask ourselves. I think I want to stop here because I think I used up my time. There are some, oh no, there's one try that I want to stop, a show before because there's a positive impact of this. You can talk about GDP, but as Karsten did at the end, what is really important is of course GDP per capita because GDP per capita is probably ultimately the most important driver of wealth and welfare, although I'm sure that Diane will give us some other things that you need to talk about than just GDP per capita. But if we look at GDP per capita, which are the bars here, you can see that you get a slightly more positive picture than GDP. That of course has to do with the slower growth of the global population. So yes, when we look at emerging markets, the GDP per capita growth rates in the next 10 years will be slower than they were in the 1990s and 2000s, but they're still very high. In mature markets, they will not be as high as they were in the 1990s or even the 1980s, but they will still recover quite a bit from what they've been in the last seven years. And that for the global economy gives us a picture of GDP per capita that actually doesn't look all that bad. So I think with the opportunities that we have in the technologies and innovations that have been described so well in this report, with the ability now to begin to implement those technologies and through creating a climate in which companies begin to invest not just in those technologies, but everything that is needed to embed those technologies and organizations, productivity growth will become a more important driver of growth and it will keep per capita GDP growth rates up at a very reasonable rate. It means that ultimately the plain analogy that I used, the plain will ultimately go again to a somewhat higher altitude. Thank you very much. Thank you very much, Bart. It's my pleasure now to introduce Professor Jonathan Haskell. Thank you. Thank you very much indeed, Francis, for that kind introduction. Thank you, Carson, for arranging this. May I also join in Bart in commending? This is a fantastic piece of work, a terrific report full of fascinating case studies on aviation and so on. And in particular, if I can carry on Bart's aeroplane analogy since there's plenty of stuff about aviation in the report. The report documents the early years of aviation, whereas you see up on the board over there, you know, the Wright brothers and Santos Dumas and people like that had early planes. And of course, in those early years, it was all uncoordinated. There was no intellectual property enforcement or anything like that. And of course, planes were dropping out of the sky as people were trying to find their way in the technology. Anyway, I read this bit whilst flying here on British Airways this morning. So it was a rather more, so much as I like the report, Carsten, that made me rather nervous, that particular reading, that particular bit of it. Okay, some key questions that the report takes up. What it's rightly focused on the issues about the future long run growth, which Bart has talked about, and I'm gonna say a little bit more about that as well. It's also rightly focused on the future of long run welfare and the possible wedge that there might be between GDP and people's welfare. I'm not gonna say anything about that because Diane is gonna talk about that after me. Why separate these questions? Well, of course, one implies the other in cases, mis-measurement on the quality of goods and the quality of life, home production, free goods and externalities and all that kind of thing. So what do we know then about modern era, the path of modern era growth? Doesn't the recent slowdown, as Bart has been saying, mean a long run slowdown? What about the computer revolution? Maybe that's run out of steam. If economies are becoming more knowledge-intensive, what kind of happens there? And the report takes up a number of these issues and I'd just like to focus on the last of these around, under the heading as it says on the slide, what does growth look like in an increasingly intangible intensive economy? And what this graph tells you is it tells you across different countries, in red is the extent to which these countries are investing their GDP, major GDP in intangible assets. And in the darker color in the blue is the extent to which they're investing in tangible assets. And the types of intangible assets are up there on the screen for you. Things like computer software, things like design, things like training, think for example of the software that's going inside the 3D printing, which is dealt with very nicely in the report. That will be an example of the design that's also going into the things that the 3D printer will print out. And as you can see and as documented again in this report, there is a move towards more tangible types of investment, that's really intangible types of investment, that's going on across all these different economies and going on in interesting different ways. Now, what's happening over time? So the OECD has put together, I think, this rather interesting chart, which looks at the very kind of short run question and what it documents, if I can point it at this using the printer here, it documents the following. So if I, I can't quite read my own slide here, how the OECD side. So here in red is knowledge-based capital. That is to say the trend in investment that's been going on in the broad range of intangible investments. Here is R&D capital, is the blue one there. And you can see that relative to the green dotted line, which is traditional machinery and expenditure, machinery expenditure, which is plummeted, relative to that line, intangible capital has actually been growing reasonably well. And here's the rest of traditional capital formation, buildings and that kind of thing. So Bart Van Arc talked to the second to go about the good news and the bad news. One way of interpreting this diagram is that it's quite good