Towards an Integrated Framework of Impact Assessment and Foresight Studies in Innovation Policy Analysis Torsti Loikkanen, Pirjo Kutinlahti and Annele Eerola 1 VTT Technology Studies, Finland Paper submitted to The Second International Seminar on Future oriented Technology Analysis (FTA) Seville, September 28 29, 2006 (21 August 2006) ABSTRACT Impact assessment of policy measures, instruments and organizations and foresight of technologies and their socio economic environments are interrelated key phases of innovation policy making. Impact assessment and foresight have, however, developed as separate procedures in policy making and in respectively in policy analysis as well. Respectively, the practices, expertise areas and research communities are now separate in these two areas. This article aims at developing a conceptual integrated framework in which the key phases of innovation policy making, in particular impact assessment and foresight, are considered within a unified policy framework. The framework is elaborated on the basis of recent experiences of impact assessment and foresight studies at VTT, recognizing also foreseeable new challenges in policy making and policy analysis. Impact assessment is currently developing from traditional ex post type evaluation towards an interactive learning process that supports strategic orientation towards the future. Also foresight exercises focusing on technologies and their socio economic environments can be conceived as interactive learning processes determined by path dependent past and accumulation and sharing of future oriented knowledge. Foresight exercises increase the decision makers awareness and knowledge of future alternatives, for example, in making choices and decisions in prioritising R&D resources. In conclusion, modern impact assessment and foresight exercises seem to have convergent prospective characteristics, motivating the development of an innovation policy making framework that integrates these elements. The advantage of the framework is a systemic consideration of the different phases of innovation policy making, which facilitates the development of more effective governance of policy. The adoption of this approach in the policy research community would mean close collaboration between experts of impact assessment and foresight studies. In order to illustrate the possible application areas of the framework the paper also discusses a relevant innovation policy research agenda at VTT. 1 Mr. Torsti Loikkanen is Customer Manager (Tel +358 40 530 2587, E mail: torsti.loikkanen@vtt.fi) and and Dr. Annele Eerola (Tel +358 20 722 4247, E mail: annele.eerola@vtt.fi) Senior Researcher at VTT Innovation Studies, P.O.Box 1000 FIN 02044 VTT, FINLAND. Dr. Pirjo Kutinlahti (Tel +358 40 700 0135, E mail: pirjo.kutinlahti@ktm.fi) is Senior Advisor in the Ministry of Trade and Industry, Finland. The article is based on personal views of authors and do not necessarily represent those of parent organization. (Please do not quote without permission of authors.)
1 1 Introduction This paper is about foresight in the context of innovation policy making, and the content and role of respective socio economic innovation policy studies consisting of different phases of innovation policy making strategy formulation, implementation, evaluation, impact assessment, and the improvement of the performance of policy 2. Innovation policy studies refer to a systemic multidisciplinary and future oriented socio economic research of innovations, factors and actors affecting them, and their social, economic and environmental impacts. The aim of these studies is to support strategic choices and decisions of innovation policy makers and to contribute to welfare in this way. Accordingly, the challenges of innovation policy studies are in analyzing the past and current innovation policies and their impacts, as well as in creating future oriented knowledge that reveals emerging new challenges in policy making and points out important research topics. Impact assessment of innovation policy, policy measures, policy instruments and organizations, together with technology foresight in a broad socio economic context, are among the key phases of modern innovation policy making. The aim of this paper is to introduce a unified framework for the design and implementation of innovation policies. The framework integrates especially impact assessment and foresight but also other key phases of innovation policy making. Impact assessment and foresight have developed as separate procedures in policy making and in policy analysis, and have developed in innovation policy research respectively as separate practices, expertise areas and separate specialized research communities. The unified framework gives an opportunity to consider the whole innovation policy and its different phases in a systemic way which supports effective governance and development of policy making. The framework is elaborated on the basis of experiences of impact assessment and foresight studies at VTT, recognizing also foreseeable future challenges of innovation policy making. Innovation policy studies at VTT are characterized by the traits of Finnish economy, society and policy culture as described below. The membership of Finland in the European Union raises European level research topics for innovation policy studies, with respect to the interlinks and interaction between the European and national level. As national innovation policy and related developments are among the key contextual factors and topics for innovation policy studies at VTT, the Finnish experiences in developing the innovation driven knowledge based economy give an important empirical perspective to this paper. Although the needs of innovation policy studies vary in different countries and the EU, this paper also refers to topics that are similar between countries, calling for benchmarking, learning and mutually beneficial collaboration in socio economic innovation policy studies between countries. The paper is structured in the following way: Chapter 2 discusses the globalization and other future challenges of national and European innovation policies. Traditional and recent approaches to the socio economic rationale of innovation policy making, together with the implications to socio economic innovation policy studies, are discussed in chapter 3. Chapter 3 also introduces the future oriented policy framework which integrates the rationale of innovation policy, policy strategy, policy implementation, impact assessment of policy, and improvement of policy. Chapter 4 illustrates the application of the integrative framework at VTT, presenting a research agenda with intertwined elements of innovation policy studies of VTT vis á vis challenges of national and European innovation policies. Chapter 5 draws conclusions of preceding chapters and identifies future challenges for 2 By innovation policy (instead of science and technology policy) this article refers to horizontal policies promoting innovation in different policy areas and not only in science, education and technology policies.
