The National Innovation System

1. The National Innovation System Outline • Introduction • Defining the national innovation system • Central role of R&D • The tripod • Government • Business • Universities • NIS in emerging markets

2. Introduction This chapter sets out the complex interrelations concerning innovation in an economy. • Discuss ‘science-base’ and ‘knowledge economy’ • Business does not stand alone, government and universities are integral part of innovation system • Research and development (R&D) is investment spent both to develop new ideas and science and to transform them into commercial innovations • Chapter illustrates these ideas with data from OECD and, at end, with emerging market examples

3. Definitions • National system of innovation • “The national innovation system essentially consists of three sectors: industry, universities, and the government, with each sector interacting with the others, while at the same time playing its own role.” Goto (2000, p. 104) • Also called Triple Helix model, there are a number of ways to discuss/define basic idea but note: national innovation system is a complex conglomerate of interacting independent parties

4. Roles of the three players • Universities – undertake basic science and technology research – educate scientists and technologists needed by business and government • Governments – design IPR system for business and universities – commission science research e.g. for defense – finance universities, subsidise business R&D • Business – conduct R&D to develop commercial products – launch innovative products – start up new firms to exploit new science

5. The central role of R&D • Lecture 3 has begun the discussion of R&D by giving the definitions and showing some aggregate measures • Next three tables illustrate breakdowns: Who funds R&D? Where is it conducted? What are main subjects for research? • Note variations across countries in these tables. Other sources of data include: • National statistical offices • OECD

6. Table 4.1 Funding of R&D by government and business

7. Table 4.2 The conduct of R&D by business, government and universities in 2003

8. Table 4.3 Percentage allocation of government R&D support by objective in 2005

9. The Government-University Axis • Knowledge is a public good (non-rival), hence market mechanism alone cannot generate optimal amount • Government funding of university research, and government research labs, are main solutions in modern economies • Discussion of historical origins (including your own university/college role in science) • Funding mechanisms – is there an optimal one?

10. Changing provision of basic science for knowledge economy Historical system: • Provision of basic science as a public good • Discoveries were placed in the public domain without any private ownership • Motivation of scientists was respect of scientific community or ‘peer review’ • Use of science base open to all types of business Recent changes: • Government finance for research is conditional on the research having more immediate application in industrial and commercial products

11. The University-Business Axis • University-business links - many dimensions: • IPRs held by university • Research joint ventures • Spin-outs/start-ups • Personnel pooling • Growth of university IPRs • US Bayh-Dole Act 1980 stimulated change • Before - government owned any patents on federally funded science and then issued non-exclusive licences • After – university/scientists own IPRs and can licence exclusively to key firms • Often achieved via technology transfer offices (TTOs) • Many EU countries have followed these changes

12. University-Business Linkages Collaboration in Research • Joint, contract, and commissioned research, • Consultancy by academics Spin-outs, Start-ups, Science Parks • Formation of spin-outs and joint ventures • Formation of university incubators • Growth of science parks near to university Personnel Linkages • Formal and informal social and professional networks • Continuing professional development and education, including public university lectures and workshops • Academic-scientist exchanges with firms • Recruitment of students from universities by firms

13. The Government-Business Axis Key areas of innovation policy: • IPRs - the enforcement of IPRs can be influenced by national policy, as is legislation to some extent • Tax policy - corporate tax policy can affect innovation in various ways; key areas include R&D tax concessions, rules surrounding IP, and venture capital • Competition policy - the stance of competition policy matters, especially when decisions involve innovation (e.g. a firm has a dominant market position but also leads the industry in terms of innovation)

14. Further key areas of innovation policy: • Government-business targeted funding – can be of specific research areas, technology development and small business • Standard setting - government is involved in setting various standards for measurement, performance, safety, testing and interoperability • Procurement policies - as a large purchaser of goods and services, the government can influence business activity (e.g. its decisions about purchasing computers)

15. National Innovation Systems in Emerging Markets • South Korea and Taiwan: - 50 years ago both were poor countries - Their governments promoted research and technology setting up important university research institutes - Firms were encouraged to do R&D - Initial approach was reverse engineering and technology transfer from the rich world - Later graduated to developing world class innovations • China and India: - Began with large populations but small % highly educated - China has encouraged FDI and technology transfer - India less open, but in 1990s expanded higher education - Indian firms have focused on pharmaceuticals and software

16. Patenting, national innovation systems and performance • Emerging countries have taken different routes for acquiring and developing technologies • Catching up through technology transfer precedes the stage of becoming innovators • Big differences in US patent applications by emerging economies in last 20 years (next slide) • Korea and Taiwan show rapid growth since 1990 • China is also beginning to emerge as an innovating country after 2000 • India slower growth in IPRs due to narrow range • Brazil, Mexico and Russia very low figures

17. US patents granted to firms from emerging economies

18. Questions • Identify the three main partners within the NIS. Should they play complementary or competing roles in generating innovation? • What are the main ways in which universities and private businesses interact? • Is it a good idea for university science departments or individual academics to patent their scientific research findings? • If universities do patent, should they offer licenses to one or more firms? How much should the licences cost? Should government regulate these activities? • In public/private partnerships, is the presence of government a 'dead hand' or a necessary catalyst for innovation? • Discuss the role of government in supporting the NIS in emerging economies. • Do national statistics on the number of patents tell us anything important?

19. References Freeman, C. (1995), 'The National System of Innovation in Historical Perspective', Cambridge Journal of Economics, 19: 5-24. Goto, A. (2000), ‘Japan’s National Innovation System: Current Status and Problems’, Oxford Review of Economic Policy, 16(2), 103-113. Lundvall, B. (1992), National Systems of Innovation, London, Pinter. Siegel, D., Veugelers, R. and Wright, M. (2007), 'Technology transfer offices and commercialization of university intellectual property: performance and policy implications', Oxford Review of Economic Policy, 23(4): 640-660. Thursby, J. and M. Thursby (2007), 'University licensing', Oxford Review of Economic Policy23(4), 620-639.

20. Further References National Innovation Systems in Emerging Markets: Hobday, M. (1995). Innovation in East Asia. Aldershot, UK, Edward Elgar. Kim, D. S. and D. K. Kim (2005), 'The Evolutionary Responses of Korean Government Research Institutes in a Changing National Innovation System', Science, Technology and Society 10, 31-55. Kumar, N. (2003). "Intellectual Property Rights, Technology and Economic Development Experiences of Asian Countries." Economic and Political Weekly January 18: 209-226. Lundin, N. and S. Serger (2007), 'Globalization of R&D and China', Research Institute of Industrial Economics, Sweden, IFN Working Paper 710.