OECD Seminar on Employment, Economic Development and Local Governance

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Innovation and Regional Cooperation

• OECD Seminar on Employment, Economic Development
  and Local Governance
• March 3, 2005
• Emily Wise Hansson

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Structure of Presentation

• The importance of innovation for competitiveness
• IKEDs Baltic Programme
• Innovation performance and governance in the
  Baltic Sea Region current position and
  challenges
• The BSI and Northern Dimension Working Group on
  Innovation region-wide initiatives
• Cluster Policies and The Whitebook
• Wrapping-up and questions

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Innovation has become an increasingly important
driver of economic growth and competitiveness
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Both globally and within the EU, addressing the
challenges of the knowledge economy and
innovation has the priority focus of policymakers
Perhaps the main lesson from neoclassical growth
theory is that the ultimate source of long-run
economic growth is technological progresss. The
reason for this is that the other potential
determinants of growth must run into diminishing
returns...(O)nce institutions are more or less
right, and once the macroeconomy is more or less
stable, additional improvements along these lines
will probably have little or no effect on
economic grwoth...(T)here do not seem to
be...diminishing returns to ideas. (from Xavier
Sala-I-Martin, Executive Summary to The Global
Competitiveness Report, 2003-2004)
Knowledge and the ability to create, access,
share and use it effectively has long been a
tool of innovation, competition and economic
success. It is also a key driver of economic and
social development more broadly. Dramatic changes
in recent years have increased the importance of
knowledge, and the competitive edge that it gives
to those who harness it quickly and
effectively. (from Beyond Transition the World
Bank in Europe and Central Asia, chapter on
Improving the Climate for Investment and Growth)
...(A) positive association between productivity
and a number of variables measuring the potential
in terms of knowledge-based activities such as
RD intensity, human capital and specialisation
in high-tech activities indicate the importance
of a knowledge base for regional
competitiveness.... The common thread appears to
be the potential to connect the different
economic actors both in a physical sense...and
in a more intangible way through a common vision
among regional stakeholders as well as through
collaboration between the academic and the
business world. (from Executive Summary to
European Competitiveness Report 2003)
Governments play an important role in national
innovation systems. (The role is) evolving from
supporting RD activities...to placing greater
attention on the interface between science
systems and industrial innovation, human
resources for science, technology and innovation,
and international ST collaboration between and
among developed and developing countries. (from
OECD, Science and Innovation Policy Key
Challenges and Opportunities, January 2004)
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For countries at all stages in economic
development, innovation is seen as a key to
long-term growth and international competitiveness

• Nordic countries leaders in global innovation
  rankings and RD investments looking to
  innovation policy to help drive long-term growth
• European Union target set at Lisbon Summit in
  2000 of Europe becoming the most competitive and
  dynamic knowledge-based economy in the world
  during the next decade progress for each nation,
  and Europe as a whole, measured annually through
  European Competitiveness reports and European
  Innovation Scoreboard
• World Economic Forum conducts surveys and
  compiles data for its annual rankings within The
  Global Competitiveness Report
• within the Growth Competitiveness Index,
  innovation is measured as one of the main
  sub-indices
• Within the Microeconomic Competitiveness Index,
  the capacity for innovation is measured as one of
  the components of Company Operations and
  Strategy other elements of innovation are
  measured within the National Business Environment

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IKED has published a report examining the key
challenges for SMEs and national innovation
systems in the Baltic Countries and Poland

• Background to the Baltic Programme
• Objective of the programme
• to address the specific policy challenges
  connected with the development of innovative and
  internationally competitive SMEs in the Baltic
  Countries and Poland - at a time when accession
  to the EU and the rise of the knowledge-based
  economy puts additional demands on these
  countries
• Comparative approach
• Combination of analysis and policy process
• Findings/conclusions from this report and
  developments since its publication have served as
  the basis for this presentation

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The results from last years work

• Recommendations
• Strengthening policymaking
• Improving the formation, coordination,
  organisation, implementation and evaluation of
  policies
• Policy learning
• Adjusting policymaking to the demands of a
  knowledge-based, innovative economy and society
• Improving the access to knowledge
• Strengthening the national science base
• Stimulating private sector RD
• Promoting international cooperation on RD
• Improving the ability to transform knowledge into
  products and services
• Improving the functioning of capital markets and
  the capital supply chain
• Strengthening human capital
• Improving linkages and cooperation between
  academia and industry
• Strengthening the willingness to innovate (and
  grow)
• Turning to northern neighbors for
  experience...developing a regional vision for
  innovation

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Innovation in the Nordic-Baltic Sea Region A
case for regional cooperation?

