ConceptualUnderpinningsforInnovationPolicyDesign

IndicatorsandInstrumentsinContext

SusanaBorrs(CopenhagenBusinessSchool,Denmarksb.dbp@cbs.dk
correspondingauthor)
and
CharlesEdquist(CIRCLE,LundUniversity,Sweden)

PaperpreparedfortheOECDBlueSkyConferenceIII
1921September2016inHetPand,Ghent,Belgium

Abstract
Incaseswhereinnovationindicatorsanddatafailtoserveproperlyasa(necessary)
basisforthedesignofinnovationpolicies,itoftenhasitsrootsinconceptual
unclaritiesintheunderlyingconcepts.Theaimofthispaperistoprovideatheoretical
andconceptualbasisforthedesignofinnovationpolicy.Thisservestwoimportant
purposes.Firstly,itallowstheidentificationofproblemsinaninnovationsystemthat
requirepublicpolicyinterventionthroughthechoiceofappropriatepolicy
instruments.Secondly,itallowsatheoreticallybasedidentificationofinputindicators
asdeterminantsofinnovationsystemperformancetobeusedincrosscountry
analysis.

Contents
Abstract.....................................................................................................................................1
1.Introduction...........................................................................................................................3
2.Activitiesininnovationsystems............................................................................................4
3.Whatarepolicyproblems?...............................................................................................7
4.IdentifyingPolicyProblems&theChoiceofInstrumentstomitigatethem.....................9
5.

OnInnovationSystemsPerformanceandtheFlawsofCurrentIndexes....................12

6.TowardsAGeneralAlternativeUseofInnovationMetrics..............................................14
7.SummaryandConclusions.................................................................................................16
Appendix1:PolicyProblemsandInnovationPolicyInstrumentstoMitigateThem..........18
References..............................................................................................................................21

1. Introduction

In cases where innovation indicators and data fail to serve properly as a (necessary)
basis for the design of innovation policies, it often has its roots in conceptual
unclaritiesintheunderlyingconcepts.Thereistodayalargenumberofdatasetswith
multiple and sophisticated socioeconomic indicators. However, the extent to which
these indicators (on an individual basis or in aggregate indexes) are useful is highly
relatedtothetheoreticalandconceptualbasisbehindthem.Innovationpolicydesign
isthesetofspecificpublicinterventionsaimingataddressingconcreteproblemsinthe
innovation system. The identification of these problems requires targeted and very
specific analysis of the determinants of innovation processes, based on relevant and
specificindicators.Likewise,atamoreaggregatelevel,policymakersneedtohavean
overview of innovation systems performance in their entirety, with a crosscountry
perspective.Severalindexesoninnovationperformancehavebeenrecentlydeveloped
by aggregating specific subsets of indicators to provide these broad comparative
overviews. Yet, without a solid conceptual and theoretical basis, these individual or
aggregatedmeasurementsarepoortoolsforpolicymakers.
Theaimofthispaperistoprovideatheoreticalandconceptualbasisforthedesignof
innovation policy. This serves two important purposes. Firstly, it allows the
identification of problems in an innovation system that require public policy
interventionthroughthechoiceofappropriatepolicyinstruments.Secondly,itallows
a theoretically based identification of input indicators as determinants of innovation
systemperformancetobeusedincrosscountryanalysis.
Thispaperproceedsasfollows.Thenextsectionintroducesthethemebypresentingin
a very succinct manner a specific approach on innovation system, based on ten
activitiesorinputdeterminantsofinnovationprocesses.Thisapproachistheauthors
theorising effort about innovation systems and their dynamics, which is done in the
contextofdiscoveryandofacontinuousdevelopmentfromprevioustheoreticalwork
from institutional and evolutionary economics. The third section focuses on defining
what are policy problems, and their two preconditions (additionality and the
organizational capacity of public intervention). This serves to indicate that not all
issues related to innovation are automatically subject to public intervention. The
sectionafterthatfocusesonthespecificidentificationofpolicyproblemsinasystem,
andthechoiceofpolicyinstrumentshereto.Thissectiondistinguishesbetweenpolicy
problems, the instruments chosen to address them, and the policygenerated
problems (by ineffective policy instruments). Having seen these specific issues, the
next section of the paper focuses on innovation systems performance (in their
entirety)andontheflawsofcurrentaggregateindexes.Theseindexessufferfrom a
3

series of flaws, which limit their ability to provide accurate and theoreticallybased
overview of the innovation system performance. Section six of this paper aims at
puttingtogethersomegeneralguidelinesforthedevelopmentofalternativeindexes,
which should be consistent with specific theoretical and conceptualbasis about the
determinantsofinnovationprocesses.Thelastsectionsummarizestheargumentsand
concludes with a plea. Future efforts must be done to link strongly the scholarly
theorizing about the determinants of innovation system performance, and the
constant empirical testing of these. Policy problems as well as the choice of policy
instrumentsshouldbebased(andbepartandparcel)oftheiterationbetweentheory
andempiricalefforts.

2. Activities in innovation systems

Theinnovationsystemsapproachwasputforwardintheearlymid1990sandhas
diffusedrapidlysincethen(Lundvall1992)(Nelson1993)(Freeman1995)(Edquist
1997).Thispapertakesitspointofdepartureinonevariantofthesystemsof
innovationapproach,whichisbasedontheidentificationoftenactivitiesininnovation
systems(whichcanbeseenasdeterminantsofinnovationprocesses).Asthenotionof
innovationsystemhasbeengainingtrack,severalalternativedefinitionshaveemerged
intheliterature(See(Sharif2006)and(OECD2005)forusefulreviewsofdifferent
definitions).
Systemsofinnovationmaybenational,regionalorsectoral.Thesethreeperspectives
maybeclusteredasvariantsofasinglegenericsystemsofinnovationapproach.
(Edquist1997a:3,1112).Muchofthediscussionhereisbasedonthepremisethat
thedifferentvariantsofthesystemsofinnovationcoexistandcomplementeach
other.Whetherthemostappropriateconceptionofthesystemofinnovation,ina
certaincontext,shouldbenational,sectoralorregionaldepends,toalargeextent,on
thequestionsonewantstoask.(Edquist2005,2011).
Ourdefinitionofaninnovationsystemismuchbroaderandmoregeneralthanother
variants(e.g.Lundvallsand,especially,Nelsons).1Itincludesalldeterminantsof
innovationprocessesinthedefinitionofaninnovationsystem.Atthesametimethe
innovationsystemshouldnotbeconsideredasbeingthesameasthewholeeconomy
orthewholesociety.Itismuchmoresensibletolimitthenotionofinnovationsystem

