Innovation european report


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Innovation european report

  1. 1. REINVENT EUROPE FROM A KNOWLEDGE SOCIETY TO AN INNOVATION SOCIETY THROUGH INNOVATION “We propose to base EU action around compelling social challenges,to finance venture and social innovation funds, to incentivise large scale community level innovations, to transform the public sector and to unlock the potential of new infrastructure and new types of partnerships” Recommendations by a Business Panel on future EU innovation policy Supported by an online debate at
  2. 2. The Business Panel on future EU innovation policy was established by DG Enterprise and Industry of theEuropean Commission with a mandate to recommend priorities and actions for future EU innovationpolicy. The members of the Panel are: Diogo Vasconcelos (Chair), Distinguished Fellow, Cisco Systems International Dr Anne Stenros, Design Director (Vice President, Design), KONE Corporation Gianfranco Corini, President, NEXT-Ingegneria dei Sistemi S.p.A Professor Rüdiger Iden, Senior Vice President, BASF SE Jan Lamser, Member of Board of Directors and Senior Executive Officer, CSOB Bank (member of KBC Group)The panel was supported by a rapporteur: Professor Maureen McKelvey, Professor of IndustrialManagement, School of Business, Economics and Law, University of Gothenburg.The panel would like to thank all those who participated in the online consultation from July toAugust 2009 and those who spent their time and effort in discussing ideas with the panel andreviewing the document, in particular: Carlos Costa, Jacques Darcy, Jean-Michel Deligny, TomFleming, Maruja Gutierrez Diaz, Mats Gunnarsson, Agnes Hubert, Richard Hudson, John Kao, AnnMettler, Geoff Mulgan, Sylvain Pasqua, Andreas Pyka, William Stevens, Eva Srejber. We also thankthe Swedish presidency of the EU, Business Europe, Europe Unlimited and others for allowing us topresent and discuss ideas at their events. Finally the panel would thank the support, encouragementand independence provided by Francoise Le Bail, Jean-Nöel Durvy, Peter Dröll, Sandra Kramer andKeith Sequeira at DG Enterprise and Industry.The ideas presented in this report are those of the panel and do not reflect the official position of theEuropean Commission Directorate General for Enterprise and Industry.To find out more visit: The Innovation Policy homepage: The Innovation Unlimited online debate: 2
  3. 3. From a knowledge society to an innovation societyInnovation has been a central EU priority over the society must innovate for social return andlast decade. But the priority has been investing transformation. Europe faces unprecedentedin knowledge rather than utilizing it rapidly challenges. This calls for collaborative, cross-and powerfully for societal benefit and cutting responses reaching out to business, publicdevelopment. Innovation is global, with increasing policy communities, researchers, educators, publiccompetition for best ideas and applications, and service providers, financiers and NGOs.Europe must stand out. More technology is notthe solution. Current European innovation policy We propose to base EU action aroundfails to: compelling social challenges, to finance social innovation funds, to incentivise large scale- Leverage the power of networks and social community level innovations, to transform innovation the public sector with a budgetary innovation- Implement Community level actions target and to engage the young and the old in orchestrated around major societal challenges new types of partnerships.- Invest ambitiously and strategically in the future 2. Speed and synchronisation: Speed- Open up innovation to the creativity of a broad and scale are everything in innovation. More is range of people and ideas needed to speed up the uptake of innovative- Anticipate the new institutions and processes solutions and technologies, especially in that will drive future innovation the public sector. Funding programmes and innovation support must be synchronised withThe ideas presented here were co-created through development of standards, public procurementmany discussions, both in person and virtual, that and regulations.we held over the last months. We hope that itis only the beginning of a wider movement We propose that the EU sets clearto reinvent Europe through innovation. Our innovation targets; launches ambitiousdream is a new star to the European flag – ‘The European initiatives with synchronisedSea star’ – which demonstrates a decentralised, actions around major challenges; ensures EUself renewing, and connected innovation policy directives and regulations support innovation;building on the unique diversity of an enlarged changes public procurement to supportUnion. innovation; and opens up government owned data to facilitate a knowledge infrastructure,We urge the incoming European Commission where European citizens can help transformto base its new innovation policy on five public services.propositions: 3. Invest in future infrastructure and1. Broaden the concept of innovation: unlock its potential: Europe needs toBusiness innovate mainly for return on investment, create and unlock the potential of new digital 3
  4. 4. and energy infrastructure. Every household, The ideas in this report were co-createdbusiness and public building should have through a series of meetings by the panelultrafast broadband and smart energy grid and involved external thought leaders, asconnections. well as an online consultation: “Innovation unlimited” at propose that the EU commits to innovationunlimited/. These discussions wereuniversal access to ultrafast broadband an inspiration for us, and we encourage theand smart grids; implements an integrated, Commission and the community of all thosecross-border investment strategy; and who contributed to continue this debate.combines infrastructure projects with supportfor innovative services and open access. Our proposals require urgent action and we call on European leaders to start this4. Innovative financing models: process with rapid agreement on ambitious,Europe needs a radical new approach to concrete and timely measures within thefinancing innovation with new partnerships to proposed new European Innovation Act andshare risk and more intelligent ways to combine in the Spring 2010 European Summit.funding between instruments. Innovationshould be core to financial institutions, withthe European Investment Bank (EIB) becominga European Innovation Bank. Brussels, October 2009 Diogo Vasconcelos, Gianfranco Corini, RüdigerWe propose a major development of the Iden, Jan Lamser, Anne StenrosEuropean Investment Fund (EIF) to create apan-European Innovation Fund; develop an EUwide market for trading and sharing IntellectualProperty; and broker bolder investmentreadiness initiatives.5. New places for new types ofcollaborations. Innovation feeds oncollaboration, the spark and confrontationof different ideas, perspectives andexperiences. Information technologies andweb 2.0 tools are transforming how peopleinteract. Open innovation is based on thepower of networks and access to knowledgeacross Europe and globally.We propose to create and network innovationlabs; invest in cultural and creative institutions,organisations and networks; reinforce the roleof brokers and intermediaries; develop a majorprize for innovative localities; and stimulateuniversities and public research centres to bemore open and international. 4
  5. 5. Comments received on this reportInnovation comes from people being able to combine their different ideas, skills and assets to create new recipes forhow we make products and provide services, in both the private and the public sector. Increasingly this process ofcombination involves consumers as participants or even instigators of this process. Innovation is driven by creativecollaboration as much as by competition, it is something you do with people rather than to them. This report -incisive, imaginative and inspiring - captures the essence of this approach and so is essential reading for anyonewho cares about Europe’s future. Charles Leadbeater, Leading author on innovation and creativityInnovation has a new geography. Many nations and regions are now racing for a new high ground in which thecapabilities for innovation – defined in such terms as human capital, investment, quality of ideas and stance to thefuture – matter more than ever. This excellent report represents a landmark shift towards an integrated strategyand narrative that will enable a truly European approach to innovation. It will be required reading as innovationcontinues to rise to the top of the public, private and societal agendas. John Kao, Chairman, Institute for Large Scale InnovationThis report will undoubtedly be remembered as a turning point in EU innovation policy. Never before has a groupof eclectic thought leaders and successful practitioners been so frank in their diagnosis, so forward-looking in theirprescription and so caring for Europe’s collective future – a future that is ours to shape, and that must be built ona holistic endeavour of societal renewal. Indeed, this clarion call for change could not come at a more suitabletime, with the world mired in recession and Europe running the danger of becoming more risk-averse at exactlythe moment when we need to be more innovative, more experimental, more daring. This blueprint is the first ofits kind that not only provides a strategic vision but also a concise plan, as well as an intricate understanding that21st century innovations can only thrive in a collaborative, open and interdisciplinary space where new ideas arecelebrated and bold entrepreneurial activities rewarded. Ann Mettler, Executive Director and Co-founder, The Lisbon CouncilThe Business Panel’s recommendations speak to all European citizens, not just to policy makers or entrepreneurs.It invites all of us to seek positive change and innovation across our societies and communities, through new andopen partnerships, not just in the business or technology sector. It addresses our major societal challenges such asaging, globalisation or climate change as new opportunities for sustainable growth and enhanced well-being. Insummary, it provides a fresh and new vision for Europe’s future through wider and more ambitious innovation. William Stevens, CEO & Founder, Europe Unlimited 5
