Norwegian innovation policy in a path dependence/path creation perspective

1. Norwegian innovation policy in a path dependence/path creation perspective NORSI course on Innovation Systems, Clusters and Innovation Policy October 25, 2012 Olav R. Spilling

2. Norwegian innovation policy in a path dependence and path creation perspective Part I: Brief on the Norwegian Innovation Policy and its context Path dependence Path evolution and path creation Path dependence and innovation policy The Norwegian innovation policy approach Some preliminary assessments Part II: Path evolution: The case of a national programme for stimulating the development og regional clusters • Objective: • Analyse the Norwegian innovation policy approach with a particular focus on • path dependence and path creation • related variety • strategies for searching new policy options.

3. Innovation policy Innovation policy Public interventions which influence innovation activities in society European Commission 1997: … innovation policy refers to elements of science, technology and industrial policy that explicitly aim at promoting the development, spread and efficient use of new products, services and processes in markets or inside private and public organisations. • Focus on the impact on economic performance and social cohesion • Innovation policy has wider objectives than those of science policy and technology policy • Innovation policy includes policies which aim at organisational change and the marketing of new products. Source: European Commission (1997). The globalising learning economy: Implications for innovation policy.

4. The rationale of innovation policy System failure or systemic problems Edquist and Hommen 2006: … researchers following a systemic approach often speak of systemic problems. In contrast to the conventional approach outlined above, the main focus of the systemic approach is the complex interactions that take place among the different organisations and institutions that constitute the system of innovation. From this perspective, policy makers need to intervene in those areas where the system is not functioning well. The rationale for innovation policy should therefore be based on 'systemic' failures or problems rather than on 'market' failures. Edquist, C. and L. Hommen (2006). Comparing National Systems of Innovation in Asia and Europe: Growth, Globalisation, Change and Policy.

5. Brief on Norwegian innovation policy Innovation policy has generally been low on the agenda • The first systematic initiatives for developing innovation policy were taken during the early 2000s: • The Government’s Action Plan for innovation policy (2003) • The White Paper on innovation 2008-2009 (St.meld 7, 2008-2009) The White Paper on Innovation Policy (St.meld. Nr 7, 2008-2009) Action points: The Government’s innovation policy shall stimulate sustainable value creation in the Norwegian economy by stimulating and facilitating: Innovation in SMEs Culture for entrepreneurship Employee-driven innovation Innovation in the public sector Industrial R&D Commercialisation of business ideas (in HEIs) Environmental technology IPR Policy measures for innovation Design as a tool for innovation Innovation in services Further development of the innovation policy approach • Innovation policy is a complicated field • Many ministries are involved • A number of policy documents are relevant • Criticism of the Norwegian approach • Lack of visions on the long term development • Fragmented approaches • Missing a coordinating body

6. Background and issues • Norway one of the world’s most successful states in terms of economic performance, welfare and egalitarian structure • Strongly dependent on natural resources (hydroelectric power, marine resources, oil and gas) – very successful industrial development in these sectors • Norway’s high performance in these areas due to a successful policy approach • Relatively low performance in other strategic areas, e.g. “high tech” industries • To what extent represent these strengths negative lock-ins? • To what extent is it necessary to create new paths for industrial development? • To what extent are these issues addressed in the Norwegian innovation policy approach (explicit or implicit)

7. Issues • Characteristics of Norwegian industries: • Low investments in R&D (as % of GDP, but high per capita) • Low level of innovation activity, and declining innovation activity during the 2000s (ranking no 16 on EIS) • Issue: • To what extent is there a need for transformation to industries with a higher level of R&D investments and higher level of innovation activity? • The national innovation policy approach: • Broad-based, less explicit • Oil and gas policy not integrated in innovation policy • Lack of visions regarding what may be the main future industrial bases as the petro-based activities some time in the future are scaling down • Issue: • Is the current policy approach adequate in terms of:- addressing future challenges?- searching new opportunities?- facilitating the exploitation of these opportunities?