Remember that definitions are not right or wrong, they are good or bad for certain purposes. The
definitions that we have chosen, among a myriad of possible ones, suit our purposes.

tobeconstitutedbyinnovationsofvariouskindsandalltheactivitiesordeterminants
thatinfluencetheirdevelopmentanddiffusion.2
Ourdefinitionisaparticularspecificationofthesystemsofinnovationapproachwhere
tenactivities(orinputdeterminantsofinnovationprocesses)definethedynamicsof
theinnovationsystem(Edquist2011)(BorrsandEdquist2013).Here,innovation
systemsincludeallimportanteconomic,social,political,organizational,institutional
andotherinputfactorsthatinfluencethedevelopment,diffusionanduseof
innovations(Edquist1997)pp:1112;(Edquist2005):p.184.Hence,innovationcanbe
seenasistheultimateoutput,whereastheinnovationsystemisformedbyasetof
inputfactorsordeterminantsthatinfluencesuchoutput.
Thetenactivitiesthatformtheinputdeterminantsofinnovationprocessesandhence
constitutetheinnovationsystemarethefollowing:
1. Theprovisionofresearchanddevelopment(R&D)
2. Thebuildingofknowledgecompetencesthrougheducation,trainingandskills
3. Theformationofnewproductmarkets(onthedemandside)
4. Thearticulationofqualityrequirements(onthedemandsidetoo)
5. The creation and change of organizations (as constituents of an innovation
system)
6. Networking
7. Thecreationandchangeofinstitutions
8. Incubationandaccelerationofentrepreneurialandsmallfirms
9. Financinginnovation
10. Consultancyservices

Itisimportanttokeepinmindthattheyarenotrankedaccordingtoimportance.They
all together refer to different dimensions of input determinants of innovation
processes, which complement each other in different ways, sometimes potentially
overlapping and reinforcing each other, sometimes pulling in different directions as
therearedifferenttypesofinnovation(process,product,etc.).Generally,forthesake
ofsimplification,these10determinantsmightbeclusteredas:

For a discussion of this definition and its specification in terms of 10 activities or determinants of
innovations, see Edquist (2005: 183, and 190-191) and Edquist 2011.

I.
II.
III.
IV.

Provisionofknowledgeinputstotheinnovationprocess(e.g.research,
education,trainingandcompetencedevelopment),
Demandsideactivities(e.g.publicprocurementforinnovation,or
articulationofnewproductquality(orsafety)requirements),
Supporttokeyconstituentsininnovationsystems(e.g.entrepreneurship,
networking,creatingandchangingorganizations,etc.),and
Supportservicesforinnovatingfirms(e.g.financinginnovationprocessesor
incubationofinnovativefirms).

Asmadeclearabove,ourapproachistofocusontheactivitiesinthesystemsof
innovation(ratherthanonthecomponentsinthesystems).Thismeans,oursisa
dynamicperspective.Thisissobecauseweaddressthechangesassociatedtosome
inputfactors,forexample,weaddressthecreationandchangeoforganizationsand
institutions,ratherthanorganizationsandinstitutionsassuch.Moreover,wefocus
systematicallyonthecharacterofthedivisionoflaborbetweenprivateandpublic
organizationswithregardtowhoperformswhichpartsofeachoftheactivities.3Such
afocusisnecessarilyalsodynamic,sincethisdivisionoflabourmightchangethrough
timeandacrosscountries.Hence,ourfocusonactivitieswithinsystemsofinnovation
emphasizesstronglywhathappensinthesystemsratherthantheircomponents.In
thissensetheactivitiesapproachprovidesamoredynamicperspective,andcan
capturehowvariousactivitiesthatinfluencespecificinnovationprocessesmaychange
theperformancewithregardtotheseinnovationsandtherebyhowthewhole
systemchanges.
Forthatreason,thislistoftenactivitiesshouldbeseenasaneffortoftheorizingabout
innovationsystemstheirdynamics,particularlyfocusingonidentifyingasetofinput
determinantsofinnovationprocess.Inotherwords,thelististhetheoreticaleffortof
theauthorsofthispaper,puttingsomeorderinaseriesofdispersedfactorspreviously
identifiedbytherichliteraturesofevolutionaryandinstitutionaleconomicsof
innovation.Asanytheorizingeffortinthesocialsciences,itisdoneinthecontextof
discovery,basedonorganizedobservationandinaformofprestudy(Swedberg
2012).Thislistoftenactivitiesasasyntheticeffortoforganizingthesetofinput
determinantsofinnovationprocessesinaninnovationsystem.Forthatreason,we
treatthislist(andtheargumentslinkedtoeachofthem)asbeingnecessarilya
preliminaryandhypotheticalexercise,whichwillbesubjecttoanalysis(and
contestation)infutureempiricalresearch.Giventheiterativenatureofanytheorizing
effortinthesocialsciences,thislistwillcertainlyberevisedwhenourknowledgeof
thedeterminantsofinnovationprocessesimproveswithtime.

This division of labor is important since innovation policy is defined as actions carried out by public
organizationsthatinfluenceinnovationprocesses.

