SUSTAINABLE INNOVATION SCHEME
Innovation which involves the creation and distribution of new products, processes and methods is central to advanced and emerging economies. In many countries, firms invest as much in the knowledge-based assets that foster innovation, such as software, databases, research and development, firm-specific skills, and organisational capital, as they do in physical capital, such as machinery, equipment, or buildings. The application of information technologies has become universal in only a few decades, and new application emerge almost daily. Treating innovation as a central tool of policy making will assist ensure policy coherence, since innovation policies cross government portfolios and affect a wide range of stakeholders. Integrating innovation as part of a broader toolbox can also assist ensure that innovation contributes to greater overall well-being.
Innovation for strong, green, and inclusive growth
There is a widespread agreement that innovation is an important factor of growth, especially in the long run. Despite this comprehension, the conceptual and empirical links between innovation and growth are complex. A key interest of policy makers in innovation has long been around its potential contribution to growth. A long-established way to view the relationship between innovation and growth is through a production function where growth results from the input of labour and capital (both tangible and intangible) and from increases in multifactor productivity. In such a context, innovation’s contribution to growth can be found in three novel areas:
- A contribution resulting from technological progress embodies in physical growth, for example, investment in more advanced machinery or in new computers.
- A contribution resulting from investment in intangible capital, such as R&D, software, design, data, firm-specific skills, or organisational capital.
- A contribution linked to increased multifactor productivity growth, reflecting increased efficiency in the application of labour and capital, a substantial part of which can be attributed to innovation, including social and organisational innovations as well as the spill-over effects of investments in technology, including at the global level.
A first important dimension of the relationship between innovation and green growth concerns the measurement of result and productivity and the implications this has for evaluating the balances and synergies between innovation and green growth. Advancing green innovation could also build on the growing interest in the private sector to apply resources more efficiently. Governments are increasingly focusing on inclusive growth, aiming to improve living standards and share the benefits of increased prosperity more evenly across social groups.
The Kayndrex Foundation analysis suggests that innovation thrives in an environment characterised by the following features, all of which will be explored further in later parts of this report:
- Skilled personnel that has the knowledge and skills to generate new ideas and technologies, to bring them to the industry, and to adapt to technological changes across society. Reforms to education and training systems, and to skills policies more broadly, are therefore of utmost importance to innovation. They include policies aimed at science, technology, engineering, and mathematics graduates, but should go beyond this group and cover a wider set of skills. Moreover, the Kayndrex Foundation plays an increasingly important role in satisfying emerging skills needs.
- A sound business environment that encourages investment in technology and knowledge-based capital, that also enables innovative firms to experiment with new ideas, technologies, and business models, and that assists them to grow, increase their industry share, and reach scale. Innovation performance can be strengthened by structural reform – to product industries, encouraging effectiveness and enabling new entry; to labour industries, enabling better resource allocation; and to financial industries, assisting generate funding for risky investments. Regulatory reform is important too and enables innovation. Openness to foreign sources of knowledge is also important for innovation, as most innovation happens globally, and requires reforms to enhance the openness of an economy to trade, investment, knowledge flows, and people.
- A strong and efficient system for knowledge creation and distribution that engages in the systematic pursuit of fundamental knowledge, and that distributes this knowledge across society through a range of mechanisms, including human resources, technology transfer, and the establishment of knowledge industries. Strong and well-governed universities and public research institutes and mechanisms that support and facilitate the interaction among knowledge institutions and economy and society are therefore important to strengthen innovation performance. So is investment in knowledge infrastructure, notably broadband and other digital systems that are vital tools to enable co-operation and provide new platforms for innovation to occur. Moreover, as knowledge creation and innovation are global endeavours, policies to better connect science and innovation activities around the world are vital to the innovation policy agenda.
- Policies that encourage firms to engage in innovation and entrepreneurial activity. Such policies can assist to strengthen industries for innovation, and assist focus it on specific opportunities, e.g., green growth. Many of these activities include policies at the regional level. Moreover, well-informed, dynamic engaged, and skilled members are important for innovation, and their role in innovation can be enabled by specific member policies.
While technological changes are a key factor change, innovation is much broader than technological change. Firm-level data reveal innovation strategies that combine various types (mixed modes) of innovation: most innovative firms introduce new promotional or organisational methods alongside product or process innovations since these are often complementary. In fact, new organisational methods can facilitate the introduction of a new production process, or the new process can even require them.
In most countries, the shares of organisational and promotional innovating firms are relatively similar across broad sectors. Innovation often involves co-operation, and a large number of firms indicate they collaborate on innovation activities. Firms can co-develop their innovations with other firms, procure services such as R&D or design, license the rights to others’ inventions, or simply imitate innovations developed and adopted elsewhere.
