Technological Innovation, Economic Growth and

Sustainability

Luc SoeteLuc SoeteMERITMERIT

University of MaastrichtUniversity of Maastricht

Comments prepared for the workshop on “R&D, innovation and Comments prepared for the workshop on “R&D, innovation and competitiveness”, Basque Country, Bilbao, March 8competitiveness”, Basque Country, Bilbao, March 8 thth 2004. 2004.

Outline

Factors of success and new challenges Factors of success and new challenges Support policies: Support policies:

From industrial to technology policyFrom industrial to technology policy From national to regional support policyFrom national to regional support policy

New organisational models: New organisational models: Importance of systemic visionImportance of systemic vision From best practice to worst practiceFrom best practice to worst practice

Interesting experiences: what can we learn?Interesting experiences: what can we learn? Basque Country: question of sustainable success Basque Country: question of sustainable success

1. Factors of success

Role of science and technology in post-war OECD Role of science and technology in post-war OECD countries: strong belief (but little evidence) in countries: strong belief (but little evidence) in relationship with growth (only for the US, Solow)relationship with growth (only for the US, Solow)

Supply dominated view, centred around the Supply dominated view, centred around the importance of fundamental research in higher importance of fundamental research in higher education, public and private research institutionseducation, public and private research institutions

Importance of catching up Importance of catching up Economic arguments in favour of public support Economic arguments in favour of public support

relatively straightforward: under-investment in relatively straightforward: under-investment in research by private firmsresearch by private firms

Figure 1a: Relationship between BERD (1967) and productivity growth (1967-1972)

0.00

0.50

1.00

1.50

2.00

2.50

0 1 2 3 4 5 6 7 8 9 10

Anual Growth of labour productivity, 1967-1973 ( Average growth in GDP per man hour)

BE

RD

%G

DP

196

7

IT

DN

BE

SE

UK

NL

EU

FR

JP

US

DE

But also many failures

Not just S&T creation but also and primarily Not just S&T creation but also and primarily innovation and entrepreneurshipinnovation and entrepreneurship

Recognition of particular role of demand side and Recognition of particular role of demand side and particular role of private R&Dparticular role of private R&D

At the same time there are many structural factors At the same time there are many structural factors (sectors/technology composition) determining (sectors/technology composition) determining specialisation and competitivenessspecialisation and competitiveness

Importance of user linkages for knowledge Importance of user linkages for knowledge creation and diffusion, of industrial clusters, creation and diffusion, of industrial clusters, formal and informal linkages formal and informal linkages

Figure 1b: Relationship between BERD (1995) and productivity growth (1995-2000)

0

0.5

1

1.5

2

2.5

3

0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5

Anual Growth of labour productivity,1995-2000 ( Average growth in GDP per man hour)

BE

RD

/GD

P, 1

995

IT

DN

BE

SE

UK

NL

EUFR

JP

USDE

New challenges

How to increase investment in knowledge How to increase investment in knowledge creation, diffusion and innovation, willingness to creation, diffusion and innovation, willingness to take risks and entrepreneurshiptake risks and entrepreneurship

Irrelevance of the 3% R&D/GDP Barcelona target Irrelevance of the 3% R&D/GDP Barcelona target European vs national R&D&I policy challengesEuropean vs national R&D&I policy challenges Implications of enlargement for European Implications of enlargement for European

Research policy, and in particular researchers’ Research policy, and in particular researchers’ mobility (not addressed here)mobility (not addressed here)

Risk taking, entrepreneurship and innovation in Europe

Links between nature of technological change Links between nature of technological change (creative destruction vs incremental) and labour (creative destruction vs incremental) and labour market institutions (Saint-Paul, 2002) market institutions (Saint-Paul, 2002)

Trade-off between innovation and risk taking and Trade-off between innovation and risk taking and labour market security, in particular high hiring labour market security, in particular high hiring and firing costs at knowledge end of the market… and firing costs at knowledge end of the market… insufficiently recognized. insufficiently recognized.

