//Innovation policy approaches utilised across Western Europe
Innovation Policy in Western Europe

Innovation policy approaches utilised across Western Europe

New products, new services, new processes how is innovation policy in Western Europe helping to build the future? I explore in my latest piece.

Introduction:

Comparative public policy research is an area of study which requires specific attention to the details which govern the way policies are formulated and implemented. Through the course of this essay I will seek to factor in the consideration put forward by Øyen in (Dodds, 2018), that true comparativists must be aware of the specific challenges facing comparative research. This is especially true for innovation policy approaches, 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 exploration of the ways in which innovation proliferates and the policies than create the conceptual framework in which it operates in, I will seek to use (Edquist, 1997) definition of a system of innovation, namely that a system of innovation is “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 approaches in Western Europe within this framework.

I will seek to explore at a top level, the structure in which innovation policies exist across Western European states (In this case; Ireland, UK, Germany, Netherlands, Sweden, Denmark, Finland), rather than seeking to explore the particular components (which can include everything from environmental policy to labour policy). 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 many states across western Europe adapt to the changing nature of what is 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. This approach is becoming increasingly common and can be identified across a number of countries we will seek to evaluate in later stages.

The onset of an increasingly interdependent form of globalisation has been an ongoing process since the 1980’s and is laid out within (Prange, 2004), where the author outlines the challenges in which globalisation demands and increased level of competition from states on the international stage. Alongside this, we can see with the European Union an increasing convergence within many Supranational institutions as laid out in (European Commission, 2016), state aid rules to industry has begun to decouple the state’s ability to select and support national champions in such a direct way. However as can also be seen in (Ornston, 2012) many states aid in the support of supply side, and capacity related factors that support a robust innovation ecosystem. In its wake however we have not begun to see an irrelevance of the state spring. 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) 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.

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. However we must evaluate the ways in which policies proliferate across our states under study.

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.

Policy frameworks

When we begin to explore the system of innovation in which innovation policy materialises across the European states we are examining, specifically looking at how innovation policy can involve examination, of labour market policies, financial market systems and industrial policies to name but a few intersecting areas in which innovation policies exist.

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.

Creative corporatism:

is part of a subsection of corporatism that also includes; conservative corporatism (as is most commonly seen in states like Germany and Austria) and competitive corporatism (as is seen in states like The Netherlands and Ireland).

Conservative corporatism:

This approach is most seen in states such as Austria & Germany, and it 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.

Competitive corporatism:

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 seen 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.

Creative corporatism

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.

 

Alongside exploring corporatist structures of innovation, we can also explore the ways in which liberal market economies can pursue innovation policies, this can most clearly be seen in states such as the UK. Outlined in (Ornston, 2012) is the proposal  that liberal economies such as the UK & U.S are much more adequately placed to deal with innovation and it’s effects. By having equity markets that are best placed to channel financial resources to innovative firms, and with deregulated labour markets, they are typically characterised by highly agile workforces which allows firms to mobilise resources much more efficiently. We can however see the proliferation of liberalising measures on financial resources materialising in competitive corporatist systems such as those in the Netherlands and Ireland.

In many states which are affected by significant industry shock, and where a history of a form of corporatism and co-operation exist there is an incentive to take a creative corporatism approach, by investing in supply side capacity, states can begin the process to adapt to a changing global marketplace by ensuring that the state as a facilitator and as a supporter (through co-operative research) can assist in addressing the problems posed by such significant changes.

When we begin to explore the data available on the business side of the innovation policy framework, and indeed build on the work of (Cunningham and Link, 2016) who explored using the AEGIS database on innovation, where a number of firms were regularly surveyed, outlined the areas in which businesses are more responsive too, we can see that firms particularly favour support for venture capital, and direct collaborative R&D efforts as the main constituents roles of a states innovation policy which supports them.

What we can begin to see in the literature available, is the idea that one of the most important ways in which a state can support innovation is through joint public-private research and development spending, as outlined in (Cunningham and Link, 2016) states that invest significantly in public-private research and development partnership are associated with a high level of innovation performance alongside a strong contributing performance of trade in technology to national GDP , this is commonly used as an indicator of innovation performance in a state.

However, it would be a substantial misgiving to explore the ways in which states in Europe pursue their innovation policy, if one was to fail to account for the ways in which the European Union has impacted on the approaches and frameworks in which innovation policy can exist. Previously we have explored the ways in which various European states pursue innovation, and indeed the ways in which it is funded, it can be seen that there is significant divergence in terms of the approaches pursued.

Indeed (Schepers, 2013) proposes that a substantial misgiving in the Lisbon program, which had its heart the intention to make the European Union “the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion” was undermined by as stated by (Schepers, 2013) that the Lisbon program relied too much on the goodwill of Member States, which in turn was heavily influenced by national economic and welfare reform capabilities and, not least, by electoral circumstances. We can also see that the notion of competition within EU member states on areas of innovation policy can incur significant wasteful spending, an overlap in focuses that would make better use of resources if undertaken collaboratively alongside regulatory stress within the European Union.

Indeed the work of (Prange, 2004) seeks to view the EU as a facilitator of transnational policy learning and that to evaluate the role of Europe we must explore the role of regionalisation of innovation, indeed (Olsson and Åström, 2003) have argued that “Europeanization often triggers off processes of regionalization”. This is important, as if we look at the bottom-up reverse of this, and that a national best practice should become the European best practice it must be ‘generic’, and remain independent of the institutional, sectoral and geographical context.

We have however begun to see a recent proliferation of groups at the European level that seek to develop a coherent and co-ordinated policy approach to innovation across member states. This can be seen in the development of advisory bodies and co-ordination mechanisms across a number of European Union institutions, there is however within these groups significant overlap in terms of responsibilities and areas in which there could be increased harmonisation, this can lead to a process where there is substantial divergence in terms of the approaches favoured, and followed by various stakeholders in the supranational level of innovation policy making.

Similarly as outlined by (Schepers, 2013) it is a requirement of the governance mechanisms of an institution such as the EU which has a large part to play in the ways in which members states can seek to build towards a co-ordinated and common innovation policy, with (Schepers, 2013) stating that “the governance methodology of the EU dates from the 1950s and is thus as up-to-date as a typewriter.” outlining the need for reform in the overarching governance institutions of the European Union so as not impinge upon the respective policy approaches taken by the various member states. It is within this context in which we can evaluate innovation policy across Europe.

In conclusion we can see that across Europe there is diversity in terms of the approaches taken to pursue innovation at the policy level. We can also see the role in which the European Union plays on supporting or impeding the development of innovation policies across Europe and how this can impact upon policy outcomes across member states. When it comes to evaluating the approaches taken across Europe it is important to consider the classification of the variety of innovation policies utilised across Europe proposed by (Ornston, 2012) and the way in which the variations in the corporatist systems can impact upon the performance and proliferation of innovations and more broadly the role of the state in shaping and developing innovation policy outcomes.

The divergence in policy outcomes is heavily influenced by a variety of institutions at the local, regional, national and supranational levels. This can be seen the context of the growing body of literature that seeks to explore innovation policy and it’s affiliated outcomes across a multitude of European regions, and seeks to explain the role institutions at these varying levels have on policy outcomes.

Jason Deegan is a master of public policy student in University College Dublin. He co-founded the international youth organisation Anti Corruption International and conducts research across a variety of areas.