2 innovation policy studies: Organizational and management aspects of prospective innovation policy studies are paid attention to as well. The paper is largely based on Loikkanen and Kutinlahti (2005), and complementary viewpoints are drawn from research and experience in the field of foresight (Eerola, 1996; Eerola & Väyrynen, 2002; Eerola & Joergensen, 2002, 2006). 2 Future challenges of innovation policy The national, European and international landscape of private and public innovation activities is changing due especially to versatile impacts of globalization: Enterprises internationalize their production and R&D activities, global mobility of scientists and the utilization of their expertise independently of location expands world wide, the role of big developing economies such as China and India is growing not only economically but in terms of science and technology which will reshape the global S&T landscape. Apart from affordable cost level and large markets these countries will absorb FDI due to increasingly attractive R&D. The globalization affects especially small and open economies like Finland and their national innovation policies but all these trends challenge also the competitive ability and innovation policies of the US, Japan, and particularly the European Union planning to become the world s most competitive and dynamic knowledge based economy till 2010 3. Accordingly current forms and experiences of globalization of enterprise R&D, impacts of S&T globalization on innovation systems, and subsequent implications on national and EU s innovation policies are key areas of socio economic innovation policy studies in the future. Different aspects of globalization are intertwined and S&T play an important role from different aspects in global change. New scientific and technological knowledge are inherently global public goods with potential socioeconomic benefits in giving innovative solutions for global problem solving (e.g. Kaul, Grunberg and Stern). Besides globalization innovation policy and related policy studies face numerous other challenges as well. The nature of science and scientific work is changing from traditional Mode 1 towards a broader trans disciplinary social and economic context (through Mode 2 to Triple Helix mode) meaning increasingly blurring boundaries between traditional sectors of universities, R&D institutes and industries (Gibbons et al.). Mode 2 of knowledge production is enlarging of the number of participants in research and reforming established institutions, disciplines, practices and policies. Universities are encouraged to adopt a more active economic role. Under the resource constraints and the demand for useful knowledge drive universities to become themselves entrepreneurial actors and accept the third mission of scientific community referring to new kinds of action models and governance and management in scientific community (Etzkowitz 1989; 1998; 2002; Etztkowitz & Leydersdorff, 2000). Innovation based socio economic strategy is extending from traditional areas of education, science and technology policy to horizontal approach covering most areas of public policies. The role of regional innovation activities and policies are increasing both within single countries and also in economically active and innovative cross border regions in the gradually shaping European Research Area (ERA). Moreover several national and global problems require innovation based solutions like employment, ageing of people, HIV, malaria and respective diseases, as well as environmental catastrophes. The sustainability and social responsibility are expected to become of growing importance nationally and globally as well (Nowotny et al. 2001). 3 Globalization may refer to different dimensions of global development to global trade of products and rawmaterials, diffusion of information through Internet or ICT based media, global climate problems or diseases like HIV or malaria, and to activities of international organizations and agreements promoting global political or human problem solving.