Nonetheless, at this point in time, this list can be used as a theoretically and
observationinspiredchecklistorsignposttodiscussinanorderlyandlogicmannerthe
input factors that most likely affect innovation processes. This is important, as
innovation processes are very complex, and hence are influenced by a variety of
factors. Among other things, the list can serve as a tool to avoid some tendency
towardssimplisticmonocausality,i.e.anoverlystrongemphasisononesingleactivity
(most typically, research or seed funding), to the neglect of other equally important
inputfactors(likeeducationandtraining,ordemanddrivenformationofnewproduct
markets).Thisneglectofkeyinputfactorsisproblematicwhenattemptingtocausally
explaininnovationoutputsthroughlimitedmetrics(Edquist2014),andwhendesigning
innovation policy through the choice of innovation policy instruments (Borrs and
Edquist2013).
Moreover,andfollowingfromtheabove,thelistisusefulforidentifyingproblemsin
innovation systems, which thereafter might be addressed by a careful selection of
innovationpolicyinstruments.Ifthemaincauseofaproblemislackofresearch,then
R&D should be in focus. If the cause is lack of demand for certain kinds of product
innovations, then a demandside instrument such as public procurement for
innovationcanbeused.Allthetenactivitiescanberelatedtoseveralinnovationpolicy
instruments(BorrasandEdquist,2013).
Beforecontinuingweneedtostressthatthepursuitofinnovationpolicyshouldbe
theoryandevidencebasedtothelargestpossibledegree(dependingonthestateof
theartwithregardtotheexistenceoftheoryanddata).Thequestionisthenhow
thesetheoriesanddataarecreated,andonwhatbases.Thisisanimportanttopicall
throughthispaper.

3.Whatarepolicyproblems?

Thedesignofinnovationpolicyshallfocusonsolvingandaddressingproblemsinthe
innovationsystem.Forthatreasontheseproblemsmustbeidentified.Policyproblems
arethoseproblemsthatshouldbemitigatedorsolvedbypublicinterventionbymeans
ofinnovationpolicy.Thequestionisthenhowcanthisbedone.
Therearetwoinitialsubquestionshere:
1. Whatisapolicyproblem?

2. Howcanweidentifythepolicyproblems?

Aquickglanceatthetenactivitiesspecifiedaboverevealsthateachofthemis
normallyperformedpartlybyprivateorganizationsandpartlybypublicorganizations.4
Sinceinnovationpolicyisactionsbypublicorganizationsthatinfluenceinnovation
processes,policyisapartandparcelinthetenactivities.Naturally,thedivisionof
laborbetweenthepublicandprivaterealmsvariesbetweencountries/regions,and
changesovertime.Fromthecurrentperspectiveinnovationpolicyisthesetofpublic
interventionsonbehalfofthepublicinterestthataredirectedtowardsinfluencingthe
contextinwhichfirmsandotherinnovatorsoperate.Inotherwords,innovationpolicy
isaboutinfluencingtheinputdeterminantsofinnovationprocessesthattakeplacein
aneconomyandsociety.
Whyandinwhichsituationsshouldinnovationpolicybepursuedandwhenshouldit
not?Twopreconditionsmustbefulfilledfortheretobereasonsforpublicinnovation
policyinterventioninamarketeconomy:
(1) Privateorganizationsmustprovetobeunwillingorunsuccessfulinachieving
theobjectives5formulated;apolicyproblemmustexist;
(2) Thestate(national,regional,local)anditspublicorganizationsmustalsohave
theabilityandorganizationalcapacitytosolveormitigatetheproblem,aswell
astolearnfrompastexperience(Borrs2011).

Apolicyproblem,inoursensei.e.fromapolicypointofviewhastodowithaseries
ofpossiblenegativesituations,themostobviousofwhichis(alow)performance
(efficiency,productivity)oftheinnovationsystemineconomicterms.However,it
mightaswellberelatedtoproblemsassociatedwithconditionsthatdistortthe
achievementofspecificallydefinedpolicygoalsforinnovationpolicy,likeimproving
publichealth,securityanddefense,orenvironmentalprotection.Asweshallseeinthe
nextsections,theexplanationsofthatpossible(low)performancearealsocrucialfor
thedesignofinnovationpolicy.(Edquist2011,section3).Wewillreturntotheissueof
performanceofinnovationsystemsbelow.
Thepreconditionofadditionalityisamatterofthedivisionoflaborbetweenwhat
privateorganizationsarecarryingoutininnovationsystems,andwhatiscarriedoutby
meansofpolicyintervention.Innovationpolicyissometimesneeded,butmustnot
replace,duplicate,orcrowdoutwhatprivateactorscando.Publicactionshould
supplementprivateaction.Animportantsourceofproblems,mightbegeneratedby

However it is seldom that an activity is performed by private or by public organizations exclusively. It is

a continuum: both private and public organizations are normally involved in the performance of each
activity.
5
To simplify, we are here assuming that the innovation policy objectives are formulated in terms of
innovation intensities for certain kinds of innovations, in a political process, normally not - or only to a
very limited extent - by analysts.

policyitselfwhentheadditionalitypreconditionwasnotfulfilled.6Lackofadditionality
haspotentiallyseveralroots,mostlikelyrelatedtothelackofpreviousanalysisand
carefuldiscussionofreasonsforpublicintervention.
Innovationpolicysmainpurposeistoinfluencepositivelythecontextinwhich
innovationprocessestakeplace.Accordingly,whenexaminingtheproblems,
(deficiencies,tensionsandimbalances)thatmightplaguetheinnovationsystem,we
shallnotdisregardtheproblemsthataregeneratedbythenegativeeffects(orlackof
anyeffect)ofpublicpolicyinitiativesthemselves.
Forthatreason,problemsintheinnovationsystemmightbethoserelatedtosome
specificsocioeconomicortechnologicaldynamics,aswellasthoserelatedto
unfocused,ineffectiveortooexpensivepublicpolicyitself.
Thiscallsformoreeffortintoanalyzingtheproblemsintheinnovationsystemandthe
potentialsolutionsthatmightcomefrompublicaction,securingtheeffectivenessof
innovationpolicyaswellasitsadditionality.Thisrequiresasolidconceptualand
theoreticalframeworktoprovideunderpinningsofsuchanalysis,ultimatelyguiding
policydecisionswhendevisingandreshapingrelevantpolicyinstruments.

