NORSI LECTURE NO 2 OCTOBER BENGT-ÅKE LUNDVALL AALBORG UNIVERSITY Innovation Policy and Knowledge politics

Innovation Policy in the shadow of the crisis The rich countries are stuck with low growth and they look for innovation policy as a potential to get back on track. See EU2020, Innovation Union, ITIF, OECD-strategy. But ambivalence on public investment in the era of public deficit reduction. Emerging economies grow but China and others are not happy with their innovation record. Now emphasis upon ‘independent innovation’. Cf for Chinas 15 year plan for Science and Technology. ITIF refers to it as ‘innovation mercantilism’.

A few words about the crisis First bank crisis (2007) now (2010) public finance crisis in Europe At the root of the crisis is a dysfunctional finance system and a dysfunctional euro-construction. Dilemma – need for expansion of demand but no room for fiscal expansion. Euro-break down with potential global consequences Austerity in Europe will spill over on the rest of the world.

Enhanced Competitiveness as a way out of crisis Feather-bedding +Austerity strategy – devaluation, lower taxes and less restrictions on business (the firm as a rational optimising unit)– perhaps with protectionism. Vs Competition pressure + Investment strategy – revaluation and opening to foreign competition (the firm as a satisficing unit).

Excerpt from Obama’ 2011 State of the Union speech The first step in winning the future is encouraging American innovation………In America, innovation doesn’t just change our lives. It’s how we make a living………..throughout history our government has provided cutting-edge scientists and inventors with the support that they need.. We’ll invest in biomedical research, information technology, and especially clean energy technology – an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.

China’s 15year plan On February 9th, 2006, the State Council presented its strategy for strengthening China’s scientific and technological progress in the coming 15 years (State Council 2006a). The plan reflects ambitions to make China one of the world’s most innovative countries..

Excerpt from the “EUROPE 2020" STRATEGY The exit from the crisis should be the point of entry into a new sustainable social market economy, a smarter, greener economy, where our prosperity will come from innovation and from using resources better, and where the key input will be knowledge. These new drivers should help us tap into new sources of sustainable growth and create new jobs to offset the higher level of unemployment our societies are likely to face in the coming years. BUT HOW DOES THE NEW EUROPEAN STABILISATION PACT FIT?

Science policy In the US Annevar Bush at the end of the Second World War produced the report:Science: The Endless Frontier Bernal produced the first systematic measurement of R&D in 1939 for UK. Both of them argued that a major reason for supporting science was its economic impact but none of them were economists. The aftermath of the War – not least the Los Alamos project and the cold war gave strong background for sectoral science policy especially in the US.

Technology policy - From guns to butter 1550 the King in England established a technology policy program to develop guns made of iron – had a dramatic impact in triggering the industrial revolution. In Denmark dairy technology was developed and diffused through the new co-operative movement amopng farmers in the last half of the nineteenth century.

Innovation as an interactive process and innovation policy New developments where the forward and backward links to production and market are recognised. To develop new products you need to keep an eye on the market and establish a relationship to the most advanced users Combination of framework conditions (incentives and competences) and promotion of private initiatives – including R&D-efforts.

Multilevel governance and innovation policy National governments commit themselves to science and technology policy – for instance through tax rebates for investors in R&D. Regional authorities engage in cluster building and cities in attracting the creative class. EU in charge of Framework programs and Regional funds to support demand oriented research cooperation and competence building in weak regions.

Innovation systems and innovation policy Look for missing links, underutilized competencies Do not forget to build competence also on the user side Low cost government operations can be to:  map the national innovation system  pursue technological forecasting  promote new network formations  complement to cluster policy

Innovation is not just about science Need to promote science to enhance absorptive capacity of the whole economy – STI. Need to promote competence-building and organisational change in order to enhance absorptive capacity at the level of firms- DUI. Need to combine intense competition with network building to promote innovation at all levels. Need to ensure diversity in research funding in order to assert diversity in search and solutions.

Probability to introduce product innovation (with controles for sector, size and ownership) STIDUI/STILow learning DUI %-share Odds ratios P-value <

Implications for innovation and knowledge policy Innovation policy needs to:  Establish the general knowledge base through investment in basic research and formal education.  Establish links between public research and industry.  Combine the promotion of R&D efforts in industry with the promotion of learning organisations.

Innovation is relevant both for Low tech and High tech-sectors Most attention so far to 4. Great potential also in 2 and 3. Low techHigh tech DUI-mode1.2. STI-mode3.4.

The learning economy and knowledge policy More rapid transformation  Shorter product life cycles and shorter life time for competences (halving time = 1 year for computer engineers)  More frequent shifts in working tasks - the art of forgetting

The learning economy raises new challenges The learning economy calls for knowledge policy and for new perspectives on: Education – life long learning Working life – learning while working Role of trade unions – promote access to learning Labour markets – their impact on competence building Industrial relations – learning organisations as common goal for management and workers.

