Evaluation of the Finnish National Innovation System Policy Report

Ministry of Education

www.evaluation.f i This page is intentionally left blank for double-sided printing This page is intentionally left blank for double-sided printing Published on 28 October 2009 at 13:00 Finnish local time

Evaluation of the Finnish National Innovation System – Policy Report www.evaluation.f i (Also available: Full Report)

Chair of the evaluation panel: Professor Reinhilde Veugelers Katholieke Universiteit Leuven (Belgium) Other international panelists: Professor Karl Aiginger Austrian Institute of Economic Research (WIFO) Professor Dan Breznitz Georgia Institute of Technology (USA) Professor Charles Edquist Lund University (Sweden) Professor Gordon Murray University of Exeter (UK) Professor Gianmarco Ottaviano Bocconi University (Italy) Finnish panelists: Professor Ari Hyytinen University of Jyväskylä Research Professor Aki Kangasharju VATT, The Government Institute for Economic Research Adjunct Professor Mikko Ketokivi Helsinki University of Technology Head of Unit Terttu Luukkonen ETLA, The Research Institute of the Finnish Economy Research Director Mika Maliranta ETLA, The Research Institute of the Finnish Economy Professor Markku Maula Helsinki University of Technology Professor (Emeritus) Paavo Okko Turku School of Economics Research Director Petri Rouvinen Etlatieto Oy (a subsidiary of ETLA) Professor Markku Sotarauta University of Tampere Researcher Tanja Tanayama HECER, Helsinki Center of Economic Research and Etlatieto Oy Director Otto Toivanen HECER, Helsinki Center of Economic Research CEO Pekka Ylä-Anttila Etlatieto Oy (a subsidiary of ETLA)

Publisher: Taloustieto Oy (on behalf of the Ministry of Education and the Ministry of Employment and the Economy)

Helsinki University Print, 2009

Cover design: Porkka & Kuutsa Oy Cover photo: Kai Kuusisto / Plugi ISBN 978-951-628-490-6 1 Sounding Board

Chairs of the sounding board: State Secretary Mikko Alkio (until 31 July 2009) Ministry of Employment and the Economy State Secretary Riina Nevamäki (since 1 August 2009) Ministry of Employment and the Economy Other members of the board: Ministerial Advisor Pirjo Kutinlahti Ministry of Employment and the Economy Director Anita Lehikoinen Ministry of Education State Secretary Heljä Misukka Ministry of Education State Secretary Velipekka Nummikoski Ministry of Finance Director General Petri Peltonen Ministry of Employment and the Economy State Secretary Terttu Savolainen Ministry of Social Affairs and Health Special Government Advisor Ilkka Turunen Ministry of Education

Members of the research and support team

Ali-Yrkkö, Jyrki; Autio, Erkko; Deschryvere, Matthias; Dixon, Roderick; Hyvönen-Rajecki, Kaija; Koski, Heli; Kotilainen, Markku; Kotiranta, Annu; Nikula, Nuutti; Nikulainen, Tuomo; Paasi, Marianne; Pajarinen, Mika; Palmberg, Christopher; Rogers, John; Saariokari, Pirjo; Tahvanainen, Antti; Takalo, Tuomas; Väänänen, Lotta.

This Policy Report summarizes the key findings of the evaluation. The Full Report provides further details and elaboration. Some of the studies conducted to support the evaluation are also available separately: • Autio, E. (2009). High-Growth Firms in Finland: Issues and Challenges. ETLA Discussion Papers, 1197. • Deschryvere, M. (2009). A Comparative Survey of Structural Characteristics of Finnish University Departments. ETLA Discus- sion Papers, 1195. • Kotiranta, A., Nikulainen, T., Tahvanainen A-J., Deschryvere, M., & Pajarinen, M. (2009). Evaluating National Innovation Systems – Key Insights from the Finnish INNOEVAL Survey. ETLA Discussion papers, 1196. • Nikulainen, T., & Tahvanainen, A-J. (2009). Towards Demand Based Innovation Policy? The Introduction of SHOKs as Innovation Policy Instrument. ETLA Discussion Papers, 1182. • Tahvanainen, A-J. (2009). Finnish University Technology Transfer in a Whirl of Changes – A Brief Summary. ETLA Discussion Pa- pers, 1188. • Takalo, T. (2009). Rationales and Instruments for Public Innovation Policies. ETLA Discussion Papers, 1185. • Tanayama, T., & Ylä-Anttila, P. (2009). Tax Incentives as Innovation Policy Tool (in Finnish with an abstract in English). ETLA Dis- cussion Papers, 1189. Free electronic versions of all reports and studies as well as other related material are available at www.evaluation.fi. To obtain printed copies of the reports, please fill a form at the web site or contact Riikka Pellikka, Ministry of Employment and the Economy, [email protected], +358 50 302 7671.

Contacts

Pirjo Kutinlahti, Ministry of Employment and the Economy, [email protected], +358 10 606 3548 Petri Rouvinen, Etlatieto Oy, [email protected], +358 9 6099 0202 Ilkka Turunen, Ministry of Education, [email protected], + 358 9 1607 7299

2 Table of Contents

Preface > 4 Executive Summary > 9

Overview and General Conclusions 1. Evaluation Task > 12 2. Future Challenges and Ongoing Reforms > 14 3. Policy Governance and Steering > 20

Six Main Points of View: Summaries by Sub-Panel 4. Broad-Based Innovation Policy > 34 5. Demand- and User-Driven Innovation > 42 6. Globalization of Business Activities > 52 7. Growth Entrepreneurship and Finance > 60 8. Geography of Innovative Activity > 70 9. Education, Research and the Economy > 78

Growth Strategy: A Strong Commitment to Education, Research, and Innovation 10. The Way Forward > 88

Bibliography > 90 Endnotes > 92

3 Preface

In the fall of 2008 the Ministry of Education and the in implementing the Strategy and in steering the system Ministry of Employment and the Economy commis- towards a better future. sioned an international evaluation of the Finnish na- Our evaluation task is outlined in the original tional innovation system. As I was in the final months contract notice (ref. no. 2327/420/2008), as well as in of my term as an economic advisor at the Bureau of the evaluation brochure, prepared for the opening European Policy Analysis to JM Barroso, European press conference on 11 December 2008: The Minis- Commission, and not yet fully returned to my pro- tries specifically wanted an independent outside view of fessorship at Katholieke Universiteit Leuven (Belgium), the system. We were to look into the current and fu- the timing was perfect for me to learn about the feature challenges and consider whether or not they are tures of the innovation system that continues to be sufficiently acknowledged and addressed. We were admired and imitated worldwide. to point out needs for institutional and policy adjustments and reforms, as well as to draw conclusions on policy governance and steering. Given the short time Shooting a moving target and broad coverage of our task, we were to evaluate the system as a whole rather than focus on individual The evaluation mission turned out to be challenging actors, organizations, and instruments. In our evalu- not only due to its considerable scope and shortness ation we looked particularly at whether public bod- of time, but also because of the several ongoing tran- ies and policies assist and incentivize both public and sitions in the Finnish system, in part induced by the private individuals and organizations in generating new innovation strategy (Aho, et al., 2008) that served and utilizing novel ideas. as our starting point; at least four major reforms ad- In collaboration with the two Ministries, the eval- vanced along with our evaluation and dozens of new uation panel settled on six main points of view in the policy initiatives have seen the light this year alone. evaluation (Exhibit 1); the basic choices of the Strat- Our solution to this moving target problem was to egy underlie each point of view. We organized our- employ heterodox approaches and work (partly) in selves into six sub-panels, one for each main point of smaller groups. Despite the evolving nature of the view. Based on the work by the sub-panels, we draw system, as well as the valuable and welcomed diver- our overall conclusions as the whole panel. sity in the opinions of the panel, we ended up with a Each sub-panel was led by an international ex- coherent joint view on conclusions that should help pert working with two Finnish ones: an academic

Exhibit 1: The basic choices underlie the Global trends, national structures & their evolution, choices of the Finnish National Innovation Strategy six main points of view, each studied by a sub-panel led by an international BROAD-BASED DEMAND- & GLOBALIZA- GROWTH GEOGRAPHY EDUCATION, expert. INNOVATION USER-DRIVEN TION OF ENTREPRE- OF INNOVATIVE RESEARCH, POLICY INNOVATION BUSINESS NEURSHIP & ACTIVITY AND THE Source: The brochure prepared by the Ministry of Educa- ACTIVITIES FINANCE ECONOMY tion and the Ministry of Employment and the Economy for the opening press conference of the evaluation on 11 C. Edquist D. Breznitz K. Aiginger G. Murray G. Ottaviano R. Veugelers December 2008. T. Luukkonen M. Ketokivi P. Okko A. Hyytinen A. Kangasharju O. Toivanen M. Sotarauta P. Rouvinen P. Ylä-Anttila M. Maula M. Maliranta T. Tanayama

Innovation activity in a world without borders Innovative individuals and communities Demand and user orientation Systemic approach

The Finnish national innovation system and policy: policy/institutional reforms/adjustments to meet future challenges 4 scholar and an innovation researcher representing tical policy concerns. Finland is in a unique position ETLA. Given the task and the time, each sub-panel to lead innovation policy thinking globally by filling had to make hard choices as to its approach and em- these gaps in scholarly knowledge and by providing phasis; all pressing issues could not be addressed. In the scene for real policy experiments. writing the report we have attempted to produce self- contained chapters, even if this necessarily brings about some repetition. Some personal observations on Finland and the Finns

Innovation policy remains an art Finland certainly has more than its fair share of capa- rather than a science ble civil servants, which (as a group) seem to be influential in steering and developing the system. Often In the context of this evaluation, we largely took the they are not only willing, but also eager to accept new premises for innovation policy for granted, even if ideas and rapidly integrate them into policy discus- we are fully aware that the underlying theories and sion. Nevertheless, Finland seems to share the same empirics remain less-than-satisfactory to effectively institutional inertia as other countries when it comes guide policymaking, which poses a challenge. to implementing reforms. Society’s interest in innovation stems from its Curiously enough, there is almost an expectation central role as a sustainable source of long-term eco- of intervention in Finland. The possibility of a gov- nomic growth and thus improving welfare (Aghion ernment failure in fixing the market is not always & Howitt, 2009). Innovation policy is primarily mo- considered in depth. There seems to be a culture of tivated by failures in the market for information (Ar- direct and visible public involvement – on the other hand row, 1962). While the central role of innovation and there seems to be less trust in alternative more indi- related policy justifications are both clear and undis- rect measures. Broader effects, say with respect to putable, they become much more fraught with diffi- competition or re-allocation of resources, occasion- culty when considered in detail. ally escape policymakers’ attention. As in many oth- For instance, small open economy considerations er countries, consideration of the interaction of the call for adjustments in policy rationales. While this is new (to-be-introduced) and the old (still continuing) indeed frequently acknowledged (Toivanen, 2008), in measures is sometimes lacking. Even if there is a host reality the employed theories and thinking have not of available tools (Takalo, 2009), there seems to be a been adjusted accordingly. tendency to stick with the same traditional instru- Even if innovation policy should be as dynam- ments and sectors. For example, green innovation ic and evolving as its targets, decades can go by with seems to be less integrated into Finnish mainstream little real change in policy conduct. Unfortunately, ininnovation policy discussions. novation policy theories are often mute on how to Incentives of individuals and organizations are adapt and change existing policies into new direc- often mentioned in Finland, but considering them tions, overcoming resistance to change. is not fully integrated into policy thinking. Cutting- The perspective of aggregate societal benefits edge innovative and entrepreneurial activity needs to does receive some attention, but discussion quickly engage the best and the brightest individuals and or- slips into considering individual public bodies and ganizations globally. This is most likely to happen in their actions. One should more often have an over- countries where their successful efforts are rewarded all systemic view of the incentives and actions of in- appropriately. dividuals and organizations currently targeted by a Finns seem to be superb at institutionalizing bewildering array of instruments and measures; how things. However, more attention should be paid to they work in tandem is largely unknown. steering and developing institutions, once estab- The above (and several others) are not just issues lished, to meet changing needs and perhaps discon- in the scholarly research agenda; they are also prac- tinuing them when they become obsolete. Indeed, in

5 some cases successful public institutions render them- well as to forge a clear division of labor between uni- selves obsolete by assisting development to the extent versities and polytechnics. that sustainable private solutions emerge. The two main weaknesses of the Finnish sys- Upon seeing and hearing all the top innovation tem, (somewhat dismal) growth entrepreneurship policy actors one after another in January 2009, I was and (lacking) internationalization, arguably remain struck by how uniformly they seemed to think and orphans in the system, that is, they are both most- how reluctantly they expressed even remotely con- ly side issues for a number of public institutions and troversial opinions. While this remarkable consensus not forcefully advanced by any. One of the problems is an asset in certain ways, (also) in the domain of in addressing these two issues is that neither is really innovation policy Finland would benefit from more represented where decisions are made. high-flown thinking and outside exposure, for exam- Overall, the Finnish innovation system and its ple, in the form of exercises such as ours. policy-making are very ‘Finnish’ (which in many ways is a great asset). Efforts to change this are yet to bear fruit. While more global exposure is needed Finland has ample upside potential in Finland, it should be kept in mind that it is a tool rather than an end to itself. Internationalization is While not obvious on the surface, a closer look sug- perhaps better advanced by removing its explicit and gests that Finland appears to have certain structural implicit obstacles than by direct measures. challenges. Reactions to them may have been ham- Global – and even European – considerations pered because, according to many indicators, up un- seem to be somewhat remote. While the European til recently Finland was doing well in its traditional Union is looking at Finland, to learn from its innova- strongholds. Now there is both a need and an oppor- tion policy design, Finland should also look more at tunity to make a clear break with the past. It remains the European Union. The Finnish innovation system to be seen whether or not there is sufficient courage has much to gain from integrating into the single Eu- and political will to see these reforms through. It is ropean market for goods and services, as well as into certainly my hope that our exercise does not turn out the European Research and Higher Education Area. to be just another report but that it leads to further Indeed, in my opinion the success of the Finnish uni- material developments. versity reform hangs in part on having a single Euro- In the course of its history the Finnish system has pean market for researchers and students. grown complex to both access and administer. Reac- The ongoing economic and financial crisis start- tions to the Strategy we have been observing during ed to fully unfold only after we had submitted our our exercise mostly add to the existing clutter. As in evaluation proposal and had laid-out our detailed many other countries, touching institutional bound- work plan. Thus, some issues related to the crisis are aries seems to be a taboo in Finland. Yet, it is hard not integrated into our analysis. In any case, develop- to imagine how the necessary streamlining could be ing a country’s innovation system is a medium- and achieved without it. long-term issue. The current crisis may nevertheless In my understanding the ongoing university re- be of such a nature that it induces more long-term form is the most important change in the public as- and even permanent changes in the geography and pects of the Finnish innovation system since estab- locus of specialization in innovative activity. lishing Tekes. While the reform has its risks, the panel It is quite possible that Finland currently has one takes a strong stand for it. We welcome its ambitions of the best national innovation systems worldwide. and encourage its implementation to be even more Even that may not be enough in an era, where the radical than what is currently being suggested. One global operating environment is rapidly evolving of the main issues to be dealt with is the highly divid- and the whole concept of a national innovation sys- ed attitudes and views of the actors within the educa- tem has rightly been questioned (Nelson, 1993). Com- tional system. Furthermore, it would be equally im- panies have been the primary object of the innovation portant to reform non-university public research, as policy but, as they become increasingly footloose and

6 geographically dispersed, the focus may have to shift ion we managed to meet and even exceed the high to nurturing and attracting creative individuals. expectations (at least my own). Obviously this is first The survey conducted to support the evaluation and foremost due to my fellow panelists, impeccably suggests that the actors of the Finnish innovation sys- supported by Etlatieto Oy (a subsidiary of ETLA, The tem are optimistic about the ongoing reforms and Research Institute of the Finnish Economy) and the re- the future of the system. I personally share this op- search team – thank you very much to all those in- timism: while some of our proposals are laborious to volved! Over a dozen separate studies were conduct- implement, with some adjustments the good Finnish ed to support our work. Some of these are published system could be much better equipped to meet fu- separately along with the two main reports. ture challenges! On behalf of the whole panel, I would like to ex- press our gratitude to the two Ministries, as well as to the Sounding Board overseeing the project, not on- Acknowledgements ly for their generous support, but also for vigorously defending the integrity of the panel. In the course of the past year or so, the evaluation In the course of the exercise we have interviewed exercise proved to be both enjoyable and education- and heard over one hundred key actors and experts al. The final outcome can be seen in this Policy Re- of the innovation system, the names of which are list- port, as well as in the complementing Full Report. ed in Exhibit 2. Furthermore, around two thousand The former serves as a gentle introduction and sum- individuals responded to the survey conducted to mary of our core findings; the latter provides further support the evaluation. The inputs of these individu- details and elaboration. I must say that I am person- als and organizations is highly appreciated – without ally very happy with the outcome, since in my opin- it, we could not have completed our work.

Brussels, 18 September 2009,

Reinhilde Veugelers, on behalf of the evaluation panel.

7 Exhibit 2: In the course of the evaluation, the panel interviewed and heard over one hundred key actors and experts. The panel would like to thank them all – without their help, it could not have completed its work.

Aho Esko, Nokia; Alahuhta Matti, Aalto University; Alitalo Sir- Empl. and the E.; Lemola Tarmo, Advansis; Löppönen Paavo, pa, M. of Empl. and the E.; Alkio Mikko, M. of Empl. and the E.; Academy of F.; Löytökorpi Sari, The Adv. Board for Sectoral Andersen Dorte Nøhr, Danish Enterpr. and Constr. Auth.; An- Res.; Lystimäki Jussi, Idean; Marjosola Juha, Finnish Ind. Inv.; tikainen Janne, M. of Empl. and the E.; Antola Tuula, Kaipaus; Martikainen Mikko, M. of Empl. and the E.; Mattila Markku, Anttila Tapio, Sitra; Bason Christian, Mind Lab; Björkroth Academy of F.; Misukka Heljä, M. of Educ.; Mustonen Riitta, Johanna, U. of Helsinki; Cardwell Will, Technopolis Ventures; Academy of F.; Nevamäki Riina, M. of Empl. and the E.; Nie- Dammert Ritva, Academy of F.; Eerola Essi, VATT; Eskelinen minen Markku, GE Healthcare; Niiniluoto Ilkka , U. of Helsinki; Jarmo, Forum Virium Helsinki; Eskola Antti, M. of Empl. and Nummikoski Velipekka, M. of Finance; Nybergh Paula, M. of the E.; Gädda Lars, Forestcluster; Grundstén Henri, Finnish Empl. and the E.; Ollila Jorma, Nokia; Ormala Erkki, Nokia; Ind. Inv.; Hägström-Näsi Christine, Forestcluster; Hakkarai- Paloheimo Annamarja, Finnvera; Parkkari Tuomas, R. and nen Maija, Tekes; Halme Kimmo, Advansis; Hämäläinen Timo, I. Council; Pauli Anneli, EU Commission; Pekkarinen Mauri, Sitra; Hammer-Jakobsen Thomas, Copenhagen Living Lab; M. of Empl. and the E.; Pellikka Riikka, M. of Empl. and the E.; Hansen Marie Louise, Danish Enterpr. and Constr. Auth.; Has- Peltonen Petri, M. of Empl. and the E.; Pikkarainen Mika, M. sinen Saara, SHOK Health and Well-being; Hautamäki Antti, of Empl. and the E.; Pohjola Hannele, EK, C. of Finnish Ind.; U. of Jyväskylä; Häyrinen Kari, FinPro; Heikkilä Pauli, Finnvera; Pötz Marion, Copenhagen Business School; Pulkkinen Raimo, Helve Heikki, City of Kuopio; Hermans Raine, Tekes; Hetemäki Tekes; Pursula Tiina, Gaia; Rintala Kari, TE-Centre; Roma- Martti, M. of Finance; Holstila Eero, City of Helsinki; Honkanen nainen Jari, Tekes; Rosted Jørgen, Fora; Saapunki Juha, PKT- Seppo, Helsinki U. of Techn.; Husso Kai, R. and I. Council; Jär- Foundation; Saarnivaara Veli-Pekka, Tekes; Savolainen Terttu, vikare Terhi, M. of Finance; Kallasvaara Heikki, U. of Helsinki; M. of Social Affairs and Health; Seppälä Esko-Olavi, R. and I. Kalliokoski Petri, VTT; Känkänen Janne, M. of Empl. and the E.; Council; Sipilä Jorma, U. of Tampere; Suurnäkki Anna, VTT; Kari Seppo, VATT; Karjalainen Sakari, M. of Educ.; Kauppinen Syrjänen Mikko, Gaia; Toivanen Hannes, M. of Empl. and the Petteri, M. of Educ.; Kavonius Veijo , M. of Empl. and the E.; Kek- E.; Tukiainen Pauliina, KCL; Turunen Ilkka, M. of Educ.; Vähä- konen Timo, EK, C. of Finnish Ind.; Kemppainen Hannu, Tekes; Pietilä Kirsi, Tekes; Valle Antti, M. of Empl. and the E.; Vartia Kervola Petri, City of Kuopio; Kivikoski Jussi, Tekes; Kop- Pentti, The Adv. Board for Sectoral Res.; Vesa Heikki, M. of Empl. pinen Seija, VTT; Korhonen Kalle J., M. of Empl. and the E.; Ko- and the E.; Vestala Leena, M. of Educ.; Virkkunen Henna, M. of sonen Mikko, Sitra; Kulmala Harri, FIMECC; Kutinlahti Pirjo, Educ.; Virtanen Erkki, M. of Empl. and the E.; Vuola Olli, Neapo; M. of Empl. and the E.; Laine Seppo, Finpro; Laino-Asikainen Wentzel Johan , Sentica Partners; Wilhelmsson Thomas, U. of Tiina, FinPro; Lehikoinen Anita, M. of Educ.; Lehto Petri, M. of Helsinki; Ylikarjula Janica, EK, C. of Finnish Ind.

8 Executive Summary

Premises This section summarizes some of the key findings of the evaluation. It also serves as an introduction and reading Both the new innovation strategy (Aho et al., 2008) guide for the three parts and ten chapters of this Report. and the subsequent Government’s Communication to the Parliament (henceforth the two are collectively referred to as the Strategy) call for a broad-based and systemic approach as well as demand- and user-ori- Introduction entation in innovation policy. The Strategy highlights the increasing role of information and knowledge in This report completes an international evaluation the society as well as stresses the urgency in address- of the Finnish national innovation system commis- ing the challenges induced by globalization (Chapter sioned by the Ministry of Education and the Ministry 3). The Strategy’s basic choices constitute the premis- of the Employment and the Economy and conducted by es of this evaluation. an independent outside panel. The assigned tasks are The Strategy warns against partial solutions in • To point out needs of institutional and policy ad- developing the system. It rather calls for compre- justment and reforms, hensive renewal and structural development requir- • To draw conclusions on policy governance and steering strategic management within the public admin- ing (Chapter 1). istration. It notes that individual and separate policy The panel took six main points of view (Preface, measures will not suffice. Exhibit 1), each of which was studied by a sub-panel led by an international expert accompanied by two Finnish ones. The panel commissioned several sup- Reflections on the Strategy porting studies and carried out an extensive survey. Both qualitative and quantitative methods were em- The Strategy defines productivity improvement as ployed in conducting an evidence-based evaluation. the main objective (Chapter 2), implying a balanced The panel makes critical but constructive remarks consideration of that should help in improving the Finnish education, • Developments within existing units, research, and innovation system, which is currently • Re-allocation between existing units, undergoing its biggest changes in the postwar era. It • Entry of new units, and envisions a system that would get the most out of the • Exit of old units. currently deployed (public) resources; it was not asked The last three re-allocative elements have previous- to consider their appropriate level. The panel’s man- ly been waved aside. Second, the emphasis is on pio- date was not to consider individual organizations or neering, which suggests less (innovation policy) con- their budgetary allocations, but on occasions they are cern for individuals and organizations that are not touched upon. (seeking to be) at the global frontier. Even if the current state of the Finnish innovation The panel welcomes the ambitions of the Strategy system is good, it is not enough: While some of the but challenges some of its key measures. Overall the panel’s proposals are laborious to implement, they panel finds the Strategy vague, leaving room for mis- are indeed needed to meet Finland’s future challeng- interpretation. The panel calls for caution on several es. The survey conducted to support the evaluation accounts: broad-based innovation policy can indeed reveals that the actors of the Finnish innovation sys- be too broad (Chapters 3 and 4). Demand and user tem are optimistic about its future. They are ready orientation (Chapter 5) should be interpreted as im- for, and even demand, major changes. partiality as to the source, type, and application do- The findings have implications for all innovation main of innovation, not as a shift to the other extreme policy organizations. The panel does not wish to im- from the current technology and supply-side empha- ply that any particular organization would not have sis. Analysis reveals that the Finnish system is less fulfilled its mission in the past. international than conventionally thought and that 9 there are signs that it is falling further behind (Chap- incentives and ample rewards on success in risky enter 6); current ways of addressing the issue are clear- deavors are needed as well. ly not working. Since the 1980s Finland has been in transition The Finnish innovation system lacks explic- from an investment-driven catching-up country toit cross-ministerial decision making and execution wards an innovation-driven and knowledge-based (Chapters 3 and 7). The panel hesitates with the frontier economy (Chapter 2). With this transition Strategy’s proposal to extend the Cabinet Committee on the locus of Finnish innovation policy has to change Economic Policy to include innovation matters, even towards more experimentation, risk-taking, and ac- though it is in line with the panel’s proposal that the ceptance of failure. Innovation policy should mostly Ministry of Finance and the Ministry of Employment and be concerned with the coming up with, and employ- the Economy should assume a joint responsibility for ment of, truly novel ideas (new-to-the-world and the enterprise-side of innovation (and growth) policy radical/disruptive innovations) with considerable so- (Chapter 7). A broader and stronger Research and In- cietal significance. novation Council is seen as an alternative for renewing Due to changes in operating environment (e.g., the Cabinet Committee. globalization), logic of innovation (e.g., democrati- zation), and internal developments in Finland (e.g., reaching the frontier), the work of all six sub-panels A call for a systemic renewal points towards shifting innovation policy emphasis from established incumbent companies and other or- One consequence of weak coordination within the ganizations towards individuals and their incentives. system is that occasionally several organizations go after the same societal problem (e.g., lacking growth entrepreneurship) with similar tools, which leads to Reforms wasteful replication and adds to institutional clutter. Current (public) aspects of the system are an out- The panel takes a strong stance for the university re- come of an evolution of several decades. The sys- form and encourages it to go further than what is cur- tem has grown complex to both access and adminis- rently being suggested (Chapter 9). The panel calls ter. Thus, the evaluation calls for a reform of the cur- for a continuation of the higher education reform: rent research and innovation system, including its ra- Polytechnics are important actors in the system with tionales and goals as well as its organizations and intheir strong regional and applied role and emphasis on struments. The provided outline (Chapter 10) should bachelor-level education. In the course of the 2000s, not be taken as a blueprint or an organization chart however, there seems to be an increasing tenden- but rather as a guiding principle. It is nevertheless cy to make them more like nationally- and globally- the case that the desired outcome cannot be reached orientated research universities.1 In the panel’s view without touching existing organizational boundaries. this does not serve the interests of the system.2 There Taken individually, most new policy measures should be a clear division of labor between universi- are consistent with the Strategy. Taken jointly, they ties and polytechnics. appear piecemeal solutions the Strategy warns against. The panel is cautiously optimistic about the na- The panel calls for pre-screening of new actions in or- tional Strategic Centres for Science, Technology and In- der to prevent duplication and overlaps (Chapter 3). novations (SHOKs) but suggests limiting public re- Several sub-panels touch upon the issue of using sources devoted to them (Chapter 4).3 In the panel’s tax incentives and on the role of the Ministry of Fi- view SHOKs are mostly about incrementally renew- nance more generally (Chapters 3, 4, and 7), which in ing larger incumbent companies in traditional indus- innovation policy has been tolerating but remote. The tries. panel urges for consideration of all possible innova- The true reform of sectoral research (public re- tion policy tools: Knowledge and human capital as well search organizations, PROs) remains in gridlock as enablers of innovative activity are important, but (Chapters 4 and 9). Even if the PROs make a worthy so-

10 cietal contribution as well as provide quality research have a negative overall impact in the relatively dis- and services, the panel believes that they have consid- advantaged regions (Chapter 8). While direct cost is erable upside potential that could be unleashed. The not very large, the total cost becomes considerable in panel recommends moving their academically-orien- terms of hampered regional development and fore- tated research to universities and organizing the re- gone growth. The panel’s proposal is to make the sys- maining tasks into 4–5 units in accordance with larger tem transparent and not to make regional imbalanc- societal needs (as opposed to the ministries’ adminis- es a concern for national direct support of private in- trative boundaries). A long-term binding action plan novative activity.5 is needed to implement the reform. The panel calls for a clarification and coordination of national, regional, and local innovation pol- Final remark icies as well as their links to other (non-innovation) policies (Chapter 3 and 8). Local and regional actors The Finnish system is at a crossroads due to both in- have grown important also in innovation policy mat- ternal and external factors. Innovation (policy) is in ters. They have, e.g., assumed similar tasks as TE- turmoil worldwide. While Finland is quite well-po- Centres.4 Currently national innovation support has sitioned to meet future challenges, there is a unique an ‘unspoken’ regional bias. Primarily through the opportunity for further reforms. Furthermore, both previously ignored re-allocative elements, nation- structural challenges and the financial crisis bring al direct support for private innovative activity may about a sense of urgency that should not be wasted.

11 12 Evaluation of the Finnish National Innovation System

• • • • The objectives of theevaluation are: Objectives port). Re- this of 2 Page board: the of members (the istries min- various in secretaries state of consisting marily sub-projects. these on overallbased their part draw in conclusions will panelists The panelists. Finnish two with works tionally acknowledged experts. Each foreign panelist will becompletedinSeptember2009. by ordinated co- Report) this of Page1 panel: the of members (the the project through a group of international panelists selected Ministry The System. Innovation National ish ment regarding an Economy the 2008 August In Evaluation 1. EvaluationTask eerh nttt o te ins Economy Finnish the of Institute Research

policy governanceandsteering . To draw conclusions and recommendations for the policy and institutional for needs out Topoint ture challenges. Toand current the waysaddressing identify of Toan form justments andreforms. in the system, as well as to evaluate how well they are addressed ininnovation policy. The project is overseenpri- is Board project Sounding The a by interna- of panel a by headed is evaluation The chure; asintheoriginal; additionsinparenthesis). italics tives, evaluation as shown below (Sections the outlines 2008 December 11 on conferencepress ing open- the for Economy the and Employment of Ministry the by prepared brochure The issued a contract notice on a public procure- Premises, and , a subsidiary of subsidiary a Oy, Etlatieto of major drivers of change of drivers major of view outside International Evaluation of the Finn- Task are direct copies from the bro iity f mlyet n the and Employment of Ministry and Education of Ministry Evaluation, Te work The . ETLA, The ETLA, Objec - - ad- fu-

based an been has panel’saim the possible, tent lyzed both qualitatively and quantitatively. To the ex- thousand two surveyresponses. availableAll wasinformation ana- nearly received It experts. and tors ac- hundred one over heard and interviewed vey.It sur structured extensive an conducted and studies supporting dozen a about commissioned panel The Remarks sections. the of each underlie strategy the of choices basic the ure above (see Exhibit 1 in the Preface of this Report); fig- the in sections six the the by in defined are evaluation view of points main The challenges. future meet to system the enhancing for proposals with up and structure current or history is evaluation The instruments. and tions, is focus the thus innovationthe evaluatedmostly is system a as task, the of coverage broad and time short the Given Task • • • • National InnovationStrategy the of choices basic the on based is evaluation The Premises is notforcefullyironedoutin thisReport. sary and welcomed neces- is there issues some On judgment. and opinion that it is specifically requested to provide its understood has panel the cases these In issues. all in guidance solid provide not will analysis – world ing surround- evolving constantly a and limited budget/time, knowledge, scholarly in gaps some with – factors. tion activity. ytmc prah itreedne f success of interdependence – approach Systemic Individuals andcommunitiescreateinnovations. Demand and user orientation as a basis for innova- Innovation activityinaworld withoutborders. s oce uo i te rfc o ti Report this of Preface the in upon touched As evaluation. on individual actors, organiza- actors, individual on less diversity in these opinions, which : about coming about more evidence- about less informed whole; - policy thinkingglobally. Finland isinapositiontoleadinnovation already volunteered for disseminating the findings, the disseminating for volunteered already have panelists many if even complete, is panel ation evalu - the of work the reports, two these With tion. elabora- and details further provides which Report, ing convention. prevail - the and empirical to resort to it forces occasion on backing theoretical insufficient if even tion, innova- of definition inclusive panel’s the is choice One Parliament. the to Communication ernment’s (Aho strategy innovation new the – Finland in documents innovationpolicy important most two the of spirit the in information on the evaluation process as well as links to rele to links as well as process evaluation the on information site web the 2008, December 11 on project the introducing Upon Exhibit 3:Plenty ofinternational interest ontheevaluation. This proceed has evaluation the accounts several On www.evaluation.fi was launched. The site provides general s copne b the by accompanied is Report Policy , 2008) and the subsequent Gov- subsequent the and 2008) al., et Full -

• • • chapters: ten and parts main three to divided is Report This Structure from 52countries worldwide. visitors unique 1,600 of visits 2,500 around attracted had site vant documentation. Towards the end of September 2009, the mentation. their imple- and overseeing proposals, the refining The third part briefly elaborates on the longer- on term futureofthesystem(Chapter10). elaborates briefly part third The the contributions of by the six sub-panels (Chapters 4–9). summaries the contains part second The tion anditsgeneralconclusions (Chapters1–3). overview an evalua- provides the part of first This 13 Evaluation Task 14 Evaluation of the Finnish National Innovation System

PATSTAT database. calculations onthebasisof OECD Source: ETLA name(topand firm firms). from thedatabase basedontheapplicant’s code, country country’s data. Patent applications have beencollected inquestionhavecountry beenincludedinthat firm’s and the top that firm were applied for from thelocation ofthe the size ofthecountry. Onlythosepatent applications of Note: Refers to simplecounts andisthusnotadjusted for Applications at theEuropean Patent Office, 2000–6. ing corporation insomeothercountries. Finnish patenting, butsodoesthelead- accountsExhibit 5:Nokia for muchof calculations withOECDdata. –ETLA . Right of LaborStatistics (2009) withthedata Finland ofStatistics andtheUSBureau Sources: Left –calculations by Nevalainen andMaliranta new millennium(right). European Patent risingup hasbeen untilthe Office Finland’slevel (left). share oftheapplications at the Finland hasalmostreached theUSlaborproductivity the annualEuropean Patent applicationsright). Office corporations in2004Euros Finland’s (left). share of Finnish ofnon-financial andUSlaborproductivity –Pioneeringtivity ininnovation. Exhibit 4: Catching up with the US produc- • the leadingeconomies: with up catching include to understood is goal latter rather is record track war (Aho Proposal for the vation are the two foremost policy goals according to and improvement Productivity Catching upandforging ahead? 2. FutureChallengesandOngoingReforms the globalproductivityleader. be to considered typically is which States, United hibit 4, left), Finland has almost caught up with the (Ex- countries across compare reasonably can we According to the broadest measure of productivity ions ontheFinnish innovation system. actors’its summarizing then opin- and indicatorsrelated innovation- aggregate some reviewing first by nutshell a in evaluation the of context the provides chapter This , 2008). On both accounts, Finland’spost- accounts, both On 2008). al., et 1. Note: Data source:OECD PATSTAT database,calculations by Etla. 3. 2. Finland’s National Innovation Strategy Finland’s NationalInnovation Only patentthose applicationstopthe of firm er 2000-6. Years Patent applicationshave been collectedfrom the database based on applicant’s country code,and firm name (top firms). firm’s and country’s data. , at least if the if least at admirable, pioneering Denmark Netherl.

