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„European regional policy: reflections on innovation support“

OPEN DAYS 2010: New approach to innovation through European regional policy

5 October 2010Mikel Landabaso

Head of Unit, Thematic development, innovation - Regional Policy Directorate General

European Commission http://ec.europa.eu./comm/regional_policy

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1. Article 5 of the ERDF 2007-13: earmarking and mainstreaming innovation

2. Reflections on regional attractiveness in the knowledge-based economy

3. Conclusions: lessons from 20 years

“… the most important job for economic policy is to create an institutional environment that supports technological change. “

Paul Romer 1994

Index

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Why is innovation important for Cohesion Policy?

Innovation and Economic Development "Until the 1980s, technology and innovation were under recognised influences

in the explanation of differences in the rates of economic growth between regions in advanced industrial nations..." (Townroe)

• i) increases in growth rates (Solow 1957, Rothwell and Zegveld 1981: 29, Quintanilla 1992: 46),

• ii) higher rates of exports and trade (OCDE 1982, 1986), • iii) gains in productivity (Mansfield 1965, Amable and Boyer 1992: 45), • iv) growth in income and output (Freeman 1982: 198), • v) bigger business profits and lower inflation rates (Goddard et al 1987:

10) ,• vi) increased firms international competitiveness (Nelson 1993:509) • vii) appearance of new or improved products and services (Mansfield

1988, Pavitt 1994), etc.

“...in the last 50 years innovation has been responsible for at least half the economic growth of our nation...”

(Neal Lane, Director National Science Foundation - NSF, February 1997, Seattle, U.S.A)

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The Promotion of Innovation in European Regional Policy: a silent (r)evolutionBefore 1988: less than 200 Mecus devoted to R&TD...

1989 -1993: approximately 4% for innovation (2 billion out of 50) (L. Tsipouri, IPTS Report N° 40, 2004)

o Community initiatives: Science and Technology for Regional Development - STRIDE, TELEMATIQUE, ENVIREG, VALOREN…

1994-1999: approximately 7% for innovation (7,6 billion out of 110) (L. Tsipouri, IPTS Report N° 40, 2004)

o Pilot Projects: RIS, RIS+, RTTs, RISI, RISI2, IRISI, EBN, BICs

2000-2006: approximately 11% for innovation out of 195 billiono “Regions in the new Economy”: PRAIS – Regional Programs of Innovative

Actions 400 million

2007-2013: approximately 25% for innovation (86 billion out of 345)o Article 5 of the ERDF: innovation as a priority for the “Competitiveness”

objectiveo Regions for Economic Change

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How to go about innovation in less favoured regions?

"...the failure of firms or regional economies to innovate is not due primarily to scientific or technological problems but to shortcomings in the social and organisational framework

within which the scientific and technological factors have to operate..." (SPRINT - Mid term Review 1991).

Innovation environments in less favoured regions are characterised by:1. Need for identifying and expressing latent demand for Innovation in SMEs, 2. Lack of a dynamic business services: low quality of technology transfer mechanisms,3. Poorly developed financial systems: traditional banking practices v.s. risk or seed capital

Finance for innovation as 'long term intangible industrial investments with an associated high financial risk' (Muldur 1992),

4. Scarcity and lack ck of technological intermediaries. 5. Lack of an entrepreneurial culture prone to inter-firm cooperation. 6. Specialisation in traditional and predominance of small family firms with weak links to the

international market. 7. Small markets with unsophisticated demand.8. Difficulties in attracting skilled labour and integrated know-how.9. Few large (multinational) firms undertaking R&D with poor links with the local economy,

An increase in the innovative capacity of the regional economy inevitably requires new forms of organisation of production and institutional cooperation to help innovation-

friendly business environments in the less favoured regions.

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What innovation measures regions choose themselves: the foundations of article 5 of the ERDF 2007-13?

• Creation/strengthening/animation of sectoral business networks, clusters (supply chain or cross-sectoral) and business forums around innovation issues.

• Establishment of new interfaces between business and the knowledge base, including technology centres, universities, public labs, specialised consultants, etc...

• Integration and co-ordination of R&TDI services and agencies, including diffusion of their activities vis a vis the SME base through ‘guides’, inventories, ‘one-stop shops’, etc... and support to access national/international R&TDI schemes

• Development of new financial instruments for the financing of innovation (seed corn fund for high tech. start-ups, risk capital, business angels, guarantee funds, etc…) including brokerage services between innovators and the banking sector.

