Innovation policy in Europe
What policies are driving Innovation policy within Ireland, UK, Germany, Netherlands, Sweden, Denmark, Finland? I explore in my latest piece.
Comparative public policy is an area of study which frequently requires a specific attention to the details which govern the way policies are formulated and implemented. Through the course of this article we will seek to factor in the consideration that true comparativists must be aware of the specific challenges facing comparative research. This is especially true for innovation policy frameworks, due the very nature of innovation policy and the state’s role in supporting innovation, with a large body of literature being devoted to whether it should be the domain of the state to ‘pick winners’. Throughout the course of the article we will use Edquist’s definition of a system of innovation, namely that a system of innovation is an “all important economic, social, political, organizational, and other factors that influence the development, diffusion, and use of innovations.” But this must also be used in conjunction with the fundamentals of what constitutes innovation, building on the work of (Xieling and White, 2001) where they outline the approaches to be: Research, implementation, end-use, linkage and education. The purpose of using this framework is to extend beyond the conventional view of innovation as simply a process of R&D and to analyse the policy frameworks we can see across Western Europe.
We will seek to explore at a surface level, the structure in which innovation policies exist across western European states (In this case; Ireland, UK, Germany, Netherlands, Sweden, Denmark, Finland), I will be exploring the ways in which unique systems of innovation policy exist and the ways in which they function as distinct groups and what defines these groups.
Building on the work of (Ornston, 2012), and (Negoita, 2013) we have seen a trend whereing many states across western Europe are adapting to the changing nature of what has come to be expected from states, and their role in their domestic economy and as actors in an increasingly interlinked global economy. However, one key area we have seen many states seek to build in such a complex environment is their ability through information provision, alongside the organisational ability of states to aid in the development of what (Negoita, 2013) refers to as ‘Networked Industrial Policy’ indeed the notion of networked industrial policy as a process whereby the state ‘Concurrently, governments attempt to generate the networks through an array of interlinked strategies including sponsoring industry associations, forging connections with emigrant professionals, building government-funded science parks, and funding public venture capital companies’ as proposed by (Ó Riain 2004, Block and Keller, 2011; Breznitz 2006). Herein we can see states adapting to a shifting role for the state as an economic actor, perhaps signalling the end of a more decentralised, neoliberal approach towards the states role in innovation. This approach is becoming increasingly common and can be identified across a number of countries in western Europe.
The onset of an increasingly interdependent form of globalisation as has been laid out within (Prange, 2004), outlines the key challenges which globalisation presents, alongside serving to highlight a more diffuse role for the state in driving innovation policy. Alongside this, we can further see that the European Union is leading to an increasing convergence within many member states through a mutlitude of policy instruments and frameworks such as the growth in attention paid to ‘Smart Specialisation‘, the nature of state aid rules and competition regulations more generally. However as can also be seen in (Ornston, 2012) many member states continue to provide aid in the shape of supply side, and capacity-building supports. However, depsites the series of challenges facing states in supporting innovation, we have not begun to see an irrelevance of the state. Instead we are beginning to see a redefinition of the role played by the state within the economy, aside from the traditional understanding of the ways in which the state participates in the economy we are beginning to see a more varied role that looks at the state as an enabler of innovation rather than as a source of direct innovation, (Negoita, 2013) outlines the ways in which many European states are using the apparatus of the state as a facilitator of network development, by contributing to the supply chain of an innovation ecosystem, rather than seeking to centrally control this ecosystem we are seeing the state utilising Networked Industrial Policy in it’s stead, the focus here is on utilising the organisational powers of the state to contribute towards an system of innovation. While this approach is being used to varying degrees across Europe, we are seeing the advocacy for a form of corporatism in which the state seek to engage robustly with the private sector to advance innovation policies.
(Veugelers, 2015) explores the ways in which states across Europe are utilising the variety of policy options available to them, and find that there is an incredible level of uniformity in terms of the options pursued. An exploration of the policy options utilised between 1990-2013 highlights the incredible level of similarity of options utilised. When we evaluate this in the context of (Cunningham and Link, 2016) who use a schumpeterian understanding of creative destruction to evaluate whether EU wide approaches are having their desired effect. They outline the ways in which rather than uniformity that the EU (through their policy promotion in frameworks such as the Lisbon program, and recent support for Smart Specialisation within regions) need to instead take account of the technological level of individual countries and be cognisant of the advantages some states in the EU have over others, to a certain degree we can see this approach beginning to gain relevance through smart specialisation which instead focuses on ensuring regional comptencies are supported, rather than command and control regulation being enforced on the national level.
