ERAC expert group report

on the design and implementation of national policy mixes

Policy Mix Peer Reviews: Country Report

S L O V E N I A

A Report of the ERAC Policy Mix Expert Group

Fifth Cycle of the Open Method of Coordination

ERAC

European Union Scientific and Technical Research Committee

Policy Mix Review Team

Frits von Meijenfeldt, Ministry of Economic Affairs (Netherlands)

Thomas Murray, Department of Enterprise, Trade and Innovation, Dublin

Hans Müller Pedersen, Ministry of Science, Technology and Innovation, Denmark

Christian Seiser, Federal Ministry for Science and Research, Austria

Slavo Radosevic, Professor of Industry and Innovation Studies, University College London, Review Team leader and rapporteur

Patries Boekholt, Managing Director, Technopolis Group, rapporteur

Werner Wobbe, European Commission, DG RTD

December 2010

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Contents

1. Introduction

2. The Slovenian R&D and Innovation System, its performance and Policy Mix

3. Commentary by the Review Team

3.1. The governance and overall approach of RTDI policy

3. 1.1. Overall coordination

3. 1.2. Evaluation and feedback to policy implementation

3. 1.3. Strategic intelligence incl. Foresight and System evaluation

3. 1.4. Policy implementation

3.2. Economic and Market Development

3.2.1. Export and internationalization: drivers of growth

3.2.2. SMES and innovation policies

3.3. Business R&D, Innovation

3.3.1. Innovation activity and capacity

3.3.2. Streamlining of technology transfer support infrastructure

3.4. Human Resources

3.4.1. Skills for industry

3.4.2. HR for science and innovation

3.5. The Science Base and its Performance

3.5.1. Performance of the science base (individuals vs. organisational performances)

3.5.2. Institutional evaluations and steering

3.5.3. Excellence vs. relevance in evaluating science base

3.5.4. Priorities and their implementation

3.5.6. International involvement

3.5.7. Science – industry linkages

3.5.8. Profiling and improving quality of universities

3.5.9. Basic research at research institutes and link to universities

3.6. Policy Mix Issues and Internationalization

3.6.1. The interplay between national programs and international programs

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3.6.2. Internationalization and innovation policy

3.7. Overall innovation system

3.7.1. Challenges and Responses

4. Recommendations

5. Appendices

Appendix 1: Timetable for ERAC Policy Mix Peer Review, 06-08. October 2010

Appendix 2: Timetable for Scoping Mission by Review Team Leader, 01-20. September 2010

Appendix 3: ERAWATCH Analytical Country Report 2009: Slovenia

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Introduction

As part of the Policy Mix Peer Review Process instigated by ERAC1, a Policy Mix Peer Review Team visited Slovenia during the period October 6-8, 2010. The team was led by an independent consultant and comprised representatives of Member States of the European Union (EU) and an observer from the European Commission (EC). During the review, Jana Kolar, Director General of Science and Technology Directorate at the Slovenian Ministry of Higher Education, Science and Technology arranged interviews with stakeholders in business, government R&D and higher education sector2. This report is based on the views formulated during the review visit, supplemented where necessary by information gathered by the Review Team leader during a preliminary visit to Ljubljana in September 20103 and by material contained within a Country Report prepared by the ERAWATCH network for the EC’s Institute for Prospective Technological Studies (IPTS)4 as well as within Background report prepared for the OECD country Review5. The report represents the collective view of the Review Team but does not represent the official view of any of their host organisations. It will be discussed with Slovenian policymakers during the course of a feedback mission to Slovenia to be scheduled by the end of 2010 and, after suitable amendment, to be presented as a final report to ERAC in 2011. The report should feed into preparation of Slovenian Research and Innovation Strategy 2011-2020. As in previous ERAC OMC cycles, a simple analytical framework or model depicting and linking the different domains of an R&D and innovation system was used to structure issues and discussions during the peer review exercise. In this model, policy mixes are conceived as the aggregate of policies affecting four major domains: Human Resources; the Science Base; Business R&D and Innovation; and Economic and Market Development. The governance system linking policies in all these domains is also of central interest, as are the linkages between national and regional, and national and international R&D and innovation systems. Exhibit 1 depicts all these domains and some of the more important links and flows between them.

Although R&D and innovation systems are typically much more complex than depicted here, this simple model provides a convenient way of visualising some of the more important domains within

1 ERAC (European Research Area Committee formerly CREST) is the European Union’s Scientific and Technical

Research Committee. It is a strategic policy advisory body whose function is to assist the European Commission

and the Council of the European Union in performing the tasks incumbent on these Institutions in the sphere

of research and technological development. CREST was renamed as ERAC in order to better align its role with

the new emphasis given to the ERA by the Treaty on the functioning of the European Union. As part of the

Open Method of Coordination – cyclical activities in support of the effort by the EU to raise R&D expenditures

across the EU to 3% of GDP – ERAC launched a series of Policy Mix Peer Reviews during the second cycle of

activity and continued them in the third and fourth cycles. This Report represents first one which is part of the

fifth cycle of activity. See http://ec.europa.eu/invest-in-research/coordination/coordination01_en.htm

2 Full details of the peer review interview schedule are presented in Appendix 1.

3 Full details of the schedule for the preliminary visit are presented in Appendix 2.

4 Maja Bucar (2009) ERAWATCH Country Report 2009, Analysis of policy mixes to foster R&D investment and to

contribute to the ERA. Slovenia. See

http://www.eurosfaire.prd.fr/7pc/doc/1260875345_pmcr_slovenia_full.pdf

5 National System of Innovation In Slovenia; Background Report for the OECD Country Review 2010, Maja

Bučar, editor and main author

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an R&D and innovation system and the relationships between them. It also provides a useful framework within which questions could be asked during the peer review exercise relating to:

Exhibit 1: A Simple Model of an R&D and Innovation System

The relative scale of the challenges Slovenia confronts both within each of the four R&D and innovation system domains and across them;

The range of policy responses to these challenges and their ‘location’ within the R&D and innovation system, e.g. ‘reinforcement’ policies to strengthen particular domains such as the science base or business R&D and innovation, or ‘bridging’ policies designed to improve the links or flows between domains, e.g. policies to enhance university-industry interactions or to improve the flow of capital from capital markets to innovative high-tech firms and start-ups;

The match between problems and policy responses within and across domains;

The conflicts and synergies between policies within and across domains;

The governance of policies within and across domains;

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The links between national and international systems.

The remainder of the report is structured in three sections. Section 2 provides a thumbnail sketch of the Slovenian R&D and innovation system and its associated policy mix. In Section 3, some of the most important impressions gained by the Review Team are recounted, together with suggestions for future policy that might be considered appropriate in Slovenian setting. Section 3.1 looks at the governance and overall approach of RTDI policy. Section 3.2-3.5 address each of the four major components of national R&D and innovation system (economic and market development, business R&D and innovation, human resources, and science base and its performance). Section 3.6 looks at Slovenian policy mix from internationalization perspective while section 3.7 looks at the overall innovation system including interactions between four subsystems. Section 4 revisits the most important recommendations of the Policy Mix Peer Review Team.

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1. The Slovenian R&D and Innovation System, its performance and Policy Mix

2.1. In EIS 2009, Slovenia has been classified as country innovation follower which means it has an innovation performance below those of the innovation leaders but close to or above the EU27 average. Slovenia moved to 14th position from 2008 when it was on 18th position as moderate innovator. As exhibit 2 shows the improvement of Slovenia in average annual growth in innovation performance (horizontal axis) in the 5 year period was higher than the EU average but not as high as of other new member states (NMS) though its level is among the highest in this group.

Exhibit 2: European Innovation Scoreboard: level and growth

Source: EIS 2009

Exhibit 3 from EIS shows that its relative strengths, compared to the country’s average performance, are in Human resources, Finance and support (technology parks, public expenditures, credits to private sector, and broadband access to enterprises) and Innovators and Economic effects. Relative weaknesses are in Firm investments and Throughputs (patents, designs and trademarks, technology balance of payment).