4.IdentifyingPolicyProblems&theChoiceofInstrumentstomitigatethem

Whenweknowthepolicyproblemsinasystemofinnovation,wewanttousepolicy
instrumentstodosomethingaboutthem,i.e.wehavetoselectpolicyinstrumentsto
doso.Hence,wehavetoknowthecausesofthepolicyproblemsbeforehandinorder
to be able to select policy instruments intended to mitigate or solve them. We are
aware that theorising about possible causal explanations in the social sciences is a
demanding task. Actually this relates back to our specific version of the systems of
innovationapproachandthetenactivitiesininnovationsystemswhichweconsiderto
beinputsorhypotheticaldeterminantsofinnovationprocesses.
Followingfromthediscussionsintheprecedingsections,andfromourprevious
academicworkoneachoftheseactivities,wehaveidentifiedthreeseparateitems.
Admittedly,theseareinterrelated,yetaconceptualseparationisanecessaryand
importanttaskinourcurrenteffortoftheorisingbecausetheseareneatlydistinctin
thelogicofourargumentation.Besides,weseethattheliteraturehassometimes
treatedthemasoneandsingleitem,generatingconfusionaboutthedirectionalityof
interactions,andhenceprovidingpooranalyticalguidance(seebelow).

We could give many, many examples here. On is that practically all state risk capital funding in Sweden
was allocated to late stages in the innovation and firm building process where plenty of private capital
was available.

Thefirstitemhastodowiththepolicyrelatedproblemsthatmosttypicallyafflict
innovationsystems.Herewerefertosituationsinwhichitispossibletoidentify
bottlenecks,deficienciesorweaknesses,whichareconceivedasproblemsinrelation
totheexpecteddynamicsandprocessesofinnovation.Wecallthempolicyrelated
problemsbecausetobepolicyrelevantinareallifecontexttheyshouldbeableto
complywiththetwopreconditionsmentionedabove:theadditionalityofpublic
interventionandgovernmentalcapacitytoaddresstheproblems.Naturally,fromthe
theoreticalandconceptualperspective,whenlookingateachofthetenactivitiesin
theinnovationsystemthatcharacterizeourinputdeterminantsofinnovation
processes,thereisalonglistofpossiblepolicyproblems.Someusefulexamplesare
thefollowing.Education,trainingandskillsdevelopmentisafundamentalactivityin
theinnovationsystembecausethecreationofindividuallevelknowledge
competencesisakeyinputdeterminantforinnovationprocesses.Oneoftheproblems
thatmightrequirepolicyinterventioniswhenthereisastrongtimelagbetweenfirms
shorttermneedsontheonehand,andthelongtermdevelopmentofskills&
knowledgeinthelabourmarketontheother.Policyinterventionsecuringalongterm
supplyofknowledgeskillsmightbewarrantedincontextswherethisgapbecomesa
problemforinnovationprocesses.Anotherconventionalproblempossiblysubjectto
policyintervention,whichisagainrelatedtoeducation,trainingandskillsisthe
insufficientlevelofknowledgecompetencesduetothebraindrainofskilledworkers
(BorrsandEdquist2015).
Thesecondimportantiteminourconceptualworkistoidentifythepolicyinstruments
mostcommonlyputforwardbygovernmentsintryingtoaddresstheseandother
policyrelatedproblems.Evidenceshowsthegreatdiversityofpolicyinstruments
currentlydeployedbygovernmentsinpursuingdifferentareasoftheinnovation
system.Thesecanbeorganizedfollowingtheareasinwhichtheyoperate(theten
activities)andtheiroverallnature,providinganencompassingmatrixaboutthe
deploymentofpolicyinstruments(BorrsandEdquist2013).Arecentandexcellent
reviewhascollectedthespreadandstilllimitedindepthevidencethatiscurrently
availableabouttheirrelativeimpact(Edler,Cunninghametal.2016).Inthedailybasis
ofpolicymakingandpolicydesign,thechoiceofinstrumentsishoweverfarfrom
beingdrivenbyanexplicitformulationofgoalsandtargets.Oftentimes,instruments
arenotdesignwithaparticularprobleminmind,identifiedandanalyzedaccurately
beforehand.Rather,theymightbethefruitofinspirationfromothergovernments
similarinterventions,andarechosenonthebasisofverygenericandinsufficiently
analysedrationalesforintervention.Thisleadstoournextitem.
Thethirditeminourconceptualizationofpolicyproblemsandinstrumentsisthesetof
policygeneratedproblems.Thatis,problemsthataregeneratedbytheinefficiency,
inaccuracyorpoorimplementationofinnovationpolicyinstrumentsthemselves.
Followingourexamplefrombefore,itmightbesothateducationandtrainingpolicy
10