Sweden Log scale 10 15 20 25 30 35 40 Patents by country Patents Finland Austria 1975 in inno- in 1980 7,757 12,226 12,557 21,679 42,722 Labor productivity level Labor productivity 1985 USA

1990

•

ak (uh s ai tcncl rwn) s el as well as drawing) technical basic as (such tasks while tasks, managerial and design, ceptual is borders changing towards national Finnish the within conducted (Exhibit 6)–forthefirsttimeinpostwar era. 2007 in considerably and 2005 in somewhat declined hours working R&D that fact the by manifested was this activity innovative In 2009). (Rouvinen, lenges chinery and equipment – were facing structural chal- ma- industrial as well as businesses ICT-related and forest- – strongholds its that fact the hid 2000s early 1995 Finland in considerable part attributable to attributable part considerable in is this that true is it While right). 4, (Exhibit nium been on a continuous rise up until the new millen- of the applications at the rect measurement, but for instance Finland’s share Pioneering in innovation does not lend itself to di- position does notchangedrastically(Exhibit5). relative Finland’s removed, is patenting to spect other countries’ most influential company with re- Also the composition of the R&D hours worked hours R&D the of composition the Also Finland’s relatively brisk economic growth in the (Netherlands) 2000 Voestalpine (Denmark) of the top firm the of share Patent (Sweden) (Finland) Ericsson (Austria) Philips 2005 Nokia Novo ’s that were applied from thelocationof 12% 29% 42% 48% 2% 0.0% 0.5% 1.0% 1.5% more challenging coordination, con - 1977 1981 Finland’s patent share patent Finland’s European Patent Office has 1985 (w/o Voestalpine) 1989 (w/o Ericsson) (w/o Philips) Netherlands (w/o Nokia) (w/o Novo) Patents by country Patents 1993 w/o the top firm the w/o Denmark Denmark Sweden Sweden Finland Austria Nokia 1997 i also if , 12,301 15,470 24,952 6,284 6,767 2001 routine 2005

the country in question have been included in that Source: Statistics Finland. ers’ educational level (bottom). (top)sector andthecomposition ofhoursby work Evolution oftotal R&Dhoursworked inFinland by educated R&Dworkers. hours are increasingly doneby more – carried outinthebusinesssector R&DhoursworkedExhibit 7:Most are observa- last Their workers. educated highly wards to- shift labor-composition a with as well as many Ger in shift towards tasks interactive more and non-routine a more with associated is off-shoring that note they Germany; for this echo (2009) Muendler and Ekholm, Becker, 2009). Tahvanainen, & Yrkkö nantly Finnish-owned and ly being located overseas, also in the case of predomi- market adaptation and customization are increasing- Source: Statistics Finland. again in2007. era,in thepostwar hoursdropped in2005and on R&Dhoursworked inFinland. For thefirsttime challengeshaveStructural putdownward pressure Finland (%). hoursdonein Annual changeofallR&Dworking declined in2005and2007. Exhibit 6:R&DworkinghoursinFinland change ininnovativeactivity. Globalization isinducingaqualitative 6 6 ‑operated companies (Ali- sektoreittain tutkimustyövuosienvuosimuutos T&k-henkilöstön - 1975 Business Business sector labor hours R&D Business Business sector hours labor R&D of composition Educational 6 1971 4,942 24% 10% 63% 1971 3% 3 3 15,028 1991 30% 18% 48% 6 1991 5% 6 1980 5 30,090 2001 36% 29% 30% 2001 5% 5 Above Above master - 7 31,940 7 2007 42% 30% 23% 2007 6% sion of goods and services does (and even acrossindividuals). countries across specialization of locus changing the thus and arbitrage talent and cost for opportunities ofglobal exploitation the reflects it recent; more is countries developed many in activity innovative of composition task-by-task changing The bottom). 7, it tion seems to be a long-term trend in Finland (Exhib- 8 1985 8 The changing locus of specialization in the provi- (incl. polytechnics) (incl. education Higher polytechnics) (incl. education Higher 1971 6 24% 41% 35% 0% 2,308 1971 5 Master 4 1991 28% 36% 35% 1% 4 7,662 1991 1990 2 2 2001 29% 36% 32% 3% 15,596 2001 2 Bachelor 2 2007 22% 37% 35% 5 5% 16,503 2007 1995 5 11 10 Other (incl. private non-profit) private (incl. sector Public non-profit) private (incl. sector Public 1971 56% 12% 30% 2% 2,994 13 1971 not imply that every- 9 2000 1991 48% 16% 34% 4 3% 6,884 1991 2 3 2001 37% 21% 38% 5% 7,738 4 2001 2 2005 -1 2007 28% 25% 42% 6% 7,800 2007 1 -3 15 Future Challenges and Ongoing Reforms 16

Evaluation of the Finnish National Innovation System or reachedalevel,atwhichmajorjumpsareunlikely. Finland’s traditionallocomotivesofgrowthhaveeithervanished were good strategies. Finland is on its way to make to way its on is Finland strategies. good were improvement incremental and Imitation elsewhere. established already were that conduct of ways and ty frontier, it could advance by adopting technologies investment, andbetterselectionoffirmsmanagers strategy with short-term relationships, younger firms, less innovation-based an to switch should frontiereconomy an Acemoglu tion. Due to its past success, Finland should move on: selec- of expense the at part in investments tangible the postwar era Finland made heavy tangible and in- In selection. sacrifice but investment maximize – strategy investment-based an pursue development of stages early glu, Aghion, andZilibotti(2006)notethat environment. Acemo global current the in economy the policies needed to support prosperity in a leading as same the not are phase up catching the in wealth reaching thedesiredgrowthrates. for insufficient themselves in are attainment cational intensity,R&D openness, increasing Finland, edu- or in dearly held still is mix policy this While search. to (and education volume-wiseand re- expansion of) the economy as well as to the long-term commitment past decades is attributable to increasing openness of Finland is actively seeking new sources of welfare. expanding,longer no strongholdsare old thatGiven unlikely. are jumps major which at level a reached have or game the of out either are – institutions ing improv as well as it), driving competition market productivity-enhancinging creativedestruction(and intensify leaders, global the with up catching ital, citizens,its deepening tangibleof intangible and cap tity and quality of available skills and competences of al locomotives of economic growth – expanding quan other businessactivities. and innovation for implies 2006) (Baldwin, bundling less worthwhile to consider what the great many supply chains remain quite local, it is neverthe- its seek will activity narrowly-defined each principle In dispersed. ically other business activities will become more geograph- and innovation that mean however, does, It cations. lo- off-shore other to or China to move would thing When Finland was far from the global productivi of accumulation the supported that Policies the in success Finnish the of part Aconsiderable Finland is currently in a situation where tradition note that note al. et globally closer to the world technology world the to closer optimal location. While location. optimal countries at countries second un- . ------a generalR&Dtaxincentive scheme. capital and business angel investment as well as with venture for incentives tax possible with along ered, As for 2010, a further 5–10% increase is being consid 2009. in 7–10% increase will expenditure R&D ment mitment to innovation. As compared to 2008, govern - of the early 1990s – again signaling its sustained com slump economic great its in like – that with and well as stimulus active considerable making nevertheless is Finland nets. safety social extensive its via fun- neled i.e., automatic, or passive is stimulus Finnish urgency inaddressingthem. ing financial crisis, which only heightens the sense of ongo- the before well present were challenges tural Finland’sstruc- system. planning top-down a – was is system the if even programs, ed a (successful) history of national missions and target- have which policies, Finnish traditional to challenge a activity.poses entrepreneurial This widespread on and companies and industries leading few a on is country the of future accuracy.The of degree relevant any to answered be could question the that doubtful increasingly is it that ways such in evolved has country, a as Finland and business, global understandable, is desire this While found. industries be might and companies leading next the where There is a strong desire among policymakers to learn the same time new sources of welfare at should emerge. fast; too steam lose not should – it with sociated as- industries and – trajectory welfare old The lenge: slowly emerging more entrepreneurial Finland. i.e., micro-dynamism, new and – mid-1990s) the to ess was intense in manufacturing from the mid-1980s renewal – now particularly in services (the same proc is attributable to intensifying creative destruction and some of the aggregate productivity growth in Finland Acemoglu transition the provides new insights. In the survey the In insights. new provides tiranta The survey conducted to support the evaluation (Ko- innovation system How itsactorsseetheFinnish In the context of the current crisis, much of the of much crisis, current the of context the In chal- double a facing nevertheless is Finland , 2009) covers a wide range of actors and actors of range wide a covers 2009) al., et et al. et describe. In the 2000s the In describe. – and never and – not 7 the national in- national more less - - - from 7 in 2004 to 7½ in 2009; the average (expected) average the 2009; in 7½ to 2004 in 7 from averagegoes Thegradeyears coming 8).(Exhibit the Source: Kotiranta etal. (2009). respondent groups report. inthesurvey of Finnish Technology More Industries. information onthe Confederation ofFinnish EKandtheFederation Industries –Several Associations interest groupsOther: suchasthe have nothadinnovative inthepastthree years. activity in thepastthree years. Firms: Non-innovative –Firms that least 50employees that that have hadinnovative activity three years. Firms: Larger innovative –Firms employing at employees that have hadinnovative inthepast activity Firms: Smallerinnovative –Firms employing lessthan50 centers andcompanies andscience andbusinessparks. –Includes, for example,Other regional development for example, Sitra, Finnvera, andFinpro. Intermediaries: nat.publicorg’s Other sides MEandMEE. Gov’t: –Includes, Economy (MEE)and Tekes. –All be ministries Other Gov’t: org’stion support – ofEmployment andthe The Ministry Education (ME)andtheAcademy ofFinland. Innova Gov’t: - org’s EducationGroups: Gov’t: support – of The Ministry school grading system from 4(fail)to 10(excellent). the overall ofthesystem ontheFinnish performance Note: The were respondents ofthesurvey askedto grade worse thanpublicones.performance least optimistic. Overall private consider the actors smaller innovativeperformance; are firms the are themostoptimisticaboutsystem’s future organizations of national publiceducation support will deteriorate incoming years. The representatives group ofthesystem believingthat theperformance of publicresearch organizations constitute theonly (2004), 7½(2009),and8-(2014). The representatives The past, present, andfuture average grades are 7 group. The past, present, andfuture schoolgrades by satisfactory. do so–itscurrent isquite performance has beenimproving andwillcontinue to the Finnish national innovation system stakeholdersExhibit 8:Most thinkthat information topromote thewelfare ofFinnishcitizens and knowledge applying and producing actors public and private of totality the to refers (NIS) system novation innovation systemisquitesatisfactory. The currentperformance oftheFinnish satisfactory ing been has system the that think respondents of groups Most five years. in and 2009), of (spring ly cellent) in three points of time: five years ago, current (ex 10 to (fail) 4 from systemgrading school Finnish the on system the of performance overall the grade n eet er, t cret efrac is performance current its years, recent in h rsodns f h sre wr akd to asked were survey the of respondents The ad ht t performance its that and , - 6+ 6½ 7－ 7 7+ 7½ 8－ 8 8+ 8½ 9－ il improve will 2004 improv quite . 8 in - - - the of (comprised organizations support education lic in coming years. The representatives of national pub ing that the performance of the system will search organizations constitute the only group believ re public representativesof The 8-. is 2014 for grade istry of Employment and the Economy the and Employment of istry the of (comprisedorganizations vationsupport inno public national as well as sides) both on ipants lowed by associations (including labor market partic tial of the ongoing reforms in their core domain – fol poten upside the reflecting perhaps – performance land 2009 Ministry of Education ) are the most optimistic about the system’s future 2014 (ME) and the Firms: Smaller innovative University heads Educ.: dep't Firms: Larger innovative Firms: Non-innovative Other Sectoral: research org's ministries Other Gov't: Intermediaries: -centres TE University Educ.: rectors Finance: Business angels, VCs Intermediaries: Other Other: Municipalities researchPublic Sectoral: org's Polytechnic rectorsEduc.: public nat. org's Other Gov't: supportInnovationorg's Gov't: Other: Associations org'ssupport EducationGov't: (MEE) and (MEE) Academy of Fin deteriorate Tekes, Min ------17 Future Challenges and Ongoing Reforms 18

Evaluation of the Finnish National Innovation System both accessandadminister. The systemhasgrowncomplexto jectives are to improve research quality, research improve to ob- are jectives Its decades. several in change important most well as well as capitalists, venture and angels TE-Centres, business the private to complex most sys- the the appears that tem note to interesting is it (right), activity innovative private of promotion the to As ple. osdrn te system the considering towards lean respondents of groups all position, tral (ME, organizations support ofeducation exception the with (left), tem sys- the of aspects public the to As results. the rizes growth-seeking entrepreneurialstartups. to comes it when especially system the maneuvering supposed to be the frontline in assisting businesses in are that centers) technology and innovation, pertise, ex- competence, regional/local publicly-supported Source: Kotiranta etal. (2009). thenoteSee inExhibit8for definitionsofthe groups. documentation (Kotirantasurvey etal., 2009)for details. Note: Illustrates deviations from the aneutral position.See neutral). (even iftheirpositionisvirtually deems thesystem to besimple rather thancomplex organizations standoutastheonlygroupport that rather complex. The national publiceducation sup allgroupsVirtually considered ofactors thesystem novative (right). activity andofthepromotion fora whole(left) private in- Complexity ofthenational innovation system as quite complex. Exhibit 9: The system isviewed asbeing from of promotion lic) (pub- the as well as system the in bodies public of tity consider the performance worse than public ones. actors privateOverall performance. future the about tion Innova Technologyand for Agency Funding Finnish the ecig ult, o nac te oitl mat of impact societal the enhance to quality, teaching ). Smaller innovative firms are the least optimistic h ongoing The The respondents were asked to consider the en- the consider to asked were respondents The to complex very

other intermediaries (comprised of public or public of (comprised intermediaries other activity on a scale a on activity innovative private s h system’s the is reform university ) having a virtually neu- virtually a having Academy) Ehbt summa 9 Exhibit simple. very ahr hn sim- than rather complex - Other: Other: Municipalities Other: Associations Finance: Business angels, VCs Firms: Non-innovative Firms: Larger innovative Firms: Smaller innovative Intermediaries: Other Intermediaries: TE-centres Other Sectoral: research org's Sectoral:Public research org's Polytechnic rectorsEduc.: University Educ.: rectors University heads Educ.: dep't public org's nat. Other Gov't: ministries Other Gov't: supportInnovationorg‘s Gov't: org'ssupport EducationGov't:

to improve to - -

ministrative hurdles. ad- by back held currently is that them in potential unrealized considerable is there that belief the flects re- arguably which PROs, of im- performance the prove would reform a that believe groups spondent a see would they how asked were respondents The date. to progress visible little with decades several for Finland in da agen- the on been has Finland in to referred tively or (PROs zations sentatives ofthenationalcentraladministration. the repre- by especially left), 11, (Exhibit positively rather viewed are SHOKs 2000s. the in instrument or vation the of thy andindeedaproblemrequiringattention. notewor is heads department and rectors university of views the divergence of The 10). (Exhibit affairs of an be to sidered case of of exception the with – groups for that note to comforting is ization ofuniversities. international- the support to as well as universities, h psil rfr of reform possible The In enterprise innovation policy the establishment Given the importance and extent of the reform, it complex Very the system’s public the actors of entirety of Complexity Strategic Centres for Science, Technology & Inno- Technology& Science, for Centres Strategic university department heads – the reform is con- is the most significant new policy new significant most the is SHOKs over the current state current the over improvement , as they are collec- are they as research, sectoral eom f Rs Al re- All PROs. of reform possible simple Very ulc eerh organi- research public objectives across objectives all complex Very of private innovation private of Complexity promotion of in the in quality teaching n/a n/a n/a n/a n/a n/a n/a simple Very all - Source: Kotiranta etal. (2009). documentation (Kotirantasurvey etal., 2009)for details. Note: Illustrates deviations from the aneutral position.See tions (right). unrealized potential inpublicresearch organiza - have (left). apositive impact There is considerable Science, Technology andInnovation (SHOKs)will stakeholdersbelieveMost theStrategic Centres of to have upsidepotential (right). research –Sectoral light isbelieved (left) Exhibit 11:SHOKsare seeninapositive Source: Kotiranta etal. (2009). thenoteSee inExhibit8for definitionsofthe groups. documentation (Kotirantasurvey etal., 2009)for details. Note: Illustrates deviations from the aneutral position. See ment headsare noteworthy. divergent views ofuniversity rectors anddepart improvement over thecurrent state ofaffairs. The The university reform isconsidered to bean promoting itsfour mainobjectives. The success expected oftheuniversity reform in onallkey dimensions.impacts reform to isexpected have positive Exhibit 10: The university forthcoming improvement overthecurrentstateofaffairs. The ongoinguniversityreform isconsideredtobean - Other: Other: Municipalities Other: Associations Finance: Business angels, VCs Firms: Non-innovative Firms: Larger innovative Firms: Smaller innovative Intermediaries: Other Intermediaries: TE-centres Other Sectoral: research org's Sectoral:Public research org's Polytechnic rectors Educ.: University Educ.: rectors University heads Educ.: dep't public org's nat. Other Gov't: ministries Other Gov't: supportInnovationorg‘s Gov't: org'ssupport EducationGov't: Other: Other: Municipalities Other: Associations Finance: Business angels, VCs Firms: Non-innovative Firms: Larger innovative Firms: Smaller innovative Intermediaries: Other Intermediaries: TE-centres Other Sectoral: research org's Sectoral:Public research org's Polytechnic rectorsEduc.: University Educ.: rectors University heads Educ.: dep't public org's nat. Other Gov't: ministries Other Gov't: supportInnovationorg‘s Gov't: org'ssupport EducationGov't: the objective in question (up to all all fully (upto in the objectivequestion agreeing faron right). O. = Optimistic all fully (upto in the objectivequestion disagreeing faron left). P.= Pessimistic P. disagree Fully innovation system system innovation the enhance SHOKs Research Research quality O. : Respondents : Respondents P. Teaching quality agree Fully agree disagree O. P. that the reform reform the promotes that enhance the innov. system innov. the enhance PROs would Reform of disagree Fully Societal impact that the the reform promotes that O. International- P. ization agree Fully O. 19 Future Challenges and Ongoing Reforms 20 Evaluation of the Finnish National Innovation System and renewal sive for calls rather It system. the developing last threere-allocative elementsarenotemphasized. the innovationpolicy of interpretation narrower a In • • • • the aggregatecountry-level productivitygrowth: fueling of ways main four all of consideration anced bal- a improvement implies productivity of goal first the with pioneering Combining supported). publicly be) at the global frontier (laggard entities are not to be gests education, research andinnovationsystem. as understood be should system innovation the Strategy the of spirit the in out, written fully If 2009). Foray,& David, (Aghion, present are failures nation coordi systemic and (externalities) failures market when use, and generation knowledge in mentarities comple- managing about is system growth The self. it- in end an than rather objective intermediate an ly tion system), since innovation is recognized to be on- the about talk rather perhaps should we that implies it term, whole societyinbringingabout the of efficiency and elusiveness about ultimately is main objective. Thus, it suggests that put or output measures of innovative activity – as the indirect more to opposed as – improvement tivity (Aho egy for Proposal The Reflections ontheStrategy 3. Policy GovernanceandSteering Exits oflessproductive oldunits. Entries ofmoreproductive newunits,aswell as and/or marketsharesbetween existingunits, resources of re-allocation Productivity-enhancing existing within units, productivity in Improvements h Srtg wrs gis pril ouin in solutions partial against warns Strategy The The Strategy emphasizes the coin explicitly not does Strategy the While tem-level steering andgovernance. sys- discusses it Second,system. the within actors the by on the Strategy and empirics on how it has been received This chapter first provides some of the panel’s reflections concern for entities that are not (seeking to (seeking not are that entities for concern less , 2008, see Exhibit 12) defines 12) Exhibit see 2008, al., et system (as opposed to the innova- the to opposed (as system growth requiring development structural Finland’s National Innovation Strat- Innovation National Finland’s pioneering welfare. innovation policy , which sug- comprehen- produc- stra- the -

tive tothetwo documents. atten- been otherwise have they if evenorganizations , the for case the not is This bottom). 14, (Exhibit organizations their steering in helpful ly most- documents two the found have organizations uments have no implicationsforthem(middle). that fact the within these ministries it is thought that the two doc- reflect may this part In top). 14, hibit mostly have – groups two afore-mentioned the in included and the and tion duced bythetwo documents(top). in- responses concrete had have organizations own port and plement policiesareputinplace(seeChapter4). im- to turn premises objectives,the own unless its against even might it that and dissipating be already wih uls n h Strategy.Some ofthefindingsaresummarizedinExhibit14. the on builds which Parliament, the to egy Strat- Innovation National Finland’s on Communication Strategy the of penetration the (Kotiranta survey The Empirical observationsontheStrategy terpretation. misin - for room much too leaving vague, quite egy policy.for Strat- ply the neverthelessfinds panel The im- andchoices goals these what defining towards step a takes Strategy the – 13) Exhibit (see with agree not does panel the which of some – measures of sets key ten its With accept. to easy are – approach temic tation, individuals and communities, as well as a sys- basic four choices – global networking, demand and the user orien- Likewise ones. right the doubtedly un- are – im- innovation in productivity pioneering – and provement goals main two The Strategy: a pioneeringposition(p.10). will measures policy separate and individual that acknowledged is It 20). (p. problem a considered is steering and structures the particular, In 11). administration (p. public the within management tegic ny h rpeettvs of representatives the Only Other ministries – besides the besides – ministries Other It seems that most respondents of respondents most that seems It h pnl ecms h bsc miin o the of ambitions basic the welcomes panel The not hadanorganizational-level response (Ex- education support organizations feel that their 9 Ministry of Employment and the Economy the and Employment of Ministry In fact, the fear is that the Strategy may suffice for Finland to reach to Finland for suffice not 20) nurs about inquires 2009) al. , et of current of nature fragmented the and noain support innovation Ministry of Educa- of Ministry education support education innovation sup- innovation Government’s

for af irm: youwantitforever tryingtoimproveitsproductivity.” once saidthatthebestofallmonopolyprof its isaquietlife. You don’twantaquitelife “Being exposedtocompetitionbringsoutthebestininstitutions. A famous economist Exhibit 12: A concise summary of Exhibit 12:Aconcise summary The Proposal for Finland’s Innovation National Strategy (Aho etal., 2008). • forgrowth entity entrepreneurship3. An • 2. Regionalinnovation centers • • 1. address future challengesasoutlinedbelow. tomeasures of sets key tenstrategy(pp.proposes The 14–16) Key measures • • • • choices (p. 5): four making for calls Strategy the goals, the attain To choicesBasic petence-based competitive asset(p. 2). an Strategy the In • • sets two goalsfor thecountry’s innovation system: for Proposal The Goals entation. ori- investor clear and entrepreneur with operating a entity (new) form to entrepreneurship growth regarding tors opera- public various of offerings and roles the Redefining basis ofnational choices andlocalstrengths. the on centers innovation regional world-class Establishing wider Research andInnovation Council. Renewing the Renewing Cabinet Committee onEconomic andInnovation Policy. the Expanding The government’s steering ofinnovation policy and change.structural renewal promoting activity innovative broad-based Systemic approach – interdependence of success factors: More trepreneurs to innovate. en- and individuals for incentives more and abilities better Providing innovations: creating communities and Individuals needs; higher involvement of users in innovation processes. : ity Better attendance of customers’, consumers’, activ- and citizens’innovative for basis a as orientation user and Demand leading alternative locations for innovative activity. globally to relative attractiveness country’s the and bility networks,edge wellas citizens’its as internationalhigh mo- knowl- global in influence considerable and participation Finnish Active borders: without world a in activity Innovation tors. sec- selected in scale global a on innovation in Pioneering munities, aswell as com- other and enterprises in improvement Productivity into a into Council Policy Technology and Science into a into Policy Economic on Committee Cabinet p 4) (p. Strategy Innovation National Finland’s Innovation is perceived as an exploited, comexploited,- an as perceived is Innovation Nobel LaureateRobertM.Solow(CommissiononGrowthandDevelopment,2008). basic

• • • • 7. • • 6. • 5. • 4. • • with theStrategy’s10. Compatibility choices • 9. • 8. • • Motivating investors and experts to commit to businesses’to commit to experts and investors Motivating Motivating institutional venture capital investment via new via investment capital venture institutional Motivating growth andinternationalization by meansoftaxation. salsig osdrby agr n mr mdr higher modern more and larger considerably Establishing institutions. Enhancing the research capacity of universities and research World-class universities ing. learn- life-long for opportunities and incentives Providing ship, creativity, andinnovation at thecore ofteaching. Introducing internationality, interactive skills, entrepreneur- New emphasisineducation vative activity. to incentives demand- and and user-oriented inno- support innovative activity for services and finance public Updating fordemandanduserorientation Public support tions. innova- for demand enhance to procurement public Using Market incentives forinnovative activity public–private cooperation. tional innovation strategy. na- the of goals and themes key the with resourcing and decisions,of currentity operating policy models, structures, compatibil-the on internationalassessment an Conducting novation strategy. in- national the of choices basic the with policy innovation Align the strategies and operations of implementing parties tional top standards. interna- meet to training management Finnish Developing Management training talent. international attract to immigrationpolicy active an Having Competitive taxation personal ofsociety.dustry, andotherparts in- and trade universities, between interaction Supporting search institutions. re- and universities between cooperation closer Inducing to change, resources, andadministration. ability the management,size, of terms in entities education

21 Policy Governance and Steering 22

Evaluation of the Finnish National Innovation System requiring strategicmanagementwithinthepublicsector. The Strategycallsfor comprehensiverenewalandstructuraldevelopment Exhibit 13: Reactions to theten keyExhibit 13:Reactions setsofmeasures proposed intheStrategy (Aho, etal., 2008,pp. 14–16). dpe s a t b i ln wt te basic choices ofthenational innovation strategy. the with line in be to as so adapted be will policy innovation implementing ties 10) ards. stand- top international meet to developed 9) ness willberevised to acompetitive level. attractive Finland’s weakening essentially 8) andinnovations.ment for expertise environ- development competitive tionally interna- an into developed be will system 7) Finland. vation on a broad basis will be developed for 6) novation activity. in- user-oriented and demand- of needs the meet to updated be will services financing 5) created andexploited. be will basis broad a on innovation in ties communi- other and enterprises activating 4) entrepreneur andinvestor orientation. with operating entity, clear a be into renewed will entrepreneurship growth moting 3) Finland. innovation driving renewal will be formed in 2) reforms. systemic of pioneer worldwide a becoming of purpose the for renewed be will steering 1) Key measure ins mngmn tann wl be will training management Finnish factors key other and taxation Personal education higher and research Finnish A learning A environmentlearning motivating inno and expert of ensemble national The incentives market and competitive New The financing and service system pro system service and financing The of centresregional and Content-oriented h cnrl oenets corporate government’s central The h srtge ad prtos f par of operations and strategies The - - - - has beencompleted. Chapters See 3and4. assessment proposed the of round first the Strategy’s the report aims. this With not been in place. As a consequence, some new have actions unintendedly go it against for premises the if even implemented, actively being has Strategy The Finland’s Achilles heel. Chapters See 6and9. be would this particularly that evidence no is There institutions. management top international with interact do representatives,company and individuals as The panel does not study various disciplines. In the panel’s understanding Finns, ChapterSee 7. burden. tax marginal) by only not (and average the by affected be to likely also is Entrepreneurship legislation. current the in addressed partly is which land, Fin- to talent international recruiting in issues the among is taxation Personal have universities when something businessesdesire. Chapter See 9. materialize will which links, industry–science better promote itself in will quality Higher this. forprerequisite a is size unit adequate Finland;an researchin of quality the increase to is challenge pressing most The arelearning agreeable objectives. Chapters See 6,7,and9for refinements. vation in teaching as well as providing incentives and for opportunities life-long inno entrepreneurship,creativity,interactivity,and internationality,Promoting moting newentrants andradical/disruptive innovation. Chapter See 5. pro with consistent is orientation promise.The hold measures indirect of host a intervention; direct via orientation the promote to scope little is Therewhile. Old emphasis on the supply side; new balancing with the demand side is - worth entry. ofnewmarket barriers Chapters See 3and8. low and providers current among competition intense by promoted are – tion innova- for incentives as well as – uses.This productive most their to resources of reallocation the foster to policies its redesigning from benefit would Finland bilities. Chapters See 7and9. responsi- their and actors (public) of reconsideration a for calls firms.Panel The entrepreneurial high-growth to comes it when especially administer, and cess ac both to costly become has It evolution. long a of outcome an is system The 4, and8. 3, Chapters See solution. appropriate an hardly is ones new founding centers; regional of wealth a is There explicit. made be should support direct of aspect inequalities.The regional‘unspoken’ address to regional ill-suited are tools tain Finnish regional innovation is policy active, even if often ignored nationally. Cer it seems. Chapter See 3. as forward straight as not Committee’sis Cabinet duties the among policy tion coordinated. There are significant overlaps and redundancies.Including innova - sufficiently not are innovation promote to efforts public that agrees panel The Reflection - - - - 57): (p. following the include alternatives the step) tive innova- an as to referred (sometimes improvement el butnecessaryfortheimplementation. tivities are themselves innovative; others are not nov- ac- Some innovations47). implementing (p. at aimed steps commercial and financial, organizational, ical, technolog- scientific, all includes activity Innovative • • • • place). market the in competing directly ones the are they (as companies to refer primarily to seems – asset tive competi competence-based exploited, an as perceived [is] – employed one the if even innovation, of definition inclusive very a employ should one that implies Strategy the of approach broad-based The An inclusivedef inition ofinnovation Source: Kotiranta etal. (2009). details. documentation (Kotirantathe survey etal., 2009)for ents were unableorunwilling to provide ananswer. See Note: The barsdonotaddupto 100%,assomerespond- disagreeing (barsto theleft). tives ofthegroup agreeing (barsto theright)and tion (bottom). Percentage shares oftherepresenta- the two documents insteering one’s own organiza- for sucharesponse (middle),andthehelpfulnessof documents (top),to perceived thetwo policy need The presence ofanorganizational-level response organizations.tion support national publiceducation andinnova- ment’s Communication have penetrated Exhibit 14: The Strategy andtheGovern- valuable thatagreattechnologyexploitedviamediocrebusiness model.” “A mediocretechnologypursuedwithinagreatbusinessmodelmay bemore tion isdefinedastheimplementation an 46–47) (pp. which in ‘bible’– issue the on from the Oslo Manual (OECD & Eurostat, 2005) – the tice, workplace organization, or external prac- relations). (in-business method organizational new a a newmarketingmethod,or a novel production process, service, or good improved) significantly or (new novel a As to the required degree of noveltyof degree required the to As newness/ or The most generally accepted definition stems definition accepted generally most The 10 of The The Strategyhas helped insteering organization the The necessitates Strategy response a inthe organization There isan organizational-level Strategyresponse the to Gov't: Innovation supportInnovationorg's Gov't: supportInnovationorg's Gov't: supportInnovationorg's Gov't: Gov't: Education support org'ssupport EducationGov't: org'ssupport EducationGov't: org'ssupport EducationGov't: Gov't: Other ministries Other Gov't: ministries Other Gov't: ministries Other Gov't: innovation innova - - ployed in the activity by the actor in question. While question. in actor the by activity the in ployed em- previously been not has idea the that is newness or in the public sector. The minimum requirement for use areto ideas put new when place i.e., definition, sive societal value. creating waysof powerful are they organization and marketing new as well as processes, services, goods, r od ein although design, good or ingeneral) good conduct (or execution efficient an Innovationmarketing. al with mixed be to not also is same as differentiation, e.g., by means of convention- ity/disruptiveness tobeapparent. tive, although it may take a long time for the radical- ferings obsolete may be considered better or cheaper that they (potentially) much render old of- so being or markets new altogether opening Innovations 58): (p. place market the in innovation of impact the to relate also may step innovative The • • •

globally. the to New New to the relevant New to the implementing in. activecurrently is it markets the in competitors its Chesbrough (2009). All All disagree Our evaluation proceeds in the spirit of an inclu- an of evaluationspirit Our the in proceeds t hud e oe ta invto i nt the not is innovation that noted be should It , i.e., to all actors in all markets all in actors all to i.e., world, an innovation is considered to take to considered is innovation an market, i.e., to the firm and to n combination in organization either in the privatethe in either radical or ih novel with (e.g., firm). disrup All All agree -