• Report was presented last fall at Baltic
  Development Forum Summit in Hamburg
• Defines innovation and its importance for
  competitiveness, economic growth, and prosperity
• Assesses innovation capacity and performance in
  the countries making up the Nordic-Baltic Sea
  Region
• Surveys how countries work to strengthen
  innovation and govern innovation policy in their
  respective countries
• Examines potential benefits of and challenges to
  regional cooperation on innovation and innovation
  policy issues in general and in the Nordic-Baltic
  Sea Region in particular
• Introduces/considers areas in which countries
  could benefit from cooperation in the field of
  innovation

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The EIS illustrates the Nordic countries leading
position, and the B4 countries dynamism
Overall Country Trend by Summary Innovation
Index-2 (2004)
Source European Innovation Scoreboard (2004)
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International rankings of various innovation
indicators highlight a regional dichotomy
Source World Bank Knowledge Assessment
Methodology
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Innovation Policy Formulation and Governance
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Innovation Policy Formulation and Governance
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Two initiatives, with synergistic effects, have
been launched

• Northern Dimension Working Group on
• Innovation (Nordic Council of Ministers)
• Developed out of working group, wider network and
  process initiated in 2003 SMEs and Innovation
  project, and the Nordic Council of Ministers
  strategic goals for strengthening both regional
  cooperation and focus on innovation
• Objectives of establishing a high-level network
  and discussion forum for innovation policymakers,
  raising awareness and competency levels on
  innovation policy, and strengthening regional
  cooperation and foundation for joint action in
  the realm of innovation policy
• A series of (2-3) working group meetings,
  supported by structured issues papers and expert
  interventions, is planned
• Conclusions and suggested actions will be
  integrated into the State of the Region Report
  2005

• Baltic Sea Initiative (BDF/VINNOVA)
• Baseline established in two reports presented at
  recent BDF Summit in Hamburg (The State of the
  Region Report 2004, and Innovation in the
  Nordic-Baltic Sea Region)
• In-depth discussion/process among a broad
  stakeholder group (representing business,
  politics, research and innovation agencies) in
  the Baltic Sea Region to be initiated in first
  meeting (to be held November 18-19 in Germany)
• Aimed at better coordination of existing
  initiatives, defining joint ambitions for the
  region, and formulating a strategy and an action
  agenda for strengthening the regions
  competitiveness and innovative potential
• Resulting strategy and action agenda to be
  presented in the State of the Region Report in
  Stockholm, October 2005

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Clusters some critical questions

• What are clusters and what makes them so
  attractive?
• What are the pros and cons of clustering? What
  are some of the pitfalls of clustering?
• What is the role of policymakers in the
  clustering process? What can and should
  policymakers do? (some examples of cluster
  policies from the Nordic countries)
• How do the goals and competencies of
  national/regional policymakers differ from those
  of other cluster actors, such as academia, firms,
  financial institutions, etc.?
• What are the limitations of policymaking?
• How can one assess/evaluate the effectiveness of
  policies?

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What are clusters and what makes them (and
cluster policies) so attractive to policymakers?

• Can be applied to mobilize/organize resources
  efficiently and productively in countries/regions
  regardless of level of economic development
  (increasingly used by aid orgs.)
• An approach that emphasizes linkages and
  interaction between innovation system actors
• Recognizes the importance of private
  sector-driven initiatives but also acknowledges a
  role for public sector involvement
• Allows for targeted policy initiatives
• If they work they benefit firms, consumers,
  regions, countries
• but what if they dont work?

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The Cluster The Cluster Initiative

• Geographical Concentration
• Specialisation or common denominator of a cluster
  
• Multiple Actors
• Cluster dynamics and linkages Competition
  Co-operation
• Critical Mass
• The Cluster Life cycle
• Innovation

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Why promote clusters the cluster policy rationale

• Market failure
• Government and policy failure
• Systemic failure

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Why promote clusters the cluster policy rationale

• Improved opportunities for innovation
• Enhanced productivity
• Improved business formation

i) New firm creation and technological
diversification ii) Inter-actor network
creation iii) The third inner dynamic is that of
cluster formation
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Pitfalls and risks

• Lock-in effects, Path-dependency, Technological
  discontinuities
• Creating rigidities
• Decrease in competitive pressures
• Self-sufficiency syndrome
• Inherent decline

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Cluster Policy Objectives

• Strengthening national competitiveness
• Supporting regional development
• Enhancing interaction and linkages in the
  innovation system (university-industry
  collaboration, public-private partnerships, etc.)
• Increasing productivity
• Promoting innovation
• Attracting foreign direct investment and
  internationally leading expertise

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Policy Areas

• Broker policies
• Demand side policies
• Measures for special promotion of international
  linkages
• Training policies
• Framework policies

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Innovation and growth in the Nordic countries
some challenges

• Large investments in RD
• Highly educated workforce
• Considered some of the most innovative economies
  (according to most indicators)
• But
• Few startups and low opportunity-based
  entrepreneurship
• Strong dependence on a handful of large companies
• Little cooperation between university and
  industry (part. Between SMEs and academia)
• Rapidly ageing labour force
• Relatively high sick leave
• -gt Overall low return (in terms of economic
  growth and welfare) on investments in knowledge

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Cluster policies some examples from the Nordic
countries

• Strengthening existing (promising?) clusters
• Selection and competition (Vinnväxt in Sweden,
  Centres of Excellence in Finland, Comepetence
  clusters in Denmark)
• Marketing support (one of the goals is to attract
  foreign direct investment and internationally
  leading expertise)
• Mapping and analysis (existing, potential,
  national and regional clusters)
• Strengthening RD, skills, etc. for strategic
  sectors
• Re-engineering old clusters
• Creating new clusters
• -gt the motivations and expectations for cluster
  policies depend very much on the perspective and
  overall objective

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The Cluster Policies Whitebook

• The Competitiveness Institute (TCI) Seventh
  Annual Conference
• Vinnova
• Conference proceedings, men also structuring
  clusters and role of policymaking