3 All these challenges emphasize the importance of future oriented and anticipatory knowledge management in innovation policy making. Accordingly, the role of technology foresight and respective exercises with future oriented knowledge management will increase. Needs of innovation policy studies are based on in depth understanding of the nature and dynamics of innovation processes, strategic choices and decisions in policymaking and businesses, policy support for agreed principles, forms and assessment of innovation policy, and priority setting for innovation studies. Accordingly and inevitably the questions arise what are the responses of national Finnish innovation policies and the European innovation policies to these challenges. Finnish national policy response to new challenges is discussed and concluded in several national policy initiatives and documents (see e.g. Finland s competence 2004; resolutions by Science and Technology Policy Council; recent strategies of National Technology Agency Tekes and VTT). National policy plans consist for example of the promotion of competition and the improvement of the functioning of labor market, and, moreover, the improvement of the innovation system for example by several actions. The shortcomings of the basic education system are addressed through improving mechanisms for life long learning and higher education will be upgraded in order to make it attractive to foreign teachers and students. Public share of R&D expenditures will be increased and reallocated with wider focus i.e. not just to high technology but also to services and business skills across the board. International networking will be developed more systematic. All these planned policy initiatives require more understanding and support by national innovation policy studies. The response of the European Union to new global challenges is formulated in the strategic decisions made in Lisbon and Barcelona. Europe set ambitious goals to become the world s most competitive and dynamic knowledge based economy, hence challenging the US and Asia in global knowledge driven competition. The strategic goal set in Barcelona is to increase the level of European research investment from 1.9 up to 3 percent of GNP by 2010. In spite of numerous new initiatives supporting these goals the key indicators do however not yet demonstrate of clear and straightforward success in achieving these goals 4. While recognizing the need of supporting these ambitious strategies by advanced policy studies The European Union has launched several research initiatives both within The 7 th RDT Framework Program as well as in other forms of research. Among policy research initiatives funded by EU Commission are for example The European Techno Economic Policy Support (ETEPS) and ERAWATCH networks that continue the prospective future oriented studies made in European Science and Technology (ESTO) network. All the challenges to national Finnish and European innovation policies described above form an important basis and starting point for the consideration of respective challenges for Finnish and European innovation policy studies, to be considered in next chapters. 3 Revisiting the rationale of innovation policies towards the framework The starting point for the consideration of future oriented innovation policy studies is the strategy and rationale of innovation policy. This means first the search for arguments to the question why innovation policy, public intervention in innovation and government funding to R&D are needed. Second, when we have identified the arguments and become convinced why innovation policy is needed, we must seek an answer for how to implement and enforce innovation policy with best possible outcomes and with high performance. The third related aspect is the impact assessment of innovation policy and conclusions of 4 For example European Roundtable of Industries (ERT) has expressed doubts of the realization of targets and refers e.g. to administrative inflexibilities and regulation in Europe generating rather a push from Europe than attraction here.
4 improvement the policy in the future. The foresight exercises focusing on technologies and their socio economic contexts are an integrated element of innovation policy framework, and, as policy making in any sector is future oriented, of any policy framework. Most of the theoretical and practical arguments for the public intervention in research and related public R&D investments relate to the future perspectives. Consequently, the ability to integrate foresight exercises and even the new future oriented culture become key challenges for innovation policy in the future. Moreover, because enterprises are among key actors in innovation policy, an advanced policy making shall be based on profound understanding of the role of foresight in enterprise strategies and innovation activities, as well as related studies of enterprise innovation (e.g. by Kline and Rosenberg 1986; Braun, 1998; Kuhlman et al, 1999; Tübke et al, 2002). This chapter will discuss all above mentioned issues. Section 3.1 starts from the traditional rationale and arguments for public R&D funding and Section 3.2 describes recent changes in research community related to the rationale of public R&D funding. Section 3.3 outlines the future oriented framework which integrates phases of innovation policy, from rationale and strategic aspects to implementation and impact assessment of innovation policy, and with feedback loops from impact assessment to rationale, strategy and implementation. Section 3.4 draws conclusions of Sections 3.1 3.4. 3.1 Market failure, public goods and externalities The arguments for government R&D funding are based on the theoretical discussion in the economic literature especially since late 1950s and on related practical expectations of benefits from public research investments to welfare of and quality of life of citizens. Within the context of welfare economics Arrow concluded that conventional efficiency conditions do not prevail in innovation markets (1962). The inefficiency is due to indivisibility, low transfer costs and respective peculiar characteristics of knowledge commodity leading to exceptional uncertainty in R&D investment, inadequate private incentive to R&D, and consequent under investment in R&D as compared to social optimum. As Nelson stresses this uncertainty concerns expected results of basic research more than applied or explorative research: Although one cannot make an airtight statement based on welfare economics, we are not spending as much on basic scientific research as we should. But I believe that the evidence certainly points in that direction (1959). Patent institution and R&D subsidies are among suggested policy instruments for correcting markets, for restraining knowledge