Norwegian innovation policy in a path dependence/path creation perspective

NORSI course on Innovation Systems, Clusters and Innovation PolicyOctober 25, 2012

Olav R. Spilling

Norwegian innovation policy in a path dependence and path creation perspective

Part I: 1. Brief on the Norwegian Innovation Policy and its context2. Path dependence3. Path evolution and path creation4. Path dependence and innovation policy5. The Norwegian innovation policy approach6. Some preliminary assessments

Objective:Analyse the Norwegian innovation policy approach with a particular focus on- path dependence and path creation- related variety- strategies for searching new policy options.

Part II: Path evolution: The case of a national programme for stimulating the development og regional clusters

Innovation policy

European Commission 1997:… innovation policy refers to elements of science, technology and industrial policy that explicitly aim at promoting the development, spread and efficient use of new products, services and processes in markets or inside private and public organisations.

Innovation policy

Public interventions which influence innovation activities in society

Focus on the impact on economic performance and social cohesion Innovation policy has wider objectives than those of science policy and

technology policy Innovation policy includes policies which aim at organisational change

and the marketing of new products.

Source:European Commission (1997). The globalising learning economy: Implications for innovation policy.

Edquist, C. and L. Hommen (2006). Comparing National Systems of Innovation in Asia and Europe: Growth, Globalisation, Change and Policy.

The rationale of innovation policy

Edquist and Hommen 2006:

… researchers following a systemic approach often speak of systemic problems. In contrast to the conventional approach outlined above, the main focus of the systemic approach is the complex interactions that take place among the different organisations and institutions that constitute the system of innovation. From this perspective, policy makers need to intervene in those areas where the system is not functioning well. The rationale for innovation policy should therefore be based on 'systemic' failures or problems rather than on 'market' failures.

System failure or systemic problems

Innovation policy has generally been low on the agenda

Brief on Norwegian innovation policy

The first systematic initiatives for developing innovation policy were taken during the early 2000s:• The Government’s Action Plan for innovation policy (2003)

• The White Paper on innovation 2008-2009 (St.meld 7, 2008-2009)

Innovation policy is a complicated field• Many ministries are involved• A number of policy documents

are relevant

The White Paper on Innovation Policy (St.meld. Nr 7, 2008-2009)

Action points:The Government’s innovation policy shall stimulate sustainable value creation in the Norwegian economy by stimulating and facilitating:1. Innovation in SMEs2. Culture for entrepreneurship3. Employee-driven innovation4. Innovation in the public sector5. Industrial R&D6. Commercialisation of business ideas (in HEIs)7. Environmental technology8. IPR9. Policy measures for innovation10. Design as a tool for innovation11. Innovation in services12. Further development of the innovation policy

approach

Criticism of the Norwegian approach• Lack of visions on the long term

development• Fragmented approaches• Missing a coordinating body

• Norway one of the world’s most successful states in terms of economic performance, welfare and egalitarian structure

• Strongly dependent on natural resources (hydroelectric power, marine resources, oil and gas) – very successful industrial development in these sectors

• Norway’s high performance in these areas due to a successful policy approach

• Relatively low performance in other strategic areas, e.g. “high tech” industries

Background and issues

• To what extent represent these strengths negative lock-ins?• To what extent is it necessary to create new paths for industrial

development?• To what extent are these issues addressed in the Norwegian

innovation policy approach (explicit or implicit)

Issues

Characteristics of Norwegian industries:• Low investments in R&D (as % of GDP, but high per capita)• Low level of innovation activity, and declining innovation activity

during the 2000s (ranking no 16 on EIS)

Issue:• To what extent is there a need for transformation to industries with a

higher level of R&D investments and higher level of innovation activity?

The national innovation policy approach:• Broad-based, less explicit• Oil and gas policy not integrated in innovation policy• Lack of visions regarding what may be the main future industrial bases

as the petro-based activities some time in the future are scaling down

Issue:• Is the current policy approach adequate in terms of:

- addressing future challenges?- searching new opportunities?- facilitating the exploitation of these opportunities?

Path dependence

Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant.

(The free Encyclopedia)

Martin & Sunley“A path-dependent process or system is one whose outcome evolves as a consequence of the process’s own history”

General interpretation:Path-dependence means that all processes of evolution in an area depend on the existing industrial structure, entrepreneurial culture, social structure, institutional structure etc.