interventionsareimplementedusingoldfashionedpedagogicmethodswhicharenot
appropriatefordevelopingknowledgecompetencesneededinthesocietyand
economyoftheXXICentury.Curriculadevelopmentandpedagogicalmethodsarea
sourceofintensedebates,yetsomeimportantdynamicsandtransformationsof
educationalsystemscreatedinthelateXIXCenturyare(havebeenormustbe)
undertakentogenerateindividualknowledgeandskillsintheinnovationcontextof
currenttimes.Policygeneratedproblemsemergewhenthepolicyinstrumentsputin
placeareinsufficient,inefficientordirectlyagainstachievingexpectedoutputs.
Unclearpolicygoalsintheinitialdefinitionoftheinstruments,pooranalysisofreallife
problemsintheinnovationsystem,oruncriticalevaluationandassessmentofthe
instrumentstrueimpacts,arebehindthesepolicygeneratedproblems.
Asmentionedabove,therearemanydifferentpossiblepolicyrelatedproblems,policy
instrumentsandpolicygeneratedproblems.Wehavebeenidentifyingand
distinguishingthoseinaseriesofpreviousconceptualworks,whichcannotbe
discussedhereindetailduetospacelimits(BorrsandEdquist2015)(Borrsand
Edquist2014)(Borrs2016)(BorrsandEdquist2016).ThetableintheAppendix1is
asummaryofthesethreeitems,intheattempttoprovideatheoreticallyinspiredand
clearconceptuallogicaboutwhatcangowrong(problems)andwhatcanbedone
frominnovationpolicyperspective(instruments)abouttheinputdeterminantsin
innovationsystems.
Whyisthisthreeitemconceptualdistinctionrelevant?Fortwofundamentalreasons.
Firstly,itisourimpressionthattheliteraturehastendedtodisregardsomepolicy
relatedproblems(forexample,thoserelatedtoeducationandskills)totheexpenseof
others(forexample,privateunderinvestmentinR&Dactivities);andithastendedas
wellsometimestoputthechariotinfrontofthehorsesbyfocusingexcessivelyin
somepolicygeneratedproblems(forexamplethepossiblecrowdingouteffectsof
somepublicventurecapitalinstruments)totheexpensesofidentifyingandanalysing
thepolicyrelevantproblemsinthesamearea(forexample,inmostcountries,the
policyproblemofcriticallylowdemandofventurecapitalassociatedtopoorlevelsof
entrepreneurshipactivities).Distinguishingbetweentheseitemsallowsanalyticallyto
disentanglewhatiswhat(whatisaproblemintheinnovationprocess,whatisan
instrument,andwhatisaproblemgeneratedbyineffectivepolicyinstruments).
Secondly,andequallyimportant,thisthreeitemdistinctioncombinedwiththeten
activities(fromourtheorisingeffortabouttheinputdeterminantsofinnovation
processes),providesanencompassingviewofitemsthatare(ormust)bethe
attentionofpolicyanalysisaswellasofpolicymakers.Thispermitsfinding
unexaminedandunderanalysedareasofpublicinterventioninthescholarly
literature,aswellaspossiblegapsinreallifepolicydesign.

11

5. OnInnovationSystemsPerformanceandtheFlawsofCurrentIndexes

Letusreturntotheissueofperformance.Innovationsystems,beingatthenational,
regionalorlocallevelhaveallidiosyncraticfeatures.Thismeansthattheidentification
ofpolicyproblems(includingpolicygeneratedproblems),asdiscussedabove,isan
issuehighlyrelatedtotheseidiosyncraticfeatures.Yet,ahighlevelofdiversitydoes
notrendercrossregionorcrosscountrycomparisonsfutileorirrelevant.Different
innovationsystemsmightperformwellorlesswellinsomeofthetenactivitiesabove,
andmighthavesuccessful(orlesssuccessful)policyinstrumentstomitigatetheir
respectiveproblems.Consequently,comparativeanalysisishighlyrelevantinorderto
continuethetheorisingeffortsandabetterunderstandingofwhatandhowthese
systemicfeaturesandspecificactivitiesaffectinnovation.Likewise,comparative
analysisisausefulwayoflearningfromothercountriessuccessesandfailuresin
termsofpolicyinstrumentationandpolicydesigningeneral.
Comparativeanalysiscantakemanyforms,usingqualitativeaswellasquantitative
methods.Forthesecondone,itmeansthatcomparativeanalysisneedstomeasure
innovationintensitiesfortheinputdeterminantsofinnovation,aswellasfor
innovationoutputs7.Inaddition,thedatahastobecomparablebetweencountriesor
regions(systemsofinnovations).Itisworthnotingthatthenotionofoptimalityis
irrelevantinaninnovationcontextandincomparativeanalysis,aswecannotspecify
anoptimaloridealinnovationsystem,giventheidiosyncrasiesofallofthem.Empirical
comparativeanalysisinthesocialsciencesacknowledgesthetheoreticalassumptions
asanalyticalguidancefromtheconceptualframework(basedonspecificattributes),
butdoesnotseetheseassumptionsasnormativecommandmentspursuingasingle
universallyoptimalidealmodel(Goertz2006)(CollierandMahon1993).Instead,
comparinginnovationsystemswitheachotherallowstheempiricaliterationnecessary
inthesocialsciencesfortheorizingendeavors(Swedberg2012),andisalsoafeasible
waytoidentifyproblemsintheinnovationsystemthatshouldbethesubjectof
policymakinganddesign(Edquist,1997,2005,2011).
Measuringinnovation(ofvariouskindsofinnovations)meansthatweneedinput
indicators(thedeterminantsofinnovationprocesses)aswellastheoutputindicators
aboutwhatcomesoutoftheinnovationsystem.Developingtheseinputandoutput
indicators,anddefiningcomparabledatasourcesiskeytoachievethedoubletasksof
comparativeanalysis(mentionedabove).However,andmostimportantlytoachieve
that,istheneedtousethoseindicatorsinatheoreticallyandconceptuallyconsistent
manner,acknowledgingfundamentalassumptionsassociatedtoinnovationprocesses
inaccordancetocurrenttheoreticalframeworks.Unfortunatelythistheoretical

Hence, we need to develop taxonomies or classifications of innovation outputs. We do not pursue this
in the present paper, but have done so to some extent in Edquist (2011).

12

consistencyisnotentirelyrespectedtodaybysomeoftheexistingcrosscountry
comparativeindexes.

Wehavestressedthatitiscrucialforinnovationpolicydesigntobeabletomeasure
innovationoutput.However,justmeasuringit,isnotenough.Thereasonisthatthe
sameinnovationoutputcanbeachievedwithalotofresourcesorwithasmallamount
ofresources.Iftwosystemsarehavingsimilarinnovationoutputs,butoneofthem
achievesthatwithmuchlessinputresources,thelatteroneperformsbetterwhich
meansthatitismoreefficientormoreproductive.Thismeansthattheoutputof
innovationsmustberelatedtosomemeasureoftheinputofresourcesusedto
produceinnovation,insomesortofproductivitymeasure.Thismeasuremustbeseen
asanaggregateindicatoroftheoverallperformanceoftheinnovationsysteminterms
oftherelationshipbetweentheamountandrelativeperformanceofitsinputs,andits
output(s).