  6. 6. Over the last two decades Europe has struggled to align the best of its social models with the needs of a rapidlytransforming economy. This report provides an inspiring, ambitious and very necessary part of the answer. It showshow Europe can orchestrate and accelerate innovation not just in the more familiar space of high technology butalso throughout society. And it shows how Europe’s unparalleled success in providing its citizens with opportunities,security and justice, can be sustained in an era of ageing populations, global warming and much greater diversity.Over the last year, other parts of the world have shown how even the most profound crisis can be turned into anopportunity. Here the Business Panel is providing exactly the kind of fresh and strategic thinking which Europeneeds if it is to do the same. Geoff Mulgan, Director, The Young FoundationBy its very nature a strategy for innovation is never accomplished and can be put in a drawer. Innovation strategiesask for permanent adaptations, continuous future-oriented revisions as well as a pluralistic discussion of its missions.This holds for companies, for regions, for national economies and even more so for the European Union as asupranational entity with an outstanding responsibility for the creation of a prolific vision targeted by its institutions,member countries and citizens. This report has to be considered as a milestone for the development of a future-oriented innovation strategy in the European Union with major and qualitative thought-provoking impulses. Byconsidering innovation as a comprehensive process encompassing the whole European society – focussing on theentrepreneurial spirit of citizens, companies, the public sector, policy makers and NGOs – and asking for innovativecollaborative means of coordination, this report creates essential prerequisites for the design of promising conditionsconcerning the transformation of Europe towards a knowledge-based and future-oriented economy. Andreas Pyka, Professor in Innovation Economics, University of Stuttgart-Hohenheim; President of the Lisbon Civic ForumWe, as a network of European third sector leaders, welcome the recommendations of the Business Panel on the futureEU innovation policy. For the first time the social dimension of Europe is recognized as a source of innovation, and nolonger a synonym for extra cost. The third sector is acknowledged as a stakeholder in the European economy, on anequal footing with business and public administration. Therefore the EU is called on to give a concrete commitment,through further social investments and cooperation with civil society networks. This is a unique opportunity toreconnect the European project to those citizens who have felt left behind. We hope the recommendations will beadopted to guide the EU through 21st century challenges, putting citizens in the driving seat. Filippo Addari, Executive Director of Euclid NetworkThe report by the Business Panel on future EU innovation policy outlines in clear and certain terms the socialinnovation imperative. In Europe, we have a longstanding culture of innovation and a commitment to creativityas a core tool for prosperity and social cohesion. The opportunity now is to build on these assets and developnew tools, collaborations and approaches, so we become global leaders in social innovation and thus pioneers inaddressing the issues of our time and the issues of tomorrow. The report’s emphasis on enabling and cherishingcreativity as an imperative for innovation, and its assertion of the need to collaborate to create, mark a new stagein EU innovation thinking. The opportunity now is to translate this to EU innovation policy. Tom Fleming, Consultant on creativity and economic development 6
  7. 7. Table of contents1) Reinvent Europe through Innovation P82) Five propositions for action P13 2.1) Broadening innovation: from business to social innovation P13 2.2) Speed and synchronization: from fragmented bureaucracies to flexible partnerships, from better regulation to pro-innovation regulation P16 2.3) Invest in future infrastructure: from bridges to broadband, from control to open access P18 2.4) Innovative financing models: from incumbents to new entrants, from public vs private to public private partnerships P21 2.5) New places for new types of collaboration: from closed processes to the power of networks P253) The future starts at the end of this sentence P28About the panel P29Appendix: relevant studies and analysis of innovation P31 7
  8. 8. 1) Why Reinvent Europe through innovation?Reinventing Europe means moving from a knowledge What is innovation?society to an innovation society. For EU policy, this meansgoing beyond the focus on more R&D and technology to Traditional concepts ofhow an innovative mind-set can trigger broader systemic innovation, for example fromchanges in society and the economy. For citizens, this the OECD Oslo manual, definemeans unleashing the potential of a broad range of ideas innovation as new or improvedto solve real problems, to find real solutions. products, services, processes, or improved organisational orPeople centered innovation is crucial in our way of marketing strategies.thinking about policy, actions and instruments. It meansthat public policy can link people to opportunities, We use John Kao’s definitioninfrastructures, competencies and incentives. Innovation of innovation as “the ability ofpolicy to reinvent a new Europe in the future will involve individuals, companies andmany actors. It is not about the government running or entire nations to continuouslydoing things alone. create their desired future.” Innovation Nation (2007).Many countries and regions are developing innovationpolicies, with fast developments in emerging economiessuch as China and Brazil. This presents new opportunitiesfor Europe, but also the need to clearly position Europe ina global innovation system.The European flag needs a new star – ‘The Sea star’ – whichsymbolises an innovation policy that is decentralised,self renewing, and connected; and which builds on theunique diversity of an enlarged Union in an increasinglycompetitive and globalised world.Innovation has been a central EU priority over the lastdecade, repeatedly supported by European leaders andbacked by numerous strategies, funding programmesand assessments.But Europe has not achieved its full goal of being themost competitive global knowledge economy and is notinvesting effectively or appropriately in the infrastructure,competences, creative environments and businessesneeded for 21st century innovation. 8
  9. 9. Public support for innovation is primarily providedthrough complex, slow and uncoordinatedprogrammes. Private finance mainly backs the samelow risk investments. Thus people, entrepreneurs andcompanies with ambitious and creative ideas findlimited support and numerous barriers.Broader public policy and public services in particulartake little advantage of the power of innovation totransform society. Many parts of the enlarged Union areleft under-utilising their innovation potential.The current economic situation and looming newrealities - like Europe’s rapidly ageing, increasinglyintercultural society and fast developments in other From innovation unlimited:regions of the world - only amplify these weaknessesand make the need for radical change more urgent. “ I have had the opportunity to work at a large number ofEurope must create an innovation society where companies as an operationalknowledge is utilised rapidly and powerfully for societal manager or a consultant. It isbenefit and development. This requires a systematic striking to see that in certaintransformation from fragmented, single issue, closed companies, there are moreapproaches favouring large incumbents to networked, people in charge of stoppingflexible and open approaches favouring new entrants innovations (for example in theand ideas. We call on European policy makers – legal, purchasing, finance, HRthe European Institutions, national and regional departments…) than peoplegovernments – to support this transformation. pushing it...”Therefore, we propose to base EU actions around “In order to ensure thatcompelling societal challenges. As John Kao puts it, innovation targets are identifiedthese are wicked problems with no simple definitions, and respected, we think that asolutions, or metrics. They require large scale community clear institutional leadership islevel actions involving many actors. To mention a few essential. EU innovation strategyof these grand societal challenges: should be an overarching task for the European Climate Commission President - a highEurope has set a target to reduce carbon emissions level champion that couldby 20% by 2020, but this is only a first step. Major energetically and synergeticallytransformations are needed in our infrastructures, drive the innovation needs…”mobility and working patterns, interactions, behaviours Cefic Research & Innovation.and beliefs. 9
