Terri Park | MIT Innovation Initiative
March 29, 2017

Calling attention to the slowing of a metric known as total factor productivity growth and an increasing innovation gap in the euro area, thought leaders in academia, government, risk capital, and industry discussed the need for innovation and entrepreneurship to overcome such challenges during a two-day conference on March 13-14 in Frankfurt, Germany.

Organized by the MIT Innovation Initiative’s Lab for Innovation Science and Policy and the European Central Bank (ECB), the joint conference was opened by ECB President Mario Draghi PhD ’77 and MIT Provost Martin A. Schmidt, and featured panels chaired by ECB Vice President Vítor Constâncio and ECB Chief Economist Peter Praet. The conference aimed to highlight the key role technology-based innovation can play in fostering regional growth and to help identify evidence-based solutions.

Draghi noted that, while the topic may be unusual for a central bank conference at first glance, the long-run picture for productivity growth does affect monetary policy’s ability to deliver on its mandate. The key to productivity growth lies not just in the creation of new ideas, but also in their diffusion. Draghi additionally observed that “it is equally important for the euro area to facilitate and encourage the spread of new technology from the frontier to the laggard firms. Simply by diffusing better the technology we already have, we could make sizeable gains in productivity.”

MIT Provost Martin Schmidt speaks on the importance of robust ecosystems to support innovation during his opening remarks. Photo courtesy of the ECB. 

Schmidt took a micro approach, providing his view on the topic from the MIT lens. He pointed to the Institute’s efforts in studying the importance of robust ecosystems to support innovation, as well as its work in creating it in partnership with key stakeholders, as evidenced by the Kendall Square of today. “From our perspective, it is clear that vibrant ecosystems are critical to the process of innovation. It’s equally clear these ecosystems need to dynamically evolve. We believe that they will evolve if all the stakeholders contribute to the commons and participate in this evolution,” said Schmidt.

The structure and content of the conference drew on recent research that is developing the field of innovation science — an evidence-based approach to understanding the innovation process. This emerging area of study, which MIT is helping to build through its Lab for Innovation Science and Policy, highlights novel frameworks for evaluating a region’s innovative and entrepreneurial capacity, tools for identifying areas of comparative advantage, and options for developing ecosystem-level policies and programs for accelerating innovation and entrepreneurship.

Encompassing the larger, more integrated European context, the workshop delved into topics of new measures, ecosystem approaches, and ways to partner and collaborate over four intensive sessions. Augmenting the panels were keynote speeches given by Carlos Moedas, European Commission commissioner in charge of research, science, and innovation, who talked about why fostering innovation is crucial to avert secular stagnation and the reason it is particularly urgent for the euro area; Manuel Trajtenberg, professor of economics at Tel Aviv University, who emphasized demographic trends and missed human potential as the critical issues that innovation and entrepreneurship should be channeled to tackle; and Grete Faremo, under-secretary-general and executive director of the United Nations Office for Project Services, who highlighted the connection and importance of innovation in emerging nations to progress in Europe.

The first session set the stage with a discussion of the future of economic growth with and without total factor productivity growth — an economic term defined as the growth in output that exceeds growth in capital and labor inputs — and raised the main issues and questions for the other panels to address in greater detail.

During a session that considered new measures to better capture the changing nature of innovation and entrepreneurship, Christian Ketels, a member of the Harvard Business School faculty at the Institute for Strategy and Competitiveness, noted that innovation and entrepreneurship often happens at the intersection of related industries and technology fields within regional clusters of economic activity. Sharing findings from his research, Ketels pointed to data that indicate strong clusters provide more robust environments for turning new ideas into sustainable, growth businesses.

Building on Ketel’s presentation, Scott Stern, the David Sarnoff Professor of Management at MIT Sloan School of Management, gave an overview of his joint research developing new, empirical measures of entrepreneurial quality showing the rate at which high-potential growth startups are founded. He commented that the new measures could be useful in driving policy and acceleration in part because they facilitate “shared understanding as a driver of coordinated activity in a world where innovation and entrepreneurship are not controlled by any one agency or person.”

The conference culminated in extracting policy lessons for the euro area during the final session. Fiona Murray, the Bill Porter Professor of Entrepreneurship, associate dean of innovation at MIT Sloan, and co-director of the MIT Innovation Initiative, advocated for an education experiment. Given the high rates of youth employment in parts of Europe, she argued that deviating from traditional teaching methods would be a test worth undertaking in order to help prepare the next generation. “I believe strongly that we must challenge our universities, our educators, and our students to actually push the system, to experiment, and to demand a different way of being educated rather than have all that be top down,” she said.

Ann Mettler (right) of the European Commission chairs a session on factors that support and hinder scaling with panelists Stephen Neugebauer (center) of the European Green Vehicles Initiative and MIT Professor Vladimir Bulovic. Photo courtesy of the ECB. 

Ann Mettler, head of the European Political Strategy Center for the European Commission, brought up the need for better benchmarks, improving the connection between the macro and the micro, and the significance of data as a driver of innovation. She urged all regional policymakers to see their potential for innovation, even in the face of fiscal constraints or limited risk capital. Furthermore, she emphasized the importance of embracing failure as much as success in the innovation process. “Innovation suggests success. Every policymaker wants success, but what they have to learn is to get success, you have many, many failures, way more failures than success. We need to do a much better job of saying innovation requires failure.”

Videos of all the sessions and speeches from the conference can be found here.