Lock-in

Positive and negative lock-in:

Types of lock-in:• Technological• Competence/Knowledge bases• Institutional (formal)• Cultural/Social

Path dependence

Evolutionary processes:Variety creation – adaptation – selection - retention

The geographic area (the system) represents• Windows of opportunities• Selection environment

Fagerberg et al 2009:“At any point in time many new ideas emerge, but only those that are well adapted to the contemporary selection environment are likely to be applied and form the basis for continuing adaptation and improvement.” (p 432)

“The national innovation system is also the selection environment for new entrepreneurial ventures, and path dependency influences these selection processes. New ventures that have little in common with economically strong existing sectors may find the national innovation system is poorly adapted to their needs.” (p.433)

Path dependence and related variety

Purposeful entrepreneurial deviation:• New ventures are often spin-offs from other firms or in other

ways related to the existing industrial structure• Entrepreneurs transfer technology, competence etc from

“parent firms” to their new ventures• New firms in the same or related sectors seems to be most

successful

• When spin-offs enter a new, but related sector, this may lead to path dependent path creation

Entrepreneurial opportunities:• Not exogenously given, but are deliberately made• Based on the entrepreneurs’ interpretation• Depends heavily on prior experience and learning

(Based on Martin and Sunley 2010 p.30-31)

The most important aspect of path dependence may be the existing entrepreneurial climate resulting from pre-existing conditions (Carlsson 2007)

Path evolution and path creation

Martin, R. & P. Sunley (2010): The Place of Path Dependence in an Evolutionary Perspective on the Economic Landscape. In Boschma, R. & R. Martin (Eds) Handbook of Evolutionary Economic Geography, Chichester: Edward Elgar

Path evolution and path creation

Martin&Sunley 2010

Path creation

Path and place effects

Origin of new path

Delibarate and intentional

Chance and accidental

Enabling new paths

1. Agents search for opportunities, re-use resources, transfer competences as basis for new growth

2. Agents gain assets and experience, but accidents and events trigger new path

Constraining to existing path

3. Designed interventions to break path or switch location to overcome lock-in

4. Unpredictable external shocks and random events break old trajectory and launch new path

• Classic view on path dependence rooted in box 4• More recent work in economic geography has adopted

positions in boxes 2 and 1 and has put much more emphasis on the re-use and transfer of resources and competences

Source: Martin & Sunley 2010

Path dependence in NorwayBenner (2003): The Scandinavian challenge. • The Norwegian economy is still based on relatively low-technology

sectors, where radical innovations or major technological discontinuities are rare …

• Norway seems stuck in its traditional growth paradigm• The question … is how a new growth model can be supported, and how

the government can promote the rise of knowledge-based industrial sectors

• The Norwegian development is similar to the Swedish one. With no immediate pressure for a structural transformation of the economy in the presence of the rich oil supplies, the institutional adjustments have been relatively weak, and there is no real socio-political backing of a radically new growth strategy as a response to the challenges of the knowledge-based economy.

Fagerberg et al 2009:The historical development of Norway’s national innovation system is characterized by strong path dependency. The Norwegian innovation system has been dominated by resource-based innovation. The development of new industries that are less closely linked to natural resources, in spite of considerable support from public policy, has been relatively unsuccessful in Norway.

Finland: From path dependency to path creation

Schienstock (2007): • The development of a new techno-organizational path and its

embedding into a new institutional and cultural setting cannot be understood as a sudden break from the old path. Instead, the new path is often emerging gradually, side by side with the old path (p96)

The competitiveness of the Finnish ICT cluster due to several factors:• Corporate specialisation• The core company as a key global player• Network of SMEs closely cooperating• High R&D investments and close science-industry cooperation• Highly educated workforce• Focus on firm-centred innovation policy

Institutional adaptation• The educational system• The financial system - foreign capital• Venture capital• Changed policy orientation from an investment-oriented, short-term

macroeconomic policy into an innovation-oriented, long-term microeconomic policy

Transformation of regional innovation systems

Tödtling and Trippl 2011/Asheim et al 2012

Three ways of RIS-transformation (Path evolution):

1. Path extension- changes within existing industries og clusters- modify the existing trajectory, but does not alter it- modest changes in the knowledge infrastructure

2. Path renewal- open up new directions, broadening the economic base- rise of new clusters (in established industries)

3. Path creation- growth based on new technological and organisational trajectories- branching out of existing industries into new but related fields

The importance of the existing RIS:“Preexisting local economic and technological structures, knowledges and competencies matter essentially.”