8. Path dependence Path dependence explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant. (The free Encyclopedia) Martin & Sunley “A path-dependent process or system is one whose outcome evolves as a consequence of the process’s own history” General interpretation: Path-dependence means that all processes of evolution in an area depend on the existing industrial structure, entrepreneurial culture, social structure, institutional structure etc.

9. Lock-in Positive and negative lock-in: • Types of lock-in: • Technological • Competence/Knowledge bases • Institutional (formal) • Cultural/Social

10. Path dependence Evolutionary processes: Variety creation – adaptation – selection - retention • The geographic area (the system) represents • Windows of opportunities • Selection environment Fagerberg et al 2009: “At any point in time many new ideas emerge, but only those that are well adapted to the contemporary selection environment are likely to be applied and form the basis for continuing adaptation and improvement.” (p 432) “The national innovation system is also the selection environment for new entrepreneurial ventures, and path dependency influences these selection processes. New ventures that have little in common with economically strong existing sectors may find the national innovation system is poorly adapted to their needs.” (p.433)

11. Path dependence and related variety • Purposeful entrepreneurial deviation: • New ventures are often spin-offs from other firms or in other ways related to the existing industrial structure • Entrepreneurs transfer technology, competence etc from “parent firms” to their new ventures • New firms in the same or related sectors seems to be most successful • When spin-offs enter a new, but related sector, this may lead to path dependent path creation • Entrepreneurial opportunities: • Not exogenously given, but are deliberately made • Based on the entrepreneurs’ interpretation • Depends heavily on prior experience and learning • (Based on Martin and Sunley 2010 p.30-31) The most important aspect of path dependence may be the existing entrepreneurial climate resulting from pre-existing conditions (Carlsson 2007)

12. Path evolution and path creation Martin, R. & P. Sunley (2010): The Place of Path Dependence in an Evolutionary Perspective on the Economic Landscape. In Boschma, R. & R. Martin (Eds) Handbook of Evolutionary Economic Geography, Chichester: Edward Elgar

13. Path evolution and path creation Martin&Sunley 2010

14. Path creation • Classic view on path dependence rooted in box 4 • More recent work in economic geography has adopted positions in boxes 2 and 1 and has put much more emphasis on the re-use and transfer of resources and competences • Source: Martin & Sunley 2010

15. Path dependence in Norway • Benner (2003): The Scandinavian challenge. • The Norwegian economy is still based on relatively low-technology sectors, where radical innovations or major technological discontinuities are rare … • Norway seems stuck in its traditional growth paradigm • The question … is how a new growth model can be supported, and how the government can promote the rise of knowledge-based industrial sectors • The Norwegian development is similar to the Swedish one. With no immediate pressure for a structural transformation of the economy in the presence of the rich oil supplies, the institutional adjustments have been relatively weak, and there is no real socio-political backing of a radically new growth strategy as a response to the challenges of the knowledge-based economy. Fagerberg et al 2009: The historical development of Norway’s national innovation system is characterized by strong path dependency. The Norwegian innovation system has been dominated by resource-based innovation. The development of new industries that are less closely linked to natural resources, in spite of considerable support from public policy, has been relatively unsuccessful in Norway.

16. Finland: From path dependency to path creation • Schienstock (2007): • The development of a new techno-organizational path and its embedding into a new institutional and cultural setting cannot be understood as a sudden break from the old path. Instead, the new path is often emerging gradually, side by side with the old path (p96) • The competitiveness of the Finnish ICT cluster due to several factors: • Corporate specialisation • The core company as a key global player • Network of SMEs closely cooperating • High R&D investments and close science-industry cooperation • Highly educated workforce • Focus on firm-centred innovation policy • Institutional adaptation • The educational system • The financial system - foreign capital • Venture capital • Changed policy orientation from an investment-oriented, short-term macroeconomic policy into an innovation-oriented, long-term microeconomic policy

17. Transformation of regional innovation systems • Tödtling and Trippl 2011/Asheim et al 2012 • Three ways of RIS-transformation (Path evolution): • Path extension • - changes within existing industries og clusters • - modify the existing trajectory, but does not alter it • - modest changes in the knowledge infrastructure • Path renewal • - open up new directions, broadening the economic base • - rise of new clusters (in established industries) • Path creation • - growth based on new technological and organisational trajectories • - branching out of existing industries into new but related fields • The importance of the existing RIS: • “Preexisting local economic and technological structures, knowledges and competencies matter essentially.”