New areas: scientific entrepreneurs, technology New areas: scientific entrepreneurs, technology transfer agencies on supply side transfer agencies on supply side

Regulatory barriers index (OECD)

00.5

11.5

22.5

33.5

44.5

5

US UK CA DK FI FR AT SP GE IT SW NL PT

ind

ex

val

ue

Product market regulation Administrative burdens

Burdens on start-up Employment Protection 1998

On the 3% Barcelona target

Political “focusing device”, useful within the Political “focusing device”, useful within the context of Lisboncontext of Lisbon

From a growth perspective irrelevantFrom a growth perspective irrelevant Three major implementation problems:Three major implementation problems:

Lack of credibility of the target, contrary to the other 3% target Lack of credibility of the target, contrary to the other 3% target (public deficit) no fines attached(public deficit) no fines attached

Lack of enforcement, not a harmonized target for all 15 Lack of enforcement, not a harmonized target for all 15 countries like other Lisbon targets but an aggregate one. How countries like other Lisbon targets but an aggregate one. How to assess progress?to assess progress?

Lack of implementation: appears first and foremost a private Lack of implementation: appears first and foremost a private

business R&D targetbusiness R&D target

European vs national R&D&I policy challenge

How to strengthen national benefits of public-How to strengthen national benefits of public-private S&T partnerships in an international private S&T partnerships in an international context: fill the holes or enlarge the holes?context: fill the holes or enlarge the holes?

Phenomenon of “Dutch knowledge disease”:Phenomenon of “Dutch knowledge disease”: Crowding out of fundamental research in private sectorCrowding out of fundamental research in private sector Crowding out of applied research in public sector Crowding out of applied research in public sector Specialisation in private sector within EuropeSpecialisation in private sector within Europe Improving quality and strengthening research capacities in Improving quality and strengthening research capacities in

public sector. Trend towards national research “autarchy”public sector. Trend towards national research “autarchy” Growing mismatch between national private and Growing mismatch between national private and

public research activitiespublic research activities

2. Support policies

Shift from industrial to R&D and innovation policies Shift from industrial to R&D and innovation policies with strong impact on growth, structural change and with strong impact on growth, structural change and “international competitiveness”“international competitiveness” Growth: Abramowitz and in particular his analysis of European Growth: Abramowitz and in particular his analysis of European

backwardness and expectations of catching up in the 50’s backwardness and expectations of catching up in the 50’s Competitiveness: Posner, Vernon, Freeman, Pavitt, Fagerberg...Competitiveness: Posner, Vernon, Freeman, Pavitt, Fagerberg...

Today: many questionsToday: many questions Restricted scope for support industrial/R&D/innovation policiesRestricted scope for support industrial/R&D/innovation policies Yet, industrial renewal and R&D investment insufficient in Europe Yet, industrial renewal and R&D investment insufficient in Europe Lack of large European industrial complex in EuropeLack of large European industrial complex in Europe Limits to internal harmonisation (standards, national regulators)Limits to internal harmonisation (standards, national regulators)

Regional knowledge policies as outcome?Regional knowledge policies as outcome?

Growth of regional policies

Diversity of regional development is a reflection of Diversity of regional development is a reflection of mixture of factors: mixture of factors:

Geographical ones: peripheral locationGeographical ones: peripheral location Physical endowments: agriculture, mining, logisticsPhysical endowments: agriculture, mining, logistics Agglomeration effects: snowball size effect; Agglomeration effects: snowball size effect;

population density closely linked to knowledge population density closely linked to knowledge activities activities

New endowments: sustainability (pollution, New endowments: sustainability (pollution, congestion, urban development); ageing (health congestion, urban development); ageing (health and care, mobility, housing)and care, mobility, housing)

Positive cluster effects vs negative cluster effectsPositive cluster effects vs negative cluster effects

