National%20innovation%20systems

1
National innovation systems

• Urmas Varblane
• University of Tartu

2
Development and diffusion of the concept NIS

• Historical roots (Friedrich List,1841) -
  national systems of production - a wide set of
  national institutions including those engaged in
  education and training as well as infrastructures
  such as networks for the transport of people and
  commodities
• Freeman 1982 and Lundvall 1985 National
  Innovation System
• innovation process should be treated in a
  systematic manner - need for systemic approach,
  which integrates institutions to create, store,
  and transfer the knowledge, skills and artefacts.
  (OECD,1999
• understanding innovation as a complex interactive
  learning process
• learning is important gt key element in both the
  dynamics of the system and as a key agent in
  binding the whole system together.
• comparative - could not be an ideal NIS, which
  fits different nations with their specific
  socio-economic, political and cultural
  background.

3
Theoretical perspective on innovation and
learning as socially embedded (Lundvall, 2003)

• Innovation is a process that is
• Cumulative
• Nonlinear
• Path dependent
• Context dependent
• Continuous
• Interactive Firms do seldom innovate alone
• Innovation and learning
• You learn from what you do
• Innovation as joint production of innovation and
  competence
• Learning is a socially embedded process social
  capital is important

4
Definitions of NIS

• Innovation System - a system for generating and
  diffusing new technologies - every country has
  such a system, even if it is weak or low in
  capacity.
• C. Freeman (1987, p. 1) the network of
  institutions in the public and private sectors
  whose activities and interactions
  initiate,import, modify and diffuse new
  technologies.
• B.-A. Lundvall (1992, p. 12) narrow NIS
  organisations and institutions involved in
  searching and exploring such as RD
  departments,technological institutes and
  universities.
• broader NIS includes all parts and aspects of
  the economic structure and the institutional
  set-up affecting learning as well as searching
  and exploring the production system, the
  marketing system and the system of finance
  present themselves as sub-systems in which
  learning takes place.

5
Lundvall. 1992. National Systems of Innovation.
Towards a Theory of Innovation and Interactive
Learning London Pinter Publishers

• Assumption One / Knowledge as key resource and
  learning as key process and knowledge differs
  substantially from other economic resources
• it is assumed that the most fundamental
  resource in the modern economy is knowledge and,
  accordingly, that the most important process is
  learning. The fact that knowledge differs in
  crucial respects from other resources in the
  economy makes standard economics less relevant
  (p. 1)

6
Lundvall quote about the value of knowledge

• Knowledge does not decrease in value when used.
  On the contrary, its use increases its value
  i.e. knowledge is not scarce in the same sense as
  other natural resources and technical artefacts.
  Some elements of knowledge may be transferred,
  easily, between economic agents while others are
  tacit and embodies in individual, or collective,
  agents. Knowledge is not easily transacted in
  markets and not easily privately appropriated. In
  spite of attempts to find institutional solutions
  to the problem (patent laws, etc.) property
  rights to knowledge are not easily defined. When
  it comes to knowledge market failure is the rule
  rather than the exception (p. 18)

7
Lundvall. 1992. National Systems of Innovation.
Towards a Theory of Innovation and Interactive
Learning London Pinter Publishers

• Assumption Two / Learning as an interactive and
  socially embedded process modern nation states
  as a necessary prerequisite
• it is assumed that learning is predominantly
  an interactive and, therefore, a socially
  embedded process which cannot be understood
  without taking into consideration its
  institutional and cultural context. Specifically,
  it is assumed that the historical establishment
  and development of the modern nation state was a
  necessary prerequisite for the acceleration of
  the process of learning (p. 1)

8
National Systems, Globalization and
Regionalization (Lundvall, 1992)

• Why to focus on national systems in an era of
  globalization?
• Readers might ask, why we focus on the national
  level, in an era where many analysts point to an
  accelerating process of internationalisation and
  globalisation, characterised by multinational
  firms loosening their relations to their
  home-country and entering into alliances with
  foreign firms (p. 3)
• The importance and viability of national
  patterns
• At the same time, a growing number of social
  scientists often inspired by new sets of ideas
  labeled flexible specialisation, networking
  and post-Fordism have argued that regional
  production systems, industrial districts and
  technological districts are becoming increasingly
  important. Some authors analyse these two
  tendencies as interconnected and mutually
  reinforcing. that globalisation, and
  international specialisation have their roots in
  the strengthening of specialised technological
  districts and regional networks (p. 3)

