How can ETC contribute to smart growth? INTERACT seminar: European cooperation growing smart (er) Budapest, 25/26 May 2011 1

The general policy context Global competition for resources, markets and ideas that provide competitive advantage Globalisation of supply chains: More oppor- tunities but also more concentration in R&D More pressure to specialise and invest in high value added activities to position regions More value for money: Reduced scope for public investment = more careful deployment of resources Need for a strategic and integrated approach to innovation (European Council, 4 February 2011)

The general policy context Economic growth is a function of changes in population, employment and productivity rates “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker” (P. Krugman, 1990) Productivity growth comes both from restructuring between sectors and improvement within industries To generate growth, regions have to invest in human capital, R&D and innovation and focus on integrating policies (OECD + EU COM)

Europe 2020: 3 pillars, 7 flagships Smart Growth developing an economy based on knowledge and innovation Sustainable Growth more efficient, greener and more competitive economy Inclusive Growth fostering a high-employment economy delivering social and territorial cohesion Innovation « Innovation Union » Climate, energy and mobility « Resource efficient Europe » Employment and skills « An agenda for new skills and jobs » Education « Youth on the move » Competitiveness « An industrial policy for the globalisation era » Fighting poverty « European platform against poverty » Digital society « A digital agenda for Europe » Europe 2020 Headline indicator: Proposed new indicator for innovation: 3% GDP for R&D Share of fast-growing innovative firms

… too few innovative regions … Why Innovation Union? … too few innovative regions … The level of innovation in regions varies considerably across almost all EU countries. This is one of the main findings of the 2009 Regional Innovation Scoreboard (RIS). The 2009 RIS, based on the European Innovation Scoreboard (EIS) approach and methodology, assesses innovation performances across 201 regions in the EU and Norway. Spain, Italy and the Czech Republic are the most heterogeneous countries, where innovation performance varies from low to medium-high. The report marks a significant step forward in measuring regional innovation performance although it also shows that more progress is needed on the availability and quality of innovation data at regional level. The results confirm the value of measuring innovation performance at regional level to complement the national level and emphasize the need for policies to reflect regional contexts. While on average the pattern of innovation is quite stable between year 2004 and 2006, several regions, in particular in Spain and France, have improved their innovation performance. The report also shows that the most innovative regions are typically in the most innovative countries, although some regions outperform their country level. 2009 RIS clusters the regions in five groups, ranging from the highest to the lowest overall innovators: Regional Innovation Scoreboard - 2009 See: http://www.proinno-europe.eu/page/regional-innovation-scoreboard 5

Innovation Union COM: Diagnosis Too much funding for overlapping projects or priorities where regions lack relative strength Little funding for pooling resources and expertise through trans-national projects and investments (e.g. research infrastructures/world-class clusters) MS need to improve use of SF for R&I, incl. skills development and smart specialisation strategies The Innovation Union must involve all regions…Europe must avoid an “innovation divide”

Innovation Union Flagship Strengthening the knowledge base European Research Area, skills, university ranking Focusing EU funding instruments Getting good ideas to market Financial instruments, VC, state aid Standards, public procurement Openness, creativity, knowledge markets, patents Maximising social and regional benefits Smart specialisation Social innovation pilot Pooling efforts for breakthroughs European Innovation Partnerships: aging + other topics Collaborating internationally attract international talent, research infrastructure supported by smart specialisation strategies Action 24: Improve use of SF Action 25: Future Cohesion Policy to support innovation

Smart Growth Communication Joint Communication (REGIO, RTD, ENT, EDU) RP as key delivery mechanism for EU202 Mobilising innovation potential of all EU regions Re-focusing ERDF: More strategic use of SF More support for education, research, innovation Aligning investments with National Reform Prgs R&I to be in with line smart specialisation strats Regions to concentrate resources on activities of high added value and competitive advantage

Recommends also: More effective / synergetic use of public funds (ERDF, FP7, CIP, own funds). More extensive use of financial engineering (venture/risk capital, loans, guarantees) More peer-review and independent experts ERDF to fund shortlisted FP7 and CIP projects More use of peer learning and interregional networks for improving regional innovation policy

Ex. for smart growth actions: Support to innovation clusters, science parks, incubators, voucher schemes, etc. SME support services along the entire innovation cycle from idea through R&D to commercialisation Promotion of entrepreneurship education and training and of transversal skills Support to knowledge triangle and university- enterprise cooperation

Ex. for smart growth actions: Support to financial engineering: e.g. JEREMY Development of excellent research infrastruc- tures and supporting researchers to link to them Integration of cultural and creative industries and design into development strategies, Investment in ICT, e.g. high-speed internet access Use of pre-commercial public procurement for creating demand for innovative solutions

Exploiting regional potential for the knowledge economy through smart specialisation What is a strategy? When you are in the middle of the forest. You need to decide where to go. First you need to know where you come from. Then climb a tree to get a better view and determine which way to take from here and what you can reasonably achieve.

