Science, Technology and Society November 2000 CENTER FOR INNOVATION, TECHNOLOGY AND POLICY RESEARCH, IN+ Instituto Superior Técnico, Technical University of Lisbon Technological Change and the challenges for Regional Development: building social capital in LFR’s Pedro Conceição, Manuel Heitor and Robert Wilson

A fragmented regional innovation system: an institutionally blocked regional economy Regional Government Business Services SMEs Chamber of Commerce SMEs Large firms SMEs Universities Technology Centers Sectoral Associations SMEs Large firms SMEs Technology Consultants SMEs Large firms SMEs Regional economy

A learning region : An efficient regional innovation system Regional government Business services & tech. con- sultants SMEs Business intermediaries: Cham. of Comm.; Local Agencies BICs SMEs Large firms; Tech. Centers; Sect. Associa- tions SMEs Cluster Science base: Universities; Public R&D; Laboratories Technology Centers Sectoral Associations SMEs Large firms SMEs Valorisation of R&D and Tech. Transfer Office SMEs Global economy SMEs Open gate: International technology transfer networks Open gate: International value chains Open gate: International business consultants & specialized business services Open gate: International R&D/academic excellence networks SMEs Regional economy

QUESTION Which trends for technology-based development and cooperation, in a way to contribute for regional policies that stimulate localised learning, innovation and endogeneous development within LFR’s?

Our Argument... The need for institutional renewal, … promoting diversity with institutional integrity at the supply side of technology, (Conceicão & Heitor, 1999) The need for public investment The scope:... the globalized “learning society”! Knowledge Institutions Learning Organisations Intellectual Property Learning Networks BUT, understanding the role of social capital (Conceicão, Gibson, Heitor & Sirilli, 2000), to stimulate the inclusive development !

1.Technological change: accelerating 2. The “new” economy: “the big boom” 3.Social Dynamics: complexity and diversity 4. “Governance”: a new model! The CONTEXT OCDE: “FUTURES”, Hannover 2000 EC: “IPTS - Futures Report”, 2000

Technological Change: materials, IPTS(1999) STEELS CAST IRON IRON COOPER ALLOY STEELS GLASSY METALS AL-LITHIUM ALLOYS DUAL PHASE STEELS MICROALLOYED STEELS BRONZE SKIN FIBRE GUMS RUBBER LIGHT ALLOYS SUPER ALLOYS TITANIUM ZINCONIUM ETC NEW SUPER ALLOYS DEVELOPMENT SLOW MOSTLY QUALITY CONTROL AND PROCESSING CONDUCTING POLYMERS HIGH TEMPERATURE POLYMERS HIGH MODULUS POLYMERS BAKELITE NYLON WOOD PAPER STONE FLINT POTTERT GLASS CEMENT REFRACTORIES PORTLAND CEMENT FUSED SILICA CERMETS EPOXIES POLYESTERS COMPOSITES POLYMERS METALS CERAMICS POLYMERS COMPOSITES CERAMICS METALS ALLOYS BC5000 BC GOLD CERAMIC COMPOSITES COMPOSITES METAL-MATRIX SURFACE ENGINEERING RELATIVE IMPORTANCE SUPERCONDUCTORS TOUGH ENGINEERING CERAMICS KEVLAR BRICKS (with STRAW) IVORY BC 5000 BC

Technological Change: telecommunications

Technological Change: perspectives The Convergence: telecommunications and computers... The QUESTION : scope and scale PRODUCTS PRODUCT more technologies to produce each product more products produced from a given technology Source: von Tunzelmann (1999)) TECHNOLOGIES PROCESSES TECHNOLOGY PROCESSES

New reactors Nuclear fusion New energy biomassPhotovoltaic materials Fuel cells Superconductors Supervision of energy processes Robotics Security systems energy Batteries Pacemakers Artificial Heart Recombin. DNA New drugs Enzymatic Synthesis Membranes Biocompatible materials Instrumental analysis of dna sequences biotechnologies Power lasersBio-leaching Biological ore processing New alloys Ceramics and composits Computer based design of new materials materials Photovoltaic applications Biosensors Biochips Semiconductors Superconductors Telematics Automation Computers information technologies energybiotechnologiesmaterialsinformation technologies Emerging interactions... Source: BIPE from to

New technologies Existing technologies Edudation / training for last 10 years Education / training acquired for more than 10 years 2010: 80% of technologies with less than 10 years, while 80% of working force has acquired training with more than 10 years The knowledge gap (Scope: EUROPEAN REGIONS)

The importance of Technology in corporate development Case study: Innovation in Italy (Evangelista & Sirilli, 1997) The convergence of sectors is emerging, with the growing importance of technology in corporate development

The structure of the “new” economy Agriculture Indústry Services Agriculture Indústry Services Industrial era Knowledge era I- Recession II- Growth Technology replaces employment Economy without employment Demand Deficit Technology creates new industries and opportunities Entrepreneurial economy Value creation

