The Norwegian System of Innovation in an international perspective ESST lecture: A report from a research project. Svein Erik Moen, TIK, UiO

Aim of the lecture Present the main points from Edquist’s chapter (2004) Discuss the Norwegian System of Innovation from an international perspective (Draft by Grønning, Moen, Olsen, Steinsland 2005)

The emergence and development of the SI approach The alleged systemic nature of innovation: It often happens collaboration or in interdependence with other firms, on non- firm entities. How do we explain this? Lundvall (1992): Towards a theory of innovation and interactive learning Nelson (1993): A comparative analysis No generally accepted definition of a national innovation system!

NSI definition (Edquist 1997) Innovations: Product innovations are new or better material goods as well as intangible services. Process innovations are new ways of producing good or services. They may be technological or organisational (Edquist 2004: 182) SI: All important economic, social, political, organisational, institutional and other factors that influence the development, diffusion, and use of innovations. (Edquist 1997: 14, 2004: 183)

Strengths of using a system of innovation approach (Edquist) emphasis on innovation and learning holistic and interdisciplinary perspective evolutionary perspectives encompass both product and process innovations Interdependence and non-linearity Considers institutional aspects

Weakness of the SI approach “It is not a formal theory, in the sense of providing propositions regarding causal relations among variables.” (Edquist 2004: 186) “At the present, it is not a matter of transforming the SI approach into a “general theory of innovation…” (Edquist: 2004: 187).

What is a system? Constituents: Some kind of a) components and b) the relations among them. These should form a coherent whole. A system has a function It must be possible to discriminate between the system and the rest of the world

The main components of SIs “Organisations are formal structures that are consciously created and have an explicit purpose.” (Edquist and Johnson 1997: 46-7) “Institutions are sets of common habits, norms, routines, established practices, rules, or laws that regulate the relations and interactions between individuals, groups, and organisations.” (Edquist and Johnson 1997: 46)

Activities in SIs Provision of Research and Development Competence building Formation of new product markets Articulation of quality requirements Creation and changing organisations for the development of innovation Networking through markets and other mechanisms Creating and changing institutions Incubating activities administrative support etc Financing of innovation processes Provision of consultancy services

Things that Edquist identifies to studied in the future A need of comparative case studies Integrate conceptual and theoretical work with the case studies Develop SI framework and theoretical elements More attention to non-technological and intangible kinds of innovation

Historiske linjer i det Norske innovasjonssystemet Fisk og tømmer var hovedeksportnæringene gjennom 1900-tallet, altså baserte økonomien seg på en utviklingsblokk bestående av typisk høstingsindustri. Den internasjonale utviklingen i prosessindustrien ga muligheter for en ny utviklingsblokk i Norge. Fra begynnelsen av 1900-tallet ble kraftkrevende industri bygd ut. Basert på Vannkraft, utenlandske investeringer, og ny teknologi innenfor metaller og kunstgjødsel Andre sektorer fikk også stor vekt på den tiden som f.eks shipping og hvalfangst, hvor flåtene ble modernisert. Papirindustrien fikk også etter hvert stor betydning, og var I 1950, Norges største eksport sektor.

Historiske linjer i det Norske innovasjonssystemet Store industrielle grupper ikke har vært særlig eksisterende i Norge hvis vi sammenlikner oss med f.eks Sverige. Norge har alltid vært et land med mange små- og mellomstore selskaper, som til eksempel innen fisk, møbler, og verkstedsindustri. En viktig utviklingsblokk i det Norske systemet er i dag sentrert rundt olje og gass og den servicesektoren som knytter seg til det norsk oljesystemet. Med Statoil og Saga Oil, og ekspansjonen til Norsk Hydro fikk vi Norske aktører med store finansielle resurser. Statlig eierskap har vært viktig for utviklingen av disse store selskapene. Regionale trender

Development blocks in the system Main natural resources development block LARGE FIRMS: Oil extraction Hydroelectricity Mechanical engineering Metals Corporate fisheries and aquaculture Pulp & paper SMEs: Shipping and oil supply Aquaculture supply Alternative energy sources Family owned fisheries & aquaculture Other existing and potential development blocks LARGE FIRMS: Telecom Food processing and distribution SMEs: ICT SMEs Furniture Biotech Medical technology

