Country Report Sweden 2009-1

INNO-Policy TrendChart
INNO-Policy TrendChart –
Innovation Policy Progress Report
Sweden
2009
European Commission
Enterprise Directorate-General
PREFACE
Innovation is a priority of all Member States and of the European Commission. Throughout Europe,
hundreds of policy measures and support schemes aimed at innovation have been implemented or
are under preparation. The diversity of these measures and schemes reflects the diversity of the
framework conditions, cultural preferences and political priorities in the Member States.
PRO INNO Europe® is an initiative of the Directorate-General for Enterprise and Industry (DG ENTR)
which aims to become the focal point for innovation policy analysis, learning and development in
Europe, with a view to learning from the best and contributing to the development of new and better
innovation policies in Europe. Run by the Innovation Policy Directorate of DG ENTR, it pursues the
collection, regular updating and analysis of information on innovation policies at national and
European level.
INNO-Policy TrendChart serves the 'open method of coordination' approach laid down by the Lisbon
Council in March 2000. It supports policymakers and innovation support measure managers in Europe
by providing summarised and concise information and statistics on innovation policies, performances
and trends. It is also a European forum for benchmarking and the exchange of good practices in the
area of innovation policy.
INNO-Policy TrendChart products
INNO-Policy TrendChart, previously the TrendChart on Innovation, has been running since January
2000. It currently tracks innovation policy developments in all 27 EU Member States, plus Brazil,
Canada, China, Croatia, Japan, Iceland, India, Israel, Norway, Switzerland, Turkey and the US. The
INNO-Policy TrendChart website ( 1 ) provides access to the following services and publications, as
they become available:
• a database of innovation policy measures in the 39 countries;
• a news service and related innovation policy information database;
• annual policy monitoring reports for all countries covered;
• the European Innovation Progress Report, an annual synthesis report bringing together
key points in the INNO-Policy TrendChart.
This document has been prepared within the framework of an initiative of the European Commission’s
Enterprise and Industry Directorate-General, Innovation Policy Development Unit. Official responsible:
Cesar Santos (Cesar.SANTOS@ec.europa.eu).
The present report was prepared by Lennart Elg, VINNOVA (lennart.elg@vinnova.se).The contents
and views expressed in this report do not necessarily reflect the opinions or policies of the Member
States or the European Commission.
The report covers the period from July 2008 to June 2009.
Copyright of the document belongs to the European Commission. Neither the European Commission,
nor any person acting on its behalf, may be held responsible for the use to which information
contained in this document may be put, or for any errors which, despite careful preparation and
checking, may appear.
1
See http://www.proinno-europe.eu/index.cfm?fuseaction=page.display&topicID=52&parentID=52 online.
CONTENTS
EXECUTIVE SUMMARY: PUBLIC SUPPORT FOR INNOVATION – A SNAPSHOT .............................I
1. MAIN TRENDS AND CHALLENGES IN THE NATIONAL INNOVATION SYSTEM..................... 1

1.1 RECENT ECONOMIC TRENDS AND MARKET DEVELOPMENTS ..................................................................... 1
1.1.1 The credit crisis and its effect on innovation activity...................................................................... 2
1.2 RECENT TRENDS IN THE NATIONAL INNOVATION PERFORMANCE ............................................................. 3
1.3 IDENTIFIED CHALLENGES ........................................................................................................................ 6
2. PUBLIC SUPPORT TO INNOVATION .................................................................................................... 9
2.1 MAIN OBJECTIVES FOR INNOVATION POLICY ............................................................................................ 9
2.2 INNOVATION GOVERNANCE SYSTEM ...................................................................................................... 10
2.2.1 Main changes in the national governance system ......................................................................... 11
2.3 PUBLIC FUNDING TO INNOVATION .......................................................................................................... 11
2.3.1 Review of the current range of support measures for innovation.................................................. 12
2.3.2 New or modified support measures ............................................................................................... 13
2.3.3 Strengths and weaknesses in the innovation policy support system .............................................. 14
3. INNOVATION POLICY AND COMPETITIVENESS: AN APPRAISAL........................................... 17
3.1 THE ABILITY OF POLICY TO ADDRESS CHALLENGES ............................................................................... 17
3.2 IMPACT OF GLOBALISATION ................................................................................................................... 17
3.2.1 How well does policy respond to innovation challenges?............................................................. 18
3.3 EFFECTIVENESS OF POLICY DESIGN ........................................................................................................ 19
3.3.1 Process of delivery ........................................................................................................................ 19
3.4 IMPACT OF PUBLIC SUPPORT FOR INNOVATION ....................................................................................... 20
3.4.1 A case study: The impact of government support to automotive research .................................... 20
3.4.2 Conclusions: possible future actions and opportunities for innovation policy ............................. 22
ANNEXES ........................................................................................................................................................... 24
Exhibits
Exhibit 1: Comparable indicators of economic performance 1
Exhibit 2: As an export-dependent economy, Sweden was hit hard by the economic crisis 2
Exhibit 3: European Innovation Scoreboard: country page for Sweden 4
Exhibit 4: Main innovation policy challenges 6
Exhibit 5: The Swedish Motor Vehicle Industry 8
Exhibit 6: Main innovation policy documents 10
Exhibit 7: An example: Distribution of VINNOVA's support 12
Exhibit 8: New Innovation Policy Support Measures (since the last report) 14
Exhibit 9: Total R&D expenditures in Sweden for 2007, by performing sector 15
Exhibit 10: Share of business R&D performed by foreign-owned firms 17
Exhibit 11: VINNOVA's Impact studies 20
Executive Summary: public support for innovation – a snapshot
1. Main trends in the National Innovation System
According to the 2008 EIS report, Sweden remains in the group of Innovation leaders. However,
Sweden has been overtaken by Switzerland as the leading country in innovation. R&D investments by
industry in Sweden are concentrated around some 20 large companies operating in the world market.
Investments in R&D by SMEs are on a level comparable to other industrial nations, but their share of
total R&D is smaller.
The Swedish economy is heavily dependent on exports, which to a large extent are specialised in
investment goods. For both these reasons, the downturn in demand has a stronger impact on the
Swedish economy than on the EU average. The necessary restructuring of the major export industries
limits their ability to invest in innovation and long-term renewal. Informal contacts with industry leaders
indicate that preserving R&D staff levels is a priority. However, this is achieved by reassigning R&D
staff to activities with shorter-term payoffs.
Furthermore, this restructuring takes place in a context where the major R&D performers are
increasingly globalised: More than 40% of business-sector R&D is performed by companies with
headquarters outside Sweden, while for companies which are still nominally Swedish, the home
market plays an increasingly marginal role. Sweden can no longer count on being a natural choice
when the survival and location of business activities are re-evaluated.
A limited ability to invest in innovation does not only affect large companies. It will also affect their
demand for innovation-related services from knowledge-intensive SMEs, research institutes and
universities. This means that innovative SMEs are impacted both by lack of access to capital, and by
decreased demand for their services. Public sector demand for and investments in innovative
solutions are also affected, as shrinking available resources have to be focused on maintaining core
functions.
The crisis has not affected all industries equally: The motor vehicle industry accounts for 5% of private
sector employment in Sweden, around one quarter of private sector R&D investments and around one
fifth of investments in machinery and inventory. An issue which will not disappear when the crisis
passes is the global overcapacity in car manufacturing. Truck-makers have a stronger market position,
but the downturn in economic activity has meant a sharp cyclical drop in demand for their products.
2. Main developments in public support for innovation
In 2008, the government introduced a five-year Research and Innovation Bill. New funding for
university research will be allocated based on a new quality assessment system, and one third of the
new funding will be allocated to a number of strategic areas, based on a competitive process.
The bill also introduces an initiative to increase the commercialisation of research results. Innovation
offices will be set up at a number of higher education institutions. The so called third task of
universities, cooperation with industry and society, should be seen as an integrated part of teaching
and research, and not as a separate activity. New language in the bill puts a stronger emphasis on
putting knowledge to use through commercialisation and other means.
The institute sector is also to be strengthened, although this starts from a historically low level. The
government stake in industrial research institutes has been consolidated, with the ambition to develop
the current structure dominated by small sector-focused institutes into stronger and larger institute
blocks with the potential of becoming internationally competitive.
i
In summary, the main pillars of Swedish innovation policy rhetoric remain a strong university research
system on one hand, and general framework conditions for business on the other, with some efforts
devoted to linking up the two, although mainly with a view to 'getting research results out' rather than
communicating the needs of business to the academic community. However, when the mix of actual
schemes in place is examined, the large share of cluster building, public-private partnerships (PPPs),
etc. seem to fill this purpose.
3. Appraisal of national innovation policy
To put Sweden back on a path of sustainable – and smarter – growth, Sweden must provide an
attractive environment for high value added business activities. In the longer term, Sweden must
loosen its dependence on a limited number of large firms, whose future expansion will to a large
extent follow the growing new markets. This involves both developing a stronger sector of growing
SMEs and the ability to attract Greenfield investments.
The recent government bill 'A boost to research and innovation' addresses innovation only in terms of
the role of the public research infrastructure, which in the Swedish context means primarily research in
universities. The strategic areas identified by the government consider that concerns regarding social
needs or long-term economic utility are a legitimate dimension of priority setting, and the proposal
process could be the first step towards developing the strategic capacity of universities.
However, there are a number of functions in the national innovation support system that universities
are not well equipped to perform. To some extent the need has not been perceived in the past, since
the large companies have been able to internalise the bridging function. However, the need to
compete for future investment as well as stronger future dependence on SMEs will probably require
stronger attention to the role of bridging institutions. Innovation is increasingly dependent on a wider
set of skills than science and technology (S&T), and involves a broader set of actors than industry
research and development (R&D) labs and public research institutions. Policies need to evolve to take
this into account.
A small country has to make hard choices, since it cannot invest resources in all areas. To make wise
choices, strategic capacity will be needed at all levels of the innovation system.
ii
1. Main trends and challenges in the National Innovation