23 Policy Governance and Steering 24

Evaluation of the Finnish National Innovation System utilization ofgloballynovelideashavingconsiderablesocietalsignif icance. Innovation policyofafrontiercountryemphasizesthegeneration and mercial and non-commercial (cultural and social) in- social) and (cultural non-commercial and mercial Including technical and non-technical as well as com Can broadbetoobroad? tional definitionsinconductingtheevaluation. report – often we are forced to resort to more conven - the spirit – due to issues outlined in the preface of this indeed is this While organizations. of types various dividuals ingenious of) (groups by about brought variably panel wishes to acknowledge that innovations are in- the analysis, of unit relevant most the be well may companies While underestimated. be not is novations in found be to are innovations that acknowledged is it commercial applicability may well be the focal point, all • • • into three categories: classified be can intervention) of absence the (in outcomes desirable most socially the of short fall them make may that markets private in Failures environment. market competitive a in low sub-optimally considered is innovations of provision ming from nature the very of information and knowledge, the stem- largely inefficiencies well-known to Due welfare. cietal so of enabler and component fundamental a is Innovation port policies(Takalo, 2009). port sup innovation counter-cyclical for room some be may there times, non-normal for As sales). trade for as well as offerings public initial for opportunities (ample companies innovative young for market exit stable and thick relatively a as well as (both in terms of the target industries and the financial sector), managers fund networked (internationally) investors,and experienced risk-tolerant private institutions: three least at of a functioning VC market include the existence and interaction for prerequisitesFurthermore, Lerner,2010). & (Hall company size, ownership structure, and future ambitions of the prospect the to as specific be and sectors few a to confined be to likely is investment VC though even (VC), capital venture of ence pres - the by mitigated partly are costs capital high case their lo,save2009), forit youngand small innovative companies. In to be, by themselves, a sufficient reason for intervention - (Taka unlikely are imperfections market financial conditions, nomic Exhibit 15:Motivations for innovation policy. walks of life and the role of Systemic failures. ofvarioussorts. Externalities Financial imperfections. market In developed financial environments under normal eco normal under environments financial developed In that may or may not be brought together by cultural and social

in- in- - - - -

• • broad-based approach: proach? Canbroadbetoobroad? yond these: What are the risks of the broad-based ap- be- But policy. innovation modern of aspects while worth - very all are innovation of determinants sion) both the supply- (provision) and demand-side (diffu- of view balanced a having as well as industries, ice novations, considering both manufacturing and serv- • (2001)identifyand Arnold several ofsystemic types failures: O’Doherty isolation. in innovate not do organizations other or firms i.e. innovation, the in involved individuals and tions organiza- different between interaction continuous a is there Second, related activities. other and designnance,marketing, fi- also but development, and research only not of consisting process complex a as seen is innovation First, argument: ure fail- systemic the in insights so.basic or two areTheredecade tion for innovation policy. motiva- main the are and increased has – effects network and spillovers knowledge as such – 2007) (Rouvinen, externalities for of kinds various justification of significance the policies,innovation public a as used frequently less are and minished • significance. societal and considerableeconomicruptiveinnovations) with radical/dis- and (new-to-the-world ideas novel truly of, ment employ and with, up coming the with concerned mostly is • in such a way that it does not enable a privatelysustainable a enable not does it waythat a such in configured is system innovation The institutions. of Failures ase bnft o itrcin mn priiat ofthe participants among interaction of benefits hausted unex- are There . co-operate) to failures (or failures Network formarket innovation to form. activity isnotinitiated through. and/orcarried activity innovative that nature a such of are values and/or norms, culture, standards, regulations, Laws, failures. Framework innovation system. Systemic failures have gained more attention over the past time di- over have imperfections market financial While novel ideas–asinnovation policy. of utilization and generation the to related rectly di- not those and/or policies industrial old-style cies should ratherdothereverse. poli- Finnish and Finland anything, If innovation. as modifications and changes minor even include eod t lbl l etrrs plc – including – policy enterprise all label to Second, First, to downgrade the definition of innovation to Innovation policy in an advancedan in country, Innovationpolicy Finland,as such There are two obvious ways to go wrong with the -

point. the Strategy may takeFinland beyond theinflexion be too broad. The fear isthat thescope impliedby mayof innovation –broad beharmful can policy that includingtoo manyundertherubric aspects not necessarily increase taxrevenue) illustrates Laffer andused to show that increasing taxes does The (originally Lafferattributed to curve Arthur society. novation anditsnetgainsto the policy Exhibit 16: The scope/broadness ofin- • • ments shouldbehalted. not are these develop- emerging These concerns. scholarly so merely both, of examples practical has seen panel evaluation the work, its of course the In changes asinnovations,tolabelallenterprisepolicyinnovation policy. Two waystogowrongwiththebroad-basedapproach:consider evenminor

in innovation policy). of time for both learning about and being involved amounts significant spend to have might parties unrelated and disinterested relatively as rapidly, (possibly grow costs these also expands, involved actors of number the As ignored. sometimes are – taxation of loss dead-weight the and gets’costs, tar- applicants’or (private) the expenses, istration The costs of conducting policy – the public admin- ing are there effectively that mean might broadening continues), activity the period each for paid be to has that activity the of size the to related directly not expense trative” when discontinued) and a fixed cost (an “adminis- recoverable not is that cost initial (an cost sunk a spread are more thinly. resources As each policy measure involves both that means unavoidably it – accordingly expanded not are it for resources and – expands policy innovation of scope the As es toothinlyisananti-thesisofastrategy. There arealsootherconcerns: . Furthermore, spreading resourc- spreading Furthermore, targets. policy actually reach- actually resources fewer Net gainsNet societal of innovation policy or research, noinnovation support) public no (no educationpatents, No 0% innovationpolicy

• novation policyarenotyet inplace. in- broad-based conduct to premises the that finds It detail. more in policy innovation to approach based of theoldinstitutionalstructures. at least to the extent that it would mean touching any comprehensiverenewal development,structural and are born out of a frustration for the unachievability of measures new most that seems Strategy.It the with big- a nevertheless they picture), of ger part a as than rather their separately considering contents (i.e., accounts other On warns against. Strategy the what exactly i.e., measures, cy poli- separate and individual mostly are launched was Strategy the since implemented been have that is view ic conducted in a triangle of tensions. While perhaps is policy innovation current below, discussed As complicated thanwhatonewould anticipate. bemore might interests conflicting the in vering as the manifold to compared is connections bilateral of number a to lead approach might broad-based the implementing Fully manageable. been certainly has it cumbersome, hpe 4 osdr ipiain o te broad- the of implications considers 4 Chapter system- or Strategy’sbroad-based the Currently innovationpolicy scopeOptimal of materially reflected in policy. Actions in reflected materially not . Thus, maneu- Thus, tensions . of triangle i wih the which in tensions, of web considered/labeled innovationpolicies All policies are mostly consistent mostly are 100%

25 Policy Governance and Steering 26

Evaluation of the Finnish National Innovation System duties oftheCabinetCommittee toincludeinnovationmatters. The evaluationpanelhesitateswiththeStrategy’sproposaltoextend the regarding the regarding proposal a prepare to 2008 fall in set was group ing forms. ministries inthisdomainroughlyasfollows: ever, revealed totheevaluation panel. proposal final the of content The 2008. how- not, was The working group completed its work by the end of mittee on Economic and Innovation Policy Innovation and Economic on mittee as a a as nation, which is currently weak. The The weak. currently is which nation, coordi cross-ministry horizontal presumes proach

• • • the stateconsortium. of management strategic the for forum the as act to Policy Economic on Committee Cabinet a into expanded be will Policy Economic on Committee Cabinet steering: level highest the concerns key proposals added) emphasis 14, (p. Strategy’s the of One and InnovationPolicy? A newCabinetCommitteeonEconomic and steering Reflections ongovernance include innovation issues in the agenda of the the of agenda the in issues innovation include to natural seem would it ministries, two traditional the of domain the outside innovation expand to and nance of the agenda to the official policy tion innova force to attractive seem also may It sented. Committee net it 17).Currentlythereisatendency foreachministry natural (and necessary) tensions among them (Exhib- consider to us lead ministries key three the of tions Ministry of Employment and the Economy the and Employment of Ministry key a as well as taxpayers’money expend to sires de- in force’ ‘balancing the is Finance of Ministry providing and Education of Ministry bler ofapplication-mindedinnovative activity. providing and designing in actor more fundamentalandcuriosity-driven innature. be to tends that research administering for wellas setting theparametersoftaxsystem). via (primarily organizations and individuals both As proposed in the Strategy, a high-level work- high-level Strategy,a the in proposed As We see the respective responsibilities of the key the of responsibilities respective the see We Since the intention is Since the to intention the broaden scope policy ietnln te epcie oe ad interac- and roles respective the Disentangling delivery unit delivery that serves as its secretariat. The systemic ap systemic The secretariat. its as serves that where all the key ministers are repre are ministers key the all where ’s possible new role. new Committee’spossible Cabinet as capital human and knowledge for system-wide actions and re and actions system-wide for 11 is responsible for nurturing for responsible is and Innovation and incentives Ministry of Fi Ministry aie Com Cabinet could serve serve could is an is Cabi ena- for The ------

both the enhance to resources for demand hence, and grow, The activity: significance of knowledge in society continues to innovative towards emphasis overall ty’s socie- the shift (still) to reasons resourc- be might same There es. the for competing (partly) are tion introduc- market and development as well as search re- applied and basic policy innovation within tion; taxa- lower for desire the with and uses alternative ventive/innovativealwaysis activity with competing in- for support constraints budgetary Under society: dressed more often and more broadly than is the case today. ing the overall view on innovative activities needs to be ad- but ambitions and interests different have tant in all walks of life. Obviously, different ministries edge, and knowl- know-how are becoming ever more innovation, impor that is reason simple The future. the in increase even to likely is it and remains, long-term growth,welfare, andwell-being issues. haveeyeshould keen it a form on proposed the in as overhaul of the secretariat of the Cabinet Committee, significant a with accompanied be should change a ficient decision maker on urgent matters. Third, such much entails a risk of dissipating its strength as an ef- too Committee Cabinet the of agenda the extending way.Second, under now only is that work – policy innovation systemic and broad-based the of inition more the on depends committee formed the however,is, el policy.pan- evaluationgrowth) The (and innovation of enterprise-side the for responsibility joint a sume Economy the and Employment of Ministry with our proposal that the Policy Economic coordination mechanismwillbeneeded. in innovation policy decision-making, a more explicit Especially if many further ministries will be engaged consensus. reaching for mechanisms blunt less what some of number a certainly are there if even istry, forcement of joint decisions over more than one minen- and resolution conflict for mechanism explicit no is There others. of needs the to respect with minded to strongly defend its turf and to be somewhat absent- Cabinet Committee. First, the composition of the re- hr ae aua ihrn tnin wti the within tensions inherent natural are There however, coordination, horizontal for need The the of tasks the Redefining creation and to recommend the reform of reform the recommend to hesitant line innovationin include is to issues use of novel ideas Ministry of Finance Cabinet Committee on Committee Cabinet continue to in- hud as- should precise def- precise maintain and the - - - cy, e.g., by providing a seal-of-approval for the (rela- the cy,seal-of-approvalfor a providing by e.g., poli- innovation on authorities and Government the itative Finance of Ministry the of presence the with level highest the at cussed issues policy innovation where forum a be the development. role in the global economy as well as on their stateof (desired) their on conditional be should that choices sions remain – small countries have to make strategic ten- However,the them. solve to quest the and lems it is often fundamentally inspired by real world prob - sic research is not detached from practical concerns – ba- Furthermore, decades. several of lag time a with up show research fundamental more of impacts etal question of the time horizon: The economic and soci- and evance or research, applied ty’sand basic point, vantage socie- knowledge-based the from that, notice to tant overall (future)welfare andwell-being objectives. society’sthe meets best that manner a in them with dealing of matter a more thus is It setup. ganization in away go not will tensions The arrangement: existing the over improvement an wouldbe either that obvious not is it although sions, ten- other and budgetary mitigating to relate viously extended renewed The crease. be seenasalternatives inreaching thisgoal. Committee onEconomic andInnovation Policy may search andInnovation Council orarenewed Cabinet sions over more thanoneministry. Re An extended conflict resolution andenforcement ofjoint deci- needs ofothers. There isnoexplicit mechanismfor be somewhat absent-minded to withrespect the andto to stronglyfor defend eachministry itsturf tensions amongthem.Currently there isatendency tions ofthethree leadusto keyministries consider Disentangling therespective roles andinterac growth policy. intheeducation,istries research, innovation, and The inherent tensions amongthethree keymin- Exhibit 17: Triangle oftensions? be seenasanalternativetoarenewedCabinetCommittee. An extendedandstrengthenedResearchInnovationCouncil may Science and Technology Policy Council) The As to the more substantive tensions, it is impor is it tensions, substantive more the to As body chaired by the Prime Minister. It advises (previously Council Innovation and Research ol ob- would Council Innovation and Research , do not contradict. Often it is a is it Often contradict. not do excellence, (at least officially). It officially). least (at as well as the as well as Committee Cabinet - institutional or or or institutional any - an author an is continues Ministry of Education dis- are rel- to - - - Spending confirms the rule. the confirms that exception the is attend did he that time one the – 18) (Exhibit meetings the attend to busy too been not seemtobeservingadirectcoordinatingrole. does Council the Currently ministries. key the and tively general) policy documents prepared by its staff institutions areneededinthe Finnishsystem. gardless of any adjustments in Re - either of the two, both committee. cabinet renewed the to alternative an as seen be could council coordination) tem-wide sys- explicit and powers decision-making real (with ized yet. material- fully not has Strategy new the because part in perhaps conduct, or composition its in change rial mate- no is however,there discern, can we as far As Strategy. new the to response a as name its change spite itswell-cultivated off-puttingpublicimage. ested in and accommodating to innovation issues de- inter quite be to proved nevertheless has Ministry the institution an As another. or way one in innovation policy influenced has Finance of Minister the senting opinion. dis- a voice to than up show to fail to easier much is it culture; discussion Finnish the of state prevailing the to as well as finances) public on effects long- net term of (regardless kind any of spending with ed associat- be to reluctance the to attributable be may Excellence Incentives Budget control, uiul eog, the enough, Curiously n xedd cmoiin ad strengthened and (composition) extended An The of absence the not or whether judge to hard is It Economic and Policy Innovation ? New Research and Innovation Council Innovation and Research Cabinet Cabinet Committee on Extended Extended Ministry Ministry of Finance or TIN/RIC Ministry of Employment Economyand the 12 Budget control, eie tgt ceuig this scheduling, tight Besides Incentives Relevance Spending has Finance of Minister was quick to quick was - 27 Policy Governance and Steering 28

Evaluation of the Finnish National Innovation System by therepeatedlyfailed attempts toreform sectoralresearch. The lackofcross-ministerialdecisionmakingandexecution isevidenced agreed on. and acknowledged widely is reform a for need the if even organizations), research public of system the (i.e., system research sectoral the reform to tempts at- failed repeatedly the by evidenced is and execution making decision cross-ministerial of lack The Sectoral research (or itspredecessor). Source: oftheResearch Minutes andInnovation Council therule.firms even that may be considered an exception that con- ter ofFinance hasattended themeetingsonce and The minutes ofthemeetingsreveal- that theMinis meeting in2009. from thesecond meetingin2002to thesecond and Innovation Policy Council (oritspredecessor) Attendance matrixofallmemberstheResearch meetings. Exhibit 18:Attendance oftheCouncils present whileamember. thememberinquestionhasbeen the proportion The percentages to therightofmatrixrefer to orend.and bottom panesmembershipsmay start Council’s four terms ofoffice; thus, inthemiddle other members. The illustration over extends the member ministers; thebottom paneshows theten members; themiddlepaneshows thefour other many institutions have an important role – stipulat- – role important an have institutions many research, to addition In Finland. tivefor implications posi- – solely not but – mostly has which abroad, ed so beyond their original mission. Some have expand- al- functions, new adopted and time over gradually developedhave They interests. societal broader than rather ministries respective their serve to positioned are institutions the Often needs. future to respond cor not does and past the reflects research sectoral h cret loain f eore wti the within resources of allocation current The 12 The top paneshows thepermanent 13 SAK, Central Org.Unions Tradeof F. EK,C. of Finnish Premix Ind.,Oy EK,C. of Pharma Ind.,JuvantiaF. Finnzymes C.ofInd.,EK, F. Oy EK,C.of Finnish Industries,Nokia Polytechnic: Cent University: Turku University: Tampere University: Oulu University: Kuopio University: Jyväskylä University: Helsinki,Technology University: Helsinki Finnish SYKE, Environment Institute VTT,Technical Rese Tekes Academy ofFinland Minister ofthe Environment Minister ofSocialAffairs Health and Minister ofLabour Minister Defence of Minister ofCulture Sport and Minister ofAgriculture Forestry and Minister for Foreign Dev. andTrade Minister ofFinance Minister ofEducation Minister AffairsofEconomic Prime Minister ral Ostrobothnia arch Centre ofF. - to the compared roughly is – system innovation the in role potential its thus and – research sectoral of volume these institutions could be so much more. Indeed, the etal services. Our critique rests more on the belief that standards, tional speaking broadly and stitutions in- these emphasis to wish we research, sectoral of ization inthisrespectshouldbeclarified. – become legal monopolies. The role of public organ- unintentionally perhaps – they case which in it, to ty proper intellectual commercial assume to tend they process the in and data collect to right exclusive an public information is a problematic one, as they have of guardians as role their Sometimes fields. spective re- their on information basic produce to – law by ed Even if we take a critical stance on certain aspects Academy of Finland or 2002 Present ae a make do -03 -04 and other soci- other and research high-quality -05 Not present Not significant societal contribution societal significant provide, even by interna- by even provide, do -06 Tekes: these organizations -07 Not a member a Not -08 -09 58% 91% 78% 50% 42% 83% 96% 90% 80% 80% 78% 90% 74% 64% 88% 85% 76% 41% 42% 24% 25% 14% 92% 25% 3% 88% 76% 97% - Source: ETLA basedonthedata Finland ofStatistics Source: ETLA . person-years ofeffort. half abillioneuros andtheprovided some10,000 research organizations have atotal budgetofsome parable to theAcademy ofFinland orTekes. Public The volume research ofsectoral isroughly com- of Euros. in2009,millions ofeconomic activity by category Budget fundingofpublicresearch organizations by research area, budgetfunding. researchExhibit 19:Sectoral inFinland within disciplinesdespitetheirmodestsize. and across comprehensive fairly be to try which of many locations, geographical hundred one over to dispersed now is education higher developments, subsequent and this of consequence a as velopment; er education system was built to support regional de- dimension. From the late 1950s to the 1970s the high- regional strong a had have policies education ularly partic- as well as technology and science Finland, In the innovationsystem Regional andlocalaspectsof funding of€300million(Exhibit19). budget direct a have and million €500 of budget tal to- a with person-yearseffort 10,000 of some provide regional, andlocalinnovation(andother)policies. The panelcallsfor clarif ication andcoordinationofnational, tion shouldbecorrected. alloca- resource in bias obvious The entities. private and public both for funding competitive of share er toral interests, which could be better served by a larg- sec- than rather societal reflect would which of sions mis- the institutions, 4–5 into reorganized be could remainder The out- universities. be to moved could and research sourced sectoral some – 9 and 4,5, mechanism forinnovation policy. governance and steering government central plicit will it ly society.Finnish the developmentof future like- Most n h pnls iw a dsusd n Chapters in discussed as – view panel’s the In Reorganization of sectoral research is vital for the be achieved without introducing an ex- an introducing without achieved be not 14 production Primary 106.2 mill. euromill. 106.2 Metla, 42.6 Metla, 36.2 MTT, SYKE,11.1 RKTL,9.6 FGI,3.7 3 Evira, production Secondary 87.6 mill. euro 87.6 VTT, 85 VTT, MIKES,2.6 we emphasize a broad view on productivity improve- Within innovation policy, in the spirit of the Strategy, policies. (non-innovation) other to links their as well of national, regional, and local ey spent. tax-payers’mon- the of terms in research sectoral or the to comparable roughly are they collectively Thus, geographies. their within of which comes non-innovation enterprise spending) top (on activity innovative promote to million) €500 is estimate bound upper (our annually million 300 €100– some spent directly they that suggests survey Our innovation. promoting program similar or egy strat- innovation own their have municipalities 350 some the of 20% as many as that reveals survey Our matters. policy innovation and enterprise in Centres TE- as tasks similar adopted have and activities tive tions andinstrumentsarenotconsideredjointly. ac- local and regional, National, making. levelpolicy regions. These are mostly respective their in capacities innovation build to cies cal administration and other local and regional agen- lo- of instruments and programs numerous are there perspective,– local and regional – other the from ing Look- policy. regional (non-innovation) to linked – extent some to – is which dimension, regional ken’ national, there seems to remain an important ‘unspo- The panel calls for a for calls panel The Municipalities are eager to promote local innova- Finnish Although social and Health 56.4 mill. euro 56.4 THL, 36.9 THL, 19.5 FIOH, innovation and safety and Environmental 52.8 mill. euro 52.8 clarification and coordination and clarification not recognized in national- STUK,26.4 FMI,14.1 GTK,12.3 Academy of Finland of Academy innovation policy is primarily is policy cultural and Societal 16.2 mill. euro 16.2 policies as Kotus, 5.3 Kotus, VATT,4.4 FIIA,3.1 NCRC,2.3 1.1 Optula, , Tekes,

29 Policy Governance and Steering 30

Evaluation of the Finnish National Innovation System clear, measureable,andquantif iable societalbenef its. There isnojustif ication for instrumentsthatdonothave versities should be regarded as regarded be should versities uni- time, same the at while, role, regionally-oriented labor withinthehighereducation sector. of division the wouldclarify This institutions. gional research ingeneralreceived muchweaker grades. and competencies business international of duction and regional businesses and economy, while the pro- local the of needs the for competencies providing in perform to polytechnics considered spondents needs regional and local the system generally see the role of innovation national the of actors that reveal results nics with an extensive regional coverage. Our survey polytech- 26 currently are There systems. novation al agenda may come at a high cost in terms of quite small, running innovation policy with a region- is regions ‘disadvantaged’ in funding innovation lic of thelocaleconomyandsociety. based innovation andapplicationstoserve theneeds experience- towards directed clearly be should ities should be taken into account and redirect CoEs activ- the of round next the designing When SHOKs. to CoEs from possible, as far as moved, be should activities - tech nology-oriented and Science (SHOKs). Innovations and nology national and (CoEs) regional of roles the rethinking and learning of number larger a as well science- and technology-driven innovation centers as of less) even or (4–5 number small a promote ously simultane- should policies that mean could That ers. cent- innovation world-class truly many support to used toeven upregionaldisparities. ments – like traditional instru- redistributive tools – could be policy other subsidies, innovation direct of growth both at the regional and national level. Instead gional competitiveness. promotes which resources, of cation misallo- to contribute to seems funding R&D public regionally-motivated that found is It support. R&D direct public in bias regional subtle and ‘unspoken’ the on focuses 8 Chapter in analysis The elements. re-allocative ignored previously its including – ment Polytechnics should strengthen their strengthen should Polytechnics Polytechnics are Polytechnics country a small too is Finland that evident is It centers in regions. That would mean, e.g., Strategic Centres for Science, TechScience, Centresfor Strategic - actors in regional in- regional in actors important this Program Expertise of Centre 15 Although, admittedly, pub- . A great majority of the re- the of majority A. great experience-based innovation experience-based polytechnics as serving global Centres of Excellence of Centres in re- in divergence rather than re- than rather applied and applied forgone well oain gnis te epniiiis f different of responsibilities the agencies; novation invarious of instruments and tasks the in overlaps are There challenges. future the meet tem’sto ability sys- the of light in innovations of system (national) current the within responsibilities and ganizations includes a includes which enforced be should system innovation the of reform structural strategy,a the implementing with conjunction in that recommend We criti- screened. been cally have ones existing the before troduced in- are instruments new that risk obvious an cludes able. the taxation, in loss dead-weight for accounting as well administrative cost for implementators and targets as the Given benefits. societal quantifiable and measurable, is not is there that is around be to instruments some for reason main the served.be are that needs feeling the help cannot One be tivity –isnotinthesociety’s bestinterest. ac- same the for support public of forms multiple for of possibility current the Furthermore, access. to difficult system the perceive theservices use that Firms organizations. different of functions the between overlaps are there that see system the within actors the of half prisingly,about simultaneously. addressed be should impacts its quantifying and ing measur instruments, implementing Upon ones. ous previ- the with tandem in work they how sidering con- particularly use, in them taking before ments instru- new all evaluating place in arrangement an more than a than more available, information of basis the on estimation tive conserva - a making includes, It complex. as garded re- widely is innovationsystem national Finnish The Streamlining tpcly oeht agr enterprises. with larger) somewhat contact (typically daily in direct officials and of programs, thousands and organizations public of dreds no justification for instruments that do not have clear, have not do that instruments for justification no , even if this meant that some that meant this if even itself, in objective an be. One should take just the opposite angle: There benefits of any public intervention have to be quite siz- mlmnig h nw noain taey in- strategy innovation new the Implementing should instruments of number the Reducing The evaluation reveals a need to re-think the or the re-think to need a reveals evaluation The pre-screening thousand particular reason why they should they why reason particular no different instruments, different procedure – there should be should there – procedure applying – shopping forum 17 o sur Not 16 hun- - - - should beanobjectiveinitself. Reducing thenumberofpolicyinstruments the pro the – organizations referencewas made to thecollaboration ofthe key innovation system port (Georghiou, Smith, Toivanen,& Ylä-Anttila,2003) a previousthe In 2003evaluation Finnishtheof innovation sup access. to firms for easier it make to taken been have efforts Given the complexity of the system, it is no wonder that several Six-pack involved. organizations with communication bureaucratic less and ible evidence that the targeted firms were satisfied with more flex however refined. On the positive side, there seems to be some pursue to officials ment The results nevertheless show that it is difficult for the govern- ago.years of couple a only started service the as conclusions, definitive make to early too nevertheless is It ity-enhancing. productiv than rather productivity-deteriorating been has firms supported the among employment suggests of re-allocation that analysis the contrary, the Quite objectives. policy fiable impact from the point of view of measurable innovation the coordinated and focused measures did not have an identi- that show results preliminary The 21). Exhibit (see this evaluation of context the in analyzed empirically was it that ment The The Growth Company Service involved itasbeingmassive describe withtheefforts . operationally Those meetings. frequent via effort the nated coordi - and steered, oversaw, actively organizations quartet the of generals director Thetargets. its as companies smaller 500 some selected centres regionalTE 2005–6 in and 2005 in started service This aspirations. high-growth with those for services tailored and coordinated, organiza - focused, offer would four tions the that was idea The launched. was service special a companies, high-growth of needs specific the serve to order In whole. as sector business the er covto trying growth-orientedfocusof insteadcompanieson Sitra – diverted shortly. The rest – now the possible. im be provedtopoint service onethroughagencies six all of different servicesaccessoperation having to an of and modes had organizationsattending the that out turned It objective. its however, reach not, did effort The companies. smaller for ing,since theaimwas to develop one-stop-shopa particularly Exhibit 20:Coordination dilemma–From thesix-pack to thecustomer strategy. , Two of the six-pack – the – six-pack the of Two six-pack Sitra - experi policy unique a such is growth-company-service , the . Thatevaluation regardedinitiative thepromis as TE-Centres, Finnish Industry Investment Industry Finnish and -type of policies, of -type picking-the-winners Tekes and Investment Industry Finnish – forming the quartet – decided to growth-company- , group of six Finnvera , Fin or ------requests, ifproperly implemented. companies’to responses public economizing and prioritizing exerciseservice discussedabove. possible inthelight oftheoutcomes ofthegrowth-company- quite looks That outcome. market the worsening sequences tions’havemayconunintendedbenevolent - – though even – long-term ‘customerrela- at of ‘all-embracing’ aiming policies type This policies. innovation and enterprise public of tions the from justifica- basic the ideas down waters practices CRM adopting sector private that risk a is there Nevertheless, system. the continuously‘customers’ of are actors private all, broader societalinterests (current andfuture citizens). est possible time. The ultimate customer is not a company but havetoopposite : as the exactly obviously is objective the support direct of case the clear, in be to Just possible. as long as customers as firms the keep to be would agencies public of objective the things, other among that, suggests indirectly it so doing In practices. sector’sprivate the in used jargon the subsumed has strategy customer the that customer strategy asmuchwe shouldhave. perhaps the considered not have we Thus,2009. March in Council tion the at report interim our presenting of It was brought to the attention of the panel only in the context innovationthe system customernew strategy.mentionedthe firms, according to thecustomer segment theybelong to. with communication and provision service their in principles similar follow could organizations policy business and vation tailored services accordingly. The basic idea is that all the inno their customer needs (as users of public and services), provide to according groups different into firms segmenting of idea the developedwith currentlybeing is (Asiakkuusstrategia ) egy new A issue. same the tackle to recently ated of the system is important because a new effort has been initi- complexity reducethe toattempts various the of analysisThe Asiakkuusstrategia would beasufficient solution have since fadedout. itself in it that claims advanced, quite is and active remains portal the While services. public accessing in nies’challenges the At thetimeofprevious evaluation itwas alsoclaimedthat yrityssuomi.fi Customer strategy may, of course, be a worthwhile tool in tool worthwhile a be course, may,of strategy Customer In the case of providing of case the In What can be learned from the available documents reveals of 2009noneofthekeyactors inJanuary ourinterviews In e pra wud as) ov te compa - the solve (also) would portal web yrityssuomi.fi (CRM) Management Relationship Customer customers as possible forfewthe possible as customers most, if not if most, conditions framework Research and Innova- and Research customer strat- customer - short - 31 Policy Governance and Steering 32