Smart Sp. Strategies – why? Harnessing knowledge potential, investing smarter, mobilising all regions for Europe 2020 New open nature of innovation/new aproaches needed Decentralised decision-making environment requires strategic coordination and better governance Focusing investments rather than spreading them thinly across many sectors and areas Spending SF more effectively + strengthening synergies with R&I policies Ensuring diffusion of innovation across all regions Influence direction of innovation (e.g. grand challenges)

Smart Sp. Strategies (what?) Innovation-driven development strategy focusing on regional strength/competitive advantage Important tool for refocusing EU Regional Policy in light of EU2020 and the need for more innovation A method for making choices and setting priorities International differentiation strategy to attract investments (public and private, e.g. FDI). Based on evidence (data) and strategic intelligence Looking beyond boundaries, positioning region in global context + aiming for critical mass

Smart Sp. Strategies (how?) Strong focus on bottom-up processes and stakeholder involvment / interaction Start with self-assessment (see IU Annex) and sound analysis of assets, bottlenecks and existing special. Involve experts, stakeholders from knowledge-creating institutions and entrepreneurs (‘entr. discovery process’) Identify regional strengths and areas of competitive advantage for positioning regions Reach out for critical mass and complementarities, cooperating with other regions + avoiding overlap

Smart specialised regions: Prioritise on areas of competitive advantage Exploit unrealised economic potential Facilitate transition to higher productive activities Focus on long-term rather than short term gains Support ‘regional branching’: i.e. globally significant and sufficiently diverse assets Support ‘strategic anchoring’: i.e strong connections to other centres of activity, in particular global hubs Support innovation and diversififcation, not imitation of leaders What is a strategy? When you are in the middle of the forest. You need to decide where to go. First you need to know where you come from. Then climb a tree to get a better view and determine which way to take from here and what you can reasonably achieve.

Smart Specialisation ? = priority setting in times of scarce resources = focus investments on strengths/real potential = get better/excel in area of specialisation = position region in global value chains = cross-fertilisations/cross- sectoral initiatives = accumulation of critical mass = evidence-based: all assets + capabilities = inv. key stakeholders: entrepreneurial discovery = global perspective & cooperation potential = source-in knowledge, & technologies (e.g. KETs) = focus policy learning on differentiation not following the leader = bundling policies + instru-ments into integrated + coherent packages = smart policy mixes Smart = - evidence-based: SWOT analysis & foresight, taking all assets of a region into account, in particular industrial structures, science, technology and training capacities, skills, environment, market access, but also "difficult assets" (aging population, remote position, rough climate …), - no top-down decision, but: discovery process with stakeholders to identify potential, actors, cross-fertilisation potential, etc. - possibly using creative problem solving / brainstorming tools (= "help them discover what they know themselves") and developing the smart specialisation concept - look beyond borders: global perspective to be able to assess potential of competitive advantage compared to other specialised regions & potential for cooperation - source in knowledge, technologies etc. rather than re-inventing the wheel. Specialisation = - priority setting (not "coffee for all") - getting better (than others) with something concrete, rather than doing a little bit of everything, but without becoming a master in it - accumulation of critical mass (be it internal to the region or via external insourcing & cooperation) - not necessarily focus on a single industrial / service sector (or individual company), but cross-sectoral Regional Policy for the knowledge economy/RP upgrade

Role of Clusters Smart specialisation has been identified as a process of “entrepreneurial discovery” of priority-areas for knowledge investments in specialised regional clusters[1]. Smart specialisation is therefore a process in which the (global/local) governance of the interaction of all actors concerned is of strategic importance. This interaction should be directed at the co-discovery of opportunities for new value creation according to the distinct innovation potential of “geographic localities [1] D.Foray, P.A. David and B.Hall (2009), Smart Specialisation: the Concept, http://ec.europa.eu/research/era/publication_en.cfm

Role of Clusters The key idea behind ‘smart’ specialisation strategies is not only to build these strategies on a higher level of knowledge-based investments but also to differentiate these strategies and investments according relative strengths. Such purposeful strategies will not only limit unnecessary duplication, but will also explicitly capitalise on interdependencies, identifying complementarities at cluster level and in international value chains, which maximise the mobilisation of resources of all regions for the knowledge economy. While self-organising regional clusters can be the locus of co-investment to build critical mass for a new system innovation, they are also nodes in international value chains that compete with and complement each other.