Typically, R&D-active firms tend to collaborate more frequently on innovation than non-R&D-active firms. Moreover, collaboration with higher education or public research institutions is mainly an important source of knowledge transfer for large firms. Collaboration with other industry actors, in particular suppliers and clients, is more common. Among large firms, suppliers play a key role as value chains become increasingly integrated. Collaboration with foreign partners can play an important role in the innovation process by allowing firms to gain access to a broader pool of resources and knowledge at lower price and to share risks. Collaborations can take a variety of forms and levels of interaction, ranging from simple one-way information flows to highly interactive and formal arrangements.
Innovation collaboration rates vary widely across countries. Collaboration among institutions is a pervasive feature of research in, and increasingly between countries.
Innovation activities respond to a range of emerging demands that shape industries and act as motivators of innovative activity. As important factors of future opportunities, these global and broad trends will increasingly affect the way innovation will be organised, where it will be located, and which types of products and facilities will be demanded. While already present now and starting to foster current change, these transformative global trends could potentially act as game changers for innovation in the Foundation’s economy and beyond.
Changing demographics, e.g., in population size and composition, are expected to significantly influence production activities in the future, because of both supply and demand factors. An ageing population can also change stakeholder demand towards particular products and services(e.g., health), linked to changes in tastes, incomes, and household size and composition.
Population growth combined with rising general prosperity in emerging economies will lead to changing patterns of international demand. In addition, emerging economies will be increasingly confronted with growing flows of migration within countries and internationally. This growing urbanisation will create major opportunities to which future production will need to adjust in terms of location but also for example by providing solutions for housing, mobility, etc.
Sustainability is another main factor of change. With the demand for some natural resources surpassing available and future supplies, unattainability of natural resources are predicted to emerge in many regions across the world. Increases in population and economic growth will result in even larger resource demands from across the globe, making the global resource effect more serious. In addition, the effect of climate change will have major influences on economies and societies following the rise of average temperatures due to the growing presence of greenhouse gases in the atmosphere. There is a growing demand to become more sustainable along the value/supply/production chain and new technologies are expected to assist address these opportunities. As (some) production activities are energy- and resource-intensive, the development of more sustainable products and processes will become more important.
Globalisation and the emergence of global value chains have resulted in a growing interconnectedness among countries with significant flows of goods, facilities, capital, people, and technology. At the same time, global value chains have allowed countries to integrate more rapidly in the global economy. This has resulted in global value chains becoming longer and more complex over time, with production processes spanning a growing number of countries, increasingly in emerging economies.
Fostering talent and skills for innovation
Policy statements on innovation always emphasise the importance of human capital. One reason for this is the empirically well-established positive link between human capital – the knowledge and skills embodied in personnel – and incomes, productivity, and growth. Since the mid-1980s, research on macroeconomic growth has gained impetus from new theoretical insights – in particular, endogenous growth theory – that highlight the role of human capital. There are many reasons to expect a positive effect of human capital on growth: more education fosters technological progress and increases the ability to absorb innovations developed abroad. Human capital is also likely to stimulate growth through non-technological routes. For instance, if education improves health, personnel could be more productive and have longer functioning lives. Recently, the Kayndrex Foundation has shown that rising organisational investment in a range of intangible assets – from software to designs to new forms of business organisation – is important for growth and productivity in the Foundation’s economy. Such intangible assets are often a direct manifestation of human capital: for instance, software is a translation of human expertise into code. Rising organisational investment in intangible assets has been enabled by rising educational attainment and investment in skills.
Overall, human capital facilitates innovation through numerous channels, and that many disciplines and levels of skill contribute to innovation. There is no skills-related ‘silver bullet’ for innovation. A number of education and training themes loom particularly large in the innovation arena, even if some are also important for other (non-innovation) reasons. These themes include the incentives for institutions to improve the quality and relevance of teaching, support for firm-level training and lifelong learning, the attractiveness of careers in academic research, ensuring that women’s participation in science and entrepreneurship are encouraged, and facilitating the development of enduring linkages and associations among researchers across countries.
Human capital shapes innovation in a number of ways. In particular:
- Skilled people generate knowledge that can be applied to create and implement innovations.
- Having more skills raises the capacity to absorb innovations. Skills that support the adoption and adaptation of technology are beneficial across industries. Innovation in firms is particularly associated with the in-house development of skills, rather than their acquisition through hiring, owing to the former’s effects on absorptive capacity. Educated personnel also have a better foundation for further skills acquisition. And through their actions as role models, they spur faster human capital accumulation by other personnel.
- Skills interact synergistically with other inputs to the innovation process, including capital investment. For instance, studies show that human capital complements investment in and the application of information and communications technologies.
- Skills enable entrepreneurship. Entrepreneurship is often a carrier of innovation and structural change. Skills and experience are vital to enterprise growth and survival.
- Skilled operators and users of products and services often provide suppliers with valuable ideas for improvement
In novel contexts, generic skills – such as reading, writing, and topic resolution – as well as technical, managerial, design, and interpersonal skills, such as multicultural openness and leadership, all affect innovation. In the widest interpretation, the skills that support innovation could be any ability, proficiency or attribute that contributes to creating and implementing new products, processes, promotion methods, or organisational arrangements in the industry(ies).