Evaluation of the Finnish National Innovation System on itsindependenceandobjectivity. The usefulnessofanevaluationdepends domain. this in tasks of division a suggests particularly 64) it (Exhib- system the in responsibilities their and tors ac- for propose we outline The ways.various in ship entrepreneur growth promote that – units two the dozen other public agencies – none of which is under a half than more are there Furthermore, 21). (Exhibit Entrepreneurship the and firms, neurial promote growth ventures and high growth entrepre- try’s Minis- the In firms: high-growth for support public Economy the in least at labor of division internal and clarified, be could ministries n xml o te ed f eognzto is re-organization of need the of example An Fourth, labor productivity ishigher(waveFourth, laborproductivity 2). is firm treated average the Third, employment). of tiveSecond,firms. the average treated is firm select to aim the controlreflects group);the this in firms the to compared (as firms treated the in higher much differences. First, the employment share of R&D occupations is treatment groups (i.e., waves 1 and 2) indicate some important to societalwelfare. thus and growth economic to contribution largest performance the have productivity high with jobs create that relative Firms of terms in especially and ment of terms in perform they how into looks analysis The control group. a constitute service the of clients been never have that clients.Firms new genuinely more has 2) second (wave the group treatment whereas organizations, four the of companies client new and existing both of comprised is 1) (wave group treatment first companies.The of number larger somewhat a and added 2006 small in 2 wave target; of its as companies medium-sized hundred of couple a with 2005 in out service carried the of 1 Wave aspirations. growth high with panies com- for services coordinated and focused offer would they that was idea organizations.The public four by launched was Growth-Company-Servicespecial a 20, Exhibit in Asdiscussed Exhibit 21: experimentThe beensuccessful? – Hasthepolicy Growth Company Service there is a special unit to unit special a is there Department Innovation ipe oprsn bten h cnrl n te two the and control the between comparisons Simple service. the by covered are companies 500 some 2009 In needstobere-organized. s unn te growth-firm-service the running is Ministry of Employment and the and Employment of Ministry Department of Employment and Employment of Department . productivity labor (in terms (in smaller more younger. employ innova- - - indicationthat some gives analysis preliminary firms? The productivity high in o ae otiue t eooi got ad hs societal welfare. thus and growth economic to contributed have to seem not do firms treated the Second, jobs. new created the First, declining competitiveness is bad news for the viability of treatment. This somewhat is twofinding alarming for reasons: has firms treated the of productivity aggregate relative that gest sug- results the Second,treatment. of absence the in creation job the been have would what evaluate to is challenge The analysis.econometric carefulmore without policy the to uted er, are worth noting. First, higher job creation cannot be attrib in the treatment than in the control group. Two points, howev utilization of the evaluation results. The report stud- report The results. evaluation the of utilization to support theevaluation. to support conducted Maliranta Mika and Kangasharju Aki by analysis preliminary A Source: as universities areevaluated moreorlessregularly. day, practically allinnovation policyagenciesaswell Finland Finland has been a global forerunner. The respect this In recommendations. and results uation eval- the publishing and peers of panels ternational in- using of idea an with 1990s early and 1980s the in practice established an become to started Evaluation system. the within programs and organizations ious tion in the Finnish innovation system to evaluate var tradi- long fairly a steering is There policies. redesigning and in instrument important an is Evaluation Evaluation practicesneedtobereformed the allocation component isquite substantial. hand, other the group,control on the for As firms. treated the among productivity-enhancing initially, least at not, is ment ones. The analysis suggests that that the allocation of employ favorableas untreatedfornot the as velopmentis acrosstime of productivity the treated companies is relatively high, its de The crucial policy question is: question policy crucial The labor of level the if even – interestingly most and – Fifth rather than increased during the first years of the of first years the increasedduring ratherthan declined The was the key organization in this respect. Torespect. - this in organization key the was Audit Office Report has been indeed somewhatindeed creationbeen job has 18 How to facilitate job creation job facilitate to How pays attention to the poor Academy of higher - - - - - lizing the results. The current way of organizing eval- uti- in necessary are which independence, and bility however,lack, mostly practices accounta- and zation organi- current Its innovationsystem. the steering in used atallintheMinistry’s policy design. hardly were results evaluation the and taken never were measures practical that was nevertheless come out- The through. them see to plan action an made even and evaluation the of recommendations the on based actions policy prepare to started Economy) the dustry (predecessoroftheMinistryEmployment and The case. a as 2003) Anttila, Toivanen,Smith, Ylä- (Georghiou, & system support innovationFinnish the evaluationof previous the ies third partythatisnotamongitstargets. An evaluationshouldbecommissionedbya Potentially evaluation is an important instrument Ministry of Trade and In- Tradeand of Ministry the Evaluation Council. in stakeholder a as or evaluation the commissioning organization an as either – here role a assumes nance tem. Another option could be that the that be could option Another tem. sys- innovation whole the of evaluation the in role a undertake could that organization an of example Council Evaluation Education Higher Finnish the 4, Chapter in out pointed As customer. the as serves and evaluation the commissions – ated evalu - being is that one the than other – party third a that so reformed be should system evaluation the organizations, even ifthetwo shouldperhapsnotbemixed. target the of management the to sulting con- worthwhile as serve nevertheless may uations Therefore the evaluation panel recommends that evaluationrecommends the panel Therefore could serve as an as serve could Ministry of Fi of Ministry - 33 Policy Governance and Steering 34 Evaluation of the Finnish National Innovation System The notion of a innovation policy Extending thescopeof On thebasisofEdquist,LuukkonenandSotarautainFullReport 4. Broad-BasedInnovationPolicy 1. in theStrategy. We offertwo clarifications: however,evident not, is concept the of meaning The (Aho Strategy Innovation National land’s for Proposal the in principle over-arching the is

contexts. In that sense, broad-based innovation pol- innovation broad-based sense, that In contexts. institutional different in interactions these of result a as emerge innovations other; each from dependent do not innovate in isolation, nor are policymakers in- affecting the innovation process and outcomes. Firms interaction between various actors and organizations with Finlandbeingoneoftheprimeexamples. policy-makers and researchers among degree anenor mous to acceptance enjoyed and diffused since innovationof system The scope. policy has approach the hence, and determinants, its and innovation on view the broaden wasto 1980s late the in System tion innovation to include product innovationsin product include innovationto of concept the of broadening the entails BBIP The as well as well as ices, also but significance, economic only not to relates and h BI takes BBIP The geted tosupportinnovation inpublicservices. ments operating from the from operating ments instru- policy include then would This innovation policies. implementing and designing account when into innovations of diffusion and ment tions withproducersandusers ofknowledge. interac- versatile more and knowledge of of sources spectrum wider a acknowledging include so search organizations. re public the of potential wasted the to (again) paid be should attention special future near the In agenda. upon the behigh should organisations public by offered services in overlaps existing the Reducing dissipating. from it prevent to order in provided be should content clear a fuzzy; however, is, concept The policy. novation in- broad-based the of ambition basic the welcome We h sse o invto tikn emphasizes thinking innovation of system The h ie i itouig h cnet of concept the introducing in idea The , as well as measures tar- measures as well as benefits, societal wider Broad-Based Innovation Policy process innovations; process organizational all eemnns f h develop- the of determinants . It wouldIt side. demand al- 2008). al., et Innova- (BBIP) - serv- Fin- -

cy that would meet the above conditions is still in its in still is aboveconditions the wouldmeet that cy tential formsofintervention. po- among choose and instruments policy design to Only if the above conditions are fulfilled, is it justified 3. 2. 1. can beintheformofthreeconditions: They considered. be must intervention public of ales cies, or any policies, in a market economy, the ration- policymakers provideaclearcontenttotheconcept. that important more the all is it Therefore, target. icy usually driven by markets – is seen as a potential pol- – development business normal Furthermore, icies. vironment) policies tend to be seen as innovation pol- en- (business broad: enterprise too All become ready turn actually against theirownobjectives. may Policies dissipate. actually and become policies innovation that chance a is there defined, properly Unless concept. of BBIP the thevagueness to due involved risks significant of innovative activity. a new balance between the supply and demand sides towards move ambitious an represents strategy tion innovation policy and recognize that the new innova- We Risks ofthebroad-basedconcept nodes, aswell aspotentialgapsoroverlaps. important identifying of purpose the with portance, Finnish innovation system, their the interactions, and in im- actors of network the at below look we fore, to close are icies that is,agovernment failuredoesnotexist. problem, the mitigate solveor can agencies public its and local) regional, (national, government The understood. and analyzed be can problem the for reasons The ofresources. Hence, aproblemexists. allocation efficient most the simplest form the in objectives, policy the achieving, in unsuccessful be or achieve, to innovation) the from benefit to inability the or risks high of cause (be- unwilling or unable are Privateorganizations It is evident that a broad-based innovation poli- innovation broad-based a that evident is It poli- innovation broad-based formulating When al- have may broad that reveal interviews Our are there that noted be must it time same the At h bsc miin o te broad-based the of ambitions basic the welcome innovation policies. There - policies. innovation systemic too broad too

Source: Kotiranta etal. (2009). Innovation Council. research)(sectoral besides andRIC, VTT, The Research and PROs, Publicand MSAH,Other Research Organisations minst. bediesME,, allotherministries MEE, MF,Other int.Other med., otherintermediatries besides TE-Centres, of Finance, Affairs ofSocial andHealth, MSAH,Ministry ofEmployment andtheEconomy, Ministry MF,Ministry ofEducation, MEE, Investment, ME,Ministry Industry FFI, The Foundation for Finnish Inventions, FII,Finnish companies). Abbreviations: Acad, The Academy of Finland, indicates athreshold of3.0(onlyfor large innovative threshold of3.0(onlyfor companies). Alight grey line have onlyout-bound links. grey Adark lineindicates a is 3.5orhigher(onascaleof1to 4).Grey circle actors linkisestablishediftherelevanceNote: Aconnecting system. core publicinstitutionsoftheFinnish innovation forTechnologying Agency andInnovation, are the system, theuniversities and Tekes, theFinnish Fund- From inthe thepoint ofviewtheotheractors withinthesystem.other actors asevaluated ofvariouspublicactors by Importance innovation system. Exhibit 22: The complexity oftheFinnish 1. the BBIP, it provides a number of interesting insights: of actors within the system. From the point of view of Our survey (Kotiranta Finnish innovationssystem? How doitsactorsseethe make iteven moreso. will elements new adding that risk real a is ter,there adminis to government the for and access to for firms complex already is system support innovation the Since programs. and instruments new troduced in- and designed have agencies policy though even place in broad-basedareyet implementing policies not for the all that is conclusion basic infancy.The so asnottoaddcomplexitythesupportsystem. Caution isneededintheimplementationofbroad-basedpolicies ment. This is clearly a challenge for policymakers, for challenge a clearly is This ment. even the system, if both smaller of and larger firms expect an improve- now) from perform- years (five future ance the about pessimistic more so al- are They organizations. support education and innovation national the of that below clearly tem sys- the of performance the grade firms novative in- Smaller groups. respondent between ferences Perhapssurprisingly,not dif- substantial are there Streamlining isurgently needed et al., 2009) targeted all groups centres MSAH TE- techs Poly- Compa- premises nies VTT . Acad. - ,

Sitra Other Tekes PROs

port services has repeatedly been emphasized by emphasized been repeatedly has services port sup- public the using firms of viewpoint the since n pit i i itrsig o oe ht only that note to interesting is it point, ing start- a as this Having groups. respondent all ly near- by complex rather considered is system The policy agencieswhenreformingthesystem. actors, ad i rated is land) Fin- of Centre Research (Technical VTT addition, rather important by both smaller and larger firms. In hl loig t h oiin of opinions the at looking While groups, it transpires that in addition to addition in that transpires it groups, and (MEE/TEM), Economy istry of Finance, and havingoverlapping functionswithothers. organizations are regarded as being relatively Many unimportant system. the in actors central of network analysis suggests that there are only a few actors. other and companies Aby both descriptive relatively considered different are very missions) with these of 300 over are (there and TE-Centres Interestingly,system. the in actors of groups other by regarded highly are (RIC/TIN) Council vation MEE Finnvera universities, Tekes Muni- cipal. Univ. FFI universities the and Finnvera, and the Associa- y agr firms. larger by important rather RIC tions iity f mlyet n the and Employment of Ministry te itreir organizations intermediary other MF iity f Education of Ministry SHOK FII ME Finpro int. int. med. Other minist. Research and Inno- Other r rgre as regarded are respondent all unimportant Tekes, connections # of in-bound , 10+ 6-10 3-5 0-2 Min- VTT two

35 Broad-Based Innovation Policy 36

Evaluation of the Finnish National Innovation System innovation systemposesachallenge. The signif icant degreeofoverlapinthe Source: Kotiranta etal. (2009). your organization? Would you provide saythatPUBLICactors similarto services Note: Businessangelsandventure capitalistswere asked organizations andotherintermediaries). byprivate otherpublicsector isreported actors (theoverlappublic actors between publicand seetheremediaries issignificant overlap between organizationsThe innovation andinter support different actors. Percentage ofYes answers to theoverlap between between different actors. Exhibit 23: There issignificant overlap 4. 3. organizations undertheircommand. better match with their needs than public research slightly a achieve to polytechnics and universities assess systematically organizations sector public observeto other surprising and ministries the that somewhat is It ministries. of needs information the match to ability universities’ and ganizations or- research public the regarding evidence vides surveyThe reforms. potential pro- of also ponents pro- convinced most the among be to seem tions, organiza- research public of principals the primary as ministries, that note to interesting ularly national innovation system as a whole. It is partic- the of performance the on impact positive a have thereby,and, restructuring comprehensive a from benefit indeed would organizations research lic pub- the that view clear a have respondents tem, sys- innovation the in reforms ongoing the for As organizations (also Chapters7and8emphasizethis). support national and regional roles of the re-defining and streamlining for need real a is there Hence, system. the of problems key the of one indicate clearly results survey the ed, not, and perhaps should not, be completely avoid- can overlaps While TE-Centres. including tions, organiza- intermediary re- representing the among spondents (70%) highest is share The tion. duplica- or overlaps see respondents the of half Nearly this. confirm functions actors’ public the The organizations’ opinions on the overlaps among - Gov't Other nat. public org's nat. Other Gov't ministries Other Gov't: org's.support EducationGov't, support Innovationorg's Gov't: iac:Bsns nes VCs Finance: Business angels, Intermediaries: Other Intermediaries: TE-centres

mittee. Applying the broad-based approach to secto- to approach broad-based the mittee. Applying Neuvo’sby com outlined as system, research sectoral the in reform for need urgent an policy,is tion there ter reformisachievingitstargets,notyet known. further their wide dissemination. However, to how well the lat- and inventions university of utilization the promote wasto patenting teachers’in exemption will beseized. wellhow and implemented opportunities be the will reform the which in way the on depends Much ities. capabil- scholarly and scientific in competitive more becoming needs, inadditionto societal respond to to universities the for conditions framework favorable new the to example, ing a broad-based innovation policy. This applies, for pursu- for basis good a provide system Finnish the policy repertoire. the in missing potentially is what identify to order in policy, innovation broad-based of principles the and landscape innovation future the with fit forms It is nevertheless important to consider how these re- before the new Strategy and its broad-based concept. well initiated were which of many system, novation in- Finnish the in reforms ongoing several are There with the broad-based approach? Are the ongoing reforms consistent organization similar services asyour Other 27% 69% 73% 46% 40% 34% 67% From the point of view of a broad-based innovabroad-based - a of view of point the From the of abolishment the underlying intention The Overall it can be said that many of the reforms in public actors provide actors , which provides which Act, University Other Other organization similar services asyour 41% 27% 48% 10% 11% 25% private actors provideactors - provide some ground for experimentation for user- for experimentation for ground some provide may initiative SHOK) acronym: (Finnish Innovation Source: Kotiranta etal. (2009). facilitating cooperation. lack ofcommitted university resources dedicated to hand, includestillambiguousIPR-regimes anda cooperation. Identified challenges, ontheother increase resources allocated to university-industry tive androutines practices at universities, and streamline rigid andhierarchical administra- towerculturally introvert ivory oftheacademia, to isexpected ing collaboration. dismantle the It oftheUniversity Inventionsimpact onfacilitat Act system seemto bequite optimisticregarding the inothercountries,of criticism oftheFinnish actors While similarreforms have received afairamount tions Act. optimistic abouttheUniversity Inven- Exhibit 24:Actors ofthesystem are one, intotherightdirection. modest very a though step, a provide decisions new view.recent broad-based most a The to commitment its show to upon called is government the where ea ar an is money.This and power of terms in sources re- of lack a of because and interests established to er, been put in practice, probably because of its threat would beoutsourced,forexample,touniversities. tinue to be carried out in these, but as far as possible, con- would institutes research public the in pursued currently research the all not that fact the includes effectively.met are large This at society and istration admin- public the of needs information the that ing ensur and activities research organizing of models needs. new The reform would require to new and innovative respond to or allocation the change to able to goes earlier decades, that of is, too large a proportion of the support needs the follows research sector public lizing innovations inthedelivery ofpublicservices. uti- and activity,innovative in interaction producer closer user-things, research implies,amongother ral in thesectoralresearchsystem. There isanurgentneedfor areform The howev - not, has research sectoral of reform The the in resources the of allocation the Presently, . The system has system The production. primary taei Cnrs o Sine Tcnlg and Technology Science, for Centres Strategic - Other: Other: Municipalities Other: Associations Finance: Business angels, VCs Firms: Non-innovative Firms: Larger innovative Firms: Smaller innovative Intermediaries: Other Intermediaries: TE-centres Other Sectoral: research org's Sectoral:Public research org's Polytechnic rectorsEduc.: University Educ.: rectors University heads Educ.: dep't public org's nat. Other Gov't: ministries Other Gov't: supportInnovationorg‘s Gov't: org'ssupport EducationGov't: been not - - ment of new technologies of the future. These areas These future. the of technologies new of ment develop - the for incentives powerful providing thus regulations, and norms setting by influence great ert vital areas such as energy and environment, it can ex- in Furthermore, influence. considerable a have may the to pertinent cially espe- be could This initiatives. new with experiment to and policies demand-oriented adopt to ernment gov- the of aim Wethe sectors. welcomeprivate and public both for measures indirect and direct cludes port schemes. sup- other with tasks of division and actions, goals, its of clarification further need would and infancy regional a of development The them. from arising needs structures and local as well as innovations ence-based experi- account into takes which policy, innovation broad-based a pursuing in experimentation for tion firms torenewtheirtechnologicalbase. larger for incentives provide to experiment valuable even though as such, the concept is an interesting and clusters, new of emergence the support to likely not basic principle of the SHOKs is fairly is SHOKs the of principle basic The case. the be will this whether judge to early too is it far, so though programs, demand-oriented and disagree Fully h rpror o dmn-ae plce in- policies demand-based of repertoire The founda- firm a provides dimension regional The oiy s hwvr sil n its in still however, is, policy innovation activities, where it where activities, sector public traditional and agree Fully 37 Broad-Based Innovation Policy 38

Evaluation of the Finnish National Innovation System and experimentwithnewinitiativesiswelcomed. The government’saimtoadoptdemand-orientatedpolicies emphasize documents policy and policy innovation Finnish Weak internationaldimension the differentsolutions. of viability the show will experimentation only and innovations, radical of adoption the in inevitable are failures and Experimentation solution. viable more a of period dissemination the in lengthen case, worst and the losers, be to out turn end the in which gies technolo- promote may government the solutions, technological new of adoption market the hasten to attempt its In risks: without not is policy innovation these issues. and public welfare purposes. Chapter 5 elaborates on diffusion of innovations can greatly benefit the sector where public action through, for example, support to of anarea example isanother ICT The effective. ly real- be to approach focused more a need they but agenda, innovation and research the on already are Exhibit 25: Key activities insystemsExhibit 25:Key activities ofinnovation. 6. It is to be further noted that a demand-oriented a that noted further be to is It 5. III Provision ofconstituents ofSystems ofInnovations (SI) 4. 3. II 2. 1. I in (oetal) novd n h invto processes. innovation the in involved (potentially) organizations different among learning interactive including mechanisms, other and markets through Networking organizations, agencies, etc. policy ship to diversify existing firms; and creating new research new creating and firms; existing diversify to ship entrepreneur- and firms new create to entrepreneurship enhancing include innovation. Examples of fields new ing develop- for needed organizations changing and Creating demand sidewithregard to newproducts. the from emanating requirements quality of Articulation Formation markets ofnewproduct Demand-side activities andorganizationalvation learning. andR&Dactivities) individual inno- for force throughlabor the training and (educating learning example, for building, Competence inengineering,marily medicine, andnatural sciences. Provision of R&D and, thus, creation of new knowledge, pri- Provision of knowledge inputs to the innovation process internationalization and . international collab do -

10. 9. 8. IV

ty. innovativeactivi- its in countries nationally-oriented inter least the among is Finland people, academic of ing to many available indicators, such as the mobility Accord globalization. of forms promoted forcefully been past the in have investment direct cross-border and trade international only in Indeed, respects. these inward-looking exceptionally remains Finland issues have been on the policy agenda for a long time, research collaboration and exchange with a number a with exchange and collaboration research best’ Finnishacademicresearchers. and returnees, to work in Finland with the ‘best of the gram enables distinguished researchers, both foreign pro- FiDiPro The academia. Finnish of tionalization interna- further to and trends above-mentioned the counteract to way one provides Programme), fessor Tekes,and land expectations andexplicitpolicygoals. to contrary 2000s, the in decreased slightly has land Fin- to and from visits researcher and teacher tional Source: Edquist (2006). 7. oration in the context of innovation policy. 20 information, andlegaladvice. commercial transfer, technology example, for processes, its adoption. and knowledge of commercialization facilitate may that activities other and processes innovation of Financing forand administrative innovating support efforts. facilities to access providing as such activities Incubation for innovating services firms Support vation. incentivesfor,providingto,inno- obstacles removing and noaig raiain ad noain rcse by processes innovation and organizations innovating investment routines, cultural norms, etc. – that influence that – etc. norms, cultural routines, investment as tx as evrnet n sft rgltos R&D regulations, safety and environment laws, tax laws, patent example, for – institutions changing and Creating innovating the firms. in available already elements with side out- from coming and SI the of spheres different in oped devel- elements knowledge new integrating implies This eeat o innovation for relevant services consultancy of Provision As discussed in Chapter 9, the share of interna- of share the 9, Chapter in discussed As Finnish funding agencies have agreements about Fin- of Academy the of programme joint The (Finland Distinguished Pro- Distinguished (Finland FiDiPro 19 While the

- - UNFDA. Source: Tekes, European Commission, Eurostat, and but low whencompared to the national R&Deffort. iscomparedgram to participants thepopulation Finland ranks highwhenthenumberofpro fairly domestic expenditures onR&D(right). orperthegrossEU FPpermillioninhabitants (left) inthe basedonthenumberofparticipants Ranking work programme participation. effort, Finland ranks poorlyinEUframe Exhibit 26:Relative to itsnational R&D ties andpoliciesarecoordinated. movefreely,can nology activi- research national and tech- and researchers, knowledge, where area search (Marie Curie) and aims to create a truly European re- among the funding agencies – mobility of researchers networking and projects research collaborative sides be- – furthers Programme Framework Seventh The activities. research for money substantial provides it that fact the and covers, it instruments support and areas research of multitude the size, sheer its to due grammes. support regions, is also channeled via EU Structural Pro- specified in performed activities, R&D of ing Fund- schemes. funding international policy-related innovation Finland’s in role major a play however, an fundingschemes,suchasEureka,COST, andESF, Europe- other and Programmes Framework EU The calls. joint as such action joint achieving for portant im- are contracts official where countries with made are These Union. European the outside countries of in EUFramework Programmeparticipation. Relative toitsR&Deffort, Finlandrankspoorly The EU Framework Programme plays a key role key a plays Programme Framework EU The - - 21 Liechtenstein Luxembourg Netherlands Switzerland Lithuania Denmark Germany Hungary Portugal Slovenia Czech R. Belgium Slovakia Bulgaria Sweden Norway Finland Estonia Iceland Austria Greece Ireland Cyprus France Latvia Spain Malta Israel Italy UK 59.7 81.9 93.0 100.6 105.1 111.2 113.7 114.0 116.6 117.4 126.5 131.1 147.5 171.4 205.4 217.3 237.0 238.7 250.1 273.3 275.7 276.9 279.9 282.6 293.1 294.2 304.8 308.5 317.5 444.4 crowd out European-level R&D funding? The Euro- The funding? R&D European-level out crowd support R&D national Does question: the raises This R&D spenders such as Finland and Sweden rank low. high while expenditures, R&D national their to ative funding organizationsacrosstheEUmemberstates. at fur and performing research among integration thering aimed specifically tools represent cellence Ex- of Networks and nets ERA Excellence. of works Programme – ERA nets, Integrated projects, and Net- Framework Sixth the of instruments ambitious and integrating new the activein more much penditures, searchers have not been, when re- related to the R&D ex- and organizations Finnish respect. this in ment low the EU average. Thus, there is room for improve- however,expenditures, wellbe- R&D is its it ativeto (Exhibit size 26). If Finnish participation is population considered rel- and budget) R&D EU the of share of terms in both Programmes, Framework EU the in participate New member states participate most actively rel - actively organizations and researchers Finnish (as compared with Finland’s with compared (as retour juste Luxembourg Netherlands Switzerland Lithuania Denmark Romania Hungary Portugal Slovenia Czech R. Belgium Slovakia Bulgaria Sweden Norway Finland Estonia Iceland Croatia Austria Poland Greece Ireland Cyprus France Latvia Spain Malta Italy UK 0.216 0.228 0.231 0.233 0.263 0.278 0.325 0.339 0.353 0.354 0.356 0.420 0.440 0.446 0.494 0.521 0.753 0.967 1.354 1.423 1.761 1.891 1.944 2.156 2.252 2.885 3.655 4.204 4.283 4.338 - 39 Broad-Based Innovation Policy 40

Evaluation of the Finnish National Innovation System networking ofcivilservants. Government shouldactivelyendorseinternational egy. strat- internationalization Finland’s of part as taken be should and policy-making EU concerning tences compe- and knowledge up building for portunities national networking. inter in competencies needing tasks in promotions for prerequisite a as abroad careers endorse actively should government Finnish the function, arenas EU the which in ways the understand better and tencies capabilities. ed, there is room for improvement in Finland in these conduct- has Panel the interviews the to According otcs n ewe eet ad pca occasions. special and events between in contacts and action, coordinated lobbying, tivatenetworking, organized to formulate and assess policies, and to ac- events in participation to groups, expert and mittees da, to active membership or special functions in com agen- policy research European the to issues troduce cy, in- to opportunity unprecedented an offers which country’sPresiden- a of period special the from ple, levels and through a multitude of channels, for exam- several at place takes Influence action. and pabilities ca- new requires and stakeholders Finnish for lenge the development ofEuropeansocieties. affect which issues socio-economic important suing The EU research policy is a significant forum for pur companies. and researchers Finnish of collaboration abroad aftertheyreturn. researchers domestic to applies same The 2009). ie, MacGarv- & (Kahn competition and ideas bring- new ing in productive more are researchers foreign that shows further research Empirical ommended. wouldexchange andmobility national rec- highly be inter more personnel, university of composition the or mobility of terms in domestically-oriented ently persist- and surprisingly are researchers and ments environ- research Finnish that Considering petition. com as network as effects and well building petence international collaboration will bring important com and European prerequisite. a as collaboration tional over advantagenational ones, as they require European/interna- an have Programmes Framework pean RSU fr ii srat poie nw op- new provides servants civil for ERASMUS In order for Finnish civil servants to gain compe- Influencing the EU research policy is a new chal- new a is policy research EU the Influencing international for arena important an is EU The 22 ------

at raiain n h Fnih ytm n hs an has and system Finnish the in organization tant ize suchanactivity. the ternatively,e.g., er public sector organizations and their activities. Al- oth- of evaluations (commission) undertake and role example of an organization that could have a broader Finnish The evaluatedbeing not is exercises. these commissioned that party third a if healthier rendered is system tion evalua- The evaluation. of usefulness thus and ence independ- and objectivity the decreases and looking the results (of their liking). This is clearly too inward- mission evaluations of themselves, as well as publish adapted an evaluation culture where the targets com has Finland bodies. public its and system novation in- the steer wayto important an is expertise outside ries, whichhasledtosignificantoverlaps. others’each territo- into expanded increasingly have organizations public time Over bodies. public ious varamong tasks of division the upon touches rarely it but role, a such has Council Innovation and search strong coordination mechanisms. In principle the there isenoughpoliticalwilltomakethingshappen. and long overdue opportunity for Finland – we hope great a is research the sectoral Reforming sector. public concerning especially functions, coordination central some in Office Minister’s Prime the of ment involveactive - more a Werecommend mended. also tion policy formulation. Its more active role is recom- innovaand involvedresearch less - in is Finance of try ings of the present system is, however, that the work- the in drawback major AFinland. in place in are policies coordinating and strategies overall ing based innovation policy, soasnottoletitdissipate. clear contents to the now vague concept of the broad- provide soon will government the that important it consider We policies. innovation side demand supply and the between balance new a towards move fuzzy,a but ambitious, an represents strategy vation inno- new the that recognize and policy innovation broad-based the of ambitions basic the Wewelcome Conclusions Sitra, the Finnish Innovation Fund, is an impor an is Fund, Innovation Finnish the Sitra, seeking and evaluations periodic Conducting lacks system innovation Finnish the Overall formulat- for structures organizational Basic is an is Council Evaluation Education Higher Ministry of Finance of Ministry could organ- could Minis- Re- - - - transfer officesaresub-optimal. technology of resources the Finland in that evident also is It universities. the for revenues high brought which cases exceptional few a on based drawn were el (Bayh-Dole) worked and that too hasty conclusions mod original the that clear all at not is it where case a also is This environment. new the workin not may and risky always is countries other from solutions al institution- Emulating sought. originally was what to opposite are which impacts about bring may ties universi- of context the in IPRs in changes that light Fin- however,countries, other from Examples high- in land. inventions university-based Prop- of Rights Intellectual erty the concerning change law the the opportunitieswillbeseized. wellhow and implemented be will reform the which in way the on depends Much capabilities. scholarly and scientific in competitive more becoming to tion addi- in needs, societal to respond universitiesto the for conditions framework favorable provides which University new the Act, to example, for applies, This innovationbroad-based a of pursuance for sis policy. ba- good a provide policy innovation and research sided ideas,policies,andfundingopportunities. one- too of risk the avoid to help can and system the to diversity adds It experimentation. policy in role objective andindependent. The evaluationcultureshouldbemore t s o ery o a edc o te mat of impacts the on verdict a for early too is It Many of the ongoing or recent reforms in Finnish basis for pursuing a broad-based innovation policy. The uni- The policy. innovation broad-based a pursuing for basis by publicorganizations. Streamlining isurgently needed. drawback. There are significant overlaps in the services offered a is formulations policy innovation and research of dination coor in Office Minister’s Prime the of involvement active less and Finance of Ministry the of involvement of lack The tion. order for itnotto dissipate. in contents clear provided be soon should It concept. fuzzy a societal considerations. wider emphasizes and impact, economic direct a has vations, mand sides of innovative activity, includes non-technical inno de and supply the between balance a provides It policy. tion innovabroad-based the of ambition basic the welcome We andrecommendations.Exhibit 27:Summary ral sekn, h ogig eom poie good a provide reforms ongoing the speaking, Broadly coordina- systems-wide strong no has system Finnish The The new broad-based innovation remains,policy however, - - - - impact cannotbeconclusivelyimpact assessedyet. some concerns as to the University Inventions Act, but its final have Finland. for We opportunities great offers reform versity take amore long-term view. to willing parties as well as ideas in diversity more needs and consensus-driven highly is system Finnishso. The do to tinue con- will opinion our in and past the in purpose a served has it challenged, been times at has position system. its the While that isnow beingwasted. opportunity an – system Finnish the in thrust a be could PROs affordable. un- and unacceptable is which gridlock, permanent a in be to breed new clusters or promote radical/disruptive innovations. ing traditional Finnish industries, but it is unlikely that it would search organizations. re- other to outsourced as well as universities, the to moved be should organizations research public the ministrative sectors. Some of the research activities in ad- present the to according not and questions, cietal into a small number of groups according to broad so- organizations research public the of reorganization a be should reform research sector the of goal term resources. tage of retirements of personnel in the reallocation of advan- take could plan a Such taken. be to steps the concerning plan binding multi-year a recommend SHOK programsandtheirprocedures. new the with aligned strongly more be dimension al internation- the that recommend further We grams. pro- SHOK the in mode demand-based a in motion pro- innovation with experimentation endorse We innovation. disruptive and radical more policies promoting support the enable to limited be initiative mend that the public resources devoted to the SHOK new industries or new clusters. Therefore, we recom- will SHOKs the however,remembered, be that to is It Finland. in eas newal of large firms in existing industrially strong ar re- technological the promoting in experiment while The SHOK initiative may be helpful in incrementally renew Sitra is a uniquely Finnish construction and the ‘libero’the of and construction Finnish uniquely a is Sitra seems (PROs) organizations research public of reform The In order to facilitate a structural reform, the long- we reform, research sectoral the to regard With worthand - interesting an initiativeis SHOK The contribute to the emergence of emergence the to contribute not - - 41 Broad-Based Innovation Policy 42 Evaluation of the Finnish National Innovation System of user-orientedserviceinnovations particularly Finland, as concerns the development and introduction in improvement for room is There work. ment develop- mutual developers’ and users’ of strengthening the and customers of needs the meeting services and ucts prod- of development the emphasize will policy novation (Aho Strategy Innovation Finland’sfor Proposal the in change for call National significant most the – approach broad-based related the to addition in – is orientation user and Demand Change ofcourse On thebasisofBreznitz,KetokiviandRouvineninFullReport 5. Demand-andUser-DrivenInnovation user-oriented approach. New operating forms and incen- and forms operating New approach. user-oriented and demand- a of needs the meet to updated be will tives incen- financing public and services expert activity vation that notes nevertheless roughly in line with the with line in roughly nevertheless is thinking Our argumentation. Strategy’s the challenge we Otherwise scope. policy of extension good a is tions considera- demand-side and supply- of view balanced side.Strategy’s Thesupply (Aho the on been The emphasis of Finnish innovation policy has previously side demandgenerator oraccelerator, e.g., thepublicsector. out an sometimes is there that fact the on build specifically not always the case: in fact many of the policies in this domain however, is, This needs. users’ individual of aggregation the a macro and consumes orappliesthegood/service. (potentially) user A so). do to willingness and ability an (or ice Market demand is understood as a purchase of a good or serv Definitions.Exhibit 28:Some s o te ulc cin, h Srtg (. 15) (p. Strategy the actions, public the for As simply urge it to be to it urge simply we – activity innovativeprivate for support public direct be primarily should tation - user-orien and demand- of promotion public that clude ment and the Economy’s forthcoming framework. We con- wards impartiality. to adjusting recommendwe case, the been not has this innovation.applicationof and domain Tothatextent the The prevailing understanding seems to be that be to seems understanding prevailing The The system of research,of system The inno- and development user is a micro concept, i.e., that demand is simply to the initial source, type, source, initial the to impartial Newer in- Newer 8): p. 2008, al., et W are We indirect. . Ministry of Employ of Ministry against not , 2008) al., et is demand - - - - et n te Economy the and ment diffusion oftheinnovation inthemarketplace. • • • • the implementation An Innovation isacouplingprocess zling that – as pointed out by the by out pointed as – that zling premises must be approached with caution. It is puz- oriented innovationactivity user- and demand- for support genuine provide to quired rebroad-basedinteraction support - created to be will tives work aretobeimplementedin2010andbeyond. frame- new the on based actions most that standing are insights under our is It analysis. our into integrated fully not its done, was work our of most when demand transmitted by thesupplychain. the to respond they thus users); (ultimate individuals to opposed as users) (intermediate organizations other with cal case neither has direct control over demand for equipment. typi a in individual; an serving uponprofessional healthcare search engine. Medical equipment is typically used by a public vertising,even if its core offering to end-users is a freeInternet er left) to left) er clockwise from proceeds It 30). (Exhibit innovations implementing novation policy novation in- user-oriented and demand- for framework conceptual the Ministry’s preliminary summary of lated empirics. re- discusses nor policy innovation user-driven and demand- of content the defines neither Strategy the

tice, workplace organization, or external relations). nw raiainl ehd i-uies prac- (in-business method organizational new a a newmarketingmethod,or a novel productionprocess, a novel goodorservice, o example, For interact mostly services and goods supplying Businesses innovation (OECD & Eurostat, 2005, pp. 46–47) is e il eosrt ta bt o te above the of both that demonstrate will We nlds l ses ie at aimed steps all includes activity Innovative Some of the Strategy’sthe of Some in alleviated are problems implementation Google . 24 exploration of rudimentary ideas (low- As it was published on 10 June 2009 June was10 it on As published of s ead s o tree oln ad online targeted for is demand ’s hneot te Ministry) the (henceforth (lower right) and (possible) and right) (lower . Ministry of Employ of Ministry the content and derived 25 - - 23 – - - Source: andRouvinen. Breznitz, Ketokivi, is placed at thecenter. sion oftheinnovation place. inthemarket The user implementation (lower right)and(possible)diffu- ideas(lower toexploration left) ofrudimentary proceeds fromInnovative clockwise activity activity. steps andinteraction ininnovative Exhibit 30:Astylizedillustration ofthe Source: andRouvinen. Breznitz, Ketokivi, ideas. aim ofgenerating andutilizingnovel demand generator) interaction withthe measures that influence provider–user(– ed innovation consists ofpublic policy Exhibit 29: A demand- and user-orientat User-driven innovationpolicystimulatesuser-inspired(anduser-to-user)collaborativeactivities. Demand-driven innovationpolicystimulatesdemandfor innovationsandconditionsfor theirtake-up. talists, whoobserve theissuefirsthand,thinkso. capi- venture and angels business Particularly ment: environ- tech-push a is system Finnish the chotomy di- this to according suggests, 31 Exhibit As tivity. 1966), that gives the initial impetus for innovative ac- desires, and user/market or 1942), 1934, Schumpeter, to ed application), of domain particular without ideas new of generation the (i.e., scientific is it whether on out osdrbe coal dbt hs en carried been has debate scholarly Considerable The authors’interpretationoftheMinistry’s(10June2009)frameworkwithadditionproposed byEricvonHippelintheparentheses. (attributed to Schmookler, to (attributed pull demand ehooy push technology curiosity-driven research curiosity-driven - Provider CURIOSITY- RESEARCH (attribut- DRIVEN (PUSH) RATION EXPLO- needs CONCEPT services Goods and Demand (Derived?) ty andapplication-mindedinnovativeactivity the existing pool and curiosity-driven betweenfeedback and interaction the illustrates 30 it of research, experimental design, and development. Exhib- flash: it is a continuous creative dialogue over a long period and the market. The coupling is far more than an intuitive technology science, between interface changing ever the at somewhere people imaginative of minds the in place takes that states 211) p. (1979, Freeman appropriately, More guided. DESIRES NEEDS, (PULL) h ps–ul itnto i ptnily mis- potentially is distinction push–pull The generator? Demand SOLUTION DEMAND Innovation is a coupling process, which first which process, coupling a is Innovation (intermediate?) USER User DIFFUSION VATION CULTI- MENTATION IMPLE- Innovative activity inventive activi and competences aiming aiming at coming knowledge, skills knowledge, skills Existing Existing (ultimate?) up up with and . exploiting exploiting new ideas User pool Continuous interaction at each stage of - 43 Demand- and User-Driven Innovation 44