Role of Clusters The development of cluster strategies was a further step in the governance of these clusters, enabling economic change through cluster management. Now, developing international cluster strategies is becoming the distinctive strategic capacity of such cluster management (e.g. the Spitzencluster Competition in Germany[1]). The smart specialisation policy approach will use international positioning of local cluster potential as an instrument for aligning the internal strategies of cluster actors and seeking competitive advantage and international synergies [1] The ‘Leading Edge Cluster Competition’ as key element of Germany’s High Tech Strategy (http://www.hightechstrategie.de/en/468.php).

Role of Clusters Cluster can, thus, facilitate smart specialisation by highlighting activities and themes where sufficient regional specialisation already exists to facilitate the establishment and maintenance of a cluster. Of course, on the other side of the coin, existing clusters could complicate smart specialisation by using their established position to monopolise resources that might be better invested on diversification. This is why smart specialisation explicitly calls not only for concentration on strengths and critical mass but also for diversification on the basis of strengths (supporting ‘related variet’). This calls for cluster policies to support knowledge spill-overs into complementary sectors for instance by promoting cooperation across the value chain or cross sectoral cooperations (e.g. grand challenges/megatrends)

Role of Clusters Regional, national and interregional or supranational strategies for smart specialisation can converge on the basis of maximising the return on investment in open innovation systems and regional clusters. In particular, by providing shared strategic intelligence and shared road maps addressing the great societal challenges, governments can facilitate the entrepreneurial ‘discovery’ of smart specialisations. This strategic governance needs specific capabilities and conditions in the cluster organisations and the wider innovation system, i.e. an ‘anticipatory intelligence,’ that can give direction. The cluster strategies of the future following a smart specialisation paradigm also need to be underpinned by interregional cooperation to strengthen the outward connectivity of our regional innovation actors and the cooperation across borders and territories

The S3 platform Shared knowledge base for strategic intelligence Methods, indicators, templates for analysis of specialisation patterns Methodologies/toolbox/guide to assist MS and regions in developing smart specialisation strategies Peer-review methodology, experts, advice To be set up and managed by a team established at JRC- IPTS in Seville Steering Team incl. DG REGIO, RTD, ENTR, EAC, INFSO and SANCO Mirror Group of high-level experts and network reps

The S3 platform Shared knowledge base for strategic intelligence Hosted by the Joint Research Centre – Institute for Prospective Technological Studies (IPTS) in Seville, Spain. It is run by a Steering Team gathering representatives of several Commission Services: REGIO, EMPL, RTD, ENTR, EAC, INFSO, SANCO, CLIMA and the JRC. It will be advised by a Mirror Group of international experts and representatives of relevant European networks (such as EURADA, ERRIN, EBN, OECD, European Cluster Observatory, European Cluster Alliance, ERISA). The Platform will be composed of: 1. "S3 Learning Platform" 2. "S3 Shop"

The S3 platform Shared knowledge base for strategic intelligence The S3 Learning Platform will… … develop a guide for policy-makers and implementing bodies on how to design and implement and assess regional smart specialisation strategies. … assess the needs of regions and identify case studies. … create working groups of regional actors and experts around common themes. … organise training of "trainers in smart specialisation". … manage a toolbox of indicators and case studies. … elaborate a peer review methodology for the set-up of sound peer review mechanisms based on existing practice. … develop economic analysis on the concept of smart specialisation.

The S3 platform Shared knowledge base for strategic intelligence The S3 Shop will… … manage a web-gateway to smart specialisation to disseminate information to all regions and register the 'inscription' of regions into the platform, for an active participation. … manage a database of experts and policy-makers available for peer review activities. … promote an annual meeting on smart specialisation for policy-makers and experts. … participate to events on smart specialisation. … establish permanent contacts with professionals working on 'smart specialisation'.

European Commission, DG REGIO Do you want to upgrade? Yes Claus Schultze European Commission, DG REGIO Policy Analyst, Unit D.2 Claus.schultze@ec.europa.eu