System
1.1 Recent economic trends and market developments

Exhibit 1: Comparable indicators of economic performance
Indicator National performance EU 27 average
2005 2008 2005 2008
GDP per capita in PPS (EU-27=100) 120.3 121.4 100* 100*
Real GDP growth rate (% change previous year) 3.3 -0.2 2.0 0.9
Labour productivity per person employed 110.1 111.6 100* 100*
(EU-27=100)
Total employment growth (quarterly% change) n/a n/a
Inflation rate (average annual) 0.8 3.3 2.2 3.7
Unit labour costs (growth rate) -0.8 -0.5 -0.6 0.4
Public balance (net borrowing/lending) as a % of GDP 2.3 2.5 -2.4 -2.3
General government debt as a % of GDP 51.0 38.0 62.7 61.5
Unemployment rate (as % of active population) n/a n/a
Foreign direct investment intensity (see note) 4.5 4.6 0.9 3.4
Business investment as a percentage of GDP 14.4 16.8 17.7 18.4
Source: Eurostat - Structural Indicators and Long-term Indicators (see http://epp.eurostat.ec.europa.eu).

Note: FDI data refer to 2004 and 2007.
Key: (*) EU-25 average, (^) or latest available year (for example: 2005), (:) not available.
The decline of international trade which has followed the financial crisis has had a strong impact on
Sweden, for several reasons: The Swedish economy is strongly export dependent (a fact which we
usually view as a source of strength), and this export industry to a large extent is specialised in
industrial investment goods whose demand is strongly affected by a downturn in the economy. This is
reflected by the fact that Swedish GDP for Q2 2009 was down 6.3% on an annual basis, compared to
4.8% for the EU-27 area. Industrial production (May 2009) is down by 21.6% (16.6% for EU-27) ( 2 ).
Automakers Volvo Cars and Saab are also affected by the massive global overcapacity in auto-
making.
2
EUROSTAT Structural Indicators.
1
Exhibit 2: As an export-dependent economy, Sweden was hit hard by the economic crisis
The inflow of new orders in the Swedish engineering industry continued to fall during the second
quarter of 2009, but at a less negative rate compared to the previous two quarters. Capacity utilisation
has reached a very low level with just 13% of respondents working at full capacity. The shortage of
labour is almost nonexistent. There is no significant change in the assessment of order stocks and
70% of respondents assess them as below normal ( 3 ).
1.1.1 The credit crisis and its effect on innovation activity

There are no recent indicators available yet to capture the impact of the current crisis on innovative
activities in firms.
With regard to the large firms which undertake the major share of R&D in Sweden, interviews with
industry leaders indicate that they are very aware of the need to retain R&D staff with key
competences. However, in many cases this involves reassigning R&D staff to shorter term activities
with more immediate payoff.
A survey of innovative small and medium-sized enterprises, performed as recently as June 2009 ( 4 ),
investigated the impact of the crisis on strategic investments. Perhaps surprisingly, an almost equal
number of firms reported a positive impact (18%) as negative impact (19%), while the majority (63%)
reported no significant impact. Companies who reported a positive impact noted that when business
was good all attention was on current business, while the crisis forced a reappraisal of long term
strategies. Firms in the manufacturing industry were more likely to report a negative impact (29%) than
service firms (12%) or 17% of life science companies.
However, 61% of companies who had looked for external funding report that finding such funding had
become more difficult. Here the difficulty was felt most strongly by life science companies (47% said it
was 'much harder') compared to 38% of manufacturing firms and 25% of service firms. Problems with
access to external funding related mainly to private risk capital and bank financing, while 33% reported
that access to public financing had in fact improved.
3
News from Teknikföretagen: Business activity Second quarter 2009 ( see
http://www.teknikforetagen.se/upload/eng/barometern_2_2009_ENG_webb.pdf).
4
VINNOVA Rapport VR 2009:18 En undersökning av innovativa företags syn på strategiskt utvecklingsarbete i
spåret av lågkonjunkturen 'An investigation of innovative firms' views on strategic development, in view of the
economic crisis'.
2
When asked what would improve the possibility to make investments in strategic development, the
most important driver was improved market demand for manufacturing firms (44%) and service firms
(36%), while 44% of life science companies emphasised access to risk capital.
The survey shows a differentiated impact of the crisis: Manufacturing firms with high export content
are affected first. Service firms with a more local market feel the downturn later. Life science
companies are usually involved in long-term development and do not feel an immediate downturn in
demand. Instead they are affected by the disappearance of private risk capital.
The government has responded to the crisis in different ways. It is worth mentioning that Sweden now
benefits from some valuable lessons it learned the hard way during a similar but local financial crisis in
the early 1990s, which nearly crushed all large banks but one ( 5 ). First, banks have not exposed
themselves to sub-prime housing mortgages. Two of the larger banks have lent substantial sums to
risky clients abroad, primarily in the Baltic States. But at home there is no sign of any mortgage crisis.
Second, successive governments have struggled to reduce Sweden’s national debt by maintaining
annual budget surpluses for 15 years. The national debt peaked in 1994 at over 60% of gross
domestic product (GDP) — roughly equivalent to the present US figure — but has since been halved.
Such long-term fiscal discipline means that the government now can afford to stimulate the economy
by giving consumers tax cuts or subsidies, without being afraid of mounting national debt.
Third, Sweden has not joined the euro, but has stuck to its national currency, the Swedish krona.
During the 1990s crisis, politicians aimed for stability and therefore tried to keep the exchange rate
steady. The attempt failed miserably, and the krona has been allowed to float ever since. In the
current crisis, this automatic exchange rate cushion helps soften blows from abroad.
The main emphasis of government response has been to maintain the stability of the financial system
through a number of guarantee schemes, and to soften the impact on employment, through retraining
schemes and financial support to local governments, to counteract the impact of a reduced tax base.
There have been no specific innovation policy initiatives linked to the crisis, with the exception of a
new state-owned risk capital company focused on the motor vehicle industry, with a capitalisation of
EUR 300 million. An ambitious research bill was launched in the fall of 2008, with some resources
directed to commercialisation of university research (see Section 2.1).
1.2 Recent trends in the national innovation performance

The European Innovation Scoreboard (EIS) offers a basis for policy learning by providing an
extensive set of indicators tracking the performance of national innovation systems. In Exhibit 2,
Sweden's performance is compared to the EU-27 average, based on the EIS 2008.
According to the 2008 EIS report, Sweden remains in the group of Innovation leaders. However,
Sweden has been overtaken by Switzerland as the leading country with respect to innovation,
compared to the 2007 EIS report. This partly reflects a change in methodology but also the strong
growth by Switzerland in areas such as economic effects and throughputs. Relative strengths,
compared to the country’s average performance, are in Human resources, Finance and support, and
Firm investments, while relative weaknesses are in Throughputs and Innovators. Over the past five
years, Finance and support and Throughputs have been the main drivers of the improvement in
innovation performance, in particular as a result of relatively strong growth in Venture capital (9.1%),
Broadband access by firms (8.8%), Community trademarks (7.8%) and Technology Balance of
Payments flows (10.1%). Performance in Firm investments, Linkages & entrepreneurship, Innovators
and Economic effects has worsened, in particular due to a decrease in Innovative SMEs collaborating
with others (-4.5%) and the Firm renewal rate (-6.1%).
5
Fredén, Jonas, 'Soft landing for Sweden in financial crisis' (see
http://www.sweden.se/eng/Home/Business/Economy/Reading/Soft-landing-for-Sweden-in-financial-crisis/).
3
In interpreting these data, it is necessary to remember that while some downturn of the economy was
evident already in 2007, the data refer to the situation before the financial crisis. Currently they are of
interest mainly as an indication of the foundations on which an innovation-led recovery could be
based.
Exhibit 3: European Innovation Scoreboard: country page for Sweden
4
5
1.3 Identified Challenges

The challenges identified in previous Scoreboards are still valid, and will not be commented on in this
report, However, the current economic and financial crisis reinforces many of these and poses major
new challenges to the Swedish innovation system:
Exhibit 4: Main innovation policy challenges