news, which is to say that insofar as future growth is gonna come from these intangible types of investments, that has remained more on track than the tangible types of investment, which have fallen quite sharply. So in a sense, in terms of the long run, there is a possible indication that maybe the long run might well work out because economies are still investing in R&D and software and those types of investment assets, which will bear fruit in terms of long run growth. However, one has to, if one is gonna be optimistic, answer the short run question, which is, as Bart has just said, my goodness me, haven't we seen a tremendous decrease in all manner of measures of productivity growth? And so how can you square this all up? And one way of thinking about the reconciliation of this long run with the short run is to think about some of the key economic features of intangible intensive economies, which is set out on the slide here. And this is some work that Steve Westlake and I are trying to bring together at the moment. Four key properties of intangible investment, which many other people have remarked on, but Steve and I are trying to bring this together. Under the heading of, the first heading is scale. So one of the features of intangible investment is that it can be scaled over many different jurisdictions. So Starbucks have a recipe for coffee and a particular brand, that can be scaled over the entire world. The brand of Formula One can also be scaled over the entire world. So that's the first feature. Secondly, these intangible investments are quite often sunk. So when British Airways are flying from London to Geneva, the plane, the tangible investment that they use if they decide not to make that flight, they could sell it off somewhere. On the other hand, if they do a lot of marketing about their London Geneva flight and they decided not to make the London Geneva flight, they can't get it back. So intangible investment often has this sunk characteristic. Thirdly, intangible investments typically generate types of spillovers. And this is, again, well documented in the report. If I invest in some R&D and Carsten is able to copy it, then there's a spillover from me to him. And finally, these intangible investments often have synergy properties, especially with skilled labour. So the kinds of workers who can use intangible investments to their advantage are people like very skilled programmers who can use other sources of open source software, and that's going to advantage their productivity much more than plumbers and people like that. So what are the various implications then in the short run when we have a fall in demand or a dysfunctional financial system? Let's just go through the first settings. Firstly, on scale, if the scale of the economy falls to the extent that these intangible investments are capable of being scaled over very large amounts of economic activity, if economic activity goes down, one loses the advantages of scale. So there's an apparent fall in various measures of productivity for that reason. Secondly, to the extent that these intangibles are sunk, if there's an increase in the climate of uncertainty, people aren't sure about the regulatory network and the future environment and so forth. Again, Bart touched on that a little bit in his earlier slides. Then maybe people might be more cautious about making intangible investments because once you've made them, you can't get the money back. Thirdly, about spillovers. Again, if I'm cautious about making some intangible investments, that spills over less to Carsten when he's running his company. So there's external effects go down as well, which would also lower productivity. And finally, about synergy. To the extent that intangible investment falls, that's less synergy for very high-skilled workers. That may mean changes in inequality, which are somewhat outside of this report. So one test of these implications then is that the fall in demand or intangible investment would lower total factor productivity growth in intangible intensive economies. That is to say, if you've got an economy which has got a lot of intangibles in it, let's say Britain, the United States, relative to economies with very few intangibles in them, let's say Greece, then what would you expect? You would expect a particular loss in Britain and the United States of the scale advantage, a particular loss of the spillover advantage, and a particular loss of just the knowledge capital that is raising TFP. So the testable implication of that is that productivity in the short run should fall more in those intangible intensive economies. And if you download BART's conference board database with his permission, and plot a graph of the slowdown in total factor productivity against the intangible intensity in these various countries, and that's the data that Carol Carado and Cecilia Yenilacino and I have generated on the Spintown project, you see that there is indeed a negative correlation. That is to say, these countries up here, like Spain and Ireland and Italy and so on, which are rather don't use intangibles very much, haven't seen much of a slowdown. These countries over here, like Sweden, the UK, the United States, which are intensive on intangibles, have seen much more of a slowdown. So maybe there's part of the story here that whilst in the long run, it is good news for economic growth that this intangible investment is carrying on, in the short run, there are more measured TFP reductions in productivity because of the loss of these type of economic advantages that flow from an economy who has an intangible intensive economy. Okay, my last slide and then I'll pass over to Diane. So under the heading of the future of growth, again, I think that we need to work this out a little bit more, but intangible intensive economies might be more subject to short run fluctuations in recorded growth due to these scale and spillover effects. Point number one, point