1. 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

2. 1. The Context: “away but fast!” 2. A Programme to foster Innovation for Portugal 3. The Workshop: Learning by comparing Strategies and recommendations Contents

3. 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)

4. Technological Change: materials, IPTS(1999) STEELS CAST IRON IRON COOPER ALLOY STEELS GLASSY METALS AL-LITHIUM ALLOYS DUAL PHASE STEELS MICROALLOYED STEELS BRONZE SKIN FIBRE GUMS RUBBER LIGHT ALLOYS SUPER ALLOYS TITANIUM ZINCONIUM ETC NEW SUPER ALLOYS DEVELOPMENT SLOW MOSTLY QUALITY CONTROL AND PROCESSING CONDUCTING POLYMERS HIGH TEMPERATURE POLYMERS HIGH MODULUS POLYMERS BAKELITE NYLON WOOD PAPER STONE FLINT POTTERT GLASS CEMENT REFRACTORIES PORTLAND CEMENT FUSED SILICA CERMETS EPOXIES POLYESTERS COMPOSITES POLYMERS METALS CERAMICS POLYMERS COMPOSITES CERAMICS METALS ALLOYS 10 000 BC5000 BC010001500 1800 19001940 1960 19801990200020102020 GOLD CERAMIC COMPOSITES COMPOSITES METAL-MATRIX SURFACE ENGINEERING RELATIVE IMPORTANCE SUPERCONDUCTORS TOUGH ENGINEERING CERAMICS KEVLAR BRICKS (with STRAW) IVORY 10000 BC 5000 BC 010001500180019001940196019801990200020102020

5. 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

6. 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!

7. Innovation in EU Community Innovation Survey: CIS 2 (Conceição & Ávila, 2001)

8. Business expenditure on innovation Community Innovation Survey: CIS 2 (Conceição & Ávila, 2001) *only industry

9. Profiles of Innovation Objectives (Conceição & Ávila, 2001) Europe Portugal

10. Profiles of Hampering Factors (Conceição & Ávila, 2001) Europe Portugal

11. Innovation and Industrial Sector (Conceição & Ávila, 2001)

12. Average Annual Real Value Added Growth of knowledge Based Industries OECD(2000) UK* Belgium Portugal** Greece* Sweden*** NL* Austria Japan Norway Canada Denmark Spain *** Denmark Mexico Italy US France Korea Germany 0 2 4 6 8 10 12 14 0102030405060 Share in Business Sector Value Added of Knowledge Based Industries (share year 1996 except: *1995;**1993; ***1994) Average Annual Real Value Added Growth of Knowledge Based Industries (1985-share year)

13. R&D Expenditure (OECD) Scale vs Intensity Sweden Finland Japan France Germany the Netherlands Denmark UK US Belgium Austria Ireland Italy Spain Portuga l Greece 0 0,005 0,01 0,015 0,02 0,025 0,03 0,035 0,04 1001000100001000001000000 Scale- Total Expenditure in R&D ($PPP; logarithmic scale ) Intensity- Share of GDP spent on R&D

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

15. Share of R&D funding (OECD) OECD, S&T Databases, Sept. 2001 Industry-dominated systems Balanced Industry+ /government systems Balanced Industry/government+ systems Government-dominated systems

16. 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 the time frame the spatial dimension (local/regional/national)

17. Disparities in Productivity and Income Austria Belgium Denmark The Netherlands United Kingdom Finland France Germany Greece Ireland Italy Norway Portugal Spain Sweden United States EU-14 102 128 92 93 123 105 75 108 106 121 126 56 84 93 100 120 103 GDP Per Hour Worked As % of OECD Average -4 -5 0 0 -9 -5 -4 5 -11 -26 -17 2 13 -3 -9 -5 Effect of Working Hours 98 123 92 94 113 100 71 113 96 95 109 58 97 89 91 118 98 GDP Per Person Employed As % of OECD Average 2 -22 11 -5 -17 -4 -12 -18 -5 0 12 2 -26 0 10 -8 Effect of Labor Force Participation 100 101 103 88 97 96 58 95 91 96 122 60 71 88 92 128 90 GDP Per Person As % of OECD Average

18. 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)

19. 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.

20. 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 ? GDP

21. 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!

22. 3. Knowledge for inclusiveness: Why? A 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)

23. Institutional Development Market Regulation and Employment Protection Nicoletti, Scarpetta & Boylaud; OECD (2000)

24. 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!...

25. 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”

26. Promoting a System of Innovation and Competence Building: …clusters with diversified partnerships Chain 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

27. 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 A new development: Pt.eng_design Portuguese Engineering Design Research and Education Agenda

28. 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 Action to 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 Results to engage in specific, results-oriented initiatives, leading to meaningful improvements in innovation and productivity in the medium term

29. Two Main Lines of Action 1. People 2. Knowledge 3. Ideas Innovation and Productivity Innovation and Environment