Does Portugal Need Innovation?

…How?

FLAD: Lisbon, 26 June 2002

Center for Innovation, Technology and Policy Research, IN+Instituto Superior Tecnico

http://in3.dem.ist.utl.pt

Manuel Heitor

1. The Context: “away but fast!”

2. A Programme to foster Innovation for Portugal

3. The Workshop:Learning by comparing

Strategies and recommendations

Contents

The CONTEXT

Nathan Rosenberg (2001):

“unceartinty in the realms of both science and technology ... have enormously important consequences and a main concern is how organisations and incentives migth be modified to accommodate these uncertainties.”Fonte: OECD(2001), “Social Sciences and Innovation”

Chris Freeman (2001):

“There is an irreducible uncertainty about future political, economic and market developments ....,technological innovations may actually increase it, since they add to the dimensions of general business uncertainty, the dimension of technological uncertainty.”

Fonte: SPRU (2001)

Technological Change: materials, IPTS(1999)

STEELS

CAST IRON

IRON

COOPER

ALLOYSTEELS

GLASSY METALS

AL-LITHIUM ALLOYS

DUAL PHASE STEELS

MICROALLOYED STEELS

BRONZE

SKIN FIBRE GUMS

RUBBER

LIGHTALLOYS

SUPER ALLOYS

TITANIUMZINCONIUMETC

NEW SUPER ALLOYSDEVELOPMENT SLOWMOSTLY QUALITYCONTROL ANDPROCESSING

CONDUCTINGPOLYMERS

HIGH TEMPERATUREPOLYMERS

HIGH MODULUSPOLYMERSBAKELITE

NYLON

WOOD

PAPER

STONEFLINT

POTTERT

GLASS

CEMENT

REFRACTORIES

PORTLANDCEMENT FUSED

SILICA CERMETS

EPOXIES

POLYESTERS

COMPOSITES

POLYMERS

METALS

CERAMICS

POLYMERS

COMPOSITES

CERAMICS

METALS

ALLOYS

10 000 BC 5000 BC 0 1000 1500 1800 1900 1940 1960 1980 1990 2000 2010 2020GOLD

CERAMIC COMPOSITES

COMPOSITESMETAL-MATRIX

SURFACEENGINEERING

RE

LA

TIV

E I

MP

OR

TA

NC

E

SUPERCONDUCTORSTOUGH ENGINEERING

CERAMICS

KEVLAR

BRICKS (with STRAW)

IVORY

10000 BC5000 BC

0 1000 1500 1800 1900 1940 1960 1980 1990 2000 2010 2020

Technical Change: perspectives

The Convergence: telecommunications and computers ... The QUESTION : scope and scale

PRODUCTS

PRODUCT

•more technologies to produce each product

•more products produced from a given technology

Source: von Tunzelmann (1999))

TECHNOLOGIES

PROCESSES

TECHNOLOGY

PROCESSES

The question

In a context of increased uncertainty and accelerated rate of technological change, for which knowledge and innovation are critical factors for social and economical development,

– Where does Portugal stands?– How to promote a System of Innovation and Competence Building?

...fostering partnerships for innovation!

Innovation in EUCommunity Innovation Survey: CIS 2 (Conceição & Ávila, 2001)

IrelandAustria

Germany

Netherlands

UK

Sweden

Norway

France

Luxembourg

Finland

Belgium

Portugal

0%

20%

40%

60%

80%

100%

0% 20% 40% 60% 80% 100%

Share of Innovative Firms in Manufacturing

Sh

are

of

Inn

ova

tive

Fir

ms

in S

ervi

ces

Business expenditure on innovation Community Innovation Survey: CIS 2 (Conceição & Ávila, 2001)

Ireland

GermanyAustria

NetherlandsUK

Sweden

NorwayFrance

Finland

BelgiumPortugal

0%

20%

40%

60%

80%

0 0,02 0,04 0,06 0,08

Expenditure in Innovation (Share of Turnover)

Sh

are

of

Inn

ova

tive

Fir

ms

*only industry

Profiles of Innovation Objectives(Conceição & Ávila, 2001)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Reduce energyconsumption

Fulfillingregulations ansstandards

Reduceenvironmental

damage

Replaceproducts being

phased out

Reduce materialconsumption

Improveproduction

flexibility

Reduce labourcosts

Extend productrange

Open up newmarkets or

increase marketshare

Improvingproduct quality

Sh

are

of

Fir

ms C

on

sid

eri

ng

Each

Ob

jecti

ve a

s V

ery

Im

po

rtan

t

Euro Average Portugal

Europe

Portugal

Profiles of Hampering Factors (Conceição & Ávila, 2001)

