Innovation for Sustainable Forest Management What is it & why is it important? Ewald Rametsteiner ERASMUS IP Iisalmi, 16 May 2005

... and changing times we have: - new resources & suppliers (e.g. Eastern Europe) - new technologies - new markets (e.g. carbon, energy) - changing consumer needs & demographics.... “If you stand still in times of changes you are in fact drifting backwards”...so: how is the forestry sector doing? Is it taking advantage?

Innovation  Successful introduction of novelties  Discontinous intentional change in the inputs, outputs and processes of an enterprise  Differs from invention – creation of something that has not existed before  „Innovation diffusion“ or „innovation adoption“ is used if looked at a sector or economy as a whole

Innovation  New to the firm – new to the market  Radical – incremental Innovations Product Process GoodsServices Technological Organisational

Linear Innovation Innovation research: From linear to systemic understanding Product Idea Develop ment Product Test Marketing  Non-linear / complex process  systemic research - structures, processes, interactions - functions of system as a whole Framework Conditions Financial environment; taxation and incentives; propensity to innovation and entrepreneurship; mobility... Research System Professional education and training Higher education Public sector research Production System Large companies SMEs Forests Resources / Supply Intermediaries Research institutes Brokers Consumers (final demand) Producers (intermediate demand) Markets / Demand for Forest Products Banking,IPR andInnovation andStandards and Infrastructure Political System Government Governance RTD policies business supportinformationventure capitalnorms Suppliers (intermediate products) Resource raw material producers Education System

Prior Conditions Knowledge Persuasion Decision Implementatio n Confirmation Innovation phases the firm perspective

Innovation Diffusion

Innovation Diffusion & Adopter Categories

Innovation & Entrepreneurship – Why is it important? Innovation are engines for economic growth, competitiveness, income creation & firm profit, employment creation, esp. in rural areas, changes towards environmental improvement and sustainable development, meeting changing consumer needs & demographics EG C&P EC SD CN&D

Innovation General Policy  European Union  Lisbon Strategy on competitiveness & innovation  EU Research Framework Programmes 6 & 7  EU Research Project Lines and infrastructures  National Policies and Strategies  Ministries or Agencies on Innovation  Funding programmes and initiatives  Focus on growth promising high-tech sectors

0%5%10%15% Product quality Productivity Jobs Growth EU: Expected gains from reaching 3% R&D by 2010 compared to status quo

Innovation Forest Sector Policy  European Union  Forest-based Sector Technology Platform “Innovation & Sustainable Development” initiative  New institutions, initiatives & programmes in new areas (e.g. bioenergy, carbon)  MCPFE  Vienna Resolution 2 on economic viability & work programme  UNECE/FAO  European Forest Sector Outlook Study: competitiveness as major issue  National policies & strategies  Rather new topic, few coherent policies & programmes (exception: Finland)  Focus on specific topics, partly covered by policy makers outside forest sector (e.g. biomass)

Innovation and economic growth Neo-classical growth accounting based on capital and labour input - result: up to 80% due to technological change (=technological innovation) if R&D, quality of labour etc. is accounted - result: about 30% of growth Endogeneous calculations Growth effect of spillovers and externalities (not all benefits can be accrued by the inventor) monopoly rent diminishes over time due to imitators EG C&P EC SD CN&D

Yes, but…why is economic growth important?  Economic growth is measured by gross domestic product (GDP). Economic growth is defined as positive rate of change in real GDP. A satisfactory rate of economic growth is when the economy grows faster than the population, thereby increasing standards of living for individuals in an economy. (i.e. one where positive per capita rates of growth in real GDP takes place.)  economic growth improves the overall standards of living of individuals in an economy.  economic growth is one way to reduce unemployment & poverty in an economy.

 The OECD defines competitiveness as "The degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long-term".  Overall competitiveness, is a result of many factors: macroeconomic environment, ICT, innovation, public institutions – these all have a strong influence on increased productivity.  International competitiveness is seen as an important component of economic growth Innovation and competitiveness EG C&P EC SD CN&D

Productivity, competitiveness and employment  Long-term international statistical trends show that there is a strong correlation between national productivity and the level of unemployment. (higher productivity = lower unemployment)  The more productive an enterprise, the more income it can save for new investments and therefore create new jobs.  Short-term negative effects of productivity on unemployment are outweighted by long-term benefits.  R&D investments account for about 50% of total factor productivity growth, 1% of R&D capacity increase = approx 0,05-0,1 output growth

Innovation and firm profitability  …is difficult to prove as profits are influenced by a wide range of factors  Existing studies find:  a positive but modest influence  a positive correlation to market share and profit margins

Innovation & employment creation  A process innovation is labour saving, if the same amount of output can be produced with less labour.  the direct effect on employment is negative if output remains the same.  an indirect effect of higher employment is possible if  Firms gain more from the increased productivity of labour than from more capital input  Market demand increases considerably EG C&P EC SD CN&D

 For product innovations a positive (direct) effect of successful product innovation on employment is more likely if new products address new needs. If new products act as substitutes for existing ones, there will be positive employment effects only, if product quality is higher than before and labour intensive.  A net employment impact of product innovation is more likely to be positive if new products are complements to existing ones. Innovation & employment

Employment creation: Bioenergy Number of direct and indirect jobs created for 1000 toe consumed: - forestry: 4.2 – wood waste:2.3 – oil:1.4 - gas:1.2 Source: Eurobserver 2004 …and this mainly in rural areas!

Environment & sustainable development  New markets: carbon sinks  New markets: bioenergy  New trends: wood construction  New business/marketing models and tools: forest certification EG C&P EC SD CN&D

Consumer needs & socio-demographics EG C&P EC SD CN&D  Changing attitudes: nature  Changing lifestyles: urban life  Changing socio-demographics: urbanisation, family, age structure, mobility,..  Changing consumption: experience of nature, outdoor, excitement, silence?

Market Expectations of forest owners/managers and forest policy actors in Austria 2002 Forest policy expectations medium term

Concluding remarks  Innovation is seen as driver of economies  Innovation effects are difficult to quantify  The current focus on process innovation is not enough Drucker: „as every businessman knows, efficiency alone does not bring business success“  Innovation is risky and prone to fail ..but not to innovate is risky too (or too risky)