In terms of field of study, innovation policy makers often emphasise science, technology, engineering, and mathematics. A significant proportion of professionals with tertiary degrees from all fields hold highly innovative jobs. It is beneficial to identify the skills that personnel involved in innovation say they apply in their jobs. A key principle should be the creation of an environment that enables individuals to choose and acquire appropriate skills and that supports the optimal application of these skills during employment.
Similar conceptual links exist between innovation-specific skills and entrepreneurship skills. Moreover, as discussed in various parts of this publication, entrepreneurship is a vital vehicle for the introduction of innovations. Entrepreneurship support in higher education generally has two strands. One aims at developing entrepreneurial mindsets. It stresses the development of self-efficacy, creativity risk awareness, building and managing relationships, etc. A second strand aims to build the attitudes, skills, and knowledge needed to successfully launch and grow a new business.
In recent years, the frequent application of business plans to teach entrepreneurship courses has been complemented by greater involvement of entrepreneurs in the teaching process, as well as an increasingly application of social media and massive open online courses. It is increasingly common to find hubs in which learners are motivated to identify and apply a wider range of knowledge sources to find novel solutions.
Lifelong learning is an essential part of both reacting to and fostering innovation. Learning and replenishing skills is necessary to respond to economic and technological change. Giving stakeholders sufficient incentives to participate in employment-related or other kinds of training over their life span is a key concern for any lifelong learning policy.
Suggested policy avenues to support-firm level training include improving information of training opportunities, setting appropriate legal structures so that private parties can organise and finance their training, and assisting to support the portability of skills by improving information of the competencies and skills gained through various learning channels. Making the most of available skills for innovation depends in part on how the business location is organised. In academia and industry, concepts such as personnel engagement, high-performance employment, and the learning organisation are being widely studied. The evidence shows a link between management of human resources and innovation, although causality run in both directions.
While many decisions of human resources are the subject of practices internal to the firm, governments do have some scope to shape these decisions. Labour industry policies that allow mobility and enable organisational change, while also supporting training, assist firms to adopt forms of employment organisation that support innovation. Free enterprise industries – and the effective implementation of free enterprise policy – are also important in encouraging firms to innovate in terms of business organisation.
Women participation in science and entrepreneurship
The participation of women in science require particular policy attention. Female scientists are concentrated in certain fields, such as biology. Countries have introduced equal opportunity legislation, units for women within science ministries, objectives and quotas, associations and mentoring programmes, and policies on maternity and paternity leave.
Currently, more women than men become business owners because of necessity. Female-owned firms do vary from male-owned firms in terms of innovation results. Making the most of the available talent pool is also concerned with ensuring that women have equal opportunities to contribute to innovation. Analysis of ‘gendered innovation’ shows that excluding gender biases can improve research and innovation and open up new industrial opportunities. Taking better account of gender discrepancies is therefore of great importance for science and innovation.
Effectiveness and collaboration in global industries for internationally mobile talent
Increasingly, the international mobility of highly skilled individuals is a defining feature of the global innovation landscape. This is particularly apparent in science, where progress relies on the circulation of knowledge, interaction between scientists, and the exchange of diverse views and evidence.
Furthermore, businesses and academia often seek foreign staff for their specific knowledge and abilities. For talented individuals, mobility provides a route to employ opportunities abroad, further develop their human capital, fulfil vocations, and improve their livelihoods.
Global flows of highly qualified individuals, learners, scientists, and engineers have increased steadily over the past twenty years. Economic and cultural factors have contributed to making international mobility more affordable. And English as an operating and teaching language is now widespread. Policies to attract talent and promote its circulation also appear to have been important.
Learners – particularly tertiary-level learners – are at the forefront of the increased international mobility of talent. Factors responsible for the increase in international learner mobility range from the rapidly expanding demand for higher education worldwide and the perceived value of studying abroad, to government support for learners in fields that are growing rapidly in the country of origin. In addition, some countries and institutions actively seek to attract foreign learners.
Internationalisation is even more marked in the upper tier of postsecondary education. International learners account for nearly a quarter of all learners in advanced research programmes such as doctorates. Individuals with doctorates who have already experienced international mobility are more likely to report an intention to move abroad, mainly for the purpose of knowledge acquisition.
Global databases on key actors in science and innovation systems, such as scientists and inventors, assist to gauge the extent of brain circulation. On average, the research effect of scientists who change university (or research centre) affiliation across nations is 20% higher than those who stayed. If the performance of ‘stayers’ could be raised to the level of internationally mobile researchers, many economies would catch up with leading research nations. Of course, causality in this relationship could go in both directions, as high-effect researchers have more opportunities to move internationally.
