R&D, innovation and all that - Science and innovation – the policy choices

1

STEP – Centre for Innovation Research

R&D, innovation and all that- Science and innovation – the policy choices

Presentation for

Taller 3: Inversión Investigación y Desarollo pública-privada

17 February 2004

at

Palacio Euskalduna

Johan Hauknes

[email protected]


Oslo, Noruega

2


Who am I? – And what am I doing here?

Johan who? Research director at STEP – Centre for Innovation Research Policy experience Scientific background and experience

What am I doing here? R&D and innovation policy – stimulating and shaping industrial innovation

and economic development through public policies and instruments But my knowledge of the economy of the AC of the Basque Country … is

meager … so thanks for the opportunity to learn something new

3


My expertise

Economics, innovation theory – the knowledge base of industrial innovation policy

Functional evaluation and monitoring of innovation policies and related instruments and objectives

Weak expertise on policy making and policy processes – and the experiencebased core competence coming from long time participation and management of policy processes

Put bluntly:

I’m a researcher – not a policy maker!

4


Outline

General issues of innovation, and S&T policies as to the incentive towards enhancing private investments in S&T and R&D

The innovation context – what is innovation? The policy context – how should we approach innovation and

S&T policies? The need of integrative portfolio approaches to S&T policy

formation Lessons and messages for enhanced public and private

investments in S&T

5


I am impressed

0

5

10

15

20

25

30

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Unemployment rate CAPV (%). EUSTAT 2004

Real GDP growth 1981-2001 (annual growth, %)

-2

0

2

4

6

8

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

CAPV

Spain

Norway

Eurozone

IPI 1990-99 (1995=100)

50

75

100

125

150

175

200

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Transportmaterial

Machinery

Buildingmaterial

Metalconstruction

R&D indicators

0

100

200

300

400

500

600

700

800

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Total (M€) Per capita (€)

GERD/GDP(%)GERD/GDP (%)

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1993 1995 1997 1999 2001

Norge

CAPV

Spain

6


R&D indicators 2001 EAE Norway Spain EU

GERD/GDP (%) 1.44 1.60 0.96 1.93

Company funded GERD (% of GERD) 66.1 51.1 47.2 56.2

Public funded GERD (% of GERD) 26.5 39.5 39.9 34.5

Foreign funded GERD (% of GERD) 7.3 7.2 7.6 7.8

R&D personnel (FTEs) - total 10,619 27,108 125,750 1,719,074

R&D personnel (FTEs) - ISCED 5A+ 5,807 20,077 80,081 971,497

R&D PYs/active work force ('000) 11.3 11.3 7.0 9.9

7


Does R&D deserve public support? Little systematic evidence – lots of anecdotal evidence Probably high social returns to R&D – though hard to estimate

“Guesstimate”: 50-70% marginal gross rate of return, despite mechanisms that can induce overinvestment in private R&D AND incentives for rent seeking behaviour by private investors and firms

Appropriating the full returns for the investor is difficult (impossible?) Social returns exceeds private returns by a wide margin Intellectual property rights are important

RTD generating complementary social assets The structure of technological knowledge

Receptive and formative capacities in the economy Social returns are generated in exploitation and utilisation of technological

knowledge

8


So what can we say of R&D and economic growth?GDP growth - R&D

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Real GDP growth 1994-02

GE

RD

/GD

P 1

99

1-9

5

9


Recent European Initiatives

The Lisboa strategy – knowledge based competitiveness

ERA & S&T policies – the European Research and Innovation Area and the 6th FW programme

The Barcelona goals – 2+1% GERD/GDP

The Growth Initiative – TENs and large scale R&D projects

Life Sciences and Biotechnology a strategy for Europe

White Paper on Space Policy

10


In the final years of the XXth century we entered a knowledge-based society [depending] essentially on … the production, acquisition and use of knowledge.

Scientific research and technological development … are at the heart of what makes society tick. … research and technology provide one of the principal driving forces of economic growth, competitiveness and employment.

… the XXIst century … will be the century of science and technology.

Towards the European research area, COM(2000)6

What does this mean? The policy view

11


There are severe shortcomings with this discourse These shortcomings are, however, seen as “R&D

paradoxes” or anomalies rather than challenges to our interpretation of economic change.

It is now more necessary than ever to search for a proper understanding of what kind of competence and knowledge formation activities that matter and why and how they matter.

That is, what are the key activities contributing to long run growth and employment - and how should we identify and label them.

What does this mean?