New regional challenges

Europe unique laboratory of regional development Europe unique laboratory of regional development policies, but social cohesion aims becoming questioned:policies, but social cohesion aims becoming questioned:

Effectiveness: national growth convergence Effectiveness: national growth convergence within the EU, but regional divergence (national within the EU, but regional divergence (national failure in first instance)failure in first instance)

Physical borders of European solidarity being Physical borders of European solidarity being questioned with enlargement (strong political questioned with enlargement (strong political reasons for national regional policies)reasons for national regional policies)

Intrinsic limits of regional policy: peripheral Intrinsic limits of regional policy: peripheral regions; success implies discontinuation; hence regions; success implies discontinuation; hence vulnerability of created European goodwill vulnerability of created European goodwill

The regional dimension of the ERA

Social cohesion implications of ERA under-researched:Social cohesion implications of ERA under-researched: Likely internal EU migration effects of highly Likely internal EU migration effects of highly

skilled skilled Regional/local implications of Mattheus effects of Regional/local implications of Mattheus effects of

research excellenceresearch excellence Local knowledge cluster effects could lead to Local knowledge cluster effects could lead to

accentuation of regional (and national) growth accentuation of regional (and national) growth diversity diversity

Quid when EU nations (including accession Quid when EU nations (including accession countries) observe strong brain drain trends? countries) observe strong brain drain trends?

3. New organising models

Growing recognition of importance of demand, of Growing recognition of importance of demand, of “applied”, problem oriented research“applied”, problem oriented research

Need for link with other demand elements in the economy Need for link with other demand elements in the economy (functioning of markets (product regulation), place within (functioning of markets (product regulation), place within the supply chain, consumers preferences (diffusion the supply chain, consumers preferences (diffusion models), locational specificities, etc.models), locational specificities, etc.

Focus on “systemic” aspects of the innovation system: Focus on “systemic” aspects of the innovation system: NSI, RSI; link to external environment, network (cluster) NSI, RSI; link to external environment, network (cluster) effectseffects

Complexity of policy conclusions? Policies shifting from Complexity of policy conclusions? Policies shifting from specific issues towards systematic aspects: from best to specific issues towards systematic aspects: from best to worse practice? worse practice?

Abramowitz reconsidered

From regional system of innovation From regional system of innovation perspective 4 elements appear particularly perspective 4 elements appear particularly relevant for regional growth and relevant for regional growth and development:development: Quality of human capital formationQuality of human capital formation Openness of research capacityOpenness of research capacity Strength of innovative performanceStrength of innovative performance Absorptive regional capacityAbsorptive regional capacity

TECH. & INNOVAT. PERFORMANCE

AB

SOR

TIO

N C

AP

AC

ITY

SOCIAL & HUMAN CAPITAL

RE

SEA

RC

H C

APA

CIT

Y

Regional human capital formation

Focus on local/regional higher education Focus on local/regional higher education institutions: universities, polytechnics, institutions: universities, polytechnics, professional training schools, including life long professional training schools, including life long learninglearning

Emphasis on quality, reduction in failure rates and Emphasis on quality, reduction in failure rates and drop outsdrop outs

Improving attractiveness to “foreign” students, i.e. Improving attractiveness to “foreign” students, i.e. from other regionsfrom other regions

Recognition of importance of exchange Recognition of importance of exchange programmes as benchmark learning toolsprogrammes as benchmark learning tools

Openness of research capacity

Strengthening of local research presence in Strengthening of local research presence in regional economic, industrial and political tissue regional economic, industrial and political tissue (seminars, (in)formal networks, local media, (seminars, (in)formal networks, local media, cooperation)cooperation)

Joint public-private regional initiatives Joint public-private regional initiatives Focused excellence where openness to “foreign” Focused excellence where openness to “foreign”

knowledge, researchers, institutes collaboration is knowledge, researchers, institutes collaboration is dominant trenddominant trend

