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This chapter considers policy issues. Given the potential benefits of soft innovation it is natural to consider whether government can speed up or extend such activity. However, this is not necessarily welfare desirable. The real issue concerns whether markets will or will not, unaided, produce the welfare optimal outcome. The literature considered shows that this question cannot be answered irrefutably in either direction. Market failure is thus not a strong ground on which to base policy intervention. Alternatively, international comparisons of soft innovation performance may be used by governments as a basis for policy. The chapter shows that the UK is not the international leader in soft innovation. Looking at returns to the Community Innovation Survey provides some insight into barriers to innovations and may be argued to support certain policy interventions. There is also only limited evidence on the potential effectiveness of policies.

This introductory chapter focuses on the co-evolution of science, technology, and innovation policy and industrial structure in Norway. It develops an evolutionary and historically oriented approach to the study of the development of science, technology, and innovation policy that may have wide applicability. Moreover, it focuses on a particular type of innovation — innovation in resource-based activities — that differs in many respects from the more commonly studied ‘high-tech’ case and which arguably be of relevance for many other countries (not the least in the developing part of the world). Finally, the chapter emphasizes the roles played by institutions and politics in innovation. Arguably, previous work on national systems of innovation has often devoted little attention to these matters, possibly because much of it examines ‘snapshots’ of various innovation systems at a specific point in time and lacks historical depth.

The first section of the chapter provides an overview of European institutions, particularly the Common Market, known formally as the European Economic Community (EEC). This overview highlights the legal foundations on which European industrial policy was built, and the institutional dynamics that shaped its path of development. The section titled ‘The Emergence of SRI Policy within the EEC, 1960-1965’ surveys the emergence of European industrial policy in the period from 1960 through 1965; the section on ‘Years of Revolution’ looks at the period 1966-1967, when a political crisis rocked the Community and fundamental conceptual changes occurred in the realm of technology policy; the next section looks at the period 1968-1970, which witnessed a further Community crisis and a ‘relaunch’ of European technology policy in CDP; and the section on ‘Unidata, 1971-1975’ traces the emergence of Unidata, its structure, and its ultimate demise in that period. Finally, the relationship between European technology policy in CDP and the history of Unidata is summarized.

This chapter presents an empirical analysis of contemporary Norwegian innovation policy with a particular emphasis on research and development (R&D). It investigates whether and to what extent the ‘national champions' strategy’ identified in the historical analysis in Chapter 4 persists in more recent policymaking. In the analysis, it is found that national champions are more inclined to get access to both development and research subsidies from Norwegian technology programs. The results also suggest that subsidies for ‘research’ within firms increase firm-financed R&D spending while subsidies for ‘development’ substitute such R&D.

Many innovations arise spontaneously as a result of the market mechanism and the actions of capitalist firms, but some, especially the more radical ones, require public intervention. The first part of this chapter discusses when such policy interventions might be necessary and why. The next section discusses selectivity in innovation policy. The last (main) section of the chapter discusses the general and specific policy implications of the new ‘system of innovation’ (SI) approach; this studies innovations as an endogenous part of the economy and has emerged only in the last decade or so. An SI can be defined as encompassing all the important factors that influence the development, diffusion, and use of innovations, as well as the relations between these factors, which can be studied in a national, regional, or sectoral context.

This chapter discusses features of the evolving knowledge‐based economy as perceived from a European policy maker's perspective, and confronts these features with two different economic research traditions: mainstream economic theory (including neoclassical and new growth theories) and evolutionary economics (in particular, the ‘national innovation system’ approach). The discussion shows that mainstream economic theory is more concerned with issues of allocation and market clearing than with the complexity of innovation processes and business dynamics. As a consequence, the resulting ‘market failure’ approach to business and innovation policy has led to policies that seem to be misguided in the light of features that characterize the knowledge‐based economy. Evolutionary theory is more successful in capturing the characteristics of the innovation process, and of the factors leading to failures and successes in the current complex competitive environment, although the policy recommendations remain somewhat too abstract and general to provide policy makers with a clear sense of direction. The authors see the solution in the expansion into new areas of research and in new cooperative patterns of interaction between social scientists and policy makers; the Danish LOK (Management, Organization, and Competencies) initiative is presented as an example of such a new type of interaction.

In the introductory chapter, it was argued that an even broader set of policies needs to be integrated in a strategy to cope with the challenges of the learning economy. In this concluding chapter, the focus is on policies aiming directly at enhancing the capability to adapt and innovate. The first section discusses a new theoretical rationale for innovation policy by analysing different sources of competence building at the firm level. In doing so, it locates five areas where there is a special need to intervene in order to enhance the learning capability of the economy (human resource development, creating new forms of organization, building innovative networks, reorienting innovation policy towards service sectors, and integrating universities in the innovation process); these are discussed in the second section. The last two sections of the chapter address innovation policy in a wider perspective, and a European agenda for innovative policy.

This chapter investigates the rationale of patents, their economic role, and the circumstances in which they are the most effective. The utilitarian theory considers patents as an incentive — a policy instrument used by society for encouraging inventions. Patents are a response to the public good nature of knowledge, which makes imitation easier than invention. They are one of the instruments of innovation policy along with grants, prizes, subsidies, universities, and public laboratories. Compared with other instruments, patents are more market friendly, leaving all technical and economic choices to firms and customers; and they restrict the use of knowledge. The evidence so far supports the view that patents are quite effective in encouraging innovation, especially in certain industries like pharmaceuticals or chemicals, and less so in electronics, and have little direct effect in other industries, especially in services.

