Applying innovation policy and innovation theory in Small open economies Gulbenkian seminar Lisboa October 2003 B-A Lundvall, Aalborg University

Structure of presentation l Analytical perspective - economic transformation l A small country paradox in a knowledge-based economy? l Understanding knowledge and learning – the role of tacit knowledge and social capital. l The case of the Danish economy in the 90’s l What can be learnt Upgrade low tech! Promote incremental innovation and organisational change! Social cohesion and social capital matters!

Basic mechanisms in the learning economy and the impact of different policies §Transformation pressure §Macro economic policies §Competition policies §Trade policies §  §Capability to innovate and to adapt to change §Human resource development policies §Labour market policies l Innovation policies §  §Redistribution of Costs and benefits of change §Tax and other income transfer policies §Social policy l Regional policy

A small country paradox in the knowledge based economy l The production of new knowledge is expensive while it’s diffusion and repeated use is cheap – should give big country systems a scale advantage. l It is also true that small countries have a weak international specialisation in high technology and science based sectors l But many Western small countries (Nordic countries, Holland, Belgium, Austria, Switzerland) do very well in terms of GNP per capita – why? l To resolve the puzzle - new perspectives on growth and on knowledge production in the learning economy.

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

The learning economy 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 (overcoming ideological splits) - and for integrated strategies in firms, trade unions and government.

Learning organisations §We define learning organisations as those that: l Are flatter and allow more horizontal communication inside and outside the organisational borders l Establish cross-departmental and cross-functional teams and promote job-circulation between functions. l Delegate responsibility to workers and invest in their skills l Establish closer co-operation with suppliers, customers and knowledge institutions. (In DK such firms also tend to engage in both indirect and direct forms of employee participation.)

An important source of competence building comes from establishing learning organisation §Learning organisations and networking organisations (in Denmark) l Create more and more stable jobs l Are more productive l Are more active in terms of product innovation §But they constitute only 10-15% of all firms §Shop stewards and middle management as well as top management are strategic agents of change

Employment in static and dynamic firms

Low skilled workers lose jobs in static firms exposed to much stronger competition

Index on learning economy by Arundel Merit European Trend Chart on Innovation

A national system’s approach to innovation and competence building §Look for missing links and weak user competence as well as for a weak knowledge base on the supply side! §Regard networks as constituted by people’s relationships and experiences. §Best-practise varies with the systemic context.Problems with transplanting foreign practises. Get to know your own system. §Managing the openness of the system is becoming increasingly important.