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Secretary General Gurría, Ambassadors, Ladies and gentlemen,

I am very happy to be speaking here today.

I was here before, in this very room in very different circumstances, in less happy circumstances…when I was serving in the Government of Portugal.

It was a time of great crisis, when Portugal was facing a bailout and a very hostile and fragile economic environment.

I will never forget the critical role the OECD played in those difficult years. I met Secretary-General Gurría at the height of the crisis. Without hesitation, he lent a strong helping-hand to our country. The best of the best at the OECD worked very hard, behind the scenes, during those difficult years helping us in our reforms.

During those difficult years I saw first-hand the OECD living up to its ambitious motto of “Better Policies for Better Lives”.

Today I am speaking to you in very different circumstances. Happier circumstances.

I have the great honour of leading the most fascinating portfolio of the European Commission, the one that truly deals with the Future.

And once again I seek inspiration and guidance from the great work the OECD also does in this area of science, technology and innovation.

I was asked today to share my thoughts on the topics of innovation diffusion and productivity. A debate in which the OECD is a major player.

You know this topic inside-out. So I think I can bring more value if I focus my talk on what I see as the chief political challenge around the topic of innovation policy. Then I can spend some time on the policies that we are pursuing at the European Commission to respond to this challenge.

The main challenge for those of us dealing with innovation policy can be summarised in one word: uncertainty.

Uncertainty as to which policies actually promote innovation – we are talking about what is arguably the most elusive corner of public policy, political science and economics.

Uncertainty as to the real impact of innovation for growth – the famous Robert Solow quote

that we see the computer age everywhere except in the productivity statistics.

Uncertainty as to the impact of innovation for inequality. Innovation can be the great leveller, but it can also be the great divider.

And of course, the more immediate uncertainty as to which emerging disruptive technologies we should publically encourage in order to promote welfare.

This uncertainty is not new. But it has never been so intense.

What we don’t know. And what we don’t even know we don’t know, has never been so acute nor so important.

This uncertainty was well captured by venture capitalist Marc Andreessen in a recent interview.

He was pointing out that in one week we can have newspaper headlines arguing that technology is overhyped. That the hubs of Silicon Valley, London or Paris are mostly doing social sharing apps and web-connected kitchen appliances with limited impact on growth. 

And then on the next week the same newspaper can be publishing alarmist headlines saying that the robots are stealing all the jobs and that AI is going to conquer humans.

Supporting the first headline are the likes of Robert Gordon, arguing that current innovation pales in comparison to the wave of innovation in the later 19th century. We also have the recent work of Tyler Cowen, arguing that most current innovation is about entertainment and social connection. This is an approach that can be well summarised by the quote from investor Peter Thiel:

we were promised flying cars and all we got was 140 characters.

On the other hand, supporting the alarmist headline, we have the work of Harari and so many others. This way of thinking claims, for example, that it would only take a small improvement to current AI technology to already disrupt the labour market and would also leave millions of people not only unemployed, but unemployable.

So which is it? Because both ideas are incompatible. Either technology is futile or it is catastrophic. Choose one.

What is interesting to note is that both perspectives share at least one thing: they both give a negative spin on innovation.

There is of course a third group, the so-called techno-evangelists. This group fails to see any negative impact of innovation, which is a difficult to sustain position.

# I want to argue that there is an alternative way of looking at the current uncertainty.

My view – like that of other more moderate voices – is that we can both accept that today’s impact of innovation in growth has been somewhat disappointing. And at the same time be optimistic about what is around the corner.

If we look at current trends in innovation we have ample grounds for optimism.

Many argue – and I agree – that we may be at the cusp of a new wave of innovation. A wave that will have a larger impact in productivity growth for certain. One that, like all previous ones, will have both positive and negative impacts.

I argue that rather than dwell on techno-optimism or pessimism, it's much more useful to focus on the emerging technologies.

Because the future path of these technologies is not pre-determined. We don't have to be victims of either narrative. Rather it will be shaped by public policies and attitudes. So how can we nurture them? How can we steer them towards a positive social and economic impact?

So in the second half of my speech I wanted to tell you how we see from the European Commission this possible new wave of innovation and what policies we are proposing to catch this wave and make Europe a major global player in this positive future.

So where are we today?

I think the framework proposed by Steve Case is useful to think about innovation. He argues that we have three major waves in the internet and digital technologies.

In the first wave, we built the infrastructure of the internet. These were the actual physical infrastructure and the protocols, like the one invented by Tim Berners Lee.

In the second wave, we built the applications on top of that infrastructure. This is the world of social networking sites and smartphone apps. It is a world described by Tyler Cowen, the one that created some social value and significant impact on media and entertainment and content creation. But limited economic impact elsewhere. 

Now we may be at the cusp of the third wave. This is when the digital and the internet leave the traditional infrastructure and finally move to the highly regulated sectors of health, energy, transport or finance. This is the world of the internet of things, the world of sensors, the world of big data.

It is the world where bits, atoms and even cells finally combine in new and interesting ways.

Think about it: maybe we are failing to see the computer age in the productivity statistics because in fact it was not “everywhere”, as Robert Solow suggested. It was only in very limited, though highly visible, sectors of our economy.

If this thesis is right, then our current stagnation of productivity growth is more temporary than we think. We may be transitioning to a new higher plane of productivity growth.  

What are the grounds for optimism regarding this third wave? And what does it mean for our public policies?

