Expand public investments in R&D, and incentivize venture capital and R&D in private sector and the diffusion of existing technologies that support the creation of new firms and employment in "markets of tomorrow".

Directing innovation and technological diffusion will be among the top priorities for the immediate revival of the economy. As governments design ambitious support packages for the economy, leveraging favourable financing conditions, they will have to balance the urgency for immediate results— particularly in terms of job creation—with the need to start preparing a broader economic transformation towards the markets of tomorrow.

Public R&D funding is among the types of investments that can generate the highest number of good-quality jobs. It has been estimated that in OECD economies five new jobs are created with every 1 million dollars invested on public R&D, and twice as many when the investment is channelled through higher education institutions. This is higher than the job creation triggered by investment in any type of infrastructure in advanced economies (electricity, roads, health and education, water and sanitation). In order to achieve a timely disbursement of resources, governments may want to channel funding to existing research programmes and funding schemes rather than designing brand-new ones. Yet, they should aim to prioritize research that is directed towards the invention of products, services and technologies that can help better position their countries in developing the markets of tomorrow.

Venture capital and private equity support will remain fundamental to accompany the private sector in the transformation of economies. Some countries had already embarked on a process of green and digital transformation prior to the pandemic, and COVID-19 has both increased the demand for a third dimension of social transformation and also triggered a revival of entrepreneurial activity in some countries. Venture capital will be needed convert these ventures into long-term sources of jobs and growth. Early evidence shows that the crisis has had a limited impact on both the value of current VC portfolios and on their ability to fund additional ventures. Yet, governments—especially in those countries with a weaker VC ecosystem—might want to consider the launch of dedicated innovation funds for seed and early-stage financing, prioritizing the transformation towards the future sources of economic, social and environmental value. Funds such as Israel’s Yozma provide examples for the creation of public-private funds-of-funds as pathways for setting the foundations of a broader VC ecosystem.

Finally, governments should also consider the innovation capacity of the existing firms and their need to upgrade their production and business processes and product portfolio. In advanced economies, a credit crunch has been largely avoided thanks to unprecedented monetary interventions, and private equity and debt financing remains available to support the transformation of the traditional economy. Governments should, in particular, reinforce and direct their efforts to create more favourable conditions for the adoption of greener technologies and the development of more job-creating, socially oriented and sustainable product portfolios. This can be achieved through conditionality attached to public funding and guarantee schemes, targeted R&D incentives (grants, innovation prizes) and a more strategic use of public procurement.