Description of challenge Relevant indicators and trends
Strong dependence on a small number of large, The 20 largest firms account for 62% of industry
globalised firms R&D, a fairly stable figure over the last decade
(except for changes in coverage of statistics).
Dealing with the impact of the crisis, in particular See Exhibit 4: The Swedish motor vehicle
uncertainty about the viability of the auto industry industry.
Lack of policies for supporting non-technological See Chapter 2.1, Main objectives for innovation
forms of innovation, innovation in services etc. policy.
6
1. Strong dependence on a small number of large, globalised firms. R&D investments by

industry are concentrated around some 20 large companies operating in the world market.
Investments in R&D by SMEs are on a level comparable to other industrial nations, but their
share of total R&D is smaller. The Swedish economy is heavily dependent on exports, which
are to a large extent specialised in investment goods. For both these reasons, the downturn in
demand has a stronger impact on the Swedish economy than on the EU average.
The necessary restructuring of the major export industries limits their ability to invest in
innovation and long-term renewal. Informal contacts with industry leaders indicate that
preserving R&D staff levels is a priority. However this is achieved by reassigning R&D staff to
activities with shorter-term payoffs.
Furthermore, this restructuring takes place in a context where the major R&D performers are
increasingly globalised: More than 40% of business sector R&D is performed by companies
with headquarters outside Sweden. In addition, for companies which are still nominally
Swedish, the home market plays an increasingly marginal role. Sweden can no longer count
on being a natural choice when the survival and location of business activities are re-
evaluated.
A limited ability to invest in innovation does not only affect the large companies, but also their
demand for innovation-related services from knowledge-intensive SMEs, research institutes
and universities. This means that innovative SMEs are impacted both by lack of access to
capital, and by decreased demand for their services. Public sector demand for and
investments in innovative solutions are also affected, as shrinking available resources have to
be focused on maintaining core functions.
2. Impact of the crisis on the motor vehicle industry. Sweden is unique in that a country of nine
million is home to two leading makers of heavy trucks and construction equipment, as well as
two automakers (see Exhibit 4). With close to 5% of private sector employment (2007) the
industry is of vital importance to the Swedish economy. The motor vehicle industry accounts
for around one quarter of private sector R&D investments and around one fifth of investments
in machinery and inventory.
This industry has been strongly affected by the economic crisis: The two automakers have
been affected by sharp drops in demand, the financial weakness of their respective US parent
companies, and the resulting uncertainty about their future (in particular for Saab). A longer
term issue which will not disappear when the crisis passes is the global overcapacity in car
manufacturing. The truck makers have a stronger market position, but the downturn in
economic activity has meant a sharp cyclical drop in demand for their products.
While automobiles and heavy trucks may appear to be separate industries there are strong
links through their supplier networks. The failure of one major company would have serious
impacts on the ability of Swedish component suppliers to reach the critical mass necessary to
6
develop and manufacture components in Sweden ( ).
The network effects reach even further: few complex mechanical products are mass-produced
in such volumes as automobiles, which puts a premium on competence in production
engineering. A study of the distribution of factory automation in Sweden ( 7 ) concluded that the
presence of Volvo and Saab was a crucial factor in the distribution of industrial robots in
Sweden. They created a market with critical mass, and once supplier firms established their
presence in Sweden, this gave easier access to the technology for other firms, which if
6
Swärd, Lasse 'Bilindustrin hotas om Saab läggs ned' (Motor vehicle industry threatened is Saab fails), Dagens
Nyheter, 3 December 2008.
7
Carlsson, Bo (ed) ' Technological systems and economic performance: the case of factory automation', Kluwer
Academic Publishers, 1995.
7
operating on their own would have represented too small a market to attract the advanced
suppliers.
Exhibit 5: The Swedish Motor Vehicle Industry 8
The Swedish motor vehicle industry employs around 127 000 staff (2007) in companies with more than 20
employees, and an estimated additional 5 000 to 10 000 in smaller companies, or 5% of total private
sector employment. Around half of these were employed in 'the big four':
Volvo Cars (Ford) 19 800
Saab Automobile (GM) 6 100
Volvo AB ( 9 ) 23 600
Scania 12 100
These are companies with the capacity to develop new vehicles and to integrate a complex chain of
suppliers. There are also several smaller companies developing and manufacturing specialised vehicles
for construction, forestry and military use. The supplier industry consists of around 500 companies,
strongly dependent on the 'big four'.
Employed in R&D
10
The big four (incl VCE ) 11 000
Suppliers 3 500 to 4 500
Specialised vehicles (excl VCE) 300 to 500
Consultants & R&D institutes 4 000
Total, estimated 19 000 to 20 000
The big four export most of their production (more than 90% for Scania and Volvo AB), and import abt.
70% of components, systems and services integrated in their final products. The suppliers are highly
dependent on the domestic vehicle manufacturers, which account for around 50% of the supplier firms'
sales.
3. Lack of policies for supporting non-technological forms of innovation, innovation in services

etc. As discussed further in Chapter 2.1, the main pillars of Swedish innovation policy remain
a strong university research system on one hand, and general framework conditions for
business on the other, with some efforts to linking up the two, however mainly with a view to
'getting research results out' not communicating the needs of business to the academic
community.
8
This exhibit is mainly based on Dolk, T., Persson, J-C, "Företag inom fordonsindustrin – Nationella, regionala
och sektoriella klusterprofiler som underlag för analys- och strategiarbete" (The Swedish motor vehicle industry –
national, regional and sectoral cluster profiles), VINNOVA Analys VA 2007:05, ISBN 978-91-85084-77-7
9
Excluding Marine engines and Volvo Aero.
10
Volvo Construction Equipment.
8
2. Public Support to Innovation
2.1 Main objectives for innovation policy

'In our age, knowledge is in the process of becoming the most important competitive factor. Countries
lagging behind in terms of knowledge and innovation risk running into enormous difficulties. This is
one reason why we are making the biggest investment ever in Swedish research. The other reason is
that we want to contribute to solutions to the enormous problems facing mankind, such as the climate
issue and how serious diseases could be cured or alleviated,' said then Minister for Higher Education
and Research Lars Leijonborg when the 2008 Research and Innovation Bill ( 11 ) was introduced. 'But
more funds are is not sufficient. There are also a number of systems issues that have hampered
Swedish research. By consistently maintaining high standards and using competition as a method, we
are providing Swedish researchers with the potential of being best of all,' he added.
The largest portion of central government research funds will go to academic institutions. New funding
will be distributed according to a new system in which quality will determine how much each university
or higher education institution will receive. Quality will be measured by means of two criteria –
publications/references to publications and external research funds (this applies to all external funding,
including industry contracts). This introduces a new element of competition between universities.
Since World War II, government-supported basic research has in principle been funded in two ways:
through direct appropriations to universities (faculty funds) and through appropriations via the research
councils (council appropriations). An important element of the reform of the appropriations system is
that a third and major type of funding will be introduced: strategic investments. Out of the SEK 5 billion
allocated to the Research Bill, SEK 1.8 billion will fund a permanent, annual increase in appropriations
for research in a number of strategically important areas.
In the Research and Innovation Bill, the Government presents an initiative to increase the
commercialisation of research results, emphasising that 'Government investments in research need to
be made use of more extensively in the community and business sector'. Innovation offices will be set
up at a number of higher education institutions. However, the proposal is not backed up by any
discussion of the broader set of mechanisms through which academic research contributes to the
12
economy (see for instance Martin and Tang, 2007) ( ). There is also no discussion of how the new
offices relate to a number of schemes already in place with the same purpose (see Section 2.31,
Review of the current range of support measures for innovation).
The law governing universities has been amended so that the so called 'third task' which has so far
been interpreted as informing society about research results should be seen as an integrated part of
the first and second tasks, teaching and research, and not as a separate activity. The new language
also places stronger emphasis on putting knowledge to use, through commercialisation and other
means, not only informing society.
Is the strongly science-driven view of innovation in the 2008 Research and Innovation Bill simply a
result of the bill being introduced by the (then) minister for science? Apparently not. In a recent
13
response ( ), the Swedish minister for enterprise, Ms. Maud Olofsson, presents a view very much in
line with the bill. Referring to the conclusions of the Globalisation council, the minister notes that
'closer and more effective cooperation between private and public actors involved in innovation is
required in order to better commercialise discoveries (sic) and new business models'.
11
Ett lyft för forskning och innovation, 'A Boost to Research and Innovation', Pregeringens proposition
(Government bill) 2008/09:50.
12
Martin, B.R., Tang, P., 2007. 'The benefits from publicly funded research' SPRU Electronic Working Paper
Series, Brighton.
13
Olofsson, Maud, Här är vårt innovationsrecept, Björn 'Here is our recipe for innovation, Bjorn', Ny Teknik 27
Aug 2009 (http://www.nyteknik.se/asikter/debatt/article623636.ece in Swedish).
9
The minister points to the new model of funding strategic research areas of importance for the
development of enterprise and society. 'To ensure that this research is put to use, it is often important
to carry out the research in cooperation with industry.' However, such cooperation was not a
requirement in the call-for-proposals process, and it remains to be seen whether it is a priority in the
final selection, to be announced by the government this fall.
The institute sector is also to be strengthened, although from a very low starting point and after 20
years of continuous decline. More importance is given to general framework conditions for industry:
'Above all, the government has launched a broad program to lower the cost of capital and labour for
business, and for the first time reduced regulatory red tape.'
In summary, the main pillars of Swedish innovation policy rhetoric remain a strong university research
system on one hand, and general framework conditions for business on the other, with some efforts to
linking up the two. However, this is mainly with a view to 'getting research results out' rather than
communicating the needs of business to the academic community. Nonetheless when we look at the
mix of actual schemes in place, the large share of cluster building, public-private partnerships (PPPs)
and similar initiatives can be seen to fill this purpose. The problem may be a lack of common
understanding between the political level and the operational level of innovation policy.
Exhibit 6: Main innovation policy documents
Ett lyft för forskning och innovation (A Boost to Research and Innovation), Pregeringens proposition
(Government bill) 2008/09:50.
BORTOM KRISEN Om ett framgångsrikt Sverige i den nya globala ekonomin (Beyond the crisis. A
Successful Sweden in the New Global Economy). Final report of the Globalisation Council, DS
2009:21.
Strategiförslag för FoU och innovation för hållbar tillväxt (A strategy proposal: Research and
innovation for sustainable growth), VINNOVA Dnr 2009-00377.
2.2 Innovation governance system