Innovation intensity in the Norwegian NSI according to the Community Innovation Survey Overall a negative trend… Difference between SMEs and large firms Enterprises engaged in innovation cooperation is considerably higher than the EU average. Obstacles to innovation activities in Norway are less than the EU average Enterprises with innovation activities were 3 percent lower that the EU average The effects of innovation during where considerably lower than the EU average

Activities that influence innovation: Provision of R&D 1,6% of GDP (2001). Decreasing investments in R&D in relation to GDP, compared to the OECD ( ) Publication and citation analysis: relatively low growth rate ( ), weak within engineering, physics, computer science. Strong within geosciences and ecology Patents: Many Norwegian patents within ship building, pumps/turbines, drilling techniques

Norway vs. OECD

Activities that influence innovation: Competence building Norway as Nr. 1 in the Human Development index High growth of students since the 1990s (Universities, scientific colleges, state colleges) High growth of people with higher education within the labor force, especially ICT, oil/gas and mining Low ranking in mathematics

Activities that influence innovation: Demand side factors Public procurement is one of the factors which can affect the demand and the creation of new markets. The Ministry of Labour and Government Administration is responsible for policy on public procurement: –ICT projects in the public sector: Efficiency –Encouraging the commercialisation of new technologies in the Oil industry (support services) –Quality requirements Public attempts to develop new markets have been very limited (OECD 2004)

Activities that influence innovation: Provision of organizations Relatively low degree of the creation of technology-based business organizations Relatively low share of spin-offs from “high tech” manufacturing: Of all spin-off firms in Norway in the period , 11.2% were spin-offs from “high-technology” industries.

Activities that influence innovation: Networking, interactive learning and knowledge integration According to CIS: –suppliers are the most used partners in collaboration and innovation –Collaboration with customers are the most important for innovation –Collaboration with universities and research institutes has low degree of importance for innovation

Activities that influence innovation: Support services for innovating firms SIVA: 1500 companies are receiving support Science parks Venture capital: Low level compared to other European countries Innovation Norway: Grants and loans Consultancy services: e.g. accounting, legal services, training, marketing…

Consequences of innovations? A paradox: Low degree of innovation according to the CIS while very high GDP, productivity growth? For Norwegian firms: Innovations have a positive effect on technology and competence within firms, but not necessarily with regard to turnover.

Innovation policies pursued 1st generation policy ( s): linear progression from basic science to applied technology. 2nd generation policy: ( ), “high- technology” ( ) “Competitive advantage” 3rd generation policy ( ): “more R&D”, focus on health, marine research, energy, medicine, ICT. (2003-) “Holistic Innovation Policy” (but research driven?)

Strengths of the NSI Strong competence and competitive within oil, gas, marine recourses, hydroelectric power, and shipping (“low” and “medium- low” tech. Patenting and scientific specialization also reflects this High productivity growth Relatively strong education system

Weaknesses Low innovation intensity (CIS) Low effect of innovations (performance) Limited availability of risk capital in urban areas Incubators have vague aims, and not directed towards particular sectors Relatively little done in the area of tax incentives to facilitate the early phases of firms

Future innovation policy 1) Increased attention on the possibilities of further and advanced exploitation of the natural endowment based development block; 2) Examine the realism and need for specific percentage ‘push’ goals when it comes to R&D expenditure, and rather devise sector based ‘pull’ goals; 3) Abolition of the general and integrated approach consisting in integrating multiple aims within one and the same policy, and instead devise competitive instruments where such symbiosis may (or may not) be part of the end result.

Some considerations of the Finish system of innovation (Kaitila and Kotilainen 2005) Industrial development in Finland can be divided into three phases: A factor-driven economy from the mid 19th century An investment-driven economy from the end of the world war 2 to the end of the 1980s An innovation-driven economy since the late 1990s Pillars in the economy today: -Growth in ICT (NOKIA) -Large and Strong paper industry with process innovations

Most important activity Provision of R&D: In 2003, total expenditure in Finland was about 3.5 per cent of GDP. Most of business sector R&D takes place in telecommunication and equipment industry (53%), followed by metals, and the chemicals industry. Nokia alone stands for about 40 per cent of the total R&D in Finland.

Propensity to innovate in the NSI High performance: –Radio, TV and communication –Knowledge intensive business services –Medical instruments –Office machines and computers –Pulp and paper, metals