18. Path dependence and innovation policy • Smits et al 2010: • An appropriate ‘evolutionary’ targeting perspective should be developed implying a strong strategic process of selection by government • It is imperative to assure that sufficient creation of new options and associated experimentation and learning (‘variation’) take place before a finalized targeting policy be implemented Appropriate targeting perspective • Need for: • New arenas of interaction • New mechanisms of interaction and mutual adaptation • Strategic intelligence • Strategic niche management Strategic process of selection Assure sufficient creation of new options and associated experi-mentation and learning (variation) Implementation of finalized targeting policy Smits, R.E., S. Kuhlmann & M. Teubal (2010) A system-evolutionary approach for innovation policy. In Smits et al.

19. The Norwegian innovation policy approach The White Paper on Innovation Policy (St.meld. Nr 7, 2008-2009) Action points: The Government’s innovation policy shall stimulate sustainable value creation in the Norwegian economy by stimulating and facilitating: Innovation in SMEs Culture for entrepreneurship Employee-driven innovation Innovation in the public sector Industrial R&D Commercialisation of business ideas (in HEIs) Environmental technology IPR Policy measures for innovation Design as a tool for innovation Innovation in services Further development of the innovation policy approach

20. The Norwegian innovation policy approach

21. The Norwegian innovation policy approach – cont.

22. The Norwegian innovation policy approach – cont.

23. Summary Main weaknesses X X X X

24. Not integrated (or marginally integrated) in the national innovation policy • Policy fields not included in innovation policy (or just marginally mentioned): • Oil and gas (just marginally mentioned in the white paper)Most important sector in Norway – data for 2010: - 21% of GDP- 24% of State revenues- 26% of all investments- 47% of all export • Renewable energy (hydroelectric power, wind onshore and offshore, bioenergy, solar energy)(Significant activities funded by the Research Council) • CCS (Carbon Capture Storage) – large scale technology projects in progress, long way to go to industrialize

25. Summary the Norwegian innovation policy approach

26. Sector specific strategies – preliminary assessments

27. Conclusion I • The perspectives of Path Dependence and Path Creation provide a useful theoretical basis for discussing the Innovation Policy approach • Further work required to develop the framework. • Preliminary conclusion regarding the Norwegian innovation policy approach: • Still not a very distinct and proactive policy approach • Missing perspectives regarding the balance between the oil economy and other sectors • In some areas the Government pursues a very systematic strategy for searching and identifying new policy options (e.g. environmental technology, health care services) • Some areas less developed (e.g. public procurement) • Important sectors not integrated in innovation policy (e.g. oil and gas, renewable energy)

28. Conclusion II • Innovation policy as a strategy for searching new policy options: • The principal policy level • Norway 2020 – Primarily symbolic • The sectoral level • Innovation in the health care industry – Adequate strategy • Environmental technology – Adequate strategy • Innovation in services – Adequate strategy • The CCS Strategy – Failure • The regional level: • The Arena-programme • The VRI-programme (Policy measures for regional R&D and innovation)

29. Selected references Benner, M. (2003) The Scandinavian challenge. The future of advanced welfare states in the knowledge economy. ActaSociologica, 46, 132-149. Fagerberg, J., D.C. Mowery & B. Verspagen (2009) The evolution of Norway’s national innovation system. MPRA Paper No 19330 Martin, R. & P. Sunley (2006) Path dependence and regional economic evolution. Journal of Economic Geography vol 6 (2006) 395-437 Martin, R. & P. Sunley (2010): The Place of Path Dependence in an Evolutionary Perspective on the Economic Landscape. In Boschma, R. & R. Martin (Eds) Handbook of Evolutionary Economic Geography, Chichester: Edward Elgar Smits, R.E., S. Kuhlmann & M. Teubal (2010) A system-evolutionary approach for innovation policy. In Smits, R.E., S. Kulhmsnn & P. Shapira (Eds) The theory and practice of innovation policy. Cheltenham UK: Edward Elgar 417-448 Schienstock, G. (2007) From path dependency to path creation: Finland on its way to the knowledge-based economy. Current Sociology, 55 (1): 92-109 Tödtling, F. & M. Trippl (2011) Transformation of regional innovation systems: From old legacies to new development paths. Paper at Colloquium in Cardiff, April 4-5, 2011