spillovers from original discoverer, and for achieving socially optimal resource allocation to research. Arrow s and Nelson s contributions were followed by a vast literature and are still among prevailing starting points in the analysis of economic rationale of public research funding and of R&D subsidies. Later the "under investment" hypothesis of research funding was supplemented by "over investment" hypothesis of Dasgupta and Stiglitz due to overlapping R&D activities (1980). In this case public policy is suggested to coordinate industrial R&D in order to avoid overlap and dissipation of resources. The welfare economic analysis of economic rationale of public subsidies for private R&D generated an extensive controversy in literature. The critical aspects of early controversy related e.g. to basic axioms of the welfare economic analysis like assumptions of economic equilibrium, optimal and maximal behavior of economic agents, ubiquitous nature of the analysis of market failure, and on the analysis of technological change as an exogenous variable. In the recent innovation policy studies many new perspectives have been opened. For example rather than being general the underinvestment of R&D due to market failure may rather relate to different sectoral failures (Martin and Scott 2000). The practical legitimacy for granting public research funding comes from socio economic benefits emerging from public research investments, and, accordingly, policy makers and
5 taxpayers will have empirical evidence of these benefits. The indication and measurement of economic returns and benefits of research investments is important for companies but also for government of indicating the additional impacts to private investments. The pressure to display benefits from public research funding perpetually grows due to the increasing political competition between alternative uses of increasingly scarce public resources 5. Table 1 compiles some of the conventionally presented theoretical and practical economic arguments for government research funding. A B C D E F G Areas where markets fail in socio economic problem solving: Government R&D funding can be justified to such areas with socio economic importance in which markets function imperfectly (areas of public and common goods), traditionally for example such areas as health care, environmental protection, defense and security, and also education and science, and respective infrastructure areas: Government R&D funding can be justified to develop economically and socially important infrastructures and public good areas, such as transportation, energy, but also education and science and research. Science and innovation infrastructure: Government funding can be justified for the creation, maintenance and financing of education and research infrastructure or innovation system which support education, basic or fundamental research and (re)training. Areas requiring long time horizon of research and development: Especially in the areas of imperfect markets (areas of special responsibility of society, such as environmental protection), government R&D funding can be justified for the sake of required exceptionally long time horizon in problem solving, surpassing conventional time horizon of companies. Research areas of critical mass: Government R&D funding can be justified for research areas requiring critical mass and exceptionally big size of R&D facilities such as aeronautical and space research (e.g. CERN, EBML), or for solving of remarkable environmental challenges (e.g. greenhouse gas effects). Welfare through competitiveness: Government R&D funding can be justified for boosting economic growth in order to enhance national competitiveness and consequent improvements to economic and social welfare in the form of income and wealth creation, improved employment, etc. R&D schemes for SMEs: The bulk of companies are SMEs and many of them have limited R&D resources. SMEs are however important for the economy and for employment that give legitimacy to government R&D funding schemes for them. Table 1 Theoretical and practical arguments for government R&D funding. The theoretical and related practical arguments for government R&D funding compiled to Table 1 are related to expected benefits from publicly funded research results to welfare of citizens and quality of life. Accordingly the future or foresight perspective is an essential integrated element of public research funding and related innovation policy. In some areas the social value of discoveries and innovations e.g. infectious or viral diseases and other health objects, environmental issues, product and personal safety, or working conditions may be far higher than that of profits received by innovators or original (private) R&D investors. The arguments (A) and (C) in Table 1 are based on theoretical aspects discussed in economic literature. For example, defense research, safety and security research is an area of special governmental responsibility traditionally. The arguments (D) (F) relate to the general role of government in the creation and maintenance of the research and education system. The argument (F) is based on expected positive economic impacts of public R&D funding through the increase of national wealth and income. Many arguments 5 Fahrenkrog et al. (2002) is an overview on socioeconomic impact assessment methods of public R&D policies.
6 for innovation policy encompass broader perspectives than only those of education, science and technology, i.e. horizontal policy activities in different policy fields. On a level of research projects or programs the arguments for public research funding presented in Table 1 interrelate with each other. The basic requirement for public investments in innovation is that these investments have additional effects to private innovation that are beneficial to the entire society. The additionality refers to substitutive and/or complementary role of government funding and other required activities for innovation. The additionality can be defined as the changes of behavior and performance that would not have occurred without a program (Papaconstantinou and Polt 1999). Metcalfe defines additionality the other way around: Policy should not subsidize firms for activities they would otherwise undertake themselves (1995). According to Papaconstantinou and Polt market failure rationale to innovation policy suggests that while additionality and the existence of positive private returns to firms as a result of government programs are preconditions for success, for policy to be fully justified the net social benefits of a government program must be positive. Hence the program needs not only to be effective in changing behavior, but also efficient from a social point of view. Besides behavioral, the additional