12


are seriously flawed as core

descriptors of economic change and

core dimensions for political prioritisation in improving society’s efficiency in its resource use

Standardized definition of high-tech has the consequence that all advanced economies are dominated by low- and medium-tech industries

Innovation policies are potentially extremely important to growth – but there are no simple cures

Concepts such as high-tech, knowledge-intensive industries and S&T base

13


The point at this stage

is not that technology, R&D and innovation is not important On the contrary! They are probably VERY IMPORTANT Sustaining innovation performance is complex for business

firms – Sustaining innovation performance and impact for an economy is a much harder task

14


What can you do?

Enhance R&D performance in existing firms Short to medium term perspective Volume, efficiency or effectiveness? – relating R&D to the market nexus of

firms Learning non-performers to R&D What forms – technology producing vs. technology exploiting

Expand R&D intensive industries Managed structural change – medium to long term perspective R&D performance in all countries and regions is skewed (80/20 rules) Large share of R&D organised by MNEs

Generate new firms/industries of R&D performing industries Long term impact Uncertainty New globalised divisions of labour – the case of biotech

15


Innovation is bootstrapping

Innovation is at the core of what makes economic systems change

The argument is not that new & old technologies matter - but how and why they matter and how they are shaped by economic agents

The core issue here is our understanding of knowledge, learning and productive competences – and the role of RTD in these

16


What is innovation? Innovation is the essential characteristic of the life of a firm

A firm without innovation is a contradiction in terms

Innovation - any “new ways of doing things in the way of economic life” – is basically defined as any deliberate changes in economically related behaviour

Distinguishing between relevant and irrelevant to analytical questions on objectives and aspects of innovations to socio-economic questions on objectives and aspects of innovations

is a task for the analyst to make – not the economic agent.

17


What is innovation? – What was the question?

The MBA question: Innovation creating Attacker’s advantage

The Policy question: The long term viability and sustainability of ‘wealth creation’

The Economics question: Resource allocation and structural change in production and economic systems

The Statistics question: Standardized indicators mapping industrial dynamics (Where’s the beans, and how may I count them?)

The Marxist question: Innovation and Capitalist development

18


What does the innovating firm do?

Compete!

But how?

Doing same things more efficiently – “internal” innovations – or doing different things – “external” innovations

Innovation is simple – and complex The Anna Karenina principle – successfully innovating firms

are all innovating the same way, while every unsuccessful innovator and non-innovator is unsuccessful in its own way

19


Economic competences and capabilities – the underpinnings of innovation Economic competences – the abilities to generate,

identify, expand and exploit business opportunities – is the basis for economic ‘action’

strategic capabilities

organisational capabilities

functional capabilities,

market capabilities

capabilities to learn

This is where its R&D efforts are focussed

20


What does all this mean?

Innovation is a market phenomenon

Innovation’s rationale and consequences in the nexus between the firm and the market environment

This implies a market logic for what incentives work and what their impact is

And what inclinations – or fields – of innovation are relevant to the socio-economic questions addressed

21


Market dynamics

Technological

Rapid Slow

Rap

id

Highly interdependent techno-

economic dynamics

“Critical system”

Punctuated change

“Schumpeterian gales”

Pri

ce r

elat

ed

Slow

Innovation led competition with co-

existing varieties

“Innovation economy”

Highly interdependent dynamics

“Critical system”

Stone Age Economics

22


What is innovation policy

Policies affecting the intent, orientation and extent of the innovation activities of firms and other economic agents Public objectives and initiatives that shapes and forms

economic agents’ – producers, distributors, financial investors and mediators, consumers etc.) –

development and implementation of new ways of behaviour in their economic activities

with the intent of ensuring and enhancing their appropriation of pecuniary, social or cultural returns and goal achievements – based on agents own objectives and intentions – of their economic economic activities

23


Innovation policy = Welfare policy

The overall objective of innovation policy is general social welfare

These policies are requisites for attaining high levels and distribution of income and income generation capacity

through refining and utilising available socio-economic resources cost-efficiently

At the core innovation and RTD policy is very simple appropriation – IPR systems diffusion and spillover – industrial espionage

25


Innovation policy = Wider economic policy

The core objectives of economic policies is to ensure socially beneficial factor supply factor utilization factor efficiency distribution

Industrial S&T and RTD policies is a core part of this RTD at firm level = problem solving RTD at social level = enhancing factor supply and efficiency

26


Why innovation policies? Two rationales

Innovation performance as major determinant of economic growth Facilitating innovation Strengthening incentives to innovate Two types of policy

policies concerned with resources and incentives taking technological possibilities and capabilities of firms as given by changing marginal returns to [innovation]

policies to change and enhance the innovation possibilities that firms face by improving their access to knowledge and by improving managerial capabilities

Social objectives otherwise unattained by commercial firms Shaping innovation Altering incentives to innovate

27


Implications With this view of innovation and technical change, there is no longer any

well-defined optimum allocation of resources There’s good practice, not best practice

Policy development must be based on informed use of theory, information and subjective judgement the explorative policy maker the adaptive policy maker the integrative policy maker the contextual policy maker the learning policy maker: systematic policy learning

This alters the requisite policy capabilities and competencies of policy makers It is not that firms know better than policy makers, it is that they know

differently

28


Systemic innovation – three insights

Innovation is a main explicant of the dynamic evolution of market systems

Innovation is multi-functional; and involves a recombination of factors from various dimensions of firms’ functions and activities.