number two, as these economies get more intangible intensive, again, documented in the report, many more economies are be going in that direction, growth policies have to be focused on this type of capital accumulation. So no longer roads and rail and all that kind of thing. The types of policies that are gonna have to look at is intellectual property, obviously a tremendous concern of everybody in this building, trade in digital goods, something that the EU single digital market is attempting to confront at the moment. Financial markets, financial markets are gonna have to find a way of funding these difficult to finance type of investments involving these types of sunk costs. And finally, trust and barriers to entry and exit. Again, if you're an economy relying a lot on these sunk costs, then you're gonna have to rely a lot on trust to be sure that when one makes an investment, one might get the payoff. And I think that touches on cost, and you mentioned this in your introduction, the kind of social norms that there are, which are important, well documented in this very nice report. Those social norms which are documented in the report about the sharing of R&D, I think they come together with thinking about the confidence that one might have in future investments in tangibles. So why don't I stop at that point and pass over to Diane. Thank you very much, Jonathan. My pleasure now to introduce Professor Diane Coyle. Diane, please. Thank you. Thank you very much, Secretary General. And I can only echo how interesting this report is and how pleased I am to have the opportunity to say a few words about it. I'm well aware that I'm the only thing standing between you and the reception later. And we've already heard a lot of very interesting things. So I'm just going to pick up on a few points already made, but then say something about the measurement issues that were touched on earlier. So the first thing, and this follows on from Jonathan's points about the character of the economics of intangible investment, apply more widely to a knowledge-based economy. If you think about the dynamics of growth, and this is true in general and more so in knowledge-based economies, you get a snowball effect. You get an acceleration of growth if it's going well and you get a downward spiral if it's not. So you have virtuous or vicious cycles in growth or traps and miracles. We use quite colorful language to talk about it. And the reasons for that kind of dynamic lie in the characteristics of knowledge, which is a funny thing. It's an intangible thing. It sticks in people's heads. We don't completely understand how it's exchanged. It has a social value that's greater than its private value because if I have a brilliant idea, then there's a much greater value in everybody else being able to use it than just me keeping it to myself. It's non-rival in use, so there's no reason you can't do that. There's no additional cost to an idea being shared. But it is rival in exchange. I'm sorry, I'm shorter than the others. It is rival in exchange, which means that once one person sells it, it's out there and it becomes a much less tradable thing than conventional physical property. It's an experience good for many of the kinds of intangible goods that we talk about now. You don't know that you want to buy it until you've experienced it. You don't know if the teacher who teaches your course is any good until you've already been through it and you're not going to do your education twice. There's radical uncertainty about a lot of these investments. It's true of any investment. Nobody knows how they're going to turn out. That's greater even with ideas than with physical investments that have certain predictable characteristics. That means that to invest in them, you either need deep pockets to be a big company and very profitable, or that risk has to be socialized in some way and you need some public framework around the investment. And then there's the distinction between knowledge and know-how. Knowledge being the kind of information that you can write down, codify in some way, exchange between people relatively easily, and know-how being the kind of knowledge that sticks into people's heads. It might take experience. It might take sitting with somebody who knows what they're already doing to be able to apply it. And the first kind can be appropriated with intellectual property protection. And the second kind can't be. It goes with people or with places or with experiences. So these are very unusual economic characteristics compared to normal goods. And what they say for me is that the market is not going to deliver growth in a knowledge-based economy. It never did, but all the more so now. The social context, the institutional context, matters a great deal. And we have some good examples of why and how it matters. A picture on the left is a power station in Nigeria generating electric power as an old technology. It's more than a century old. And there are many places I could have put India on there. I could have put the United States on there. There have been power cuts in New York state and California. I could have put Italy. I could perhaps put the UK, where we're finding that regulating the electricity market is actually a very difficult thing to do. So the operation of markets is always a social business. And applying any particular technology depends greatly on the institutional architecture. That's everything from the quality of management, the quality of regulation, the legal framework, the property rights, and the social norm, the kind of social contract that applies. And that speaks to the second picture here. I don't know if anybody recognizes where this is. It's the courthouse in a place called Marshall in East Texas. And it's the home of patent trolling, as you all obviously know. And that particular court has judges who are sympathetic to the people who undertake these patent trolling activities. But that's