impacts of public research funding may be economic and cognitive and may relate both the inputs and outputs of innovation (on discussion, see e.g. Georghiou 2002; Falk 2006). According to the economic rationale of public research funding government must support especially basic research because markets fail to invest adequately in basic research from societal perspective. Private incentive of R&D investing is low again because of future uncertainties of investment in basic research. Exceptional uncertainties due to unpredictable future output of R&D investment and, moreover, due to a fear of that new knowledge emerging from R&D may leak to competitors. The demand structure in future markets is uncertain as well i.e. from a conventional business perspective R&D with future importance may not be attractive enough to become financed by private enterprises, but which, if financed, would probably result in potential social benefits. In conclusion, reasons for inadequate private interest in investing in research are in future uncertainties with respective to demand of innovations and, furthermore, with the time horizon of producing returns to those investments. Besides basic research public sector in industrialized countries is responsible for education and research system, i.e. for the whole science and education infrastructure. In these systems government finances the education from basic levels up to higher education and participates also in financing of vocational training. Obviously this situation will continue in the future as well, although in some parts of the system, for example, in higher education, retraining and in university level education some shift to privatization may take place. Traditionally basic research is executed mainly in (public) universities that already may give a reason to public funding of basic research. Secondly, commercial applications of basic research in many cases may remain uncertain. Third, results of basic research are in many cases public goods which cannot be usually appropriated by private companies. Fourth, basic research is traditionally driven also by scientific curiosity of researchers and opportunities to execute curiosity oriented research are currently limited in most private companies (see e.g. Rosenberg 1990; Dasgupta and David 1994). In many economic and technological areas such as energy or transportation infrastructures or environmental issues the problem solving requires a long time horizon. In many cases the time horizon of private R&D is not long enough. As Fransman argues by referring to IT case studies in Japan, it is the need to generate satisfactory profits which bounds the vision and in view their bounded vision corporations often tend to under invest in the creation of technologies for the day after tomorrow where the degree of commercial uncertainty is
7 frequently great (1990). Accordingly without governmental action an obvious underinvestment in R&D emerges which is recognized also in policy documents (see) 6. Future uncertainties vary between technologies. For example environmental technology is often considered as an area with high commercial uncertainty. Finding technical solutions to such challenges as mitigating greenhouse gas emissions or respective problems are longterm challenges to R&D. Business opportunities may emerge in the future but may enterprises may hesitate large R&D investments. Hence environmental problems are examples of areas where markets are not only imperfect or fail but are yet absent, i.e. from contemporary perspective the question is of unknown missing or non existing markets. In such areas human needs may, however, change in the future and science and technology push may raise both new needs as well as new techno economic opportunities for satisfying currently unknown or emerging needs. In conclusion the role of government and foresight are of great important in common good areas that relate to sustainable development. Besides science and education, government has traditionally financed research of different economic and social infrastructures which have been considered as public good areas, such as energy, transportation, social and health care (e.g. Cornes and Sandler). One area is the national defense and security which has been a remarkable area of public R&D investment especially in the U.S. Similarly government has traditionally been responsible for such public good areas as the improvement of living and built environment and labor and workplace safety. In these areas government promotion to R&D and innovations is expected to produce such social returns and benefits which would not emerge otherwise. In conclusion, as the discussion above indicates, most of the conventional theoretical and practical arguments for the public intervention and public investments in research and development relate to the future and foresight perspectives. Accordingly the ability to integrate and embed foresight exercises and related new culture into various phases of policy making are among key challenges for innovation policy design in the future. 3.2 Towards a new governance of science The recent changes in science system and research community within the past two decades have brought new elements to the socio economic rationale of innovation policy and public R&D funding. Many observers have argued that the scientific system is evolving towards a greater degree of inter organizational collaboration and exchange, a development that has both disciplinary, economic and management consequences (see e.g. Gibbons et al. 1994; Geuna et al. 2004). In moving towards a more knowledgeintensive society, academics face pressures to link their work more closely to the needs of economy and society. In the case of universities this has meant, among other things, that more public money has been allocated on the competitive basis and it is increasingly concentrated in techno sciences and market related fields. Market like behavior has become a part of universities when universities are being transformed to entrepreneurial universities. Governments have also set up new allocation mechanisms aimed at improving the efficiency and effectiveness of university research, supported the establishment of science parks and cooperative R&D centers, and initiated various programs in order to promote knowledge transfer from academia to industrial and commercial use. 6 E.g. according to the announcement of President Clinton We are moving to accelerate the development of civilian technology with new criteria: Accelerating the development of technologies critical to long term economic growth but not receiving adequate support from private firms, either because the returns are not too distant or the level of funding required is too great for individual firms to bear;! (Technology for, 2).
