Innovation for Sustainable Forest Management Why is it important in forestry in Europe? IP INNO-FOREST, 27 August 2007, Sopron Ewald Rametsteiner

Why?

Once again: … creating wealth by using scarce resources “Resource”: “something that can be used for support or help. An available supply that can be drawn on when needed.”

Once again: Economics is the study of how people allocate sforest resources? among alternative uses.

Once again: “Resource”: “something that can be used for support or help. An available supply that can be drawn on when needed.”

Economics is the study of how people allocate sforest resources? among alternative uses. StoraEnso Biodegradable Membranes/Fibers/Composite Materials New Pretreatment Technologies for Bio-refinery/Bio-ethanol Homogenously Modified Wood Products

UTILITY Utility: the power to satisfy human needs. Needs are not static, they change

Society demands: European’s opinions about their forests ..is dominated by feelings: forest as symbol of nature source: Rametsteiner and Kraxner 2003

Once again: resources & utility

Society changes  Population dynamics  Overall population decline  Ageing societies  Urbanization trend (physically and/or lifestyle) Elderly population (65+) in Europe United Nations medium variant population scenario (United Nations, 2001) Population of working age (15-64) in Europe United Nations medium variant population scenario (United Nations, 2001)

1.Wood is an emotional link to nature: warm and friendly 2.The attractive green image of wood is one of the few factors of competitive strength against substitute materials 3.But wood is not high-tech, and rather expensive 4.Environmental friendliness is a minor factor for consumers 5.Sustainable sources of wood is an issue, and forest certification has not had a big impact 6.But wood is technically inferior and often needs more maintenance 7.Compared to substitutes, many see wood as not high-tech and not modern Europeans & wood products Meta-study (ca. 100 surveys & polls)

a beautiful material a natural material high-tech a material of the future Image of wood among the French public (Institut D’ Etudes, Marche et D’ Opinion, 2003)

Background Society needs and demands on forest land use are  complex (not necessarily consistent)  evolving (changing over time)  context-dependent  location (urban-rural, regions within Europe)  work & lifestyle  adverse events (fire, flood,..)  need of essential “basics”: energy, water, climate Europeans tend to prefer  preservation and protection over utilization/exploitation  mixed natural forests over plantations  wood as environmentally friendly material Europeans tend to support  utilization if preservation is assured Europeans, forests & forestry Meta-study (ca. 45 representative surveys)

The free market / capitalist system as engine of wealth creation for societies using scarce resources: Explanation 1: benefits society through price competition (products and services become less costly as firms vie for consumers) Explanation 2: benefits to society through innovation competition (a race in which no firm in an innovating industry dares to fall behind the others in new products and processes)

Innovation & Entrepreneurship – Why is it important? Listening to politicians: Innovation is engine for economic growth, competitiveness, employment creation, esp. in rural areas changes towards environmental improvement and sustainable development Entrepreneurs are innovation agents

Innovation & Entrepreneurship – Policy reaction European Union Lisbon Strategy on competitiveness & growth EU Research Framework Programmes EU Research Project Lines and infrastructures National Policies and Strategies Ministries or Agencies on Innovation Funding programmes and initiatives Usually focus on growth promising high-tech sectors

EU: Expected gains from reaching 3% R&D by 2010 compared to status quo

 Macro-level:  Innovation and economic growth  Innovation and competitiveness  Innovation and employment  Entrepreneurship and economic growth  Firm level  Innovation and profitability? Effects: empirical studies

Innovation and economic growth  Innovation has gradually become a more powerful factor in explaining differences across countries in economic growth  Economic growth as the result of new combinations of products, processes, markets, sources of supply, and organizations (Schumpeter)  Empirical results:  Fagerberg: superior innovative activity as prime factor behind the huge difference in performance between Asian and Latin American NIC countries

Innovation and Income

Basis Innovations Changes in techno-economic paradigm  Industrial revolutions, long waves  early mechanization, power loom  steam power and railways, steal industry  electrical and heavy engineering, chemistry industry  fordist mass production, oil, electronics  1980-? - information and communication

 "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„ (OECD)  Technological competition is the major form of competition under capitalism  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

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

R&D intensity by source of funding

Innovation & Employment  Product and process innovations tend to have diverging effects on the patterns of labor creation:  Positive effects for product innovations  Negative effects for process innovations  Positive effects for high-skilled labout force  Negative effects for least skilled  Mostly positive effects on firm level

Entrepreneurship Figure: Percentage of start-ups per 100 adults of selected countries; sample sizes from 1,000 to 15,000 per country; (Source: Global Entrepreneurship Monitor 2003 )

Entrepreneurship & Employment  Small enterprises generate most of the jobs  Small and new enterprises serve as an engine of employment creation (firm level)  Long-term, cross country studies showed: increases in entrepreneurial activity tend to result in higher subsequent growth rates and a reduction of unemployment

Effects on Firm Level Firms‘ view:  Improving product quality  Diversification of products  Increasing production capacity  New Markets or increasing market share  Flexibilisation of production  Lowering costs per production unit  Improving environment, health and safety aspects  Lowering input of material and energy  Existing studies find:  a positive but modest influence on profitability  a positive correlation to market share and profit margins

Are innovations always good?  Think about:  Weapons  Gene technology  Ecstasy ……  Innovations may have adverse effects  Often controversial debates (safety, health, environment, ethics)  Negotiation process (society, policy)

1. Demands on forests are growing and shifting  more demand from more corners, more diverse  = Product & service innovation Why is it an issue in forestry? source: MCPFE 2003

2. Competition in globalized markets  more import competition  more pressure on costs (process innovation)

3. Competition through substitute products  Product & service innovation & process innovation

Innovation for Sustainable Forest Management Why is it important in forestry in Europe? IP INNO-FOREST, 27 August 2007, Sopron Ewald Rametsteiner