an example of how, if you have a breakdown of the social contract around the understanding of intangible property, then it's not gonna work well. You're not going to get growth. And patent thickets might be another example. Copyright that is being brought into dispute by longer and longer term extensions might be another example. There needs to be an effective social contract and an effective institutional architecture to get growth in a knowledge-based and intangibles-based economy. So the result is, and here's yet another chart showing a very similar thing, is that we're getting a surprisingly low productivity trend. And the decrease in trend productivity growth is one part of the secular stagnation argument that's already been referred to a couple of times. Now, I don't believe that the pace of basic innovation is slowing at all. And my evidence for that, apart from the way that people in the innovative sectors talk about it, is the price declines. Bill Nordhaus has just updated his time series on the declining price of computer processing power, and there's no sign of a slowdown. Moore's Law is still operating. The National Institutes for Health in the United States have published their estimates of the decreasing price of sequencing a genome, and that's falling even faster than implied by Moore's Law, significantly faster than implied by Moore's Law. If you look at Graphene, the Graphene Institute in my university has done some price estimates and forecasts, and that is not quite as fast as Moore's Law, but is still declining dramatically. If you look at photovoltaic cells, they're nowhere near as fast, but they are now also starting to decline dramatically. So looking at those price measures, which are probably the cleanest measure of innovation that you can get, we've still got very rapid basic innovation going on. So it's something else that might be explaining the productivity slowdown, and there are various possibilities, and they are all about the commercialization and the adoption and use of the technologies, or the measurement. Now we're not measuring in these series something important that's happening. Now on the commercialization and adoption, there are various possibilities. One is that there just hasn't been enough investment taking place, and that might be because of debt overhangs or corporate uncertainty. It might be that there's too little competition in some sectors. It might be that there have been public funding cuts. If it's really a public-private partnership business, then cuts in public spending would be significant. But I want to talk now about the measurement, and if you had told me once upon a time that I'd spend my days looking at economic statistics, I'd been very surprised, but it's astonishingly interesting. And this is a chart that first set me onto this, and I first spotted this in the 1990s, and it's the gap between the total material requirements in the UK economy, the stuff, and real GDP. And that's just quite a striking wedge that's been opening up, and it's just a way of illustrating the increasing intangibility of the economy, that it's service-based, that intangibles matter, that digital goods matter, and so on. Alongside that, I have come to think that there is actually an increasing wedge between what GDP measures and economic welfare. GDP has always been a very imperfect measure of economic welfare. It doesn't ever capture the consumer surplus that comes along from significant innovations or from any innovations, actually, because it measures things at market prices. And consumers always value things at higher than the market price. There are always some consumers who would have bought it at a higher price. And the most dramatic example is in David Lander's history of the world economy, where he talks about Nathan May Rothschild, who died in 1836 of an infected abscess on his tooth. He was the richest man in the world at the time. What would he have paid for an antibiotic that cost 10 pounds for a dose now? And that's the kind of welfare benefit from innovation that just has never been captured by GDP and has never tried to. So one question is, is there so much innovation happening now that there's a lot of consumer surplus around? And that accounts, that explains why people feel that what we're measuring in GDP isn't measuring something true that's happening in the economy. That's what people in Silicon Valley think. They say, we are doing all these fantastic things and it's just not showing up in GDP. Growth is being under-recorded. So it might be that growth is not being under-recorded because it's measuring things at market prices, but the gap, that consumer surplus gap is increasing. So that's one possibility. And actually they're over-hyped too because a lot of the digital goods look like they're free, but you pay for them by having to watch advertising. If you net that off, or if you take out the cost of ad blockers, then it's a much smaller contribution. But nevertheless, there are still lots of free digital goods genuinely adding to economic welfare that are not being captured. Another possibility is just dematerialization. If you are switching from bricks and mortar retailing to Amazon to e-tailing, then you're replacing lots of high street shops with a warehouse. Same is happening in banking, same is happening in travel agency. So there's less of the investment in buildings, commercial property, which showed up on the chart that Jonathan just showed us all. So there might be some of that happening. There are interesting questions about the variety of products that go to this welfare wedge. GDP doesn't care whether you've made two left shoes or a pair of shoes. Obviously we care a lot. There's a much greater variety in the number of products than there used to be. And that's just not being counted. Nobody tracks that. And some people would say, actually there's too much choice. There's a paradox, so-called paradox of choice because if