Strengthening research infrastructure common Strengthening research infrastructure common regional aim regional aim

Local innovative performance

Recognition of importance of local scientific spin-Recognition of importance of local scientific spin-off (scientific entrepreneurs)off (scientific entrepreneurs)

Strengthening of links between public research Strengthening of links between public research institutes/researchers/teachers and local SMEs institutes/researchers/teachers and local SMEs (local knowledge vouchers) (local knowledge vouchers)

Embedment of large, dominant MNCs in public Embedment of large, dominant MNCs in public research infrastructure (anchorage, increasing research infrastructure (anchorage, increasing costs of footlooseness)costs of footlooseness)

Regional/local PR of innovative identity Regional/local PR of innovative identity

Absorptive regional capacity

Focus on regional bFocus on regional bèèta usersta users Role of regional public authorities in terms Role of regional public authorities in terms

of procurement of procurement Regional presence “abroad” (fairs, etc.)Regional presence “abroad” (fairs, etc.) Focus on regional diffusion and knowledge Focus on regional diffusion and knowledge

distribution policiesdistribution policies Cooperation with other “foreign” regionsCooperation with other “foreign” regions

INNOVAT. PERFORMANCE

AB

SOR

TIO

N C

AP

AC

ITY

HUMAN CAPITAL

RE

SEA

RC

H C

APA

CIT

Y

TECH. & INNOVAT. PERFORMANCE

AB

SOR

TIO

N C

AP

AC

ITY

SOCIAL & HUMAN CAPITAL

RE

SEA

RC

H C

APA

CIT

Y

4. Interesting experiences

Regions of knowledge EU programmeRegions of knowledge EU programme Emphasis on role of local universities and/or Emphasis on role of local universities and/or

public research institutes (particularly relevant to public research institutes (particularly relevant to the Basque country)the Basque country)

Cooperation between highly advanced and social Cooperation between highly advanced and social cohesion regions (interactive learning) cohesion regions (interactive learning)

Cross-national border regionsCross-national border regions Border regions and the underutilized growth Border regions and the underutilized growth

potential beyond the national borderpotential beyond the national border Use differences to own advantageUse differences to own advantage

Case LEA: differences Belgium-Netherlands-Germany Belgian/Flemish knowledge economy: Belgian/Flemish knowledge economy:

Dependent on foreign firms Dependent on foreign firms Universities underfunded but attractorsUniversities underfunded but attractors Strong human and S&E capitalStrong human and S&E capital

Dutch knowledge economy:Dutch knowledge economy: Dependent on Dutch MNCs which are internationalizingDependent on Dutch MNCs which are internationalizing Fragmented university/higher education policyFragmented university/higher education policy S&E shortagesS&E shortages

German knowledge economy:German knowledge economy: Nationally oriented higher education policyNationally oriented higher education policy Lagging behind: old knowledge economyLagging behind: old knowledge economy