  10. 10. Ageing population India, Brazil,An increasing share of Europe’s population is over 65. South AfricaFundamental changes are needed, in social security and Nanotechnology Initiativepension systems, in health and social care, in housing, (IBSA)urban planning and transport, in how to value and engageolder people in our societies and economies. IBSA, a joint project of the departments of science and Future of the young technology in Brazil, IndiaCountries as diverse as Spain, Sweden and Ireland all face and South Africa, promotesyouth unemployment above 20%. Youth need access to research collaborationseducation, resources and structures to turn ideas into between scientistsvalue through the provision of relevant opportunities. working on applications ofWithout the right kind of support, the most talented will nanotechnology. Its priorityturn elsewhere. fields of research include health, water treatment and Social exclusion agriculture. India leads itsSocial exclusion is a broader issue occurring for different flagship project on waterreasons – ageing, youth, cultural diversity – and can block purification.other trends such as interculturalism, hyper-diversity thatare needed in a modern society. New pathways mustbe developed to give people access to opportunities,infrastructures, competencies and incentives. Safety of Future TechnologiesSafety for citizens is a huge area of concern linked totechnological advances. For example, the increasingdigitization of personal information combined withinternational movement of people creates real risks ofcybersecurity. Other new technologies – from biotechto nanotech – create real and perceived risks and ethicalconcerns. Without socially acceptable solutions andsafeguards, the innovative possibilities and societalbenefits of these technologies will not be realised.We are not calling upon government to solve all of thesegrand challenges. Many valuable initiatives will originatein the existing business sector. People are creative and canlink their ideas to new solutions. But we believe that futureEuropean public policy can impact and help solve grandsocietal challenges. This requires shaking up current ways ofhow policy is conceptualised, developed and implemented. 10
  11. 11. Innovation policy is key to using European resources,ideas, and people more adventurously and morebroadly.A key issue lies in the relationship between regional andnational policy on the one hand, and European policyon the other. We agree that the EU can take the leadin experimental policy, in creating learning loops aboutpolicy at all levels, but above all, in driving forwardnew focus areas for policy. Therefore, we propose bothspecific policy actions at the EU level as well as broaderreforms by which the EU can stimulate change atnational, regional and local levels. From Innovation unlimitedThroughout the Panels’ discussions we have returned “Change peoples mentality.and been inspired by the image of a sea star. This NOT innovating is dangerous.started with the book by Brafman and Beckstrom called This could include making“The Starfish and the Spider: The unstoppable power of the teaching of innovationdecentralized organizations”. But it went further as a compulsory…”visual concept to test and stimulate our thinking. “Ingredients for innovationWe use the sea star concept to mean an outstanding are knowledge, money andability in bringing together independent but trust. These are things in whichcoordinating components into a functioning organism, a government can play awithin an eco-system. This is thus a good symbol for substantial role…”open innovation and innovation labs, where differentialactors co-exist in ways which stimulate creativity and “Whether people dare toproblem-solving. participate in innovation or not has a lot to do with culture andAdaptability also matters, which involves learning and the way the social environmentfeedback loops. The sea star can even re-generate reacts. Will innovativelost legs, which in our world could represent ‘creative behaviour be ridiculed ordestruction’ to borrow a phrase from the economist admired”.Schumpeter. We need creative destruction, which meansstimulating renewal through industrial dynamics of “what is typical for our lastcompany failures and start-ups and of moving resources decades is that we have …from older to newer activities. To get there, we need lost the ability to play…Ipeople - innovators and entrepreneurs - focused upon recommend spending aidentifying and realising innovative opportunities by morning in a kindergarten tomobilising resources and networks that stretch across re-learn constructive,boundaries and countries. explorative and role play”. 11
  12. 12. Here we represent some of the key conclusions of our work in the form of sea stars:The Problems of Leverage the power of networks and social innovationthe Current EUInnovation Policy Implement Community level actions Invest strategically Open up innovation to in the future people and creativity Cope with the future The Challenges societal challenges for EU Innovation Policy Changing Demographics (Ageing Population) Sustainable Cities (Urbanisation) Climate Change Future (Sustainability) Broad Concept of Speed and Technologies Innovation Synchronization (PossibilitiesThe Ideas of and Risks)the Panel Social Exclusion (Future of Young) Future InfrastructuresNew Types ofCollaboration New Financing Models The Impacts of the Panel’s ideas Social Innovations Network of Innovation LabsThe Value Proposition of Pro-innovationthe Panel’s ideas regulation Public private PEOPLE partnerships OPENNESS Broadband and Smart gridPARTNERSHIP ACCESS TRANSPARENCY 12
  13. 13. 2) Five Policy Propositions2.1) Broadening innovation:from business innovation to businessand social innovationBusinesses innovate mainly for return on investment,whereas society must innovate for social return. Europeneeds both.Europe faces unprecedented challenges – ageingand diversifying population, youth unemployment,sustainable cities and global challenges – climate change,environmental degradation and poverty. Incrementalchange and business innovation alone are not enough.Social innovation explains 75% of innovation success.1Breaking the mould requires collaborative, cross cuttingresponses reaching out to business, public policies,research, education and training, public services, financeand NGOs.Public policy should not only stimulate businessinnovation, but also social innovation. Social innovationbrings together individuals and communities, includingcivic society (or third sector) to address specific challenges.This is a major activity with the third sector estimated to From Innovation unlimitedaccount for between 4 and 10% of GDP.2 Civil society hasbeen traditionally an engine of social cohesion promoting “I agree with the contextvolunteering and active citizenship, providing services presented it the text but I thinkfor underprivileged and marginalised groups, with a it misses one central point,strong focus on health and education. Social innovation which is that social innovationwill require experimentation, engaging citizens as co- can radically contribute to acreators, and the ability to turn promising ideas and new better overall governance andservice models to scale at the level of cities, regions, EU confidence in out democracy/Member States, the EU and global markets. politicians”1 Prof Henk Volberda, University of Rotterdam, presentation to Netherlands Centre for Social Innovation.2 The Social Economy in the European Union: Summary of the Report drawn up for the European Economic and SocialCommittee by the International Centre of Research and Information on the Public, Social and Cooperative Economy (CIRIEC). 13
