Regional Economies in a Globalising Economy Enhancing Intellectual Capital and Innovation Cardiff, 21 November 2008

1. Regional Economies in a Globalising EconomyEnhancing Intellectual Capital and InnovationCardiff, 21 November 2008 Challenges for the Design of Regional Innovation Policies: Lessons from Europe Claire Nauwelaers UNU-MERIT Maastricht University and United Nations University

2. Plan • Changing framework for innovation and innovation policy in regions • State-of-the-art in innovation policy in EU • Examples of regional innovation policyinstruments in Europe • Policy challenges: the way forward

3. The changing framework for innovation • Increased awareness of the role of innovation as crucial ingredient for economic development • Interactive and open view of innovation - innovation differs from R&D – central role for enterprises • System-based approach to innovation, emphasis on learning and diffusion / absorption of knowledge • Mobility of tacitknowledge embedded in humansbecomes a key performance factor • Diversity in innovation « ecosystems » and role of informal institutions • Glocalisation : localised nature of (tacit) knowledge spillovers - importance of global connections

4. Framework conditions Rules & Regulations Science and Innovation Systems Science policy Innovation policy Incubators, Mentoring… Public R&D Firms R&D Firms system Large, small, MNCs, NTBFs, … Intermediaries MARKETS Human capital Education & Training Business support Venture Capital

5. Objective of policy intervention: from optimal allocation of resources, towards ensuring the overall coherence of the system and improving its evolution capacity. • Instruments’ targets: free flow of knowledge in the system, addressing lock-in situations, favouring networking between innovation actors, etc. • Justified by systemic failures arguments. • “Systemic” policy instruments are gaining ground (Kuhlmann and Smits 2004): • oriented towards the evolution of the innovation system • preventing lock-ins • building of spaces for interactions between the actors • support to creativity Policies for innovation systems

6. From “stocks” to “flows” as main focus of policy attention • Flows in the system need to be addressed in priority From “raising resources” towards “promoting change” • Performance is affected by learning abilities of firms and others From “best practice” towards “context-specific” solutions • Policies should be fine-tuned to specific system failures From “standard” policy-making towards policy “learning process” • There is a need for more strategic intelligence in policy-making Policies for “activating knowledge” Policies for innovation systems

7. State-of-the-art in innovation policy • Innovation policy scene : dominated by linear tools, addressing inputs in the innovation process rather than the functionning of the system, providing support to firms in isolation rather than to networks of actors • Policy instruments that address changes in behaviour for innovation, dealing with strategic, informational, or organisational or needs : rare and immature • Lack of strategic approach to policy system

8. Behavioural additionality in firms Moving towards a learning organisation implies : • Internal changes : flat hierarchies, devolution of responsibilities, multi-functional teams, new competencies (flexibility, responsibility…), « second loop » and « on line » learning, quality management, human resource development, … • External changes : inter-firms relationships, external networks Empirical analysis of 2000 Danish firms (2001 survey) : • firms combining several of the organizational traits of the learning organization are more innovative • (incremental) innovation and learning are two sides of the same coin Nielsen and Lundvall, DRUID Working Paper N°03-07

9. Regional policy instruments targeting innovation in SMEs • Value of “umbrella” instruments • Appropriate policy portfolio : based on combination of regional and firm’s deficits • There is no one-size-fits-all policy system • Policy designers and implementers need : high degree of understanding of the innovative firm's behaviour, self-reflexive capacity and openness to evaluation • Division of labour within government causes policy fragmentation

10. RITTS Success and Failure factors RTDI Capacity Experiencein strategy Institutional Capacity Region Capacity RITTS driving force Legitimacy Political backing  Economic conditions Openness Inclusive-ness RITTS Manage-ment Political backing throughout RITTS Managementof consultants Legitimacy of project leader Inclusiveness of process

11. RITTS outputs : examples (with a policy learning dimension) • Voucher scheme in Uusimaa (Finland) • Evolution towards more demand-led scheme • Spiegel (= Mirror) project in Limburg (NL) • Improving strategic thinking in SMEs • Clusters in Overijssel (Netherlands) • Interactive policy – making • Competence centres in Berlin (Germany) • Global approach to innovation

12. Common features of new instruments • Background : interactive innovation • Coordination and synergy of support • Target = SMEs needs, bottom-up defined • Behavioural additionality • Focus networks of actors (system-oriented) • Learningin policy making

13. Need for bridging initiatives between actors in innovation system • Clusters programmes • Competitiveness poles models • Regional growth initiatives • Etc. Challenge for Innovation policy : organise complementarity and synergy between policy areas « Systemic » innovation policies

14. The BRIDGE Technology transfer From source to recipient A specific place Focused support Material support In-house support Technology gap The CLUSTER of COMPETENCE Dialogue creation Multilateral exchanges A node in a system Multiple support “Learning support” Clearing house …and managerial gap Implications for Science Parks