9
Lundvalls arguments in favour of using concept
of NIS

• 1) Communication also, or even primarily, based
  upon tacit knowledge takes place within
  national patterns
• we believe that national systems still play
  an important role in supporting and directing
  processes of innovation and learning. The
  uncertainties involved in innovation and the
  importance of learning imply that the process
  calls for a complex communication between the
  parties involved. This will especially be the
  case when the knowledge exchanged is tacit and
  difficult to codify
• 2)Globalization pushes strongest in science-based
  and codified knowledge areas
• On the other hand, it must be recognised that
  important elements of the process of innovation
  tend to become transnational and global rather
  than national and here the trend will be most
  important in science-based areas where the
  communication is easier to formalise and codify.
  Some of the big corporations are weakening their
  ties to their home-base country and begin to
  spread their innovative activities and to
  source different national systems of
  innovation

10
Definitions of NIS

• The elements and relationships which interact in
  the production, diffusion and use of new, and
  economically useful, knowledge and are either
  located within or rooted inside the borders of a
  nation state (Lundvall, 1992 p.12)
• A set of institutions whose interactions
  determine the innovative performance of national
  firms (Nelson, Rosenberg, 1993 p.5)
• The national institutions, their incentive
  structures and their competencies, that determine
  the rate and direction of technological learning
  (or the volume and composition of
  change-generating activities) in a country
  (Patel and Pavitt, 1994 p.12)

11
Definitions of NIS

• That set of distinct institutions which jointly
  and individually contribute to the development
  and diffusion of new technologies and which
  provides the framework within which governments
  form and implement policies to influence the
  innovation process. As such it is a system of
  interconnected institutions to create, store and
  transfer the knowledge, skills and artefacts
  which define new technologies (Metcalfe,
  1995p.462-463)

12
Definitions of NIS

• C.Edquist (1997) - includes all important
  economic, social, political, organizational,
  institutional and other factors that influence
  the development, diffusion and use of
  innovations
• Galli, Teubel (1997)- a historically grown
  subsystem of the national economy in which
  various organizations and institutions interact
  and influence each other in the carrying out of
  innovative activity.
• NSI as the set of organizations, institutions,
  and linkages for the generation,diffusion, and
  application of scientific and technological
  knowledge operating in a specific country .

13
Systemic approach to innovation

• According to Ingelstam (2002)
• 1. a system consists of two kinds of
  constituents there are firstly, some kinds of
  components and secondly, there are relations
  among them. The components and relations should
  form a coherent whole (which has properties
  different from the properties of the
  constituents)
• 2. the system has a function that is, it is
  performing or achieving something
• 3. it must be possible to discriminate between
  the system and the rest of the world that is, it
  must be possible to identify the boundaries of
  the system. If we, for example, want to make
  empirical studies of specific systems, we must,
  of course, know their extension.

14
Elements in the system of innovation

• Players or actors. Organizations firms
  (normally considered to be the most important
  organizations in Sis), universities, venture
  capital organizations and public agencies
  responsible for innovation policy etc.
• Rules of the game. Institutions are sets of
  common habits, norms, routines, established
  practices, rules or laws that regulate the
  relations and interactions between individuals,
  groups and organizations, (Edquist Johnson,
  1997).

15
Edquist, 2001
16
Nauwelaers, 2003
17
National System of Innovation
18
A generic national innovation system (Arnold, E.,
Kuhlman, S, 2001, RCN in the Norwegian Research
and Innovation System. Available at
www.technopolis-group.com)
19
Systemic approach to innovation policy
(Romanainen, 2005)
Learning governance, strategic foresight,
evaluation, monitoring, assessment
innovation capabilities
Knowledge transfer awareness, co-operation,
mediation
complementary resources
complementary knowledge
Knowledge base education science RD
Market conditions customers competitors value-chai
ns
skilled labour knowledge ideas
sophisticated demand competition clustering
Innovation process
regulation services money
Framework conditions culture, social capital,
financial services, innovation services,
regulation
20
Boundaries of innovation systems types of
systems