  14. 14. Europe has strong traditions in social innovation, for What is socialexample in cooperative and consumer movements. innovation?But now lags behind as its ability to effect change insociety is slower. The next 10 years requires as much Social innovation seeks new answersattention to developing a social innovation system to social problems by identifying andas in the last 20 years on developing the R&D based delivering new services that improveinnovation system. the quality of life of individuals and communities. It tends to be:We believe that social innovation can in particular be - Experimental (testing outharnessed to radically change public services, to meet a range of alternatives andthe needs of citizens. A new agenda is needed for assessing which ones work);public services: moving away from the command and - Cross-cutting (for examplecontrol paradigm towards one capable of delivering responding to ageing requires changes to everythingpublic value through collaboration, innovation and from employment law andparticipation. Such transformation must also recognise pensions to new models ofthe growing importance of the civic society, including self managed care);the preferences and ideas of people in demanding - Collaborative (making usenew service design and redesign. of the full potential of network technologies, both to boostWe propose: productivity in the social fields but also to speed up learning)• Base EU action around compelling social - Able to engage citizens as challenges, such as chronic disease and other co-creators implications of our ageing society; interculturalism and hyper-diversity; climate change; environmental White House protection and unemployment. Office of Social Innovation• Finance social innovation funds, like the new US and Civic Participation fund (see opposite)3 through a new partnership between the European Commission and European Initiated by President Obama Investment Bank (EIB) and through the EU structural in Spring 2009 and requesting funds and EU level recognition. To increase reach a $50 million fund for Social and impact, European social innovation funds innovation. The aims include: should be combined with existing national social • Catalyze partnerships between investment funds (already operating in countries the government and nonprofits, like France, UK, Italy and Germany). 4 businesses and philanthropists • Identify and support the rigorous evaluation and scaling of innovative, promising ideas that3 are transforming communities Obama-to-Request-50-Million-to-Identify-and-Expand-Effective- Innovative-Non-Profits/ • Support greater civic participa-4 This proposal was submitted by the Euclid Network. tion through new media tools. 14
  15. 15. • Transform the public sector, by dedicating at The NHS least one percent of public budgets to innovation innovation fund – such as the UK NHS (see opposite), and to create specific EU support for platforms5 and The UK National Health Service mechanisms for trans-national transfer and scale (NHS) launched a £220 million up of innovative public services. fund to nurture and reward innovation across its 1.3 million• Engage the old: in education, training and projects staff and their colleagues. and networks to support innovation, creative The fund is investing into a entrepreneurship and research, and provide role combination of projects on the models for elderpreneurship, establishing new ground and at regional level, systems to draw on the expertise and experience speeding up the time it takes for of senior citizens. The young and old should be innovative solutions to get from included in value chains, both by addressing their design to practice. demands and by unlocking their potential.• Teach the young to manage creativity and innovation: youth unemployment is a major issue of concern in Europe, up to 25% in many countries. Youth must become engaged in society, and Europe can contribute through entrepreneurial policy models and training to test new ideas. University training must also shift from management of existing organizations to the new styles and structures required for innovation.5 An inspiration could be the Danish Mindlab, bringing together the ministry of Economic and Business Affairs, the Ministry of Taxation and the Ministry of Employment, see 15
  16. 16. 2.2) Speed and synchronization: fromfragmented bureaucracies to flexiblepartnerships, from better regulation topro-innovation regulationSpeed and scale are everything in innovation. Europe’scurrent structures and institutions respond too slowly andin a fragmented way, meaning that ideas generated hereare developed more successfully by others elsewhere.Europe is slow due to institutional inertia, silos betweendifferent policies, and lack of responsiveness to externalstimuli. There is an urgent need to address these issues, dueto increased global competition and the pressing needto address climate change, ageing and the other societalchallenges. These require coherent policy and actionsacross countries and actors in different generations andsectors, including small and medium enterprises as well aslarge ones. The European Union can take a leading role inpromoting flexible partnerships across boundaries and indeveloping pro-innovation regulation.The creation of a single market was a driving force forEuropean integration over the last 20 years. This must beextended to innovation, with EU regulations – for products, From innovation unlimitedservices, public procurement and intellectual property -that both drive innovation and are synchronised with the “ we need first to define ourinnovation cycle. This also means synchronising funding common dreams. Someprogrammes and innovation support, with development of them are already thereof standards, public procurement and regulations. (CO2 reductions, energy independence, etc.) But, some ofThe European Commission can stimulate new public the dreams are lacking”.policy interactions for the innovation value chain, startingwith a major challenge. The goal is to find ways to create ”…Speed and scale arerobust visions of what is possible, stimulate new ideas, and everything indeed. Now beingselect the best ideas that are generated. To achieve this the first to have developed agoal, the Commission should work with a diverse range revolutionary product is great,of partners to create roadmaps, bringing together and but being the first to havesynchronising the major public policies needed across enrolled the product on yourthe innovation value chain – from R&D to demonstration home- business market - thusto standards and regulations to purchasing and consumer improving competitiveness - isconfidence. better”. 16
  17. 17. A future innovation value chain consists of many actors, Why reformwhere public policy plays a role in forming the governance publicsystem. Developing innovation in this way thus means a procurement?flexible approach to design new, open interactions acrossvalue chains. Public services are conservative and lack in-house knowledgeMore is needed to speed up the uptake of innovative to procuring technologies orsolutions and technologies, especially in the public sector. innovative solutions. The type ofInformation technologies and the future internet provide changes needed include:new tools to achieve this. Open source ways of working • Procure solutions andand IT solutions are part of the answer. services, not technologies; • Open up procurementWe propose: markets for new entrants, e.g. by removing the• Ambitious European initiatives with synchronised requirements for track record; actions around the major challenges, engaging • Mandatory use of electronic actors across the innovation chain, coordinating supply tendering and payments; and demand of innovations, and involving public • EU level incentives and sector reform. support for public bodes to• Synchronised action requires that EU directives and buy innovative; regulations are supporting innovation and not • Approaches like the US and creating new barriers to change, through specific UK Small Business Innovation assessments of key legislation. & Research (SBIR) schemes• Change public procurement to support innovation, including the processes and practice, full roll out of e-procurement, and setting aside a part of public tenders specifically for innovation.• Open up government owned data, following the example of data.gov6 and require data to be published in web-enabled formats, to allow new combinations and empower citizens to co-create new services. This would support the transformation of the public sector by allowing greater public accountability and citizen engagement and encouraging new ways for people to use the web to support one another. Incentives and platforms should be supported for data-generators to enable open access.6 has the aim to increase public access to high value, machine readable datasets generated by the Executive Branchof the US Federal Government. It encourages users to propose new data sets that should be added. See also the UK Power ofInformation Taskforce, 17
