KNOWLEDGE ECONOMY FORUM VI Technology Acquisition and Knowledge Networks Cambridge, England. April 17-19, 2007

Panel 2A April 19, 2007Standards and Quality Certification: Technology Upgrading & Trading Tools

Standards, Markets, and Regulation: The Two Faces of Standards in the

Knowledge Economy

Paul TempleDepartment of Economics

University of Surrey

The Two Faces of Standards

• Standards and regulation: close relationship betweenStandards and regulation

• Standards as a source of ‘codified’ information abouttechnology. Today the standards catalogue of the British Standards Institution contains around 30,000documents describing technology – test methods, reference materials etc. Many documents underpin Markets by facilitating communication between firms

The Economics of Standards:A Brief Review

• 1980s growing interest in the role of standards in processes by which technology is adopted by user population. This was fuelled by awareness of critical role of standards in ICT

• Subsequent work on the microeconomic functions of individual standards common in literature (case studies/economic models)

• Some work has also focused on the broader ‘macro’ economicoutcomes, i.e. in the development of markets and the ‘diffusion’of technology

first econometric analysis on the implications of the activity of Standards bodies for broader ‘macro’ economic outcomes conducted by Swann et al (1996). This work emphasised the impact of standards ‘catalogues’ for trade.

• national standards promoted ‘non-price’ competitivenessof exports over and above the impact on productivity

• also – contrary to common opinion - promoted imports

• but what about productivity?

Macro studies of standards

Contributors to Output Growth in the UK(1948-2002)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

output capital employment technologicalchange

unobservablefactors

standards

% p

a

Standards contributed to about 13% of the UK’s long run productivity growth in the post-war period 1948-2002

Based on earlier German research, a study for the DTI in London suggested that....

Standards and Regulations:The ‘new EU approach’

• Since 1985 ‘national’ standards have increasinglybeen replaced by harmonised European standards

• ‘new approach’ directives allow products to be testedfor conformity against a harmonised standard developedby the European standardization bodies – CEN/CENELEC/ETSI – which are then marketed throughmember bodies – AFNOR, BSI, DIN etc.

• European standards focus on product specifications

• Efficiency aspect: firms minimize costs to achieve conformity

The Internationalisation/Harmonisation of European Standards Catalogues

The Growth of the Standards Catalogue in Four Economies (1990-2003)

05000

100001500020000250003000035000

1990

2003

The Composition of the BSI Catalogue(1986-2003)

0

5000

10000

15000

20000

25000

30000

no

of

do

cu

mn

ets

Total EU

CEN

CENELEC

ETSI

TOTAL

The EU ‘Harmonisation’ of the standardsCatalogue of the BSI

Standards and Markets

• the use of standards is not uniform across economies

• manufacturing and in particular the engineering sectorsof economies are particularly intensive in the use of standards

• many standards assist market entry by providing the Infrastructure through which product characteristics can bemeasured - test methods, reference materials etc.

• Many standards ‘link’ different sectors of the economyparticularly in respect of capital investment

Mechanical Engineering

4919

Electricaland

Instrument Engineering5940

Metal Products

MetalManufacture

Chemicals

Food, Drink,Tobacco

TransportEquipment

2419

Textiles

Paper Printing

OtherManufacture

<5050-99

Standards in UK Manufacturing

100-250250+

Standards as a source of knowledge:Research using the Community Innovation Survey (CIS)

• The CIS has proved to be an important tool for the analysisof both technological innovation (new to world) and the diffusion of innovation (new to firm)

• The survey can be used to assess the role of standards in providing accessible ‘codified’ information about technologyand providing both information and constraining innovation

• Research by Peter Swann using CIS3 established a positivecorrelation between the information content of standards andtheir potential role in constraining innovation

ENTERPRISE

CIS4: importance of information sources for innovation in UK

Internal

Suppliers

Clients

64%

68%

69%

competitorscompetitorsconsultants

Technicalstandards

Professionalassociations

55%53%

scientific journals

conferences

government research

universities

% rating each source at least of some importance (low//medium/high)

51%

26%

26%

25%

62%40%

Standards and Innovation Outcomes

Relative Probabilities: for the range of innovation outcomes covered in CIS3, for those enterprises that cite standards as being relevant are 2-3 times a likely to rank an outcome as ‘high’

0 0.5 1 1.5 2 2.5 3 3.5

product range

new markets/market share

quality

f lexibility

capacity

unit costs

environment/health and safety

met regulatory requirements

value added

SME

ALL

Relative probabilities computed as:Pr (Innovation outcome = high | standards regarded as relevant)Pr (Innovation outcome = high | standards regarded as of no relevance)

Some conclusions:The paradox of standards

• Research suggests standards promote trade and competition

• Standards associated with regulation/bureaucracy/red-tape

• Standards an important and low cost source of codified information on an international basis and hence not an immediate source of competitive advantage for firms.

• However standards may be associated with human capital formation at the level of the firm

• Relationship with innovation complex but innovators rate standards as an innovation source more highly than non-innovators