Henriette van Eijl, DG ENTR, Unit D1 (innovation policy) Current highlights in EU innovation policy Rotterdam School of Management Overview: 1. EU innovation policy - what is it? - who does what? 2. 2008 results of the European Innovation Scoreboard and Trendchart 3. Funding for EU innovation policy 4. Some ideas about future directions… 5. If you would have been the Minister of Economic Affairs Henriette van Eijl, DG ENTR, Unit D1 (innovation policy)

1. Which EU policies are relevant for innovation? Innovation Capital Private & public sources For enterprises of all sizes and development stages Market regulations Env. & Health protection, public procurement, Standards, WTO, etc. State Aid, financial instruments, Cohesion policy taxation, investor readiness, etc. Innovation Enterprises: Product innovation, organisational, marketing, design, Processes, Etc. Knowledge Technologies, methods, Know-how, maret knowledge Patents copy right, etc. Markets EU & global, consumers, industry & public sector Innovation is not a linear process where new research results lead to developing new products / services that then are taken up in the market Innovation is a systemic process with many factors that influence its emergence and success. Innovation is often triggered by a new demand in the market, e.g. a demand for integrating things like a phone, Internet access and TV into one gadget – provided that gadget will be small and light. Enterprises are at the heart of the innovation process, as they can combine the different innovation factors (knowledge, capital, HR, market knowledge) and drive the process with entrepreneurial initiative (risk-taking is a vital element of this). Although policy-makers / public authorities are not at the heart of innovation, they can influence it (in the good and in the bad sense) Education and training prgs, Labour & social law immigration, etc. Human Capital Skills, creativity, Mobility, Flexibility, etc. Research funding, IPR support, Technology transfer, Networking, cluster, research infrastructure, etc.

EU Innovation policy = Broad Based Innovation Strategy (from 2006) 9 priorities Intellectual Property Rights Standardisation Public procurement Joint Technology Initiatives Lead markets European Institute of Technology Clusters Innovation in services Risk capital markets Examples of good progress Joint Technology Initiatives launched European Institute of Technology on track Communication and implementation of Lead Market Initiative

Lead Market Initiative - a policy mix to achieve maximum impact Demand-side measures - regulation standardisation - procurement clusters? Package = LMI - Fiscal measures - Equity support - R&D funding … Supply-side measures The Aho-report, followed by a Communication “Putting knowledge into practice: a broad-based innovation strategy for Europe” of 2006

Activities already started in 2008: Policy tools Standardisation Labelling Certification Legislation Public Procurement Complementary Actions Lead Market Areas e-Health EU Recommendation for interoperability Introduce the Electronic Health Insurance Card Network to be set up by DG INFSO EU Patient Smart Open Services large scale pilot funded Sustainable construction 2nd generation of Eurocodes Screening of national building regulations Networks of European Contracting Authorities to foster demand for innovation SMEs guide on collaborative working schemes in construction Protective textiles Inventory of all relevant standards Training platform for buyers and users Bio-based products Product performance standards Inventory of legislation affecting bio-based products FP7 call on bio-refinery pilot plants Recycling CEN Packaging Standards Waste Framework Directive Financial support (CIP) for market replication projects Renewable energies Mandatory national targets for 2020 Guide on funding available for RE demonstration and pilot projects

Innovation policy in Europe: who does what? Member States National governments, including standardisation, public procurement and regulatory organisations Regional governments, cities etc Innovation and regional agencies European Commission initiatives Complementing national initiatives CIP: Competitiveness and Innovation Program Broad based innovation strategy (2006) Lead Market Initiative Monitoring EU innovation performance and policy European Innovation Scoreboard Trendchart policy monitoring EU legislation Council of Ministers + European Parliament (based on proposals from the Commission)

2008 results of the European Innovation Scoreboard and Trendchart

What is the European Innovation Scoreboard (EIS)? Annual benchmarking of innovation performance across EU27 Identifying strengths & weaknesses, trends, patterns in innovation performance under the Lisbon Strategy Methodology further improved for 2008: More emphasis on services, non-technological innovation, outputs Measuring trends over time ENABLERS (external drivers): Human resources – the availability of high-skilled and educated people. Finance and support – the availability of finance for innovation projects and the support of governments for innovation activities FIRM ACTIVITIES: Firm investments – covers a range of different investments firms make in order to generate innovations. Linkages & entrepreneurship – captures entrepreneurial efforts and collaboration efforts among innovating firms and also with the public sector. Throughputs – Intellectual Property Rights generated as a throughput in the innovation process and Technology Balance of Payments flows. OUTPUTS of firm activities as: Innovators – the number of firms that have introduced innovations onto the market or within their organisations, covering technological and non-technological innovations. Economic effects – captures the economic success of innovation in employment, exports and sales due to innovation activities.