  18. 18. 2.3) Invest in future infrastructure:from bridges to broadband, from control toopen accessInvesting in future infrastructures is part of using scarceresources to grow the new industries and services thatwill be decisive to the upturn – not if, but when it comes.7Infrastructures help facilitiate the transformation. Buildingthe knowledge and digital infrastructures will supportbusiness as well as social innovation, in particular forservice innovations.Europe is still putting its infrastructure investments asit did in the 19th and 20th centuries, like bridges, roadsand buildings. Current economic stimulus packages arestill too focused on buildings rather than other types From innovation unlimitedof infrastructure, on concrete rather than broadbandnetworks, and on old industries not new ones. Moreover, “An efficient infrastructure issuch infrastructure investments fail to realise the a condition for growth, butdisruptive nature of new technologies or to capitalise on has never driven innovation orhow emerging technologies interact with and enable growth”wider economic and social change. “Investment in infrastructureEvery major recession of the past has been followed can be a real enabler ofby radical changes to the industrial structure, with the innovation but importantsurging growth of new industries often supported by to recognise that the valuenew infrastructures. Keynes’ contemporary Schumpeter comes from the services thatrecognised that the destruction of old industries is both come from it and not the infrastructure itself”unavoidable and often necessary to the dynamics ofgrowth. “There is hardly any European vision for all EuropeanThe risk is that the EU falls behind the USA and Asia in infrastructure. Is there a visioncritical next generation digital infrastructure. Fragmented, for European Rail Infrastructure?quasi-monopolistic markets block change and EU level Is there a European vision forsolutions. Future infrastructures need new interoperability road pricing?...I think there arestandards, to open them up to SMEs as well as public enough ideas but there is a lackservices and large companies. of European leadership”7 OECD 2009a. Summary of OECD Roundtable on responding to the economic crisis: Fostering industry restructuring andrenewal, Paris 1 April. 18
  19. 19. Europe needs to do more to unlock the potential of the Whynew digital infrastructure, encouraging the creativity and broadband?innovation of consumers and entrepreneurs to createnew social and business models and new consumption High speed broadband ispatterns. Broadband is not simply a new communication not just for faster contentline but a new social infrastructure. transmission, it will enable next generation internet, radical newThe 20th century electricity grid needs to be transformed services and business models.for the green economy, for large-scale renewable energy It will transform how peoplegeneration, for mass electric transport, for zero emission work and live by increasinghomes, and for intelligent energy management. both location independence (allowing people to see workBut simply investing in hardware (lines, cables, transformers etc.) as an activity rather than ais not enough. The potential of smart grids must be unlocked place) and the importancewith new applications, solutions, markets and activities of specific places for face tothrough a comprehensive redesign of electricity systems. face interaction. It will unlock the growth potential of SMEs,This matters to citizens and to the governance of provide a platform for improveddemocracy. Individuals who have more access to school systems, the diffusioninformation can express their opinions to engage in of care to elderly people,democracy. Infrastructures of the future should allow and enable a huge range ofmore decentralised organisation, including social environmentally sustainablenetworks across boundaries. ways of work, play, learning activity.European society is developing rapidly as new countriesjoin the Union and as an effect of immigration. Thisis placing new challenges on communication andparticipation. This can be a strength, as Europe has astrong cultural identity and heritage that will be valuablein the future.But Europe must also learn to benefit from multiplecultural identities and heritages, both across andwithin countries. This could provide positive impetusfor innovation in new types of growing markets relatedto creative industries – like cultural foods, design andadapted experiences for tourists. 19
  20. 20. We propose: Why smart grids?• Every household, business and public building to have access to ultra fast broad-band and the Smart grid delivers electricity smart grid, with ambitious EU targets for speed of from suppliers to consumers at least 1Gb/second and specific completion dates. using digital technology to save energy, reduce cost and increase• The EU to be the first region to implement an reliability and transparency. integrated, cross-border smart grid with every Smart electricity grids are not household connected with bi-directional smart simply more efficient networks. meters, and employing common standards and They can be part of how to interoperability so that every household, business adapt cities and lifestyles to a and public building can communicate with their low carbon economy. energy suppliers. The EU has a Technology• Stimulate infrastructure for emerging technologies Platform and R&D on smart and services, with more world class hubs in Europe grids, but no clear policy that are based on multi-disciplinarity, diverse partners roadmap to implement smart and open access. Thus, Europe should combine grids and on key areas such as infrastructure projects with innovation initiatives demand response, cross-border which exploit that infrastructure, including those in retail competition or smart the Structural Funds and recovery packages. metering standardisation• Develop a modern digital infrastructure for life- long and advanced learning. Assuring access and providing significant investment in digital infrastructures are necessary to realise the vision of life-long learning as well as to increase the competitive environment necessary for advanced learning in universities and colleges. 20
  21. 21. 2.4) Innovative financing models:From incumbents to new entrants;from public vs private to public privatepartnershipsRisk and uncertainty are inherent in innovation. Weargue that the current finance system is not fit for thenew types of innovation required to address grandsocietal challenges. The European Union can stimulatethe financing system, benefit from the scale and scopeof the Single Market and introduce greater opennessand transparency in the system. Better finance forinnovation covers many aspects, from banking andfinance regulations to the culture, knowledge andattitudes of financial institutions and entrepreneurs. Webelieve that an aspect of critical importance at European From innovation unlimitedlevel is the availability and markets for risk capital. “There is no evidence to suggestThis is particularly important for SMEs. Europe should be that a public body would beable to provide the financing for high-growth innovative better at allocating capital tointernational businesses home-grown from Europe; i.e. innovation than a properlyambitious companies than can create 500 jobs in 5 years regulated and incentivisedin the most promising new markets such as energy, private sector. “ Europeanenvironment, smarter logistics, the internet of things, Venture Capital Associationnew materials, medical applications and aging.We are currently a long way from these goals. Both public “Improving the access toand private financing is largely directed to incumbents in public financing for innovationmature industries. Yet these are precisely the companies by business should be athat block radical innovations that could undermine high-priority for the EU. Thetheir current business in the process of creating new acceleration of pan-Europeanones. venture capital funds is a positive development, howeverThe existing support for smaller or innovative companies it is important that SMEs have(grants, seed, venture capital, loan guarantees) is equal access as is the case forfragmented and fails to mobilise private sector large firms”.investment efficiently or consistently. There is no pan-European risk capital market, meaning European funds “ for ecommerce, it is verylack size and expertise, and companies lack growth important that a truly Europeanfinancing. Ideas, knowledge and intellectual property Online Payment System woulddeveloped by small companies and universities typically be developed (like iDeal in theremain undervalued and underutilised. Netherlands)” 21
  22. 22. Current venture capital and stock market models have BASFshown their limitations, and investments made using Grameen Ltdthese models in Europe risk being lost unless thesemodels can be rapidly reinvented. Without this, the In March 2009, BASF andpipeline of innovative companies and talent will be dry Grameen Trust established afor the coming economic upturn. joint venture as a new business model to improve the healthEurope needs a radical new approach to financing and opportunities of theinnovation, which transforms the fragmented short-term poor of Bangladesh. BASF’sapproach of governments, private finance and long- initial investment was €200established companies. European policy must address thousand together with in kindthe current weaknesses of financing innovation through contributionsnew partnerships to share risk, better harnessing the and skills of entrepreneurs and companies, pressrelease/P-09-155and deploy more intelligent ways to combine fundinginstruments (e.g. grants, equity, loans, fiscal incentives)and where needed on a transnational basis. Current riskcapital markets are opaque, leading to limited access andsub-optimal decision making.Innovation should be core to financial institutions,with the European Investment Bank (EIB) becoming aEuropean Innovation Bank.Failures are a necessary aspect of innovation processes.Therefore, a final aspect is related to bankruptcy, asrelated to earlier advice and regulation. A comprehensivereview of legal, tax, and economic policy is necessary tomove further to develop European regulation in such away as to stimulate innovation and entrepreneurship.We propose:• A major development of the European Investment Fund (EIF), in partnership with the European Investment Bank (EIB) and European Commission with a mandate to create new models to fund trans-national partnerships, corporate venturing and societal innovation funds. 22