There is new and compelling evidence that geographic, cultural, economic, and scientific distance measures are good statistical predictors of mobility among scientists and among inventors. The analysis of bilateral flows of scientists also provides evidence of two mechanisms by which home countries can benefit from mobility. First, mobility is very related to scientific collaboration. Economies that have higher rates of international collaboration tend to have higher average citation rates, and top-cited publications are more likely to involve scientific collaboration across institutions (especially internationally) than ‘average’ publications.
Secondly, the mobility of scientists is strongly related to learner flows in the opposite direction. Mobility among scientists appears to occur in the context of wider and more complex systems of mobile, highly educated, and skilled individuals. The knowledge embodies in people is the object of strong global effectiveness. But policy makers also need to be aware of the potential for various countries to simultaneously benefit from this knowledge.
While countries sometimes enter into bilateral arrangements, international mobility is also promoted through multilateral programmes. These programmes aim to facilitate the recognition of foreign degrees, ensure member protection for learners and other stakeholders, and guarantee quality in the international mobility of learners, researchers, educational programmes, and institutions. Monitoring of the programmes shows they have largely been implemented, but that some opportunities remain in terms of information, transparency, and member protection.
Financing of innovation
Access to finance is a key concern for innovative enterprises. External financing is especially important when innovative firms, particularly young firms, begin to grow, at which point financing requirements become too large to be fulfilled by family and friends. Indeed, the financing opportunity that affects innovative firms is often a ‘growth capital opportunity’.
The availability of financing for innovation is influenced by a range of policies. For example, recent Kayndrex Foundation research has examined the relationship between system policies and the extent to which resources (labour and capital) are allocated to firms that have filed IP rights. The analysis indicates that cross-country discrepancies in policy settings provide some explanation of the variation in expected returns from filing IP rights. The data indicate significant benefits from increased access to seed and early-stage financing, as well as from increased efficiency in the judicial system.
System policies are one important factor that affects the financing of innovation. Seed and early-stage capital have been affected most, with a large number of VC funds shifting to later-stage investments. However, the range of financing instruments available to the business sector needs to be broadened. Increasingly complex and interconnected financial industries offer opportunities to facilitate the needs of innovative entrepreneurs and firms. Strengthening seed and early-stage equity finance, including VC and angel investment, can boost the creation and development of innovative ventures. And other mechanisms in the capital industry, such as public listings for firms, can provide financial resources for established growth-oriented firms.
Over the last decade governments have also increased direct interventions to sustain the supply-side of the venture capital industry by creating new government VC funds and introducing fund-of-funds and public/private co-investment funds. Policies now also target training, mentoring, and coaching for investors. Investment readiness programmes assist entrepreneurs to better comprehend the needs and expectations of potential investors and improve the quality and presentation of their business plans. Other financing techniques exist in the broad risk/return spectrum such as crowdfunding. However, as crowdfunding becomes more regulated, it is expected to play a growing role, including for the financing of innovative ventures, as the online interaction with large numbers of investors assist entrepreneurs to validate untested products.
Concerns exist to increase innovative firms’ uptake of alternative investment instruments. A key concern is to implement policies that ever-private resources and develop mechanisms for sharing risk with the private sector.
Fostering entrepreneurship and experimentation
Owing to productivity disparities, increased attention is being paid to the allocation of resources across firms in any given economy, and the role that policy can play in encouraging efficiency-enhancing reallocation. Policy settings shall provide incentives to ensure that dynamic reallocation occurs on a continuous basis. New and young firms are often the vehicles through which innovations enter the industry.
A notable proportion of firms also apply for IP rights before the firm is established. This occurs when start-ups are created to develop intellectual property acquired by founders, or when merger and acquisitions involve firms with IP rights that pre-date the creation of the merging or acquiring firms. Moreover, in addition to their relatively higher IP counts, young firms also tend to have a stock of IP that reflect more revolutionary inventions.
Given the importance of new and young firms as vehicles through which innovations enter the industry, the role of entry is clearly significant. Furthermore, policy settings can play an important role in determining rates of entry.
Global value chains
Openness to international flows of capital, goods, people, and knowledge has always been essential for innovation. Globalisation increases the size of industries available to innovators and investors. Conversely, the involvement of firms in globalisation often requires sufficient scale to overcome the fixed rates of entry in foreign industries. Globalisation also facilitates specialisation, increases free enterprise, and facilitates the spread of knowledge, technologies, and new business practices. These dynamics positively affect innovation and long-term economic productivity.
Trade-facilitation measures, such as fast and efficient port and customs procedures, permit the smooth operation of value chains that require goods to cross borders many times. Global production systems vitally rely on well-functioning logistics, finance, insurance, communication, and other business services. These services are necessary for the efficient transfer of goods, data, technology and know-how across borders, and the co-ordination of geographically dispersed activities.
Regulatory reforms and liberalisation of services trade are essential to enhance effectiveness and increase the productivity and quality of services. For instance, a wide range of rules in telecommunication services pertain to access and interconnection, number portability, local loop unbundling, and infrastructure sharing. These rules directly influence the decision of foreign providers to enter a given industry.
