Why do nations invest in R&D?

The work of two economists in the area of innovation (Nelson and Arrow) demonstrated that economic growth would have “progress” as a major driver – the only element of the model that would, theoretically, enable infinite growth, without being subject to the physical limitations of natural resources or the “workforce”. The main conclusion was that companies do not invest in R&D at the desirable rate for the benefit of society, so it should be up to the (public) State to do so, towards generating positive externalities in terms of new knowledge (progress) and the desired economic growth. Hence, the underlying matrix of Science financing policies features an inherent model of economic growth. This does not mean that all Science must be applied; especially since major changes in Society stem from fundamental Science. It is also increasingly clear that technological progress must be followed by advances in other scientific fields, namely social ones, the bond of the concept Society. 

 According to the economists, knowledge is a non-rival good, i.e., the fact that one agent is using it in no way limits its use by a second agent. For instance, this would not happen if there were only a single computer available – it could be used for one or the other. And this is the root of the problem, anchored in the difference between generating value and capturing value – which is aggravated when, to generate this complex knowledge, it takes considerable investment, time and risk support, to which a small part of the beneficiaries contributed. This is one of the issues that the various systems of intellectual property rights – of which I highlight the patent – seek to reconcile through a contract that motivates the innovator to risk, and disclose the invention in exchange for a commercial monopoly limited in time. Intellectual property rights are, therefore, a tool to seek to make R&D investment effective, as they are the legal instrument that allows the creation of a “bubble” of exclusivity, granting the innovator a competitive advantage and the opportunity to value this knowledge. 

 Denmark is a recent and concrete example. Novo Nordisk, through the successful sales of its drugs Wegovy and Ozempic, allowed to rescue the country from stagnation in 2023, fostering the growth and development of the Danish innovation ecosystem. These companies, with the driving role of the economy, have the same standard – strong innovators who invest in patents and other intellectual property rights to be successful in open, global and highly competitive markets. They capture the value they create. Here, we have Delta – which, through DeltaQ’s internationalisation experience, has learned how to compete internationally with coffee pods giants, and its new product is protected by more than 20 European patent applications. 

 Recently, the Patent Index 2023 was published, which signals a very positive evolution by presenting several companies among the top-10 applicants for European patent applications in 2023. NOS, Sword Health, Fravizel, TMG, Novadelta and Feedzai are examples of companies that are looking to compete, defend their business models and explore opportunities for the use of patents internationally. INESC TEC is also part of this list – in the 10th place, alongside Feedzai –, being the only entity that has always been present in the top since 2017 – these contributions and sustainability are highlighted by the president of CCDR-N. With six requests – three of which are being used by INESC TEC spin-offs – the Institute has sought to create highly differentiated jobs and positively impact the innovation ecosystem and the national and European economy through the use of Science and Innovation for the common good. 

By Daniel Vasconcelos, Manager of the Technology Licensing Office