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Vision on Innovation: 4. Innovation governance

How can governments stimulate innovation ?

Governments have many instruments to stimulate a healthy innovation climate, but what is possibly lacking in the process of establishing effective policies is a consistent and holistic "systems" view on the long term dynamics of innovation processes and the levers that can be pulled: Successful innovation requires a balanced interplay between enterprises, citizens, governments and universities. The roles of the different constituents in society are summarized in the figure below:



Whereas the government is critically dependent on the other constituents in society, it has has many instruments to influence the factor conditions - i.e. skilled labor, capital and infrastructure - and to orchestrate the interaction between the different constituents. Governments should assure high quality education and public R&D, which are essential to create and maintain an adequate knowledge infrastructure and a skilled labor force. In its role as regulator, the government should promote the free flow of goods and services, labor and capital within the EU and the world market at large and assure a "level playing field" for new companies to be able to compete with dominant market players. The fiscal regime and the social welfare system should promote social cohesion and, at the same time, provide the right incentives for citizens and capital owners to participate in the creation of new ventures. By acting as a "launching customer", the governmnent can support new business initiatieves and companies. Finally, the government has a role to play to remove temporary inefficiencies in the market through subsidies and investments.

Governments may have many options, but clearly the allocation of scarce financial and human resources requires trade offs to be made. Should public funds be used to extend R&D programs, fund start-ups, run campaigns to promote exact sciences, reduce corporate tax for innovative companies or finance a fibre to the home infrastructure, to list only a few of the many things governments could do. Furthermore, where does the role of the government end and what should be left to market parties ? What should be decided at a central level and what on a regional level and who should be involved in the decision making process.

International benchmark studies indicate that there is not a single best way, but that consistency among policy measures and over time is essential. The table below summarises what governments could do in different policy areas either following a "laisser fair" or an "interventionist" approach and is based on a publication of ADL on the topic.



How can one assess the effectiveness, efficiency and consistency of policy measures ? Benchmark studies and the systematic monitoring of indicators through the European Innovation Scoreboard (EIS) and the like are valuable and may provide part of the answer. However, we believe that such empirical data should be complemented with a shared "systems" view on innovation, i.e. a qualitative mental model on the cause and effect relations within the innovation system. The mind-map depicted in the figure below reflects our initial assessment of such a "system" view.



The purpose of establishing a shared "systems view" on innovation is to create a joint understanding on the bottlenecks in the innovation system and the levers than can be pulled to overcome these bottlenecks, addressing the root-causes rather than fighting the symptoms.

To pick just one example, we believe that current efforts of the Dutch government to promote beta-studies through the platform "Beta\Techniek", public campaigns as "kies exact", reality TV like "Delfts Blauw" and the suggestion once made by the Minister of Education, Culture and Science to award a PC to every student that completes a study in exact sciences, is potentially not the best use of funds since it fights the symptoms, rather than addressing the root cause. The reality is that the Dutch labor market for exact scientists and and engineers who stay in their profession is relatively unattractive. Exact sciences are hard work, graduates face international competition for the few permanent jobs available in universities and private R&D labs and salaries have not kept pace with the rest of the labor market. In our view, the money could possibly be better spent to overcome the current lack of early stage venture capital and other barriers that high-tech start-ups face. Some of the start-ups financed this way will succeed, create new jobs and provide successful role models which will trigger young people to go into science and engineering and become an enterpreneur themselves.

The point we are trying to make, is not so much about what is right or wrong, but rather that a shared "systems" view is essential to have a meaningful discussion on the root-causes, the altenative approaches to change the situation and the trade-offs in the allocation of scarce resources. A comparison to the situation in other countries can help to better understand the key drivers and interdependencies. In this specific example, a useful question to explore would be "Why has Finland an inflow in S&E studies, that is relative to the total inflow of students, about 4 times higher than in The Netherlands". Is this because there are more jobs, higher salaries are paid, more appealing role models exist, the attractiveness of S&E studies is better communicated, or that a PC is awared to every S&E graduate ?

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