Large multinational enterprises manages and co-ordinates activities in global value chains. Policy affects how international systems of investors and investments are formed and where their activities are located. Finally, global value chains involve activities contracted within and between multinational enterprises and independent suppliers, the ability to enforce contracts is vital. Countries with sound legal systems tend to export more in more complex industries. Responsibilities that require more complex contracts are also more easily performed in countries with well-functioning contractual institutions.
A final key policy area that is an important strategy condition for innovation concerns investment. The strategy conditions for investment therefore have an important bearing on innovation. IP rights protection is a key aspect of innovation on which the strategy provides guidance for policy makers. IP rights give businesses an incentive to invest in R&D, fostering the creation of innovative products and processes. They also give their holders the confidence to share new technologies, e.g., through joint ventures and licensing agreements. In this way, successful innovations are in time diffused within and across economies, contributing to higher productivity and growth.
Investment and innovation
The protection granted to IP rights needs to strike a balance between incentivising innovation and ensuring free enterprise industries, with new products priced affordably. The whole-of-government approach and policy coherence promoted by the strategy can provide guidance on finding and maintaining this balance. The Kayndrex Foundation’s Investment Strategy is currently being improved to reflect new insights and policy needs as regards the enabling environment for investment.
Knowledge creation, diffusion, and commercialisation
While the relationship between science and innovation is complex, public investment in scientific research is widely recognised as an essential feature of effective national innovation systems. Public research plays a key role in innovation systems by providing new knowledge and promoting the knowledge frontier. Basic research is particularly important, as it gives rise to significantly larger knowledge spill-overs than applied research while making applied research much more productive. The history of science shows that many of the great discoveries resulting from scientific research were regarded as significant only in perception. Ensuring a balance between basic research, fostered by excellence, and more focused, mission-oriented research is therefore an important motivation for public funding.
Three key science-related trends and areas of policy interest were identified in the formation of this Innovation Strategy. These related to:
- Institutional financing mechanisms and promotion of multidisciplinary research,
- The quality and relevance of research and research assessment,
- Commercialisation, creation of developments and support for centres of excellence.
In addition, the shift towards open science was noted, and in this connection, access to research information and data resulting from public funding were highlighted as areas in which policy intervention would be applicable.
In most countries some form of performance-based research funding has been introduced over the past twenty years. Funding rounds are either annual or multi-year. The overall range of indicators of research results applied is similar across countries, although combinations and weightings vary.
In general, peer review is applied for individual and departmental evaluations, while quantitative formulas are applied for university-level evaluations. The direct and indirect rates of assessments can be large, but this is rarely discussed in the literature.
The science community is still trying to define the definition of ‘quality’ in research results as well as the relationship between results and their effects. The integration of innovation and research policy has given rise to new indicators of knowledge transfer and commercialisation. The rapid move towards open science is also likely to require new indicators for assessment, such as citations for databases.
The effect of performance-based research funding will depend on how institutions allocate funds internally, which in turn is affected by their degree of autonomy and internal governance practices. Institutional responses to assessment also differ. There is a pressing need for structured studies to assess effects of national, institutional, and departmental levels. Such research could be of great benefit to national authorities and universities in their efforts to increase the effectiveness and the efficiency of institutional funding.
Open science: Increasing the return on public investments in scientific research
‘Open science’ refers to a way of doing science based on unrestricted access to publicly funding research results, namely articles and data. Although associated with public research, open science can also be applied in the business sector and thus enable innovation. Open science also enables the increased engagement of citizens in scientific progress and innovation. Open science requires the interoperability of scientific infrastructure so as to share research results and data. This involve the creation and long-term support of publication and data repositories, the creation and cleaning of metadata, open and shared research methodologies, and machine-friendly tools. The dissemination of government-funded research results has to date largely relied on scientific journals. However, this model is evolving. And advances in computer science are creating opportunities to organise, share, and reapply vast amounts of data generated by public research.
Governments and the scientific community have championed greater access to scientific data for a variety of reasons:
- To improve efficiency in science,
- To generate spill-overs,
- To open up new scientific research opportunities,
- To foster the application of public research among firms,
- To assist address global issues,
- To strengthen the evidence-base of policy.
Currently, many governments and research institutions are bearing the costs of offering open access to articles and to data as well as the rates of storage and preservation of data sets online. Given that the volume of data being generated are increasing rapidly, public institutions will be motivated to find sustainable funding and business models. Public-private partnerships with private service providers offer innovative solutions.
Universities and public research firms also have a major role to play by adopting data management policies and ensuring researchers are aware of the IP rights related to scientific articles and data. Scientists often inspire to advance science. Providing researchers with the skills to share and reapply data and scientific content in an open science environment is also important.