you ask people to choose between four kinds of jam and 12, they won't make a purchase if they're faced with too many choices, but they will make a purchase faced with a few of them. But that doesn't aggregate. There's a fantasy of composition if you try to take that to the aggregate. And I think it's quite clear that increasing variety is improving consumer welfare. You know, what if you could only buy the books on the best seller list? It's a silly argument. So that's another bit of the wedge. There's also what people call sharing, the sharing economy. And I think of as matching markets. Maybe there's increasing consumer welfare because these platforms are making it possible to match up the specific characteristics of consumer demand and new sources of supply. Airbnb, you have small children. You don't have much money. You are now able to rent a room in an apartment which is much more comfortable and cheaper than an expensive hotel where you don't have access to a kitchen. One good example is the example of mobile phone use off the coast in Kerala by fishermen, which is a well-known study by Robert Jensen. And he found that both consumer prices fell and fishermen's incomes rose when they were able to call from their boats to the different markets along the shore to see which fish to take where. And the result is because there was a pure matching efficiency, they threw less fish overboard because they could take the supplies to where the people wanted them. And both parties of the transaction gained. Maybe there are more of those pure efficiency gains going on. There are also some more basic things like just what data are being collected. If you look at the standard occupational classification list, there are 50 categories of painter, 5-0. You can be a painter and decorator, a marine painter, a painter of cars and a factory, a watercolor painter, a painter of artificial flowers. I'm not making that up. There is a category in the SOC for that. But if you're a Ruby on Rails programmer or if you're a social media consultant, there aren't headings and it's not clear where people are putting themselves. It's actually not clear that what's called the production boundary, what's in and out of GDP, makes sense the way it used to. It's always been the case that market activity is inside GDP and most domestic activity like cooking and cleaning is outside GDP. But what about things like being a volunteer software programmer or writing a blog that people enjoy reading? What if you're selling space in your house for an Airbnb room and maybe that's not being captured anywhere? So the production boundary is getting a little bit blurry. So there are lots of questions to me about measurement and how we interpret the productivity figures in the light of all these measurement questions. And this is a slide really for my fellow economists. It's from John Hicks, Nobel Prize winner from the 30s. GDP is our main product. And I think we have a responsibility to think much more carefully about the product that we are selling to our consumers, the people who care about prospects for the economy. It was always, it's a measure of economic welfare, but it's always had certain flaws and shortcomings that we've known about. My sense is that those flaws are now quite large because of structural changes that are taking us towards a more intangible economy. And just to underline again the first point, a knowledge economy is a public-private partnership and we won't improve economic welfare without better knowledge both of the statistics of measuring the economy and of how that institutional and social architecture works to deliver improving economic welfare for people. Thank you very much. So these were three fantastic contributions in addition to Carsten's general survey. And I think we have a little bit of time now about 15 minutes for some interaction. So I turn to you and look to see who would like to make a comment or ask a question. Yes, please. Thomas. Someone has to be first. I just wanted to ask, given that the trend in investment seems to be moving from tangibles to intangibles and the intellectual property system essentially exists, I think, to try and assimilate intangibles to the capturability of tangibles. Do you, to ask a lawyer's stupid question, can you tell whether a dollar invested in tangibles is worth as much as a dollar invested in intangibles and how far does intellectual property succeed in bridging the gap? Because I suspect that a dollar invested in intangibles is worth less than a dollar invested in tangibles. We'll see the other round. He's breaking his head. Experts. There's a pat economist's answer to that question, which is that of course rates of return have to be all exactly the same because otherwise everybody would be going off and doing the high rate of return activity. So the question then is whether the intellectual property system is artificially restricting the amount of investment in intangible investment, in intangible investment or possibly intangible investment, but as you say in intangible investment, such that the rates of returns are not equalizing or they're not equalizing in a different kind of way. And so we don't quite know the answer to that, I think. I think what we do know is was well put by Diane, which is that the social value of intangible investment is probably much larger than the social value of tangible investment for the types of reasons that Diane was saying, namely that other people can use the fruits of that intangible investment in a way that is not the case with tangible investment. That's still gonna be true even if the intangible investment is protected by intellectual property because people could license that intellectual property or people could develop follow-on patterns from a particular pattern, so. Great, thank you, John. Do you want to make a comment? Interview? Yeah, please. I think Jonathan's being a bit modest. I mean, some of the work that he did