‘Over the past 5 years, Finance and support and Throughputs have been the main drivers of the improvement in innovation performance, in particular as a result from strong growth in Private

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credit (15.5%) and Community trademarks (13.1%). Performance in Human resources, Firm investments, Linkages & entrepreneurship and Economic effects has increased at a slower pace’ (EIS, 2009)6

Exhibit 3: EIS Slovenia and EU: performance and growth per dimension

Source: http://www.proinno-europe.eu/page/slovenia-1

2.3. Slovenia invests in R&D 1.66% of GDP (2008) or EUR617m which is a significant increase from the 1.47% share in 2002. There has been a significant increase in R&D funding in the last few years largely in the business sector (BES) and much less in the higher education sector (HES). The average annual rate of growth of GERD in the 2001—08 period was 7.5%. The Slovenian science system has surpassed the EU average in terms of publications per 1mn already in 2002. This number has increased from 726 in 2002 to 1637 in 2008 while EU15 average increased from 673 to 1176 in the same period. Average growth of publications in 2005-08 period was 14%, much above EU15 and EU27 average growth of 5.4%. As a result, Slovenia now holds the 5th place among EU27 in terms of number of papers per capita.

2.4. Exhibits 4 and 5 summarise EIS indicators and areas of strength and weakness of Slovenia. Slovenian companies are quite active in terms of innovation especially innovation focused on reduced use of material, energy and labour costs. The innovation system seems to be quite strong in terms of linkages between SMEs as well as in public – private cooperation in science, not necessary in technology development. Also, the absorptive capacity is enhanced by the high level of lifelong learning activities. In addition, the specialization of Slovenian manufacturing firms is relatively favourable with a high share of medium and high-tech manufacturing. On the other hand, the Slovenian economy, R&D and innovation system also show important weaknesses in knowledge intensive services (both export and employment), in frontier innovations including patents, trademarks, designs and new to market sales. This is accompanied by relatively low share of IT expenditures, low intensity of cross-border flows of licences and patents which is all further aggravated by very low share of private credit to firms. This latter factor may be partly responsible for quite weak entrepreneurial dynamism in terms of firm renewals.

6 Source: http://www.proinno-europe.eu/page/slovenia-1

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Exhibit 4: EIS 2009 indicators of strength and weaknesses of Slovenia (EU27=100)

Strength: 15 percentage points above EU27 average

Reduced use of materials and energy 179.17

Innovative SMEs collaborating with others 158.95

Reduced labor costs 157.78

Life-long learning 144.79 Employment in medium-high & high-tech manufacturing 137.94

New-to-firm sales 119.43

Medium-tech and high-tech manufacturing exports 119.20

Public-private co-publications 118.01

Weakness: 15 percentage points below EU27 average

Community trademarks 84.48

IT expenditures 81.48

Employment in knowledge-intensive services 72.99

New-to-market sales 67.79

Private credit 67.72

Technology Balance of Payments flows 53.00

EPO patents 50.13

Firm renewal (SMEs entries + exits) 46.94

Community designs 45.22

Knowledge-intensive services exports 43.44

2.5. In summary, the Slovenian economy shows expected structural problems while moving from the position of moderate innovator to innovation follower. Intensive innovation activities are largely focused on factors of cost competition and are not complemented by competition in terms of value added, knowledge and other intangibles (organisational capital, brand, trademarks, etc). Slovenia is understandably the weakest in terms of world frontier technology effort and lacks technology dynamism especially one based on new technology based firms.

Exibit 5: EIS 2009 areas of strength and weaknesses of Slovenia (EU27=100)

OUTPUTS – Innovators 125.92

ENABLERS - Human resources 112.39

FIRM ACTIVITIES - Linkages & entrepreneurship 107.96

OUTPUTS - Economic effects 93.46

FIRM ACTIVITIES - Firm investments 92.88

ENABLERS - Finance and support 86.00

FIRM ACTIVITIES - Throughputs 58.21

2.6. Overall, the Slovenian R&D and innovation system has been very dynamic in the last period, especially when compared to other innovation followers (see exhibit 2). However, a transformation from the position of moderate innovator to innovation follower requires structural change in the R&D and innovation system. In order to ensure further growth and a transition to a dynamic innovation follower or leader within the EU this will require not only an increase of funding but also

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structural change in the RTD system. Based on EIS alone it seems that Slovenia would need to improve its financial system, especially access to finance of SMES and new technology based firms, further increase R&D in the business sector, and make a stronger shift towards knowledge intensive services.

2.7. Slovenian R&D policy is the responsibility of the Ministry for Higher Education, Science and Technology (MHEST) through its Directorate for Science and Technology. Innovation policy is a shared responsibility of the MHEST, the Ministry of Economy and to some extent also the two Government Offices: the Office for Development and European Affairs and the Office for Local Self-management and Regional Development. MHEST is focused more on R&D based innovation including technology development activity in business sector and the Ministry of Economy, its Directorate for Entrepreneurship and Competitiveness looks after the promotion of entrepreneurship and innovation activity of businesses with specific focus on SMEs. Both Ministries have their executive agencies through which most of the policy measures are executed. The implementation of majority of measures of MHEST is undertaken by Technology Agency (TIA) and Slovene Research Agency (SRA). Ministry of Economy implements its programmes through the Public Agency for Entrepreneurship and Foreign Investment (PAEFI), through Technology Agency (TIA) and Slovene Enterprise Fund (SEF)7.

Exhibit 6: The Slovenian R&D and Innovation Governance System

7 Recently, the government is strengthening the role of a SID Bank (Slovenian export and development bank)

which on behalf and for the account of the Government provides non-marketable credit insurances and

interest rate equalizations.

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Source: Maja Bucar (2010) Erawatch Country Reports 2010: Slovenia, IPTS, EC. DG Research

The overall coordination in R&D and innovation system in Slovenia is not clearly established. The National Science and Technology Council is the premier advisory policy body for science and technology policy. Although it has strong representation from the business community its real impact on the R&D and innovation system has been so far somewhat limited. In 2010, the Council prepared the guidelines for the new research and innovation strategy, expanding the scope from RD to RD&I and changing the duration of the programme from 5 to 10 years. There is no coordination between the National S&T Council and the Council for Higher Education.

It was expected that the true coordination of R&D and innovation policies with other policies affecting economic development should be the task of Government Office for European Affairs and Growth, established in 2006. However, as pointed out in Bucar et al (2010) ‘due to various problems (limited budget allocation, change of minister only 6 months into its existence, etc.) the Office had not played its coordinating role well’. So, it seems that coordination within the R&D and innovation system takes place at intermediate level i.e. between two Ministries and their agencies. In addition, it is important to bear in mind that the Government Office of Local Self-governance and Regional Development plays an important role in the implementation of the innovation policy. This Office monitors all the public calls issued either by the Ministries or the Agencies, where co-financing by European Regional Development Fund (ERDF) or European Social Fund (ESF) is envisaged.

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At the level of the government recently there have been improvements in coordination of RD&I policies which are now coordinated through a Ministerial Council (Umbrella working group for coordination of development policies). Also, the policies are implemented through a target oriented budget which requires from ministries to plan their activities for the next two years.

2.8. Exhibit 7 summarises instruments of Slovenian innovation policy as recorded by the ERAWatch monitoring system and groups them based on the areas of the innovation system they primarily target and on the mode of delivery (standalone or collaborative). A comprehensive innovation policy should target all four areas of the innovation system (human resources, economic and market development, business R&D and innovation and science base) and would ideally enhance collaboration in the system. Exhibit 7 inevitably represents only a synoptic picture of the Slovenian policy mix although we have also very roughly estimated average annual expenditures for each of the four areas.

First, half of the current Slovenian innovation policy instruments are focused on R&D and innovation in the business sector. This seems quite in line with challenges as revealed by the EIS data which indicate a need for further growth of R&D investments in the business sector. A high share of these instruments reflects activities of both Ministries (MHEST and MoE) and their agencies as well as a recent inflow of Structural Funds whose majority of funding for science and innovation is earmarked towards technology development.

Second, there seems to be a dearth of measures targeting human resources, in particular there are no measures which aim towards improving skills in industry and services.

Third, there is big difference between number of instruments and their shares in funding. Three instruments of research policy (research group programme, centers of excellence and co financing of employment in researchers in enterprises) amount to estimated annual 80m EUR or 40% of total ‘policy budget’. Annual funding may vary substantially depending on when the new instrument started. So, the approximate annual amounts of funding are cumulative outcomes of regular measures and new but irregular sources of R&D co-funding.