Path dependence and innovation policy

Smits et al 2010: • An appropriate ‘evolutionary’ targeting perspective should be

developed implying a strong strategic process of selection by government

• It is imperative to assure that sufficient creation of new options and associated experimentation and learning (‘variation’) take place before a finalized targeting policy be implemented

Appropriate targeting perspective

Strategic process of selection

Assure sufficient creation of new options and associated experi-

mentation and learning (variation)

Implementation of finalized targeting policy

Need for:

• New arenas of interaction

• New mechanisms of interaction and mutual adaptation

• Strategic intelligence

• Strategic niche management

Smits, R.E., S. Kuhlmann & M. Teubal (2010) A system-evolutionary approach for innovation policy. In Smits et al.

The Norwegian innovation policy approach

The White Paper on Innovation Policy (St.meld. Nr 7, 2008-2009)

Action points:The Government’s innovation policy shall stimulate sustainable value creation in the Norwegian economy by stimulating and facilitating:1. Innovation in SMEs2. Culture for entrepreneurship3. Employee-driven innovation4. Innovation in the public sector5. Industrial R&D6. Commercialisation of business ideas (in HEIs)7. Environmental technology8. IPR9. Policy measures for innovation10. Design as a tool for innovation11. Innovation in services12. Further development of the innovation policy approach

The Norwegian innovation policy approach

Policy field Measure Outcome Ministry

1 Innovation in SMEs

Strategic advisory council for SMEs

New strategy for SMEs(Simplification/less bureaucracy)

Trade and Industry

2 Culture for entrepreneur-ship

Action plan for entrepreneurship in education, particular focus on higher education

Support for new study programmes; All HEIs have to provide courses in innovation and entrepreneurship

Resesarch&EduRegional Aff.Trade and Ind.

3 Employee-driven innovation

Collaboration with the Trade Union (LO) and the Confederation of Norwegian industry (NHO)

‘Handbook’ for best practice of employee-driven innovation

Trade and Industry

4 Innovation in the public sector

Review incentives for innovation in public sector

Vague strategyPublic procurement?

Trade and Ind. Governm Adm

Public committee for innovation in the social care sector

Strategy for the health care industry, incl. welfare technology

Health&Care

More focus on demand-driven innovation in the health care sector

Extension and broadening of action plan

Health&Care

The Norwegian innovation policy approach – cont.

Policy field Measure Outcome Ministry

5 Industrial R&D Strengthen industrial R&D by- user-oriented research

programmes- industrial doctorate programme- study the possibility for

establishing an ocean laboratory

Followed up in various ways.New Innovation Strategy launched by the Research Council (2011)

Trade and Industry

6 Commerciali-sation of business ideas

Better information about current measures and consider new measures

Probably nothing?Revision of programme for commercialisation; reduced budget

Trade and Industry

7 Environmental technology

Develop a national strategy and establish a strategic advisory council

National strategy for environmental technology

Trade and IndustryEnviroment

8 IPR Initiatives to strengthen protection of IPR

• Ratification of the Euro-pean Patent Convention• Support for a Nordic Patent Institute• Others?

Trade and Industry

The Norwegian innovation policy approach – cont.

Policy field Measure Outcome Ministry

9 Policy instruments for innovation

Increased budgets for R&D and innovation; Evaluation of the two innovation agencies Innovation Norway and SIVA

Evaluation of SIVA (2009) and Innovation Norway (2009).White Paper on the future organisation of the two agencies (2012)

Trade and Industry

10 Design as a tool for innovation

Programme for design-driven innovation

New programme for design-driven innovation established in 2009

Trade and Industry

11 Innovation in services

Dialog with the service industry organisations to develop more precise policy instruments

Established strategic forum with stake-holder representatives

Trade and Industry

12 Further develop-ment of the innovation policy approach

Improve the knowledge base for innovation policy and establish strategic advisory councils in specific areas

Organisation of a consultation strategy “Norway 2020” with two groups:• Business managers and

entrepreneurs• Specialists on R&D etc.