The Swedish institutional system is characterised by relatively small ministries. This implies that
functions held by ministries in other countries fall under the responsibility of government agencies in
Sweden. These agencies are formally independent, and there are constitutional limits on the amount
of micromanagement ministers can exert.
Most innovation policy issues are handled by the Ministry of Enterprise, Energy and Communications,
while the Swedish Governmental Agency for Innovation Systems (VINNOVA) executes innovation
policy on a national level through financing of needs driven research, development and demonstration
as well as strengthening networks (cooperation between actors) that are a necessary part of
innovation activities ( 14 ). This work is complemented by the Knowledge Foundation and the
Foundation for Strategic Research, two semi-public research foundations ( 15 ). Policy issues
concerning universities – the backbone of public funded R&D in Sweden – are handled by the Ministry
for research and education, while the Swedish Research Council is the main body for funding
curiosity-driven research. The Swedish Energy Agency plays as important role in the energy field.
At the national level, the responsibility for executing policy concerning business development is
distributed among several actors. The Innovation Bridge handles commercialisation of research and
provides (limited) pre-seed funding, ALMI Business Partner supports the creation of (non-R&D)
14
Issues concerning energy and restructuring of the energy system are handled by the Swedish Energy Agency.
15
A government appointed board manages the foundations.
10
businesses, the Industrial Fund is a public venture capital investor, and the Invest in Sweden Agency
(ISA) promotes inward investment.
2.2.1 Main changes in the national governance system

In 2008, three agencies involved in support for regional and business development: the Institute for
Growth Policy Studies (ITPS), the Swedish Agency for Economic and Regional Growth (NUTEK), and
the Swedish National Rural Development Agency, which were reorganised, into a new Swedish
Agency for Economic and Regional Growth, Tillväxtverket and a separate policy analysis institute, the
Swedish Agency for Growth Policy Analysis.
The Globalisation Policy Council (GPC) ( 16 ) concluded its work during 2008 ( 17 ). Its recommendations
probably played a role in paving the way for the strategic research areas introduced in the 2008
Research Bill (see Section 2.3). However, its long term impact is unclear, as the then minister for
science, who was chair of the council and instrumental in setting it up, resigned from government after
the Research and Innovation Bill had been passed by the government.
From Jan 1 2009, the government stake in the industrial research institutes was consolidated in the
RISE Research Institutes of Sweden Holding AB. Most of the institutes are partly owned by the
government, through RISE, and partly owned by consortia of private firms. The ambition is to develop
the current structure dominated by small sector focused institutes into stronger and larger institute
blocks with the potential of becoming internationally competitive. Opportunities for industrial research
institutes to cooperate with both higher education institutions and the business sector are to be
enhanced through increased strategic skills development funds. The institutes will also be given
opportunities to participate in initiatives in strategic areas.
2.3 Public funding to innovation

The Swedish policy focus on strengthening the research base is reflected in a comparison with other
EU countries (see Annex 1, Innovation Policy Support Factsheet). Compared to the EU-27 average,
Sweden shows strong emphasis on health and biotechnology. Strong emphasis on transport reflects
the current crisis in the automotive industry. The apparent low emphasis on ICT is a bit surprising,
given Sweden's strong position in mobile telecommunications. Most likely this reflects the fact that ICT
has matured as a field where support has been consolidated to a limited number of measures.
In terms of policy priorities, Sweden stands out in measures promoting excellence in universities, while
linking this to the business sector through cluster building, PPPs, etc. On the other hand, Sweden puts
less emphasis on knowledge transfer, direct support to business R&D, support to risk capital or
mobility of researchers.
In late 2008, the government introduced a new Research and Innovation Bill, which covers the period
2009-12 and allocates additional resources to the tune of EUR 500 million. The investment now being
made means that the Lisbon 1% target will be achieved by 2009.
Most of the central government funds will go to universities and other higher education institutions.
While appropriations will increase, the new funds and 10% of the previous appropriations will be
distributed following a quality assessment. Quality will be assessed based on the ability of the higher
education institution to attract external funding and on the number and quality of scientific articles
published by each institution.
Part of the new funding will be focused on areas that have been deemed strategically important to
Swedish society and the business sector. The investments will be built up gradually: SEK 500 million
16
In Swedish: Globaliseringsrådet.
17
The councils have no executive power. Their role within policymaking and innovation governance should
therefore not be exaggerated.
11
has been allocated for 2009, and additional funds will be provided in 2010-11 to reach an annual level
of SEK 1.8 billion in 2012. Investments will be made in areas where Swedish research is already
world-class and where society and the business sector have a major need for new knowledge.
During the spring of 2009, the Swedish Research Council for Environment, Agricultural Sciences and
Spatial Planning (Formas), as well as the Swedish Agency for Innovation Systems (VINNOVA) and
the Swedish Research Council carried out a call for proposal, and submitted its recommendations to
the government. The final allocation will be announced in the coming annual budget. Over SEK 1.3
billion of the appropriations for strategic areas will gradually be added to the appropriations for
universities and other higher education institutions in 2010-12.
Within the Research and Innovation Bill, the Government presented an initiative to increase the
commercialisation of research results. A total of SEK 150 million per year has been allocated for this
purpose. The Bill proposes that teachers in universities and other higher education institutions are
required to inform their employers of patentable results. This is expected to step up the
commercialisation and utilisation of research results.
2.3.1 Review of the current range of support measures for innovation
Exhibit 7: An example: Distribution of VINNOVA's support
(Total EUR 200 million in 2008)
Sectoral R&D programs 59%

Strong research and innovation environments 16%
Basic funding of industrial research institutes 10%
Commercialisation, Start-ups, etc. 9%
Support to participation in Framework programme 5%
Other international cooperation 1%
The portfolio of innovation policy measures in Sweden is rather strongly biased towards funding of
research in 'strategic' areas, mainly performed at universities and with varying requirements for active
industry participation, in addition to programs aimed at strengthening existing or developing clusters,
linked to university research. Below is an overview of these measures:
1. Sectoral Programmes: As mentioned in Section 2.3, the 2008 research and innovation bill
introduced the notion of basic funding for strategic research, with an expected funding level of
EUR 180 million by 2012. While a number of proposals have been evaluated, the
government's final allocation has not yet been made.
VINNOVA's sectoral R&D programs (see Exhibit 6) are based on calls for proposals in
selected areas and involve requirements for active industry participation. Two major programs
involving motor vehicles and aeronautic engineering were initiated by the ministry of
enterprise with special budget allocations, and include a substantial amount of research
performed in industry.
The semi-independent Foundation for Strategic Research also funds research in life sciences,
ICT, materials and production engineering, with a requirement of industrial relevance, but with
varying requirements for active industry participation.
12
2. Cluster building: While sectoral R&D programs have been around 'forever', a rapidly growing
share of measures are directed towards strengthening existing or developing clusters. This is
the main focus of VINNOVA's programme for strong research and innovation environments,
but it is also a focus for the KK Foundation, a second semi-independent foundation relevant
for innovation policy, and for cluster programs run by the Swedish Agency for Economic and
Regional Growth.
3. Commercialisation, Start-ups, etc.: There is a general perception in the Swedish policy

debate, despite very little concrete evidence to support it, that there are not enough results in
terms of new high-value-added business activities. The perception is strongly linked to a
persisting belief in the 'linear model' and is narrowly focused on easily measurable outputs in
terms of start-ups and licensing agreements.
The main actor in this area is Innovationsbron AB (the Innovation Bridge), a company jointly
owned by the Ministry of Enterprise and Industryfonden (the Industry Fund), a state-owned
seed capital firm. VINNOVA is also involved in funding commercialisation, and in the 2008 bill,
the universities were allocated some direct funding earmarked for commercialisation activities.
Most universities have some sort of incubator facility, often jointly financed by regional actors
and one of the national actors mentioned previously.
4. Industrial research institutes: These institutes play a minor role in the Swedish innovation
system (see Section 2.3.3), a role which has also declined over the last 10-15 years. The
institutes are currently being restructured, and the research and innovation bill includes some
increase in funding.
5. EU structural funds: EU Structural Funds are becoming increasingly important in the