Overall innovation performance summary innovation index of 29 indicators (2007 & 2006 data) Summary innovation performance EU Member States (2008 SII) Innovation leaders: Switzerland, Sweden, Finland, Germany, Denmark, UK Innovation followers: Austria, Ireland, Luxembourg, Belgium, France, Netherlands Moderate innovators: Cyprus, Iceland, Estonia, Slovenia, Czech Republic, Norway, Spain, Portugal, Greece, Italy Catching up countries: Malta, Hungary, Slovakia, Poland, Lithuania, Croatia, Romania, Latvia, Bulgaria, Turkey

Innovation performance based on 2006-2007 data for Netherlands (Innovation follower) Netherlands is one of the Innovation followers. Its innovation performance is just above the EU27 average but the rate of improvement is below that of the EU27. Relative strengths, compared to the country’s average performance, are in Finance and support and Linkages & entrepreneurship while relative weaknesses are in Firm investments and Innovators. Over the past 5 years, Human resources and Finance and support have been the main drivers of the improvement in innovation performance, in particular as a result from strong growth in S&E and SSH graduates (11.3%), S&E and SSH doctorate graduates (6.8%) and Broadband access by firms (23.8%). Performance in Firm investments and Linkages & entrepreneurship has worsened, in particular due to a decrease in Non-R&D innovation expenditures (-1.5%) and the Firm renewal rate (-4.4%). Weaknesses: NL slower growth in innovation-performance than EU27 Performance in Firm investments and Linkages & entrepreneurship is worse by lower Non-R&D innovation expenditures (-1.5%) and the Firm renewal rate (-4.4%). Strengths: + Finance and support and Linkages & entrepreneurship + Human resources, broadband access and Finance were main drivers for improvement in innovation performance

Policy trends in Europe : annual Trendchart report Aim: to track innovation policy developments in all 27 EU Member States, plus Iceland, Norway, Switzerland, Croatia, Turkey, Israel, Brazil, Canada, China, Japan, USA and India. See http://www.proinno-europe.eu/

Failures addressed in the overall EU innovation policy mix Apart from the market perspective, analysis of innovation process has to take into account also key deficiencies of companies and failures in systems (Smith 2000, Arnold 2004). Arnold (2004) differentiates four systemic failures: capability failures - inadequacies in companies’ ability to act in their own best interests, for example through managerial deficits, lack of technological understanding, learning ability or ‘absorptive capacity’; failure in institutions – inadequacies in other relevant NIS actors such as universities, research institutes, patent offices and so on. Rigid disciplinary orientation in universities and consequent inability to adapt to changes in environment is an example of such a failure; network failures - problems in the interaction among actors in the innovation system such as inadequate amounts and quality of links, ‘transition failures’ and ‘lock-in’ failures (Smith 2000) as well as problems in industry structure such as too intense competition or monopoly; framework failures – gaps and shortcomings of regulatory frameworks, intellectual property rights, health and safety rules, etc. as well as other background conditions, such as the consumer demand, culture and social values (Smith 2000). The support measures database includes also measures focused on improving policy making capacity including activities such as policy advisory services or establishing consultative fora. It is argued that activities to enhance the policy process and to induce policy learning are a response to actual or potential policy failures. Hence, this analysis recognises policy failure as a systemic shortcoming in its own right. Capability failures remains the most prevalent category addressed by measures Innovation leaders and followers (ie Netherlands) tend to address more network and policy failures Moderate innovators and catching-up tend to address more capability failures, followed by market failures