  23. 23. • Accelerate pan-European venture capital funds, Creating a pan as a new role for the expanded EIF to create and European VC facilitate funds with the critical mass of resources fund and expertise to operate on a trans-national basis funds and specialise in future growth markets. Such In 1945 the UK government funds must attract sustainable co-investment from inspired the creation of 3i, the private sector across Europe, including corporate financed by the Bank of venture funds, and must be professionally managed England and major British avoiding political interference or micromanagement banks, which went on to from governments or the European Commission. catalyse the creation of the UK They must lead the way to greater transparency in venture capital market. risk capital markets. We believe similar leadership from the European• Incentivise an EU market for Intellectual Property. Commission and EIB Group A proper market for IPR will allow universities, public is now needed to catalyse research organisations and small companies to find the development of pan- better partners, investors and fairer prices for their European market. A new Fund IPR, skills and knowledge and to access to unused should: IPR of large players. We therefore fully support the - Have the critical mass proposal for the Caisse des dépôts (see next page). to be a major player, i.e. This should be accompanied by bolder investor around 1 billion euro under readiness initiatives that enable creative businesses management; to reduce their risk profiles to investors and accelerate deal flow. - Co-invest alongside other funds to provide specialist expertise on European markets and technologies; - Be able to make larger follow on funding, with longer time horizons, than most existing VC funds. The aim is not to displace existing funds, but to improve the professionalism, transparency and deal flow of the European market as a whole. 23
  24. 24. From Innovation Unlimited: An EU market for Intellectual PropertyCaisse des dépôts (CDC) is a state-owned holding company that makes long-term investmentsin pursuit of public policy objectives and in order to foster economic development. ..Indeedthe current situation is a paradox. Europe (and the World) faces a deep transformation ofinvention/research processes and related exchanges, yet the intellectual property economy stillis stifled by an opaque and asymmetric functioning – with correspondingly very significant lostopportunities and value for Europe in the increasingly critical knowledge economy - : dominanceof large actors, unequal access to information, secrecy of price formation…all of which result ina severe loss of potential innovations and valorisation of inventions…CDC believes it is necessary to spearhead the establishment of the infrastructure needed for alarge, accessible and transparent market for intellectual property exchange to operate efficientlyfor the benefit of european research. This initiative has been building for over one year and CDChas taken the necessary internal steps needed to commit several millions euros to establish inthe coming months:A financial market place for intellectual property investment and coverage, in line with a similarinitiative forecast in Chicago next year being spearheaded by Ocean Tomo, a US merchant bankspecialised in intellectual property. It is the objective that this marketplace will offer access forinvention producers and users of all sizes as well as investors, and will offer unit license rightsand financial coverage products to hedge risks or investments. This project is under constructionand it is currently envisaged that it will begin operations in mid-2010, possibly with a Europeanscope from the outset.An investment Fund for intellectual property rights, dedicated mainly towards public researchpatents in the first instance. The design of this Fund is predicated on the assumption that bygathering a large number of patents, it will be possible to establish clusters of patents which areincreasingly necessary for large companies as well as SMEs to develop innovative products andservices. It is expected that this model must demonstrate after a few years in operation that it iseconomically viable and consequently allow the largest transfer of research and inventions in asustainable manner. It is intended that the Fund will buy patent licences from public universitiesand research centres, organize patent clusters, and license on a non-exclusive basis these patentclusters to the maximum possible number of industrial users. Royalties/revenues coming fromthese licences would then be shared between public research and the Fund, with the intention ofusing proceeds to broaden the Fund’s scope in order to expand the necessary critical mass. CDCdecided in June 2009 to launch the first phase of this project with the creation of a pilot companywhich will begin testing the operation with volunteer universities and research centres.The necessary tools to develop exchanges and uses of patent rights and especially for objectivemeasurement of the quality of the patents. A sophisticated system of patent rating is underdevelopment in cooperation with leading international private sector participants.In the new knowledge-dominated economy, research and its commercialisation are globalby nature – so is the scale of resources needed to successfully deploy the vision outlined here.Consequently the above developments are initiated with a European objective from the outsetand CDC maintains regular contacts with European actors – in particular the Europeaninvestment Fund of which CDC is a founding shareholder. 24
  25. 25. 2.5) New places for new types ofcollaborations: from closed processes tothe power of networksInnovation feeds on collaboration, the combinationand confrontation of different ideas, perspectives andexperiences. The EU can support the shift from closedprocesses to the power of networks.This is about learning from each other, but also aboutidentifying new problems and new solutions where From Innovation unlimitedfuture products, services and ways of working createvalue. Stimulating productivity and long-term economic “…Future innovationgrowth is thus as much about experimentation and policy should considernew ideas as it is about optimising efficiency. We how to facilitate access to completely new groups ofexpect to see an open environment that stimulates users and innovators, andand supports innovators from SMEs, public sector, not only provide new toolsuniversities, as well as large companies. for incumbent innovation communities...”Such openness and collaboration is required inan early stage of ideas, to identify problems and “…Yes, Innovationsolutions. We are aware, however, that SMEs in intermediaries are going to playparticular are often dependent upon unique a major role on the success ofservice design and IPR, at a later stage of product Open Innovation. Informationdevelopment. The key message is that collaboration technologies and web 2.0is crucial for service and product innovation. This tools give new opportunitiesrequires a platform, often including government to increase cross innovationactors, to specify the rules of engagement, to help between companies andincentivise an open exchange. research centers…” “Information technologies and web 2.0 tools are …One central issue to bear intransforming how people interact, not withstanding mind when preparing for the future innovation collaborationthe necessity of physical space and meetings for the is that the context of innovationexchange of ideas and collaboration. will shift in the coming decade or so, mostly due the rise ofEurope has made great strides in building science the next4billion. As much asparks, incubators, research networks and educational innovation has been closed inexchanges in specific research areas. Closed innovation the past, it has also been thesystems of laboratories, universities, research institutes, business of well-to-do-middleart schools, corporations, public administrations, class, and this has framed manyprofessions are no longer a viable approach for future of the actions, organizationalinnovation. choices and policies…” 25