• Spatially, sectorally,functionallygt
• National Innovation Systems (Freeman, 1987
  Lundvall, 1992 Nelson, 1993)
• Regional Innovation Systems (Camagni, 1991 Cooke
  et al., 1997 Braczyk et al., 1998 Cooke, 2001
  and Asheim Isaksen, 2002)
• Sectoral innovation systems ( Breschi Malerba,
  1997, Malerba, 2004).
• Technological innovation systems (Carlsson,
  1995 Carlsson Stankiewicz, 1991)

21
Social capital and the small country
paradox(slide from B.A.Lundvall)

• Small size (cf. The costs of respectively
  production and reproduction of knowledge) and low
  tech specialisation should be a serious handicap
  for small countries and especially for Denmark
  but small countries perform better than big ones
  in the new economy why?
• In the learning economy speedy adjustment,
  learning and forgetting is rooted in social
  relationships. Trust, loyalty and ease of
  communication is easier to establish in
  culturally homegeneous nations with shared
  responsibility for the costs of change.

22
Roots of the systemic approach to innovation

• evolutionary theory (Nelson Winter, 1982).
• firms are a bundle of different capabilities and
  resources (Eisenhardt Martin, 2000 Grant,
  1996 Spender, 1996) which they use to maximize
  their profit.
• knowledge is not only information, but also tacit
  knowledge it can be both general and specific
  and it is always costly.
• Knowledge can be specific to the firm or to the
  industry (Smith, 2000).
• The innovation process is interactive within the
  firms and among the different actors in the
  innovation system.

23
Activities in the system of innovation(Chaminade,
Edquist, 2005)

• function of SIs is to pursue innovation
  processes to develop and diffuse innovations.
• activities in SIs are those factors that
  influence the development and diffusion of
  innovations. Four approaches
• innovation production process, looking at the
  different activities needed to turn an idea into
  a new product or process. Edquist, (2004),
  Furman, Porter et al., (2002)
• knowledge production process - how knowledge is
  created, transferred and exploited (emphasis on
  the channels and mechanisms for knowledge
  distribution). (David Foray 1994 Johnson
  Jacobsson, 2003 innovation systems as learning
  systems (Lundvall, Johnson et al., 2002).

24
Activities in the system of innovation(Chaminade,
Edquist, 2005)

• 3) organizational performance - organizations as
  the starting point, identifying the activities of
  the different organizations that have an impact
  in the innovation system (Borrás,2004).
• 4) innovation policy as a focal point gt what
  activities (and organizations) in the innovation
  system can be stimulated by public intervention
  (OECD and other international organizations)
• criticism - it considers only those activities
  that can be directly affected by public
  intervention

25
Chaminade, Edquist, 2005

• what is the division of labor between private and
  public actors in the performance of each
  activity.
• This will provide policymakers with a new
  perspective on
• a) what role they can play in stimulating
  different activities in the system of innovation
  
• b) once the complex division of labor between
  public and private actors has been unfolded, what
  could be the appropriate instruments to do this
• c) how to identify future research needs.

26
Activities in the system of innovationproposed
by Chaminade, Edquist, 2005

• Provision of knowledge inputs to the innovation
  process
• 1. Provision of RD - creating new knowledge,
  primarily in engineering, medicine and the
  natural sciences.
• 2. Competence-building (provision of education
  and training, creation of human capital,
  production and reproduction of skills, individual
  learning) in the labor force to be used in
  innovation and RD activities.
• II. Provision of markets demand-side factors
• 3. Formation of new product markets.
• 4. Articulation of quality requirements
  emanating from the demand side with regard to new
  products

27
Activities in the system of innovationproposed
by Chaminade, Edquist, 2005

• III. Provision of constituents for IS
• 5. Creating and changing organizations for the
  development of new fields of innovation
  (e.g.enhancing entrepreneurship to create new
  firms and intrapreneurship to diversify existing
  firms, creating new research organizations,
  policy agencies, etc.)
• 6. Provision (creation, change, abolition) of
  institutions (e.g. IPR laws, tax laws,
  environment and safety regulations, RD
  investment routines, etc) - influencing
  innovating organizations and innovation processes
  by providing incentives or obstacles to
  innovation.
• 7. Networking via markets and other mechanisms,
  incl. interactive learning between organizations
  (potentially) involved in the innovation
  processes. Integrating new knowledge elements
  developed in different spheres of the SI and
  coming from outside with elements already
  available in the innovating firms.