Across Europe, innovation policy has increasingly been seen as an area where the state through industrial policy will provide support to private sector actors to develop and further on research and development, we can see through (Hewitt-Dundas and Roper, 2010) study on Irish manufacturing that such public support for private R&D efforts can prove positive to the overarching system of innovation.
We have also seen the rapid advancement by a number of smaller states employing corporatist approaches to innovation, this is most notably seen in (Ornston, 2012), ‘Creative Corporatism: The Politics of High-Technology Competition in Nordic Europe’, where we can see that many nordic states, which until quite recently relied heavily on either agriculture, or natural resource extraction for economic activity have since transitioned to a much more integrated corporatist strategy, with key constituent parts of innovation, such as capital formation and skill development being coordinated by a number of important economic actors. This can also be viewed in terms of the variants of corporatism employed across states and the role this can play in innovation policy and more broadly the state’s role in such innovation.
The policy frameworks across the states under study, whilst sharing some common characteristics, differ in quite important ways which lead to significantly different innovation performance across Europe and present distinct challenges to policymakers at local, regional and national level.
Building on the work of (Ornston, 2012), we can explore the ways in which corporatist systems across Europe can develop into subsystems that seek to explain the divergence in innovation policies across Europe. If we look at many of the leading lights when it comes to innovation across Europe, we see three nordic states standing out, specifically; Denmark, Sweden & Finland, and while under a varieties of capitalism system as proposed by (Esping Andersen,1990) we would identify that many of these states are social democratic countries, however Ornston, Darius seeks to categorise these states as ‘creative corporatist’ states due to particular facets of innovation policy within these countries.
The designation of creative corporatist is seen as a system which is unique to these three countries and has particular characteristics which enable these states to perform exceptionally well with regards to innovation. However, the corporatist approaches differ quite a lot, below you can see an example of the core structures of the differing corporatist innovation policy frameworks used across Europe:
Most Commonly found in: Austria & Germany
This approach typically involves utilising labour market policies which within a conservative corporatist state would involve utilising countercyclical fiscal policies and seeking to extend employment protection and unemployment benefits. However a primary stumbling block of conservative corporatist states is the ways in which financial markets function. With much of the cooperation occuring in the late stages we see that such financial structures entrench the power of incumbents by allowing them to rely more on patient capital, or forms of longer timeframes in which investments develop. Similarly state involvement within the conservative corporatist systems occurs through an industrial policy that is instead focused on employment grants, that seek to extend the stability of incumbents within the system and are thusly dominated by countries which rely on specialisation within mature markets as the primary sources of innovation.
Most Commonly found in: Ireland & UK
Juxtaposed to conservative corporatist systems, we can see that labour market systems within competitive corporatist systems are dominated by utilising the structure of corporatist governance to instead pursue labour market policies that seek to cut fiscal expenditure by the state, through making adjustments (typically cuts) to social benefits, and protections offered across the labour market. Financial markets are also keen to pursue liberalising measures, this can be seen in measures taken in states such as Ireland where corporatist principles were utilised to seek to compete through corporate tax measures, alongside personal income tax reductions (Hardiman, 2002), this pursuit of competition is also seen in the retrenchment of state involvement, through limiting of state aid and government spending.
Most Commonly found in: Sweden, Denmark & Finland
This is outlined by (Ornston, 2012) as the system of innovation which best enables innovation to succeed, it is characterised in many ways by exploring the traits of Esping-Andersen’s varieties of capitalism model, looking at social democratic systems, for example within the context of labour markets we can see that there is much firmer co-operation taking place when it comes to prioritising education and retraining, in Denmark this is seen in the use of active labour market policies for example. Alongside this a defining feature that can be seen as the ways in which creative corporatist states differ substantially and can prove as a significant factor in the development of financial markets which are active from the early stage, and which promote venture capital investment systems. We can also see that through active industrial policies by the state, specifically targeted through focusing on cooperating with industry on research and development. This can be seen in countries such as Finland which through institutions such as SITRA, had tremendous success in developing and incubating systems of innovation and supporting firms such as Nokia, and the general telecommunications industry surrounding Nokia to prosper and innovate rapidly.