Improving the Governance of National Innovation Systems Insights from the OECD Reviews of Innovation Policy

1. Improving the Governance of National Innovation SystemsInsights from the OECD Reviews of Innovation Policy Gernot Hutschenreiter Country Studies and Outlook Division OECD Directorate for Science, Technology and Industry China-OECD Roundtable on Innovation Policies, Beijing, 18-19 October 2011

2. OVERVIEW • What is governance? • The importance of governance • Challenges to governance • Government responses: improving the coherence of policy, better co-ordination • Long-term steering of innovation systems: a dynamic view

3. The importance of good STI governance • Countries performance in innovation depends – to a significant part – on the quality of governance, including the quality of • co-ordination of policies in several dimension: framework conditions versus dedicated STI policies; across ministries / agencies; between different levels of government (international – national – regional) • the interplay between policies (e.g., between / among ‘framework policies’ and ‘dedicated’ STI policies) • resources allocation processes, e.g. through explicit priority setting or other means, leading to an appropriately adapted “policy mix” • the information base for decision making • In a forward-looking perspective, governance needs to be adaptive in order • to steer the innovation system over the longer run, following a long-term strategic vision • to deal effectively with a changing environment (advances in technology, institutions, complex phenomena like globalisation ...)

4. What is governance of science, technology and innovation? • The set of largely publicly defined institutional arrangements, incentives, etc. , that determine how the various public and private actors engaged in socio-economic development interact in allocating and managing resources devoted to science, technology and innovation • Governments play a key role in providing the framework conditions, supporting institutions, infrastructures and incentives that enable innovation on a broad scale • ... but other actors belonging to the research and business sectors as well as other stakeholders also play an important role in governance, e.g. by generating and maintaining the social capital that is important for innovation

5. Challenges for governance

6. A broadening scope of STI policy and a more differentiated policy mix • As innovation policy moves to the centre of economic policy making it needs to be better linked to other policy areas • Better appreciation and understanding of the interplay between policies (e.g., between / among ‘framework policies’ and ‘dedicated’ STI policies) calls for improved co-ordination across government • A broad concept of innovation • taking into account various types of non-technological innovation – not new, but better understood; • implications for (the role) of government are not always obvious and may differ depending on the state of development of the economy and innovation system (e.g. reflecting the state of development of different types of markets) • ... has translated into a broader policy space and a more differentiated policy mix • ... implying a greater need to ensure coherence

7. The emergence of multi-level governance • The landscape has become more complex due to the emergence of new actors at different levels of governance • Supranational – national – regional levels • The formation of this multi-actor / multi-level landscape has led to an increasing need for political co-ordination among the multiple agents and governance levels involved in policy formulation and implementation

8. Global R&D landscape

9. Government’s responses of governments: Improving coherence and co-ordination

10. Improving the coherence of the policy mix ‘Framework policies’ and ‘dedicated’ STI policies • Increased recognition of the role policies aimed at shaping the ‘framework conditions’ for innovation (e.g. in ‘systemic evaluations’ of innovation policy): • Macro-economic stability • Performance of product, labour and financial markets (regulatory framework) • Competition, IPR regimes, infrastructure, etc. • Framework-related policies need to be considered explicitly as part of the overall policy mix; they are necessary yet insufficient in the presence of market and governance / systemic failure • Theory as well as empirical evidence, including OECD work, indicate that both have a place independently and in combination with each other • Leveraging the impact through comprehensive reforms / packages of measures taking into account the main interactions between ‘framework’ and ‘dedicated policies’ / ‘tightly coupled parts’ • This includes complementarities and trade-offs (e.g., competition policy / financial incentives for R&D; labour market regulations and immigration policies / incentives for R&D)

11. Improving the coherence of the policy mix Striking balances among dedicated measures to foster innovation (1) • Direct / indirect support for R&D and innovation dimensions • For some time shift towards the latter, but balance has to be achieved in order to make best use of respective advantages • Preferences (e.g., concerning the tax system) and capabilities (e.g., in tax administration) may constrain their application, and thus feasible combinations • Post-crisis reversal? • Example: Mexico – In the past heavy bias towards tax incentives mainly benefiting large firms (subsidiaries of MNEs) • Institutional / competitive funding (of PROs) • Shifting balance as role of PROs and markets are evolving • The shift towards competitive funding has provided powerful incentives for PROs and universities. At the same time stability and capabilities have to be maintained • Some rebalancing in response to ‘overshooting’ • Example: New Zealand – Shift towards competitive funding of PROs may have gone too far, resulting in some degree of instability and unintended side-effects