Code Name

1.2 Tertiary educatio

n

1.3 Lifelong learning

1.4 Med/hi-

tech employment in manufac

turing

1.5 High-tech

employment in services

2.1 Public R&D

2.2 Busine

ss R&D

2.3.1 High-tech

patent applicatio

ns

2.4.1 Patent

applications

AT12 Niederösterreich 15.36 7.17 6.75 3.13 0.05 0.59 20.38 135.56

DE22 Niederbayern 16.95 3.79 15.61 1.93 0.08 0.38 27.30 187.86

DE30 Berlin 30.40 9.59 5.85 5.17 1.80 1.88 59.08 217.28

DE72 Gießen 20.60 7.97 9.70 2.89 0.97 0.77 30.10 257.95

DE73 Kassel 19.27 6.22 12.42 2.26 0.24 0.47 7.94 104.78

DEA5 Arnsberg 15.96 5.27 10.44 2.31 0.50 0.70 18.93 218.84

DEC0 Saarland 16.48 5.03 9.45 3.66 0.60 0.36 6.94 144.68

DEF0 Schleswig-Holstein 19.91 5.63 7.60 3.11 0.64 0.45 16.83 156.49

FR21 Champagne-Ardenne 15.54 2.09 3.82 1.23 0.14 0.35 7.82 78.62

FR23 Haute-Normandie 20.60 2.47 11.38 2.21 0.19 1.42 2.71 102.58

FI15 Pohjois-Suomi 28.34 16.63 7.59 3.71 1.07 3.29 151.11 323.44

FR23 Haute-Normandie 20.60 2.47 11.38 2.21 0.19 1.42 2.71 102.58

FI15 Pohjois-Suomi 28.34 16.63 7.59 3.71 1.07 3.29 151.11 323.44

FI17 Etelä-Suomi 30.31 18.69 8.88 3.30 0.76 2.49 112.30 327.87

IT11 Piemonte 9.60 4.43 13.17 4.06 0.29 1.35 10.14 110.15

IT32 Veneto 9.54 5.51 10.01 2.19 0.28 0.25 4.79 109.88

IT33 Friuli-Venezia Giulia 9.41 6.18 9.89 3.28 0.63 0.55 4.70 92.50

IT51 Toscana 9.84 4.97 5.45 2.38 0.71 0.30 4.65 67.73

NL22 Gelderland 23.87 15.44 4.30 4.11 0.99 1.05 14.33 146.47

NL34 Zeeland 18.12 14.97 7.63 1.68 0.10 1.03 4.92 106.91

MKB Leuven-Eindhoven-Aken 18.84 10.70 8.50 1.60 0.56 2.09 61.90 662.96

UKD North West 24.80 21.22 7.22 3.59 0.34 1.52 12.18 103.38

UKK South West 29.34 22.98 6.98 4.10 0.60 1.37 49.61 145.36

UKE Yorkshire & The Humber 25.09 21.76 5.59 3.16 0.46 0.40 15.34 86.92

Challenges regional LEA policy

Cross border regional innovation platform Cross border regional innovation platform developing systemic linkagesdeveloping systemic linkages

Alliance KUL, TUE, RWTH + other universities Alliance KUL, TUE, RWTH + other universities in region (LUC, UM)in region (LUC, UM)

Cross border cooperation of regional policy with Cross border cooperation of regional policy with respect to private-public knowledge investments respect to private-public knowledge investments (IMEC, VITO, Philips, ASML, Océ, DSM, Jülich, (IMEC, VITO, Philips, ASML, Océ, DSM, Jülich, AGIT)AGIT)

Creation of common human capital higher Creation of common human capital higher education and trainingeducation and training

Conclusions: Beyond “nationalism”

““National competitiveness a dangourous obsession?” National competitiveness a dangourous obsession?” to paraphrase Paul Krugmanto paraphrase Paul Krugman

Knowledge economy is an economy without borders: Knowledge economy is an economy without borders: pieces of knowledge acquired, bought, stolen, pieces of knowledge acquired, bought, stolen, reshuffled form all over the world. reshuffled form all over the world.

National targets (Barcelona) were ultimately primarily National targets (Barcelona) were ultimately primarily inspired by national statistics and national policy inspired by national statistics and national policy makersmakers

New geography and agglomeration effects: regions are New geography and agglomeration effects: regions are the natural environment for local anchorage of the natural environment for local anchorage of knowledge related activities.knowledge related activities.

Basque Country:in search of own clusters…

Significance of regional and/or local research and innovation activities/policies in Europe comparable to the US

Limited success on implementation of cross-border cooperation: dominance of nationalism in RTD and innovation policies

Diversified or fragmented as one prefers to take a positive or negative view with universities, businesses, local authorities generally involved

In search of European regional clusters only way to achieve Lisbon: Basque region interesting case.