15. Implications for Regional Innovation Agencies 1

16. Implications for Regional Innovation Agencies 2

17. Implications for Regional Innovation Agencies 3

18. S&T intermediary system in WalloniaFirms’ needs A: Innovative and R&D-intensive cies Raise their number Research commercialisation, spin-offs… A B: Innovative adaptive companies Move to A technology diffusion , find new opportunities… B C: Potentially innovative cies, not well structured for innovation Move to B Raise innovation awareness mentoring… C

19. S&T intermediary system in WalloniaOrganisation of support University interfaces, IP management, science parks, venture capital, RDT aids, access to EU R&D, … A: Innovative and R&D-intensive cies A Collective research centres, Technology centres, technology audits, SMEs aids… B: Innovative adaptive companies B C: Potentially innovative cies, not well structured for innovation C Scattered support, unprofessional Small cies networks…

20. Structural Funds for the knowledge economy2000-2006: 5.5% of total EDRF resources devoted to RDTIObjective 1 zones: 5% - Objective 2 zones: 10% Source: Technopolis, UNU-MERIT, Lacave, Ismeri, Logotech (2006)

21. Main bottlenecks to efficient absorption of funds and effective outcomes of RTDI measures: • Administrative rather than strategic management of RTDI measures • Lack of expertise at national and regional levels in managing RTDI measures • Continuing dominance of supply-side measures with poor linkages to regional innovation systems • Limited interest for many ‘softer’ ‘demand-side’ measures aimed directly at enterprises • There is path dependency: share of SF devoted to RTDI higher where national innovation policy is more intense, and lower where national policy is weaker. Difficulties for the SF to modify national strategies. Structural Funds for the knowledge economy Source: Technopolis, UNU-MERIT,Lacave, Ismeri, Logotech (2006)

22. The diversity of European regions Source: Wintjes (2006)

23. Key challenges for ERDF • Need for differentiated policies • move towards supporting more demand than supply side of innovation (ex ante analysis !) • balance technology focus with other forms of innovation • consider ‘downstream’ research developed for the needs of markets • give preference for competitiveness when developing strategies • focus on social capital • Innovative and more complex projects should be favoured over focus on funds absorption Source: Technopolis, UNU-MERIT,Lacave, Ismeri, Logotech (2006)

24. National Reform Programmes:towards improved policy governance ? “The Open Method of Coordination is a powerful instrument to assist Member States in their efforts to adopt a more strategic and integrated approach and to deliver more efficient polices” (European Commission 2005). • Aim of NRPs: to identify coherent and integrated mix of policies which together would bring the leverage effects towards the Lisbon objectives • Gaps in the strategic loop: diagnosis – broad routes - instruments • Prioritisation and effectiveness of policy mix ?? • Continuum science – technology – innovation (despite Commission guidelines !) Source: Lisbon expert group (2006)

25. National Reform Programmes:towards improved policy governance ? • Positive correlation between RDTI performance and priority on knowledge policies • Administrative versus strategic policy implementation • New coordination structures but few “policy mix” considerations • Ex post appropriation process of NRPs • A current limited role of indicators to monitor policy success • Policy evaluation does not appear prominently • Weak visible impacts of OMC so far • Marginal internationalisation trends Source: Lisbon expert group (2006)

26. Inside the black box of policy-making How to reinforce this loop ?

27. Tensions in policy-making • Competing rationalities across policy fields and different schools of thoughts • Short-termism in resources allocations • Innovation as a “homeless” policy • New Public Management and need for coherence • Individual ambitions versus grand visions Source: OECD MONIT study (2004)

28. Innovation Policy :The way forward (1) • Effectiveness of innovation systems depends on balanced combination of 3 capacities : • creation of knowledge • diffusion of knowledge • absorption of knowledge • Growing importance of framework conditions • entrepreneurship • competition rules • labour market conditions • financial market • social capital, ...

29. Innovation Policy :The way forward (2) • Government’s role shifts from investor to facilitator - promotion of public/private partnerships and interface management • Improving knowledge governance in firms and clusters of firms becomes a key issue • Policies need to "open borders" : between : • traditional fields of policy intervention • industries traditionally defined • various forms of knowledge production and diffusion

30. Innovation Policy :The way forward (3) • More efficiency through “Policy packages” rather than isolated instruments – Consider Policy Mix • Demand oriented innovation policies: a “set of public measures to induce innovations and / or speed up diffusion of innovations through increasing the demand for innovations, defining new functional requirement for products and services or better articulating demand.” (Edler 2007) • Public procurement. • “Soft steering" concepts geared to the willingness and ability to accept, demand and apply innovations • Measures stimulating the articulation of needs, preferences, ideas and fears of potential users • Shaping of regulations and norms

31. Innovation Policy :The way forward (4) • Need for more strategicpolicy intelligence • monitoring and evaluation of policies (systemic evaluations !) • sound analyses of innovation systems • « intelligent » benchmarking practices • long term views (foresights, strategic learning platforms, etc. ) • inclusive policy design processes, stakeholders engagement