R&D grants need to move with the times: international report

Most developed countries are using research and development (R&D) grants to encourage innovation and economic growth, but companies need reforms to include knowledge-based capital development and discovery, according to a new report by the Organisation for Economic Co-operation and Development (OECD).

Research and development grants are tax incentives for companies investing significant capital in exploring new technologies.

The Supporting Investment in Knowledge Capital, Growth and Innovation report explored why countries would benefit from creating similar incentives for knowledge-based capital discovery, as innovation is increasingly being driven by knowledge-based capital (KBC) such as skills, systems, data, software, designs and intellectual property assets.

The report cited studies by the European Union and United States that discovered knowledge-based capital contributed 20% to 34% in productivity growth.

It also found companies five years or younger had created almost half of new jobs, despite only making up 20% of the total business sector.

Ben Wright, director of commercialisation at technology incubator ATP Innovations told StartupSmart at least a third of their current start-up intake would benefit from reforms like those proposed.

“It’s an excellent idea. The context behind R&D grants is to look for things that could not have been known beforehand. For the tax office, there has to be an unknown so if you’re breaking new ground, a knowledge-based gain is a discovery and development could fit that too,” Wright says.

Investment in KBC varied widely across the 15 OECD countries studied. The United States and Sweden invested twice as much in KBC (as a share of GDP) and attracted four times as much capital as Italy and Spain.

In a statement, OECD director of science, technology and industry Andrew Wyckoff urged governments to evolve their incentive schemes to frameworks for the creation and retention of high-value jobs in the increasingly competitive global market.

“Much more needs to be done to help young firms play a greater role in driving innovation and creating jobs. They are the future of the knowledge economy and need the same chance to succeed as the major players. Improving their access to finance and making the tax rules fair for everyone is key,” Wyckoff said.

The report also recommended countries relax their bankruptcy laws to boost capital flows by up to 35% and innovation.