for, I asked the intellectual property office, suggested that the return on intangibles was bigger than the return on intangibles. And there's some pretty good market evidence if you look at the proportion of the value of companies which is made up by their fixed assets. And it's been heading south faster than the rate at which they invested intangibles. So the value of companies has, based on intangibles, has been growing faster than the rate at which they invested in intangibles, which suggests that the returns are actually larger. Thank you, Jay. You could claim. Yes, Jonathan, please, go ahead. Can I ask a question for Diane? Because I'm very intrigued in the sharing economy type of idea. Diane, it seems to me that there are potentially two things going on if we think about Uber and Airbnb. One is, these are just all changes within the kind of household sector of the economy which just aren't being captured anyway because if I rent out my house, that was never captured. If I drive my own car, that was never captured. The second is a more intriguing thought, which is these changes in domestic production, for example, if I become an Uber person or I rent out my house, then go into competition with the counted part of the economy. That is to say the taxi part of the economy and the hotel's part of the economy. And may even, I suppose, depress potentially those other parts of the economy. So then you've got the situation in which the uncounted part of the economy is providing a kind of a negative effect on the counted part of the economy. How should I be thinking about these sort of, I think, what's it called, the sharing economy type of effect? I think it's likely to be some of both. And to some degree, people will be using household assets to drive, another example that I can cross with you, is having an empty driveway in your house and you can rent it out to a commuter for the day so that bit of property, that the asset is used more intensely than otherwise. The same with cars can be used more intensely than otherwise. So there's some of that, but there's also some of the direct competition going on. And it's not clear what it's competing with. Is it, people assume it's competing with a single incumbent industry, taxis, but it might also be competing with public transport and it might also be expanding the market because the price has fallen. And I don't think we have enough data to be able to tell, give any weight to any of those different effects. Thank you very much. It's a very shy audience. Come. Someone else got something to say? Yeah, please, Bert. We can play this game here. So I was intrigued by the chart. I know the chart very well where you compare intangible investment versus TFP growth. And you have these dots and there's a very strong relationship and your point that you're making is, yes, there's this strong relationship. What's interesting, however, the chart is for 2000 to 2007, which is the period before the recession hit. Your explanation was for the period after the recession hit. So the way that I have been telling the story is, well, if you invest in it, it's good for TFP, but you automatically translate to the post-recession period and say, if you don't invest in it, it's bad for TFP. And the question is whether you can say that because, you know, is it the same point and just two different sides? What about holding on to intangible assets? What about the longer discount rate for intangible assets and so on? So I wonder if you can export it a little further. So the chart, so thanks for the question, brother. So the chart I put up is investments in intangible investment, which is high for the US and the UK and low for Greece and all of that, charted against not TFP growth, but the fall in TFP growth. That is to say the change in TFP growth over the period. So what happened is that, so here's a paradox, for example, the Scandinavian countries had a remarkable fall in TFP growth, right? The Scandinavian countries were often a kind of a poster child pre-recession for being well-performing, you know, they had a balance of tangible and intangible assets, well-functioning education systems, things like that. Yet, what was interesting about the Scandinavian countries is that their TFP growth fell very sharply, much more sharply. 2000 and 2007. Yeah, so 2000 to 2007 on average, versus, well, 2011, miss out the depth of 2007 to 11, 14. So their TFP growth sort of decelerated much more. So these countries, which seemed to be the poster child of wise institutions, good patterns of investment, they were the ones who had the biggest deceleration in TFP growth, the biggest fall in TFP growth. And so maybe what's going on is the very fact that they were highly invested and highly leveraged, if I can use that word, in intangible investment, meant that when the crash came, they lost the scale advantages, they lost those spillover advantages, and therefore they had a particularly large deceleration in their productivity. That's the point that that chart was trying to make. I'm sorry, maybe I didn't label it very well. So then Diane, if I may ask you a question. You said right at the end, made a very interesting comment, the knowledge economy is a public-private partnership. I wonder if you could elaborate on that a little bit. Do you mean it's more a public-private partnership than the physical economy? And if so, why? That is what I meant. I mean, as we know, any economy is a public-private partnership because you need the rule of law and stable society and absence of corruption and so on. But because of the characteristics of knowledge that there are big social spillovers and all those other particular features, the non-rivalry and so on, that it's more important, the more knowledge-intensive the economy becomes, the more crucial getting that public-private partnership right is going to be for growth. And very often, as economists, we focus only on the market bit of that, but we need