Evaluation of the Finnish National Innovation System without somedemandanduserorientation. No commercialinnovativeactivityexists

Source: Kotiranta etal. (2009). documentation forsurvey details. Note: Refers to themeanresponses by group. the See theissuefirsthand, thinkso.who observe businessangelsandventureParticularly capitalists, tion system asatechnology pushedenvironment. All respondent groups consider theFinnish innova- and demandpullastheextremes. orientation ona5-point scalewithstrong tech push Respondents were askedto evaluate thesystem’s push environment. Exhibit 31: The Finnish system isatech • • • •

it is the is it Furthermore, user-orientation. and demand- some in noteworthy ways: innovationin users of role the been thenorminfor-profit innovative activity. er at the center of innovative activity; this has always 30 Exhibit why is This users. and kets mar on focused squarely is activity innovative cial a varying degreeintheintermediatesteps),commer least at the very beginning and at the very end (and to at Thus, innovation. defines that provision) its in (or good/service a in embodied idea novel a of roll-out

munications costs, users have an improvedability havean users costs, munications com- and computing falling constantly to Thanks sure, be To introduced. and fusing dif- in users engage to possibilities new are There al foundationinthiscase. intellectu- the form – market or engineering, ness, action. Anthropology and ethnography – not busi- inter- and observation extensive via done be only una- uncover and to roused seek increasingly Businesses targets just longer no are they activity; vative as users involve Companies becoming instrumental in the innovationbecoming instrumentalinthe process. their – solicited are needs whose d by ed affect- significantly is market US the in vantage stant flowofingeniousapplicationsandcontent. No commercial innovative activity exists without With technological advances such as the Internet, implementation wee sr poie con- a provide users where crowdsourcing, h invto once innovation the complementing sr ed, hc can which needs, user unarticulated , the introduction and market and introduction the , ’s current ad- iPhone’scurrent Apple 26 , however,is, changing n inno- in co-creators technology push by dominated Wholly Educ.: University Educ.: rectors sr expertise user angels, VCs Finance: Business places the us- the places is - - ative innov- Smaller Firms:

palities Munici- Other: tic sourcestendtobemoreimportant. domes competitors, and suppliers of exceptions the With separated. are two the 33 Exhibit international in – and sources domestic both includes 32 hibit Ex- source. main the is activity innovative in-house very important the Comparing close. comes source external other no tant. Virtually all consider customers

fers to those that consider it consider that those to fers innovation activity; the percentage in parentheses re- a question in source the consider that companies Finnish of proportion the to source ofnewideas.Oursurvey echoesthis. external important most the as bodies) public and/or businesses, other (consumers, customers regard businesses that confirm overwhelmingly 1988) pel, Hip- von 1997; Florida, e.g., (see, studies Innovation Empirical evidence ciiy i peiey h cnieig oh the both considering why innovative precisely is activity, in market the and technology, science, er-orientation. us- and demand- to issues side demand and supply both chapter: this for premise important most the constitutes This policy.innovation into ed incorporat- be must them), diffusing and (nurturing ply side (providing new ideas) and the Larger innovative Firms: to innovate directlyforthemselves rectors Polytechnic Educ.: In Exhibit 32, the percentage in each case refers case each in percentage the 32, Exhibit In rea’ pit f otnos uin between fusion continuous of point Freeman’s Non-innovative Firms: Technology pull pushanddemand support support org’s InnovationGov’t: percentages nevertheless suggests that input to their to input important very important in in balance important (97%); hr ae always are there . or veryimpor or demand side dominated by dominated demand demand pull Wholly sup - - - Source: Kotiranta etal. (2009). foreign; order ofthetable). thisratio definesthesort = Ratio*** The ratio ofthe above (domestic/ proportions input to theirinnovation activity. ) (orimportant consider thesource important abroad avery Foreign** = ofFinnishThe proportion companies that tant) inputto theirinnovation activity. consider thesource (orimpor inFinland important avery = Domestic* ofFinnishThe proportion companies that details. documentation forrightmost column.thesurvey See by theratio ofdomestictoNote: foreign Sorted inthe for theirinnovation (orimportant) activity.portant specified domestic/foreign source im- asbeing very Share ofinnovative companies considering the ideas remain more important. Exhibit 33:Domesticsources ofnew Source: Kotiranta etal. (2009). documentation forNote: thesurvey See details. sub-group. customers areto-business themostimportant sourceexternal iscustomers, ofwhichbusiness- group’s own employees. The mostimportant sourceThe isthecompany’s/ mostimportant their innovative activity. contributor to (orimportant) important ing avery that consider thesourceactivity inquestionasbe Share ofFinnish companies engagedininnovative external sourceportant ofnew ideas. Exhibit 32:Customers are themostim- for practicalpurposesitspenetrationiscomplete. Demand anduserorientationisnotlackingamongFinnishbusinesses; role. The remaining 53% are somewhere in between. in somewhere are 53% remaining The role. significant no have users cases the of 16% In wants). and needs just (not expertise own their ty,engaging are users cases, the of 25% in that find We 34). (Exhibit activity tive innova- in have may users that roles different the at looked we this, Toexamine activity? innovative the in would bewasted. pects or going beyond businesses’ current customers, entation complete. Thus any (public) effort to promote the ori- is penetration its purposes practical for businesses; is user-orientation and But how exactly do customers and users participate users and customers do exactly how But view,of demand- point chosen the from least At , as opposed to its more qualitative as - qualitative more its to opposed as se, per in the innovative activi- innovative the in co-creators akn aog Finnish among lacking not - -

32% Suppliers 11% (47%) Polytechnics The publicsector Company/group employees Public research organizations Universities Any group ofcustomers Consumers/end users businesses Other Consultants Private research organizations Competitors Suppliers technics Poly- (80%) Consultants 9% 9% (36%) Universities 20% cant (direct) role, the first (wrong) reaction might be might reaction (wrong) first the role, (direct) cant specialized in-depthexpertiseisneeded. cant in of userexpertise(co-creation)tendstobelesssignifi- role the that case the nevertheless is it Presumably the usual business demographics (size, industry etc.). tion is that being in one of them is not correlated observawith - first Our 34. Exhibit of categories four the themselves donotcallforpolicyintervention. by percentages These awareof. are we benchmark al internation- only the 2009), Hippel, von & Jong (de Netherlands the of those above samples, respective These percentages are on par with or, considering the (59%) Company/group As for the 16% for whom users play no signifi - no play users whom for 16% the for As Wefurther study to analysis statistical a perform employees 88% more matured industries and in contexts where (97%) organizations

11% (48%) research Public 72 % 11 % 12 % 86 % 18 % 38 % 59 % 15 % 22 % Domestic* 9 % 7 % 5 % (47%) (35%) (97%) (43%) (54%) (95%) (68%) (89%) (33%) (32%) (62%) (72%) Competitors 20%

(71%) organizations 8% 8% (37%) research Private of customers 38 % 27 % 20 % 33 % 13 % 23 % Foreign** 76% (97%) Any group 1 % 2 % 3 % 7 % 4 % 3 % (13%) (11%) (40%) (20%) (27%) (65%) (43%) (61%) (19%) (19%) (48%) (60%)

1.88 7.68 4.89 3.19 2.81 2.47 1.86 1.80 1.76 1.57 1.13 0.97 Ratio*** Consumers, businesses 65% 42% 12% (37%) The The public end end users Other sector (3.48) (3.04) (2.40) (2.14) (2.00) (1.45) (1.60) (1.47) (1.77) (1.66) (1.30) (1.20) (93%) (72%) 45 Demand- and User-Driven Innovation 46

Evaluation of the Finnish National Innovation System as far asprof it-seeking innovation activityisconcerned. There islittle needfor directsupply-sideintervention Source: Kotiranta etal. (2009). documentation forNote: thesurvey See details. that theirendusershave nosignificant direct role. creators. ofthecompanies report Onlyonesixth innovationend-users intheactual process asco- ofFinnishOne quarter companies engagetheir innovative activity. ofexercisedthe highesttype userinteraction in ofFinnishDistribution innovative companies by engage usersasco-creators. ofcompanies Exhibit 34:Aquarter Source: andKotiranta etal. Source: Oy Asiakastieto (2009). Note: Productivity refers to value addedperemployer. cally significant. the sample. The difference is, however, notstatisti - thantheaverageterms ofproductivity company in novation processes, even slightly better in perform Companies that donot utilize end-usersintheir in- and theorientation. association between laborproductivity Exhibit 35:Nostatistically significant within the organization. resides expertise innovation relevant the of all ally virtu- that specialized so simply is context the cases tation. Ahowever,suggests, look closer many in that that they do not understand the benefits of the orien- mand and user orientation in orientation user and mand de- between distinction a make should one Indeed, in. engaged be to want not do customers the mains do- in activity innovative conducting on rests ically specif- business their sometimes customers; their to lated in-houseassetsmayearnhigherreturns. re- and important less somewhat is novativeactivity trated within the company, external interaction in in- concen- is expertise the of more when chain: supply the reflect may innovativetheir into deeply activity.more users This is productivity thing, any- productivity. If firm and be- orientation the association tween statistical nosimple is there firm), ficial). in and ficial) As Exhibit 35 suggests (and our regressions con- regressions our (and suggests 35 Exhibit As noaie activity innovative locus of innovative expertise innovative of locus mn toe engaging those among lower 27 These companies do attend (always bene- (always general cniinly bene- (conditionally Arms-Length Arms-Length 22% Users are target of € None 75,738 market market research within the within andsurveys € Users have no Length Arms- 76,191 None None 16% significant direct role € Interact 72,044 Discussion appropriate policies are. In the following, we exam- we following, the In are. policies appropriate most the what obvious not however, is, It contrary. need for policies promoting the orientation, quite the cerned. con- is orientation the of depth the as far as parison gesting Finnish businesses pale by international com sug- evidence no is there debated, be can orientation is this tem the in user-orientation and demand- policy user-orientated innovation policy. and demand- of form important most the arguably Indeed, defense. national and communications as such domains, policy other in ed The side. the on been has policy innovation of phasis em- the included, Finland countries, all virtually In 73,453 € Average itself. At least as far as businesses are concerned, are businesses as far as least itself. At The above does not mean that there wouldabovethere The that mean no not be does from demand-side the of absence The Co-Create € has been interpreted as evidence of the lack of lack the of evidence as interpreted been has 71,752 the case. While qualitative aspects of the of aspects qualitative While case. the not has, however, been incorporat- been however, has, side demand on their needs provide info Users actively Interact 37% the processthe own expertise in Users engage their Co-Create 25% is policy competition noain sys- innovation innovation supply -

• • • • • conditions aresatisfied: tentially) (po- is interaction provider-user active in Engaging Supply side 4. 3. 2. 1. (see Exhibit36forsummary): view of points four from implications policy the ine specif ic contextsanddomainsengagingusersservesnopurpose. lacking forDemand anduserorientationisoften areason,thatis,inthe 1.

get toit. wayto costly least the is Provider-userinteraction Provider profitsfromemployingit,and Provider learnsfromit, User isableandwillingtoconvey it, User possesses relevant information, sus hn ihr h spl o dmn side demand does notexist. or supply the either when Issues and coincide, sides demand and supply when Issues Demand sideissues, Supply sideissues, hausted? ex- interaction of possibilities profitable privately are influence), do and can policies (which ment environ- operating prevailing the on Conditional These conditionsleadtofurtherquestions: 4. Neithersupplynordemand coincide 3. Supplyanddemand offerings) ness to pay for innovative (desire2. Demand andwilling- of innovative activity) 1. Supply(provision/conduct Points ofview Exhibit 36:Four mainpoints ofview ondemandanduserorientation. if all of the following the of all if profitable privately mre de nt xs, vn f hr is scope for sociallydesirable exchange. there if even exist, not does market A ket entry. A user turns to a provider and makes a mar individuals orcommunities. as themselves for and by innovating Users markets? with interact sector public the does How tors, celebrating andmarkets innovation? genera - demand individuals, have to How would havetive activity theorientation. innova- non-profit-seeking why reason No demand-and user-orientated.sarily neces- is activity innovative Profit-seeking Premises

3. 2. probably a a probably is question third the to answer the i.e., least, the say to limited is policy activist for scope the setting, and content, actors, the to specific be to ought tervention a is tion ques second the to answer the link, provider-user the in failure market identifiable an indeed is there Unless science. basic say, of, case the in than likely fail also in the nevertheless provider-user link, even if it seems may less information for market the said, a be well may question first the to to attend to market needs. Considering the scope of scope the Considering needs. market to attend to incentive direct no is there domains these in tivity, sector.educational the ac- profit-seeking with Unlike in and organizations research public in conducted ly concerned. is ty as far as intervention no obvious need or possibility for for possibility or need obvious tion (i.e.,nogovernment failure)? interven- policy for scope feasible a there is so, If societal make sense? profitable) privately not vention inter- of absence the (in interaction further Does Our empirical analysis suggests that the answer the that suggests analysis empirical Our noaie ciiy s primari- is activity innovative Non-profit-seeking No . Noticing that in this context a direct in direct a context this in that Noticing . No - . Based on the three answers, there is is there answers, three the on Based . - pri vately sustainable market? a nurture publicly to Possibilities evolution. industry's Typically takes place in early stages of an provision?to-user user- support to equipped system the Is ture; publicdemandandsupply. direct infrastruc standards regulations, Laws, key ways ofpromoting theorientation. the among is policy Competition and whoare theusersineachcase. demand relevant the is what of Analysis publicintervention. rect di- for possibility or need little is There Considerations profit-seeking direct innovative activi innovative Yes supply-side supply-side . This being being This . - - - -

47 Demand- and User-Driven Innovation 48

Evaluation of the Finnish National Innovation System Public procurementprimarilybenef its relativelydisadvantagedcompanies. domains: three of consideration to lead questions These tives? objec- other sacrificing without innovation, ebrating towardgeared cel- be interaction that can How kets? mum entrybarriers and providers (private) current the among tion tion on the demand side is to haveto is side demand the on tion orienta- the promote to way primary the Finland, as most advanced and demanding markets worldwide. the in present being by problem the circumvent ly

ence for the beforetheysawone. an wanted nobody all, after exist; not does that ers have difficulty in perceiving a need for something us potential Furthermore, innovations. of adaption and development beneficial socially to respect with • • • leads ustoconsiderthreeaspects: innovation celebrate to encouraged be kets and generators, demand individuals, can How Demand side yet tobecompleted. clearly defining a require both of analysis careful would chapter this of context the in sue is - this exploring Further research. or education use directly-fit-to- and incremental an of pro-motion to lead not must it sector, educational the in promoted be to is user-orientation and demand- If needs. ture andfu- current society’s the reflect possibly cannot PROs of structure current the allocations, budgetary

ation for the economic and societal value of new of value societal and economic the for ation users’appreci- promote we can How : Affordability and diffused be they can how place, market the in introduced are ideas new good Once Quantity: of novelty fostered? be Quality: How can the demand for and appreciation ness topayforinnovative newofferings? willing- widespread and high thus and offerings reached asrapidlypossible? be size absolute sufficient a can how opened, ing be- is one new altogether an or expanded being is market existing an If quickly? share market gain o de te ulc etr neat ih mar with interact sector public the does How such environments developedmarket in least At niiul’ n ognztos ntrl prefer natural organizations’ and Individuals’ status quo who exactly the users are – work that is . 28 is a vastly underestimated issue Multinational companies part as well as well as demand relevant the maximum Aschhoff andSofka(2009).

competi This ? mini- mar- iPod - - - - -

ka (2009) suggest that it is it that suggest (2009) ka best. the them meets that alternative the er, and but chooses rather sets characteristics desired does not to take a stance on technology or the provid bally something for demand only perhaps – aspects el nity. It be should noted that opportu great a is innovation promote to it nessing har GDP, so EU-15 of one-sixth about for accounts Paija, Rouvinen,&Ylä-Anttila,2006). (Hyytinen, Finland for implications economic stellar Mobile TelefonMobil digital isk the and (NMT) analog the of successes The success. Finnish to ing solutions,notnewinnovation. house gas emissions primarily involves already exist- green- for targets 2030 global the reach to way cient (Enkvist Vattenfall analysis and coincide McKinsey intuition: the with necessarily not does reality the although innovation, promotes regulation environmental ing 3. 2. 1. set bydomesticactorsbutinternationally. ulations and standards of societal significance are not (Heller, 2008). It is further noteworthy that many reg- orientation user and demand of domain the in cult diffi- particularly and innovation to antithetical are ly perceived worthwhile and necessary, at times they general- while difficult; particularly are property al intellectu- of Aspects innovation. hinder to or mote pro- to likely equally are they that suggests evidence we considerbothappropriateandcommendable. which concerned, is user-orientation and demand- the as far as emphasis main its are topics new framework changes this: to our knowledge these of part makers’ control, even if traditionally not considered a and services). goods (public sector public the by supply Direct curement), and pro- (public sector public the by demand Direct Laws, regulations,standards,andinfrastructure, h eprcl idns y shof andSof- Aschhoff by findings empirical The The The second topic on the list, public procurement, To be sure, standards have in the past contributed t s la, oee, ht o eape tighten example for that however, clear, is It the standards, regulations, laws, to regard With policy- abovethe the in of solely Each almost are new – promote innovation. Ideally procurement (GSM) mobile telephony standards have had have standards telephony mobile (GSM) policy.Ministry’sinnovation The forthcoming , 2007) suggests that the most cost-effi- most the that suggests 2007) al., et that the public sector public the that not only procurement’s nov Groupe Spécial Groupe of entirety Nord- glo ------

about to change: to about be might this but legislation) EU relevant the of tion bership (which might relate to the Finnish interpreta- has ment tion withandvis-à-visothers. conjunc in instrument this of effectiveness the pare com as well as parts procurement standard and tive innova- separate to has one toolbox, policy novation introduced tothestandardprocurementmachinery. easily not are they challenges, these of all to lutions vations in competitive tendering? While there are so- erated, how do we compare yet-to-be-delivered inno- vated costs and the possibility of non-delivery are tol- ele- if Even procurement? – standard to opposed as – innovative in loss complete a of probability erable consid a and cost say,the stomach, twice to ingness will- the is what arises: question new a Thus, ment. creases with the innovation ambitions of the procure- in- delivery) actual the (including costs total to ment develop - of ratio significant the Furthermore, spending. despite public non-delivery of possibility the to translates which failure, a of likelihood the does turn canleadtoconsiderablehiddencosts. es, it might hinder necessary re-structuring, which in If procurementpromotesrelatively weaker business- policy.innovation for relevant be to order in acting ex- very be to ought cycle life product/service the or industry the of evolution the to respect with timing the volume, provides primarily government the If relatively benefit primarily may procurement public that suggest also findings Their markets’ withhigheconomicand societalvalue regulation and standards procurement, to addition in harnesses, 2007a) (EC, ance of new technologies.TheEUleadmarketinitiative to introduced been has 10) p. 2007b, (EC, procurement pre-commercial point, in case a innovation.As mote actively engaged in using public procurement to pro- er does not directly compensate the provider, which provider, the compensate directly not does er ers’ user orientation. This is not the case when the user but rather that it provides it that rather but er custom- demanding or advanced an such be would to hinderorpromoteinnovation. Regulations andstandardsareequallylikely shorten time to market and encourage market accept market encourage and market to time shorten Our impression is that innovative public procure- in- the into thrown is procurement public Once so increases, step innovative (potential) the As Most private markets naturally promote provid- promote naturally markets private Most in Finland since Finland’ssince mem- Finland EU in shrunk 30 the European Commission is now is Commission European the to foster the emergence of lead to the market. the to volume firms. disadvantaged . 29 - - - -

willing inactively turningtheirideasintoreality. new technologies, to articulate needs, as well as to be the conditions necessary for them to experiment with supplying minds, open and active fueling as generic and simple as be might innovation demand-driven tem. With regards to education, promoting user- and time orlater)as they gothroughtheeducationalsys- sectors toprivate[providers]. previouslyclosed opening promoted...by be can novations private markets. As noted by the Ministry, suffocates easily supply public that is issue difficult done be to tion, with respect to innovation or otherwise, remains orienta- user and demand promoting in work Most ean te om n ulcy rvdd services. provided publicly in norm the remains • • ers, individuallyorcollectively, us- where situations in coincide demand and Supply Supply anddemandsidescoincide novative activity. Crowd-sourcing and open innova- open and activity.novativeCrowd-sourcing of ways new with fused con- often further is activity Innovative innovation. user-to-user of significance the overstate to tendency a is policy, there and significance economic sidering con- in important, While example. good a is software well. as markets mature in sustainable influence itviathenormalmarketmechanism. mostly typically users matures, industry an As kets. mar other from incumbents attract might market it grows, the and need the perceive users more and quently, some users may turn into providers. As more rudimentary, least Conse- at solutions. first, the with that does not yet exist, they are often able to come up something for need a perceive individuals dedicated more or one If paramount. often is users of role the entrepreneurship, called of course, which isextensively covered in Chapter7. is, latter The each ernment has a profound and lengthy interaction with

and buildingonhis/herideasviews,enters when auser, outofnecessityorfascination innovate bythemselves andforthemselves, or the market by becomingaprovider.the marketby In some cases the user-to-user provision may be may provision user-to-user the cases some In industry’san of stages development,early the In Besides interacting with individual the public sector itself. A further A itself. sector public the within (and user in various markets – at the at – markets various in user (and in- organizing and facilitating 32 broader markets, the - gov pn source Open Demand in-

31 -

49 Demand- and User-Driven Innovation 50

Evaluation of the Finnish National Innovation System remains tobedonewithinthepublicsector. Most workinpromotingdemandanduserorientation As we have not had time to consider the issue, we are jurisdictions. or entities legal clear under conducted well-definedaround not is or scheduledprojects and organized not is that activity with dealing time hard unclear, undefined, ill-suited,and/orunenforceable inFinland. upon, forced are they Currently lenge. chal- ignored largely and formidable a are rights ty • • • • • • • • ditions aremet: tion of novel ideas is sustainable, if the following con- general haslittletodowithinnovation. ing on in ly innovations tion are important organizational concepts, but hard- Our suspicion is that the answer is likely a activity?suchaccommodate to able systeminnovation ish provision. It is therefore, important to ask: portant and expanding domains of community-based remain an exception rather than the rule, there are im users isclearlyshiftingthelocusofinnovation. (e.g., stories and kite-surfing, Linux, fun-to-talk-about and intriguing by lured are we that suspicion our and provision based cies intheserespectseasilyleadtopooroutcomes. to assume coordinating and managing roles; deficien- able and willing be must users some itself: organize not does 2005) Hippel, (von innovation democratized

reputation building)forsharing. as (such incentives non-monetary some are There to keepone’s work proprietary, and incentives other or monetary strong no are There pensation, com- monetary direct require not do Contributors delivery) isminimal, and replication (including provision of cost The ty contributionsidentifiedandremoved), Variationquali- low (or tolerated be can quality in Individual contributionscaneasilybeaggregated, pendent contributions, The overall provision can be partitioned into inde- es andtheopportunitycostofone’s time, expens- direct of terms in low is Participationcost s o drc pbi spot te ytm a a has system the support, public direct for As Community-based generation and (free) utiliza- (free) and generation Community-based o isac, h rltd nelcul proper intellectual related the instance, For While users effortlessly innovating for themselves community- for conditions limiting the Despite of idea embraced the that note to good also is It Facebook per se. Furthermore, 99% of what is go- , MySpace ), empowerment of empowerment Wikipedia), , Twitter , or the Internet in Is the Finn No . - - - public policymayrelatetothe educationsector. for scope better A case. this in occur not would ure it nevertheless seems unlikely that a government fail- caveats, afore-mentioned the Given intervention. for scope some be might there costs), transaction to due duce economies of scale via information sharing (e.g., tivity spill over to others, or private parties cannot in- other domains? If the fruits of comparable private ac- lies incitizens’ currentandfuturewell-being. (hopefully) society’sinterest the yet implicitly), least innovation can take place without Kela’s approval (at panies this is rational, as in this domain (virtually) no com For users. ultimate medical with than rather – doctors) (e.g., gate-keepers professional and land) (e.g., tors generators the with align to tendency a have may ties par private as for, called be indeed may this issues, social and health of context the in e.g., cases, certain needs and thus in nurturing new private markets? In with an initial public push, one has to be skeptical. needed. As for initiating privately sustainable be markets may ones new and ‘public’markets of number a tors and the society are not always aligned, so ac we private have of Interest profitable. privately not is ket es aswell asbroaderresearch. theoretical insight is needed, both in terms of test cas- and empirical more innovation: user-to-user of tions implica- policy discuss to difficult is it point this At organizations and instruments would be worthwhile. current with cases test some through going least the at yet,action although any for calling necessarily not economies, anindustrysimplydoesnotform. tainties or risks, or absence of network effects or scale uncer extreme to dilemma: due chicken-and-egg the is explanation plausible Another desires. and needs user of uncovering difficulty the in lie may market failure drastic a such for cause the er-orientation, us- and demand- of context the In exchange. sirable de- socially for scope is there if even all, at exist not does it that extent the to fail may market private A Supply ordemandsidedoesnotexist o aot pbil’ noeig sr ed in needs user uncovering ‘publicly’ about How Could the public sector have a role in uncovering It may be the case that a socially desirable mar desirablesocially a that case the be may It – municipal and governmental administra- Kela, The Social Insurance Institution of Fin- of Institution Insurance Social The 33 demand - - - - - anced s n rcmedtos O te ai o a early an of basis the On recommendations. and es premis- policy its of some with disagree we if even two The highly are sides misguided. is side either for Arguing as. the emphasizing to leads that innovation of logic the in nothing is There Conclusions is tobeimpartialtheinitialsource,type,andapplicationdomain ofinnovations. As for thedirectpublicpromotionofprivateinnovationactivity, thebestadvice tributing tocreative andinnovativesolutions. on problems and challenges in a changing world, thus con- light new shed help insights comparative on drawing and anthropological data complex field, analyzing this in skills In development. organizational and management as well as and communication, intercultural and development market product on perspectives anthropological of fulness decades, the private business sector has recognized the use- that notes notes) (http://antropologi.ku.dk site web Copenhagen’s of phers that have been in high demand. The University ethnogra- and anthropologists minted has it context; this in hailed be however, should, system ucational ed- Danish the of orientation The policies. (direct) ed relat- to this of any assign to hesitate we practices, their to orientation the embedding in frontier global the define well may businesses policy.Danish While innovation user-orientated and demand- in leader ied the case of Denmark, which is perceived to be the promoting the orientation via direct public intervention intervention public direct should notbethemaincourse ofaction. via orientation the promoting Thus, countries. developed other to favorably corresponds Finland in orientation innovative the of depth in the Qualitatively activity. engaged businesses Finnish among etrated scope. of policy good extension a is consideration side demand the adding Thus,side. supply the on been has policy innovation Finnish of emphasis The stud- also we evaluation this of context the In direct public effort. It is rather mostly about having dynamic having about mostly rather is It effort. public direct demand and supply linking about andrecommendations.Exhibit 37:Summary view implied in the Strategy (Aho Strategy the in implied view Demand- and user-orientated innovation policy is policy innovation user-orientated and Demand- pen- completely nearly is user-orientation and Demand- . Wecomplementary. the welcome 34 particularly within the past couple of couple past the within particularly or of supply providers and users via users and providers nor - ide novel for demand , 2008), al., et neither bal-

entrants over incumbents. market favoring with as well as innovation incremental over innovation disruptive and radical promoting with consistent sion ofpublicgoodsandservices. provi- the in as well as sector, educational the in ganizations, or research public in – itself sector public the within done be tools inachievingthis. main sector’s public the are competition end-market intense as well procurement,as standards,public Regulations, vation. inno celebrating markets output and input functioning and than byincumbentsandincrementalimprovement. ket mar by promoted better is orientation the often that suggest chapter this in made have we points the of policy should do the same – quite the contrary; many innovation user-orientated and demand- that imply wayno in does This 1997). (Christensen, tiveactivity innova- in incrementalism induce may it methods, research marketing At traditional on relying when least so. do to incentives have companies and while ommend adjustingtowards impartiality. linking supply and demand or providers and users. in publicly sense little is there Otherwise services). and goods (public it by supply and/or procurement) public (including sector public the by (generation) demand is there when direct is role The important. are standards and key.regulations, the Laws, is tion mostly are this achieve to that markets output and input (private) have to is policy innovation ed in linewiththeMinistry’s new framework. nevertheless is thinking our studied, have we sketch type, and application domain of innovation. of domain application and type, dies, our advice is to be the supply or demand side. Thus, in providing subsi- should allocation their in conduct activity.innovativeGood private of extent this is not the case and a bias exists, bias a and case the not is this extent od ead ad sroinae invto plc is policy innovation user-orientated and demand- Good to remains orientation the promoting in work the of Most entrants and itnn t oes utmr i awy worth- always is customers one’s to Listening The primary goal of demand- and user-orientat- and demand- of goal primary The There are good reasons for direct public support public direct for reasons good are There radical/disruptive nld fvrts fr either for favoritism include not Te tools The innovation . celebrate impartial to the initial source, . Intense indirect. innovation rather 37 competi- 36 we rec- we Tothe - - 35 - 51 Demand- and User-Driven Innovation 52 Evaluation of the Finnish National Innovation System izing public provision of internationalization servic- internationalization of provision public izing world marketineducationintensive industries. the in specializing not is country The exports. of ing upgrad- quality of needs for signals clear are there ly behindtheotherNordiccountries. clear lies country the assessments recent most to ing society are less globalized than often thought; accord place anddotheyworkfrictionlessly? in spillovers knowledge captureglobal to mechanisms and is: issue crucial the Hence, 2002). Jones, 2005; Rouvinen, & (Hyytinen growth nomic where are of great and increasing importance for eco- even in the larger countries the ideas developed else- system andpolicies. innovation national to inherently a challenge specific poses This flows. knowledge global on pendent country. a within ideas new of accessibility and density the tion flows, and cultural exchange are associated with informa- contacts, personal cross-border Thus, ness. innovative- with correlated highly most are zation it 38), it turns out that the that out turns it 38), it ness andinnovation; thetwo arecomplementary. mounting evidence for societal benefits of both openness also tend to be the most globalized ones. There is innovative- of level high a show that connect- countries – ed closely are globalization and Innovation are interrelated Innovativeness andglobalization On thebasisofAiginger,OkkoandYlä-Anttila intheFullReport 6. GlobalizationofBusinessActivities Innovation policies would benefit from re-organ- industry Finnish the in that conclude also We Our analyses show that the Finnish economy and that shows literature growth economic Recent de- increasingly are economies small Especially When looking at its various dimensions (Exhib- dimensions various its at looking When es buteven biggeropportunities. challeng- provideshuge innovationsystem global the in innovation policy. The rising role of emerging economies of objectives main the of one be should pool knowledge global the into Tappingdeeper behind. further falling is it that signs are there and thought conventionally than internationalized less is system innovation Finnish The social aspects social r te channels the Are of globali- of - - receivers of spillovers. Finland produces at best less best at produces Finland spillovers. of receivers modern ICTs have madepossible. which of growth accelerating the organizations, and individuals between linkages inter-connectedness: is key the But opposite. the quite – globe the across ed distribut- evenly not are technology and Knowledge vation,knowledge-intensiveand businesses. science, inno- for hubs) (or locations attractive specifically as out stand to seem that regions are There altogether. ders between regions and countries have disappeared plications. ap- cross-disciplinary and technologies ergy-saving en- and resource innovationin to boost extra givean ity. These expenditures will induce new demand and mote these technologies and related innovative activ- pro- to investment public considerable include crisis economic global the counteracting packages stimulus the countries most In technologies. environmental er oth- and clean-tech are future near the in fastest the lenge, buteven biggeropportunities. ment is increasing rapidly. This provides investa - huge chal- R&D its and globally, spender R&D largest domains same and services) in the world market, increasingly in the as significant providers of high-techproducts (goods appear already They system. innovation global in the India) and China (notably economies emerging ly reckonedwithinpolicymaking. have been recognized and addressed, but these of All countries. developing towards vation, inno- also increasingly and production, of ography ge- changing rapidly as well as problems, ronmental envi- to vative solutions activity, for demand prolific inno- organizing of corporistic’ways ‘less other and of innovative activity. These include open innovation drivers global huge, potentially and new, are There Innovation intransition the system,beforeaddingnewinstruments. in functions overlapping removing and ganizations or major two of merger the include would That es. l cutis n rgos r bt snes and senders both are regions and countries All A borderless world does not mean that the bor the that mean not does world borderless A increasing probably is R&D global where Areas large of role rising the is important Especially s iln. hn i aray h third the already is China Finland. as not yet ful- - - Dreher etal. (2008)updates. board 2007.Globalization indexes: Dreher (2006)with Sources: Innovation index: European innovation score and USUnited States. SI Slovenia, SKSlovakia, TR Turkey, UKUnited Kingdom, Norway, PLPoland, PTPortugal, SESweden, Romania, RO Luxembourg, LV MT NLNetherlands, Latvia, Malta, NO IE Ireland, ILIsrael, ISIceland, ITItaly, LT Lithuania, LU ES Spain,FIFinland, FRFrance, HRCroatia, HUHungary, Republic, DEGermany, EEEstonia, EL Greece, DKDenmark, Canada, CA CHSwitzerland,Bulgaria, Cyprus, CY CZCzech codes: ATCountry Austria, AU Australia, BEBelgium, BG and accessibility ofnewideaswithinacountry. cultural exchange are associated withthedensity border personalcontacts, information flows, and highly correlated withinnovativeness. Thus, cross- ofglobalization arethat thesocialaspects most at itsvariousdimensions, out When itturns looking economic (middle),andpolitical(bottom) aspects. regardingglobalization sub-indices social(top), Correlation oftheoverall innovation index and ness. tion, inparticular, matter for innovative ofglobaliza- aspects Exhibit 38:Social know-how andcompetences? overs and enhance the diffusion and transfer of knowledge, essential policy issue is: the Hence, 0.6%). about is R&D global in try’sshare coun- (the knowledge global the of cent per one than associated withthedensityandaccessibilityofnewideaswithinacountry. Cross-border personalcontacts,information flows,andculturalexchangeare How to capture the global spill- - -