Exhibit 7: Instruments of Slovenian innovation policy as of mid-2010

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Human

Resources

Economic and

Market

Development

BES R&D and

Innovation

Science

Base Stand alone Collaborative

Est. Approx.

Annual funding Start year

1 Young Researchers' Programme X X 30 1985

2 Applied projects X X 9 1995

3 Research Group Programme Financing Scheme X X 56 1999

4 Guarantees for subsidised bank credit to SMEs X X 20 2001

5 Targeted Research Programmes X X X optional 3 2001

6 Young Researchers from business sector X X 4 2001

7 Voucher system for consultancy and training services X X 1.2 2001

8 Technology equipment subsidies for SMEs X X 7 2006

9 Financial Assistance to institutions supporting innovation activity X X 0.12 2006

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Support to research & development projects in enterprises

2006/07 X X 1.5 (2007) 2006

11 Cofinanancing of employment of researchers in enterprises X X 4 2006

12 Technologies for Security and Peace 2006-2012 X X X optional 4 2007

13 Direct subsidies for joint development investment projects X X 10 2008

14 Support to VEM services X X 1.2 2008

15 Strategic R&D projects in enterprises X X X optional 6 (2010) 2008

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Incentives to interdisciplinary teams for technology

development projects in enterprises X X 0.4 (2008) 2008

17 Co-financing of start-up of innovative companies X X 2 (2009) 2008

18 Innovation voucher X X 0.1 2009

19 Promotion of R&D projects in SMEs X X X optional 21 (2009) 2009

20 Development of Centres of Excellence X X 22 (2010) 2009

Number of measures 2 5 10 3 16 8

Estimated approximate annual funding (mn EUR) 34 30 57 82 203

Source: author based on Research Inventory of the ERAWATCH website originally compiled by Maja Bucar, country correspondent

Fourth, obviously there is not ‘ideal’ ratio between these areas and they should be seen in time perspective. Slovenian policy has intensified with the EU accession. From 20 current instruments 13 have been implemented after the EU accession and two financially 'heaviest' instruments (R&D projects in SMEs and centres of Excellence) have just started. We should bear in mind when evaluating Slovenian innovation policy that it is actually very ‘young’ policy.

Finally, great majority of Slovenian innovation policy instruments are of standalone type with only two instruments of collaborative type (R&D projects in SMEs and centres of excellence) carrying substantial financial weight. As collaborative projects aim towards enhancing linkages within innovation system it would be worth reconsider this policy mix.

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3. Commentary by the Review Team

The commentary by the Review Team broadly follows structure of the OMC Peer Review. The peers were very pleased to have open discussions with those responsible for RTD policy and with quite a number of stakeholders from the public and private sector in Slovenia8. We were impressed with the achievements made so far in what is a relatively mature research and innovation system but which is now rejuvenated with the new range of policies. The commentary is therefore to improve the Slovenian system in such a manner that it becomes a true innovation leader.

3.1. The governance and overall approach of RTDI policy and the policy mix

3. 1.1. Overall coordination

1. Slovenia does not have an effective and stable innovation policy body at top level which defines broad policy orientation on a multi-annual basis and ensures sustained and properly coordinated implementation. Formally, the National S&T Council is a coordination body at the government level but in practice each Ministry is largely independent in policy design and implementation. This generates a poorly coordinated system and non-transparent support schemes. The overall coordination in the R&D and innovation system in Slovenia is not clearly established, though the new strategy aims to improve situation in this respect. A conclusion of the External Auditor is also that there is poor coordination of RTD across government and it is recommended that this issue receive urgent attention9. The future governance structure will be a key element in delivering an efficient national innovation system with a clear political direction and with stronger connections between the “innovation actors” working towards common and not competing aims. The system must develop a governance structure around an overall Government approach involving, for example, an inter-Ministerial Cabinet Committee approach and a representative high-level inter-Ministerial group of Officials. Our strong impression is that RDI policy in Slovenia is still a standalone policy very weakly integrated into other socio-economic policies.

2. Slovenia needs a vision of her future role in Europe and in a more and more inter-connected world. It is not enough to focus only on research- technology- innovation (RTI) without looking at the wider scope of societal challenges and global competitiveness. Therefore, the governance system for RTI should (a) provide clear guidance on the highest political level across departments, and (b) enter into a broad and intensive dialogue with the general public about their needs and how research and innovation could help in satisfying those needs. This should lead to a gradual transformation of the RTI system to address societal challenges.

3. In addition, there is a need for continuity which would enable realisation of long-term socio-technical objectives. To date, Slovenian RTI politics seems to be relatively volatile due to changing political leadership. This has especially damaging effects when there are frequent changes at the level of Director General and these have been quite frequent in the last two years.

8 Although disappointment was expressed that discussions with and input by the SME sector were limited.

9 FP6-2005-RTD-OMC-NET, Contract No FP6-042982 Building and Improving Support For RTD Policy and Public

Spending (BIS-RTD), D5.3: External Auditors’ Reports

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National programmes (though formally binding) are considered as non-binding political documents whose objectives are not financially developed and indicators of achievement are not established10. It would be important to ensure a political consensus on the crucial role of stable framework conditions for research and innovation. Slovenia should aim towards realization of long-term objectives in RTI which go beyond party politics and 4 year election cycles. This is not easy to achieve but essential if the country wants to move further from the position of innovation follower towards innovation leader.

4. A part of this transformation process should be renegotiation of the role of agencies and government. Agencies play an important intermediary role in the Slovenian funding system. Experiences from other countries show that research agencies develop great expertise in implementing policy objectives by choosing the appropriate support instruments. The government should limit its political requirements to defining broad policy goals and give the agencies autonomy as to the implementation and the management of concrete funding mechanisms. However, autonomy in the implementation should not be confused with de facto creation of autonomous policies through arbitrary selection criteria which either contradict or ignore policy objectives.

5. The number of government-agencies involved in the implementation of RTI-policies is impressive. In view of their complementary responsibilities, it appears justified to merge the activities of some of those agencies, such as already foreseen for the Agency for Technology and JAPTI.

3. 1.2. Evaluation and feedback on policy implementation

1. Slovenia’s innovation policy decisions are based on analyses of high quality. However, there is no continuous system of evaluation and feedback in place for policy implementation. Learning based on policy implementation and its evaluation should be enhanced through ‘dynamic learning cycles’ which should include the different phases of policy development, execution and analyses of impacts. Slovenia should aim to build an effective monitoring and review system, which would make full use existing indicators and evaluations.

2. Regarding the existing instruments in operation to enhance innovation in Slovenia they seem to be quite numerous but fragmented. In view of the total amount available for enhancing innovation streamlining of instruments might be considered, although it is impossible to indicate what instruments should be abolished or clustered, due to a lack of information on the impact of instruments. Hence, it is of strategic importance to develop systematic evaluation and feedback on policy implementation.

3. 1.3. Strategic intelligence including foresight and System evaluation

1. Slovenian innovation policy is largely generic or horizontally oriented. Policies and funding is not focused on specific (thematic or sectoral) priorities. In addition, technology foresight activities have not attracted much attention in the past. For example, the results of the second foresight exercise

10 The last programme (2006-2010) has had such indicators established, but there were serious weaknesses in

its supervision.

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were not publicly debated or integrated in any of the strategic documents11. Also, there was not a systematic uptake of the identified priorities into the funding programmes or at least an open discussion of the proposed priorities generated by the Competitiveness Council. On the other hand, there seems to be a gradual concentration of funding on specific programs like through technology platforms2. Irrespective of the method of how priorities are derived (bottom up or top down or combination) Slovenia needs consensus of all major stakeholders on strategic priorities. It is imperative that a major national exercise of structured stakeholder engagement takes place to set out where the priorities lie so that RDI investments can be directed to deliver focused objectives based on the needs of the Slovenian economy and society. Otherwise, there is a high risk of dissipating resources in an uncoordinated way. The defining and redefining of Slovenian specialisations must involve entrepreneurs as well as the higher education organisations and research institutes. Research prioritisation exercises need to be continued to determine, at national level, the future investment approaches which can deliver the best added value in terms of enterprise development and sustained employment creation.