innovation policy landscape. Out of EUR 422 million allocated to Sweden so far, EUR 153
million (36%) is devoted to Innovation and renewal. Extrapolating this share to the total
amount allocated to Sweden, i.e. EUR 1 626 million, reveals that over the period 2007-13,
close to EUR 100 million (half of VINNOVA's current budget) per annum will be spent on
innovation support.
2.3.2 New or modified support measures
Note that the policies announced in the Research and Innovation bill are not included in Exhibit 5, as
they have not yet been translated into policy support measures. As mentioned in the previous section,
both the National Aeronautical Research Program (SE 123) and the Vehicle and Traffic Safety
program (SE 121) were initiated at the ministry level, with special budget allocations. Both are
renewed and revised mandates for previously existing programs. The aeronautics program is
motivated by dual use considerations, as well as the perceived importance of the sector as a source of
competence spill-overs.
Such spill-overs are not necessarily limited to specific technologies: Eliasson ( 18 ) argues that the
Swedish military aircraft programs have developed and disseminated skills in managing large,
complex system engineering projects, skills which are hard to acquire in an academic setting. The
vehicle and traffic safety program continues a program which was set up after the two Swedish
automakers were acquired by Ford and GM, with the purpose of anchoring existing R&D functions in
the Swedish innovation system.
18
Eliasson, G., Technology generator or national prestige? The case of the Swedish aeronautics industry,
unpublished working paper, 1995.
13
Exhibit 8: New Innovation Policy Support Measures (since the last report)
IPM N° Title Innovation policy framework Organisation responsible
category
SE 123 National Aeronautical 2.2.3 R&D cooperation (joint VINNOVA
Research Program projects, PPP with research
institutes)
4.1.1 Support to sectoral
innovation in manufacturing
4.2.3 Support to technology
transfer between firms
4.3.1 Support to innovative start-
ups including gazelles
SE 121 Vehicle and traffic safety 2.2.3 R&D cooperation (joint VINNOVA
projects, PPP with research
institutes)
SE 119 Environment-driven 1.3.1 Cluster framework policies Swedish Agency for
markets Economic and Regional
Growth
SE 118 Green nano 2.2.3 R&D cooperation (joint VINNOVA
institutes)
SE 117 Innovation financing 4.3.2 Support to risk capital 1.3.2 ALMI Företagspartner AB
Horizontal measures in support
of financing
SE 116 Innovations for Future 1.3.3 Other horizontal policies (ex. VINNOVA
Health society-driven innovation)
2.2.3 R&D cooperation (joint
institutes)
2.3.3 Strengths and weaknesses in the innovation policy support system

Historical focus on big business
Sweden’s science and innovation system and its governance structure have been shaped to a large
extent by history. Interaction between public sector users and private industry has accounted for a
major share of the impressive growth of large firms and private R&D spending in Sweden. Strong
infrastructure investments by the government in the post-war years contributed to close relations
between Swedish public utilities and manufacturing firms, sometimes including joint long-term
research and development. Such 'development pairs' included the Swedish Power Authority and Asea
AB, Swedish Rail and Asea AB, and Swedish Telecom and Ericsson. This experience also led to a
strong political belief that only large firms had the capacity to invest enough in R&D.
The social democrats looked to the old, large firms as apparently successful 'cash cows' to finance an
expanding public sector. Non-socialist governments have been preoccupied with making the tax
system and other regulations simpler and more transparent, and have not focussed on the special
needs of new businesses. Another reason may be that the rapid expansion of Ericsson during the
1990s concealed fundamental structural problems, and created a false sense of security.
14
The success of big business also meant that there has been little apparent need for innovation policy,
which may explain the strong hold the linear model retains in the Swedish debate.
Swedish research policy has emphasised the traditional market failure position that the government’s
primary responsibility is to support 'fundamental' research, while industrial policy has emphasised
general economic conditions, entrepreneurship etc. There are separate mechanisms in place to
coordinate research policy and industrial policy across ministries, but no institutional settings to handle
a joint coherent innovation policy.
The Swedish R&D system is markedly bifurcated, with strong universities, and industrial R&D
concentrated to large firms, but a very small sector of user-oriented research institutions (see
diagram). The large firms could accomplish the translation between complex application problems and
discipline-based research – and training – internally, which has meant less need for bridging
institutions.
Exhibit 9: Total R&D expenditures in Sweden for 2007, by performing sector
Source: SCB (2009) Forskning och utveckling i Sverige 2007 ‐ en översikt
The term 'innovation policy' has not been used in official documents in Sweden until recently ( 19 ). The
OECD MONIT case study on Sweden ( 20 ) also observed that the view of what innovation policy is, and
the interpretations of its importance differ widely even within the same ministry, from an innovation
policy that relies heavily on research to an innovation policy that includes regional, entrepreneurial and
individual perspectives.
19
The first official use of the term was in Government bill 1999/2000:71, Vissa organisationsfrågor i
näringspolitiken (Some organisational matters in industry policy). The first serious discussion appears in
Government bill 2001/02:2, FoU och samverkan i innovationssystemet (R&D and collaboration in the innovation
system), which gave the mandate to set up VINNOVA.
20
OECD: Governance of Innovation Systems, Volume 2, 'Case studies in innovation policy', see
http://www.sourceoecd.org/scienceIT/926401344X online.
15
As indicated above, the needs of new, fast growing businesses have not been a high priority for
policymakers. In the first half of the 20th century, Swedish innovations took place mainly in mechanical
engineering, with reasonably long product life cycles. This meant that new businesses could be
successfully started and grown with traditional means of financing: bank loans, retained earnings, etc.
Before the era of high taxation in Sweden (around 1970) there was also a reasonably well functioning
system of 'informal venture capital', wealthy industrialists who were prepared to reinvest some of their
wealth in interesting new projects.
The combination of low corporate taxes and high taxes on personal income has made it more
attractive to retain earnings and reinvest them in existing businesses. As a result, successful new
firms were soon absorbed by the large multinationals. However, radical innovations with rapid product
lifecycles appear more likely to flourish in a system where capital is allocated in an open market for
venture capital. Statistics appears to show that Sweden has a well-developed venture capital market.
(prior to the current financial crisis). However, the firms included in these statistics are to a large extent
owned by institutional investors and have focused on management buy-outs. The ownership structure
makes them too risk averse to engage in early-stage financing.
16
3. Innovation policy and competitiveness: an appraisal
3.1 The ability of policy to address challenges

Sweden does not have an explicit innovation policy. Most policy measures which directly address
innovation fall under either the research policy budget umbrella or the enterprise policy budget
umbrella while many framework conditions are set under other policy areas. A result of this divided
focus is that policies which do not fall within the core area of either research policy or generic
enterprise policy risk falling between the cracks. Such areas involve innovation which is not clearly
science-based, non-technological innovation, dissemination of existing technologies etc.
While the recent government bill was labelled 'A boost to research and innovation', it was introduced
under the research policy budget umbrella, and as such addresses innovation only in terms of the role
of public research infrastructure, which as discussed above is heavily biased towards research in
universities. Within these limits, the recent bill marks some positive steps: It is a significant increase of
public resources for the university system. The strategic areas establish the principle that concerns of
social needs or long term economic utility represent a legitimate dimension of priority setting, and the
proposal process could be the first step towards developing the strategic capacity of universities.
3.2 Impact of globalisation

In the globalised economy, national policy must of course be formulated in a context which is wider
than the national viewpoint. Firstly, parts of innovation policymaking have moved from the national to
an international area. Secondly, the industries which are expected to benefit from innovation policy are
increasingly parts of international groups or networks. Globalisation has had a strong impact on
Sweden, because of its historical reliance on a small number of highly successful 'flagship' industries.
The country, with good reason, taken pride in the number of Swedish corporations among the Fortune
500. However, today these firms have outgrown their national foundations, and each aspect of their
value chains are subject to international competition.
Exhibit 10: Share of business R&D performed by foreign-owned firms

Source: ITPS (2007) Forskning och utveckling i internationella företag 2005.
17
During the 1990s, many of the Swedish flagship industries became foreign-controlled through mergers
or acquisitions: Asea became part of ABB, Volvo Cars (the automobile part of Volvo) was bought by
Ford, Saab Automobile was acquired by General Motors, Astra became part of Astra Zeneca, and
Pharmacia merged with Upjohn. In terms of technical and scientific capability, the outcomes have
been mixed. Astra Zeneca expanded R&D in Sweden, while Pharmacia’s (now Pfizer) presence has
been reduced significantly. In the case of Volvo, resources increased but with a more focused R&D
mission, and with corporate responsibility for safety issues. Whatever the volume of R&D, with
corporate control outside Sweden, it opportunities for future diversification have likely become more
limited. So far there has been little debate about the national implications of these developments.
The role of national innovation policy changes as a result of the globalisation of firms: Instead of
supporting national flagship industries or projects through subsidies, national procurement etc.,
governments now need to compete for investments by providing an attractive and nurturing
environment for innovation, R&D and production, to companies which have a number of location
options to choose between. In this sense, national policy has come closer to the traditional role of
regional development policy. Instead of providing a national industry with 'good enough' competence
in all areas of its activities, today an attractive environment must provide competence which is
competitive at the global level in at least some area, as well as a skilled and flexible workforce. With
limited R&D resources this creates a need for stronger focus, which of course implies a degree of risk-
taking in itself, as other options are abandoned.
The attractiveness of an innovative environment is determined both by its structural capital, in terms of
R&D infrastructure, skills base, etc., and in terms of how responsive these resources are to industry’s
needs. A problem for policymakers is that the 'hard facts' of investments in R&D etc. are easier to
demonstrate and measure than the infrastructure’s responsiveness and flexibility.
Even if Sweden succeeds in retaining a successful large firm sector, future growth will not necessarily
result in new jobs, since many are operating in relatively mature sectors where relentless
rationalisation is a key means to profitability. For this reason, a second policy challenge is to build the
foundations for new, high value-added businesses.
3.2.1 How well does policy respond to innovation challenges?