Unfortunately,mostofthecurrentaggregateinnovationindexesdevelopedduringthe
pastfewyearsforcrosscountrycomparisonsfallshortoffollowingthistheoretically
basedinputoutputlogic.Thisisthereasonbehindtheincreasingattentionand
growingdiscontentwiththeseaggregateindexes.Intheirrecentreview,vanBeersand
othershaveexaminedthestructureofinnovationindicatorsonthreedimensions:the
aggregationlevelatwhichthemeasurementtakesplace,i.e.themicrovs.macro
levels;whatisactuallymeasured,moreconcretelywhethertheindicatordistinguishes
betweeninputandoutputindicators;andthekindofdatathemeasurementsare
basedon(objectiveorsubjectivedata)(vanBeers,Havasetal.2015).Theircritical
assessmentofeachoftheseindexeshasseveralremarks,buttheycoincidetoalarger
orlesserextentinblurringtheinputandoutputdimensionsofinnovation,and/orin
selectingspecificmeasurementsofinputandoutputthatareunclearintheoreticalor
conceptualterms.

Inarecentstudy,weillustratethispointofinputoutputdimensionsbyaddressingand
assessingoneparticularindicatortheSummaryInnovationIndicator(SII)ofthe
InnovationUnionScoreboard(EdquistandZabalaIturriagagoitia2015).Thisisanindex
developedbytheEuropeanUnion,whichservesasatooltomonitoronanannual
basistherelativeinnovationperformanceofeachEUMemberState.Itisformedby25
specificindicators,andisusedinordertorankEUcountriesbyorderofperformance.
Inthisparticularindex,thehigherthevalue,thebetterperformance
(European_Commission2015).TheassessmentoftheSIIreachestheconclusionthat
thisindexdoesnotmeasureinnovationperformanceinanymeaningfultheoreticalor
13

conceptualsense,andforthatreason,itisapoortoolforguidinginnovationpolicy
design(EdquistandZabalaIturriagagoitia2015).

Theproblemsareessentiallytwo.Firstly,theSIImakesnodistinctiontoshowwhether
the25indicatorsreflect(a)innovationinputs,(b)innovationoutputs,(c)indicators
measuringintermediatesbetweentheprevioustwo,or(d)consequencesof
innovations.Thesecondproblemisthatall25indicatorsusedintheindexaregiven
thesameweight.Therefore,theIUSdrawstheconclusionthatthecountrywiththe
highestaveragescoreforthe25indicators(i.e.highestSIIvalue)isalsothebest
innovationperformerregardlessofwhetherthesubindicatorswiththehighestvalue
measuretheinputoroutputsideofinnovationorsomethingelse.TheSIIscorewill
increaseifacountryputsmore(input)resourcesintoitsinnovationsystem(e.g.R&D
investments),regardlessofhowtheresourcesareusedorwhichthe(innovation)
outputmightbe.
Ineconomictheoryproductivityisgenerallydefinedastheratioofoutputandinputs
usedintheproductionprocess(i.e.outputperunitofinput).Thisisthecaseoflabor
productivity,whichisthetotalproduction(output)dividedbynumberofemployees
(inputs).TheSummaryInnovationIndicator(SII)usesnonominatorandno
denominatorinthecalculationofinnovationperformance,asitputsinputandoutput
indicatorsinthesameindex.Consequently,theindexdoesnotfollowthebasic
theoreticalassumptionsformeasuringinnovationperformance.

6.TowardsAGeneralAlternativeUseofInnovationMetrics

Inviewofthegenericproblemswithcompositeindexesabove,recenteffortshave
beendevotedtodevelopalternativeformsofanalyzingandmeasuringthe
performanceofinnovationsystems.Oneoftheearliesteffortsinthisdirectionwasat
theregionallevel(ZabalaIturriagagoitia,Voigtetal.2007),andhavebeenfollowedby
otherregionalcompositeindexesfocusingondifferentregionaltypologiesaccording
todiversepatternsofknowledgeinnovationnexus(CapelloandLenzi2013).
Whereastheaboveareusefulsteps,amajorefforttobringforwardagenericmodel
forestimatingtheperformanceofinnovationsystemsisstillneeded.Thisisthe
purposeofacurrentworkdevelopedbyEdquistandZabalaIturriagagoitia,aimingat
developinganalternativeapproachtotheoneusedbySIIbyusingexclusivelythe
dataprovidedbytheInnovationUnionScoreboardpublicationsof2014and2015to
assessandcomparetheperformanceofallEU28Europeannationalinnovation
systems(EdquistandZabalaIturriagagoitia2015).Thatpaperreexaminesthesedata
14