Innovativeness Innovativeness Innovativeness 10 20 30 40 50 60 70 10 20 30 40 50 60 70 10 20 30 40 50 60 70 50 50 50 MT IS 55 55 55 LV 60 60 60 CY LU tries that has benefitted the most from the from most the benefitted has that tries coun- developed the of one is economy Finnish The A nordichighperformer Finland intheglobaleconomy– IL 65 65 65 TR TR US RO 70 70 70 RO EE UK EL LT DE IT BG IL US PL 75 75 75 BG LV IS EL AU FR LT PL HR NO IT UK UK SI 80 80 80 CA LT AU SI HR ES MT HR SK DE NO SI LV CY CH SK ES AT IS EE FR PT SK FI CZ IL FI 85 85 85 HU PT DK CA LU CZ CY IE BG DK CZ SE AT Economic SE NO Political CH NL 90 90 90 FI HU EE Social RO AU IE NL HU BE BE TR PT EL MT DE IE DK LU second glo - second NL PL US globalization globalization globalization CA 95 95 95 CH ES SE AT BE IT FR 100 100 100 53 Globalization of Business Activities 54

Evaluation of the Finnish National Innovation System growth policiesfromthatpursuedinthecatching-upstageofdevelopment. Being closetotheglobalproductivityandtechnologyfrontiercalls for different Source: OECD. USUnited States,Kingdom, Africa. andZASouth Slovak Republic, TR Turkey, Chinese TW Taipei, UKUnited Federation, SE Sweden, SGSingapore, SISlovenia, SK Total, POPoland, PTPortugal, RURussian Romania, RO Netherlands, NONorway, NZNewZealand, OECD Italy, JPJapan,KRKorea, LU Luxembourg, MX Mexico, NL FR France, GRGreece, HUHungary, IEIreland, ISIceland, IT Republic, DEGermany, ESSpain,FIFinland, DKDenmark, Canada,Belgium, CA CHSwitzerland, CNChina,CZCzech codes: ARArgentina,Country AT Austria, AU Australia, BE Note: Data refers to 2005orthelatest available year. researchers percapita). alent researchers) andinputs(full-time-equivalent outputs (triadic patents per 1,000 of full-time-equiv The relationship between therelative innovative lessthanitsinputs. proportionally Exhibit 40:Finland’s innovative output is tively small. rela- is sector service the and large, rather still is tor recently,until fast growing sec- been agricultural the tries. The manufacturing sector is quite large and has indus- elastic price in production of share high a and sector low-wage large relatively a has still Finland cally fortheelderly)arelessfavorable facts. specifi - rate employment low and people young the for (specifically rate unemployment high rather and rate employment low while side, positive the on are balanced trade, and balanced budgets (until recently) 1990s. High growth, above average per capita income, formance has been excellent especially since the mid- Finland’s1990s. the per in macroeconomic celerated ac- and 1960s the around started that wave balization Sources: OECD, UN,national sources. 1995–2005 %-point changes(right). in 2005as%oftheworld aswell total asthe (left) Finland andthelargest countries interms ofR&D gains rapidly. in absolute terms Finland istiny –Asia Exhibit 39:Despite itsR&Dintensity, tutrl hne a srn i te 90, but 1990s, the in strong was change Structural - United United Kingdom Patents per researcher United United States 0 5 10 15 20 25 30 35 Finland (21.) MX Germany ZA CN Canada Taiwan France Russia TR Japan China Korea India 2 Italy

AR RO … Share of world R&D world of Share 1.70% 1.75% 1.87% 2.28% 2.40% 3.35% 3.69% 4.24% 6.55% 7.13% 13.71% 34.03% 0.59% IT - 4 HU PT GR PO CZ NL m ad oit ae ocre, eet tde in- studies recent concerned, are society and omy tionate toinput(seealsoChapter4). doing dispropor somewhat be to out turns output the this, While researchers). of number the to or ing spend- R&D (to activity R&D to outputs participation) (and the economy, the of size of instead relate, research programs. EU the in participation to applies same The parison. com international in high ranked is Finland patents, ventional innovation inputs and also outputs, such as workforce is the highest in the world. In terms of con- an countries. The number of researchers in relation to ity in Finland, definitely higher than in other Europe- SK UK SI ES EU27 As far as the degree of globalization of the econ- the of globalization of degree the as far As we when bit a changes picture the Nevertheless, Education and innovation have a very high prior IE 6 CH RU DE OECD AT LU BE KR 8 FR CA AU TW NO United United Kingdom US 10 SG United United States DK South KoreaSouth NZ Germany JP Finland Taiwan France Japan China Spain

Israel India

Italy 12

… … SE Change in world R&D share R&D world in Change -2.76% -1.73% -1.21% -1.03% -0.56% -0.45% 0.26% 0.39% 0.47% 0.51% 0.55% 4.37% 0.11% IS 14 Researchers per capita 16 FI 18 - - - tries are net beneficiaries of highly skilled migration, skilled highly of beneficiaries net are tries coun- developed Most innovation. of system tional na- any for crucial is knowledge of sourcing Global globalization. of aspect central a become has nology level (Chapter 9). low already the from decreasing is mobility searcher re- addition, In small. relatively is researchers and low,is migration students foreign of number the and im- FDI, outward than lower is investment Inward globalization. social and economic both in openness tiveness thanthe economicone. innova- for important more be to seems that zation lower.much Yet, globali- of dimension social the is it country’sthe is globalization social position of terms tion to the rest of the world is relatively strong, but in dic countries (Vujakovic, 2009). The financial integra- Nor other below clearly and economies, open small of average the below ranked is Finland that dicate Source: Vujakovic (2009). changes inranking. aswellNew Globalization Index asthe1995–2005 Year ofcountries according 2005rankings to a behind.continues to fallfurther Nordic countries inglobalization and Exhibit 41:Finland lagsbehindother the futurecornerstonesofinnovationandsustainedwell-being. Tapping deeperintotheglobalknowledgepoolshouldbeoneof Mobility of human resources in science and tech- asymmetric of signs are there Furthermore,

Globalization index ranking in 2005 65 55 45 35 25 15 5 dropping dropping High Mexico Low rank rank and but -20 - Philippines as much a consequence of the productivity-enhanc- the of consequence a much as is it but inputs, technology increasing and education of level high the to relates transformation omy.The econ- knowledge-based and innovation-driven an towards country catching-up investment-driven an from moving been has Finland 1980s late the Since incentives needed experimentation andnew Close tothefrontier–More land. of knowledge flows is practically non-existent in Fin - channel important this Thus, 2008c). (OECD, cation edu- tertiary a with individuals of loss net a rienced expe- have which – countries European Eastern tral cen- some Italy,and Korea, Mexico, with together – ceeds emigration; Finland is among the few countries ex- systematically immigration skilled highly is, that Indonesia Hungary Armenia N.Zealand Turkey -10 Tunisia Venezuela Mauritius India Portugal Georgia China Argentina Panama Burundi Bolivia Australia Canada Greece Malaysia Finland Korea Brazil Colombia Kyrgyz Czech Czech Rep. Italy Sweden UK Belgium Slovenia Romania Change inglob Belarus Austria Denmark US 0 Japan Netherlands Switzerland Ireland Kazakhstan Bangladesh Chile Norway Poland Peru Russia Latvia Malta France Slovakia Cyprus Germany Bulgaria S. AfricaS. alization indexranking, 1995-2005 El El Salvador Lithuania Israel 10 Spain Morocco Uruguay Ukraine Moldova Estonia Honduras Iceland Azerbaijan 20 rank rising High rank rising Low Croatia but but and 55 Globalization of Business Activities 56

Evaluation of the Finnish National Innovation System of thequalityexportsandproduction. There areclearsignsoftheneedfor broadupgrading nerstones ofinnovation andsustainedwell-being. cor future the of one be should pool knowledge bal Tappingresearch. and education glo- the into deeper higher to especially applies This thought. often than international less much is system The innovation. of drivers global in changes to due part, in change. are, for These need a for signs several however, are, ing relatively well in international comparison. There than intheinvestment-driven institutions stageofdevelopment. different for calls That common. more wouldrates be entry and exit higher subsequent and ploring novel combinations with a higher failure rate ex- but lower, be would capital fixed in Investment andmanagers. of firms selection better and tation, experimen- firms, younger with strategy tion-based innova- pursue economies more the frontier, nology tech- world the to closer The development. of stage growth policies from that pursued in the catching-up different for calls frontier the to close being erature, lit- growth economic modern by out tier.pointed As fron- technology and productivity global the to close tions over the past two decades, the economy today is tant roleintheeconomy. ation has changed, although ICT still plays an impor of ICT’s share in production and R&D. Now, the situ- terms in world the in country ICT-specialized most the become had country the millennium the of turn by far the largest industrial and exports sector. By the grew – production equipment telecom notably – ics structure in the 1990s. In less than a decade, electron- entries andexitscontributedtoproductivityaswell. increased industries; productive more to productive less from and productive, more to firms and plants productive more to productive less from moved es mid-1990s has been essential in this respect. Resourc- Al- destruction. the since period the 1980s, late the in starting though creative or change structural ing The Finnish innovation system has been perform- transforma - structural the of consequence a As There was a radical change in firm and industrial - - ties, while the adaptation-to-market and routine type activi- high-skill and strategic more towards moved has Finland in R&D Nokia’s and sector ICT that data market labor and industry from concluded be can It Finland. in stays possible as research high-end Nokia’sof much as that sure make to reason every is of course, any concern as such. On the contrary, there role of Nokia in the Finnish innovation system is not, significant The R&D. business the half nearly for ble R&D in the enterprise sector. Nokia alone is responsi- land: the top ten companies conduct about 60% of all not reversed (at leastascomparedtopeercountries). that progress made up to 2000 has since leveled off, if show indicators of majority the Furthermore, tries. coun- leading to compared quality-oriented less ly, important- most and average, on countries ropean Eu- for than favorable less is manufacturing of ture struc- the that show also indicators most but turing, manufac- Finnish for upgrading quality show cators indi- Most production. and exports of quality the of upgrading broad a for need the of signs clear uation, eval- this for conducted study special a to according are, there concerned, are base education the and put each industry. supplying products in the highest quality segment of industry, each in services and production upgrade should they and important) all is competition price where industries from retreat (and edge competitive which in industries in specialize should countries) in those operating firms (or tries and humancapitalwilltakesome10–20years. skills, technologies, multiple of use intense more on based be must industry bly,forest the renewalof the Inevita- years. hundred one in crisis severe most the gent need for renewal. Forest-related industries are in tinue benefit, from global markets, but there is an ur ic crisis. Both industries have benefited, and will con- econom ongoing the and competition global sifying and forest industry – ICT are in turmoil due to both – inten- clusters industrial important most Finland’s Strong industrialclustersinturmoil Flip sideofglobalization– Challenges h bsns RD s ey ocnrtd n Fin- in concentrated very is R&D business The While Finland is excellent as far as technology in- coun- income high that implies Globalization quality defines the defines - - tries, in human capital -intensive production, which production, -intensive capital human in tries, dustries, but less so, compared to other smaller coun- omies. There is a heavy specialization in high-tech in- econ- smaller other some as much as trade) (and tion produc- in sectors education-intensive in cializing technologies andcompetences. ture growth prospects in domains beyond the current omy, but at the same time it poses a risk of missing fu- tion has been one of the strengths of the Finnish econ- specializa- Strong sector. ICT the in concentrated ily cern is that currently the business sector R&D is heav- engaged in (radical) innovative activity. Another confirms smaller of number small relatively a is Finland located. of development has been growing abroad or been re- of inwardforeign directinvestment. The specif ic Finnishchallengeisthelowlevel codn t rcn suis iln i nt spe- not is Finland studies recent to According in concern the dominance, Nokia’s than Rather , and was named was and , Association the as known later became , Association the as 1919 in founded was organization The ports Finnish companies in their internationalization activities. sup which organization partnership public-private a Finprois public innovation agencies. As much as 30% of of 30% as much As agencies. innovation public from funding on reliance increasing in up shows system port businesses. Finnish 4,500 about is clientele company The services. voiced in- and free-of-charge both offers It opportunities. market of on global megatrends, new business models, and early signals information providing intermediary, information an of role a fields. ogy technol- various of information market producing and tions organiza- support to innovation services expert offering by is closeto 60%. funding direct government the million, €40 about is budget abroad. are 250 which of employees, 350 about are work of over 50 trade centers in more than 40 countries. There the Finnish Tourist Board, which partly explains the rising rising the in organizations public share of explains partly which Board, Tourist Finnish the total. is Tekes client sector public single biggest The million. €22 of ing fund budget government direct the to million €10 over adds That organizations. government from come revenues voiced Exhibit 42:Finpro –Promoting internationalization ofFinnish companies. Finpro system innovation the into integrating been has Finpro , whose share is one third (more than €3 million) of the the of million) €3 than (more third one is share whose , Finpro s epnn itgain ih h invto sup innovation the with integration deepening ’s ead is iso t icue increasingly include to mission its regards Finpro acts overseas on behalf of Invest in Finland and and Finland in Invest of behalf on overseas acts in 1999. in Finpro Finpro ’sfunding. Finnish Foreign TradeForeign Finnish has a net a has Finpro Finnish Export Export Finnish Finpro Finpro Finpro’s is also also is s in ’s - - - - - and pro tion of internationalization would be a merger of to avoid overlaps inthesystem. measures and coordination increased for room of plenty is there organizations, policy the of most by addressed be to issue cross-cutting a is alization internation- admittedly, Although, agencies. policy enterprise public all nearly of agendas the on other, Internationalization of business is, in one form or an- Everyone’s job? Policies promotinginternationalization– an active player in the the in player active an orientation. international and innovativeness of terms in average sample the above are clients its – organizations innovation other as that • • • • • million): (total invoiced revenues from the clients below was about €10 Nodes important organization promotingimportant internationalization. most the and system innovation the of players key of one as would be very important to separately assess the role of It system. the streamline and provision service the map to my the by initiated project ongoing the welcomes panel other.evaluation Therefore,the overlappinglated tointernationalizationeach often activities, re services of kind some offering are which of all practically agencies, innovation other more of agendas the on ever task important an become has internationalization promoting time same the At years. ten past the over changed obviously human capital‑basedgrowthpotential. and skills its use full making not probably is Finland economy.the of weaknesses structural the of one is universities more important than the remainder of the sample. Invest inFinland. The Federation ofFinnish Technology Industries,and Fintra, Finnish Tourist Board (MEK), Tekes, h sre cnutd o upr te vlain reveals evaluation the support to conducted survey The were 2008 in clients invoiced important Finpro most ’sfive h rl of role The is serving to a large extent the same target group target same the extent large a to serving is Finpro n biu ipoeet n h pbi promo- public the in improvement obvious An ). Invest in Finland in Invest Finpro’sconsider clientscorporate n h Fnih noain ytm has system innovation Finnish the in Finpro Finnish Innovation CenterInnovationFinnish Ministry of Employment and the Econo the and Employment of Ministry , as proposed earlier. There earlier. proposed as , Tekes, program ( program , and , VTT Finpro Fin - - - Fin- 57 Globalization of Business Activities 58

Evaluation of the Finnish National Innovation System human capitalbasedgrowthpotential. Finland isnotmakingfulluseofitsskillsand h pbi itrainlzto srie. h study The services. internationalization public the es targetingcompanies. tion policy as subsidizing internationalization servic- innova- efficient as be probably most would sionals profes- other and servants, civil experts, researchers, less world. innovative al Innovation Strategy that stresses the importance of is system current the sense, that In globalization. of dimension social the and investment, inward individuals, on less and operations, business international other and exports, The emphasis is on supporting organizations (firms), economy. export-oriented and industrial traditional of signs operation, of ways in changes major of spite carry,in still organizations support society.The trial tem also reflects more generally the traditional indus- are organized. agencies public how in reflected be also should tion globaliza- of nature two-way The investment. direct ic Finnish challenge is the low level of inward foreign cient use of resources. As discussed above, moreeffi- the specif- and ensure investment foreign attract to efforts the enhance probably most would merger the but two, the between collaboration close a already is e ecm te non cnutn suy on study consulting ongoing the welcome We of mobility the incentivizing and Encouraging sys- support business the of set-up current The in the border the in communities and individuals n ie ih h nw Nation- new the with line in not - key inrespondingtothischallenge. the mobility,is researcher example, for and, innovation system the of internationalization the proving Im- policymakers. nor firms neither by – Finland in petition. com this in successful very been not have ceptions, students. Finnish universities, with a few possible ex- and professors, researchers, talented the for peting com are universities point vantage global the From edge flows and adding to the global knowledge pool. knowl - international of use making in role portant im- an play researchers University system. novation implemented, contributetoimprovingthesituation. properly if can, reform university ongoing The world. external the to closed and introvert be to tend organizations research incentives; proper vide pro- not do administration and management versity university the technology and knowledge transfer. The current uni- in shortcomings obvious are There need tobereformed Innovation governanceandmanagement suggest possiblenewinstruments. to moving before functions overlapping remove and system the streamline to ways finding at aim should The open innovation model is not fully utilized fully not is model innovation open The in- national any of part central a are Universities - - More coordinationisneverthelessneeded. Internationalization isanissuethatcutsacrossseveralpolicyagencies. a broad upgrading of the quality of exports andproduction. a broad upgrading ofexports ofthequality for need the and structure industrial in deficits broader even of signs clear are there that show analyses Our production. of relocation and demand global in shifts to due turmoil are in Both industry. forest the and ICT sectors: industrial two tion andsustainedwell-being. edge pool should be one of the future cornerstones of innova- - knowl global the into deeper Tapping research. and cation edu- higher the to especially applies thought. This often than international less Finnisheconomy,much whole is the as well as system, innovation. The of drivers global the in changes to forchange.due need the of signs part of arein number These however,a are, There comparison. international in well tively that are factors production lessmobileinternationally. of development the promoting on as well as spillovers, edge - knowl international localizing knowledge, new and nologies tech- of diffusion the enhancing on put be should emphasis economy.More open small a of case the in justify to easy not are policies innovation traditional Furthermore, policies. tion to challenge a poses This flows. knowledge global on dependent increasingly are particular, in countries, Small global. inherently is activity innovativeToday’s jointly. and independently both society benefit innovation and ness Open- connected. closely are globalization and Innovation andrecommendations.Exhibit 43:Summary n h goa eooy iln i srnl seilzd in specialized strongly is Finland economy global the In rela- performing been has system innovation Finnish The innova- national searchers. re for market labor single the of formation the to especially Finland and Area, particular,Research European the to In more contribute should policies. research European in been land –andcutoverlaps inthesystem. to merge the two main organizations – be addressed by several policy agencies, it would be beneficial toissue cross-cutting a is activities business nationalizationof admittedly, inter Although, firms. for services nationalization inter provide organizations support business and innovation es’ internationalization need streamlining. Today, practically all huge challenge, buteven hugeropportunities. a provides country.This other any in than faster increasing is the third largest R&D spender globally, and its R&D investment already is China Finland. as groups product same the in ingly increas- market, world the in services) and (goods products high-techsignificant providers of as alreadyappear Both tem. sys- innovation global the in India) and China (notably mies econo emerging large of role rising the is important ticularly Par countries. developing towards innovation of geography changing rapidly and problems, environmental to solutions policy.for demand innovation,ish prolific open include These novation Finland has not been as active as it could and should haveshould and could it as active as been not Finlandhas businesssupport to instruments and organizationsPolicy in- of drivers global huge, potentially and new, are There yet fully utilized or taken into account in Finn- in account into taken or utilized fully yet not Finpro and Invest in Fin------59 Globalization of Business Activities 60 Evaluation of the Finnish National Innovation System gible inFinland. volume of Venture isnegli- Capital (VC) Exhibit 44:Relative to R&Dinputs, the MoneyTree. Analysis (for R&D). **IVCResearch Center. ***NVCA/PwC MoneyTree* NVCA/PwC andBureau ofEconomic PEREPAnalytics,Sources: EVCA, andOECD(for R&D). sachusetts, Switzerland, 2004). destination approach in2007(Italy, 2005;California,- Mas VC investment definedaccording of to the country Note: R&Drefers to gross domesticexpenditure onR&D. for details). report VCs (seeMurray, inthefull andMaula Hyytinen, competition andinternational experience among small absolute size ofinvestments andthelimited privateof active earliest-stage VC investors, the the results. concerns includethelow number Other less inthecommercializationdisproportionately of Relative to itsinvestments inR&D, Finland invests in 2006. National VC investments versus R&Dinvestments the in countries innovative most the of one as nized a has land too modest in their ambitions. This suggests that Fin- are entrepreneurs Finnish that and countries petitor enough of such growth firms when compared to com ated intheFinnisheconomy. (HGEFs) successful Firms Entrepreneurial of Growth number the increasing at aim that initiatives policy on is chapter this of focus The Introduction On thebasisofMurray,HyytinenandMaulainFullReport 7. GrowthEntrepreneurshipandFinance It is often argued that Finland does not produce not does Finland that argued often is It and indirectly a key driver of these two restructuring restructuring two processes. these of driver key a indirectly and eventually exit. Growth entrepreneurship is both directly that firms productivity low replace entrants productivity higher when or share market gain firms productivity er stimulatesgrowthrestructuring productivity when high- external Second, solutions). organizational or nologies turing (by, e.g., constantly adopting new innovative tech- restruc internal to due productive more become existing firms when grows productivity First, sources: main two has it and strategy innovation Finnish the of tives objec main the of one is growth productivity Sustained : despite being recog- being despite mismatch: structural

VC investment per GDP, % 0.0 0.4 0.6 0.8 1.0 0.2 1.2 0.0 en cre- being Poland Romania Greece 0.5 High - - Portugal - Ireland Ireland 1.0 Hungary Spain Italy They arediscussedbelow. levels. separate several on work to has policy nities, the supply and demand for entrepreneurial opportu- not blunt,marketsignals. facilitate, should service public a Such companies. grated and holistic public support service for growth inte- an for need the and individuals, of level the at ly recognize the importance of economic of importance the recognize ly firms is warranted. innovative growth-oriented on emphasis increased comparison, European an in wellrelatively preneurs entre- and businesses small (ordinary) of needs the accommodates system innovation Finnish the While created. HGEFs class world of number the of terms in measured if higher, be should system support lic pub- the in and R&D public in invested money ers’ taxpay- Finnish on returns The mismatch. structural entrepreneurial firms. originated, Finland from and/or ideas Finnish from stemming services and goods advancedworld-class, greater a of outputs equivalent in resulted have to appear not do inputs these 2008b), OECD, 2009; (EIS, spending R&D business and sity inten- R&D of level high equivalently an with world Netherl. 1.5 n re t ades h srcua msac in mismatch structural the address to order In Many recent plans and policy initiatives correct- initiatives policy and plans recent Many there that view the share We Czech Czech Rep. Norway UK Belgium 2.0 Denmark France 2.5 Switzerland Austria USA*** Germany 3.0 Finland 3.5 California* Sweden 4.0 oe ee of level some is global 4.5 Israel** Massachusetts* R&D R&D per % GDP, upy of supply incentives 5.0 5.5

Source: Kotiranta etal. (2009). rounded values; thedrawing ones. isbasedontheexact details.for further gradesThe reported correspond to (failed) to 10(excellent). documentation thesurvey See Note: Respondentswere askedto give grades onthe4 than itsoverall performance. growth entrepreneurship isconsidered to worse The Finnish innovation system’s to promote ability generate rapidly growing (smallcircle). firms to promoteits ability growth entrepreneurship and novation system overall (large circle) aswell asfor Respondents’ grades for theFinnish national in- entrepreneurship. tem isnotfocused onpromoting growth Exhibit 45: The Finnish innovation sys- cient suffi provide therefore should system innovation Finnish The 2009). Woodward, and Hall see idence, ev- U.S. recent interesting (for collaboration their for ue and will demand substantial pecuniary incentives val - market their appreciate will capital social and human high with people these that likely very is It expertise. and experience commercial ternational) (in their of quality high the man by as and well as risk, accept age to ability their by characterized entrepreneurs of supply increased and continuing a needs Finland HGEFs, better and more create to der or in report, full the in chapter our in argue we As neurship andrisktaking Enhancing incentivesfor entrepre- a highlytalentedindividualtochooseriskyentrepreneurialcareer. The Finnishinnovationsystemhasinsuff icient f inancial inducementsfor urn psto (.. salse piae etr ca sector private established (e.g. position current tives at thelevel oftalented andscarce individuals. incen- economic of importance the explicitly recognize entrepreneurship.entering of cost tunity tooughtPolicy capital and the ability to create HGEFs social have a high oppor and human high with Individuals #1: Challenge risk-taking. and entry entrepreneurial to incentives upside explicit any,few,if be to seem there fact, career. trepreneurialIn en- risky a choose to individual talented highly a for tive incen- little provides system, tax the of aspects relevant the including system, innovation The #1: Observation financial inducements financial for them to leave their their leave to them for Gov’t: Innovation support org’s Innovation support Gov’t: Gov’t: Education support org’ssupport Education Gov’t: Finance:Business angels, VCs Gov’t: Other nat. public org’s public nat. Other Gov’t: Firms:Smaller innovative Firms:Larger innovative Gov’t: Other ministries Other Gov’t: Firms:Non-innovative ------tives al., 2006;Keuschnigg&Nielsen,2004;Poterba, 1989). a new business (Armour & Cumming, 2006; Da Rin portant in the investment decision to create and grow tives (including capital gains taxes) are extremely im- incen- tax that literature academic the from evidence tions as serial entrepreneurs). Yet, we have increasing itera - repeated over (perhaps businesses valuable it ex- to and build to both motivated be to individuals for required incentives the to attention limited mine, of the existing tax system pays, as far as we can deter dental and not systematic. not and dental such incentives are in place, they are likely to be inci- neutral, there seems to be few, if any,few,if be to not seems there is neutral, system the that extent the to However, ies). stud- these in used references the and 2009 Sörensen centives (Hietala & Kari, 2006; Kanniainen in- tax providing by encouraged be best can tivities ac- such whether or risk-taking; and trepreneurship en- treats taxation income dual Finnish how on alent ambiv- remain literature academic the and analyses available The education. good and experience ness trepreneurship of individuals with high quality busi- en- into entry the encourages or hinders Finland, in implemented currently as system’, tax income ‘dual current the not or whether determine to hard very is It entrepreneur. and state the between firm (new) a bution of the earnings and value-added generated by ownership. preneurial entre and entrepreneurship growth of rewards and risk the both for appropriate where and when reers) It is the is It o nrpeera ety n risk-taking. and entry entrepreneurial to 6+ +7 6+ 6+ 6+ ½7 6½ ½7+ 6½ 6½ -7 7- - distri the determines which system tax 7½ 7½ 8- 8 39 Furthermore, the design the Furthermore, upside incen upside et al., 2007, 38 If et - - - 61 Growth Entrepreneurship and Finance 62

Evaluation of the Finnish National Innovation System any policy promoting long-term growth and competitiveness. The taxsystemshouldbeviewedasanimportantelementof

Source: Kotiranta etal. (2009). details. documentation forNote: thesurvey See further in Finland. tool to increase thenumberofgrowth companies andprofitearnings –might sharing beanefficient believe that taxincentives –regarding future offirm representativesMajority andfinanciers efficient in promoting growthfirms in Finland. Shares ofrespondents considering taxincentives boost growth. Exhibit 46: Tax incentives are believed to • • • however, considerthefollowingissues: should, reform Any entrepreneurship. growth port sup- better to redesigned be should system tax come in- dual the how of prescriptions detailed give to us plexity of the issue, the of plexity and when the tax system is reformed. Given the com incentives

iiullvl iktkn ad oe encourag- firms. growth-oriented for ing more and risk-taking dividual-level in system particular could not be made more tax favorable to in- Finnish the and system tax come this principle. It is unlikely that the Nordic dual in- challenge positively to opportunity important an presents system tax Finnish the of reform planned be the taxation, the should in treatment non-neutral a given entrepreneurship (high-growth) or centivize and reward the recognition and pursuit and recognition the reward and centivize of role The whether on prediction cut clear a give Although the economic theory of taxation does not Cumming, 2006; Da Rin Da 2006; Cumming, & (Armour investors capital risk and managers owner- entrepreneurial both of perspectives the from explored be should opportunities growth of Nielsen, 2004). l aer s o a rva o iceetl commit- incremental or trivial a not is career al entrepreneuri- An choice. significant and discrete a is HGEF a grow and establish to decision The generate. HGEFs successful that spillovers positive the and bear to have HGEF entrepre- a of owner-managers the neurial that risks extra-ordinary recog- the explicitly nize example, for could, income ty Accordingly, we strongly recommend that these that recommend strongly Accordingly,we r epiil tkn no osdrto if consideration into taken explicitly are 42 s mas o in- to means a as taxes gain capital 40 it would be inappropriate for inappropriate be would it , 2006; Keuschnigg & Keuschnigg 2006; al., et 41 Taxation of equi- Taxationof Finance: Business angels, VCs Firms: Smaller innovative Firms: Larger innovative risk-taking Firms: Non-innovative -

