Innovation for Sustainable Forest Management

Why is it important in forestry in Europe?

IP INNO-FOREST, 27 August 2007, SopronEwald Rametsteiner

Why?

Once again:

… creating wealth by using scarce resources

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

Once again:

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

Once again:

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

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

StoraEnso

Biodegradable Membranes/Fibers/Composite MaterialsNew Pretreatment Technologies for Bio-refinery/Bio-ethanol

Homogenously Modified Wood Products

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

Society demands:European’s opinions about their forests

..is dominated by feelings: forest as symbol of nature

source: Rametsteiner and Kraxner 2003

Once again:

resources & utility

Society changes

Population dynamics Overall population decline Ageing societies Urbanization trend

(physically and/or lifestyle)

Elderly population (65+) in Europe

United Nations medium variant population scenario (United Nations, 2001)

Population of working age (15-64) in Europe

United Nations medium variant population scenario (United Nations, 2001)

1. Wood is an emotional link to nature: warm and friendly

2. The attractive green image of wood is one of the few factors of competitive strength against substitute materials

3. But wood is not high-tech, and rather expensive

4. Environmental friendliness is a minor factor for consumers

5. Sustainable sources of wood is an issue, and forest certification has not had a big impact

6. But wood is technically inferior and often needs more maintenance

7. Compared to substitutes, many see wood as not high-tech and not modern

Europeans & wood productsMeta-study (ca. 100 surveys & polls)

-1

-2

-6

-4

-11

-15

-20

-20

21

22

37

39

33

39

27

27

77

74

54

51

45

35

18

18

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

1

2

3

4

5

6

7

8

strongly disagreeslightly disagreeslightly agreestrongly agree

a beautiful material

a natural material

high-tech

a material of the future

Image of wood among the French public (Institut D’ Etudes, Marche et D’ Opinion, 2003)

Background

Society needs and demands on forest land use are complex (not necessarily consistent) evolving (changing over time) context-dependent

location (urban-rural, regions within Europe) work & lifestyle adverse events (fire, flood,..) need of essential “basics”: energy, water, climate

Europeans tend to prefer preservation and protection over utilization/exploitation mixed natural forests over plantations wood as environmentally friendly material

Europeans tend to support utilization if preservation is assured

Europeans, forests & forestry Meta-study (ca. 45 representative surveys)

The free market / capitalist system as engine of wealth creation for societies

using scarce resources:

Explanation 1: benefits society through price competition (products and services become less costly as firms vie for consumers)

Explanation 2: benefits to society through innovation competition (a race in which no firm in an innovating industry dares to fall

behind the others in new products and processes)

Innovation & Entrepreneurship – Why is it important?

Listening to politicians:

Innovation is engine for

• economic growth,

• competitiveness,

• employment creation, esp. in rural areas

• changes towards environmental improvement

and sustainable development

Entrepreneurs are innovation agents

Innovation & Entrepreneurship – Policy reaction

European Union • Lisbon Strategy on competitiveness & growth• EU Research Framework Programmes • EU Research Project Lines and infrastructures

National Policies and Strategies• Ministries or Agencies on Innovation• Funding programmes and initiatives

Usually focus on growth promising high-tech

sectors

0% 5% 10% 15%

Productquality

Productivity

Jobs

Growth

2010 2030

0% 5% 10% 15%

Productquality

Productivity

Jobs

Growth

2010 2030

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

Macro-level:Innovation and economic growth

Innovation and competitiveness

Innovation and employment

Entrepreneurship and economic growth

Firm level Innovation and profitability?

Effects: empirical studies

Innovation and economic growth

Innovation has gradually become a more powerful factor in explaining differences across countries in economic growth

Economic growth as the result of new combinations of products, processes, markets, sources of supply, and organizations (Schumpeter)

Empirical results: Fagerberg: superior innovative activity as prime

factor behind the huge difference in performance between Asian and Latin American NIC countries

Innovation and Income

Basis Innovations

Changes in techno-economic paradigm

Industrial revolutions, long waves

1780-1840 - early mechanization, power loom 1840-1890 - steam power and railways, steal industry 1890-1940 - electrical and heavy engineering,

chemistry industry 1940-1980 - fordist mass production, oil, electronics 1980-? - information and communication

"The degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long-term„ (OECD)

Technological competition is the major form of competition under capitalism

Overall competitiveness, is a result of many factors: macroeconomic environment, ICT, innovation, public institutions – these all have a strong influence on increased productivity.

International competitiveness is seen as an important component of economic growth

Innovation and competitiveness

Productivity, competitiveness and employment

Long-term international statistical trends show that there is a strong correlation between national productivity and the level of unemployment. (higher productivity = lower unemployment)

The more productive an enterprise, the more income it can save for new investments and therefore create new jobs.

Short-term negative effects of productivity on unemployment are outweighted by long-term benefits.

R&D investments account for about 50% of total factor productivity growth

R&D intensity by source of funding

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

EL P E I IRL A UK B NL DK F D FIN S CY LV SK EE PL HU CZ SI EU US JP

%

Government Business Others Abroad 2.1

Innovation & Employment

Product and process innovations tend to have diverging effects on the patterns of labor creation: Positive effects for product innovations Negative effects for process innovations

Positive effects for high-skilled labout force Negative effects for least skilled Mostly positive effects on firm level

Entrepreneurship

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

Entrepreneurship & Employment

Small enterprises generate most of the jobs

Small and new enterprises serve as an engine of

employment creation (firm level)

Long-term, cross country studies showed:

increases in entrepreneurial activity tend to

result in higher subsequent growth rates and a

reduction of unemployment

Effects on Firm Level

Firms‘ view: Improving product quality Diversification of products Increasing production capacity New Markets or increasing market share Flexibilisation of production Lowering costs per production unit Improving environment, health and safety aspects Lowering input of material and energy

Existing studies find: a positive but modest influence on profitability a positive correlation to market share and profit

margins

Are innovations always good?

Think about: Weapons Gene technology Ecstasy …

Innovations may have adverse effects Often controversial debates (safety, health,

environment, ethics) Negotiation process (society, policy)

1. Demands on forests are growing and shifting

more demand from more corners, more diverse

= Product & service innovation

Why is it an issue in forestry?

source: MCPFE 2003

2. Competition in globalized markets

more import competition

more pressure on costs (process innovation)

3. Competition through substitute products

Product & service innovation & process innovation

Innovation for Sustainable Forest Management

Why is it important in forestry in Europe?

IP INNO-FOREST, 27 August 2007, SopronEwald Rametsteiner