  26. 26. New roles and skills are needed to sensor and bring Helsinki Designtogether the right actors globally and broker collaboration. LabOpen innovation is based on the power of networks andaccess to knowledge across Europe and globally. Clusters The purpose of Helsinkican support these objectives. Design Lab is to explore the challenges and opportunities“As innovation capability continues to globalise, networks of the new human-centricare becoming increasingly important… Networks accord design approach, to promotean important role to so-called brokers: individuals and design as a relevant approachcompanies [organisations] that are able to link talents to systemic changes, toand assets separated by geographic location, time zone, strengthen the image oflanguage, culture, and business practices in ways that Finland as a developmentgenerate value”. (Tapping the World’s Innovation Hot Spots laboratory for new ideas andby John Kao Harvard Business Review, March 2009). innovations and to build a baseOpen spaces may be virtual, through networks and for continuous creative andinteraction, but we also place value upon developing innovative dialogue concerningreal, physical spaces dedicated to innovation and which the dimensions of new designstimulate interaction, based on experimentation, design, paradigm.demonstration, visualisation, and user participation.Some places are showing the way forward. A HelsinkiDesign Lab is being established between the city, theinnovation agency, companies and citizen groups tobring together design, technology and users in innovationprojects. Amsterdam, Barcelona, Bristol, London,Rotterdam and others are developing similar innovationlabs and networks for new types of collaboration.To accelerate this process we propose to:• Create, fund and network innovation labs, with localities creating spaces to enable interaction between large and small, low tech and high tech, arts and technology, public and private and not-for profit, supported by recognition and networking at European level. Innovation labs should help to develop, test and scale up solutions to implement the new orientations of EU innovation policy. 26
  27. 27. • Invest in cultural and creative institutions, The organisations and networks as the interdisciplinary Nanosystems brokers for innovation, creative content and new Initiative knowledge, including through creative exchange Munich is one of the Clusters of initiatives such as innovation commissions, exhibitions, Excellence which have and digital channels with a strong public service been selected by the German element. This includes policy and governance initiatives government. It brings together that reinforce the role of intermediaries, to act as change scientists from various research agents, facilitators and brokers between disciplines, facilities in the fields of physics, sectors, regions and countries. biophysics, physical chemistry, biochemistry, pharmaceuticals,• Develop a major prize for innovative localities, to biology, electronics and showcase social and open innovation and provide an medicine to work towards an incentive for regions to go further in their renewal. overarching vision to design, fabricate and achieve control• Stimulate universities and public research centres to of nanoscale systems, and be more open and international, reforming incentive to unlock their potential for and performance systems, and supporting (including possible applications in fields through EU programmes and the new European Institute as diverse as future information of Innovation and Technology) the development of technologies, the life sciences. strategic competences and collaborations between http://www.nano-initiative- business, research, education and training. 27
  28. 28. 3) The future starts after the end of this sentence uture senThe arrival of a new European Commission, the development of the post 2010 Lisbon strategy andthe forthcoming discussions on the EU budget provide a unique opportunity to change course oninnovation. We passionately believe that innovation is not a minor policy area for a small group of experts.It is fundamental to the future of Europe.This is the start of a journey. We urge the European Commission to take forward rapidly our propositionsand actions within a renewed innovation policy. We as panel members, and individuals, will support thisprocess. A sense of urgency and focus must be conveyed, so that Europe does take bold steps in settingpriorities and designing policy that transform ideas into concrete actions.But this is clearly not a task for the Commission alone. The radical transformations we believe are neededrequire involvement across all parts of society. This means a new openness how policies are developedand a stronger consensus on the changes needed. Open innovation applies to innovation policy too.We recommend that the Commission builds on the open approach that we have taken through theInnovation Unlimited forum,, where citizens can co-create policy ideas and exploiting the potential of Web 2.0.We as individuals and collectively must move to come up with creative solutions to the major challengesfacing us. We urge businesses, researchers, public servants, NGOs, students, retirees, to participate in thisprocess and together to create the future we want. 28
  29. 29. About the panelThe Business Panel on Innovation was established by DG Enterprise and Industry to provide inputs froma business perspective on priorities for future EU innovation policy.We exist because our colleagues at DG Enterprise and Industry had the courage to think in a new way. Theyinitiated, supported, and stimulated us as an independent panel. They wanted a fresh look at innovation,bringing in competencies and people from outside the ‘usual’ Brussels circles. We will always thank themfor taking this step, as this has lead to a most unusual experience for us all.The Panel has functioned well because our diversity led to debate and creativity. We work as industrialleaders and entrepreneurs, and bring experience of design, banking, manufacturing, services, high techand low tech with experience from many countries. We benefitted from the university and teachingperspective from our rapporteur, and a wealth of policy knowledge from the Commission and variousthought leaders who joined our meetings.The members are Diogo Vasconcelos (Chair), Distinguished Fellow, Cisco Systems International Gianfranco Corini, President, NEXT-Ingegneria dei Sistemi S.p.A Jan Lamser, Member of Board of Directors and Senior Executive Officer, CSOB Bank (member of KBC Group) Professor Rüdiger Iden, Senior Vice President, BASF SE Dr Anne Stenros, Design Director (Vice President, Design), KONE Corporation Rapporteur: Professor Maureen McKelvey, Professor of Industrial Management, School of Business, Economics and Law, University of Gothenburg. 29
  30. 30. Mandate of the panelContext:DG Enterprise and Industry of the European Commission is currently developing ideas for the futureorientations of EU innovation policy and potential new measures to support innovation.The current EU innovation policy framework follows the Broad Based Innovation Strategy from 2006and will need to be updated and refreshed for the next Commission and the post 2010 Lisbon strategy.As part of this exercise, it is important to get a business perspective on future innovation priorities, tocomplement inputs from the academic and policy community. It is proposed to establish a short term (8month), small (5 person) group to provide such an input.Aim:Provide input (in the form of a report and possibly presentations at key events) to the Commission oninnovation policy in Europe post 2010 in the context of the Lisbon reflection process by defining prioritiesfor boosting innovation performance and identifying potential key initiatives for EU action.Composition:The group will have a maximum of five members who will act in a personal capacity. The profile of group’smembers should:− be business orientated but also include expertise coming from academic institutions and/or business schools and from the public sector and/or politics;− not include serving members of parliament or government ministers;− include expertise from a range of sectors, e.g. services, manufacturing, technology based, finance and be able to bring an international perspective.− gender balance and diversity are important.The members of the group and its chair will be selected and appointed by DG Enterprise and Industry.The panel will be supported by a rapporteur who will be selected by DG Enterprise and Industry.Timeline, operation and reimbursements:It is envisaged that the group will have a maximum of 5 meetings between February and September2009. Consideration will be given to holding one or two meetings as «hearings» where a wider range ofstakeholders can present views to the panel.The secretariat will be provided by DG Enterprise and Industry and meetings will be held in Brussels,although consideration will be given to holding one of the meetings in a different location.Information obtained through participation in the panel will be confidential. DG Enterprise and Industrywill be responsible for publishing the report of the panel.Members will not be reimbursed other than for travel and subsistence expenses. 30