12. Improving the coherence of the policy mix Striking balances among dedicated measures to foster innovation (2) • Supply-side / demand-side measures • Traditional bias towards the supply side • Rebalancing in view, e.g. of societal needs, better understanding of innovation • Examples: Switzerland – steps towards complementing “supply driven” technology and knowledge transfer from Higher Education Institutions to enterprises by measures that build on the demand from SMEs; reflexions on the use of public procurement to stimulate innovation in various countries

13. Balance of supply and demand orientation • Source: OECD Secretariat.

14. Improving the coherence of the policy mix Striking balances among dedicated measures to foster innovation (3) • Individual project-based / ad-hoc – consortia-based / longer term support. Consortia are useful among others for triggering behavioural change (e.g. co-operation between different types of actors • Example: Norway – mix of Research Council support measures • Bottom-up / top-down approaches. Bottom-up for more standard types of innovation projects, but also to gather information and induce self-organisation on new areas, e.g. by sufficiently unrestrictive competitive calls. Top-down for deliberate changes in directions • Example: Korea – Future Growth Engines and 21st Century Frontier R&D Programmes • Evidence-based policy making • Greater actor autonomy (e.g. Universities, PROs) => greater need for accountability => use of review and evaluation => generation of strategic policy intelligence • Policy learning needs to be institutionalised and is easily disrupted • Example: Hungary – frequent changes in institutions as an obstacle to policy learning thus to evidence-based policy making

15. GOVERNANCE The governance triangle – Coherence in the policy cycle OECD (2009), Country Reviews of Innovation Policy Synthesis Report (unpublished) I M P L E M E N T A T I O N R E F L E X I V I T Y Policy Action & Experimentation (Policy Instruments) Policy Targets & Paths (Articulating Goals) Mapping & Analysis (Framing Problems) A G E N D A – S E T T I N G

16. Stability, commitment, leadership • Maintaining stability / predictability of institutions and policy delivery • While innovations in the policy framework are necessary, frequent changes tend to be counter-productive, reducing the power of incentives for R&D and innovation for both business and Public Research Organisations (PROs) • Example: Many developing but also some OECD economies • Securing commitment • Safeguard public funding for STI against “crowding out” by short term demands – even more importantly in a crisis / post-crisis environment • Example: Norway – the Fund for Research and Innovation; various resource based economies • Providing leadership • Involvement of the highest level of government is often needed in order to secure policy attention and commitment • Examples: Chile – active involvement of Ministry of Finance has helped developing and “anchoring” innovation policy in a certain phase; various negative examples

17. Better co-operation can improve policy coherence by a number of arrangements ... • Growing inter-ministerial (“horizontal”) co-operation, sometimes co-ordinated by Prime Ministers, involvement of Ministries of Finance, etc. • Ensuring an effective policy co-ordination and stakeholders’ participation • Examples: Hungary, Mexico – high-level councils have by and large failed to deliver the expected co-ordination; Switzerland – (too?) strong focus on science; Korea – perhaps gone the furthest in trying to solve co-ordination problems • Growing involvement of stakeholders (scientific institutions, business, the wider public) in the debate on science and technology policy, e.g. through participation in advisory Councils and their activities, foresight exercises, public awareness campaigns, etc.) • Growing involvement of regional governments and actors in innovation policy in many countries, sometimes constrained by lack of capacities

18. Selected approaches for increasing coherence Set-up high-level policy councils – a popular device in OECD countries, but with mixed results Articulate strong guiding national visions or strategies, e.g. through foresight exercises Merge policy-making organisations, for example, into ‘super-ministries’ – but has its limits Adopt joint programming practices – popular with EC, but also at national level