Groups targeted by the support measures SMEs! STI policies are concerned above all with companies and research performers. Nearly 65% of measures target companies (31% only target SMEs). More than 42% of all support measures has as a target higher education institutions (HEI) performing research. Individual scientists and researchers are targeted by 25% of measures The recently introduced measures target much more strongly SMEs (31% as compared to 21% in an overall policy mix). This is consistent with other findings presented previously on the increasing focus of the measures supporting innovative start-ups. Less than one third of the recent measures target HEI performing research, which also reflects the previously discussed trend. This does not, however, influence substantially the overall policy mix in which more than 40% of active measures target research performers. Highest relative increase in: measures supporting innovative start-ups and technology transfer between firms Together with a slight increase in measures supporting risk capital… …suggest an increased focus of innovation policy on supporting fast growing innovative SMEs, especially start-ups and spin-offs (particularly in catching-up countries) Certain slowdown in measures addressing R&D cooperation Jump in number of policy measures from 2004 clearly due to new Member States using Structural Funds

3. Funding for EU innovation policy

Joint Programming (TBC) On-going funding actions – the menu… EU-led MS-led FP themes Infrastructure RSFF, ERC CRAFT - People … JTI (5x) 169/ERA-NET EDCTP, AAL ERA CAs National R&D programmes … Supply-led Joint Programming (TBC) EUREKA ETP +/- 38 Structural Funds Res infrastructures … EIT – KIC (2-3) from 2010 (Pre-commercial) public procurement Lead Market Initiative 6 x, demand side policy CIP 3 pillars EIF Structural Funds Regulatory frameworks: legislation, standardisation, IPR Demand-led

EU innovation & research funding instruments € 50 billion Research projects (Mainly multi-country) & joint actions (JTI, 169) Scholarships Policy coordination Capacity building € 3.6 billlion Multi-country Innovation networks Cluster, Monitoring Support services Policy development Financial instruments € 86 billion (of the €347 billion) Nat / regional programmes Research, capacity, SME, Cluster, TT, services ... Entrepreneurship Innovative ICT Human Capital € 6.2 billion Erasmus & Erasmus Mundus: Univ.Educ:Scholarships e-learning Programme: ICT in schools Leonardo vocational training Practical Guide to EU funding for research and innovation Life Long Learning: LIFE environment European Fisheries Fund http://ec.europa.eu/fisheries/cfp/structural_measures/addresses_en.pdf European Agricultural Fund for Rural Development http://ec.europa.eu/agriculture/rurdev/countries/index_en.htm EUREKA: a non-EU-dependent pan-European network for market-oriented, industrial R&D created as an intergovernmental initiative. It supports businesses, research centres and universities who carry out pan-European projects to develop innovative products, processes and services. (www.eureka.be) COST (European Cooperation in the field of Scientific and Technical Research) has 34 European member countries and enables scientists to collaborate in a wide spectrum of activities grouped under nine key scientific domains. It also aims to maximise European Synergy and added value in non-competitive and pre-normative research. (www.cost.esf.org) € 450 million Intermodal transport and freight logistics Fisheries & Aquaculture €2.1 billion Environment: Policy monitoring & develop. Projects on: Air, Energy, Climate, Industry, Urban env., Soil Waste, Water Rural development Trans-European Networks (TEN) Transport Energy Telecommunications Not EU research initiatives:

CIP objectives 2007-2013; pillars Facilitate access to finance for SMEs € 1129 million Support services for enterprises (especially SMEs) € 338 million Promotion of innovation and particularly eco-innovation € 585 million ICT interoperability and up-take € 728 million Energy issues (e.g. efficiency, renewable) € 727 million

Innovation Support Policy Initiatives Support policy analysis, learning and coordination Innovation policy makers design and test new support programmes and policy methods Sector-oriented analysis, develop and test new or better support tools, promote their wide adoption Innovation support providers in public-private partnerships with companies Serving complementary policy objectives

Knowledge-intensive services Eco-innovation Focus of 2009 calls: Clusters Knowledge-intensive services Eco-innovation Networks of public procurers in support of lead markets Deadline 12 Feb http://ec.europa.eu/enterprise/funding/files/themes_2008/calls_prop.htm