• next observation about the Finnish innovation system: centives toentrepreneurs. ly to be complementary to the provision of greater in- like- are initiatives contrary,these the Quite guided. the increase to structures fund certain of treatment tax the or investors capital venture and angels to business incentives tax (e.g. efforts policy recent the that does owner-managers entrepreneurial of tal necessarytobecomehigh-growthentrepreneurs. capi- social and human of mix the have who those giveincentives,appropriate individuals to especially effectively to more used be can that instrument lized an be to seems it Currently, petitiveness. com and growth long-term promoting policy any of tax system should be viewed as an important element

62% 61% 57% 64% tives. run) (short introducing avoid should system tax The today. venture growth a establish to capital man ward-looking of individuals for- with high social and hu- incentives the influence to likely are that rewardsafter-tax monetary future expected, the is It HGEFs. of creation the to leads that process the the recognize explicitly to ought tem sys- delay. tax considerable The a after only turns ik mre ety a gnrt pcnay re- pecuniary generate may entry market Risky Griffith, 1998). & Devereux e.g., (see, taxation of rates marginal the by fected ment. Thus, entrepreneurs are more likely to be af- supply of private risk capital h frgig icsin ed ntrly o our to naturally leads discussion foregoing The Our disproportionate emphasis on the incentives the possible, extent the to that think we sum, In ht nemn tee incen- these undermine that taxes success and not by the by not and burden tax average 43 ) should be seen as mis- of dynamics mean not underuti - -

it if any future changes are to be effective. be to are changes future any if it processes must be both more public and more explic- policy innovation these in Finance of Ministry the of roles in the creation of HGEFs. In particular, the forg- complementary their exploit to order in Finance of Ministry the and Economy the Ministry and Employment the of between created be must linkages er work conditions over support. direct emphasize measures indirect andframe Exhibit 47:Smallinnovative companies Source: Kotiranta etal. (2009). details. documentation forNote: thesurvey See further companies’ point ofview. operating environment from smallinnovative ofthe is considered aspect to beanimportant A motivating company andcapitaltaxation scheme for measure them. to beimportant the policy Share ofsmallinnovative companies considering and theEconomyMinistryofFinanceshouldbecomeapriority. A jointresponsibilityfor entrepreneurshipbetweentheMinistryofEmployment policies. velopment of Finnish entrepreneurial and innovation mained a shadowy but influential presence in the de- is our impression that the Ministry of Finance has re- It forthcoming. be to is action any if exchequer the of agreement the receive ultimately must economy an of mechanisms taxation the influence that gestions iture on existing and new policy initiatives. Any sug- monitoring and supervising the financing of expend- the n omn ih ot ulc administrations, public most with common In mustbeapriority.neurship between thetwo ministries prise policy. Forging of a joint responsibility enterfor entrepre growth high for responsibility joint assume not do Finance of Ministry the and Economy the and ment Challenge #2: In its present form, the of Ministry Employ for entrepreneurship taking. andrisk incentives enhances unequivocally that system tax a ing devis- of matters in particularly insufficient, been has ess nance in the entrepreneurial and innovation proc policy Fi- of Ministry the of involvement The #2: Observation iity f Finance of Ministry 44 We believe strongly that the involvement the that strongly believe We sue a ao rl in role major a assumes - The The readiness ofuniversities andpolytechnics cooperate to A A generally risk towards takingin positiveattitude society Guidance and information by public the sector provided The The convenience ofpublic administrativeprocedures A motivating company and capital taxation scheme A capitalandcompany taxation motivating 45 Strong- Financial public providedby supportthe sector - - - - The The availability ofrisk financing trepreneur), programs often seem to overlap and on and overlap to seem often programs trepreneur), en potential a (e.g., observer outside an of spective plex prise and innovationcapabilities. and prise enter of promotion the for responsible is that nance Fi- of Ministry the within unit dedicated a of ment establish- the mean could this example, for practice, priority.In a become should ministries the between a of ing prise support system has become become has system support prise un enter users the result, a As potential circumstances. of of range a der range wide a of for needs cater the to seek necessarily makers Policy istries. governments of variety a across practice and actions policy evolving re of history long a the of sult is stages, commercial and their pre-commercial in both firms growth address to seeks which infrastructure, support public Finnish present The support system Streamlining thepublic their respective entrepreneurshippolicyunits. secondments from each ministry were represented in However,ation. wouldit that expected be inter-ministryassoci an such of nature the dictate to report this of authors the for not is It growth. nomic eco- and productivity long-term thereby and HGEFs of creation the taking, risk entrepreneurship, ports sup- better system tax Finnish the that so policy tion taxa- appropriate developing for responsibility take o oh ces n amnse. rm h per the From administer. and access both to o entrepreneurship for responsibility joint 59% 62% 65% 67% 87% 87% 91% 46 Such a unit could unit a Such excessively com excessively staffsenior and min ------63 Growth Entrepreneurship and Finance 64

Evaluation of the Finnish National Innovation System complex andshouldbestreamlined. The enterprisesupportsystemistoo in the Full Report). Full the in is activities innovation and business private cilitating fa system support public the that think firms vative inno small and young of three-quarters nearly that view. shows this It for evidence provides evaluation this support to conducted survey the is, system the complex how quantify to hard is it While cost. able accept an at and/or quickly, efficiently, support of sources appropriate access and locate to able ways al not are effort and time their for costs portunity op high incurring entrepreneurs growth high that is system complex this of outcome costly One firms. same the with and/or area same the in broadly work to appear agencies public multiple occasions some for the critical stage of subsequent, rapid firm devel- firm rapid subsequent, of stage critical the for dressed firm formation while providing little support ad- largely have policies enterprise recently,Finnish very Until time. over evolve and grow they as firms young of trajectory the account into take to seem not potential young andgrowth-orientedfirms. Finland’srelevantfor and accessible more be highest ficient. Above all, the enterprise support system must tem tion calls for efforts that would make the support sys- account into taken are plans and itiatives efficiently.support of sources access and entrepreneurs locate to able always not are growth high result, a As headings. and titles similar with services provide or firms, ing develop- and growing and ventures new to support ing is that nearly that is ing quite ice available to Finnish HGEFs. an easy-to-access, streamlined and integrated for serv support need urgent and clear a is There #3: Challenge and administer. access both to complex excessively become has system also reflects the interests of a variety of public bodies. The and actions policy evolving of years several of result the is system support public present The #3: Observation Further, the provision of advice and support does u cnetr i ta oe esn o ti find- this for reason one that is conjecture Our more streamlined, specialized, and more cost-ef- or or very complex very agencies provide some sort of sort some provide agencies all (see Appendix of our chapter chapter our of Appendix (see Even if the ongoing in- ongoing the if Even , this observa- this , appropriate ------Ministry ofEmploymentandtheEconomy. ing and support agencies and institutions) within the financ- related the of steering the (including policy venturesgrowth developmentand entrepreneurship er the ing needsover time. better able to meet professionally HGEF users’ chang- as described be genuinely can that fashion a in integrated and streamlined further be can entrepreneurs Finnish to support and advice opment. ganizationally merged andintegrated . wouldentrepreneurship growth supporting at or be directed organizations governmental larger the of es governmental agencies, as well as some of the servic- Ideally,egories. semi- governmentaland the of some cat- focused user common into services related and similar reorganizing to aim that proposals current and Ministry) the of strategy group the and tiative the (e.g. initiatives recent the of some with consistent degree large a to is services the of integration proposed the that acknowledge to like also would ministry.We existing one of thority the of the Ministry of Employment and the Economy, much en that these actions already come under the ambit of more efficiently organized. We would stress that, giv- prise support field could possibly be streamlined and enter the in government of actions various the how 48 as Exhibit we offer remit, would our beyond are system the of tegration op andbeeffective. devel- to is regime policy enterprise coherent and ic system- a if integrated be to needs objectives growth This means that both support for entry and orientation. (international) market a from away resources managerial significant diverts system support plex com the understand to order in attention and time the costefficiencyofsystem. enhance and boundaries organizational of number the services, lessen the risk of duplication, reduce the of governance the ease would reorganization such implemented, effectively if but, propositions versial There also seems to be a clear need to reconsid to need clear a be to seems also There in- and streamlining of details precise the While devote scarce to clients firm by need present The We acknowledge that the above may be contro- be may above the that acknowledge We internal organization of the responsibilities for restructuring 47 u ve i ta te rsn srcue of structure present the that is view Our 49 can be carried out within the au- the within out carried be can 48 of scenario potential one , and thereby and systemic, ini- EnterpriseFinland 50 - - - - Source: Murray, andMaula. Hyytinen, the system. of of duplication, andenhance thecost efficiency lessentherisk services, ance ofenterprise support Streamlining thesystem would easethegovern- growth entrepreneurs andrapidly growing firms. be more comprehensible andaccessible to high systemThe should streamlined publicsupport system.public enterprise support Exhibit 48:An outlineofastreamlined system hasactuallybeenputinplacetodate. No materialeffort tostreamlinethesupport with regards to these initiatives, these to regards However, with system. support the within firms tomer cus- existing and new the of segmentation the and the particularly structure, infra- present the develop to efforts current the with egies. As such, this recommendation is largely in line strat- growth ambitious execute to order in guidance high growth entrepreneurs seeking public support or to accessible and comprehensible more order an of being 48, Exhibit in presented is which of lustration e ol as se h rvsd tutr, n il- an structure, revised the see also would We system EnterpriseFinland no material effort to effort material no Municipalities Region Municipalities R&D&I SHOKs Ministry of Employment and Ministry the of Economy Tekes iNdsFnr InvestinFinland Finpro FinNodes EnterpriseFinland to engendermaterialandlong-runimprovements. sufficient be not will They exhausted. quickly be will changes easy such However, initiatives. new the by recognized been has as integration and collaboration fixes’ improve ‘simple to some are There efforts. and tance and goes significantly beyond the current plans (high growth) entrepreneurs is of a first order impor actually beenputinplacetodate has cost-efficient more it make to or system the streamline Finnish Industry Finnish Tekes YIC & TULI & YIC Tekes Seed Fund Vera Fund Seed F. for Finnish for F. Accelerators Regional Ventures Enablers Investment Inventions Making the system more accessible to potential to accessible more system the Making Global Business al offices TE-Centres offices al Banking Finnvera .

Incentives

Ministry of Finance - 65 Growth Entrepreneurship and Finance 66

Evaluation of the Finnish National Innovation System f irms deservesspecialattention. The internationalizationofhighgrowthentrepreneurial

• support system: public the from attention special deserves internationalization HGEFs of the why to as agencies and public makers policy from understanding greater in and services these of coordination the in both ment much is there However, such activities. to support of kind some provide agencies lic nearly Indeed, companies. Finnish of efforts export or internationalization the for support public ly andmoreextensively topositive economiceffect. quick- more internationalize managers experienced and networked internationally with companies that evidence clear is There severe. and real both are kets mar and resources global access to trying when face HGEFs Finnish that challenges networking and riers We are not the first to stress that the information bar Global linkageslocallyexploited

tion system. They would, They system. tion innova- Finnish the in providers service and nies compa- foreign and investors, international ent, tal- technical and entrepreneurial foreign of sence ab- complete nearly the is HGEFs Finnish the of internationalization the to challenge major a First, ority inthepolicydiscussion. pri- greater given and recognized be should it but challenge this resolve can that measure policy gle sin- no is There HGEFs. globalizing of challenges networking and barriers informational the duce We do We Finnish geography andperspective. exclusively limited, a from (mis)understood and sessed as- be will they that is danger the arise, do opportunities recognized.When be not will markets global on tunities oppor that is risk The capital. venture cross-border and R&D, foreign capital, human immigrant from spillovers inwardof foreignsupply the and networks,international expertise, foreign insight, global for demand preneurial entre the between mismatch a is There #4: Challenge important most formarkets HGEFs. the of several from distance cultural and geographic considerable developed a at located the is and in world populations diverse culturally and Finland#4: racially least the Observation remainsof one want to argue that there is a lack of lack a is there that argue to want not , re- presence, very their by room for improve- for room pub- all - - - -

where Finland needs to challenge what arguably are arguably what challenge to needs Finland where areas of number a are there activities, such in gage munity com astable within culture or attitudes change to is it caveatthat the accepting While ities. capabil- entrepreneurial their downplay readily zens

ie (n cneprnosy rae oe f the in businesses global outstanding most of one created contemporaneously (and recent times in turnarounds economic remarkable the most of one engineered having and 2009) (EIS, ance Despite Finland scoring high on innovation perform - culture inFinland Building anentrepreneurial • •

porting suchactivities. sup- publicly for justification economic pro- an vides This HGEFs). Finnish 30 about them form in- to is it as HGEF Finnish single a about vestors in- foreign of group a inform to costly as nearly is it (i.e. fixed largely but material is HGEFs Finnish of informingforeigninvestors aboutthesupplyof rather than companies exploring Finnish opportunities). The costs familiar and close graphically geo- in invest to investors foreign of preference the (i.e., investors international of bias local the overcome to means important one is HGEFs ish ple, enhancing the visibility and networks of Finn- al networks falls short of its social value. For exam- internation- building or markets global about tion informa- producing of value private the where as alization of HGEFs should be concentrated on are- Secondly, direct public support for the internation- ket demand. by factors that recognize the emerging global mar- influenced primarily are allocations funding and support future that ensure to need a is There es. ket views based on historic conditions and practic- mar-accepted disruptiveto and challenge direct a represent often services and new markets products novel with entering HGEFs firms. Finnish of expansion or entry market international the port allocation of public resources that are used to sup- be the exclusive sources of information driving the should businesses established or servants) il Third, the visions of policy makers (including civ- (including makers policy of visions the Third, nor always clear why government should en- Nokia easy neither ), its citi- its ), not -

• portance toFinland’s economic future. im- its for celebrated and encouraged, recognized, more be to needs entrepreneur the of spirit oneering the that wewouldargue Aboveall, behavior. economic of norms accepted as perceived entrepreneur needstoberecognized. The risktakingandpioneeringspiritofthe a rs/ead ratios. risk/reward ial hance entrepreneurshipandtochangeentrepreneur en- to designed incentives other and tax the to tary should be valued because it is likely to be additional effort: theless see a number of areas where there is room for Weremit. never our beyond is Finland in promoted and built be should or can culture entrepreneurial ly communicated. wide- more much not is entrepreneur the of role key the of message central the if powerful less siderably con- be to likely are that measures support proposed the think we scant, is complementarities such on

ly beseentochange. public- and change to needs situation this system, istries and for reorganization of the public support min- various the between collaboration formalized for need wethe abovehavewhat about suggested with Consistent departments. government concerned the of each of responsibilities policy direct be to appears it importance, its to allude questioned organizations associated the Finnish policy system. While all ministries and First, entrepreneurship appears to be an h iprac o a eternuil culture entrepreneurial an of importance The challenge. addressthis to opportunity representtimely University a Aalto of creation the and system university the of form re present The Finland. in under-valued be to appear entrepreneurs growth-oriented and risk-tolerant ness, unaware this of because Partly system. university and innovationthe in and public general the among both ed limit still potentialis growth market ventureglobal with a build to required determination and skills exceptional Challenge #5: An understanding and appreciation of the self-perception that Finns entrepreneurial. are notvery Observation #5: There appears to be a fairly wide-spread To provide precise recommendations on how an how on recommendations precise Toprovide 51 hl sseai evidence systematic While of the of margins the on risk taking and pi- and taking risk complemen- orphan in - - - - -

• •

larly finance, for companies including HGEFs. including companies for finance, larly particu- and assistance, concrete on focus where Second, most policy measures in Finland and else- prises within the innovation system. innovation the within enterprises based knowledge new of role critical the given status important particularly a has sector ty universi- the Finland, in culture entrepreneurial pervasiveand strong a of development the In ing. train- level university at importance its to as sus consen- greater a is schools’there the curricula, to in- entrepreneurship as such subjects applied of introduction the to as debate considerable is there ic growth in modern knowledge economies. While econom- sustaining thereby and HGEFs of ation cre- the stimulating in part full their play to are they if for called is institutions education higher of activities the of transformation a OECD that the (2008a) by forward put view the with agree the of effectiveness neurial entrepre- the to linked directly is HGEFs quality better of number greater a of creation the Third, terprise. titudes and Little attention has been paid to influencing the ing. train- entrepreneurial research-informed and sive comprehen- of availability greater the by mented provision of such information needs to be comple- citing career choice among the general public. The ex- and viable a as entrepreneurship of cons’ and ‘pros the communicating better and opportunities entrepreneurial of awareness the addressed improving be by can issues cultural the centives), for growth entrepreneurship (e.g. by increasing in- ways be ways al- should courses such that strongly argue also would we However, businesses. knowledge new focused internationally and growth high of tive tures development from the predominant perspec- ven- new and entrepreneurship teaching towards influenced be should curricula We that stress would levels. postgraduate and undergraduate at both students engineering and medicine) cluding (in- science are targets key the that suggest also tiveness of an entrepreneurial career, young men young career, entrepreneurial an of tiveness iely drc eprec o sc atvte. En- activities. such of experience direct (ideally) and models role information, need women and 52 . In order to ascertain the attrac- the ascertain to order In voluntary. In addition to improving the conditions the improving to addition In culture towards start-ups and new en- . Wesystem. university 53 We would We at-

67 Growth Entrepreneurship and Finance 68

Evaluation of the Finnish National Innovation System to createaninfrastructurefor entrepreneurialtraining. The reform oftheuniversitysystemrepresentsauniquechance

•

orh wie e eiv ta suet fo all disciplines in all universities should from have access to students that believe we while Fourth, the rangeofitsinnovation activities. across mindset entrepreneurial global a to mitted com- is Finland that signal powerful and visible, public, very a creating as recommendations, er activity. oth- our with as seen, also entrepreneurial be should However,it international for ture infrastruc- an such detail in design to report in this inappropriate is it of Again, matter deliberation. a some be to needs governance its bitions, am- center’s the Given competitive. ternationally in- be haveto to likely is faculty of incentivization sity. In order to meet such goals, the financing and diver-and nationality culture, experience, their in and visitors should strongly students reflect its global ambitions employees, center’s the and view pur- in global be should it Critically, gagement. en- re- practitioner and academic transfer knowledge for search, remits complementary should have center a Such location. their of gardless re- businesses to and entrepreneurs resource potential accessible high an is that center neurial entrepre- an of form the take example for could opportunity unique to create such an infrastructure. The infrastructure a represents University to sity system and, in particular, the univer- formation of the Aal- of reform The ed- research. and ucation, training, entrepreneurial for class infrastructure world have to needs also it economy, tive innova- class world a remain to wishes Finland If enterprises. new of growth accelerated and ation of the scarcity of world class experience in the cre- mindful are we choices, program entrepreneurial sitions intheinnovation value-added chain. po- or roles academic future own their of gardless re- services and products new into transmuted be can knowledge new how to as understanding an have to need also Accordingly,potential. they ket mar- global with venture growth rapid a build to takes it what appreciate to need scientists choices, and asymmetries. To make rational and considered imperfections information directly addressing by goals these meet help can courses trepreneurship

land’s future economicsuccess. a remain resources, ‘catalytic’world class technological and scientific expertise will such of absence the In access. are that systems support and incentive require HGEFs and entrepreneurs growth Finnish businesses. small file’ and ‘rank of number large very the from ferent dif- quite are needs Their actions. and discussions cy inpoli- thesidelines on remain firms growth often to help and relevance real of seldom are programs Such businesses. small and start-ups for programs of number large a have tries coun- most practice, In command. their under cies agen- various the and ministries relevant the of goal primary a promo- HGEFs and entrepreneurs the growth of tion make to will political enough is there of impor tance. order first a of is entrepreneurs growth) (high potential to accessible more and efficient cost more system the system Making firms. support young to the existing available streamline to efforts programs inanymoderngovernment. and channels systems, measures, policy of accretion constant a is there that is phenomenon this of result to retire existing but no longer relevant activities. The than programs new create to easier far is it respects, isting support system increasingly complex. In many simple to introduce but can all too easily make the ex- litical intent. nature of policy actions: namely,actions: policy of nature the to related are observationstwowhich with clude dations (see above). However, we would wish to con- and discussions into a number of specific recommen ply ofsuchfirms. al firms. These changes would also stimulate the sup- the support offered to its high growth entrepreneuri- system could innovationweFinnish conclusion, believethe In that Conclusions complementary, effective and easy to understand and understand to easy and effective complementary, eod i rmis o e en hte o not or whether seen be to remains it Second, few too are there time, present the at Finland In are initiatives policy and programs new First, We have summarized the results of our analyses our of results the Wesummarized have - Fin of condition sufficient not but necessary significantly increase the effectiveness of exceptional and complexity HGEFs. All too HGEFs. All po- - - accessible topotentialentrepreneursisoff irst orderimportance. Making theenterprisesupportsystemmorecosteff icient andmore ducing itscomplexity. improvedre by be could system support the of effectiveness cost- and governance the both that believed is It HGEFs. for important relevanceparticularly areand access of Issues sion. revi- major a of need in is system support public present The Entrepreneurial Activity Streamlining System thePublic Support for HGEFs. ship andknowledge-based responsibility for policies that aim at promoting entrepreneur operational joint assume publicly should Finance of Ministry andcreation ofpotentialtaking HGEFs. risk- entrepreneurial to favorable more income trepreneurial to taxationthe make treatment en- and equity of opportunity unique a presents system tax The Finnish the expansion. of reform planned (international) pursue to (HGEFs) Entrepreneur Firms Growth ial High potential for as well as career entrepreneurialchoice an consider to persons talented for needed incentives the recognize explicitly should policy Tax Creating Entrepreneurial Incentives andrecommendations.Exhibit 49:Summary h Mnsr o Epomn ad h Eooy n the and Economy the and Employment of Ministry The - - - growth basedenterprise. oriented andnewknowledge in involved interests foreign collaborative and Finnish both to accessible research and training education, trepreneurial en- for infrastructure class world create to opportunity timely and creationthe presentand University Aalto of important an sector university Finnish the of reform HGEFs.The of creation The Finnish educational sector has a greater role to play in the Promoting an Entrepreneurial Culture and Related Skill Sets issue, itshouldbemore urgently recognized andaddressed. this resolve can that measure policy single no is there if Even cross-border and venture capitalwithinFinland’s borders. R&D, foreign capital, human class world of scarcity the • foreign international expertise, networks, and • a mismatch between Finnishthe markets,innovation systemglobal suffers from jor ma- to distance geographic and cultural of consequence a As PerspectivesEnsuring Global h isfiin spl o iwr frin ploes due to spillovers foreign of inward supply insufficient the insight, global for HGEFs Finnish by demand growing the 69 Growth Entrepreneurship and Finance 70 Evaluation of the Finnish National Innovation System since themid-1990s. increasingly madeinthecentral regions Exhibit 50:Innovations have been ness among Finnish regions. Moreover, some policy some Moreover, regions. Finnish competitive - among ness in differences the compressing in ful rather been has policies novation-related ness andrenewal perse innovative- on focused policy regional and regions tinguish between innovation policy conducted across ties and overlaps, in practice it is very difficult to dis- similari- large to Due emphases. different somewhat with though objectives similar target both which in icy have created a complicated system across regions, rather important. Innovation policy and regional pol- nonetheless is dimension regional the national, ently tions (Hyvönen & Saarinen, 2009). &Saarinen, tions (Hyvönen Sfinnodatabase ofsignificantSource: Finnishinnova- VTT lost ground. innovation creators clearly whereas theperiphery central regions becameevenas more important the central regions. Since themid-1990sthese The biggestshare ofinnovations originates from tions. Geographic origins ofsignificant Finnish innova- We focus on Introduction On thebasisofOttaviano, KangasharjuandMalirantaintheFullReport 8. GeographyofInnovativeActivity ure ofitssuccess. meas- best the ultimately is growth productivity to policy the and competitiveness, of t s ocue ta ti cmlx ytm f in- of system complex this that concluded is It policy, butourdiscussionislessonthisorotheraspects. innovation broad-based of aspect regional a certainly is education higher to access distributed instance geographically For view. of point this from policy innovation to refer primarily we chapter this In . support the of analysis ish national innovation system based mainly on statistical Finnthe of - regionaldimension the at looks chapterThis We argue that, while innovation policy is inher is policy innovation while that, argue We productivity performance of firms receiving direct public direct receiving firms of performance . , since it is the best measure contribution of innovation of contribution 100% 20% 40% 60% 80% 1945 (regional) unsuccess 1950 1955 - - 1960 in Finland. in of the population, conducts 40% of R&D investments one-fourth and product domestic gross Finnish the of one-third for accounting sub-region, Helsinki The regionally.concentrated highly is Innovativeactivity Innovation isregionallyconcentrated have promotedregionaldivergence even may – non-innovation or innovation – actions ceptable. Shouldinnovation policy ac- and politically economically is pattern regional mid-1990s. the since periphery the than centers the in more ly increasing- made been have innovations 50, Exhibit novation(Valovirtaoutputs in- the in up shows also concentration Regional ess. accounted for77%ofthetotalR&D. sub-regions largest six the 1995 In time. over trated evenbecome has activity R&D 2007. in concen- more investmentsR&D all the of 83% for account 77) of tal einl gna a la t soe productivity slower growth andcumulative lossesinvalue added. to lead may agenda regional any that is reason The disparities. regional increases destruction creative peddling or convergence gional re- to contributes diffusion knowledge promoting er innovationnational direct wheth- matter no support, These features raise a question as to whether this proc- innovation the in input an is activity R&D Regional imbalances should be of no concern for concern no of be should imbalances Regional 1965 1970 54 The six largest sub-regions (out of a to- a of (out sub-regions largest six The 1975 1980 1985 , 2009). in al., shown et As 1990 . 1995 2000 Intermediate Periphery Central 2005 dimension, tosomeextentlinkedregionalpolicy. admitted, there is nevertheless an important regional ently national. We argue that, although it is not easily inher is Finland of policy innovation Currently,the Source: Tekes. broad-based innovation policy. dispersed indicating astrong regional dimension of The Finnish are highly publicR&Dactivities Geographical ofpublic R&Dunits. distribution regions. unitsinperipheralinnovation support Exhibit 51:Astrong presence ofpublic re- and local coordinating in also is important as policy seen innovation national the of role The land. in Fin- everywhere firms medium-sized and small to is policy the of aim another Hence, tion. and mid-sizedenterprises(SMEs)allover Finland. Therefore, the main target group consists of the small the by more far ies var gap information The actors. local the of gap tion informa the reducing by regions all in potential novative hind ‘regional’ be- rationale one only basically is there (MEE), omy According to the innovation policy? Is thereany‘regional’ • • dimension thatistosomeextentlinkedregionalpolicy. The innovationpolicyofFinlandhasanimportantregional

and aimatreducingregionalvariations? should it take the regional dimension into account a naturaloutcomeinglobalisedworld, or ignore this regional pattern and consider it only as Besides information, the SMEs often lack ambi- lack often SMEs the information, Besides innovation policy. Ministry of Employment and the Econ- than by the location of firms. of location the by than size It aims at seeking in- Science Park Public research institute unit public research institute Centre of Finland VTT, unit Polytechnic Polytechnic unit University University Technical Research motivate or other - - -

• gional policy)consistsoftwo parts: re- of dimension innovation the and policy novation in- of dimension regional the both (including gions subsidies, directaidisnevertheless sizable. direct to preferred is environments business vorable the EU competition legislation argue that building fa- guarantees. and and statements official the Although loans, subsidies, of terms in firms innovative to port all over Finland, the public sector provides ripheral regions(Exhibit51). policy is the strong presence of public ventures in pe- Finland over all innovations for ments environfavorable - and capacities develops policy novation Accordingly, objectives. these achieving for expedient crucial a is universities and technics, poly- councils, regional developers, private ments, opment work (Viljamaa etal.,2009). gional actions and educating local actors in the devel-

been an integral part of the Finnish national inno- national Finnish the of part integral an been this respect, building strong regional networks has diffusion of knowledge among all stakeholders. In and creation efficient the for environments gional re- fertile creating at aims support public Indirect Public intervention on innovation for capacities building Togetherwith govern- local firms, between networks Building innovative activity across re- . A signal of this of signal A. einl in- regional direct sup-

71 Geography of Innovative Activity 72

Evaluation of the Finnish National Innovation System budget equivalenttohalfofTekes funding. Municipalities promoteinnovationbyatotal

• guarantees) plays a role in driving more this vention suchastheEUstructuralfunds. inter regional of tools traditional more to mentary comple- looks bias ‘disadvantaged’This ing regions. be a regional bias in national innovation policy favor the impactofindirectsupport. account into taken also have we Nonetheless, ance.

cipient firms. renewal re- of activities R&D and promotes investment the through support public direct More of Expertise program. vation policy instruments, especially in the Our analysis has specifically checked whether checked specifically has analysis Our Although it is not easily admitted, there seems to • are designed for: by provided services the to the the Economy, the and the of services regional and pertise ex provide They economy. entire the ELYs serve TE-Centres. business and industry, transport and the environment), former for ELYs(Centre in mainly policy regional the conducts state The dimension. regional its as well as policy, innovation the ment. develop regional on measures their of impact the evaluate and targets, these of implementation the promote targets, development regional national the of account take thorities State au- activities, Intheir sectors. administrative different in tools policy of use the and targets, development regional the programs, strategic regional coordinates and directs sion deci- The targets. development regional national on decision the and Act Development Regional the on based are Finland in development regional of targets common The andtheenvironmenttransport, (ELYs) The State andCentres for businessandindustry, development authorities. the regionalState,as CouncilsRegionalmunicipalities,acting and with rests development regional for responsibility The regional (innovation) policy Organizations –Preparing andconducting Exhibit 52:Multitudeofprograms andinstruments. ing; financ- and management/development, business alization, technology,internation- companies’development, product MEE is the responsible ministry preparing and conducting conducting and preparing ministry responsible the is MEE . In ELYs, In access haveInterior. also the customersof Ministry (through grants, loans, and loans, grants, (through support direct , and Forestry, and Agriculture of Ministry . A total of 15 ELYs’15 services of total A Tekes. iity f Employment of Ministry regional perform Government Centres - - - - - the key drivers of regional productivity,regional promising of drivers are a key the incentives and capabilities firms’ since ticular, par In system. innovation Finnish the of dimension regional the of impact the evaluate to approach ful use- a is regions Finnish across patterns productivity of comparison a Thus, manner. profitable mercially previously employed in the firm and does it in a com productivity grows when a firm puts to use ideas not definition, by Almost success. its of measure best the ly ultimate- is growth productivity to policy innovation of is competitiveness of measure best the regions, as well as nations For gional impacts – Growing disparities National innovation policies and re • • of theEuropean Union,state, andregions. resources and programs development the plan, regional the in down laid guidelines with accordance in direct, and oncile rec programs regional 3–5-year onthis the example, For document. are based region the affecting programs and plans development other All citizens. individual and organizations, of variety a training, and education providing tablishments es- sector, business the officials, government local and state of participation the involves plan the Drafting years). (20–30 term long the over development regional for guidelines sets Plan Regional The specialists. other and sphere, business the administration, municipal and state of representatives with cooperation in formulated are These plan. use land regional the drafting and program, regional the Plan, Regional the for responsibility with charged are they authorities, velopment de regional As areas. respective their of development and local self-government. of operatingaccordingprinciples the authorities to municipal joint statutory are Councils Regional Finland’s Åland. of ince provautonomous the regions,plus 19 into divided Finlandis Regional councils • employment promotion, adult education and employment and education adult promotion, employment ment counseling, andother, closelyrelated activities; establish- company business, their starting entrepreneurs supervision of farm subsidies. offarm supervision the as well as conditions, operating their of enhancement specialization of farms, rural industries, and fisheries and the activities; office employment of management the as well as services, Regional councils are legally responsible for the planning the for responsible legally are councils Regional and the and productivity contribution - - -