The other day another investor, Naval Ravikant, wrote an interesting tweet. He said:

Blockchains, Virtual Reality, Machine Learning, Genomics, Autonomous Vehicles...it's good to see tech business returning to its tech roots.

End of quote.

This captures well the idea that the emerging technologies that we are all talking about – the ones that may enable the third wave – have a strong technological and scientific component. They require a creative combination of hardware and software. And they are strongly grounded on frontier science.

Think of bitcoin and the blockchain that have at its core major breakthroughs in mathematics and cryptography. Or think of CRISP/Cas9, that involves both advanced science and practical engineering.

Think of electric, connected and automated cars, which depend on a seamless union of software and hardware. For example, a major competitive advantage of Tesla over competitors is their proprietary software that manages the efficiency of their batteries. 

What this shows is that the most significant emerging technologies are highly scientific in nature. That the distance between science and technology is decreasing.

# Innovation is going back to its basic science roots.

This is potentially good news for Europe, with its strong technical and scientific base. And it is certainly good news for Horizon 2020 being one of the few major funding programmes that cover all stages of the research and development chain, from curiosity-driven research to partnerships with industry for advanced demonstrators.

Many of these technologies are in the early stage of development and there is still a lot of uncertainty around them. But if they succeed in entering into the market, we will see digitally enabled-technologies managing to break into those highly regulated areas that I mentioned earlier. The ones that been so difficult to enter until now. 

If we get it right we will finally see technology having a fundamental impact in areas that count for substantial segments of our GDP. We will see the increased diffusion of these innovations and the resulting uplift in productivity across the economy.

So I argued that we have some grounds for optimism. How should our policies make this more optimistic scenario a reality?

I will highlight some of the most important ones.

We can group our policy initiatives into three main groups. These are the three drivers we see are needed to accelerate the third wave:

The first group of policies we are developing are captured by the term “embracing uncertainty”.

Here our key initiative is the major reform we are doing in our funding instruments for innovation. We call it the European Innovation Council as a tribute to the great programme we have for frontier science, which is the European Research Council.

Today, we organise all of funding for innovation in predefined calls for proposals. One for energy, one for transport, one for digital. This makes zero sense in a world where the most interesting disruptive innovations happen at the intersection of disciplines and sectors.

So in a pilot phase of a European Innovation Council later this year, we will launch a call to support innovations by SMEs with no predefined topics. This is about breaking the silos in the way we attribute funding. Giving freedom to innovators to follow their own ideas. And providing society with more options to insure against uncertainty.

And we will introduce many other reforms that will increase our tolerance for risk. These will hopefully embrace more interesting disruptive innovations that today are significantly under-funded by our financial and capital markets.

The second group of policies are branded as “science for innovation”. This is about tearing down the walls between science and innovation.

If we accept that the emerging wave of innovation has a strong scientific component – and because we fund both worlds under Horizon 2020 – then we have an obligation to build better bridges between them.

For example, we are mandating all of the research projects we fund to open up the results and –where possible – the datasets they generate. Free to access, to use and to combine in new ways.   

And we have some public private partnerships where we promote strong links between universities, research and technology organisations and industry. But much more needs to be done.

Finally, the third group of polices are branded as “regulation as a service”. This captures the idea that the European Commission should provide not only funding but also help the companies we fund navigate the complexities of regulation. As a kind of "after-sales service"

If we want these emerging technologies to enter the highly regulated but highly impactful sectors of health, finance, energy or transport, then we need to help entrepreneurs and scientists better understand the regulatory framework.

They need to learn from us and we need to learn from them. Regulation can be a major obstacle but also a major accelerator of the coming wave of innovation. It is critical to get it right.

We recently started a new programme we call Innovation Deals. For now it focuses only on circular economy projects. When an entrepreneur enters a heavily regulated field with a disruptive technology, we create the platform for regulators, legislators and entrepreneurs to meet and share the perception and the reality of the law at stake. This reduces uncertainty and avoids misconceptions that can set back an entrepreneur.

Half way through my mandate as European Commissioner, the insights from the OECD have led me to re-examine and reform European policy for science and innovation.

In the second half I would like to go much further. In particular with a new multi-year European programme for research and innovation that the Commission will propose in 2018.

But we still face major deficits in data to understand how the world is changing in real time. We lack analysis about which policies work in conditions of high uncertainty. We need to know more about the impacts on innovation of policies such as competition.

So I am very proud that this morning Angel and I signed a new memorandum between the European Commission and the OECD. To deepen our partnership. To collect and analyse the new data. To develop fresh thinking and underpin future policies.

Ladies and gentlemen,

We may not yet be at the stage where we have flying cars. But I am not yet accepting the pessimist’s narrative.

Speculation alone will not fix the diffusion mechanism. Instead, we need to be proactive. And we need to make our own luck. This requires an adequate policy response, one that embraces uncertainty and sees it as an opportunity and not a menace. It requires better bridges between science and innovation. It requires a new approach to regulation that encourages and shapes innovation.

We all fear uncertainty. It is a natural instinct. But I believe we cannot shy away from uncertainty.

On the contrary, I think we should lean into it. And use this as an opportunity to create a new landscape for innovation in Europe.

As secretary General Gurria said just a few days ago,

Uncertain times are often the most creative times, the times when challenges press for new solutions, new policies, new business strategies.

Thank you.