24 July 1998 • Austria's Innovation System in an International Comparison • Gernot Hutschenreiter

As a highly developed, high-wage country, Austria faces new challenges in a globalizing economy. Austria will only be able to maintain its position in the club of high-income countries if it is able to achieve a high productivity level through the use of new technologies and by taking advantage of specialization in human-capital intensive and technologically sophisticated products. Technological change is the most important driving force behind long-term economic growth. In this context, private and public investment in research and development (R&D) plays a key role. At 1.5 percent, Austria's ratio of gross expenditure on R&D to GDP remains low for a country of its per-capita income level. Of equal significance, however, is the structure of R&D expenditure. Among the structural features of the Austrian R&D system we find a relatively small share of the business enterprise sector in overall R&D, a comparatively large higher education sector receiving a share of government R&D funds far above the international average, and weak links between the components of the innovation system (universities – business enterprises – research institutes). The internationalization of Austria's research is still at a relatively low level. The intensity and quality of the synergy among the various elements of this system is a pivotal point of technology policy.

A country's ability to innovate should not just be equated with R&D. Human resources are a key factor in the generation and absorption of technological knowledge. Highly qualified and well-trained human resources are regarded as one of Austria's most substantial locational advantages. However, an internationally low share of scientists and engineers in the labor force is exacerbated by an extremely low number of new science graduates. The introduction of a tertiary-level technical college system is expected to broaden the scope of qualifications. Another aspect of the specialization of innovation systems is the structure of patent activities. In accordance with the findings regarding the R&D system, we observe a relatively modest patent intensity and a modest though rapidly increasing internationalization of patent activities. Moreover, Austria's patent specialization shows particular features: the emphasis of patent applications filed with the European Patent Office is on certain niches (e.g., in the field of "construction" technology). Core areas of high technology, such as instruments, electronics and communication, are under-represented.

For open economies, the capability to absorb and use knowledge generated abroad becomes a decisive factor in achieving adequate economic growth. The creation of this capability requires own investments in R&D. Foreign trade plays an important role as a channel of technology flows. Austria is known to have a persistent deficit in its foreign trade in manufactures. It is less widely known that a large part of this deficit results from trade in human-capital intensive goods, among them also high-technology products. Austria's foreign trade still shows a "technology gap": in the OECD as well as the EU countries, the share of high-technology exports is more than twice as high as in Austria. The structure of Austria's exports is changing in favor of technologically advanced goods and their world market share has been increasing. However, this has not yet compensated for the predictable increase of the deficit in international trade in labor-intensive products due to changed comparative advantages. The technology balance of payments reflecting international trade in technical knowledge and services with a technology content shows a similar picture. The respective revenues cover about one quarter of expenditure.

The diffusion of technologies plays a crucial role in productivity growth. The issue of diffusion is dealt with in two areas of technology, i.e., technologies of the information society and selected technologies for a sustainable development (combined transport and the cogeneration of heat and power). Information and communication technologies impact all areas of the economy and society. Contrary to other countries with an initially low expenditure on information technology relative to GDP, Austria has succeeded in catching up over the last few years and has managed to approach the west European average. In Austria, the market for information and communication technology – especially its software segment – is expanding faster than the EU average. The use of industrial robots is an essential component of the international trend towards flexible automation. In Austria, the industrial robot intensity has significantly increased over the last decade and the emphasis of automation has shifted towards enterprises with less than 200 employees. In contrast to information and communication technologies, the diffusion of technologies for a sustainable development has to contend with numerous problems regarding the framework conditions.

The integration of Austria's R&D into the larger European context is one of the challenges facing research and technology policy. The European R&D Programs broaden the opportunities for the participating enterprises, universities and research institutes. Initially, the intensity of Austria's participation was moderate and characterized by a predominance of research institutions over business enterprises. Since its accession to the EU, Austria has rapidly caught up in terms of program participation. This has been confirmed by recent data on the Austrian participation in the Fourth Framework Programme. In conclusion possibilities for the improved utilization of the participants' potential and the implementation of results are outlined.