Role of government in making a link between expectations of business sector and the need for independence of research sector, and in fostering link between R&D and innovation in Estonia Anna Laido Estonian State Chancellery Secretariat of Research and Development Council

Estonian RD and innovation governance system Policy design Programme design Programme administra- tion Projects Innovation Policy CommissionR&D Policy Commission Ministry of Economic Affairs and Communications Enterprise EstoniaKREDEX Science Competence Council Science Foundation UniversitiesR&D InstitutesFirms Competence Centres VC Academy of Sciences Archimedes Foundation Ministry of Education and Research Government Parliament R&D Policy Council Policy design Programme design Programme administra- tion Projects Innovation Policy CommissionR&D Policy Commission Ministry of Economic Affairs and Communications Enterprise Estonia KREDEX Science Competence Council Science Foundation UniversitiesRD InstitutesIndustry Academy of Sciences Archimedes Foundation M inistry of Education and Research Government Parliament R&D Policy Council

Underlying factors Underlying factors Slow recovery from low funding situation in 90-sSlow recovery from low funding situation in 90-s (ageing of academic personnel, low output of PhDs in economically critical areas) Time-lag in terms of results from research and innovation system- no sufficient political consensus about the importance of the areaTime-lag in terms of results from research and innovation system- no sufficient political consensus about the importance of the area Growth of Public R&TD &I % to GDP is lower than anticipated in RD strategy for EstoniaGrowth of Public R&TD &I % to GDP is lower than anticipated in RD strategy for Estonia Substantial usage of EU structural funds (advantages and risks)Substantial usage of EU structural funds (advantages and risks) No national industrial champions with high private RD expenditure and substantial economic weightNo national industrial champions with high private RD expenditure and substantial economic weight Generally low level of collaboration between industry and academiaGenerally low level of collaboration between industry and academia

Challenges in general Support individual projects (no regard to sector) or active policy engineering towards technology programs and clustersSupport individual projects (no regard to sector) or active policy engineering towards technology programs and clusters Internationalization of the RTD & IInternationalization of the RTD & I Avoiding long term brain-drain, attracting international talentsAvoiding long term brain-drain, attracting international talents Bridging the industry and research sectorBridging the industry and research sector Learning from the best practice as well as mistakes of other research and innovation systemsLearning from the best practice as well as mistakes of other research and innovation systems

Policy framework Objectives set out in Knowledge Based Estonia and : Updating pool of knowledge, focus on three technology areas Updating pool of knowledge, focus on three technology areas Increasing the competitiveness of industry, main precondition – integration mechanisms between research and industry Increasing the competitiveness of industry, main precondition – integration mechanisms between research and industry Main targets related to: Increasing level of expenditure on R&D, notably business expenditure Increasing level of expenditure on R&D, notably business expenditure Better balance between basic and applied research activities Better balance between basic and applied research activities

Technology Push public spending on RD is heavily weighted towards basic research (50% of total expenditure) with only 16% spent on technological development public spending on RD is heavily weighted towards basic research (50% of total expenditure) with only 16% spent on technological development the universities are regarded as the major source of technology expertise, and of research capability – in comparison, in the EU, business is the major performer of RD, 66% of total RD, only appr. 2,4% is being subcontracted to the HE sector the universities are regarded as the major source of technology expertise, and of research capability – in comparison, in the EU, business is the major performer of RD, 66% of total RD, only appr. 2,4% is being subcontracted to the HE sector university researchers are mainly funded through university researchers are mainly funded through ‘Targeted Financing’ funds (approx 38% of total public RD funding) ‘Targeted Financing’ funds (approx 38% of total public RD funding) Estonian Science Foundation (ESF) (approx 14%) Estonian Science Foundation (ESF) (approx 14%) BUT - both evaluated on academic criteria, which provide no real incentives for researchers to be concerned about research applications BUT - both evaluated on academic criteria, which provide no real incentives for researchers to be concerned about research applications

Technology Push cont‘d low university understanding of commercial relevance low university understanding of commercial relevance - the number of patent applications per 10,000 inhabitants is 0.1, whereas the EU average is 2.5 weak links to industry weak links to industry managerial and commercialisation skills in universities only starting to increase (Spinno programme) managerial and commercialisation skills in universities only starting to increase (Spinno programme)

Market Pull only a small number of companies actively conduct in- house R&D (ca 10 big and active companies, university spin-offs, some small technology companies): only a small number of companies actively conduct in- house R&D (ca 10 big and active companies, university spin-offs, some small technology companies): most companies do not have in-house R&D but have the expertise and resources to commission research with universities and institutes, altogether ca 200 companies comparatively little state involvement so far in developing the in-house capacity of industry to conduct R&D comparatively little state involvement so far in developing the in-house capacity of industry to conduct R&D the concept of industry as developers of their own technology is underestimated the concept of industry as developers of their own technology is underestimated

Market Pull cont‘d No innovation funding yet which is exclusive to industry – all such funding is also accessible to universities No innovation funding yet which is exclusive to industry – all such funding is also accessible to universities Relatively efficient and competitive financial sector: Relatively efficient and competitive financial sector: -but venture capital not seed-phase/tech-orientated Above average performance on new enterprise creation: Above average performance on new enterprise creation: -but only limited pool of technology intensive start-ups

Which way forward? Lot of efforts from science side directed to bridging the gap between universities and enterprises Lot of efforts from science side directed to bridging the gap between universities and enterprises Modest demand of enterprises for R&D financing, leading to conclusion that there is no scope for large increase in respective funds Modest demand of enterprises for R&D financing, leading to conclusion that there is no scope for large increase in respective funds As a result, 5 out of 8 programmes have R&D institutions as (one of the) target group As a result, 5 out of 8 programmes have R&D institutions as (one of the) target group “Science pushed” activities need to be complemented by more “market pulled” activities, where businesses and their needs drive the process

Creation of critical mass in R&D projects and infrastructure funding crucial:  to be attractive as partners for business for applied research in universities and RD institutes Support for science base should also aim to increase number of ST (post)graduates:  indirect objective but research-industry mobility grants could increase appeal of scientific career NOT ALL COMPANIES NEED RESEARCH OR EVEN A HIGH LEVEL OF TECHNOLOGICAL COMPETENCE The purpose is to ensure that companies have the technology which is appropriate to their needs, not to push high technology solutions. olicy Policy implications

Diffusion of knowledge/technology as much/more than creation should be the core focus:  technology transfer and adaptation (advice/training) also in companies from traditional industry sectors should be central plank of policy instruments;  need to stimulate foreign investment / export firms away from sub-contracting to higher value added production Capacity of firms to initiate, develop and manage RD and innovation projects:  access to skilled personnel (mobility) and raising competence is crucial olicy Policy implications II

CONCLUSION - WHAT SHOULD HAPPEN NEXT? Only when you have companies which are technologically competent and active, they will interact with the RTDI system to seek services, graduates and technologies Only when you have companies which are technologically competent and active, they will interact with the RTDI system to seek services, graduates and technologies Fertilize cross-sector activities where science, technology development and innovation have a role to play—the real need for co- ordination Fertilize cross-sector activities where science, technology development and innovation have a role to play—the real need for co- ordination Prioritization of sector specific co-operation and initiatives Prioritization of sector specific co-operation and initiatives