30. Appendix Action points in the English version of the White Paper on Innovation Policy – “An Innovative and Sustainable Norway”

31. The Norwegian IP approach – the English version An Innovative and Sustainable Norway • Knowledge and Competence • White paper on teachers role and education • White paper on internationalisation of education • Follow-up the Government’s strategy for promoting mathematics, science and technology • Review how the education sector and working life are working together, and consider various strategies to strengthen this field • White Paper on the structure of the education system with a view to future competence needs • Advance a mentality encouraging entrepreneurship, including an action plan on entrepreneurship in education, with particular emphasis regarding higher education. • Innovative undertakings • Strengthen the instruments for inno-vation, among other ways, by increasing allocations to research and innovation and by initiating overall evaluations of Inno-vation Norway and the Industrial Deve-lopment Corporation of Norway (SIVA ) • Ensure that the values created are well protected, among other ways, by provi-ding a package of measures for patents and other rights with an improved training provision and a more up-to-date statutory framework • Strengthen the use of design as an innovation tool by setting up a design-driven innovation programme • Focus on the employees, and consider new measures for promoting staff-driven innovation in collaboration with the Norwegian Confederation of Trade Unions and the Confederation of Norwegian Business and Industry

32. An Innovative and Sustainable Norway – cont. • Focus on Doing What We Are Good At • Focus on environmentally friendly innova-tions, among other ways, by allocating more research funds to development of environmental technology, by setting up a strategy council for environmental tech-nology and by preparing a national strategy for environmental technology • Invite the organisations in service industries to a dialogue with a view to developing precise policy instruments for increased innovation in these areas • Follow up investments in the High North strategy and present a national strategy for marine bioprospecting • Present an overall strategy for marine industries • Follow up the national strategy for the tourism industry • Follow up the national strategy for the maritime industries • Continue efforts on encouraging further industrial development based on our abundant energy resources • Participate in investigations of the potential for a future-oriented ocean laboratory • Start-up and Growth • Develop an overall industrial strategy for small and medium-sized enterprises • Elucidate the need for new measures to support female entrepreneurs, and consider how better provisions can be made to realise the good ideas of people with long experience • Establish favourable conditions for commercialising good business ideas through better information about current policy instruments, and assess new policy instruments

33. An Innovative and Sustainable Norway – cont. • Research and Development • Strengthen research in industry by increasing allocations to user-oriented research programmes and to R&D contracts • Continue the Skattefunn tax relief scheme • Contribute to improved interaction between industry and research by strengthening the industrial doctorates system and efforts related to commercialisation of research results • Establish favourable conditions for long-term knowledge building, and increase investments in research equipment • Strengthen regional research activities by allocating NOK 6 billion to regional research funds • Submit a white paper on research to the Storting • Innovation in the Public Sector • Review incentives for renewal of the public sector • Appoint a public committee to propose how to make better conditions for innovation in the social care sector • Extend the duration of the demand-driven innovation and business development in the health sector to ten years, and also extend it to include research-based innovation • Involve the users in the development of services through national surveys and measurements of performance achievement • Establish favourableconditions for wealth creation based on sound solutions in the public sector and increased use of public data • Strengthen the municipal sector as a service provider • Increase competency on how public procurements can contribute to innovation and simplify the use of R&D contracts for public procurers • Simplify interaction with the public sector and ensure greater use of innovative solutions, among other things, electronic signatures • Strengthen the public R&D contract scheme, with a particular focus on the promotion of innovation in the social care sector • Aim at strengthening clinical testing units for trial of new medicines