HolisticInnovationPolicy Why,

WhatandHow?
WithexamplesfromSweden andtheEU
By
CharlesEdquist,
CIRCLE,LundUniversitySweden
AtLundvallSymposium:
InnovationPolicy canitmakeadifference?
Aalborg,1314March2014

http://charlesedquist.com

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 TheSwedishInnovationParadox
Formulatedinthe90sbyEdquist/McKelvey

=LargeR&Dinputsbutlimitedinnovation
output=inefficientsysteminSweden

Theparadoxhasbeenusedandabusedsince
1990s

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 IstheParadoxinoperation?
(1)
EuropeanUnionScoreboard3013:Swedenis
numberone
Ministerofindustries:Swedentopsthe
innovationleagueinEU
MinisterofForeignAffairs:Nicetoseethat
SwedenisrankedNo1innovationcountryin
EU
=NO,theysay!

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 IstheParadoxinoperation?
(2)
Samedata,onlyinnovationoutputindicators:
Swedenrankednumber12

Samedata,onlyinnovationinputindicators:
Swedenrankednumber5

=Theparadoxisinoperation=Needfor
innovationpolicy bestdonebypursuinga
holisticinnovationpolicy
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 Howcome???
TheEIScollapses25differentindicatorsinto1.
The25indicatorsinclude15inputindicators
AmongtheseareinputofR&Dexpenditures
10oftheindicators areoutputindicators
But only two ofthese measure outputofINNOVATIONS
inapropersense

HENCEEISSUMMARYINDICATORINCLUDESBOTH
SIDESOFTHEPARADOXANDISDOMINATEDBYTHE
INPUTSIDE.ITDOESNOT MEASUREINNOVATION
OUTPUT!!!

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 Reasonsforpolicyintervention
Twoconditions mustbefulfilledforpublic
interventiontobemotivatedinamarket
economy:
(1)Privateactorsandmarketsmustfailto
achievetheobjectivesformulated;i.e.a
problemmustexist.
(2)Publicactorsmusthavetheability tosolve
ormitigatetheproblem.

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 Problemidentification(2)

Theoutput ofaninnovationsystemis simply innovations =what

comesoutofthesystem.
Apolicyproblem isalowperformanceoftheinnovationsystem=alow
innovationintensityforacertaincategoryofinnovations.
Itisimportanttobeabletomeasure theinnovationintensitiesforspecific
categoriesofinnovations=taxonomiesofinnovationsareimportant.
Wewanttoknowtheinnovationintensities forspecificcategoriesof
innovationsindifferentinnovationsystems(national,regional,sectoral)=
innovationsurveys areimportant.
Measurementsofinnovationintensitiesmustbecomparative thatisthe
onlywaytosayiftheintensityishighorlowinacertainsystem.

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 Aholisticinnovationpolicy

=definedasapolicythatintegratesallpublic
actionsthatinfluenceinnovationprocesses(for
examplebyaddressingallthetenactivities(Annex
1)inacoordinatedmanner
Itisaboutdeterminantsandinstrumentsand
saysnothingabouttheobjectivesofinnovation
policy
Itrequiresaverybroadviewofinnovation
systems,includingallthedeterminantsof
innovationprocesses.
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 10ImportantActivitiesinInnovation
Systems:
1.R&D
2.Educationandtraining
3.Formationofnewproductmarkets
4.Articulationofqualityrequirements
5.Creationandchangingorganizations
6.Interactivelearning
7.Creatingandchanginginstitutions
8.Incubation
9.Financingofinnovationprocesses
10.Consultancyservices

Theseactivitiesarethehypotheticaldeterminantsofthedevelopmentandthediffusionofinnovations.
Together,theymaybesaidtodefine aninnovationsystem.

Thelistofactivities/functionsispreliminary,hypotheticalandoneofseveral.Itwillberevisedasour
knowledgeofinnovationprocessesandtheirdeterminantsincrease.Nonethelessthelistcanbeseenas
achecklistorsignpostoffactorsthat(probably)affectinnovationprocesses.

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 IsEuropean/SwedishInnovation
PolicyHolistic?
Innovationresearchershaveabandonedthelinearview
Iamorganizingaconferenceoninnovationpolicyattherequestof
EUnextweek papertobepublishedinApril
18of22(78%)EUcountriesrespondedtoaquestionnaire
15of18countries(83%)strivetodevelopinnovationpolicyintoa
moreholisticone
However,only4countries(22%)usedemandpolicyinstrumentsto
aconsiderabledegree
AndprovisionofR&Dresultsisthemostimportantinnovation
policyinstrumentin9of18countries(50%)

Answer:No Innovationpolicyisdominantlylinear,i.e.far
behindinnovationresearch!