Innovation is shaped by interactions between the firm and its institutionalised surroundings – the techno-economic environment of the firm

Innovation is a dynamic microlevel process involving mutual and multi-functional interactions with a varied, and organisationally structured, socio-economic environment

29


Richer, simpler and more difficult innovation policies Simpler:

Emancipation from market failure rationales of innovation and RTD policies, with their conflation of the objectives of public policies with a fictitious benchmark of perfectly functioning markets

No single critical missing factor

More difficult: Innovation policy challenges are much more indirectly related to the

actual unfolding of industrial innovation More open-ended and framework enabling policy objectives than

oriented towards specific technological or economic objectives Targetting social objectives is paramount No quick fixes Long term

30


The policy messages

Design of innovation incentive structures at the microlevel to ensure the fulfillment of social needs and objectives

The core goal is generating economic variety S&T infrastructures are particularly important, and must

continue to rely on public-sector support Potentially strong externalities and spillovers from public

provision of R&D support Needs of focus on bridging and receptive capacities to ensure

this Use macroeconomic, competition, monetary, education policies

to shape innovation incentives

31


Policy issues – the information view

Information generation – new competences, new knowledges Information emission – open and competitive environments Information transmission network – ensure distributive

capacities of economic systems Information transmission signal quality – standardisation,

certification etc. Information absorption – build up receptive and interpretative

capacities of firms, Power supply – adaptive supply and receptivity of RTD

systems: Ensure flexible and sustained contribution and interaction with a

public regulatory systems as well as systems of S&T institutions, institutions of higher education and so on

32


Lessons learned

The overall objectives of innovation policies are milestones – on the way towards more basic goals

It requires understanding of the wider political and social goals and objectives they are expected to realise

It is not a question of pro et contra for specific policy instruments – choice of instruments is a choice of tools; they can do a job easier – or more cumbersome Innovation policy objectives are complex – goals for individual tools and

instruments should be made simple

Thus, the design of policy instrument portfolios – of “policy mixes” – is essential – Innovation policy must be based on a portfolio approach

Policy learning – systematic analysis and exploitation of experience etc. of the requisites, design and implementation of innovation policies at portfolio level – is crucial

33


The focus of innovation policies Innovation systems are social systems

habits, practices and rules of social actors participating Social systems are dynamic and open

influenced irreversibly by external factors they are path-dependent system ‘logic’ is locality specific,

strongly contingent on local socio-economic history

Firms never innovate in solitude To successfully innovate, companies are dependent on complementary

knowledge and know-how Innovation is an active search process to tap new sources of knowledge

and technology and apply them to products and production processes

34


What does system approaches to economic systems emphasiseThe importance of denseness – complementary activities proximity – access to and richness of interaction openness – agility and adaptability competitionalong all relevant dimensions market related dimensions socio-technical dimensions socio-geographical dimensions

Generalised “cluster approaches” help capturing important complementarities

35


Policy vectors and instruments

The overall objectives of innovation policies are milestones where the choice of specific policy instruments is a choice of tools; they

can do a job easier – or more cumbersome

Innovation policy objectives are complex – goals for individual tools and instruments should be made simple

RTD policies and goals form a set of such tools – albeit an important part

Thus, the design of policy instrument portfolios – of “policy mixes” – is essential – Innovation policy must be based on a portfolio approach

36


Towards a taxonomy of policy instruments Direct vs. indirect instruments

Direct instruments are targetted at the agents where the impacts are to be generated

Indirect instruments are providing offers requiring further unilateral decision by the agent to access

Generic vs. specific instruments Generic instruments apply to all agents in a defined population Specific instruments apply to agents in this population satisfying predefined

criteria Distinguish between eligibility and functionality

Rightbased vs. competitive instruments Right-based apply to all firms/agents satisfying a set of minimum standards Competitive instruments – selective among eligible applicants

Intraorganisational vs. interorganisational orientation (Inhibiting) Regulatory vs. (enabling) infrastructural measures