8 These changes challenge not only the social system of science but the traditional rationale that the scientific community alone should govern investigation. Nor there is much basis for the pursuit of science as a cultural idea, as an expression of a distinct set of values or the pursuit of aims that are governed by the search for fundamental knowledge. In fact, the new governance of science calls for a more dynamic organization and for a more direct stakeholder interest in the research agenda of the scientific system. Accordingly, the new governance of science and a third mission of universities shake the societal legitimacy of science and share the idea of increasing societal accountability and reflexivity in the society. Reflexivity means that traditional institutes, division of labor, values and practices are no longer given facts of life. It may also mean that the definition of scientific quality expands: subjects of societal and economic concern move alongside traditional academic criteria of good research (cf. Ziman 1996; Nieminen 2005; Kutinlahti, 2005). In this new situation, the academic organizations, i.e. universities and public research institutes adapt to external expectations in different ways. Some attempt to apply principles of market behavior, and some adhere to traditional academic values and principles. Consequently, universities do not follow only one predominating action model but a number of different ways to organize and manage their activities (Nieminen 2005: Kutinlahti 2005). As universities attempt to fulfill multiple functions, new competences are needed to defense the university s autonomy in the face of competing institutions and pressure from both the public and private sectors. The entrepreneurial role is also likely to change the management strategies of universities. These strategies aim to integrate academic, commercial, and administrative cultures, decreasing the distance between universities, business and society. The traditional and recent analysis and understanding of different and dynamically changing rationales of innovation policy, as discussed in Sections 3.1 and 3.2 above, are important starting points for outlining a comprehensive modern systemic framework for innovation policy in next Section 3.3. 3.3 Integrated framework for policy making Innovation policy making encompasses ideally the following main phases: (1) the definition of rationale(s) of innovation policy, (2) the formulation of policy strategy with a consequent action plan, (3) the implementation of policy by applying different policy instruments and measures, (4) the assessment of socio economic impacts of policy, and (4) the subsequent improvement of performance of innovation policy. Foresight of technological development and related socio economic context and related anticipatory assessment of technologies, play a vital role particularly in planning phase of innovation policy making but also in other phases as discussed below. Figure 1 presents the innovation policy framework consisting of main phases of innovation policy making. Innovation policy frameworks often concentrate on certain phases of innovation policy making rather than attempting to have a comprehensive view on all phases of policy making as a whole. The framework illustrates among others different feedback loops of impact assessment to implementation, strategy, planning and rationale of policy. For example, besides revisions to performance (effectiveness, efficiency) of policy and policy strategy, additional impacts of innovation policy implementation may generate new rationales and strategies to policy. This framework has close connections and implications to the agenda of innovation policy studies which will be elaborated a bit further in Chapter 4.
9 Figure 1 A systemic framework on main phases of innovation policy making consisting of main elements, and relations and causalities in between (adapted from Loikkanen and Kutinlahti, 2005). The framework of Figure 1 attempts to illustrate the comprehensive, overall and systemic view on the main phases of innovation policy making by describing this entity, its main elements, and different relations and causalities in between. Innovation policy making is based on the socio economic rationale(s) and foundations, the key question of which is why innovation policy is needed. As discussed in Section 3.1 the economics the socio economic rationale of innovation policy and public research funding is related to market failure, public goods, externalities, characteristics of knowledge good, risks and uncertainties in investing in production of new knowledge. Besides these questions a more recent discussion on the rationale of innovation policy and public research funding public raises new arguments in public intervention in R&D, related for example to the entrepreneurial and societal roles of universities. In defining socio economic rationale to innovation policy policy makers identify general strategic goals of innovation policy that may relate, for example, to enhancing the welfare, growth of economic and productivity, improving the competitiveness and employment, promoting innovation in SMEs, developing horizontal innovation policy, health, safety, sustainable development, etc. Strategic goals of innovation policy will be implemented and enforced according to detailed action plans. As the phase of defining of the socio economic rationale of innovation policy and public R&D funding tries to tell why these actions are needed, the implementation phase of innovation policy instruments and measures attempts to answer to the question how and how efficiently and effectively public innovation policy and R&D funding are enforced and executed. Practical policy implementation means using of different policy instruments and measures related to enterprises and other key actors and organizations in the innovation system, for example: Granting of public R&D subsidies to private enterprises or organizing national technology programs by national technology agencies (e.g. Tekes in Finland, VINNOVA in Sweden or NIST in the U.S.), fostering governmental contract research organizations (such as TNO in the Netherlands, Fraunhofer Gesellschaft (FhG) in Germany, or VTT Technical Research of Finland in Finland), promotion of public venture capital to innovative knowledge based start up companies, etc. After the implementation of innovation policy the next phase of systemic policy framework is the assessment of socio economic impacts of policy (impact assessment). It is important to separate different impacts of innovation policy within different timelines (short term, mid term, long term) when impacts appear, as illustrated in Figure 2.