19. High-level policy councils • Councils to advise governments on science and innovation are a long established practice in many OECD countries, though their success is highly variable • The function of these councils has tended to reflect contemporary thinking about the role of science and technology in innovation • The extent to which councils have a basis in legislation is driven by the legal traditions of the countries involved • Membership tends to span the industry and education spheres, with representatives from relevant ministries, academics and industrialists. PM acts as chair in several instances • The turbulent history of councils internationally suggests both that their form and functioning are hard to get right and that some degree of experimentation is necessary Source: OECD (2009), Chile’s National Innovation Council for Competitiveness (Follow-up to the OECD Review of Chile’s Innovation Policy)

20. Adjudicating between actors Advice to government Introduce a long term perspective Policy council functions Source of strategic intelligence Monitor international S&T developments Formal evaluation Enhance the profile of STI Budget planning and allocation

21. Three models can be discerned An advice model (Canada, Ireland, Netherlands, Switzerland, UK), where thegovernment is happy to be proactively or reactively advised on research and innovation policy but does not want to be restricted by that advice A co-ordination model (Finland, Austria), where the intention is that the council should communicate horizontally across ministry responsibilities so as to align policies in support of innovation, without this alignment always being binding A joint planning model (Japan, Korea), where the government uses the council as a virtual “horizontal ministry of innovation”, much as engineering companies build project teams by bringing together people across different disciplines Source: OECD (2009), Chile’s National Innovation Council for Competitiveness (Follow-up to the OECD Review of Chile’s Innovation Policy)

22. Limits to attainable policy coherence • There are limitations of what can be realistically achieved in terms of policy coherence: • There is a gap between the need for coherence and the capacity to achieve it • Governing in multi-actor systems necessarily involves a degree of incoherence • No single governance system can guarantee improved policy coherence, i.e. there is no best practice • There nevertheless exist good practices and tools of coherence • The paramount tool of coherence is informed decision making Source: OECD (1996), Building Policy Coherence: Tools and Tension

23. TRANSLATE Strategic intelligence EVALUATE ANALYSE Governance is an institutionalised learning process: the innovation policy cycle

24. Three levels of monitoring & evaluation 1 2 3 Framework conditions for innovation STI Policy Mix Demand-side measures e.g. Procurement policies e.g. Public-private partnerships e.g. Promotion of innovation in SMEs STI programmes and measures e.g. R&D tax incentives Grants Supply-side measures

25. Governance: steering in the long term

26. Move towards more firm-centered innovation systems In-house product innovators by sector (as a percentage of all firms), 2002-04 Source: OECD, based on Eurostat, CIS-4 (New Cronos, May 2007), national data sources.

27. OECD Review of China’s Innovation Policy See: www.oecd.org/sti/innovation/reviews

28. China’s innovation policy: institutional reform and learning curve Source: OECD Reviews of Innovation Policy: China.

29. Transforming an innovation system Making firms the central actors: The case of the Russian Federation Governance Policy mix Improved framework conditions; Restructuring of the R&D intensive sector; Enhanced contribution from public research and education; Promotion of business innovation; etc.

30. Some related work at the OECD • Country Reviews of Innovation Policy • Customising instrument that takes a broad national innovation system perspective – well beyond R&D to include, e.g. framework conditions for innovation • Policy mix and governance arrangements are important components and the Reviews typically make suggestions on how to improve these • Reviews have had significant impacts in those countries reviewed so far (mix of OECD/non-OECD, large/small, advanced/emerging) • Innovation Policy Platform (IPP) • Web-based tool to facilitate STI policy learning – under development • Will support users (policy makers and analysts) in better understanding the performance and dynamics of their innovation systems and the leverage points for more effective policy interventions • Guidelines for better appreciating existing and desirable/feasible governance arrangements and innovation policy mixes are key components

31. OECD Reviews of Innovation Policy • Comprehensive analysis of the respective national innovation system, with a focus on the role of government policy. • “Learning”: deepen the understanding of priority issues in the area of science and innovation by analysing them in concrete national contexts • “Outreach”: facilitate the participation of selected non-member countries in OECD work and benefit from OECD work and experience See: www.oecd.org/sti/innovation/reviews

32. Thank you for your kind attention谢谢 Contact: Gernot.Hutschenreiter@oecd.org www.oecd.org/sti/innovation/reviews