0%

10%

20%

30%

40%

50%

60%

Lack o

f custo

mers

responsiv

eness

Regula

tions a

nd

sta

ndard

s

Lack o

f in

form

ation o

n

mark

ets

Hig

h e

conom

ic r

isks

Lack o

f in

form

ation o

n

technolo

gy

Lack o

f appro

priate

sourc

es o

f finance

Hig

h innovation c

osts

Org

aniz

ational rigid

itie

s

Lack o

f qualif

ied

pers

onnel

Sh

are

of

Fir

ms w

ith

Seri

ou

sly

Dela

yed

Pro

jects

Euro Average Portugal

Europe

Portugal

Innovation and Industrial Sector (Conceição & Ávila, 2001)

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Textiles and Apparel

Wood and Furniture

Leather

Food, Beverages and Tobacco

Pulp, Paper and Publishing

Other

Basic Metals and Fabricated Metal Products

Non-Metalic Minerals

Rubber and Plastic

Transport Equipment

Machinery and Equipment

Chemicals

Electrical and Optical Equipment

Share of Innovating Firms

High and

Medium-High Technology

Medium-Low

Technology

Low

Technology

Average Annual Real Value Added Growth of knowledge Based Industries

OECD(2000)OECD(2000)

UK*

Belgium

Portugal**

Greece*

Sweden***

NL*Austria

Japan

Norway

Canada

Denmark

Spain***

Denmark

Mexico

ItalyUS

France

Korea

Germany

0

2

4

6

8

10

12

14

0 10 20 30 40 50 60

Share in Business Sector Value Added of Knowledge Based Industries (share year 1996 except: *1995;**1993; ***1994)

Ave

rag

e A

nn

ual

Rea

l V

alu

e A

dd

ed G

row

th

of

Kn

ow

led

ge

Bas

ed I

nd

ust

ries

(19

85-s

har

e ye

ar)

R&D Expenditure (OECD)

Scale vs Intensity

Sweden

Finland Japan

France

Germanythe Netherlands

Denmark

UK

US

Belgium

Austria

Ireland

Italy

SpainPortugal

Greece

0

0,005

0,01

0,015

0,02

0,025

0,03

0,035

0,04

100 1000 10000 100000 1000000

Scale- Total Expenditure in R&D ($PPP; logarithmic scale)

Inte

nsi

ty-

Sh

are

of

GD

P s

pen

t o

n R

&D

…perspectives for “Change”:Scientific “Productivity” and inter-institutional cooperation EC Benchmark of S&T Policies, September 2001

Share of R&D funding (OECD) OECD, S&T Databases, Sept. 2001

United States

United Kingdom

Turkey

Switzerland

Sweden

Spain Slovak Republic

Portugal

Poland

Norway

New Zealand

Netherlands

Mexico

KoreaJapan

Italy

Ireland

Iceland

Hungary

Greece

Germany

France

Finland

Denmark

Czech RepublicCanada

Belgium

Austria Australia

Business

Higher Education Government0

100

100

0

100

Industry-dominated systems

Balanced Industry+ /government systems

Balanced Industry/government+ systems

Government-dominated systems

Innovation:

Why?...Which specific driving forces ?

1. Productivity

2. Sustainability

3. Social Cohesion

4. Critical Infrastructures

5. Inclusiveness• Resources for Innovation• Industrial structure• The knowledge-based industries• R&D Scale vs intensity• Institutional development• Social capital

1. Productivity

2. Sustainability

3. Social Cohesion

4. Critical Infrastructures

5. Inclusiveness• Resources for Innovation• Industrial structure• The knowledge-based industries• R&D Scale vs intensity• Institutional development• Social capital

the time frame

the spatial dimension(local/regional/national)

the time frame

the spatial dimension(local/regional/national)

Disparities in Productivity and Income

AustriaBelgiumDenmark

The Netherlands

United Kingdom

FinlandFranceGermanyGreeceIrelandItaly

NorwayPortugalSpainSweden

United StatesEU-14

102128929312310575108106121

126568493100120103

GDP Per Hour WorkedAs % of OECD Average

-4-500-9-5-45

-11-26

-172

13-3-9-1-5

Effect ofWorking Hours

981239294113100711139695

1095897899111898

GDP Per Person EmployedAs % of OECD Average

2-2211-5-17-4-12-18-50

122

-26-10

10-8

Effect ofLabor ForceParticipation

10010110388979658959196

1226071889212890

GDP Per PersonAs % of OECD Average

1. Productivity and Innovation: Why do we care?

• Aggregate productivity is ultimately a measure of economic development

– And there is the discussion of the productivity slowdown!

• At firm level, it is an important measure of competitiveness• Limited understanding of the relationship!

While much attention has been given to digital technologies,, linking information technologies with increasing productivity remains to be explained, requiring

processes of organizational change...

e.g.,Lundvall (2001)

While much attention has been given to digital technologies,, linking information technologies with increasing productivity remains to be explained, requiring

processes of organizational change...

e.g.,Lundvall (2001)

General Findings on Productivity(Conceição & Veloso, 2002)

• Wide dispersion in productivity levels across firms– Across firms in the same sector– Sharing similar type of producing technologies – Selling the same type of goods and services

• This wide dispersion across firms is persistent over time• Entry and exit is are important sources of aggregate productivity

growth• Productivity increases are not associated with employment reductions

at the firm level

The analysis (e.g. Stockey, 1991, Quartely J. Economics) shows:• the need to evolve in the “value chain”;• the increasing importance of knowledge accumulation for economic prosperity, promoting social capital.

