The national innovation system as analytical concept and as development tool

1. The national innovation system as analytical concept and as development tool DRUID Summer Conference June 2005Bengt-Åke Lundvall Aalborg University and Tsinghua University

2. Introduction • List as the Grandfather and Freeman as the Great Father. • SSI (Franco), RSI (Phil and Peter) and TS (Bo) as prominent sisters and brothers. • My own version is highly dependent on interactive learning with Esben Sloth Andersen, Björn Johnson, Bent Dalum, Gert Villumsen and Jan Fagerberg and many others • Today: a kind of ex post reconstruction not necessarily true to the real history.

3. Four different perspectives on the NSI • Descriptive – mapping institutions and organisations that shape innovation. • Hermaneutic – interpreting the history of economic development (the rise and fall of nation/city states). • Analytical – as based on abstractions and aiming at explaining what appears as paradoxes (success of small nations). • Normative – how to promote the contribution of innovation to economic development? Today I will discuss NSI from the Analytical and the Normative perspective.

4. What characterises good theory in social science? • Simplícity by abstracting from context. (Natural science as ideal.) Relevance calls for taking context into account. (The historical school and grounded theory). • The pragmatic compromise - abstractions with reference to historical context (Schumpeter, Freeman and Nelson). • Cumulative case studies and comparative studies result in local theories. No (hopeless) ambition to end up with ’general theory’ (Lars Mjøset). • Theory (and NSI) as ’focusing device’.

5. Basic hypothesis about historical context • Hypothesis: • The most important ressource is knowledge and the most important process is learning (Lundvall 1992 p.1). • Specifying the hypothesis: • The learning economy (Lundvall and Johnson 1994), From the knowledge-based to the learning economy (Foray and Lundvall 1996, OECD-chapter 2001). • Empirical work based on the hypothesis • Innovation Economic Growth and Social Cohesion (Ludvall 2002). • Philosophy • Pragmatism, Interactionism (Dewey and G.H.Mead)

6. Which is the fundamental component: N, S or I? • The understanding of innovation as an interactive learning process is fundamental. • Learning implies irreversibility and historical time! • Learning is located –and the N-component. • Learning as interactive brings the S-component into focus. • But it raises the issue of how innovation and learning relate to each other!

7. Defining innovation broadly • Including processes of: • Introduction of new combinations in the economy • Adaptation of new combinations in the context of diffusion. • Implementing combinations new to the firm. • But not including • Fine-tuning of processes, products and routines. • Innovation as objective or subjective category (with reference to user competence)

8. Defining learning as multi-dimensional • Individual, organisational and relational learning. • DUI- versus STI-learning • Learning different kinds of knowledge – know what, know-why, know-how and know-who • Learning tacit and codified knowledge.

9. Learning is not just incremental adaptation • Plateaus and jumps in insight and competence. • Learning fills out construction skeletons and from time to time it gives rise to new skeletons. • Learning involves more or less space for the creative mind – learning may support or undermine creativity. • Learning is dependent on diversity.

10. The intricate connection between innovation and learning IV • Interactive learning involves communication. Therefore a common language and relational learning is important – favors the national context. • Learning leading to innovation needs to feed upon diversity. Interacting with agents with different experiences is important – favors open systems. • The trade-off between proximity and diversity appear differently in different technologies and sectors. Modularisation may substitute for relational learning and lead to ’globalisation’.

11. The intricate connection between innovation and learning V • Programmatic ideas for linking innovation to learning • Distinguishing between DUI- and STI-modes of innovation in case studies and in surveys. • Linking learning and innovation to each other at the sectoral level and defining the locality of these processes. • Develop as new concept ’national learning systems’ (not about school systems!)

12. What about entrepreneurship? • Is ’individual entrepreneurship’ a real asset in innovation systems or is it a historical concept. • Can it be substituted for by collective entrepreneurship with autonomy in work. • From Schumpeter I to SchumpeterMark II and further to ’collective entrepreneurship’ - networks. • Discovery as the outcome of learning by searching – and discovery as reflecting serendipity. • Learning and searching as building up pressure for radical change - as eruptions and radical breakthroughs – not just adaptation process.

13. Comparing NSI-abstractions with standard economics I • Basic analytical units in standard economics are market exchange and economic man. With performance linked to allocation. • We take into account the current context where learning is as important as exchange and innovation outcomes are as important as allocation outcomes. • ’Learning men and women’ and ’learning organisations’ as agents – not one-dimensional ’economic man’. • New question: To what degree do markets and other institutions support interactive learning and innovation?

14. Comparing NSI-abstractions with standard economics II

15. Comparing explanatory power with standard economics. • NIS-theory gives better explanation of: • The success of certain small countries • On lack of catch-up • On the Russian paradox • NIS-theory has little to offer on: • Monetary issues • Public fínance • Welfare economics

16. The tension between ’system’ and ’evolution’ • Systems as (static) constellations of organisations defined by components and interrelationships within which new technologies are evolving. • Systems responding to transformation pressure by public policy and incremental institutional change. Installing learning organisations. • Systems responding to transformation pressure by institutional crisis, disruption and radical institutional change.

17. The tension between nation-specific analysis and global innovation-chains • STI-mode may result in innovation through global interaction But • To absorb innovation national STI-capacity is necessary. • DUI-mode may result in products that are globally distributed. But • To use the outcome DUI-capacity is necessary.

18. Do less developed economies innovate? • Not many new technologies brought to the world market (but this is true also for Denmark but less so for BRICS-countries). • But highly dependent on using technologies radically new for domestic users. ’Transfer’ and even ’Absorption’ understate the challenge. • There is no clear distinction between institutions that promote innovation and institutions that promote ’Absorption’.

19. A small country paradox in the knowledge based economy • The production of new knowledge is expensive while it’s repeated use is cheap – should give big country systems a scale advantage. • True that small countries have a weak international specialisation in high technology and science based sectors • But Western small countries (Nordic countries, Holland, Belgium, Austria, Switzerland) do very well in terms of GNP per capita – why? • To resolve the puzzle - new perspectives on growth and on knowledge production in the learning economy.

20. New perspectives on Growth and Develop-ment –four kinds of capital

21. What can be learnt for less developed countries • High Tech strategy is costly, risky and slow - might be tried but needs to be combined with upgrade of low tech! • Promote incremental product innovation and organisational change - Learning organisations and competence building is the key to success for small countries! • Social cohesion and social capital matters - NEW NEW DEAL mechanisms to distribute the costs and benefits of change!

22. A national system’s approach to innovation and competence building • Look for missing links and weak user competence as well as for weak knowledge base! • Look at networks as constituted by people’s relationships and experiences. • Not one best-practise (the limits of bench-marking). Best-practise varies with the systemic context.Problems with transplanting foreign practises. • Managing the openness of the system is becoming increasingly important.