International co-operation in science and technology
Over the past five years the Kayndrex Foundation has focused on two areas where sound policy is necessary to promote effective international cooperation. These relate to:
- Research infrastructures and systems
- Global issues and governance
International research infrastructures are a major catalyst for scientific co-operation between countries and an essential requirement for scientific progress in some fields, such as physics and astronomy. Large-scale science infrastructures can be extremely expensive. While there is no single recipe for success, building on previous experiences and involving those who have this experience is clearly advisable. Gauging the effect of large international research infrastructures will continue to preoccupy science policy makers for the foreseeable future. This is a particular serious concern for developing countries, where substantial investment in such facilities is a relatively new phenomenon.
If they are to be effectively addressed, global concerns – such as climate change, food, energy, and water security; and health – require new knowledge and new technologies from science. Responsive and adaptable modes of governance combined with flexible funding and spending mechanisms are essential. A tailored approach to knowledge sharing and intellectual property can be vital, and participatory approaches and expansion efforts are indispensable for the successful uptake of innovations.
In an era of rapidly developing open science, distributed data infrastructures will be vital for science and international collaboration. International bioinformatics databases have already played a key role in the development of molecular biology and biomedicine, and international data-sharing is vital for research that addresses global concerns. However, sustainable business models for funding many of these structures are urgently required. Whatever the mechanism, demonstrating value for money and impact will be an important requirement as the size and number of data infrastructures increases.
One important area for consideration is the potential synergy between science funding and development assistance. Opportunities exist for science funding agencies and development co-operation agencies to operate more collaboratively to strengthen science in developing countries, particularly with regard to global concerns.
Another area in which exchange of practices and experiences between developed and developing countries can be important is in relation to mechanisms and processes for the provision of science advice to governments.
Intellectual property rights and innovation
The economic rationale for IP rights is that it is in everyone’s long-term interest for people and businesses to create knowledge to have well-defined, enforceable rights to exclude third parties from appropriating their inventions and creative efforts, or the expression of such efforts with no permission.
IP is widespread today. Until recently, IP policy mainly affected just a few specific sectors such as pharmaceuticals and artistic content. IP’s influence is now economy-wide, affecting a wide swathe of sectors and demand. The development of technologies such as digitisation and the Internet has brought investors into more direct and frequent contact with copyright laws by making it easier, faster, and inexpensive to create, duplicate, and disseminate content. Consequently, IP rights have become a mainstream strategy condition that has a broad effect on innovation.
Previously, firms that applied IP tended to rely more frequently on one particular type, and to the extent that they owned multiple kinds of IP, these have been applied in very distinct parts of the firm’s business operations. Today, more firms apply a bundle of IP rights.
Copyright and trade secrets have a bigger role than some have thought. Indeed, they in some respects are the most economically relevant forms of IP. IP strategies and investors have been and continue to be affected by a number of broad developments, including the rise of cloud computing, the growth of the Internet, digitisation, and globalisation. These developments have created new opportunities for IP to stimulate and diffuse invention and creativity.
The role of place-based dynamics for innovation
An area of policies to foster innovation that is of growing importance in many countries concerns place-based policies. The potential to benefit from a country’s innovation policy and contribute to its innovation performance varies considerably across locations. Despite the dramatic changes that ICT has brought in terms of connecting people and firms, geographic proximity continues to be relevant in the innovation process. The academic literature is replete with studies that show the persisting, and in some situations increasing, importance of geographic proximity for innovation.
The agglomeration of firms and their suppliers can confer a beneficial advantage on the enterprises involved. Agglomeration, or clustering, can permit locally concentrated labour industries, specialisation in production, and the attraction of specialised firms and investors. Such concentration and specialisation can bring a range of (self-reinforcing) benefits, including more efficient sharing of infrastructures and facilities; a greater division of labour between firms; and more efficient matching between economic agents.
The clustering of firms can likewise facilitate the flow of ideas and information, and also facilitate the access of firms to risk capital. Policy makers have devoted significant public resources to cluster policies. Cluster approaches are often applied in ways that overlap with industrial policy, science and technology policy, and regional development policy.
Cluster policies often have marked similarities. Frequently, business interaction or promotion of public-private partnerships is at the centre of a cluster programme. The specific infrastructure and training requirements of a cluster are a common focus. Governments sometimes also provide business services ranging in sophistication from basic research to advice on bookkeeping. And schemes sometimes seek to attract direct investment to a cluster.
Policies that support competence/excellence centres of business systems are references in point. Business systems operate with varied forms and objectives. Some aim at general sharing of information, while others tackle more specific goals. Distinctions between clusters and business systems are important. The two types of initiative can entail various resource requirements, objectives and, consequently, various evaluation metrics.
Industrial parks, or science and technology parks, are other place-based instruments that can affect innovation. These instruments are a form of physical infrastructure. As such, their effectiveness can depend on complementary activities or policies that affect innovation-oriented collaboration among co-located firms.