Trade and Industry

SummaryAction Assessment

1 Innovation in SMEs OK – Strategy for simplification

2 Culture for entrepreneurship OK – Systematic work addressing the HEI

3 Employee-driven innovation OK – Important for development of DUI-based innovation

4 Innovation in the public sector

a. Review incentives for innov. Vague strategy; less focus on public procurement

b. Innovation in the social care sector OK – Very goal oriented, potential for new industries

c. More focus on demand-driven innovation in the health care sector

OK – Very goal oriented, extending on going programs

5 Industrial R&D Status quo – unclear strategy

6 Commercialisation of business ideas Status quo – unclear strategy, reduced budgets

7 Environmental technology OK – Very goal oriented, potential for new industrial development

8 Strengthen protection of IPR OK

9 Policy instruments for innovation Status quo – some marginal improvements

10 Design OK

11 Innovation in services OK – but no outcome beyond a “handbook”

12 Further development of the innovation policy approacha. The knowledge basisb. Strategic advisory body

Weak, fragmented strategy for knowledge developmNorway 2020 – primarily symbolic action

Main weaknesses

X

XX

X

Not integrated (or marginally integrated) in the national innovation policy

Policy fields not included in innovation policy (or just marginally mentioned):

• Oil and gas (just marginally mentioned in the white paper)Most important sector in Norway – data for 2010: - 21% of GDP- 24% of State revenues- 26% of all investments- 47% of all export

• Renewable energy (hydroelectric power, wind onshore and offshore, bioenergy, solar energy)(Significant activities funded by the Research Council)

• CCS (Carbon Capture Storage) – large scale technology projects in progress, long way to go to industrialize

Summary the Norwegian innovation policy approach

Policy field General framework conditions

Potential for ‘new’ industrial development

Comments

1 Innovation in SMEs X

2 Culture for entrepreneurship X

3 Employee-driven innovation X

4 Innovation in the public sector X XX Probably huge potential

5 Industrial R&D ? Vague strategy

6 Commercialisation of business ideas ? Vague strategy

7 Environmental technology XX Probably huge potential

8 IPR X

9 Policy instruments for innovation X

10 Design as a tool for innovation X

11 Innovation in services ? Vague strategy – less adequate?

12 Further development of the innovation policy approach

? Very open

Sector specific strategies – preliminary assessments

Policy field Path extent.

Path renew.

Path creat.

Innovation in the public sector

- eGovernance X (X) Potentially new industry

- Health care technology X X Potentially huge potential

- Medical technology X X

Environmental technology X

Renewable energy

- Solar energy X New industry, but threatened due to international market conditions

- Wind energy (on- and offshore)

X Huge potential

- Bioenergy X Medium potential

Maritime industries X X National industries playing a leading role internationally

Marine industriesProbably limited potential in marine biotech-related industries due to weak industrial structure

- Fish farming- Marine biotech-related

X XX x

Petroleum industries X X Huge potential, also in related industries

Carbon Capture Storage (CCS)

X Huge investments, unclear short term industrial potential

Conclusion I

• The perspectives of Path Dependence and Path Creation provide a useful theoretical basis for discussing the Innovation Policy approach

Further work required to develop the framework.

Preliminary conclusion regarding the Norwegian innovation policy approach:• Still not a very distinct and proactive policy approach• Missing perspectives regarding the balance between the oil

economy and other sectors• In some areas the Government pursues a very systematic

strategy for searching and identifying new policy options (e.g. environmental technology, health care services)

• Some areas less developed (e.g. public procurement)• Important sectors not integrated in innovation policy (e.g. oil

and gas, renewable energy)

Conclusion II

Innovation policy as a strategy for searching new policy options:

The principal policy level• Norway 2020 – Primarily symbolic

The sectoral level• Innovation in the health care industry – Adequate strategy• Environmental technology – Adequate strategy• Innovation in services – Adequate strategy

• The CCS Strategy – Failure

The regional level:• The Arena-programme• The VRI-programme (Policy measures for regional R&D and

innovation)

Selected references

Benner, M. (2003) The Scandinavian challenge. The future of advanced welfare states in the knowledge economy. Acta Sociologica, 46, 132-149.