3. 1.4. Policy implementation

1. Slovenia has developed innovation policy in terms of number of instruments and their varied focus. However, as rightly pointed in OECD background report (Bucar et al, 2010); ‘it seems as if the main emphasis was more on the number of different instruments and institutions than on the quality of their work’. Weaknesses are in insufficient coordination and in slow and complex administrative system in delivery of support to business R&D and innovation (ibid). Specifically, problems of implementation were also noted by the External Auditor with respect to commitment and implementation of National R&D plan 2005-201012. The EU Structural Funds have increased need for coordination and transparency through their co-funding requirements but it seems that this has not been followed by improved coordination, streamlining of measures and improved administrative delivery.

2. The review team has noted a significant gap between the highly ambitious new Research and Innovation Strategy 2011-2020 and the human resource base of the directorates of Ministry for STHE. There is no doubt that the people employed in the directorates are very skilled and committed to their tasks, but the number of people is very limited and this makes the system of governance vulnerable. We strongly believe that level of responsibility of the Ministry is not commensurate to its resources. Bearing in mind the amount of changes that are going to be implemented according to the new strategy, one could question whether it is realistic. Successful implementing of – any – strategy rests on the capability to communicate and to build understanding and partnerships with stakeholders and institutions. And it is important to create credibility about the will and commitment to create changes, especially in situations where the strategy is questioned or even met with “resistance”. This is not possible without the manpower, and we would support a recommendation to allocate more people to this very crucial process.

11 A view of the Ministry is that they were integrated into the document supporting the government decision

on strategic priorities in 2010.

12 FP6-2005-RTD-OMC-NET, Contract No FP6-042982 Building and Improving Support For RTD Policy and Public

Spending (BIS-RTD), D5.3: External Auditors’ Reports

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3.2. Economic and Market Development

1. The legal framework for successful business in Slovenia is relatively well developed. Slovenia ranks 53rd among 183 economies in World Bank Ease of Doing Business Ranking13. It ranks high in terms of starting business and lags significantly behind in employing workers (162) and in registering property (108). This suggests that labour legislation is not quite flexible, as well as providing difficulties for foreign investors. Although overall policies to promote innovation and entrepreneurship do not seem to be significantly hindered by the quality of the business environment, the government should re-examine effects of labour legislation and property registration procedures on innovation and entrepreneurship.

2. One of the cornerstones of the Slovenian Innovation Policy is technology transfer and commercialization of research and technology. High hopes are put into the ability of the research institutes and universities to transform their technology into business. From many countries we have good examples of how universities and (large, hi-tech) companies work prosperously together. If Slovenia is to build its strategy on a broader economic activity base and on commitment from a larger number of (small, medium sized) companies, it is very important to increase the number and size of research active companies.

This requires better incentives for the research institutes to work together with non-research based companies interested in (technological) development and innovation. Experience shows that without direct incentives, the barriers will exceed the advantages seen from the point of the research institution/and the researcher. As for the researcher he/she earns no merit in the relatively rigid bibliometrically based review system in Slovenia. We would recommend that incentive policies are developed in cooperation with the Agency for Research which would stimulate researchers to work with companies. This should have a positive effect on the market growth for technical knowledge in Slovenia.

2. Since 2005 the Ministry of Economy supports equity funding for start-ups. In 2007, Slovenia adopted a Law on venture capital companies while in 2009 a holding fund for investment in VC companies as part of the Slovenian entrepreneurship fund has been established. These are very welcome activities which need to continue. Without access to capital there is not very much perspective in building up systems for “producing” start up's and to establish research incubator parks. The new Strategy 2011-2020 seems not to address this issue very thoroughly. We would strongly recommend that the government puts a strategic focus on building up a venture market in Slovenia, taking into consideration that this is a very long term challenge.

3.2.1. Export and internationalization: drivers of growth

1. The essential determinants of economic growth in Slovenia are export and internationalization through outward FDI. Unlike other CEE economies Slovenia has not been an important recipient of FDI. Instead, the economy relies on import and export often through subcontracting links as main channels of knowledge inflows. In upstream activities, Slovenia does not have specific policies to

13 http://www.vlada.si/fileadmin/dokumenti/si/Sporocila_za_javnost/Doing_Business_SLO_2010.pdf

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increase inward FDI in R&D. An increasing number of EU countries have a comprehensive national strategy to benefit from the internationalization of R&D which includes the promotion of local strengths abroad, the active recruitment of foreign companies, cluster policies to attract FDI in R&D, administrative support for foreign investors, provision of infrastructure, direct financial support and fiscal incentives14.

On the other hand, Slovenia is in relative terms large FDI outward investor. Given its innovation scoreboard ranking it has well above average high share of outward FDI15. Hence, we would expect that Slovenia develop policies to absorb benefits from outward FDI, including FDI in R&D. For example, the countries which are active in this area support international expansion of domestic research centres and universities or have incentives for temporary transfer of national researchers to foreign research centres or promote their business R&D investments abroad. Still, this does not yet seem to be a concern of the Slovenian innovation policy.

We think that this policy stance will be untenable in the medium and long-term if the country is to move forward from its position of innovation follower. In addition, to policy for internationalisation of business R&D it will have to embrace and develop interplay between national and international R&D programs (see 3.6.1).

3.2.2. SMES and innovation policies

1. Early entrepreneurial activity in Slovenia is stagnant. According to the Global Entrepreneurship Monitor (GEM) Slovenia is ranked as 32nd among 43 countries; and is on 13th place among 23 European countries16 . This result is compatible with data on firm renewal (SMEs entries + exits) which are only at 44% of the EU27 average (EIS2009). Also, comparable data of CIS 5 and CIS 6 show that in 2004–2006 27.7 % of small enterprises was active in innovation, similar to 27.6% in the period 2006-2008 (Bucar et al, 2010). However, this stagnation comes after a period of continuous rise in share of innovative SMEs from 12,7 % in 2001-2002 to 19,1 % in 2002-2004. The share of Slovenian SMEs that are introducing product and process innovation are at 94% of EU average. All these data suggest that the SMEs sector is not a dynamic driver of the Slovenian economy.

This by itself may not be the cause for concern but equally it does not represent a strong base for maintaining a position of innovation follower. For this Slovenia has to develop a sector of strong technology dynamic and fast growing SMEs. It seems that their number is increasing and they are largely in services and characterised as micro-enterprises. The issue raised in the OECD Background report (Bucar et al, 2010), whether these types of enterprises can benefit from support measures for business R&D and technological development, deserves closer attention.

Slovenia is developing specific support mechanisms available to young innovative companies to help them commercialise ideas rapidly and promote internationalisation. Also, risk capital mechanisms are being developed geared towards potentially fast growing enterprises. However, the issue is

14 Guimon, J., Policies to benefit from the globalization of corporate R&D: An exploratory study for EU

countries. Technovation (2010), doi:10.1016/j.technovation.2010.08.001

15Andrea Filippetti, Marion Frenz and Grazia Ietto-Gillies (2009), Is the innovation performance of countries

related to their internationalization? November 2009, PRO INNO Europe Metrics

16 Miroslav Rebernik, Polona Tominc, Ksenja Pušnik, Rast podjetniške aktivnosti v Sloveniji, GEM Slovenija 2008,

Univerza v Mariboru

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whether the existing policies are geared towards type of local firms which need external support. We presume that this question would require some in-depth analysis before appropriate policies could be designed. Government should examine this issue as it deserves and generate evidence based policy recommendations.

2. The withdrawal of support for cluster policy is difficult to comprehend for the peer review team. The Slovenian cluster policy involved structured collaboration between academic research institutes and companies. They appeared to be a perfect opportunity for technology and knowledge transfer and for developing new business related modules in the Universities and research institutes as well as consultancy. Furthermore, good possibilities existed for creating trust amongst the cluster members and leadership. Cluster policy is also a major focus of EU innovation strategies and assists the internationalisation of SMEs and wider international collaboration in general. The Slovenian government should reconsider its policy actions in this area. New instruments like centres of excellence and centres of competence can not substitute the clusters.