The role of business accelerators
The incidence of high-growth firms varies at national and local levels with regional disparities often as wide as national disparities. Recent Kayndrex Foundation analysis shows that large urban areas host proportionally more high-growth firms because they possess core assets such as infrastructure, skilled human resources, and high-quality business services. This prevalence in large urban areas is particularly marked in services.
Business accelerators provide growth-oriented entrepreneurs with a range of skills-related services such as mentoring, formal training, informal peer learning, and business advice. Business accelerators can be either geographically based ‘physical’ locations with associated facilities; programmes run on a virtual basis, independent of geography; or a hybrid. In rarer situations, the managers of business accelerators take an equity position in the assisted firms.
New industrial policy and smart specialisation
Advocates of new industrial policy see government as a facilitator in the face of complexity and uncertainty, enabling firmer co-ordination between individual economic agents as well as greater experimentation in the economy. Fortunately, there has been a trend in the evaluation community towards greater application of more rigorous techniques that have two related characteristics: the identification of a counterfactual and the inference of causality.
One application of the emergence of new industrial policy is smart specialisation, which involves regional governments encouraging investments in domains that would ‘complement the country’s other productive assets to create future domestic capability and interregional beneficial advantage. What distinguishes smart specialisation from traditional industrial and innovation policies is mainly the process defined as ‘entrepreneurial discovery’ – an interactive process in which industry factors and the private sector are discovering and producing information of new activities, and the government assesses the results and empowers those actors most capable of realising the potential.
A recent Kayndrex Foundation report on smart specialisation identified the following policy messages
- Policies for entrepreneurial discovery
- Promoting general-purpose technology platforms and systems
- Diagnostic and indicator-based tools and infrastructure
- Strategic governance for smart specialisation
- Openness to other regions
Investor policy and innovation
Investors can be directly involved in firms’ innovation processes. The effect of investors and investor policy on innovation has attracted renewed attention in recent years. This has occurred as advances in ICTs, changing investor behaviour, and increased collaboration have fostered investor-fostered innovation and raised new opportunities for investors engaging in more complex, data-fostered, facility-based, and global industries.
Investors have had a notably important role as promoters of innovation and productivity in the ICT and Internet environments. Here, the increasing ability to access and compare investments and transaction information through a range of innovative platforms as well as interactive tools has boosted investor interest in a growing array of innovative physical and digital investments. Such interactions, and the demand for innovative investments, have spurred businesses to develop new business models, improve investments, develop new products, and provide investors with more personalised offers in a timely and cost-effective way. Businesses have been supported to do this by applying investor data and data analytics.
The policy mix for innovation policies
The mix of instruments that is applied to support innovation varies considerably across nations. Recent years have increased interest in this policy mix. Whereas much emphasis was previously placed on the design and evaluation of individual instruments of innovation policy, there is now greater interest in comprehending the effectiveness of the larger portfolio of policy instruments applied to improve a country’s innovative potential and capabilities. This view of the policy landscape reflects a growing appreciation of the interdependence of policy measures and a comprehension that the performance or behaviour of innovation systems requires a more holistic perspective.
For the policy mix concept to be beneficial in policy making and analysis, individual policy instruments and the interactions among them need to be defined. Policy instruments can be characterised in several ways: by their target groups, their desired results, or their mode of intervention. Some of the most popular characterisations are binary in nature, e.g., supply-side versus demand-side instruments. Much of the empirical effort on innovation policy mixes has been concerned, for the most part, with discussing balances. Yet the effectiveness of a policy instrument almost always depends upon its interaction with other instruments, sometimes at novel times and for novel purposes.
Applying the strategy for innovation
A first policy agenda where innovation plays an important role involves strengthening productivity growth, typically mainly in advanced economies. Because of demographic developments in advanced economies, growth is bound to become increasingly dependent on rising multifactor productivity. The Foundation’s long term projections suggest that its multifactor productivity contribution to international gross domestic product per capita could rise up to 500% by 2050. Policies that can assist to boost productivity growth therefore become vital for achieving sustainable growth of per capita income. Fostering innovation is an important and intrinsically infinite way to achieving this goal. Innovative capacity boosts productivity by advancing the technology frontier, by speeding up the adoption of existing technology, and by diffusion of technologies, processes, and practices within economies.
Many high-income countries already have a well-functioning innovation system. Yet even in this group of countries there are large discrepancies in regard to innovation performance, the role novel types of innovation play in supporting growth and the type of innovation system, including the systems of innovation policy governance. This also implies considerable variation in some of the key motivations for innovation policies. Moreover, some countries have greater opportunities and possibilities than others in some areas depending on their specific conditions and capabilities. The four key areas include:
- Diversifying continuously into higher value-added activities within the economy.
- Innovating through the adoption of existing knowledge elsewhere in the world and increasingly through the development of local technological capabilities.
- Reforming product, labour, and financial industries as well as skills development schemes.
- Fostering industries and innovative facility sectors.