In a recent comparison of innovation strategies in three Nordic countries ( 21 ), Bengt-Åke Lundvall
characterises public innovation policy strategy of Sweden as quite limited in scope and perspective.
Almost all public research takes place within universities, and innovation policy is mainly about how to
transform and transfer research outcomes into innovation at the regional level. The amount of
research taking place in government supported technological institutes is much smaller than in the
other Nordic countries, and this imbalance is not significantly changed with the new bill. There is little
emphasis on the role of end users of innovations and no indication at all that the organisation of
working life might affect innovation. The innovation promoting authority, VINNOVA should use
resources to promote 'innovation systems' in the economy. According to Lundvall's analysis, it
appears as if VINNOVA's programs are inspired more by triple-helix and Porter's Cluster analysis than
by innovation system theory.
Lundvall's analysis is based on comparing official strategy documents at the ministry level, and to
some extent reflects a lack of common concepts and understandings between the ministry rhetoric
and the actual practise of performing agencies. This does not mean that Lundvall's analysis lacks
validity, as it sets limits on how creatively agencies like VINNOVA are willing to interpret the official
rhetoric. However, some of his criticisms are being addressed in practise: Work organisation is part of
VINNOVAs brief since its start, and a major new effort on 'innovative work organisation' is being
launched this autumn. End users are being involved as part of what Lundvall sees as triple helix or
cluster efforts in a number of programs. However, in the Swedish context these end users are usually
other firms, as Swedish industry is specialised in producer goods.
21
Lundvall, B.-Å. (2009), A note on characteristics of and recent trends in National Innovation Policy Strategies in
Denmark, Finland and Sweden, Forskningsnotat, Kunnskapsdugnaden, Oslo (see www.kunnskapsdugnad.no).
18
As discussed elsewhere, the small institute sector in Sweden reflects a historical emphasis on large
firms, who have been able to act as their own 'bridging institutions'. The need to build an innovation
policy less dependent on these firms is not addressed in the new bill. What is being addressed to
some extent through the so called strategic areas, is the need for policy to 'anchor' existing globalised
firms' R&D activities in Sweden.
Innovations in services, as well as 'non-technological' innovation, are not explicitly focused. However,
to some extent, this lack is an optical illusion: The growth of knowledge-intensive services is partly a
relabeling of previously existing functions, through spinout and/or outsourcing of formerly internal
service function – to the extent that those related to R&D are already very much involved in existing
innovation policy schemes. The term 'non-technological innovation' is also unfortunate: Many
innovations in logistics, organisation, marketing, etc. have been enabled by developments in ICT.
Conversely, it is well understood that the economic potential of new technology is most often not
realised without accompanying changes in work organisation, business models, etc. Thus, it is more
meaningful to address the issue in terms of non-technological aspects of innovation.
Addressing these aspects in policy has two problems. The first is that they are closely linked to the
day-to-day operations of the firms, less clearly discernible as an identifiable activity than technical
R&D performed in a corporate laboratory. This makes it more difficult to apply the classic 'market
failure' rationale, and conversely exposes any policy measure to accusations of micro-managing.
Secondly, with a narrow, science-driven understanding of innovation, existing 'non-technological'
innovation processes, in particular in the public sector, are not identified as such, but described in
other terms. This may mean that the real amount of such innovation is underestimated, but also that
opportunities for policy learning are missed.
3.3 Effectiveness of policy design

Sweden does not have an explicit innovation policy. Most policy measures which directly address
innovation fall under either the research policy budget umbrella or the enterprise policy budget
umbrella, with many framework conditions set under other policy areas. While the recent government
bill was labelled 'A boost to research and innovation', it was introduced under the research policy
budget umbrella, and as such addresses innovation mainly in terms of the role of public research
infrastructure, which as discussed above is heavily biased towards research in universities.
Within these limits, the recent bill marks some positive steps: It is a significant increase of public
resources to the university system, its strategic areas consider that concerns of social needs or long
term economic utility represent a legitimate dimension of priority setting, and its proposal process
could be the first step towards developing the strategic capacity of universities.
3.3.1 Process of delivery

It is difficult to discuss the process of delivery as an issue separate from policy design. The Swedish
structure with small ministries and formally independent government agencies means that a large
share of policy design is delegated to the agencies who also deliver innovation policy measures.
Policy design at the ministry level is in principle limited to providing targets and resource allocations to
agencies, and monitoring to what extent they achieve their targets. A greater degree of direct control
can be achieved by more detailed targets, or by allocating resources outside the annual budget for
specific tasks. An example is the vehicle research program, clearly linked to anchoring corporate R&D
activities in Sweden, which appears as a separate line item in the ministry's budget but is being
administered by VINNOVA.
19
3.4 Impact of public support for innovation

VINNOVA is the only agency in Sweden which currently has a significant experience in systematic
impact assessment. For this reason, this section is based on VINNOVA's experiences, and
summarises the conclusions of eleven impact studies listed in Exhibit 8.
In order to assess the real impact of an RTD effort, it is important to take a long perspective: Economic
effects sometimes show up 15 – 20 years after a program has been concluded. It is also important to
take a broader view than a specific support action: Over such a long period, a number of both public
and private actors have affected the development of an effort – to disentangle the contribution of
various interventions, a historical approach is necessary.
The economic effects of a portfolio of projects are normally highly skewed, with a small number of very
successful projects providing a large share of the economic benefits. As an example, the impact study
of 'Investments in health' showed that one specific project, with only limited initial public financing, is
calculated to generate a social return of around 140 M€ over the lifetime of the technology.
Exhibit 11: VINNOVA's Impact studies
1. Effekterna av VINNOVAs föregångares stöd till behovsmotiverad forskning. Fyra

effektanalyser under perioden 1975-2000 (The impacts of needs-driven research: Four
studies 1975 – 2000; 2002).
2. Impacts of the Swedish Competence Centres Programmes 1995-2003 (2004).
3. Effektanalys av nackskadeforskningen vid Chalmers (Impact analysis of neck injury research
at Chalmers University of Technology, 2004).
4. Användardriven utveckling av IT i arbetslivet. Effektvärdering av tjugo års forskning och
utveckling kring arbetslivets användning av IT (User-driven development of ICT. An impact
analysis of 20 years of R&D concerning the use of ICT in work organisation, 2007)
5. Effekter av den svenska trafikksikkerhetsforskningen 1971-2004 (Impacts of Swedish traffic
safety research 1971-2004, 2007).
6. Effektanalys av 'offentlig såddfinansiering' 1994-2004. (Impact analysis of public seed
financing 1994-2004, 2008).
7. The GSM Story (2008).
8. Impacts of the Framework Programme in Sweden (2008).
9. Effekter av statligt stöd till fordonsforskning – Betydelsen av forskning och förnyelse för den
svenska fordonsindustrins konkurrenskraft (Impacts of public support to vehicle research –
The importance of research and renewal for the competitiveness of the Swedish car and
truck industry, 2009).
10. Analysis of Chain-linked Effects of Public Policy – Effects on Research and Industry in
Swedish Life Sciences within Innovative Food and Medical Technology (2009).
11. Investering i hälsa. Hälsoekonomiska effekter av forskning inom medicinsk teknik och
livsmedel (Investments in health. Health economic effects of research in medical technology
and food production; 2009).
3.4.1 A case study: The impact of government support to automotive research
A recent analysis of the impact of government support to automotive research demonstrates both the
achievable impacts of government support and the limitations of such policies. When Sweden's two
automakers, Volvo PV and Saab, were acquired by Ford and General Motors back in the 1990s, this
20
generated concern about the future of R&D activities in these companies which were two of the major
R&D performers in Swedish industry. In response to this, the government invested in a research
programme in close collaboration with the automotive industry (the Vehicle Research Programme,
Fordonsforsknings-programmet (FFP).
The most important impact of the programme was to help strengthen the Swedish automotive
industry’s research expertise as well as its interest in and ability to take on broad research results in its
own development operations. It also contributed to strengthening the collaboration with universities
and research institutes and to bolstering the internal competitiveness of passenger car manufacturers
within the foreign-owned groups. With the aid of FFP, both Volvo PV and Saab were able to maintain
Centres of Excellence within important fields of technology. In the current financial crisis, the future of
both automakers is still very much in question (written in July 2009), and it is uncertain to what extent
the research expertise gained through the programme will have an impact on the final outcome.
Both FFP 1 and FFP 2 seem to have acted as an intervention at an innovation system level. This effort
has made a significant contribution to maintaining the competitiveness of the Swedish automotive
industry by strengthening research expertise and absorption capacity, strengthening partnerships with
universities and institutes, and strengthening internal competitiveness for the passenger car
manufacturers within the foreign-owned groups. It has also provided important research results
applicable to product development. The applied academic automotive research has been expanded
into fields of public importance such as quality, environment and safety and has been adapted
according to the needs of the industry. Relationships between the automotive industry and the
agencies have gradually changed from those of negotiating opponents into partnerships that have built
a platform for ongoing mutual efforts of interest to both sides and beneficial to the Swedish automotive
industry’s international competitiveness. An important policy issue is whether and how this
collaboration or consultation model can be utilised in the current crisis to promote the future of the
Swedish automotive industry in the face of increasingly tougher international competition.
The incentives, as well as the control and stimulus measures and the organisation which was
launched in order to realise the intentions of FFP, came into existence and operated in the context that
prevailed in the early and mid 1990s. It is not possible to simply copy what worked then and for a long
time. However, it is possible to conclude that a number of factors played an important role during the
period studied:
1. the injection of funds from the government,