3.3. Business R&D, Innovation

R&D in the business enterprise sector (BES) continues to expand. Between 2005 and 2008 nominal expenditures for R&D in business sector have increased by EUR155m. The share of researchers in BES has increased from 26.4% 20002 to 28.8 (2005) and then to 34.3 (2008). These enterprise cooperate extensively with other enterprises (50.2% of innovation active enterprises in 2006), with universities (23%) and public institutes (15%). This degree of interactivity represents very good basis for future and has been further enhanced by substantial increases of public funds supporting technological development, largely co-financed from Structural Funds.

3.3.2. Innovation activity and capacity

1. A majority of increases for technology development in the last few years came from the EU Structural Funds. For example, the Technology Agency has increased its disbursements from EUR10M in 2006 to EUR51.46m in 2009, and a planned EUR103.9m in 2010. The aim of increased funds is to promote R&D In enterprises, funding of centres of excellence, co financing costs of development projects of enterprises by funding groups of external experts or to subsidise employment of researchers from public sector in BES, etc. However, the source of these increases will be reduced from 2013. For the time being, no national sources seem to be envisaged which could compensate for the decreases of these funds after 2013. This is cause for concern to be addressed in the National research and innovation Strategy for 2011-2020, which is being currently discussed.

2. When faced with budget deficit the government may be tempted to cut expenditures across the board17. Presumably, a current tax subsidy of 40% (60% in less developed regions) for R&D investments by BES, which has been introduced in 2007 at 20 and 40% levels respectively, should remain. We are told that this incentive operates very well for incremental R&D but much less for radical innovation for which direct investments are major incentives. In any case, it would be worthwhile to evaluate its effects before introducing any changes in this area. 3. Structural Funds for

17 However, the target oriented budget and the prioritization of RD&I and competitivnes policies should make

this much less likely.

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RDI appears to be allocated across several measures, some seemingly overlapping and duplicating, possibly causing some deadweight problems. There is a danger of creating a “systems-led” innovation supports architecture rather than a client-based or user-led system. Structural funding capacities need to be addressed.

3.3.3. Streamlining of technology transfer support infrastructure

Slovenia has established an extensive technology transfer support infrastructure. The country has 28 Technology Centres, 12 Technology Platforms, 4 technology parks, university incubators, business incubators, etc. However, it is not quite clear what is or what should be the underlying model of their funding. There does not seem to be systematic evaluation of the effectiveness of public funding of these organisations. We were told that some of them have diverted too much towards market operating as real estate agents and commercial services providers rather than as organisations focused on promotion of innovation. As these organisations are co-funded by public funds it would be necessary to re-assess model of their funding in each specific organisational model in view of their effectiveness and support to knowledge diffusion.

3.4. Human Resources

1. Developing innovation policy in the 21th century is to some extent identical to building a policy for the society's knowledge base. And the policy should aim at 1) effectively producing the relevant and excellent knowledge, 2) effective access and distribution systems of knowledge to both public and private sector and 3) the maximum use and exploitation of knowledge in business oriented innovation. This requires close cooperation between R&D and the higher education system. In our opinion the importance of this can hardly be overestimated. The Review Team is of the impression that the research and innovation strategy on the one side and the strategy for development of the higher education system on the other side, were not sufficiently cooperated.

Furthermore it seems as if the research capacity represented by the National Research Institutes is very poorly exploited in the higher educational system. A long-term aim for the development of the higher educational system should be, that much more courses offered at Universities should be research based. The implication of this would be that the capacity of researchers at the National Research Institutes is integrated and exploited in the educational system.

2. In a small country like Slovenia, with a business structure consisting of a large number of SMEs, the employment of higher educated staff in companies is a crucial element of innovation policy. In this respect Slovenia shares the fate of many other countries in Europe. First of all the highly skilled employees infuse knowledge and innovative capacity into the companies and secondly they often can build bridges between the research community and the companies. Thus private sector employed academics “understand” both worlds, and can “translate” the company’s needs to the researchers. Employment schemes for highly educated in small companies and voucher support schemes have proven to be very effective in this respect in other countries. It is very good that Slovenia has started to develop policies in this area through support schemes for employing researchers in BES. Although, the scheme was funded using national funds before the use of Structural Funds (SF) it remains to be considered what will be the source of this funding once the SF expire or become substantially reduced..

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3.4.1. Skills for industry

1. The Review Team understand that there are no formal partnerships between universities and business sector being actively promoted. On the other hand, we heard complaints about the lack of specific categories of engineers and researchers in industry. We would recommend to government to re-examine its policy stance in this area.

2. It is commendable that actions have been taken to address innovation skills gaps of young researchers through a programme which requires that all those funded should undergo training in entrepreneurship.

3. Slovenia has a long tradition of subsidised employment of young researchers which has been expanded by a programme for young researchers in the business sector. This latter is very important as a way to enhance researchers and innovators to move easily between public and private organisations and should be commended.

3.4.2. Human Resources for science and innovation

1. Slovenia has recently recorded substantial annual increases of 15-30% in R&D funding. During the very rapid expansion, one may often end up taking on ’middle-of-the-road’ researchers or investing in ‘average’ research projects, storing up potential problems for the future. The issue is whether the existing policy of young researchers is sufficient to meet these increases and whether the country should employ a much more active approach to employment of foreigners in its R&D system.

2. Slovenian higher education is far from being truly internationalised: the numbers of foreign students, researchers and academics at Universities are far below the European average. The internationalisation of Slovenian higher education has to move beyond the outward mobility of Slovenian students, researchers and university staff – this aspect remains important, and has to be supported by all means, but it is not sufficient. The key mechanisms to achieve this lie firstly in incorporating an international dimension in what is being taught – as part of modernising the curricula, and in attracting foreign students, researchers and academics for short or longer term study and work in Slovenia. On the other hand, the process of internationalisation seems to progress autonomously in a bottom-up manner. For example, the number of foreign nationalities among the young researchers entering into the system in 2010 is 10 percent and among PhDs it is 25%.

3. Another important area to consider is “relaxing” the existing constitutional requirement regarding education provision in Slovenian; at least to enable postgraduate courses and programs in English.

3.5. The Science Base and its Performance

The level of R and D investments as a % of GDP of Slovenia is not insignificant. Hence, the major issue is whether these investments generate the added value in terms of outputs and outcomes. We think that it is essential to separate internal effectiveness of R&D in terms of its internal outputs like papers and patents from its external effectiveness through knowledge diffusion, use and absorption. In this latter respect, the effectiveness of R&D seems to be at the lower end. The improvements in terms of contribution to economic value added and to social wellbeing would require closer linkages with Slovenian industrial and enterprise policies and the delivery of appropriate supports to enhance innovation in the business sector and to unleash innovation especially in the SME sector.

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3.5.1. Performance of the science base (individuals vs. organisational performances)

1. Slovenian science has significantly improved its international ranking in terms of ISI papers per 1mn inhabitants. These have increased from 1104 (2005) scientific papers to 1637 (2008). This improved Slovenia’s ranking in the EU27 from 8th to 5th place. Also, the number of highly cited papers has increased from 0.44% to 0.71% of all papers in journals with an impact factor which is still below the EU27 average of 1%. These impressive results reflect the nature of the incentive system in Slovenian science. Namely, the distribution of incentives for researchers is to a large extent based on the number of scientific publications and citations. A clear system of quality-scrutiny in several dimensions, not only papers and citations, is lacking. The current system creates a bias to researchers for engaging in fundamental research or education and creates disincentives for cooperation with industry. Both are crucial to ascertain scientific careers as well as governmental support for subsequent research-activities. Apparently the actual reward-system does provide hardly any incentives for the transfer of know-how from the research-sector to commercial entities. A review of this system might be called for in order to add incentives/rewards for joint applied research-activities with a.o. private sector companies.

2. Funding of research groups has been introduced in 1997 and now involves funding of 350 research group activities of a duration between 3-6 years. The average size of funding per group is EU50K and groups range from 5 to 25 researchers. Selection of groups was based on the evaluation of future research plans, and on past performances of its members. This system seems a competitive mechanism but in practice we are told that the success rate of research group applications was 95% (!) and research projects only 10-20%. A very low rejection rate of research groups suggests that the system is actually system of soft funding.

Research programmes should not be thinly distributed to individual research groups across the RTI landscape as is the case now. Instead, universities and research institutes should form a much bigger part of a dedicated budget for research which should be allocated according to excellence and relevance criteria. Yet the share of the money currently spent on research programmes could be put into competitive funding that should directly address excellent researchers.