28
Activities in the system of innovationproposed
by Chaminade, Edquist, 2005

• IV. Support services for innovation firms
• 8. Incubating activities (e.g. providing access
  to facilities, administrative support, etc. for
  new innovating efforts).
• 9. Financing of innovation processes and other
  activities that can facilitate commercialization
  of knowledge and its adoption.
• 10. Provision of consultancy services of
  relevance for innovation processes, for example,
  technology transfer, commercial information and
  legal advice.

29
Innovation processes are path-dependent

• Evolutionary characteristics - we do not know
  whether the potentially best or optimal path is
  being exploited.
• The system never achieves equilibrium, and the
  notion of optimality is irrelevant in an
  innovation context. We cannot specify an ideal or
  optimal innovation system
• Comparisons between an existing system and an
  ideal or optimal system are not possible, instead
  comparison with the other countries is available.
  
• Instead of market failure the term systemic
  problems or systemic failures are used.

30
Systemic problems mentioned in the literature
include (Smith, 2000 Woolthuis, Lankhuizen et
al., 2005)

• infrastructure provision and investment,
  including the physical (IT, telecom, transport)
  and scientific infrastructure (universities,
  labs)
• transition problems the difficulties that
  might arise when firms and other actors face
  technological problems or changes in the
  prevailing technological paradigms that exceed
  their current capabilities
• lock-in problems, derived from the
  socio-technological inertia, that might hamper
  the emergence and dissemination of more efficient
  technologies
• hard and soft institutional problems, linked to
  formal rules (regulations, laws) or nonformal
  (such as social and political culture)
• network problems, derived from linkages too
  weak or too strong (blindness to what happens
  outside the network) in the NIS
• capability problems, linked to the transition
  problems, referring to the limited capabilities
  of firms, specially SMEs, their capacity to adopt
  or produce new technologies over time.

31
A system failure framework for innovation policy
design (Woolthuis,Lankthuizen, 2004)
32
Why should governments intervene in favour of
(research) innovation ?

• Classic argument for research policy is a
  market failure or public good issue.
• But the rational for innovation policy is wider -
  market failure assumes away deficiencies of real
  companies
• Capability failures in business sector
• managerial deficits, lack of technological
  understanding
• Failures in institutions
• other institutions in the national innovation
  system universities, patent offices, financial
  system, etc.
• Network or system failures
• Lack of the interaction among actors in the
  innovation system, etc.
• Framework failures
• regulatory framework, health safety rules, etc.
  As well as consumer demand, cultural and social
  barriers to innovation.

33

The need to tailor packages of support to
different types of companies
34
From science and technology policy to innovation
policy (NIFU-STEP, 2005)

• 1st generation Science and technology policy
• Focus on research and especially research in
  universities and laboratories
• Ministries of industry/economy (industry policy)
  and research/education (science policy)
• 2nd generation Innovation policy
• Focus on policy measures and institutions
  targeting the innovative capabilities of firms
• Ministries of industry/economy and
  research/education
• 3rd generation holistic innovation policy
• Focus on institutions and policy measures that
  directly or indirectly influence the innovative
  capabilities of firms
• Most ministries

35
A more complex understanding of innovation

• Innovation takes place in complex systems of
  companies, knowledge institutions, financial
  institutions and within a extensive regulatory,
  social and cultural framework.
• Innovation is based on complex learning processes
  involving a large number of persons, all with
  different educational backgrounds and
  experiences.
• Innovation thrives on spillovers and unexpected
  combinations of persons, existing knowledge and
  technologies.