37


Towards a taxonomy of policy instruments

38


Industrial RTD support

Disincentives

39


Task: Design a portfolio of policy instruments to enhance S&T investments and impacts in the economy What are the targets? In which industries and sectors of the

economy? What is the role of S&T and RTD activities in these? Design supplementary (dis-)incentive systems that rephrase

and integrate socio-economic objectives into the market related incentives of the firm

by designing an appropriate and complementary set of policy instruments

that incorporates systematically all relevant activities and organisations

40


S&T policy portfolio design

Focus particularly of bridging functions and the associated translatory systems for the parties bridged – the Triple Helix

Consider explicitly the interaction of economic, technological and locational complementary groups of firms, industries and related factor inputs

Count in relevant costs and losses of transformation process Be especially aware of the substitution effects of instruments

and targets implemented Do not rely heavily on pecuniary benefits to companies

Policy and authorities

S&T institutions Industry – economic

production

41


Enhancing RTD performance in “advanced” technologies Challenge 1: Globalized markets Challenge 2: Structural change Challenge 3: Techno-economic scales

Loco-motive goal? Ensure localization advantages Adaptation of localized factor inputs –

design relevant “high technology” research programmes and S&T institutions Ensure factor mobility Competitors and complementary industries Localize leading customer base

Spillover goal? Ensure bridging systems Focus economic complementarities Ensure use-oriented RTD and sustained development of receptive capacities Enable bridging of “high technology” to techno-economic competences Enable receptivity oriented RTD programmes and S&T institutions

42


S&T policy design But most important:

Experiment – and document!

Consider what you are good at!

Be a demanding customer of business!

Have patience!

Make sure you fail!

43


And now for some conclusions

44


How to increase public and private investments in R&D?

O1. Things take time (to happen): Stick to your goals The stability of public policies related to R&D activities building confidence and

long-term commitments in R&DO2. Understand the context and your vulnerable points

Large companies remain essential actors in R&D funded by the private sector: links between large companies and SMEs are important

O2. Ensure checks and balances between stakeholders The problems of the use of public money where private investment would have been

done anyway needs to be addressedO4. Make RTD spill over easily

Long-term co-operation among R&D and innovation actors is fundamental to increase R&D investment and to improve its effectiveness. Promote networking

Location (denseness, proximity) may be an efficient way to increase R&D investment from the private sector and to invest public money. Focus of S&T parks (Bridging)

O6. Focus receptive capacities of local systems explicitly Highly skilled human resources become a crucial factor in stimulating R&D

activities and innovation, particularly in SMEs linked to traditional sectors – Receptive capacities

45


How to: Efficient and effective use of resourcesO9. Build interactive bridges

Collaborative public-private and private-private partnership R&D projects are an efficient way to improve and to avoid duplication of effort

O10. Be serious about what you want Design appropriate goals and indicators, relevant for the long term industrial

objectives set. Short-term priorities should be designed as check points – not as goals by themselves

O11. Build institutional and functional bridges Ensure strong interaction between higher education, scientific research, bridging

institutions and other infrastructures through specific policy measures.O12. Build receptive capacities

In the long run, investing in human resources and other intangible assets appears much more efficient than investing in tangible infrastructures to improve the absorption rate of advanced technologies.

O14. Integrate and involve other policies – share responsibility Public R&D and innovation policies must be integrated with other policies. Close

co-operation among decision-making instances or even integration should be explored to guide prioritisation processes and to better exploit synergies.

O16. Make sure you learn, explore and adapt Systematic evaluation and monitoring and development of extensive and appropriate

indicator systems is important. Evaluation is primarily a tool for exploration and learning, not for administrative control and cost/benefit analyses

46


How to: Work through the behaviour of major players

Shape supplementary incentive systems – and be serious about it

O17. Private policies on R&D investments are always based on effort-benefit trade-offs. Enhancement of technology appraisal capacity as well as understanding of societal needs by the authorities is needed. This calls for the participation of all stakeholders (scientific community,

business sector, administration and society) in priority setting

O18. Facilitate co-operation, boost diffusion and uptake of knowledge by increasing the efficiency of the resources used. Create critical mass and enable take-off

47


Summary – some main messages Innovation and industrial S&T policies are important Focus microlevel incentive structures – ensure social

additionality The checks and balances Start from a point of strength Build systematically up receptive capacities

The policy system’s receptive capacity The S&T systems receptive capacity The industrial system’s receptive capacity

Enable systematic policy learning and experimentation The dilemma of small open economies – be specific without

picking winners Focus factor supply, mobilization and utilization

48


Zvi Griliches: This response is probably too long, reflecting the fact that I do care about the issue, and possibly that I am not entirely sure how good my arguments really are …(JPE 1994)

Thank you!

R&D, innovation and all that - Science and innovation – the policy choices

Documents

Transcript of R&D, innovation and all that - Science and innovation – the policy choices