3.5.2. Institutional evaluations and steering

1. In Slovenia, research groups, not research organisations, are de facto (not nominally) recipients of R&D funding. As result, research institutes cannot develop strategically and they operate as a portfolio of research groups which are independent. Directors of institutes and university heads are not in a position to strategically manage these organisations, as research group leaders are de facto in charge of personnel policy. Also, individual researchers are very much dependent on their group leader.

Currently, a stable ‘base’ funding is indirectly derived through funding research groups. This has led to a fragmentation of public research organisations and individualisation of research. In effect, the quality of an institute has little impact on funding, but whether its research groups are of high quality matters. The overall picture is one of fragmentation: research subsidies are distributed to hundreds of research groups and –projects within universities and research-institutes (RI) without any clear prioritization or impact-analysis.

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This situation has created positive as well as negative effects. On the positive side, international outputs in terms of ISI papers have gone up through a basically weak competitive system of funding. On the negative side, a long term structural problem has arisen: weak research organisations and weak strategic management of R&D. It seems that the balance of power between research group leaders and managers of institutes and departments has been tilted too much on one side. Hence, it would be worth considering empowering the institutional management by providing a larger share of a ‘base’ research funding. In real terms, the governance structures of the institutions are extraordinarily weak, and the directors are totally dependent of the good will of the research groups. It is very hard to imagine how the ambition of change can be met in the time frame without the government authorities having a real counterpart to establish partnerships with universities and research institutes.

2. Research Policy should aim at a balanced institutional -programme - project funding of research groups, organisations and researchers. This would require greater responsibility of research organisations as well as a system of research assessment based on international standards. We are aware that new Strategy aims to make research institutes and universities stronger in research policy. Indeed, it is necessary to change this balance but equally it should not swing too much on the other side. Project funding should be strengthened and made competitive. Research assessments of the public research organisations should be carefully crafted and should not necessarily and immediately lead to radical changes in funding. Instead, institutional funding could be increased based on an assessment of research plans.

3. Research infrastructures and specific support schemes for human resources could be important elements in the smart specialisation strategy of Slovenia. Since such measures have a long-term impact, they should clearly be undertaken in a transparent, evidence-based and coherent manner. A burden sharing approach for research infrastructures across disciplines, institutions and even across borders looks like a promising approach.

3.5.3. Excellence vs. relevance in evaluating science base

1. International excellence has the highest weight in evaluating the quality of science in Slovenia. This is quite in line with the international best practice. However, it appears that the criteria of international excellence is measured solely by citations and papers. The set of selection criteria for support of research programs should be broadened from solely focusing on scientific excellence to also including social and economic relevance as an equal important criterion.

2. There seems to be a serious gap between the political/strategic ambition to change the system and the practice performed by for instance the Research Agency. The aforementioned sole use of scientific excellence and past performance as award criteria is extremely preserving and conservative and does not at all reflect the political ambition to put weight on building up innovative capacity and capability in the research communities18. The real power in executing the policy is transferred to the Agency for Research and there is a very obvious lack of symmetry between the

18 We are aware that the funding from external sources is used as a criterion of relevance. This is necessary but

far from sufficient criteria as it often again rewards excellence funded from international sources and is

insensitive to new RTDI areas.

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political ambition and the funding allocating principles. By setting the evaluation criteria the Research Agency enforced a certain R&D policy and thus de facto became a policy making body.

3.5.4. Priorities and their implementation

Due to the small size of Slovenia and the number of researchers at universities and RI’s, so far it proved to be difficult to prioritize and focus on specific strengths. Nevertheless, there exists a clear need for research priority identification. If Slovenia aims for excellent research, what apparently is the case, it is inconceivable to excel in every area of scientific research. There is a need for more focus and critical mass. That is only conceivable for a limited number of well defined research-areas, preferably related to existing R&D-strengths and economic strengths of the country. Prioritization might also be helpful for associating Slovenian researchers with European efforts towards addressing societal challenges.

The peer reviewers are aware that a response to the need for prioritisation could be that strategic research projects, Centres of Excellence and Competence Centres are de facto operating as new goal oriented mechanisms. Equally, we are aware that some of these mechanisms like technology platforms still do not impact R&D policy-making and funding agencies. In other words, they still do not have systematic influence on the shaping of funding priorities in Slovenia. Stakeholders should be involved in the identification of priority fields. However, the ultimate specialisation strategy of Slovenia should not become just the sum total of individual interests. Smart specialisation strategies could play an important role in shaping the RTI system. To a certain extent, the Slovenian government is encouraged to set up trajectories of development as a result of the recommended vision for the Slovenian society. This trajectory has been implicitly already put in place through large increases in funding for projects exhibiting critical mass of R&I excellence on national level. However, the implicitness of this process has its weaknesses in terms of monitoring, feedback, and policy learning.

Slovenia should find mechanisms by which the major stakeholders could be involved in the process of research priority identification. Each of the activities undertaken so far (foresight, Competitiveness Council priorities, technology platforms, Centres of excellence) provided some input, but no mechanism yet exists which would integrate these activities into priorities for R&D and innovation policy. Although there are no formal mechanisms which would integrate these activities the view of the Minstry is that they were de facto successfully integrated informally in 2010. The Review Team has not been able to verify the extent to which this integration de facto took place but is ready to accept that there are merits in this second best solution.

3.5.6. International involvement

1. Slovenian science is quite internationalised in terms of external funding. For example, research groups have raised EUR76.4m from EU FP6 projects in the 2002-2006 period. Also, the number of Eureka projects has increased substantially, while the number of organisations involved went up from 25 (2005) to 38 (2009). The Review Team was pleasantly surprised that the number of Eureka projects of Slovenia is higher than that of Germany. So, it seems that participation in EUREKA programmes is one of the success stories from the viewpoint of the business sector. A member of EUREKA since 1994, Slovenia has been involved in 158 EUREKA projects with a total budget of € 65 million (Bucar et al, 2010: p. 43).

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On the other hand, Slovenian human resources in research are much less internationalised. For example, foreign exchange of researchers is still at a low level. Unofficially it is estimated that around 5% of Slovenian researchers is mobile i.e. temporary abroad. The number of foreign researchers in 2008 was only 1.42% and the number of PhDs received by non-residents was only 3.5% (2008). This imbalance between external and internal openness may not be sustainable in the long-term. Science policy should take action on this imbalance.

2. Also, there is no strategic approach to international funding including funding from the EU. There are incentives for individuals to apply to EU FP projects by the Slovenian Research Agency19. However, this does not necessarily lead to the optimal outcomes as much of foreign funded research may be not relevant for Slovenia or with limited links to the wider research community. So, there is need for more strategic approach to the internationalisation of R&D.

3. The international language of science and research is English. A small society like Slovenia cannot and should not enshrine their cultural identity at the cost of openness and competitiveness on a global scale. What seems to be a minor issue at first sight, leads to legal barriers for teaching in any language other than Slovenian and thus to low numbers of students from outside the country.

3.5.7. Science – industry linkages

1. While the review team heard of examples of good collaboration between innovative firms and the public research institutes, the latter acquire only 10% of their revenue from the business sector. This would suggest that policy should need to stimulate market oriented behaviour of public institutes. They could be incentivised, for example, by mandatory co-funding of industry for certain development projects. In addition, researchers rewarding systems should recognise working for industry as equally valuable as ‘proper’ science.

2. Support to science – industry linkages in Slovenia has received a major boost with the EU Structural Funds, which supported co-funding for Centres of excellence and very recently for Competence Centres. These are important investments both in terms of overall size of funding and in terms of concentration on specific technological areas i.e. critical mass.

3.5.8. Profiling and improving the quality of universities

1. Slovenian R&D system is oriented towards business sector and sector of public institutes while the higher education sector plays lesser role with 13% of overall expenditures in 2008. This is far below the EU27 average of 22% and reflects a continental European tradition of R&D being conducted by public research institutes without higher education responsibilities. In that respect, having a strong research based university system still seems distant objective. We think that government should formulate funding incentives in the way that will encourage higher education institutions to choose their missions based on existing strengths and their strategic objectives. Already, four Slovenian universities have developed quite different profiles and strategic missions. Within that context the efforts of individual universities (faculties) to become research based universities (faculties) should be supported. This should enhance a shift towards closer integration of research institutes and universities, as the Slovenian universities would have to rely on research institutes if they are to become research based.