10 Impact assessments of innovation policy and public R&D funding concentrate on additional impacts of public policy instruments, measuring e.g. innovation outputs, changes of behavior and cognitive capacity of key actors and organizations of innovation system, etc. Impact assessment attempts to identify and separate the additional impacts of innovation policy on the level of economy and society, different technologies, new knowledge, networking, physical environment, decision making, and so on. Impact assessment studies may vary in their scientific approaches, methodologies and objectives in different countries. Although impact assessment already is relatively established practices in many developed economies, there are not generally accepted or harmonized methodologies or definitions in this area so far. Kuitunen and Hyytinen (2003) is among relatively few conceptual analysis attempting to clarify the basic concepts of impact assessment (e.g. the proposal of authors in separating products, outcomes and impacts of public innovation policy and R&D funding). The culture of impact assessment in governmental organizations is developing in Finland due to the new rules according to which different administrations must set impact objectives and must report annually within budgetary processes of their achieved socio economic or other impacts. E C O N O M I C I M P A C T S SHORT TERM MID TERM LONG TERM h Award/participant characteristics h R&D partnering h Acceleration of R&D h Innovative Technology Development Patents Publications Competitive Advance Prototype products & processes h Commercial Activity New Products New Processes Licensing h Attraction of Capital h Strategic Alliances h Company Growth h Broad national economic benefits Return on investment Public Private Social Inter Industry Diffusion Increased GDP & tax base Societal impacts Total Economic Benefits Benefits to Awardees Announce Competition Announce Award Complete Projects Post Project Period Figure 2 Innovation policy and public R&D funding produces different outputs, outcomes and impacts in different time periods (Tassey 1997). The assessment of impacts of R&D and innovation clearly requires models and methods that are beyond the traditional assessment of efficiency and productiveness. While the impact assessment has traditionally been used to justify research spending and public intervention, attention is increasingly being paid to using it as a strategic management tool for organizational development and learning. Impact assessment is developing from traditional ex post type evaluation towards the creation of and commitment to a common future oriented strategic orientation in which continuous common interactive learning and subsequent accumulated knowledge play an important role. Output and outcome indicators are used to monitor whether the organization is doing the right things and to assess the direction of changes to be expected (Lähteenmäki Smith et al. 2006). Evaluations can also help decision makers identify sources of competitive advantage as well as areas where public funding stabilize market fluctuations (Venetoklis 2002, 5). As impacts of R&D and innovation only emerge in the long run, the selection of criteria and indicators is particularly
11 challenging. Among other things, designing the impact assessment processes requires the ability of research organization to select relevant indicators that best reflect the effects and impacts on their customer s innovation processes is the core issue. Another aspect is who sets the criteria (Lähteenmäki Smith et al. 2006). As described in Figure 1, the assessment of different phases, starting from rationale to impact assessment, have feedback loops to different phases of innovation policy making. For example, impact assessment may generate new aspects to efficiency and effectiveness of implementing and enforcing the innovation policy, or new strategic aspects of formulating the innovation policy strategy, or new perspectives in defining the rationale of innovation policy. Moreover, the innovation policy framework elaborated above, with all its elements, is future oriented meaning for example that the primary goal in assessing of policy implementation of the past is an attempt to identify the challenges and appropriate effective and efficient policy instruments and measures to be used in the future as well as the foreseeable required changes in the socio economic rationale of innovation policy. 3.5 Conclusions In Chapter 3 we considered the socio economic rationale and fundamental arguments of innovation policy, framework consisting main stages of innovation policy, feedback loops from policy practice back to strategy and rationale and policy. All this elements are of key importance in legitimating public intervention and public R&D funding to R&D and innovation in private enterprises. Accordingly these elements are basic elements and topics of innovation policy studies agenda which will be considered in detail in Chapter 4 next. 4 Agenda of innovation policy studies of VTT Applied innovation policy studies supporting strategic choices of national policy making organizations can be structured in alternative ways. The following description is based on the experiences of innovation studies group at VTT. VTT has developed integrated, systemic and multidisciplinary framework, approach and practices of innovation policy studies since 1993. Figure 1 illustrates this approach as it is nowadays and the logics and content of innovation policy studies will be described in detail in the following. 2. Foresight of technological development 1. Innovations and industrial renewal Emergence, diffusion, embedding, promotion, innovation environment 4. Assessment of national and EU s innovation policy 3. Impact assessment of technological change 5. Regional innovation policies (national, cross border in Europe) Figure 3 Research agenda of innovation policy studies at VTT Technology Studies. An in depth understanding of the dynamics of innovation and innovation process, related and consequent renewal of industrial and socio economic structures is a basic requirement for qualified innovation policy studies (In Figure 3 block no 1). At VTT the SFINNO database of Finnish innovations forms a solid platform for this research. Because knowledge of innovation activities in enterprises is the basic information for designing innovation policy, the organization of related policy studies shall be based on in depth