to focus on the whole institutional architecture as well, of which you are a very important part, obviously. Excellent, thank you. Al, the caster. So long as there's not to be... No, no. Since everyone is abusing their royalty on the table and since, well, I think there's a question here, but one question that is on my mind thinking about these things, I think I agree with Bart. You look at the last 50 years, the way I presented this, yes, average annual growth has been 2%, but certainly there were periods of higher growth and lower growth. I think the one thing that is quite unique, and even if you compare it to the 1930s, is the interest rate environment, where you have essentially, now we've hit the zero policy interest rate bound for more than five years. From what I've read about the 1930s, there was a moment when that was also the case, but it lasted less than a year. And also, if you look at interest rate movements over the last 25 years, interest rates have progressively come down. Essentially, in each business cycle, once the economy picked up, interest rates have come up, but at the end of each business cycle, they were lower compared to the previous cycle. Now, the interesting question, and that's very much part of the secular stagnation debate, what's driving that? And at least the two explanations that seem to have been put forward, one is demographic change, that because people live longer lives, there is just greater supply of savings and people save more for their future. The other argument that people have put forward, and I haven't, I mean, Richard Baldwin at the Granted Institute has this in one of his volumes on secular stagnation, but it's an argument that that is linked to technology, that especially the latest wave of ICT innovation doesn't generate a lot of investment demand. And in a sense that that is one of the factors that's explaining the low interest rate environment. In a sense that if we were in a boom time, the way you had in the 19th century was railways, you had it at the beginning of the 20th century, where you had all these technological opportunities, obviously you would have extremely high investment demand and people would make use of the savings. It seems like these days, economies as a whole are not making use of their savings. Why is that the case? Any thoughts on that? Well, first of all, your comment of being careful with making these historical comparisons is very important. The deflationary period that we're currently in, together with very extraordinary low interest rates, is certainly very different than, for example, the 1980s when it was just the opposite. It was actually very high inflation and interest rates needed to be raised in order to stop that. But taking that aside, so the two main explanations that you were giving, so the demographics, I think that's a very understandable argument that the demographics will lead to higher savings and so on. But the other side of the demographic argument is that it is calling for an enormous amount of new innovation in order to deal with an aging population as well as to deal with a much smaller labor force relative to the non-working population. So the other side of this is just there may be more savings, but at the same time the demand for new technologies and for new innovations in order to be able to continue to produce could very well be offsetting that. So that's why I'm not quite sold on that argument. When it comes to the argument on whether the innovation that is currently taking place doesn't lead to investment and maybe Jonathan wants to come in here, I think that's where we get into the measurement issues. Companies are spending huge amounts of money on technology innovation. Spending, not investing, right? They're spending the money on big data analytics and we do a lot of work at the conversational board with companies around big data analytics. It's not, I mean, luckily they're cash rich, but it's not cheap. The problem is that we haven't capitalized these expenditures. They're not investments or not assets are not depreciated and that's why we're significantly under measuring it. So I don't agree with the idea that this is a low spending environment. It's just a mis-measurement and it's actually very important that we're going to capitalize these spending, not just for the matter that we like to measure things right, but it gives you a very different perspective on how you build assets in an economy. You build them, you depreciate them, you have to replace them rather than treat it as something that has gone in the same year. Finally, my comment on the interest rate environment, the question really is, is it all going to make all that much difference at the moment? I think ultimately the real problem that we have in the economy is that monetary policies are taking the lead and that's what we're following right now because fiscal policy has basically full flat-fellows face. We will need to have much more consistent fiscal policy in terms of spending as well, in terms of proper tax arrangements in order to begin to get a positive push to the economy and then monetary policy will follow to provide the right conditions in which this can be taking place. So I think the real problem is that monetary policy has taken over and that is not the way I think to run an economy. Great, thank you. The lady, please. Can you hear me? Yeah, thank you. Claudia Tapia, I work from Ericsson. We do network, actually we're dealing with 40% of the mobile traffic in the whole world and we are now seeing how much investments we need to do. According to Boston Consulting Group for ICT, we will need to invest four trillion US dollar to achieve the goals of 2020 of the digital single market and we do that and we share it in a standardization. Obviously we need to protect those ideas, especially if we are offering them later on. Now I see here in this report that you are making the link with IP and innovation and