19 For example, the incentive for individual researchers to apply is 1500 EUR for a positively evaluated

proposal.

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2. The Slovenian universities do not play their full role in a modernized Slovenian innovation system. A lack of institutional funding; a fragmented policy framework for research and teaching; an inflexible labour market; no strategic planning and priority setting on the institutional level; and the wrong incentives leading to thematic jungles and to compartmentalisation of individual research groups at the university are examples of these weakness. To address these deficiencies, a complete overhaul of the legal, financial and operational aspects of the university sector is recommended. The main objective of such an overhaul should be to establish a climate of trust and a shared vision between the government and universities. An improved framework to allow universities to fully deploy their autonomy should be matched by a much stronger emphasis on the quality of management and on accountability.

3. The ultimate “client” of universities is society as a whole. Their long-term mission should be to provide knowledge (in the form of graduates, publications or knowledge transfer activities) for the benefit of the general public, including the private sector. When setting up an evaluation system for public research organisations, universities should be scrutinised along a set of (quantitative and qualitative) indicators that cover their full range of responsibilities.

3.5.9. Basic research at research institutes and the link to universities

For a small and resource constrained country the issue is whether it can afford to fund basic research institutes and groups that are not closely involved in teaching as well. This is not only the result of lack of interests on part of both institutes and universities but also due to restrictions on who can teach at universities. The issue is whether there is basis to merge them with universities in order to improve their contribution to teaching, especially those that do not have cooperation with industry. The future strategy should put very much weight on cooperation between the national research institutes and the universities with the aim of improving the quality of the higher education system.

3.6. Policy Mix Issues and Internationalization

3.6.1. The interplay between national programs and international programs

1. Stable and continuous support to participation in international R&D programmes, including the ERA-NETs, ETPs, JTI, EUREKA has been beneficial for the participants as well as policy makers, since Europeanization of R&D and innovation policy accounts for several improvements of the system20. However, we think that Slovenia should move one step forward and try to maximize the impact of the EU and international funding instruments for RTI on Slovenian society. For example, the government through ERANets. funds R&D which is not necessary in the country’s priority. We understand that a group of experts has been established which advises Ministry in this respect and that its mandate has now been expanded to joint-programming initiatives. This is certainly a step in the right direction.

Also, there seems to be limited subsidiarity achieved through national and FP projects as these are seen as two separate tracks of raising finance. Bilateral co-operation with non-EU countries has

20 ERAWatch Country Report Slovenia, 2009

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increased significantly in terms of the number of bilateral projects which reached a number of 700, however without an underlying or clear strategy for bilateral cooperation. Rather than increasing funds for international co-operation as such, these activities should be firmly rooted in the strategic interests of national innovation system. This would mean a paradigm shift away from providing incentives for high participation in international programmes towards a more integrated view on the usefulness of international collaboration for the overall development of Slovenia. This strategic approach to international cooperation by exploiting opportunities for joint programming, cross-border co-operation and exploiting the leverage effects of EU instruments has not yet been developed.

2. The EU Structural Funds increase the need for coordination and transparency through its –co-funding requirements but this has not been followed by improved coordination, streamlining of measures and improved administrative delivery. With the exception of Centres of Excellence Structural Funds are funding largely technology oriented projects and their rules seem to be too complex for research projects. Structural funding capacities need to be addressed.

3.6.2. Internationalization (FDI, value chains) and innovation policy

Slovenia follows ‘domestic led modernisation’ and does not rely on extensive inflows of FDI. It supports internationalisation of its companies mainly through supporting their participation at foreign exhibitions. There are no measures to stimulate strategic subcontracting or participation of Slovenian firms in global value chains. We think that this is becoming increasingly out of tune with drivers of growth of Slovenia which are closely linked to export and internationalization.

3.7. Overall innovation system

3.7.1. Challenges and Responses

1. It is of strategic importance to increase effectiveness of the NIS and its contribution to economic value added and to social wellbeing. This requires that the new Strategy 2011-2020 broadens from a focus only on R&D towards a broader view of innovation system. Outputs of R&D system should not be only scientific papers but a contribution of R&D to the value added and societal wellbeing. This would require that Slovenia embark on developing closer relationship between its industrial and innovation policy. This is quite challenging task in view of the difficulties in building consensus among stakeholders.

2. A broader approach means also that solutions are often inter-sectoral rather than only intra-sectoral. It is our impression that in Slovenia each subsystem (business, universities, public institutes, etc) is seeking its own solution while problems are largely in inter-system cooperation. This requires a building up consensus, common understanding and partnerships. The major constraints for the future are not ideas on ‘what’ but on ‘how’ and the ‘process’ of change itself.

3. An important ingredient to this process of inter-sectoral cooperation and consensus building is further development of evidence based policy and an evaluation culture. Otherwise, sudden policy changes such as the termination of cluster support will occur and policy will continue to be erratic and subjected to strong 4 years changes.

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4. The Review Team see the danger of a double dip reduction of resources for RTI in the coming years. In the aftermath of the economic crisis Slovenia will focus on cutting its annual budget deficit from 6% to 3% by 2013. This will lead to tough choices of priorities for the public sector. It is strongly recommended to prioritise RTI as cornerstone of Slovenia’s recovery strategy which the current government seems determined to follow. It is very encouraging that the budget for RTDI will continue to increase until 2012. So, the situation in this respect should be favourable until after 2013 when the phasing-out of Structrual Funds will begin.

5. In line with the Europe-2020 strategy of the EU, and the Innovation Union flagship, the new government appears to be firm in its endeavour to allocate substantially more funds to RTI, aiming for reaching the 3% GNP-objective in 2020. Taking into account the R&D-indicator of 2008 (1,66%) this is an ambitious target, especially in view of the existing overall budget situation of the Sl-government, the modest economic growth-prospects for the years to come and the gradual phasing out of Structural Funds after 2013. Nevertheless, the planned increases in budgets available for RTI creates a promising change to pave the way for some of the changes that are called for, or already included in the new Research and innovation strategy of Slovenia 2011-202.

6. During the review the concept of innovation was most notably associated with the development of technology. Nevertheless, innovation in the fields of services, production processes, design and other creative sectors should also be taken into account when innovation policies are implemented. This is in line with the approach of innovation within the Innovation Union flagship.

4. Recommendations

Slovenia has made significant progress in its innovation performance as documented by the European Innovation Scoreboard data and shift from the position of moderate innovator to innovation follower. Also, in the last few years significant increases in investments in technology development (partly co-funded by Structural Funds) have been made. This has been followed by strategic commitments towards increased R&D intensity and policies which are oriented towards investment in new knowledge. We are quite optimistic regarding general direction of proposed new Strategy including its intentions to resolve administrative implementation weaknesses which have been significant shortcoming of Slovenian innovation policy. However, we see numerous problems emerging from implementation of Strategy and our recommendations may possibly help in that respect.

1. Poor coordination of RTD policies across government should receive urgent attention with a view to develop a cohesive policy approach. This primary recommendation involves a number of aspects:

The existing Umbrella working group for coordination of development policies at the level of government represents a first step in improved coordination of various development related policies. We would recommend for this coordination to be further formalised through an inter-Ministerial Cabinet Committee approach and a representative high level inter-Ministerial group of Officials. 2. Given the size of the country and scarcity of resources Slovenia should engage into a strategic process to define the country’s priorities in order to focus RTD policies

This process should include a major national exercise of structured stakeholder engagement so that RDI investments can be directed to deliver focused objectives, based on the needs of the Slovenian economy and society. We understand that some aspects of this process have

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been already implemented implicitly but we also think that the effectiveness and the accountability of the process would be improved by the explicit national exercise.

The staff capacity at MHEST to launch, facilitate and implement this strategic process is considered too low and therefore the peers recommend to strengthen this capacity

3. Policy implementation across the whole system should be better streamlined and less fragmented. A more coherent policy making process and prioritisation will support a more effective and efficient policy implementation. This recommendation includes:

The responsibilities of some agencies could be better aligned and merged. The peers are pleased to hear of the plans to merge the Agency for Technology and JAPTI for instance;

The projects funded by the Structural Funds should be better aligned and coordinated with mainstream RTD policy to enhance efficient delivery.