usinganapproachwhichfollowstheperformanceapproachofeconomictheoryas
discussedabove.Insodoing,thatpaperdiscussesthetheoreticalreasonsforselecting
somespecificindicatorsamongthe25oftheSII.
Moreconcretely,thestudysinglesoutanumberofinput(n=4)andoutput(n=8)
innovationindicatorsfromthe25includedintheIUSeditionsof2014and2015.8They
areusedtocomparetheinnovationoutputswiththeinnovationinputsofeachofthe
EU28countries(i.e.,therelationshipbetweentheinnovationinputsandoutputs).
Sucharatioshowshowefficientlycountriesorsystemsusetheirinnovationinputs.
Finally,thatpapercomparesthenewrankingofcountries,withtherankingprovided
bytheInnovationUnionScoreboard.Thisfinalcomparisonresultsinadifferent
rankingoftheperformanceoftheinnovationsystemsoftheEUMemberStates.The
tworankingsarenegativelyrelatedtoeachother.
Naturally,thisalternativehastoberefinedanddevelopedinfutureresearch.The
currentuseofonly4indicatorsoninput,isnaturallynotsatisfactory.Thereare,of
course,otherdeterminantsofinnovationprocesses.Thelistoftenactivities
mentionedaboveinthispaperwouldbeanobviousstart,asisanorderlyconceptual
andtheoreticalapproachtothesedeterminantsininnovationsystems,linkingbackto
theextensivescholarlydebatesonthesematters(Furman,Porteretal.2002)(Ergas
1984).Ideallyatheoreticallyinspiredindexoninnovationsystemperformanceshould
includeallsuchdeterminantsasinputindicators.Thatwouldprovideafullyarticulated
systemicandholisticapproachinwhichalldeterminantsofinnovationprocesses,the
feedbackloopsthatmaketheanalysisnonlinear,andinwhichtherelativeimportance
ofthedifferentdeterminantsofinnovationprocesseswereaccountedfor(Edquist
2014).
IntheOsloManual,innovationinputsrefertotheresources(human,material,
financial;privateaswellasgovernmental)whichareusednotonlytocreate
innovationsbutalsotobringthemtothemarket(OECD/Eurostat2005).Thatservesas
ausefulstartingpoint,andthereforethenextstepwouldbetocreatemeasurements
thatincludealldeterminantsofinnovationprocesses,astheinputsforinnovation
processeslistedinaprevioussectionofthispaper.Thiswouldallowmovingalongthe
trajectoryofbuildingaholisticinnovationsystemandinnovationpolicytheory.
Ifallinnovationinputandallinnovationoutputindicatorswereavailableandincluded,
wewouldbeabletocalculatesomethingcorrespondingtototalfactorproductivity(or
multifactorproductivity)forinnovationsystems.

The four input indicators were public R&D expenditures, private R&D expenditures, venture capital and
non-R&D innovation expenditures.

15


7.SummaryandConclusions

Inthispaperwehaveaddressedtheneedsforindicatorsanddataforthedesignof
innovationpolicyanditsrelationstoconceptualandtheoreticalmatters.Thepursuit
ofinnovationpolicyshouldbetheoryandevidencebasedtothelargestpossible
degree(dependingonthestateoftheartwithregardtotheexistenceoftheoryand
data).Thequestionisthenhowtheseindicators(singleandaggregated)mustbeused,
onwhattheoreticalbasis,andhowdoesthisinteractwiththescholarlyendeavorof
empiricaltestingandfurthertheorisation.
Ourtheoreticalframeworkisaparticularspecificationofthesystemsofinnovation
approachwheretenactivities(ordeterminantsofinnovationprocesses)definean
innovationsystemtogetherwiththeinnovationsassuch(seesection2).Thisholistic
approachisverydifferentfromthelinearmodel,andfromsomeotherspecifications
ofthesystemsofinnovationapproach(Edquist2014).
Whyandinwhichsituationsshouldinnovationpolicybepursuedandwhenshouldit
not?Thereasonsforpublicpolicyinterventioninamarketeconomy,i.e.the
preconditionsforpublicpolicyintervention,maybespecifiedasfollows:
(1) Privateorganizationsmustprovetobeunwillingorunsuccessfulinachieving
theobjectivesformulated;apolicyproblemmustexist;
(2) Thestate(national,regional,local)anditspublicorganizationsmustalsohave
theabilityandorganizationalcapacitytosolveormitigatetheproblem.
Adaptivepolicymakers,asStanMetcalfedefinedtheminthemid1990s,arethose
whoseekdevelopingpoliciesthatareabletomakethesystemadaptandchange
(Metcalfe1995).Thiscanonlybeendoneifpolicymakersunderstandthespecificthe
problemsthatafflicttheirinnovationsystemsandtheircauses.Thus,ideally,
innovationpolicydesignisbasedontheidentificationoftheseconcreteproblems
given(andrespecting)theidiosyncrasiesofthatsystem.Publicinterventionmight
seeksthemitigationofthoseproblems,butitisnotfreefromitsownfailures,as
poorlydesignedinstrumentscaneasilybecomeaproblemontheirown.
Fromourperspective,apolicyproblemisrelatedtoaspecificbottleneck,deficiencyor
ineffectivenessofadeterminantintheinnovationsystem,asconditionsthatdistort
theachievementofpurposelydefinedpolicygoals.Takencollectively,andfroman
aggregatedway,theperformanceofaninnovationsystemisrelatedtotheratioof
inputstooutputs.

16

Weargueinthispaperthatinnovationindicatorsshouldbeusedinawaythattruly
providesatheoreticalbasedclueforinnovationpolicydesign.Thishastodoasmuch
withtheuseoftheseindicatorsfortheindividualidentificationandanalysisofspecific
problemsintheinnovationsystem;aswiththeuseoftheseindicatorsincomposite
andaggregateindexesthatprovideacomparativeoverviewoftheentireinnovation
systemsperformance.
Wehaveputforwardadetailed,yetsummarized,overviewofpolicyproblems,
instrumentsandpolicygeneratedproblemswhichareassociatedtoeachoftheten
activitiesorinputdeterminantsintheinnovationsystem.Thisprovidesasolidbasisfor
understandingthecomplexitiesofinnovationprocesses,butalsotodevelopfurther
theconceptualbasisforcarefulpolicyanalysisatconcretecountriesorregions.The
appendixsummarizesthose.
Likewise,indicatorsarekeyforbroaderconsiderationsregardingtheoverall
performanceoftheinnovationsystemintermsofinputoutputratios.Herethepaper
haspresentedarecentcriticalstudyofthelimitationsoftheInnovationUnion
Scoreboard,andinparticularitsSII(theSummaryInnovationIndex)asdevelopedby
theEuropeanUnionin2014and2015.Thestudyshowsthattheindexistoopooran
analyticaltoolbecauseitdoesnotdistinguishinputsfromoutputsandputsthem
togetherinonesinglemeasurement.Disregardingtheoreticalissuesabout
performanceineconomics,andaboutinputoutputconceptsininnovationsystems
approaches,aggregateindexesruncountertheirownintentionsofprovidingpolicy
guidance.
Allthisbringsustomaketwointerrelatedpleas.Thefirstonehastodowiththeuseof
indicatorsbypolicymakers.Theuseofspecificindicatorsshouldbeusedtohelp
identifyingconcretepolicyproblemsintheinnovationsystem,beforedesigningorre
designinginnovationpolicyinstrumentsthataretrulyabletoredressmalfunctions
andbottlenecks.Theseindicatorsshouldalsobeusedintoaggregateindexes,inaway
thatfollowwelldevelopedtheoreticalframeworks,sothattheindexesprovide
consistentandsolidoverallviewsandcomparisonsabouttheperformanceof
innovationsystemsintheirentirety.
Thesecondpleaisthatfutureresearcheffortsmuststrivetolinkmuchmorestrongly
theabstractendeavoursoftheorizingaboutthedeterminantsofinnovationsystems,
togetherwithconcreteempiricaltestingofthesedeterminants(usingspecificsetsof
relevantindicators).Thisiterativeprocessbetweentheoryandempiricaltestingisthe
keystoneofsocialsciencesprogress.Thescientificstudyofpolicyinstrumentsisan
essentialelementofthisiterativeprocess.Notonlybecausepolicyinstruments(asthe
toolsgovernmentsusetosolvepolicyproblems)areobjectsofscientificstudyontheir
ownright;butalso,andperhapsmostimportantly,becausetheyarethecornerstone
formakingsocialsciencesresearchresultsmorerelevantforreallifepolicymaker.
17