12 understanding of innovation process in enterprises. Accordingly VTT analyses factors contributing to the emergence, diffusion and social shaping of technologies, their economic, social and ecological consequences, financing and commercialization of innovations, and innovation activities in traditional industries. Besides SFINNO data basis these studies are based e.g. on Community Innovation Survey (CIS), national data of innovation activities of enterprises collected by Statistics Finland and so on that enable the drawing of conclusions with respect to impacts and effectiveness of innovation policy measures. Foresight of technological development and socio economic factors and environments affecting them (In Figure 3 block no 2) give political decision makers and businesses guidance for R&D planning and resource allocation. VTT conducts industrially and politically oriented foresight and road mapping studies, and related methodological development. The group collaborates with national experts in business and research communities as well as with acknowledged international research institutes within and outside Europe. The assessment of economic, social and ecological effects of technological change (In Figure 3 block no 3) is an integral element of innovation policy studies, as well as processes supporting the societal embedding of innovations (ageing society and transition to new energy alternatives as examples). VTT also examines impacts and effectiveness of innovation policies whether objectives have been achieved and R&D is applied effectively and efficiently on an institute, program or policy level (block 4). Specific studies focusing on regional innovation policies are also carried out (block 5 in Figure 3 above). Before an attempt to measure the additional impacts of innovation policy measures we have to be aware of private impacts of company investments in research. Accordingly, this aspect is considered here as an important starting point of innovation policy studies. VTT explores for example impacts of EU s R&D framework programs on the national research system and related division of labor between national and European programs in the gradually shaping European Research Area. The regional perspective of innovation is of growing importance both in regions nationally as well as in cross border regions in Europe, as are the limits of and opportunities for horizontal technology policies both nationally, on European level and internationally. Modern impact assessment and evaluations of innovation policy, rather than merely assessing the past success of R&D efforts, give ideas and perspectives for improving existing policy implementation and for formulating novel policy approaches in the future. Within this context and with these challenges VTT sees the future prospects of such research services promising in offering high level research services to national, Nordic and European customers in public and private sectors. Figure 4 illustrates the various time horizons covered by the above described innovation policy studies. To know the lessons of history is of crucial importance in the development of innovations and relevant innovation policy. In the case of VTT this means a careful analysis of innovations development since early phases of modern technology. For example the SFINNO database includes currently data of innovations developed by Finnish enterprises and R&D institutes since 1945 (see Saarinen 2005). This data basis gives a unique source for close exploration of the path dependent development of Finnish innovations and related role of science and technology policy. The next time scale in Figure 4 in VTT s innovation studies is the research related to the present on going innovation processes. In these studies the focus is on new technologies close to market introduction. The VTT researchers are engaged in processes of facilitating the successful rooting or embedding of the innovations into their real world societal context, accelerating or influencing the final development phases and market introduction of new technologies in
13 different ways 7. In the case of VTT these studies relate for example to the introduction of new medical technology in hospitals or new environmental technology in energy sector. Figure 4 Integration of the past, presence and future in innovation policy studies at VTT. The third time scale of VTT s innovation studies in Figure 4 is future oriented studies or studies related to foresight of technologies and their socio economic environments. In this field VTT has carried out foresight and road mapping studies with varying time horizons and focus areas. The studies have been carried out in collaboration with VTT technical experts involving the key actor groups (industry, research and public sector) at national, Nordic and EU levels. International foresight cooperation has been considered important, as well as examination of the socio economic environments of technological developments. The economic, societal and ecological impacts of new technologies have been examined especially in future oriented technology assessment studies. In addition, a new type of technology barometer has been developed. This barometer attempts to assess how favorable the Finnish innovation environment and atmosphere will be in the future according to key interest groups, incl. politicians, industries, R&D community, laymen and youth (see Naumanen 2005). In conclusion, the innovation studies group of VTT has developed a research agenda that interlinks the past, present and future, and the various phases of the innovation policymaking process. This has been done in order to be able to provide relevant research support to strategic choices of innovation policy makers. However, the concept is relatively new for policy makers. Consequently we do not have much response or feedback so far to this research strategy. 5 Conclusions and challenges of innovation policy and policy studies The present article develops a conceptual integrated and comprehensive framework in which impact assessment and foresight in particular but also other key phases of innovation policy making are considered as one and comprehensive entity. The framework is elaborated on a basis of experiences of impact assessment and foresight studies at VTT and also on a basis of assessment of foreseeable future challenges of innovation policymaking. The article describes the structure, organization and experiences of future oriented innovation policy studies at VTT. 7 The concept of rooting of new technologies developed by VTT is relatively close to the ideas of transition management applied e.g. by Rennings et al (2003) in the Blueprint project.