4. The overall funding mechanisms of the public research system in Slovenia need a complete overhaul as there are a number of systemic weaknesses:

The Slovenian research funding mechanisms consist of a relative small share of basic institutional funding and a relative large share of bottom-up funding to research groups, which in addition is hardly competitive. The peers recommend to allocate a larger share of the funding as basic institutional funding in order to empower the institutions (research centres and universities) to develop strategic management of their organisations. However the shift away from the research groups would require extensive research assessments on the institutional levels as well as an increase in project funding. The research assessment is a quite demanding exercise in terms of resources and time, and hence its introduction should be well thought, measured and gradual.

The bottom-up funding awarded to research groups and projects should be genuinely competitive, based on a combination of criteria related to research excellence and to social and economic relevance. The peers recommend to redesign the set of criteria on the basis of which competitive funding to research groups is allocated (including the minimum size of a group) and thus rethink the selection process in order that excellent researcher benefit most;

The dichotomy between universities on the one hand and research centres should become less stringent. There are good arguments to merge those research groups that currently duplicate research efforts or that would benefit from more critical mass. In addition separating education of young graduates and researchers from excellent research in the research centres is not productive. The future strategy should put very much weight on cooperation between the national research institutes and the universities with the aim of improving the quality of the higher education system.

A burden sharing approach for research infrastructures (RIs) across disciplines, institutions and even across borders seems a promising approach for a relatively small country as Slovenia. Again, stronger strategy processes in policy and research organisations are needed in order to choose priorities for the relative high investments neededfor RIs

5. Slovenia should aim to build an effective monitoring and review system at the levels of its policy mix, the policy instruments as well as at the research institutional level.

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It is of strategic importance to develop systematic evaluation and feedback on policy implementation. Therefore systematic evaluation of the implementation of policy instruments and funding mechanisms should be fed back to policy making and design

An improved framework to allow universities to fully deploy their autonomy should be matched by a much stronger emphasis on the quality of management and on accountability.

When setting up an evaluation system for public research organisations, universities should be scrutinised along a set of (quantitative and qualitative) indicators that cover their full range of responsibilities.

6. In order to close the gap between public research and the private sector, the Slovenian government should introduce stronger incentives and stimulate bridging initiatives:

Formal (long-term) partnerships between universities and business sector should be actively promoted. The recently launched Competence Centres seem to be a good step in this direction;

The aforementioned broadening of selection criteria for research funding (by the Research Agency) is another necessary step in this direction;

A review of the current reward system of researchers is warranted in order to add incentives/rewards for joint applied research-activities with among others business and public sector companies;

The currently intransparent funding system and position of the multitude of knowledge transfer organisations needs to be clarified and remodelled

Schemes such as the Innovation Voucher could be boosted and implemented more effectively in order to increase the willengness of SMEs to collaborate with the public research organisations;

Policy programmes aimed at collaborative research with mandatory co-funding by industry should optain a larger weight in the current policy mix.

7. In order to become an innovation leader instead of a follower, a stronger emphasis on entrepreneurship and innovation in SMEs should be at the core of the Research and Innovation Strategy of Slovenia

Government should examine the appropriateness of its policies for support of innovative SMEs in view of needs of real existing knowledge intensive enterprises in Slovenia. Aforementioned stakeholder processes are necessary tools to achieve this;

Government should re-examine effects of labour legislation and property registration procedures on innovation and entrepreneurship;

We would strongly recommend that the government puts a strategic focus on building up a venture market in Slovenia, taking into consideration that that this is a very long term challenge;

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It is commendable that actions have been taken to address innovation skills gaps of young researchers through programmes which require that all those funded should undergo training in entrepreneurship;

8. There is a need for a more strategic approach to internationalisation of R&D. The imbalance between external and internal openness of the R&D system may not be sustainable in the long-term and should be addressed by research and innovation policy. Some aspects include:

The international dimension should be much more incorporated as part of modernising the curricula, and in attracting foreign students, researchers and academics for short or longer term study and work in Slovenia;

The existing constitutional requirement regarding education provision in Slovenian should be relaxed at least to enable postgraduate courses and programs in English;

Slovenia should move away from providing incentives for high participation in international programmes towards a more integrated view on the usefulness of international collaboration for the overall development of Slovenia.

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Appendix 1: Timetable for ERAC Policy Mix Peer Review, 06-08. October 2010

Timing Slovenian Discussant Discussion Topics

Wednesday, 6th October Informal dinner and first meeting of review team

Thursday, 7th October, 9-9.30 Review Team internal briefing

Thursday, 7th October, 9.30-11.30

Jana Kolar, Director General, Directorate for Science, Ministry of Higher Education, Science and Technology

Tea Glažar, Head of Service for International Cooperation and EU Affairs/ Andreja Umek Venturini, Directorate for Science

Janko Burger, Directorate for Entrepreneurship and Competitiveness, Ministry of Economy

Natalija Medica, Directorate for Foreign Economic Relations, Ministry of Economy

State of play of National System of Research and Innovation in Slovenia

International Cooperation in Science

Competitiveness and Industrial Policy

Thursday, 7th October , 12-14.00

Franci Demšar, Slovenian Research Agency, Director Margareta Pečaver Vidakovič, Public Agency for Technology Vlasta Selsek, Public Agency for Entrepreneurship and FDI

Implementation of research and innovation policy

Thursday, 7th October, 14.30-16.30

Alenka Avberšek, Chamber of Commerce and Industry, Executive Director for legislation and policies Representative, TRIMO, Trebnje Representative, BSH Hisni aparati Nazarej

Slovenian research and innovation policy – private sector perspective

Thursday, 7th October, 17.00-19.00

Miha Juhart, University of Ljubljana, Vice-rector Simon Strancar, University of Maribor

Stakeholders in research and innovation policy - Universities

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Aleksander Panjek, University of Primorska, Vice-rector Gvido Bratina, University of Nova Gorica, Vice-President

Friday, 8th October , 9.00-09.30 Review Team internal briefing

Friday, 8th October, 09.30-11.30

Jadran Lenarčič, Jožef Stefan Institute, Director Janko Jamnik, National Institute of Chemistry, Director Oto Luthar, Scientific Research Centre of the Slovenian Academy of Sciences and Arts, Director Tamara Lah Turnšek, National Institute of Biology, Director

Stakeholders in research and innovation policy – Research institutes

Friday, 8th October, 12.00-14.00

Jana Kolar, Director General, Directorate for Science, Ministry of Higher Education, Science and Technology

Darinka Vrecko, MHEST (National Programme for Higher Education 2010-2020)

Maja Bucar, External Expert

Future strategies and plans in Slovenia

Friday, 8th October, 14.30-16.30

Aleš Mihelič, Director General for Technology

Tomaž Boh, Head of Science Policy Division

Peter Volasko, Directorate for Science

Sergej Možina, Directorate for Science

Policy Mix Peer Review debriefing

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Appendix 2: Timetable for Scoping Mission by Review Team Leader, 01-20. September 2010

Timing Slovenian Discussant Discussion Topics

Wednesday, 1st September, 14.00-18.00

Jana Kolar , Director General, Directorate for Science, Ministry of Higher Education, Science and Technology

Ales Mihelic, General director, Directorate for technology

State of play of National System of Research and Innovation in Slovenia

Thursday, 2nd September, 09.00-11.00

Jana Kolar, Director General, Directorate for Science, Ministry of Higher Education, Science and Technology

Andrej Cvelbar, Directorate for Technology, Secretary, MHEST

Visit of the Review Team in Slovenia

Thursday, 2nd September, 11.30-13.30

Maja Bucar, Professor, Faculty of Social Sciences, University of Ljubljana

Metka Stare, Senior Research Fellow, Faculty of Social Sciences, University of Ljubljana

State of play of National System of Research and Innovation in Slovenia:

Thursday, 2nd September, 14.30-16.30

Jana Kolar , Director General, Directorate for Science, Ministry of Higher Education, Science and Technology

Ales Mihelic, General director, Directorate for technology

State of play of National System of Research and Innovation in Slovenia: Conclusions