I know that has been another report that you've been doing with the European Patent Office which has been criticized by Professor Harhof from Max Planck Institute by stating that the link was not really done but you could prove that this IP and innovation is linked and I wonder whether you have made changes here, I don't know, but maybe in making interviews with companies and asking them this link. So I will be very interested in that point, thank you. Well, I'm very happy to say that we didn't do that report. It was the European Patent Office and European Trademark Office, O'Him, that did that report. No, I agree and I would almost go as far as saying that this was one of the motivations while we focused our report the way we did because certainly I understand other organizations that want to highlight the nexus between intellectual property innovation and growth. I think what we were interested here is to showcase much more the channels, how does innovation affect growth and what is the role of IP, looking specifically at concrete areas of innovation. I think the O'Him EPO report as such, I think there's very interesting data that they compiled for that. I think where the criticism starts and that's precisely the criticism of Professor Harhof and I would agree with that, is that they assign causality where there is only correlation. So you have a report that shows your employment in IP intensive industry, which is all interesting and we learned something about in which sectors is IP used more intensively than others, but that does not necessarily mean that IP causes growth in this particular context and I think that criticism is justified. Is, may I? I intend it because I think that link is very important also for industry side, whether it is intended in the future to go one step further and trying to make that link. Are you planning to go in those lines or not, in principle, not? Sorry, you let me have the opportunity. In a sense, these are exactly the right questions and I think there's a whole community of researchers and also IP officers working on those. For example, we also have the chief economist of the UK Intellectual Property Office here. The UK IP office is also very interested in these questions and I think it's probably elusive to hope we'll ever find a one line answer to that but I think to the extent that we can come up with evidence that is informative and that is put in the right context, I think that helps eliminate the debate. And certainly we will continue doing that. Good, well thank you very much. Pippa, did you want to make a quick comment? Yes, please. Sorry, I was just going to jump on Cassin's point. Yes, that's definitely questions that are on the UK IPA's research programme but as I think all the chief economists will agree, it's not an easy link to prove. We need to work with business to get the right data and to be able to do the matching. So if you want to have a conversation offline then I'd be more than happy to do so. Thank you. Great, thank you very much. Yes, quickly, be... Thank you. My name is Evgen Markinek, I'm from the Industrial Property Office of the Czech Republic. My question is, excuse me, maybe from another basket a little bit. And we have, we know something about the correlation between IP intensive companies and incomes or salaries of their staff but do you have some evidence about this correlation on the societal level, on the state level? If IP intensive economy or innovative economy brings the society as it is, all the members of the society on higher incomes regarding their pensions or salaries. Thank you. Jonathan, do you want to hear the show? Good to speak to that. That's a great kind of labour economics macro question. So what do we think? Well, we think normally that IP intensive economies are going to have more investment, there's going to be more capital deepening and therefore their GDP is going to be higher. So the question then is how is that GDP distributed? Now, some of it is going to go to the firm who's investing in the IP because they hold that very valuable asset. Some's going to go to the workers in the way that you describe. So what do we know throughout most of history up until recently that the workers have got a fair share in all of this because the share of labour payments in all of GDP has normally gone out, has been fairly steady. But in some countries more recently, and I don't know whether the conference board look at this type of issue, the labour share has gone down somewhat so most notably in the US, suggesting that there isn't an automatic link anymore between the expansion in GDP and the economy as a whole and the expansion therefore in workers' earnings. In the UK, that's not been the case in those things have kept up. The Czech Republic, I'm afraid I don't know the data for that. So people are looking at various different reasons as to why that might be and whether it's a combination of bargaining power or changes in demographics and all of that. Barton, is that something which the conference board looks at? No. Well, no, it's not. So sorry, so the answer is, I'm very happy to talk with you offline about the various academic papers which have looked at that, but that would be the way that I would approach the problem. Great, well, there are at least two good reasons why we have to finish now. One, we've spoken a lot about airplanes and Diane has to catch one now. So, and the second is that we're about to start a reception to which you all very cordially invited. Let me congratulate Karsten and his colleagues in the Chief Economist's Office, the Economic and Statistics, Economic Analysis and Statistics Division on a fantastic report, really well done. And let me thank our three really wonderful panellists. They are products in very high demand. So we're really very grateful for the time that you've made available in coming to Enlighten us this afternoon. Thank you very much and thank you for all attending.