Appendix1:PolicyProblemsandInnovationPolicyInstrumentstoMitigateThem

AREASofthe
INNOVATION
SYSTEM
Knowledge
Creationand
Research&
Development

POLICYRELEVANTPROBLEMSIN
THEINNOVATIONSYSTEM

COMMONLYUSEDPOLICY
INSTRUMENTS

POLICYGENERATEDPROBLEMS

Insufficientprivateinvestmentin
R&D.
Highuncertainty
Largetimelagbetweeninvestand
returns.

Enblocksupport

Lackofadditionalityandcrowdingout.

Competitionbasedpublic
support.

PublicR&Dsupportdoesnotpromote
disruptiveknowledge.

Taxincentives.

Unbalancedpublicsupportbetween
curiositydrivenR&DandstrategicR&D.

IntellectualPropertyRights.
PublicPrivatepartnerships.

Education,
Insufficientskills&competences
trainingandskills duetolowlevelsofeducation
or/andbraindrain.

Timelagbetweenfirmsshort
termneeds,andlongterm
developmentofskills&
knowledge.

Focusonthequantitynotonthequalityof
R&D.

Regulation,organizationand
Oldfashionedpedagogics&notdeveloping
fundingoftheeducationsystems knowledgecompetencesforXXICentury.
includingvocationaltraining.
Insufficient&inflexiblevocationaltraining.
Migrationpolicies(including
reversebraindraininstruments).

Dependenceonforeignknowledge
competences

18

Formationof
newproduct
markets&
quality
requirements
(Demandside)

Lackofinnovationdynamicsinthe PublicprocurementRepetitive
economyandinthepublicsector. descriptionofexistingproducts.
Technologicallockin.
Costsofopportunityifnot
developingtechnologyand
innovativesolutionstocomplex
societalandeconomicproblems.

Demandforobsoleteproductsandlackof
enhancementofinnovation.

PublicprocurementInnovation
related.

Organizational
change:
Entrepreneurship
&
intrapreneurship

Innovation
networks,
agglomerations
andclusters

Weaklevelsofentrepreneurship
andnewentrantsintheeconomy.
Lowintrapreneurshipin
establishedfirms.
Poorselectionenvironmentdoes
notrewardentrepreneurial
activity.
Unexploitedpotentialdueto
insufficientinteraction
Networkpartnersarenot
complementingeachother
Noagglomerationeconomiesor
positivenetworkexternalitiesas
knowledgespillovers.

Instrumentsaimingatcreating
variationandselection
environment.
Instrumentspromoting
entrepreneurialculture.

Ineffectivepoliciesunabletocreate
variationandselectionenvironments
Policiesstrengthentheincumbents
discouragingnewentrants.

Disseminatingbestpracticesof
innovationmanagement
practices.
Promotingcollaboration
Policyreinforcestechnologicallockin.
betweenacademiaandindustry. Mainlylocalnotinternationalnetworking.
Promotionoflocalandregional
investment,knowledge

developmentandbranding.

Encouragementofindustrys
interactionswithacademia.

19

Institutionsand
institutional
frameworks

Lackofincentivestoinvestin
immaterialassets
Lackofalevelplayingfieldfor
marketinteractions.

Intellectualpropertyrights.
Competitionregulations.
Publiclysponsoredtechnical
standards

Highlevelofuncertainty.

Mechanismsforconflict
Negativeeconomicandknowledge resolution
externalities.

Underdevelopeddemandof
venturecapital(weaknessof
entrepreneurship).
Capitalmarketsupply
underdeveloped(few,
unspecializedventurecapital
firms,fewbusinessangels,etc).
Problemsassociatedwiththe
intrinsiclogicoffinancial
investments:Asymmetric
information&highuncertainty.

Unbalancebetweenprivatebenefitsand
socialbenefitsoftheinstruments,
particularlyregulation.
Standardspromotingtechnicallockin.
Lackofadaptabilityofregulation&red
tape.

SMEsaccessto
VentureCapital

Limitedeffectivenessoftheregulation:
generatinginsufficientincentivesand/or
highcostsofcompliance.

Directpublicsupportof
entrepreneurialandseed
fundingactivitiesinfirms(soft
loans,grants,equity).
Supporttoventurecapital
industry.
Taxincentivestoinvestors.
Regulatoryincentivesforprivate
investment.

Publicinstrumentsnevermanageto
stimulateprivateriskcapitalmarketsdue
toweakcapitalinvestmentculture(supply)
and/orweakentrepreneurialecosystem
(demand).
Directpublicsupportcrowdsoutprivate
investorsintheventurecapitalmarket
Contradictinggoalsorunclearsituations
aboutwhoshouldbenefitfromsuccessful
directpublicsupport

20

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