THE ISSUE …1 The evidence: “The major source of economic growth in developed countries has been science-based technology”, Kuznets (1966) “The explosion in knowledge creation is concentrated in a few regions, and led to similarly concentrated distribution of income”, World Bank (1999) “The most daunting problem is that of spiritual inequality”, Fogel (1999)

Regional diversity in Western Europe Source: Sixth Periodic Report DG XVI, 1998

Case studies - Portugal North & Galiza Alexandra Campino, Danilo Rubini and Jorge Monteiro Algarve Paulo Silva and Pedro B. Almeida Lisbon Angela Canas, Rita Marreiros, Paulo Ribeiro and Ana Galvão The context: M.Sc. Engineering Policy & Management of Technology

Case 1: North, Galiza North region (NUTII): Area: Km 2 = 23,2% Portugal Divided in 8 subregions (NUTIII); Economic heterogeneity Grande Porto weights 34% of North’s population 3,6 Million inhab. = 36% of portuguese population;

Case 1: North, Galiza Galicia region (NUTII): Area: Km 2 = 5.8% of Spain Divided in 4 sub regions 2,7 Million inhab. = 7% of spanish population; Cultural and social links with North region

Case 1: North, Galiza Employment – Share Analysis (I) Agriculture24%14% Industry33%32% Textiles &Leather8% Services43%54% Market Services26%33% Agriculture26%15% Industry42%44% Textiles &Leather17%18% Services32%41% Market Services20%25% Portugal North - Relative large economic importance of Industry in the North; - Textiles and Leather represents almost half of North’s economic structure; - Increasing importance of Services for Portugal

Case 1: North, Galiza Employment – Share Analysis (II) Agriculture41%26% Industry20%24% Textiles &Leather1% Services39%50% Market Services27%32% Agriculture26%15% Industry42%44% Textiles &Leather17%18% Services32%41% Market Services20%25% Galicia North - Industry’s share in Economic Structure of Galicia is almost half of North’s one; - Services became the major employment sector for Galicia in 1994; - Agriculture’s share includes fishery, which is a major asset to Galicia’s economy;

Case 1: North, Galiza Productivity (I) (GVA/employee) Agriculture Industry Textiles &Leather Services Market Services Agriculture Industry Textiles &Leather Services Market Services Portugal North - North presents a lower productivity ratio for industry  Labour Intensive consequence? - No difference in Services  Similar services firms? 1000ECU/employee

Case 1: North, Galiza Productivity (II) (GVA/employee) Agriculture Industry Textiles &Leather Services Market Services Galicia North Agriculture Industry Textiles &Leather Services Market Services North: LOW productivity!! - The difference in Services is lower than that observed in Industry; 1000ECU/employee

R&D – Regional Expenses, Million pte 1995 (c.p.) NorteCentroLisboa e Vale do Tejo AlentejoAlgarveAçoresMadeira Região R&D - Regional expenses, 1997 Universities State Private Source: INE; Ministry of Science and Technology Case 2: Algarve in PT

Shift-Share Analysis – GAV Source: “The Algarve: Fate and Will” by Paulo Silva & Pedro Borges de Almeida Case 2: Algarve vs Madeira

Sample Conclusions 1.The R&D regional effort of the Algarve is modest, but it is also not related with the main economic activities of the region. 2.Shift Share Analysis shows that Algarve was virtually unable, between 90 and 95, to grow due to inclusive factors, but it was not even capable of absorbing the growth induced by National development. Sample Recommendations To develop a regional development strategy based on a culture of excelence in all elements that are connected with Tourism & Leisure value chain: - Natural and urban environment; - critical infrastructures; This requires the development of new competencies in the areas above, but also of the learning capabilities necessary to create new value from the Tourism & Leisure cluster. Case 2: Algarve

Case Study 3: Lisbon and Tagus Valley Region Specialization in: Services Technology based Industry Formal Knowledge * Highest growth in GVA * *

Case Study 3: Within Lisbon Metropolitan Area * Except the city of Lisbon Lisbon Specialisation in services Surroundings Specialisation in industry Concentration Telec. and producer services - highly qualified workers

Case Study 3: Lisbon and Tagus Valley Region Services (especially to firms and public services) as decisive to the region’s economy High Knowledge concentration (high technology firms and formal knowledge: education and R&D) Sample characteristics Promote social capital, taking advantage of the already existing characteristics - services and high knowledge concentration - in order to promote value creation Policy issues Internet clustering ?