2. the focus of FFP on certain technological fields,
3. the rules of project support, stating that it was not universities or institutes but rather
companies which were the applicants for research support (with the power to set the agenda)
and that projects should be implemented in collaboration between companies and
universities/institutes (which in practice received the majority of the state funds),
4. requirements for corporate co-financing,
5. the design of the agreement between the state (the government) and companies,
6. the composition of the Program Board for Automotive Research (PFF) with its independent
chairman and role as an ongoing trust-building forum for discussions on the future and
technology, as they developed.
This implies several conclusions of general relevance to policy regarding government support for this
kind of research. The entire FFP setup, along with the simultaneous National Aviation Engineering
Research Programme (NFFP) represented an early success as well as a trendsetting example of the
form of a triple helix with broad official involvement, which:
1. made it possible to factor in a number of public interests,

2. involved genuine user-controlled research and offered companies as well as research
institutes something they needed (a win-win solution),
21
3. reflected the impact of government support to automotive research,

4. encouraged collaboration with universities and research institutes at project level achieving a
genuine behavioural additionality, implying that FFP has helped the industry continue to run its
development work differently than it would have done otherwise,
5. served as an effective focusing device (positive feedback loop) at programme level.
The arrangement made it possible (for example in the NFFP) to maintain and further build up long-
term research within companies of a certain scale. It also made it possible to increase the expertise of
both companies and universities/institutes as well as contributing agencies, and led to an increased
capability to participate in the EU framework programmes and to generally better conditions and
readiness for innovation within the automotive industry.
Companies were compelled by rules to collaborate in projects with external R&D suppliers was vital to
the behavioural additionality on the part of companies that FFP brought about. Naturally, the fact they
also had the power to set the agenda and were compelled to co-finance projects (in practice often by
participating actively in them) facilitated their direct or indirect use of the results.
3.4.2 Conclusions: possible future actions and opportunities for innovation policy
To put Sweden back on a path of sustainable – and smarter – growth, a number of policy challenges
must be met. In the current restructuring process, Sweden must provide an attractive environment for
high value added business activities. In the longer term, Sweden must loosen its dependence on a
limited number of large firms, whose future expansion (if they survive the crisis) will to a large extent
follow the growing new markets. This involves both developing a stronger sector of growing SMEs and
the ability to attract Greenfield investments.
To achieve this, it may not be enough to focus political attention – as expressed in the 2008 NRP
report – on knowledge and competence creation on one hand, and on improving general business
conditions on the other. Some areas which might warrant further attention are:
1. Strengthening the S&T infrastructure – bridging institutions. The public research sector is
heavily focused on universities, and the institute sector is weak by international comparison.
However, there are research functions that universities are not well equipped to perform. This
need was underestimated in the past, since the large companies have been able to internalise
the bridging function. However, the need to compete for future investment as and stronger
future dependence on SMEs will probably require stronger attention in bridging institutions.
2. Strategic investments in research and innovation environments. Sweden pioneered the

development of 'centres of excellence', but by international comparison Swedish centres are
small, and may not be of sufficient critical mass to attract major new private R&D investments.
3. Risk capital. With the current condition of the financial sector, there may be a need to increase
the supply of public seed capital, as well as better incentives for private venture capital, to lay
the foundation for a stronger sector of growing SMEs, and – in the short term – to absorb
highly skilled staff made redundant in the restructuring.
4. Adapting policies to new forms of innovation. Innovation is increasingly dependent on a wider

set of skills than S&T, and involves a broader set of actors than industry R&D labs and public
research institutions. Policies need to evolve to take this into account.
5. Increased strategic capacity. A small country has to make hard choices, since it cannot invest
resources in all areas. This challenges the traditional Swedish approach of giving strong
autonomy to the academic community. As discussed previously, the strategic research
allocations in the 2008 Research and Innovation bill can be seen as a step in this direction.
22
To make wise choices, strategic capacity will be needed at all levels of the innovation system:
• Innovation policy involves a number of policy areas, which need to be coordinated in order for
policy to be effective. Even if day-to-day coordination can be achieved on an ad hoc basis,
there is a need to be able to develop coherent long term strategies.
• There is a need for a forum for strategic dialogue between private and public actors.
• Globalisation has increased the need for strategic policy intelligence.
• Universities need to develop their own capacity to make strategic choices.
23
Annexes
Annex 1: Innovation Policy Support factsheet
Please note that Annex 1 is based on an experimental database which is still under development, and
a number of methodological issues are still not fully addressed. As such, the results should be
interpreted with care: They indicate issues that might warrant further investigation, but should not be
taken as definite.
Note also that many comparisons are based on the number of policy measures, not the amount of
resources. It is possible that this puts a premium on new policy areas: A new area will attract policy
attention and experimentation, with a number of new policy measures. As a field matures, it is likely
that the range of policy measures will undergo a process of rationalisation, resulting in fewer but larger
measures.
POLICY PRIORITIES ADDRESSED BY THE SUPPORT MEASURES IN
SWEDEN AND EU-27
% of policy % of policy
measures in EU-27 measures in SE
1.1.1 Strategy policy documents (official documents. policy
consultation papers. green or with papers. Operational
Programmes of Structural Funds) 2% 0%
1.1.2 Activities of official advisory and consultative forum 1% 0%
1.1.3 Policy Advisory services (technology foresight.
scoreboard type activities. cluster mapping. sectoral
studies of innovation) 2% 0%
2.1.2 Public Research Organisations 15% 0%
2.1.3 Research and Technology Organisation (private non-
profit) 6% 0%
2.2.1 Support infrastructure (transfer offices. training of
support staff) 4% 0%
2.3.2 Indirect support to business R&D (tax incentives and
guarantees) 3% 0%
3.1.1 Awareness creation and science education 4% 0%
3.1.2 Relation between teaching and research 3% 0%
4.2.1 Support to innovation management and advisory
services 11% 0%
4.2.2 Support to organisational innovation incl. e-business.
New forms of work organisations. etc 7% 0%
5.1.1 Support to the creation of favourable innovation
climate (ex. roadshows. awareness campaigns) 5% 0%
5.1.2 Innovation prizes incl. design prizes 2% 0%
5.2.1 Fiscal incentives in support of the diffusion of
innovative technologies. products and services 4% 0%
5.2.2 Support and guidelines on innovative Green Public
Procurement (GPP) 1% 0%
24
5.2.3 Impact assessments (on research and innovation

issues) of new legislative or regulatory proposals in any
policy field 0% 0%
5.3.1 Measures to raise awareness and provide general
information on IPR 3% 0%
5.3.2 Consultancy and financial incentives to the use of
IPR 4% 0%
5.3.3 Support to the innovative use of standards 1% 0%
1.3.3 Other horizontal policies (ex. society-driven
innovation) 3% 3%
2.2.2 Knowledge Transfer (contract research. licences.
research and IPR issues in public/academic/non-profit
institutes) 12% 3%
2.3.1 Direct support of business R&D (grants and loans) 15% 3%
3.1.3 Stimulation of PhDs 7% 3%
3.2.1 Recruitment of researchers (e.g. fiscal incentives) 7% 3%
4.1.2 Support to innovation in services 6% 3%
4.3.2 Support to risk capital 8% 3%
2.1.4 Research Infrastructures 8% 6%
3.2.2 Career development (e.g. long-term contracts for
university researchers) 6% 6%
3.2.3 Mobility of researchers (e.g. brain-gain. transferability
of rights ) 9% 6%
3.3.1 Job training (LLL) of researchers and other personnel
involved in innovation 4% 6%
3.3.2 Recruitment of skilled personnel in enterprises 4% 6%
4.2.3 Support to technology transfer between firms 7% 6%
4.1.1 Support to sectoral innovation in manufacturing 8% 13%
4.3.1 Support to innovative start-ups incl. gazelles 16% 13%
1.2.1 Strategic Research policies (long-term research
agendas) 16% 16%
1.2.2 Innovation strategies 4% 16%
1.3.2 Horizontal measures in support of financing 6% 25%
1.3.1 Cluster framework policies 7% 28%
2.1.1 Policy measures concerning excellence. relevance
and management of research in Universities 15% 28%
2.2.3 R&D cooperation (joint projects. PPP with research
institutes) 27% 31%
Explanation: Percentages refer to the share of measures addressing a given policy
priority in Sweden (n=32) and the overall EU innovation policy mix (N=952). Only policy
priorities indicated by more than 5% of measures are included to the chart. A single
support measure could be assigned up to four policy priorities.
25
ESTIMATED ANNUAL BUDGET PER POLICY PRIORITY IN SWEDEN