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 Priorityofinnovationpolicy
7countriesof18(39%)havecreatedapublicorganization
(Council)forinnovationandresearchpolicyplacedabove
Ministries,usuallychairedbythePM
InSweden,innovationpolicyisnotevenprioritizedwithin
theMinistryofEnterprise(OECD2013,224)
NeitherisinnovationpolicyprioritizedbytheMinistryof
EducationandResearchwhichhastheformalresponsibility
inthegovernmentalsoforinnovationpolicy(OECD,233,
224)
WhythislowpriorityofinnovationpolicyinSweden?

IsanInnovationPolicyCouncilnecessaryforanholistic
policy?

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Example:InnovationProcurement
PPIisnowdifficult weakerpublicactors
PCPisnotinnovationprocurement,butprocurementof
R&Dresults.Buthaspotential!
Regularpublicprocurementamountsto600800billionSEK
peryear(InEU2.3trillioneuros=20%ofGDP)
If10%canbetransformedintoprocurementof
innovations,itwouldhavethedoublesizeoftheSwedish
publicR&Dbudget(35billion)
Thisrequiresdescriptionsoffunctionsinsteadof
descriptionsofproduct difficultbutpossible!

Whyisitnotdone?

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13
 What todo?
AfocusononlyR&D(Barcelonatarget)willnotdelivertheresultsintermsof
socioeconomicdevelopment:

Therehasbeentoo much emphasis onR&D(=input)inSwedenandinthe

EU.Thisinputmeasure does notaddress theresults ofR&Dorits
efficiency
TheBarcelonatarget isonedimensional andrepresents alinear view (not
taking feedbackprocesses anddemand into account)
There should bemore focus onactivities 210 andoninnovationoutput
=ontherestoftheSI(notonly R&D)!
Whoisworking ontheother nine activities?TheMinisterof
Innovation/TheCommissioner forInnovation?!
Also possibly reallocate resorces within activity1.More toneedsoriented
R&D.
Insummary:Iftheintentionsaretomakeresearchcontributetothe
creationofsustainablegrowthandjobs thennotonlyR&Dcanbe
focused:Allthetenfactorsthatinfluenceinnovationprocessesshouldbe
accountedfor=AnimportantimplicationofthisbroadversionoftheSI
approach.

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 ThisbroadversionoftheSIapproachindicates
thatpolicymakershavetoknow:

Whichintensitiesofinnovationforwhich
categoriesofinnovationthatarelow ina
comparativesense,and
The(mostimportant)determinants ofthese
(low)innovationintensities.

Italsoimpliesthatinnovationpolicyis
potentiallyverybroad.
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 Why industrialpolicyshouldbe=
innovationpolicy
Policy =actionbypublicorganisations
Publicresources arelimited
Publicactionshould not duplicate privateaction
but supplementit(will return tothislater)
Privateactors areweak where uncertainty islarge
Innovation isplagued byuncertainty
Uncertainty islargest forinnovationinnew fields
Hence innovationpolicyshould focus mainly onnew
fields:itshould serveasamidwife notprovide
supporttowards theend oflife.Framtidenharinga
lobbyister!

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 Uncertaintyandtiming
Marketsandfirmsperformleastefficientlywith
regardtonewactivities,whereuncertaintyandrisk
arelarge.
Largescaleandradicaltechnologicalshiftsrarely
takeplacewithoutpublicintervention.
Aminorinterventionatanearlystageinthe
innovationprocessmayhaveaverylargeimpact.A
majoreffortatamaturestagemayhaveonlyasmall
impact.

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 Backgrounddefinitions

Innovations =newcreationsofeconomicand
societalsignificanceprimarilycarriedoutby
firms(butnotinisolation).Theyincludenew
products andnewprocesses.

Innovationsystem=Thedeterminants of
innovationprocesses and theinnovations
themselves.Interactivelearningiskey!
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 ATaxonomyofInnovations
Innovations areheredefinedasnewcreationsofsocietal
significance.
Theyincludeproduct innovationsaswellasprocess
innovations.
Product innovationsarenew orbetter products(or
productvarieties)beingproducedandsold;itisaquestionof
what isproduced.Theyincludenewmaterialgoods aswellas
newintangibleservices.
Process innovationsarenewwaysofproducinggoodsand
services;itisamatterofhow existingproductsareproduced.
Theymaybetechnological ororganizational.

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