THE ISSUE …2 A specific issue: Regional DIVERSITY “ With some notable exceptions, the regional developmment debate in Europe has been dominated by exogeneous models to such an extent that development tends to be conceived as something that is introduced to, or visited upon, less favoured regions, LFRs, from external doors… …this kind of regional policy did little or nothing to stimulate localised learning, innovation and indigeneous development within LFRs”, Henderson & Morgan (1999)

Innovation in EU source: Community Innovation Survey, OCT-PT

Innovation in EU Expenditure by Manufacturing Firms on Innovation

Innovation in Portugal Profiles of Hampering Factors

The need to consider technology-based development and cooperation in a broader context, leading to innovation: –Promoting value, by exploiting change –Understanding institutional development –Integrating systems of competence building and social cohesion The ISSUE... concluding OUR GOAL: to discuss the emergence of an agenda on regional policy

Regional Innovation Strategies... Which specific driving forces? 1.Productivity 2.The knowledge-based industries 3.Resouces: Scale vs intensity 4.Industrial structure 5.Institutional development: market regulation; employment protection 6. The Sustainable development BUT, the regional dimension:... Social capital for the inclusive development

The regional dimension: technology and innovation gap 1. Input: HUMAN AND MATERIAL RESOURCES 2. output: SCIENTIFIC AND TECHNOLOGICAL CAPACITIES 3. determining factors : international cooperation sme`s: support services networks FDI: integration in local economies transports, communications, energy infrastructures … BUT, ALSO, INSTITUTIONAL FACTORS

The regional dimension: technology and innovation gap …cont. Most development programmes stand on their ability to build “social capital”: a relational infrastructure for collective action This requires a shift in development studies: from state-led or market-driven processes, regardless time, space or milieu to institutional perspective, looking at the quality of institutional networks

The regional dimension: technology and innovation gap …cont. INSTITUTIONAL NETWORKS to mediate: mediate information exchange knowledge creation capacity for collective action potential for interactive learning efficacy of voice mechanisms Henderson & Morgan (1999)

Social capital for inclusive development OECD(2000)

Policy Issues: Regional Innovation Strategies Landabaso et al. (1999) – Internal coherence of the regional innovation system by connecting its different key elements: R&TDI supply with well identified Demand and business needs, from SMEs in particular. –Increase the amount and, more importantly the quality of innovation public spending through innovation projects (bigger and better spending in this field through regional policy). – Rationalise the regional innovation support system by raising awareness, eliminating duplications, filling gaps and promoting synergies. Successful stories: The Regional Technology Plans Wales (UK), Limburg (Netherlands), Lorraine (France) and Leipzig-Halle- Dessau (Germany), Central Macedonia (Greece), Castilla Y Leon (Spain) and Abruzzo (Italy).

RIS generated ideas and practical results: Galicia examples Compilation and diffusion of strategic information on the innovation field to Galician SMEs through a Technological Observatory Campaign of visits by innovation management experts to local SMEs and publication of an ‘Innovation Guide’ for businesses Galician Innovation award for successful business introduction of new products, processes, management techniques, etc. Creation of a new fund to support high risk innovative projects Sponsor training programmes in new professions linked to innovation support services (financial analysts, technological auditors, technology rating…) Creation of the Galician network of R&TDI interface organisations Pilot design of an integral mechanism for supporting the process of innovation in 12 companies (9 SMEs).

Discussion: EU policy challenges Soete (2000) -The current new growth regime associated with a knowledge driven society raises major institutional challenges to EU and individual member countries -Proposal of European “new deal” version: “ cognitive Keynesianism ” based on: a) recognition of the importance of public and private investment in education, learning and knowledge more generally for growth and equality (OECD target figures) b) “activating” education and developing incentives for such investments c) adherence to “open” features of the science and knowledge system enhancing transmission and knowledge diffusion aspects, reducing the blocking aspects of IPRs d) give political priority to importance of large social change: so far the knowledge driven society has been strong on economy and poor on society

Perspectives for “change” Building the conceptual framework The notion of localised technological change: The science base: a joint process of production, learning and communication a fully endogenous, with strong interdependence between specialisation and diversification important, but limited role of demand: learning capability is critical! based on mix of generic and tacit knowledge ” …the aim of policy should be to create a broad and productive science base, closely linked to higher education…”, Pavitt (1998) Systems of Innovation and Competence Building! Conceicão, Heitor and Lundvall (2000) The role of Social Capital…

… debate … the challenges for Regional Development: building social capital in LFR’s opportunities for an Agenda on Regional Policy !

… debate

1. Productivity

2. Knowledge-based industries OECD(2000) Share in business sector value added in knowledge business industries (share year 1996) Average annual real value added growth of knowledge based industries (1985 share year)

3. Resources: Scale vs Intensity Public vs private R&D expenditures P97 P95 P81 ES IR SE JP USA FR D UK

3. Resources: Scale vs Intensity R&D Expenditure (OECD)

4. THE INDUSTRIAL STRUCTURE Food, beverages & tobacco Textiles, apparel & leather Wood products & furniture Paper, paper products & printing Chemical products Non-metallic mineral products Basic metal industries Fabricated metal products Other manufacturing, nec EU-13 YEAR Portugal

5. Industrial structure: Dynamics

6. Institutional Development Market Regulation and Employment Protection Nicoletti, Scarpetta & Boylaud; OECD (2000)