AND EU-27 (€)
Estimated annual % over the total

budget per estimated annual
category (€) budget
26
4.1.1 Support to sectoral innovation in

manufacturing 33 300 000 32,1%
1.3.1 Cluster framework policies 20 953 333 20,2%
2.1.1 Policy measures concerning excellence,
relevance and management of research in
Universities 14 363 078 13,9%
2.3.1 Direct support of business R&D (grants and
loans) 12 000 000 11,6%
1.3.3 Other horizontal policies (ex. society-driven
innovation) 9 716 667 9,4%
2.2.3 R&D cooperation (joint projects, PPP with
research institutes) 3 760 255 3,6%
Other 4 933 333 4,8%
Total 99 026 667
27
28
PROFILE OF PUBLIC INTERVENTION IN INNOVATION

TARGETED RESEARCH AND TECHNOLOGY FIELDS
% of total % of total
number of number of
measures measures Frequencies EU-27
SE EU-27 SE Frequencies
Socio-economic sciences and humanities 0% 2% 0 21
Food, agriculture and fisheries 0% 0% 0 0
Energy 0% 3% 0 31
Industrial production 0% 2% 0 15
Space 0% 1% 0 10
Government and social relations 0% 1% 0 5
ICT 3% 7% 1 66
Materials 3% 3% 1 26
Services 3% 1% 1 8
Security and defence 3% 1% 1 5
Other 3% 4% 1 34
Nanosciences and nanotechnologies 6% 3% 2 29
Transport 6% 1% 2 11
Environment (including climate change) 6% 5% 2 45
Biotechnology 9% 6% 3 55
Health 9% 5% 3 43
Total number of measures 32 952
Explanation: Percentages refer to the share of measures indicated as targeting a specific

research and technology fields in Sweden (n=32) and the overall EU innovation policy mix
(N=952). A single support measure could be assigned to more than one field.
29
30
TARGET GROUPS OF SUPPORT MEASURES
% of total
number % of total
of number of
Other public education institutions (secondary,etc...) 0% 0% 0 1
Private institutions for education / lifelong learning 3% 4% 1 36
Trade Unions 6% 9% 2 83
Business organisations (Chambers of Commerce...) 9% 9% 3 90
Consultancies and other private service providers (non-
profit) 13% 11% 4 103
Higher education institutions (education function) 16% 16% 5 149
Technology and innovation centres (non-profit) 16% 21% 5 202
Other 19% 17% 6 159
SMEs only 22% 22% 7 209
Other non-profit research organisations (not HEI) 25% 33% 8 310
Scientists / researchers (as individuals) 28% 27% 9 261
All companies 50% 40% 16 378
Higher educations institutions research units/centres 75% 46% 24 435
Explanation: Percentages refer to the share of measures indicated as addressing a specific target
group in Sweden (n=32) and the overall EU innovation policy mix (N=952). A single support
measure could be assigned to more than one target group.
31
32
ASPECTS OF INNOVATION PROCESSES TARGETED BY MEASURES
number number
of of
Promotion of entrepreneurship/start up (including
incubators) 0% 13% 0 121
Development/prototype creation 6% 24% 2 229
Innovation management tools (incl quality) 6% 16% 2 155
Diffusion of technologies in enterprises 9% 22% 3 206
Improving the legal and regulatory environment 9% 7% 3 70
Awareness raising amongst firms on innovation 16% 17% 5 158
Pre-competitive research 16% 11% 5 101
Industrial design 16% 15% 5 142
Applied industrial research 19% 21% 6 201
Commercialisation of innovation (including IPR) 19% 20% 6 195
Co-operation promotion and clustering 22% 11% 7 104
Explanation: Percentages refer to the share of measures indicated as addressing a specific aspect
of innovation process in Sweden (n=32) and the overall EU innovation policy mix (N=952). A single
support measure could be assigned to more than one 'aspect'.
33
Source: TrendChart-ERAWATCH database of support measures (data downloaded on 5

June 2009); analysis Technopolis Group
34
SOURCES OF CO-FINANCING OF SUPPORT MEASURES
% of total
% of total number of
number of measures EU- Frequencies EU-27
measures SE 27 SE Frequencies
Co-financed by foundations or charities 3% 4% 1 36
Co-financed by the Structural funds
(ERDF, ESF,etc.) 9% 28% 3 269
Other co-financing 22% 18% 7 169
Co-financed by the private sector 50% 33% 16 313
Explanation: Percentages refer to the share of measures indicated as being co-financed from
a specific source in Sweden (n=32) and the overall EU innovation policy mix (N=952). A single
support measure could be co-financed from more than one source.
Source: TrendChart-ERAWATCH database of support measures (data downloaded on 5 June

2009); analysis Technopolis Group
35
FORMS OF FUNDING OF SUPPORT MEASURES
number of number of Frequencies
measures SE measures EU-27 SE
Subsidized loans (including interest allowances) 3% 8% 1
Guarantees 3% 3% 1
No direct funding provided 3% 7% 1
Other 3% 7% 1
Venture capital (including subordinated loans) 6% 5% 2
Tax incentives (including reduction of social charges) 6% 6% 2
Grants 88% 72% 28
Total number of measures 32
Explanation: Percentages refer to the share of measures indicated as using a specific form of
funding in Sweden (n=32) and the overall EU innovation policy mix (N=952).
Source: TrendChart-ERAWATCH database of support measures (data downloaded on 5

June 2009); analysis Technopolis Group
36

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EXECUTIVE SUMMARY: PUBLIC SUPPORT FOR INNOVATION – A SNAPSHOT .............................I

1. MAIN TRENDS AND CHALLENGES IN THE NATIONAL INNOVATION SYSTEM..................... 1

Executive Summary: public support for innovation – a snapshot

1. Main trends in the National Innovation System

2. Main developments in public support for innovation

3. Appraisal of national innovation policy

1. Main trends and challenges in the National Innovation

1.1 Recent economic trends and market developments

Source: Eurostat - Structural Indicators and Long-term Indicators (see http://epp.eurostat.ec.europa.eu).

1.1.1 The credit crisis and its effect on innovation activity

1.2 Recent trends in the national innovation performance

Exhibit 3: European Innovation Scoreboard: country page for Sweden

1.3 Identified Challenges

Exhibit 4: Main innovation policy challenges

1. Strong dependence on a small number of large, globalised firms. R&D investments by

Exhibit 5: The Swedish Motor Vehicle Industry 8

3. Lack of policies for supporting non-technological forms of innovation, innovation in services

2. Public Support to Innovation

2.1 Main objectives for innovation policy

Exhibit 6: Main innovation policy documents

2.2 Innovation governance system

2.2.1 Main changes in the national governance system

2.3 Public funding to innovation

2.3.1 Review of the current range of support measures for innovation

Exhibit 7: An example: Distribution of VINNOVA's support

(Total EUR 200 million in 2008)

Sectoral R&D programs 59%

3. Commercialisation, Start-ups, etc.: There is a general perception in the Swedish policy

5. EU structural funds: EU Structural Funds are becoming increasingly important in the

2.3.2 New or modified support measures

2.3.3 Strengths and weaknesses in the innovation policy support system

Exhibit 9: Total R&D expenditures in Sweden for 2007, by performing sector

3. Innovation policy and competitiveness: an appraisal

3.1 The ability of policy to address challenges

3.2 Impact of globalisation

Exhibit 10: Share of business R&D performed by foreign-owned firms

3.2.1 How well does policy respond to innovation challenges?

3.3 Effectiveness of policy design

3.3.1 Process of delivery

3.4 Impact of public support for innovation

Exhibit 11: VINNOVA's Impact studies

1. Effekterna av VINNOVAs föregångares stöd till behovsmotiverad forskning. Fyra

3.4.1 A case study: The impact of government support to automotive research

1. the injection of funds from the government,

1. made it possible to factor in a number of public interests,

3. reflected the impact of government support to automotive research,

2. Strategic investments in research and innovation environments. Sweden pioneered the

4. Adapting policies to new forms of innovation. Innovation is increasingly dependent on a wider

5.2.3 Impact assessments (on research and innovation

ESTIMATED ANNUAL BUDGET PER POLICY PRIORITY IN SWEDEN

Estimated annual % over the total

4.1.1 Support to sectoral innovation in

PROFILE OF PUBLIC INTERVENTION IN INNOVATION

Explanation: Percentages refer to the share of measures indicated as targeting a specific

TARGET GROUPS OF SUPPORT MEASURES

ASPECTS OF INNOVATION PROCESSES TARGETED BY MEASURES

Source: TrendChart-ERAWATCH database of support measures (data downloaded on 5

SOURCES OF CO-FINANCING OF SUPPORT MEASURES

Source: TrendChart-ERAWATCH database of support measures (data downloaded on 5 June