First gives an outline of the two prevailing views on the possibilities for solving the conflict between sustainable development and technological innovation – the sceptical and the optimistic. It goes on to discuss three possible paths that industrial technological innovation can take towards environmental sustainability: more extensive use of environmentally acceptable alternatives (the traditional model), the closing and materials cycles and the integration of product policy and product use. The remaining sections of the chapter discuss sustainability and learning – the innovation strategies of firms, technology policy and environmental sustainability, and the role of regional, national, and international policies. It is concluded that an innovation policy for sustainability is still far from being conceptualized.

The emphasis in this book is on the ‘learning economy’ rather than the ‘knowledge‐based economy’ (as for example stressed by OECD), since the key to modern success is not so much as to have access to a stock of specialized knowledge, as to be able to learn rapidly and then forget when older ways of doing things get in the way of newer ways. It is argued that in Europe, the learning economy calls for new institutional set ups and new policies at the level of both the nation state and the European Union. The focus of the book is on how innovation policy needs to be designed in the new context. Some of the crucial aspects of the globalizing learning economy are illustrated by a simple model in which transformation pressure is linked to the ability to innovate and change, and to the cost and benefits of the change and their social and spatial distribution (which have become more uneven in the last decade). Since innovation is strongly related to competence building at the firm level, a second model is presented to illustrate the three sources that firms may draw on when building and renewing their competence (hiring and firing, internal competence building, networking and alliances); the building of a learning organization within the firm and its integration with strategies of internal competence building is then discussed, as is the role of trade unions.

Considers the policy implications of the perspectives on socio–economic development in Europe opened up by work done on the globalized learning economy. It raises questions, first, about what sort of policies are needed, second, about the current focus of innovation policies in Europe, and, finally, about the changes in policy needed to face up to the challenges of the next two decades. It draws upon the research summarized in Bengt‐Åke Lundvall's and Susannah Borrás's volume The Globalising Learning Economy (1998) and also on research on industrial policy currently underway in the European Commission's Targeted Socio–Economic Research (TSER) project, ‘Science, Technology and Broad Industrial Policy’ (SOEl‐CT97‐1053), and on the author's own work on the EU's research and technological development (RTD) policies summarized in the book published in 1998 with John Peterson (Peterson and Sharp, 1998).

This chapter focuses on the institutional structures and processes that facilitate or hinder policy learning and innovation with respect to effective measures for school-to-work (STW) transitions. The salience of youth employment problems in many European countries has brought the need to develop effective measures of STW transitions to the top of the EU agenda. Indeed, it has generated EU initiatives for integrated policies addressing youth at risk and has accelerated mutual learning, policy transfer, and experimentation within and across countries. Experimentation with proactive youth employment measures is facilitated by a mode of policy governance that supports (regional/local) partnerships and networks of public services, professional bodies and education/training providers, employers, youth associations, and other stakeholders. As such, policy entrepreneurs play a significant role in promoting policy learning and transfer.

This chapter scrutinizes one of the most frequently applied instruments of innovation policy, namely research and development subsidies. Despite a strong theoretical case, the chapter is reluctant to point out that the complexity of crafting an appropriate R&D policy is significant, particularly given the informational challenges facing governments. Furthermore, while R&D subsidies can be useful to realize externalities and can be tailor-made to fit an entrepreneur's needs, they also have a number of shortcomings as a tool to promote innovation in small enterprises. The chapter warns, with reference to the well-run Finnish R&D system, that it is not clear to what extent innovation can be copied by developing countries. It requires well-developed institutional and administrative capabilities, which are not available in all countries. It is stressed that any effective innovation support system will require prior investments in education, labour skills, and human capital.

Chapter 5 concludes that the rapid economic growth of Finland in the 1990s based on the rise of the ICT sector cannot be explained by an innovation policy. A more credible explanation is the combination of deregulation in the late 1980s and Nokia's decision to focus on the digital GMS technology a few years before the international market of cellular phones started to explode. In order to be performative and able to create social reality, a policy paradigm — such as national innovation system — needs to be complemented by relevant policy instruments and tools. During the 1990s and 2000s the measurement and comparison of innovative performance of countries or ‘efficiency’ of national innovation systems became a fundamental tool of making innovation policy. It is not, however, possible to derive concrete policy advices or policy instruments from these comparisons.

This chapter develops the core of the argument regarding the specific assumptions and theoretical propositions about the role and limits of innovation policy. The theoretical basis for the holistic approach to innovation policy proposed in this book is built from a broad version of the systems of innovation approach and the identification of the concrete policy problems that afflict the innovation system, including the unintended consequences of policy. Following from that, the chapter argues that most innovation policies across countries are still partial, not holistic; that innovation policy must be separated from research policy; and that innovation policy-learning can only take place using an analytical model that helps understanding what worked, how, and why.

The purpose of this chapter is to provide a summary of the main arguments and conclusions in the book, and to highlight its main contributions. Taking the point of departure from the book’s analytical framework, and taking stock of the detailed considerations in its different chapters, this chapter looks into a series of issues related to the design of holistic innovation policy. With this purpose in mind, the chapter summarizes the theoretical foundations of an holistic innovation policy, how policy problems, obstacles, and barriers in innovation systems can be identified, and how policy instruments can be selected. The chapter finishes with a discussion of further avenues for innovation policy and innovation research. This summary chapter can be read independently of the rest of the book.