4. Some ideas about future directions…

Innovation policies: into the 4th generation 1st generation innovation policy: innovation follows from scientific research 2nd generation innovation policy interactive nature of the innovation process (e.g. innovation systems, clusters) 3rd generation innovation policy: recognises the need to mainstream innovation objectives in a broad range of policy areas 4th generation innovation policy (future) puts society’s needs at its heart and translates this into opportunities for business In parallel, the role of innovation policy has developed from the linear concept, i.e. that innovation follows from scientific research (the first generation of innovation policy), to recognition of the interactive nature of the innovation process (e.g. innovation systems, clusters – "the second generation"), and more recently a "third generation" that recognises the need to mainstream innovation objectives in a broad range of policy areas The objective is to make Europe the place for innovative people, companies and markets. To achieve this, a fourth generation innovation policy is needed which puts society at its heart. This means recognising that innovation depends crucially on societal acceptance and must address society concerns about change. It also means showing that innovation provides answers to societal challenges such as those stemming from globalisation, climate change and demographic trends which are more attractive than a defensive, protectionist approach. But how?

Development of a European Plan for Innovation Commission Communication (June 2009) Assessing progress under Broad Based Innovation Strategy Reviews of: lead markets initiative, innovation support for services, efficiency of innovation support, financing innovation in SMEs European Plan for Innovation (end 2009), linked to Post Lisbon strategy Stakeholder consultations, workshops, supporting studies and analysis

Innovation and economic crisis in the spirit of Darwin: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

Impact of financial crisis and economic downturn does not yet show in indicators, but: Countries with higher innovation capacity better placed to recover faster. Hence EU better placed than 5 years ago but still behind US. EU firms under investment in research and innovation is a particular concern.

Example from Finland… innovating through the downturn….

Development of Tekes R&D funding in Finland Million euros Nominal funding Finland’s financial crisis 1991-94 Major bank sector difficulties Exports down by >20% GDP down by 13% Unemployment from 3,5% to 18% Real funding deflated by the cost-of- living index Based on information at Statistics Finland about inflation. The funding includes funding for purchase of research services and EU’s Structural Funds. The funding for 2007 does not include any EU funds, since funds from the new Structural Funding period were not allocated until 2008. DM 26047 02-2009 Copyright © Tekes 26 26

Innovative public services New / missing Users’ tax incentives Public procurement Standards Norms Lead markets Innovative public services VC tax incentives Green Procurement TYKES Living labs User communities Sourcing know-how Pre-comp procurem. (R&D) YIC funding

Finland’s innovation strategy - Focal points Mobility and attractiveness Participation and contribution WORLD WITHOUT BORDERS Innovation communities & hubs Lead markets INNOVATIVE INDIVIDUALS AND COMMUNITIES DEMAND AND USER ORIENTATION COMPETENCE BASE Individuals and entrepreneurship Co-innovation SYSTEMIC APPROACH Broad-based innovation Leadership & change management

If you were the Minister of Economic Affairs, how would you answer these questions? Which areas or topics are priorities for further development in innovation policy for Europe? What is the relationship between future EU innovation policies and those at national and regional level?

Thank you for your attention References: Homepage DG enterprise: http://ec.europa.eu/enterprise/index_en.htm Homepage European innovation policy: http://ec.europa.eu/enterprise/innovation/index_en.htm Homepage Lead Market Initiative: http://ec.europa.eu/enterprise/leadmarket/leadmarket.htm Contact address LMI/ Henriette van Eijl: ENTR-LMI@ec.europa.eu

What next ? – Mapping what and for whom Financial support: grants & loans for research and demonstration projects, market replication, commercial innovation activities, staff exchanges, mobility, industrial & research capacity … Direct innovation support services: technology-transfer, innovation capacity audits, IPR advice, partner finding, mobility portals, global market access … Capacity building of investors, innovation talents, innovation support bodies, cluster managers, other multipliers … Help build critical mass: clusters, PPP, JTI, … Improve interaction among innovation actors: improve partnerships at nat/reg level, RoK, open innovation systems, internationalisation, cluster management, LivingLabs … Improve support by nat/reg bodies: networks among innovation agencies, teaming up for larger scope, partnering …. Research institutes, researchers, enterprises, students … Banks, business angels, entrepreneurs, researchers, consultants, public bodies, development agencies … Reg/loc actors, public & private, triple helix (business, research, education, finance… Innovation / development agencies, consultants, technology parks, cluster managers …