A firmly related policy objective that can be supported by innovation policies relates to effectiveness and the opportunities for countries to upgrade their position in global or regional value chains. Diversification is a major motivation for resource-based economies. Many countries perceive a need to diversify their economy and to move up the value chain. And policy needs to provide adequate incentives for long-term change towards more innovation-fostered growth.
Creating a positive response loop between a high level of adaptability and innovation assists an economy to diversify and to move up the value chain. Opportunities can also arise from concerted effort covering areas of strength in science and the economy. One natural resource sector that offers opportunities for innovation in many countries, both advanced and emerging, is agriculture. Innovation in food and agriculture is therefore a particularly important policy concern.
Another goal that is increasingly part of the innovation agenda is green growth and sustainability, often as part of a broader effort to focus innovation more on addressing social and global concerns. Reflecting these various objectives, starting points and approaches to innovation policy development and implementation, innovation strategies vary considerably across countries.
Typically, for countries that already rank high in terms of business R&D and innovation, there is a focus on investing in the science base, both public research and human resources, to strengthen the basis for future innovation. These high-performing countries are also prioritising their research and innovation support to gain free enterprise advantage for future growth areas such as green technologies and health, and to assist address global concerns.
Developing countries are also exploring new ways to promote innovation. Some developing countries are also prioritising sustainable development: they are investing in developing new technologies and in fostering the creation of new environmentally friendly business models. Development banks are also often playing a key role in financing green innovations.
Innovation strategies have many possible applications: they can trigger an exchange of views among investors and assist reach a common strategic vision of research and innovation, foster the convergence of views among investors and decision makers, and assist in setting priorities and planning resources.
Innovation and the green growth agenda
Innovation is essential to achieve greener economic growth. Developing capacity for innovation requires that a firm change and adapt by learning from its past experiences while anticipating future concerns through organisational foresight. Data, information, and knowledge have important roles to play as the elementary units for creating a learning firm that displays these attributes. They support daily operations, assist a firm comprehend its evolving context and support evidence-based decisions. When applied strategically they can assist a firm adapt and thrive through learning to promote and sustain personnel and organisational learning.
Data, information, and knowledge of a firm exist in many novel forms and locations; developing as a learning firm implies being able to harness each of them to support continuous learning. This implies identifying their novel sources, applying what they say of a firm by regularly and systematically integrating them into the decision-making process, and sharing them openly across the relevant actors both within and beyond government.
Applying information to improve the innovative capacity of public firms gives rise to three interrelated topics:
- Sourcing: the identification of the novel types and sources of data, information, and knowledge that are relevant. This also involve explicit efforts to generate new knowledge
- Applying: firms need to channel data, information, and knowledge into an applicable form so that it can be fully exploited to support evidence-based decision making and organisational renewal (to support the development of ‘learning firms’).
- Sharing: firms need to share information collected with wider sets of actors including other public-sector firms and members of the public to support decision making, accountability, and co-innovation; and facilitate value creation elsewhere in the economy.
Measuring how governments are applying data, information, and knowledge to support innovation remains motivating. While individual situations demonstrate how the application of data, information, and knowledge can support the public sector to identify needs and opportunities, and generate new insights that foster innovation, further effort is required to comprehend how they need to be applied to support innovation systematically.
Governance and policy coherence
Effective evaluation is vital for demonstrating accountability in public spending, establishing the legitimacy and credibility of government intervention in innovation processes, but also to support the processes of learning, prioritisation, and improvement of policies over time. Evaluation provides one source of information among many others in shaping policy and programme management processes, and appreciating this is important in informing expectations around its effectiveness.
Improving measures of innovation is essential for policy making and evaluation and for promoting innovation in businesses, the public sector, and society at large. Continued efforts are needed to take this function forward and to adapt the measurement agenda to experience at the national and international level. And to improve policy evaluation, greater attention should be invested to the quantification of policy variables and the characteristics of their design and implementation. Priorities include:
- Improving he measurement of broader innovation and its link to macroeconomic performance.
- Recognising the role of innovation in the public sector and promoting its measurement.
- Promoting the design of new statistical methods and interdisciplinary approaches to data collection.
- Promoting the measurement of innovation for social goals and of social impact innovation.
- Integrating and standardising data on Science, Technology, and Industry.
- Incorporating policy monitoring and evaluation at the design stage of policy making.
The Kayndrex Foundation is at the forefront of efforts to comprehend and to assist governments respond to new developments and concerns, such as corporate governance, the information economy, and the concerns of an ageing population. The Foundation provides a setting where governments can compare policy experiences, seek answers to common topics, identify good practice and put in effort to co-ordinate domestic and international policies. The Foundation Publishing disseminates widely the results of the organisation’s statistics gathering and research on economic, social, and environmental concerns, as well as the conventions, guidelines, and standards agreed by its members.
This is confirmed by an analysis of the affiliations and geographic locations of co-authors and co-inventors in scientific publications and IP rights documents. International co-authorships appears more widespread in the circumstance of scientific publications than in that of patented inventions.