Knowledge Education Innovation Organisational Learning From the Knowledge Triangle to the Knowledge Rectangle

Human resources and innovation policy Human reosurces are key to innovation so we need to focus upon the ’Innovation and Competence Building System’ that includes: Labour market institutions Industrial relations Vocational training

Lessons to be learnt All dimensions of STIK-policy are necessary in the learning economy Combining investment in knowledge with strengthening the demand for knowledge. Need to promote DUI and STI-modes in Low Tech- as well as High Tech-sectors. Innovation policy need support from education and labour market policy.

The ICT-experience and a new techno-economic paradigm based upon eco-innovation Lesson from the information technology revolution is that massive government intervention is necessary – cf for the role of the US military in ICT. A systemic effort with  Investment in science  Investment in education  New infrastructure  New standards  Subsidies  Public procurement

Combining innovation policy with industrial policy 1. Select industries and technologies on the basis: 1. Needs and demand perspective 2. Underlying knowledge and learning and competitive advantage (pharmaceuticals versús mechanical engineering). 2. Invest in knowledge and promote entrepreneurship and innovation in these areas. 3. Stimulate demand for these sectors 4. Build infrastructure in relation to these areas. 5. Establish new forms of private-public interaction – not feather bedding but critical dialogue! Broader than triple helics!

Rethinking innovation policy Strategies promoting innovation to stimulate economic growth may not be sustainable. Certain innovation processes have negative impact upon working conditions, climate change and quality of life. Requires selective innovation policy with a more clear direction toward ecological, social and human needs. It also points to the need for an entrepreneurial state and for the creation of markets through policy initiative. It does not imply a big public sector – public ‘steering’ may take place without public ‘rowing’!

Limits of market failure perspective Especially in the current crisis situation it is a serious mistake to see the role of goverment as limited to be problem-solver and market failure fixer. There is a need for an entrepreneurial state that through its initiatives helps the opening up of new techno- economic trajectories – see the important booklet by Mariana Mazzucato on the entrepreneurial state. Interesting case is the successful creation of markets for green technologies in China. The North and West suffers more than ever from neoliberal ideological bias and lack of pragmatism.

Intellectual property rights – The basic dilemma Protection to give incentives to invest in the development of new technology Promoting the diffusion of new technology On balance company lawyers favour protection while economists favor diffusion

The two sides of patenting First we think about patents as barriers to access to knowledge. A time limited monopoly to the use of knowledge But they might also increase access to knowledge – what might have remained secret is codified and put into the public sphere.

Alternatives to the use of IPRs as incentives Government production of knowledge Government support to the production of knowledge Prizes to the one who first come up with a solution or a new insight Patents should not be allowed when the knowledge involved is generic – of general interest – genes and soft-ware.

The learning economy – differs from the knowledge-based economy! All economies are knowledge-based: what is new is the high rate of change in competences required (depreciation rate of knowledge investment is high!)  The learning economy - a new perspective on economic dynamics  Change and learning  Selection, transformation and speed-up of change  Social and economic exclusion in the learning economy  Social dimension – trust and interactive learning  Competence building at the firm level  Implications for knowledge management  Implications for policy making – including ‘new new deal’

Characterising the learning economy More rapid transformation  shorter product life cycles  shorter life time for competences (halving time = 1 year for computer engineers?)  more frequent shifts in working tasks New kind of competition  Learning based rather than knowledge based  Success of people, firms and regions reflect capability to learn Inherent polarisation in the Learning Economy  Exciting but stressful for the rapid learners - exclusion of slow learners  End of European regional convergence

The learning economy perspective raises new challenges The learning economy remains effective only as long as it is rooted in social capital (trust, integrity, solidarity and openness). Inherent forces in the globalising learning economy undermine social capital by increasing uncertainty and polarisation. The learning economy calls for new perspectives on education, working life, labour markets and industrial organisation - and for integrated strategies in firms, trade unions and government.

Policy implications of the learning economy-perspective Education: Educate in order to establish learning capability. Give access to life long learning. Labour markets: Need for labour market institutions and trade unions that support competence building (new workers’ contracts emphasising competence building). Firms: Promote the diffusion of learning organisations. Income distribution: Need for new new deal with focus on redistribution of learning capability. Responsibility of last resort for the public sector – otherwise only the already skilled get more training.

The four clusters  Discretionary learning  A lot of learning, complex tasks and delegation of responsibility for quality  Lean production  Job rotation, team work and quality control but little discretion  Taylorism  No problem solving, no autonomy  Simple production  Little learning but some discretion and problem-solving

The national context affects what is good practise knowledge management Education and labour markets differ (Lam – Lundvall paper) The mode of learning in firms differs across countries (Lorenz – Lundvall-Valeyre paper for conference) – affects what is going on inside firms Social capital and networking opportunities differ- networks and alliances show different patterns.

Results: International diffusion – after correcting for sector and job function Discretionary learning and lean production in Nordic countries and Netherlands Little DL and a lot of Lean production in UK, Ireland and Spain Taylorism and simple production in Portugal, Greece and Italy. Germany and France in between 1 and 2 above.

Conclusion In order to explain how new ideas are brought to the market and transformed into economic performance it is necessary to take into account how learning takes place in working life. National systems of work organisation and learning are dramatically different. NSI is a useful perspective also for microstudies of specific firms. In spite of globalisation the management challenge is nation specific.

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