  31. 31. Appendix: relevant studies and analysis ofinnovation.This appendix is written by the rapporteur, Professor Maureen McKelvey. It places the concepts and ideasdeveloped by the Panel for Innovation, in relation to some literature and debates on innovation andinnovation policies.In essence, the Panel starts with a simple but factor but not seen as leading to fundamentalpowerful concept, namely that innovation, changes in economies. Indeed, economicstechnology and entrepreneurship will stimulate generally tackles issues of technology, labourlong-term growth and thereby change our and growth in relation to an explanation ofeconomy and society. The Panel has worked individual behavior and price mechanisms,with the notion that innovation will create a which together lead to an efficient allocation ofnew future, as also reflected by the fact that we resources within a set of constraints (Hanuschchoose John Kao’s definition that innovation is and Pyka 2007:1160).about capabilities for creating the future. The Economist started a new ‘Schumpeter’This is closest to the approach in the tradition column in Fall 2009, in recognition that businessof the economist Schumpeter, which views is also about innovation, entrepreneurshipinnovation as essential to economic and and creative destruction – and not justsocietal transformations over periods of about competitive regulation and investorhistorical time. Bruland and Mowery (2005) behaviour.provide one perspective, namely the diversityand heterogeneity of innovation processes “[Schumpeter] argued that innovation is atacross time, across sectors and across countries. the heart of economic progress. It gives newFreeman and Perez (1988) and Perez (2009) businesses a chance to replace old ones, but ittake another approach, namely the common also dooms those new businesses to fail unlesspatterns of historical periods. In their analysis, they can keep on innovating (or find a powerfulmajor techno-economic paradigm shifts are government patron). In his most famous phrasedriven by interlocking changes in technology, he likened capitalism to a “perennial gale ofinstitutions and politics. In consequence, creative destruction” (The Economist 2009).decision-makers act in a complex and turbulentworld, under high degrees of uncertainty, in an In Capitalism, Socialism and Democracy,economic system which continues to generate Schumpeter states:novelty and select amongst alternatives “The fundamental impulse that sets and keeps(Verspagen 2005:496). the capitalist engine in motion comes from the new consumers’ goods, the new methods ofThe Schumpeterian approach is in contrast to production or transportation, the new markets,other theories, such as growth theory (including the new forms of industrial organization thatgrowth accounting and endogenous growth capitalist enterprise creates.” (Schumpetermodels) where technology is a key explanatory 1947: 82–3)) 31
  32. 32. The main points from this quote are thus that induced endogenously (e.g. internally withinthe economy keeps changing, and thereby the economic system) through innovations,creating new futures. Nelson (1996: 87) argues new knowledge, new organizations,that this is “Schumpeter’s most consistent and competences and market creation. If change iselaborated argument about innovation and endogeneous to the system, then this implieseconomic transformation, that it fundamentally that development can take different paths.involves disequilibrium”.8 The future is created through decisions and actions, not deterministic from ‘laws’ and initialIn the recent Elgar Companion to Neo- conditions. Innovation and entrepreneurshipSchumpeterian Economics, Hanusch and continue to disrupt the economy, therebyPyka (2007:1161) stress that modern neo- sometimes fundamentally changing activitiesSchumpeterian scholars have developed these and moving the economy in new directions.ideas into a framework, theories and explanationsfor the role of technology and industrial One implication is that public policy mustdynamics. They urge for further academic work support the ‘change’ processes. Fundamentalto analyze how and why development is the transformation may lead to reactions, suchresult of co-evolutionary processes involving that attempts to create change will also leadindustry, finance and public sector. These three to resistance and inertia. This can lead toprocesses together influence development, ‘tensions’ across the system, where tensionsand economies can take a narrow corridor for can arise from those that exhibit flexibility andgrowth between bubble and stagnation, seen those that tend to exhibit stability, in differentover historical time. parts of the economic system (McKelvey and Holmén 2006). Such tensions spring, forThe new direction for research must be to example, from differential rates of change,include neglected topics, especially finance and from the variable abilities of actors to respondthe public sector. These issues are of primary to systemic changes, and from the existence ofimportance to how the economy changes both turbulence and inertia at different levels–especially after the financial and industrial within the same system.crises starting in 2008. Some decision-makers in public policy, in firms,The recommendations of the Panel are very in public organizations, in communities andmuch focused upon how public policy can so forth will be innovative. They will change,stimulate the relationships between industry, experiment, and try new things. Other actorsfinance, the public sector and broader society. and parts of the system will resist.What is the role of public policy for innovation? This implies that public policy has a key role inA future theoretical perspective on development stimulating innovation and entrepreneurshipand growth should stress that industry, finance – through the direction or governance of theand the public sector are linked together, in overall system. Policy should be designed toa complex system. Moreover, change is often help individuals and organizations develop new8 Nelson goes on to argue that ‘standard equilibrium theory in economics cannot cope with it and its economic consequences’. 32
  33. 33. competencies, new knowledge, and channel The ideas developed require wide governancedemand. Thus, public policy matters because and coordination to stimulate novelty andit can play an important role in financing and to diffuse innovations. Per definition, thestimulating long-term and more uncertain grand challenges facing us today requireprojects, with possible/probable societal synchronization over countries and over userbenefits.9 Policy responses to the current crisis demands and frameworks of regulation. Thehighlight the urgency of reforming policy precise roles of policies and governance atin these directions (OECD 2009b), including European, national, regional and local levels inpolicies for infrastructure, R&D and innovation order to realize the recommendations was notsupport, investments in human capital and part of the Panel’s mandate, although these aretraining, promoting the update of green and clearly important efficient technologies, and supportinnovation investments. What types of innovation should public policy try to stimulate?Similarly, OECD countries are working to Public policy may be focused upon thestimulate entrepreneurship. “Measures include innovation per se. Innovations can be definedtax breaks for companies, initiatives intended as novelty across a number of dimensions ofto bridge liquidity gaps (e.g. ensure banks relevance to the economy. These can be newkeep lending to business, government-backed goods, a new quality of a good, new methodloan guarantees or loans for small firms, export of production, the opening of a new market,credit guarantees), the simplification and new sources of supply of raw-materials andspeeding up of administrative procedures, the half-manufactured goods, new organizations,promotion of startups and entrepreneurship, new business models, new services, and newand directing government procurement to marketing techniques. From an economist’syoung or smaller firms while also ensuring the perspective, one needs to differentiate therapid payment of invoices to small and medium idea (invention) from the economically viableenterprises (SMEs).” 10 outcome (innovation).The discussion in the Panel covered a similar Or, policy may focus upon stimulatingbroad range of policies and stressed the need innovations with a certain degree of novelty.for creative thinking about public policy. Science contributes to industrial developmentOur sense of urgency of the need to address and growth through a wide variety ofimmediate grand societal challenges through mechanisms and effects (Salter and Martininnovation led us to focus upon the more 2001). The usual classifications from the OECD,radical changes. such as the Frescati and Oslo manuals, can be9 This is the same rationale underling public investment into basic science. The public supports long-term basic science,as knowledge represents a broader asset for society. Business tends to support more development-driven research anddevelopment.10 OECD 2009b. POLICY RESPONSES TO THE ECONOMIC CRISIS: Investing in innovation for long term growth. June 2009. Reportproceeded by the Innovation Strategy Portal 33