• Ensuring improvement of market intelligence for forecasting SME technology needs and future leading edge skills needs

• Identification of innovation projects in firms, SMEs in particular, through the combined efforts of university trainees and R&D labs from Universities and/or other firms

• Promotion and extension of technology audits in SMEs and innovation management training for businessmen

• Facilitation of University/big firms spin outs and technology based start-ups

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Commission’s initial proposal: support efficient Regional Innovation Systems

o Clusterso Technology transfer and University-Industry cooperationo SMEs’ access to advanced business support serviceso Promoting entrepreneurshipo Creating new financial instruments and incubation for

technology-based firmso Technology forecasting

Results from Council negotiations:

..., and in particular……access to transport…

Article 5 of the ERDF Regulation: Article 5 of the ERDF Regulation: new Objective “regional competitiveness and new Objective “regional competitiveness and

employment"employment"

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Innovation in the new State Aids Regime

• Innovation Policy comes of age: included in the State Aid Regime (December 2006)

Aid for R&D projects Aid for technical feasibility studies Aid for industrial property rights Aid for young innovative enterprises

• …And also for the “OSLO” revolution: “Open innovation”

Aid for process and organizational innovation in services Aid for innovation advisory services and for innovation support

services Aid for clusters Aid for the loan of highly qualified personnel

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Cohesion policy helps shifting the policy mix of public investment towards innovation

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Conclusions (1): on the conceptual framework

1) Innovation is not R&D…and just R&D is not Innovation: promoting innovation-led regional development is not primarily about increasing R&D excellence and R&TD infrastructures (supply push) but first and foremost about a change of culture and new partnerships where efficient innovation systems (demand pull) mobilize the intellectual and entrepreneurial capacities to create an innovation (and entrepreneurship) friendly business environments, for SMEs in particular, in all regions and in all sectors (not just high-tech)

thus

The linear model (from R&D to the market) is much less relevant for policy design than the systemic or interactive model: not just patents but economic exploitation of talent and new ideas – not just industry and big firms with R&D but also services, competitive research and open innovation

because

Regional innovation capacities are much more about personal engagements, institutions, networks, cooperation (social capital) than it is about narrowly focused science and technology efforts: reinforcing triple helix – knowledge triangle, clusters and university-enterprise is key

Why?

Regional innovation for most regions in the EU is basically about knowledge absorption (education and training, advanced business services) and diffusion (technology transfer, ICT, entrepreneurship) than about knowledge generation (science efforts)

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Conclusions (2): on policy design2. Innovation has a strong territorial dimension (tacit knowledge-networked economy)

and there is no “one size fits all” innovation policy: regional diversity is an asset that advocates for different routes to growth through innovation – smart specialization

3. Regional Innovation Paradox: big need, big money and no capacity

4. It is no longer about what or why but about how and who?

Opening minds is more difficult than opening roads – need for much strengthen strategic planning capacities of regional/national governments (from design to ongoing learning evaluation) and facilitate a culture of risk taking

“Innovation can not be dictated but it can be cultivated” (Sallet et al.): Listen to Regional Development Agencies, Technology Centres, Technology Parks and Incubator managers, Technology Transfer Offices…they are soldiers in the front line.

5. R&D excellence and Regional innovation are complementary and we need both: exploiting agglomeration and economies of scale is important (ERA) but also diffusion and absorption mechanisms based on regional potential

6. Beyond R&D expenditure and patents: we still do not have the required indicators for properly characterizing regional innovation potential or measure policy impact

Microeconomic competitiveness problems can not be efficiently tackled by overdoses of macroeconomic or sector based policies but by integrated, place-based regional

policies

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Conclusions (3): on the role of the public sector

8. Matching business demand (as a starting point) with R&TD supply is vital

9. Public sector should provide leadership and vision, rather than control, and catalyze economic development by promoting new ideas and partnerships with the private sector: not “for them but without them”

10. Support schemes must be long lasting, understandable and readily accessible by SMEs

11. Place-based regional innovation strategies and action plans integrating multilevel governance (national-regional) and horizontal (inter-ministerial) cooperation are a necessary first step

12. Grassroots ownership of innovation strategies are required: consultants are useful but not in the driving seat

13. Venture capital, business angels, soft loans, guarantees…financial engineering better than grants and tax incentives although need for combination and a wide menu

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Conclusions (4): on regional attractiveness

15. Public procurement (green and innovation driven) is an important tool to consider

16. Innovation policies require risk taking, trial and error and sound evaluation on top of deep pockets and long lead times (political consensus a plus)

17. There is a different concept of regional attractiveness in the knowledge based-economy: Florida’s 3Ts (Tolerance, Technology and Talent) + T (Territory)

18. The fourth T: building up territorial capital, including in the form of regional branding/image, is key to attract talent to fuel innovation investments

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If you need examples of good practice and policy guidance to inspire your innovation policies please check:Policy themes and Regional policy:

http://ec.europa.eu/regional_policy/themes/index_en.htmCase studies database:

http://ec.europa.eu/regional_policy/projects/practices/index_en.cfmRegions for Economic Change:

http://ec.europa.eu/regional_policy/innovation/rfec.htmRFEC 2009 Annual conference:

http://ec.europa.eu/regional_policy/conferences/networking/home_en.cfmRegio Stars 2010:

http://ec.europa.eu/regional_policy/innovation/regiostars_en.htmProgrammes of Innovative Actions :

http://ec.europa.eu/regional_policy/innovation/index_en.htm