The analysis (e.g. Stockey, 1991, Quartely J. Economics) shows:• the need to evolve in the “value chain”;• the increasing importance of knowledge accumulation for economic prosperity, promoting social capital.

The Porter Hypothesis:

environmental regulation may lead, in the short term, to additional costs at the firm level, but will give rise, at the long term, to the adoption of

new technologies and innovation, leading to growth

Static model Dynamic model

2. Environment and Innovation :The approach...

The Environmental Kuznets Hypothesis: Economic growth and environmental degradation are related through an “U” inverted curve

• How far does this applies to Material Flows ?

The Environmental Kuznets Hypothesis: Economic growth and environmental degradation are related through an “U” inverted curve

• How far does this applies to Material Flows ?

GDPGDP

DMI vs GDP: the International trend(Canas, Conceição &Ferrão, 2002)

Adapted from Bringezu and Schütz, 2000, Total Material Requirement of the European Union, European Environment Agency, Technical report No 55.

(1988-1997)

Humm! It looks

different!

3. Knowledge for inclusiveness: Why?

A specific issue: EUROPEAN DIVERSITYA specific issue: EUROPEAN DIVERSITY

•“With some notable exceptions, the regional developmment debate in Europe has been dominated by exogeneous models to such an extent that development tends to be conceived as something that is introduced to, or visited upon, less favoured regions, LFRs, from external doors…

• …this kind of regional policy did little or nothing to stimulate localised learning, innovation and indigeneous development within LFRs”,

Henderson & Morgan (1999)

•“With some notable exceptions, the regional developmment debate in Europe has been dominated by exogeneous models to such an extent that development tends to be conceived as something that is introduced to, or visited upon, less favoured regions, LFRs, from external doors…

• …this kind of regional policy did little or nothing to stimulate localised learning, innovation and indigeneous development within LFRs”,

Henderson & Morgan (1999)

Institutional DevelopmentMarket Regulation and Employment Protection

Nicoletti, Scarpetta & Boylaud; OECD (2000)

The analysis

1. A dual society!.... with considerably low levels of “thrust”,...in a context particularly influenced by low educational and training levels.

2. The “intensity effect” has been shown to dominate over “structural effects” on innovation;

3. Increase in productivity towards the sustainable development requires progressing in the “value chain”, producing more complex products and systems, together with a process of organizational change, beyond introducing new technologies;

4. The institutional development, as measured in terms of market liberalization and employment protection, does not favour innovation.

The need to foster public/private partnerships for innovation!...

Fostering partnerships which promote the integration of policies, but also the diversification of actions:

– Funding the quality of supply: knowledge production– Promoting new markets: knowledge diffusion

Partnerships for Innovation:

Some critical strategies

but also:

• people: new competences

• scope: national and/or international

requires:• time: long-term perspectives• context: specific sectorial and/or regional issues• value: promoting market strategies through “CLUSTERS”

Promoting a System of Innovation and Competence Building: …clusters with diversified

partnershipsChain Linked Model of Innovation

Kline & Rosenberg

Technology platforms

Potential Markets

Invention/analytical design

Detailed design & Test

Re-design & Production

Distribution & market

Knowledge

Research

Research Agendas

Thematic Mobilization Programmes

Networks of Scientific Cooperation

Knowledge diffusion

Post-Grad Training

Individual Mobility

NTBF´s

Promoting a System of Innovation and Competence Building:

The Technology and Innovation gap…

Clusters and INSTITUTIONAL NETWORKS to mediate:

•mediate information exchange

• knowledge creation

•capacity for collective action

•potential for interactive learning

•efficacy of voice mechanisms

Clusters and INSTITUTIONAL NETWORKS to mediate:

•mediate information exchange

• knowledge creation

•capacity for collective action

•potential for interactive learning

•efficacy of voice mechanisms

A new development: Pt.eng_designPortuguese Engineering Design Research and Education Agenda

A Program on Innovation and Productivity for Portugal

Goal: To extend human capability in Portugal through innovation, exploring international cooperation and industry-science relationships

1. People: Tools for Understanding to develop human resources and to promote the generation and growth

of international networks of experts.

2. Knowledge:

3. Ideas:

Understanding for Actionto conduct leading-edge, high quality research in collaboration

with leading US and European groups on specific problems that hinder the growth of productivity in Portugal, in a way to promote the advancement of knowledge about innovation for Portugal.

Action for Resultsto engage in specific, results-oriented initiatives, leading to meaningful

improvements in innovation and productivity in the medium term

Two Main Lines of Action

1. People

2. Knowledge

3. Ideas

Innovation and

Productivity

Innovation and

Environment