NIFU-STEP, 2005
36
A changing framework for innovation policy
National System of Innovation (Nauwelaers, 2003)

• Increased awareness of the role of innovation as
  crucial ingredient for economic development
• Interactive view of innovation innovation
  differs from RD
• System-based approach to innovation, emphasis on
  learning and diffusion / absorption of knowledge
• Mobility of tacit knowledge embedded in
  humansbecomes a key performance factor
• Glocalisation localised nature of (tacit)
  knowledge spillovers - importance of global
  connections

37
The basis for systemic innovation policies
(NIFU-STEP, 2005)
Traditional industrial policies Modern innovation policies
Knowledge as a free commodity Competence building as learning processes
Focus on research Including a broad set of innovation activities (incl. development, incremental improvements, design, branding, marketing)
Focus on high tech companies Including low tech companies and services
Focus on RD institutions Company centred
Focus on knowledge diffusion Focus on absorptive capacities and networking
38
Policies for innovation systems (Nauwelaers, 2008)

• Objective of policy intervention from optimal
  allocation of resources, towards ensuring the
  overall coherence of the system and improving its
  evolution capacity.
• Instruments targets free flow of knowledge in
  the system, addressing lock-in situations,
  favouring networking between innovation actors,
  etc.
• Justified by systemic failures arguments.
• Systemic policy instruments are gaining ground
  (Kuhlmann and Smits 2004)
• oriented towards the evolution of the innovation
  system
• preventing lock-ins
• building of spaces for interactions between the
  actors
• support to creativity

39
Policies for innovation systems

• From stocks to flows as main focus of policy
  attention
• Flows in the system need to be addressed in
  priority
• From raising resources towards promoting
  change
• Performance is affected by learning abilities of
  firms and others
• From best practice towards context-specific
  solutions
• Policies should be fine-tuned to specific system
  failures
• From standard policy-making towards policy
  learning process
• There is a need for more strategic intelligence
  in policy-making
• Policies for activating knowledge

40
Policies for innovation systems (Nauwelaers,
2003)

• From picking-the-winners towards
  addressing-weakest
• System performance is mainly determined by the
  weakest node
• From stocks to flows as main focus of policy
  attention
• Flows in the system need to be addressed in
  priority
• From raising resources towards promoting
  change
• Performance is affected by learning abilities of
  firms and others
• From best practice towards context-specific
  solutions
• Policies should be fine-tuned to specific system
  failures
• From standard policy-making towards policy
  learning process
• There is a need for more strategic intelligence
  in policy-making

41
Taxonomy of Innovation Policies(Georghiou, 2003,
2006)
42
Demand-side measures
Source Georghiou, L. et. al. (2003) Raising RD
intensity. Improving the Effectivenss of Public
Support Meachanismss for Private Sector Research
and Development Direct Measures Brussels.
43
A Simple Taxonomy of Science, Technology and
Innovation Policies
The Impact of RTD on Competitiveness and
Employment (IRCE), EC, 2003
44
Policy Conclusions

• Effectiveness of innovation systems depends on
  balanced combination of 3 capacities
• creation of knowledge
• diffusion of knowledge
• absorption of knowledge
• Governments role shifts from investor to
  facilitator - promotion of public/private
  partnerships and interface management
• Growing importance of framework conditions
• entrepreneurship
• competition rules
• labour market conditions
• social capital, ...

45
Policy Conclusions

• Danger of fragmentation of innovation policy
  need for intra-government policy coordination
• Increasing role of regions for innovation need
  for vertical policy coordination
• More efficiency through Policy packages rather
  than isolated instruments
• Need for more policy intelligence
• monitoring and evaluation of policies
• sound analyses of innovation systems
•  intelligent  benchmarking practices
• long term views
• inclusive policy design processes

46
Main developments in ourunderstanding of
innovation

• From individual entrepreneur to corporate
  innovator
• From laissez faire to government programmes
• From single division to multidivisional efforts
• From science push to demand pull?
• From single factor to multi-factor explanations
  of innovation
• From static to dynamic model of innovation
• From linear model to interactive chain-link
  model
• From one innovation process to several
  sectoral-specific types

47
Main developments in ourunderstanding of
innovation

• From neo-classical to evolutionary economics
• From optimising firm to resourcebased view of the
  firm
• From individual actors to systems of innovation
• From market failure to system failure
• From one to two faces of RD
• From single-technology to multitechnology firms
• From closed to open innovation
• From national to multi-level systems of
  innovation
• From RD management to innovation leadership

48
External influence
External influence
External influence
External influence
RD domain public and private RD performers,
e.g. universities, research institutes,
government labs, high tech SMEs, large firms etc.
Other key domains e.g. private sector firms
(Innovation domain) financial institutions
(Finance domain) educational establishments
(Human Capital domain)
Source Policy mix project, European Commission.
http//rid.intrasoft-intl.com/PolicyMix/index.cfm