Fagerberg, J., D.C. Mowery & B. Verspagen (2009) The evolution of Norway’s national innovation system. MPRA Paper No 19330

Martin, R. & P. Sunley (2006) Path dependence and regional economic evolution. Journal of Economic Geography vol 6 (2006) 395-437

Martin, R. & P. Sunley (2010): The Place of Path Dependence in an Evolutionary Perspective on the Economic Landscape. In Boschma, R. & R. Martin (Eds) Handbook of Evolutionary Economic Geography, Chichester: Edward Elgar

Smits, R.E., S. Kuhlmann & M. Teubal (2010) A system-evolutionary approach for innovation policy. In Smits, R.E., S. Kulhmsnn & P. Shapira (Eds) The theory and practice of innovation policy. Cheltenham UK: Edward Elgar 417-448

Schienstock, G. (2007) From path dependency to path creation: Finland on its way to the knowledge-based economy. Current Sociology, 55 (1): 92-109

Tödtling, F. & M. Trippl (2011) Transformation of regional innovation systems: From old legacies to new development paths. Paper at Colloquium in Cardiff, April 4-5, 2011

Appendix

Action points in the English version of the White Paper on Innovation Policy – “An Innovative and Sustainable Norway”

The Norwegian IP approach – the English version

An Innovative and Sustainable Norway

Knowledge and Competence- White paper on teachers role and

education- White paper on internationalisation of

education- Follow-up the Government’s strategy

for promoting mathematics, science and technology

- Review how the education sector and working life are working together, and consider various strategies to strengthen this field

- White Paper on the structure of the education system with a view to future competence needs

- Advance a mentality encouraging entrepreneurship, including an action plan on entrepreneurship in education, with particular emphasis regarding higher education.

Innovative undertakings- Strengthen the instruments for inno-

vation, among other ways, by increasing allocations to research and innovation and by initiating overall evaluations of Inno-vation Norway and the Industrial Deve-lopment Corporation of Norway (SIVA )

- Ensure that the values created are well protected, among other ways, by provi-ding a package of measures for patents and other rights with an improved training provision and a more up-to-date statutory framework

- Strengthen the use of design as an innovation tool by setting up a design-driven innovation programme

- Focus on the employees, and consider new measures for promoting staff-driven innovation in collaboration with the Norwegian Confederation of Trade Unions and the Confederation of Norwegian Business and Industry

An Innovative and Sustainable Norway – cont.

Start-up and Growth- Develop an overall industrial strategy

for small and medium-sized enterprises

- Elucidate the need for new measures to support female entrepreneurs, and consider how better provisions can be made to realise the good ideas of people with long experience

- Establish favourable conditions for commercialising good business ideas through better information about current policy instruments, and assess new policy instruments

Focus on Doing What We Are Good At- Focus on environmentally friendly innova-

tions, among other ways, by allocating more research funds to development of environmental technology, by setting up a strategy council for environmental tech-nology and by preparing a national strategy for environmental technology

- Invite the organisations in service industries to a dialogue with a view to developing precise policy instruments for increased innovation in these areas

- Follow up investments in the High North strategy and present a national strategy for marine bioprospecting

- Present an overall strategy for marine industries

- Follow up the national strategy for the tourism industry

- Follow up the national strategy for the maritime industries

- Continue efforts on encouraging further industrial development based on our abundant energy resources

- Participate in investigations of the potential for a future-oriented ocean laboratory

An Innovative and Sustainable Norway – cont.Research and Development- Strengthen research in industry by

increasing allocations to user-oriented research programmes and to R&D contracts

- Continue the Skattefunn tax relief scheme

- Contribute to improved interaction between industry and research by strengthening the industrial doctorates system and efforts related to commercialisation of research results

- Establish favourable conditions for long-term knowledge building, and increase investments in research equipment

- Strengthen regional research activities by allocating NOK 6 billion to regional research funds

- Submit a white paper on research to the Storting

Innovation in the Public Sector- Review incentives for renewal of the public sector- Appoint a public committee to propose how to

make better conditions for innovation in the social care sector

- Extend the duration of the demand-driven innovation and business development in the health sector to ten years, and also extend it to include research-based innovation

- Involve the users in the development of services through national surveys and measurements of performance achievement

- Establish favourable conditions for wealth creation based on sound solutions in the public sector and increased use of public data

- Strengthen the municipal sector as a service provider

- Increase competency on how public procurements can contribute to innovation and simplify the use of R&D contracts for public procurers

- Simplify interaction with the public sector and ensure greater use of innovative solutions, among other things, electronic signatures

- Strengthen the public R&D contract scheme, with a particular focus on the promotion of innovation in the social care sector

- Aim at strengthening clinical testing units for trial of new medicines