- - - local businessdevelopmentandinnovation. There isahostofdifferent measurestopromote centers ofexpertise. and specialization and cooperationfurthers between the level expertise. Theregional program strengths supports top- of exploitationresources nationalthe gional,toand re local, pool to designed is programexpertise. The and information on based strategy growth national a in role important an plays Programme Expertise of Centre The Centre Programme ofExpertise (CoE) seethe Fullscription, Report). de detailed more a (for below described briefly are tant impor most innovation. The and development business local and regional promote to instruments separate and initiatives, policy programs, different of host a are There oftheregionalInstruments (innovation) policy tions’ organiza- services. providing businesssupport ‘intermediary public semi or private, public, and programs, different300–400 least at are there premises.Altogether development incubation, support: of types es.three provideTechnologyexample, forcenters, premis- and networks providingcenters technology and parks science mainly are developers private and Public Local developers half of Tekes funding. to equivalent budget total a by innovation promote ties per year. Hence, the conservative estimate is that municipali- million €100–500 between range to estimated be can it evaluation the for out carried survey the on based but innovation, promote to use municipalities resources statistical data available of the magnitude of the financial no is There development. business promote to sources re considerable have cities large particular In policy. strategy or own innovation their have one-fifth as many As businesses’internationalization. for support and ices serv research or educational provide half almost more, Further firms. (innovative) for services information and providecounselingmunicipalities all Practicallyprojects. development in funds EU and national the utilize also They activities. business other and innovation promote to resources based) (tax own their have Municipalities Municipalities ous national andEUprojects. the councils implement and coordinate a number of vari- addition, In regions. their of well-being cultural and rial commonregional workand needs to promote matethe articulate democracy,they municipal on interests.Based regional after looking and planning regional of charge in units the thus are and authorities planning regional h cucl oeae s einl eeomn and development regional as operate councils The ------Centre and the Centre for Programmes. Expertise Regionalthe onforregionsbased largemixurbanbe will al Centre Programme, while implementation of the policy opment tools for urban policy are provided by the Region devel The size. and characteristics special their of terms in both diverse are which regions, urban of productivity the strengthen to and cooperationtality,well-being, and promoteto videvelopmentis urban thepolicy ofjective andsecuring the availability labor.of skilled Themain ob infrastructure, and transport businesses, of development the results,research of application the research,training, include factors key regions,the urban of productivity the urban andstrategies innovation of development the Forpolicy. of objectives important most the of one is base ment measures. Supporting developthe globally regionalcompetitive skills in account into taken be should role tosucceed amongst thisglobalcompetition, theirspecial labor.capital,businesses,tract skilled and Forregions the at to opportunities best thehaveregions Finland.Urban competeworldtheon marketby attracting businesses to welfare, and economy of the country. Large urban regions success, overall the influence greatlyregions urban large skills,innovation, generatorsandknowledge,of major As vation funding. in portant providing additional funding to national inno im - extremely been have which funds, (CoCo), structural EU and Programme Productivity and Cohesion (RCP), The other programs include: Regional Centre Programme programsOther • • regions;urban • following issues: the on focus will policy metropolitan policy.The politan metro by areas urban largest the of development the metropolitan policies Large urbanregions development and innovation policy. gions as actors implementing both regional and national re urban large to weight more giving thus fields, strong few excellencea towardsglobal in developing particular in channeled be will Programme Expertise of Centre the During the 2007–2010 program period, basic funding for excellence. global of fields selected of capitalization the and development business on tise.focuses program The Exper of Centres between partnerships as well as tion, specializa- regionaland strengths excellence.supports It al and national resources in order to make the best use of preventing socialandregional divisions. strengthening thecohesion ofsocialstructures; largest the of productivity global the strengthening eie ubn oiy h Gvrmn i reinforcing is Government the policy urban Besides The Centre of Expertise Programme channels regionProgramme- channels Expertise Centreof The ------73 Geography of Innovative Activity 74

Evaluation of the Finnish National Innovation System the differences incompetitivenessamongFinnishregions. Innovation relatedpolicieshavebeenratherunsuccessfulincompressing data are linked to Firm Support panel for the years the for panel Support Firm to linked are data Technologyfor Agency Funding SBS the Innovation ) and by provided support on (focusing innovation policies of effects regional the vestigating in- When Insurance. and Finance example, for tries, indus- some excluding sector business Finnish the in firms all cover basically that (SBS) Statistics ness valuecreation. tain region, the higher its competitiveness in terms of cer a in are firms productive more The costs. lower at services and products existing already supplying troducing new successful products and services or in ty), whose changes are driven by firms’efficacy in in productivi (labor worker per added value in alizes materi ability This services. and products for pay to willingness their by determined as customers to ue val create firms’to by ability captured ultimately be should innovation successful that is idea basic The innovation. of outcomes final measurable tistically al richnessofFinnishmicro-level databases. productivity. This is possible thanks to the exception- firm-levelevolutionof the at look to vationis system inno- the in problems potential identify to strategy Report. Source: Ottaviano, andMaliranta intheFull Kangasharju, being2003–2004. publicsupport direct 2007 withthe ‘treatment period’ whenreceived orperiod region (index =100).Firms were monitored from 2001to intheadvantaged firm each year being thesupported regions whodidreceive suchsupport. The basecasein gions who didnotreceive andthe support ‘disadvantaged’ two in offirms groupstypes of regions, ‘advantaged’ re Note: The figures represent levels ofsix theproductivity decline continues inthefollowing years. disadvantaged regions treatment, during andthe treatment.after has, instead, It anegative in impact inadvantaged regions and ductivity bothduring hasapositive effectonproInnovation support aggregate productivity. on The effectofpublicinnovationregional support inadvantagedtive regions. impact in thedisadvantaged regions andaposi- a negative onfirmproductivity impact Exhibit 53:Public innovation has policy aa oe rm h firm-level the from come Data Our analytical approach has focused on the sta the on focused has approach analytical Our - - , the Tekes, 100.0 tutrl Busi- Structural 2001 2001 88.2 100.0 88.7 Not Not 100.0 2003 2003 90.4 supported firmsupported supported firmsupported Finnish 100.0 89.9 100.0 2005 2005 89.5 ------100.0 88.6 2007 2007 per person)ofitsfirms.Specifically: terms of the average labor productivity (value added in ourchaptertheFullReport. ments of the government. All details are documented depart- the of sources administrative several linking by constructed is again, database, That 2001–2006. additional problem in services. This suggests that a that suggests This services. in problem additional be an to seems firms new of efficiency lower tively Therela- regions. in‘disadvantaged’ firms efficient of size relativelysmaller the of because mainly gions, a ing may arisefromdifferentsectoralcomposition. that productivities regional in differences the out net we weights, regional than rather national using By • • • 88.3 100.0

h sm f t idsre’ ao productivities labor industries’ weighted bytheir sharesofnationalemployment. its of sum the employment. regional of shares their by weighted ductivities dustry in a region as the sum of its firms’ labor pro- each firminindustryregion. Finally, we evaluate the productivity of a region as in- an of productivity labor the wecalculate Then, for productivity labor computing with start We e esr te opttvns o a ein in region a of competitiveness the measure We u aayi sos ht iln i experienc- is Finland that shows analysis Our 2001 2001 growing divergence in the competitiveness of its re- its of competitiveness the in divergencegrowing 99.7 94.9 Dsdatgd region ‘Disadvantaged’ region ‘Advantaged’ 99.5 95.0 support Non-innovation support Non-innovation 2003 2003 98.7 96.3 97.1 95.4 2005 2005 96.7 92.5 97.4 93.8 2007 2007 99.5 93.6 117.9 101.2 2001 2001 106.8 106.5 support Innovation support Innovation 2003 2003 117.5 94.9 121.8 97.9 2005 114.9 2005 90.9 118.4 92.4 2007 2007 123.0 96.7

terpretations: ing indealingwithregionaldisparities. performance of indirect support has been disappoint- the that implies also divergence regional widening support, direct on focused have we Though gence.

• • rather been has policies novation-related location ofresourcestotheirmostefficientuses. pers productivity growth through hindering the real- ham- This entrants. and incumbents of terms in both firms inefficient and efficient between taged’regions ‘disadvan - in resources of misallocation the in found be to is divergence regional of source important potentially may evenhavepromotedregionaldivergence. Some policyactions–innovationornon-innovation oain my ae even have may – novation non-in- innovationor – actions policy some that cate indi- results our Moreover, regions. Finnish among ful in compressing the differences in competitiveness

oiy cin hv nt en effective been not have actions policy direct that suggesting evidence as read be could support of effect the of analysis our other, the On effective been not has support public rect indi- and direct that say could one hand, one On appears to disturb restructuring in disadvantagedin restructuring disturb to appears support public Although regions. disadvantaged in support innovation since years two after and during both resources of allocation negative the is ofevidence piece strongest our Indeed, oflocal firms. number larger and firms global of ence pres- higher from coming pressure competitive higher to due regions advantaged in restructuring for incentives more are there Moreover, ers. cate the flow of new ideas and reshuffling of work- more agglomerated, where shorter distances lubri- are Turku) and Tampere Helsinki, as (such gions re- advantaged since counterparts, ‘advantaged’ in not and regions disadvantaged in structuring re- disturb may support public same re- The gions. disadvantaged in restructuring and namics dy- industry disturbed have may actions policy regional and policy innovation competition, ing distort- By detrimental. even been possibly have returns toscaleandspillover effects. increasing from accruing benefits agglomeration various include tendencies these of drivers The of a knowledge-based economy and globalization. to invert more general tendencies due to the rising These negative outcomes have two alternative in- The implication is that the complex system of in- of system complex the that is implication The einl diver regional promoted unsuccess t all at enough and - -

•

be handledwithcaredueto thefollowingreasons: to largeoutputlossesastimepasses. yearly losses of productivity growth may build up in- small even that so time through accumulates that ity productivforegone- of terms in loss the is policies those of measure of ‘wasted resources’. complete a not is involved money of amount sheer the that out pointing worthwhile is it However, ble. negligi- is target we policies specific the in involved that, although ineffective, the amount of public funds these cases,butfocusontheoverall pictureinstead. deny not fields. do certain We in specialization strict by achieved typically stories, success regional great some conceal weuncoverundoubtedly tendencies al above interpretations is closer to the truth. The gener two the of which matter no acknowledge to portant im- are policy,which innovation regional current of set of case studies. In doing so, it highlights the limits large very a use to us allowing of advantage the has approach our respect, this In studies. case by alyzed The effectiveness of innovation policies is usually an- (i.e., productivity). the im- promoting of further terms in be proved should actions policy that suggest then would that findings our with incompatible not an promoting in well functions system innovation the that suggests This 2009). (Einiö, regions 1 Objective theFinnish in spending R&D own firms’ courages ple, a recent study finds that public R&D support en- exam- For services. and goods of provision the from added value of terms in it measuring and outputs) (and investments R&D private of terms in support R&D public of success the measuring between tion

h yas ewe 20–07 Tu, h rl of role firms’ birthanddeathisignored. the Thus, 2001–2007. between years the all operating continue that firms incumbent tains First, our analysis on direct policy effects only con- policy, duetodetrimentaleffectonproductivity. regional policy and may be harmful for innovation of objectives the to belong effects these However, as maintained jobs or increased longevity of firms. regions, it may still have other desired effects, such product (i.e., private R&D), which is which R&D), private (i.e., product intermediate To to have nonetheless findings our extent, some be could findings our to objection important An cons. and pros both has approach statistical Our distinc- important an out point to us allows This The main negative effect outcome ultimate -

75 Geography of Innovative Activity 76

Evaluation of the Finnish National Innovation System the lossintermsofforegone productivity. The mainnegativeeffect ofthosepoliciesis

Source: Kotiranta etal. (2009). equally effective inall regions. centers. Alsoisnotseenas theinnovation policy exceptions beingmunicipalitiesandregional TE innovation alsopromotes regional agendas, with oftherespondentsMost seethat national level regional aspects. Respondents’ and opiniononinnovation policy promote regional agendas. seemstoExhibit 54:Innovation policy • • •

port when recipient companies can be identified. be can companies recipient when port sup- acknowledge only analyzed Finally,data the negativeour support inefficient from come results whether identify to unable been have we Third, ported firms receive support for at least two all sup- years, While support. receiving start firms the after years four first the at look only we Second, tailed investigation of these benefits would, how- would, benefits these of investigation tailed de- A environment. business the improving networks and building at aimed those as such port, sup- indirect of forms from arising benefits sible pos- the capture not does analysis our Therefore, ones even withoutpublicsupport. unsupported than worse performed have would pub- industries, and that companies support to chosen had agencies lic regions within if, evant Specifically,panies. rel- be adverse could selection or adverse selectioninthepoolofsupportedcom- a confoundingfactorshouldnotbiasourresults. such period, support the during even effects port sup- negative find we that given However, port. assessing the impact of our targeted two-year sup- in factor confounding a is This the years. subsequent in supported being stop them of some only Gov't: Innovation support org's Innovationsupport Gov't: Gov't: Education support org'ssupport EducationGov't: Sectoral:Public research org's Finance: Business angels, VCs Sectoral: Other Other Sectoral: research org's Educ.: University heads Educ.: dep't public org's nat. Other Gov't: Intermediaries: TE-centres Educ.: Polytechnic Educ.: rectors Firms: Smaller innovative Firms: Larger innovative Educ.: University Educ.: rectors Gov't: Other ministries Other Gov't: Firms: Non-innovative Intermediaries: Other Other: Other: Municipalities Other: Associations

icy recommendations: pol- and conclusions of number a yields analysis our Conditional on the caveats still remaining (see above), Conclusions •

many oftheinterviewsconfirmedsame. policies; innovation national in agenda regional a is that revealsthere that 54) (Exhibit agree respondents the of most evaluation the support to conducted survey The data. other by reinforced are results the

All All disagree promotes regional agenda promotes regional policy innovation National redesigning its policy combination in order in combination policy its redesigning First of all, Finland as a whole would benefit from wouldbenefit whole a as Finland all, of First currently unavailable tous. are that programs indirect such in participating actors other and companies on data require ever, e the ter egne ol nt eesrl ma rsn ine- rising mean necessarily not would vergence ones. However, the ensuing pattern of regional di- ‘advantaged’ already to regions from ‘disadvantaged’ away resources of reallocation the to lead uses ductive u aaye ae ujc t cran aet, but caveats, certain to subject are analyses Our eloain f t rsucs o hi ms pro- most their to resources its of reallocation Prun ti ntoa srtg may strategy national this Pursuing . All All agree equally effective in all regions all in effective equally is policy innovation National All All disagree All All agree to fos- to

• • • • technology frontierforward nomatter wheretheyareactuallylocated. Innovation policyshouldcelebratef irms thatendeavortomovethecurrent

ent policiescleanuptheiracts.Inparticular:

gregate productivity: gregate ag- of drivers two the to paid be should attention Second, in redesigning the policy combination due atclr cmeiin oiy hud e sd to used be should In policy competition destruction. particular, creative of wheels the grease to used be should policies market labor and Product catch upwiththetechnologicalfrontier. inefficient to methods production efficient byhelping more adopt firms regions innovation and of firms adoption across the and knowledge of diffusion the foster also should policy Innovation trated in‘advantaged’ regions. in particular even when they happen to be concen- forward frontier no matter where they are actually technology located, current the move to deavor en- that firms celebrate should policy Innovation iies ol b hle truh iet income support irrespective ofwheretheylive. direct through helped be could citizens challenged economically as people among quality tive uses. produc- more to less from resources other and ers work- moving competitors, efficient less theex- of pense at grow companies efficient more when level industry the at growth productivity erates productivity growth within to companies, the latter gen- leads former the While destruction. ative methods to catch upwiththetechnological frontier. production efficient more adopt firms inefficient helping by innovationof adoption the and edge across and firms regions to beconcentrated in ‘advantaged’ regions. they are actually located, in particular even when they happen where matter no forward frontier technology current the move followingacts asounddivisionoflabor. their up clean policies different that important is it mensions and accumulation creative productivity: aggregate of drivers two the to paid be should their mostproductive uses. combination in order to policy its redesigning from benefit would whole a as Finland andrecommendations.Exhibit 55:Summary Along both dimensions it is important that differ Innovation policy should also foster the diffusion ofknowl- to endeavor that firms celebrate should policy Innovation attention due combination policy the redesigning In foster the reallocation of its resources to creativeaccumulation . Along both di- both Along . destruction creative and cre- -

• • both thelocalandnationallevel. at growth foregone of terms in cost high a at come may agenda regional a with policy competition and a sound division of work. Running innovation policy than ‘disadvantaged regions’. targeting ‘disadvantagedindividuals’ratherby tools tributive growthductivity andcumulative lossesinvalue added. The reason is that any regional agenda may lead to slower disparities.pro regional increases destruction creative peddling or convergence regional to contributes diffusion knowledge promoting whether matter no support, innovation national itors. this In respect, workers mobility should also be fostered. allocation of market shares from less to more efficient compet entry of new innovative players. It should also stimulate the re accumulation as well as creative destruction by promoting the give to used be should policy destruction creative of wheels the

gions’. For example, the grands-in-aid system helps re- ‘disadvantaged than rather individuals’ taged disadvan- targeting by tools redistributive traditional through targeted be should equity Social matter no support, innovation national direct for concern of be not should imbalances Regional churning associatedwithcreative destruction. the from workers isolate better to strengthened be to people in need. benefits Unemployment insurance could welfare direct provide turn, in policies, redistribution National country. the over all ices serv- welfare with citizens provide municipalities productivity growthandcumulative losses. son is that any regional agenda may lead to slower destruction increases regional disparities. The rea- creative peddling or convergence regional to utes contrib- diffusion knowledge promoting whether tion’ as well as ‘creative accumula- destruction’ by promoting ‘creative for incentives stronger give workers mobilityshouldalsobefostered. respect, this In competitors. efficient more to less from shares market of reallocation the stimulate innovativenew of entry the players. also should It Product and labor market policies should be used to Social equity should be targetedbe throughshould traditionalredis equity - Social direct for concern no of be should imbalances Regional To summarize, public intervention should follow stronger incentives stronger I priua, competition particular, In . for creative for grease - - -

77 Geography of Innovative Activity 78 Evaluation of the Finnish National Innovation System • • • • tion system: innova- Finnish the of future the for crucial deemed four presents Communication The innovation. of sectors selected in activity innovation of goal the sets point, starting our as Aho of Strategy the on Parliament the to Strategy Innovation tional forms, they are a particularly timely issue in Finland. re- major ongoing to due Furthermore, Finland. as such systems innovation frontier to central are they knowledge, scientific of diffusion and education, er ties. Given universi - their unique blend of basic research, on high- is emphasis main the large, at system innovation Finnish the within education and search est potential. full- their achieve to position a in be will ensure they that to place taking are reforms and objectives, social and country’seconomic the to contribute ities capabil - their that ensuring on put is emphasis more ish education and (public) research sectors. More and There are new demands and pressures upon the Finn- and research New demandsfor education On thebasisofVeugelers,Toivanen, andTanayama intheFullReport 9. Education,ResearchandtheEconomy

Systemic approach. Innovative individualsandcommunities, and Demand anduserorientation, Innovation activityinaworld withoutfrontiers, Government’s Communication on Finland’s Na- Communicationon The Government’s re- of role the upon touches chapter this While demic research. areas for selecting in aca- making policy avoidtop-down to need the stress Master’sand programsBachelor’sand re-assessed. Webetween proposealso distinction clear a tasks of public research organizations should be critically and role the addition, In polytechnics. and universities between tasks of division clear a recommend we sector education higher the streamline To funding. university allocating in discipline by output research ity-adjusted financing system of Finnish universities emphasizes qual- new the for proposal Our it. emphasizing rules funding through incentives universities autonomous providing by achieved best is which Finland, in research of quality The most pressing and timely challenge is to increase the 20) wih e took we which 2008), al., et taei choices strategic pioneering (building in

arrangements, collaborative funding of research pro- collaborativeresearch arrangements, of funding networking stronger through activities, innovative firms’ with universities connecting better and edge ficient and rapid exploitation of the generated knowl- mand and user orientation should rather mean more ef- generates sustained demand and user driven innovation? that ecology organizational an of formation the to tribute straints, the question is, question the straints, en their specialized capabilities and institutional con Giv mind. in end practical any with conducted ily ally excellent, long-term research that is not necessar Universities should focus on high quality, internation be well may that knowledge damental fun for quest a by driven is that research basic their comparativeselves.Universitiesadvantageahave in innovationsthemor researchapplied pure in gaged stressed. This does This stressed. orientation user tive communitiesandorganizations. innovaall for seeds the - laying crucial, is individuals innovativeeducating and fostering in education and this respect the quality of Finnish university research ness is based on the skills and creativity of people. In communities and dividuals works. net- international in academics of participation sive exten- and mobility requires itself in challenge This that competence and knowledge with society expected provide to are they that means this universities For their on based experts Finnish of participation active requires This networks. global in favorably themselves position to ability their on depends regions and enterprises of success the that stresses Communication the tiers, In relation to The Strategy’sbasicchoices choices andfuturechallenges. ish innovation system to better match with the above Finn- the reshape to order in research and ucation Our objective is to evaluate the reforms needed in ed- Our approach is that for university research, university for that is approach Our n h sii o te Communication, the of spirit the In Communication’sThe on emphasis meets and even creates the international standards. international the creates even and meets innovation activity in a world without fron- is surely something that needs to be to needs that something surely is globally not tt-fteat competences. state-of-the-art require universities to be en be to universitiesrequire how can universities best con best universities can how points out that innovative- that out points user-inspired innovative ininnovative ead and demand de------. experts for the international business activities vorably in terms of fa- rated are Universities 56). (Exhibit legislation the in defined as (PROs) organizations research public and universities,polytechnics, of respectiveroles the tors in the Finnish innovation system largely perceive selves, letalonewiththesystematlarge. them- in systemic be to fail they that means sectors research and education Finnish the of fragmentation structures that efficiently pull together resources. The coordinated for calling as understood be can proach ap- systemic the addition, In sectors. dif- political ferent across cooperation close and broad-based tail en- should that policy innovation of conduct the to or innovation services. and/ research applied pure for market the into universitiesfully bring to seeks that perspective a from This commerce. and academia between labor of division the respecting like, the and grams challenges inFinnishhighereducation. International comparisonrevealsmany Exhibit 57 suggests that companies and other ac- other and companies that suggests 57 Exhibit Communication’s The localities throughout Finland. different 80 over in studies Bachelors with education degree provide turn in Polytechnicsstudies. doctorate and licentiate, Masters, Bachelors, with localities different 20 over in cation edu- degree providing towns and cities 11 in based are ties universipolytechnics.- 20 26 The and universities 20 are there Currently polytechnics. and universities sectors: parallel two of consisting model dual a has Finland education, tertiary For • • • • ally oriented highereducation institutions: the legislation in2004. to added was society surrounding the serve to obligation The • • • • tasks: Exhibit 56: The Finnish education andpublicresearch sectors. offer adulteducation. develop- regional ment, and supports which R&D applied conduct professional development,support provide professional education, andhumanity.to educate theircountry students to serve to provide highereducation basedonresearch and to education, promote scientific andartistic to promote free research, According to the Act of 2003, polytechnics are professionare- polytechnics 2003, of Act the Accordingto main four have universities 1997, of Act the to According international first class research and 55 ytmc approach systemic different is . On these, relates ing on the organization, external funding is 3–70% of the total. - Depend funding. competitive foreign and domestic external Funding for PROs comes from the state budget, ministries, and bidding. competitive through allocated being as considered be may total, the of 21% foraccounting together universities, more favorably alsointhisdimension. needs national the for search on score highest their have they dimension; any in out stand to seem not do PROs polytechnics. and thus see a clear division of tasks between universities activities regionalbusiness of needs polytechnics and PROs. Polytechnics are seen as over suppliers main the clearly are they formation. in- of sources as appreciated particularly be to seem not do they if even education, higher of institutions with actively cooperate firms Finnish that suggest Availablestatistics researchers. many produces land Fin- and level, high a at are in R&D education Investments higher respects: many in favorably pares com education higher Finnish the Internationally reveals manychallenges International comparison More information inExhibit19. onthefundingofPROs rest. the cover tasks other and information, Education, 40%. 30– another covers sector administrativerelevant the serving Directly PROs. medium-sized and large in activities of volume the of 30–40% some covers research (2008), Rantanen to ing Accord PROs. - across considerably differ duties other these of extent However,the 2009). and nature Nieminen, the & tinen, Kont Loikkanen, (Hyytinen, functions organization-specific and sector- other have they research, besides and, basis toral sec a on established been have They ministries. eight under vide professional competence. pro to is programs degree polytechnic the of aim main The way or another.The or way one technics’in funded publicly 80% areUniversities funding. poly the of 57% covers nevertheless state The foundations. or bodies, municipal joint municipalities, by run are technics Finnish universities are maintained by the state while poly Currently there are 18 public research organizations (PROs) and Finland of Academy , but universities are rated are universities but , . The system’sThe . actors funding to Tekesfunding experts for the - - - - - re- - 79 Education, Research and the Economy 80

Evaluation of the Finnish National Innovation System industry-science links,andrelevanceofresearch. Excellence inresearchisapreconditionfor internationalization, er countries. study and er iin Fnih tdns ne hge education higher enter students Finnish dition, nationalization highlight also comparisons International

is highlyfragmentedinthreedimensions: sector research public and education higher Finnish the that is feature striking Another Finland. in rare search • • • Source: Kotiranta etal. (2009). self-perceptions.part and research organizations categories theresponses are in Note: n/a=notavailable. Note that for thoseineducation for internationalsupplying experts needs. both doinginternational firstclass research and international dimensionastheyare successful in needs. Universities deliver thebestscores for the are for seenasthebestsource regional ofexperts providing research for national needs. Polytechnics On average anduniversities PROs doequallywell in regional (lower businessactivities right). for (lower andexperts tional businessactivities left), forfor interna national- needs(upperright),experts ternational firstclass researchresearch (upperleft), organizations are (PROs) successful inproviding in- universities, polytechnics, andpublicresearch Shares ofrespondents by group considering that strengths differ. and publicresearch organizations’ Exhibit 57:Universities, polytechnics, oe to it comes when low rank to tends Finland that is problem

too smallresearchandteachingunits. with fragmented internally are universities Third, country. Second, these institutions are scattered around the and polytechnics, universities, – institutions of types three into scattered are resources the First, lapping duties. over- partly with – organizations research public eaie o te cutis te ot pressing most the countries, other to Relative wrdcas xelne n eerh is research in excellence world-class quality; research of the Finnish university sector. In ad- sector.universityIn Finnish the of than their counterparts in oth- in counterparts their than longer n priual re - particularly and volume output Gov't: Innovation support Innovationorg's Gov't: Gov't: Innovation support Innovationorg's Gov't: Gov't: Education support org'ssupport Education Gov't: Gov't: Education support org'ssupport Education Gov't: Sectoral: Other Other research Sectoral: orgs Sectoral: Other Other research Sectoral: orgs Sectoral:Public research orgs Sectoral:Public research orgs Educ.: University heads Educ.: dep't Educ.: University heads Educ.: dep't Educ.: Polytechnic rectors Educ.: Educ.: Polytechnic rectors Educ.: Firms: Smaller Smaller innovative Firms: Firms: Smaller Smaller innovative Firms: Firms: Larger innovative Firms: Larger innovative Educ.: University Educ.: rectors Educ.: University Educ.: rectors Firms: Non-innovative Firms: Non-innovative o inter- low lat-

tives throughfundingrulesemphasizingquality. incen - universities autonomous provide to is search re- academic of quality the increase to way best The vation activity anditisalsoapreconditionfor to increasethequalityofresearchinFinland. is challenge critical most the that argue we these, Of developing theFinnishhighereducationsector. • • • • • • •

Universities Universities Teaching, international Teaching, Research, international sector. fragmentation andoverlapping activities. relevance ofresearchforinnovation. industry–science links,and internationalization oftheuniversity sector, Tackling theproblemoflategraduation. university the of internationalization Increasing research. university of Streamlining the higher education sector to reduce quality the Increasing 100% 71% 87% 100% 100% 100% 92% 84% 91% 90% 100% 43% 80% 100% 92% 100% 74% 83% 85% 82% Excellence in research is vital to world class inno- We put forward the following main challenges in Polytech. Polytech. 0% 0% 20% 0% 0% n/a n/a 6% 3% 4% 0% 29% 73% 17% 25% 14% 9% 27% 29% 26% PROs PROs 20% 71% 53% 30% 24% 71% 43% 26% 25% 25% 50% 29% 20% 0% 12% 0% 26% 11% 17% 14% Universities Universities Teaching, national/local Teaching, Research, national/local 50% 71% 65% 82% 80% 63% 89% 60% 65% 56% 33% 17% 18% 78% 62% 46% 59% 35% 46% 39% Polytech. Polytech. 0% 0% 94% 18% 27% 49% 34% 34% 32% 34% 83% 83% 100% 78% 85% 94% 100% 78% 86% 82% PROs PROs 83% 71% 59% 45% 68% 94% 82% 43% 52% 51% 0% 17% 6% 11% 16% 40% 16% 12% 13% 13%

• • • • versity InventionsAct acronym: SHOK), and the enactment of the new (Finnish Innovation Technologyand Science, for Centres ing industry–science links: the foundation of are two recent reforms in Finland that aim at improv- Report fordetails). Full the in chapter our (see 2010 January 1 starting it with comply to have will Universities 2009. autumn is the new research sector. public and education higher its reforming currently is Finland countries, European of majority the Like The goldenreform opportunity consolidation arekeyaspects. Independence, accountability,quality,and

Full Reportfordetails): the (see aspects following the emphasizes proposal Our practice. current the is than universities of tem sys- funding the in weight higher considerably ceive university legislationisinsufficient stated objectives. On this dimension, the new Finnish the for strive to universities for incentives right the appropriate an with bined com be must it autonomy, however, of benefits the get to order In responsibility. financial full with tus pendence more universities giving of goal the is islation

is One of the key features of a good incentive system The review. peer- ‘light’ a with complemented measures cific discipline-spe- and quality-weighted, clear, Few, the maintask(55%). as education keeping still while (35%), research and strategic objectives that gives a high weight to research, education, between funding of split A research qualityinsteadofproject plans. and the funding is allocated according to observed within units them, not and individual researchers universitiesor projects, to allocated is funding of ence to its current practices would be that this type ment the new financing system. financing new the ment imple- to exploited be could research of quality In addition to the new university legislation there agenda reform Finnish the of component key A Were- should quality its and research that argue A central part of the new Finnish university leg- university Finnish new the of part Acentral Gvn ht u pooa differs proposal our that Given transparency. Academy of Finland of Academy ; they will have an independent legal sta- legal independent an have will they ; Universities Act, which will be enacted in inearlyJanuary2007. ’sthe assessing in expertise providing system steering 57 . The main differ-main The 56 Strategic inde- Uni- -

moted by the Ministry of Education is a good start. good a is Education of Ministry the by moted careers is important. The 4-stage research career pro- changed. be to have may this achieve to mechanisms the tant, impor be to continues access equal While cellence. cess and equal quality seems to bypass the goal of ex- ac- equal for striving practice Unfortunately,in cial. move ahead, for which excellence in key fields is cru- to how now is question the catching-up, of Instead past. Finland’s current position is, however, different. the in beneficial been and has universities.approach This regions between equality emphasize strongly Finland in tradition political and atmosphere logical also supported and for lowed sues shouldbeaddressed. is that waya in operating are organizations research public the Furthermore, system. university the of that than the next5–10years. during retire will professors of 40% over portunity: op- unique a facing is sector university Finnish the respect this in implement, to difficult While tivities. ac- some down closing mean necessarily would tion Specializa- it. for incentives providing by achieved ties should specialize in their strengths, which is Universibest - thing. same the doing units micro many fields covered by each are overlapping. There are too ed. Not only are there many universities, but also the

units. research potential for agenda research high-quality long-term building for suitable is neither funding, Tekesservewellmay purposes project-based their in and Finland of Academy the both Although units. research potential of systemat- development term long requires and ic research in level international the low.Achieving too are research basic long-term search inFinland. re- basic of quality the raise to avenues several pose pro- weincentives right the providing to addition In wards it should be announced several years ahead to move a system, current the from considerably of theactualimplementation. Fourth, increasing the attractiveness of attractiveness the increasing Fourth, al- be must excellence and specialization Third, is research sectoral of fragmentation The Second, the universitythe Second, too far is sector quality high for resources that seems it First, with university research. These is- These research. university with overlapping n practice in Te ideo- The . fragment- research wider -

81 Education, Research and the Economy 82

Evaluation of the Finnish National Innovation System provide abasisfor tacklingfuturechallenges. The fragmentedandoverlappingstructuredoesnot

researchers internationally. senior recruit to seek similarly and graduates, (PhD) their for placements international seek aggressively more much should They universities: Finnish of ture cul- hiring the in change a ly.necessitate would This international- work should system the Thus, system. likely that in isolation Finland could maintain such a is every year, it positions open of number ficient Since the above requires that at each level there is suf- Source: Deschryvere (2009). Source: Deschryvere (bestvs.Scandinavia) andquality rest). between countries (Finland vs.and theUS,UK, by size differentiatingUniversity department tend to bebigger. ments are small. The bestdepartments professors, Finnish university depart termsExhibit 58:In ofthenumber Polytech- solution. a provide could system ucation needs? al a world-class university. Finnish regions offer a sufficient breeding ground for all that assume to realistic not is It 57). (Exhibit tors shared with a large majority of private and public ac- perspective a institutions, – regional not – global as regarded be primarily should they impacts, gional re- important have still may universities Although and publicresearchsystem Streamlining thehighereducation • • but itbuildsupontwo principles: searchers. re- Afeatures desired has system track tenure stage later for similarly strategies; chosen their follow to institutions and departments of ability the same time ensuring competition for these places, and the at while themselves prove can they where job a obtain to PhDs minded freshly enable to needs One

there is a is there same institutionhiringafreshPhD, a is there institution. o te t blne ewe goa ad region- and global between balance to then How Here the duality of the Finnish higher ed- higher Finnish the of duality the Here probability of getting tenure at tenure getting of probability high probability of getting tenure at the at tenure getting of probability small - University departments: Scandinavia Finland Finland UK US US some UK US US un- best best best best rest rest rest 16 26 40 83 47 29 32 the research functions within PROs into universities. into PROs within functions research the of possible as much as integrate to strive should one of with research, lack nature teaching the integration by PROs capability. As research in-house of tenance by PROs are such that they truly necessitate the main performed now tasks ana (administrative) which carefully lyzed, be should It re-assessed. be should time, it would allow institutions to specialize. bility nationally and between disciplines. At the same at universities. Such a system would lead to more mo BA from a polytechnic to apply for Master’s programs only, while at the same time allowing students with a degree (BA) Bachelor’s a to up granted first is right tainedby moving towards asystem, where the study ed. resist- be universitiesshould to as duties similar nics polytech- give to Pressures regionally-oriented. and applied more be should Polytechnics research. in cel ing collaborationamongthem. wellwith combined organizations function- research public and polytechnics, universities, between tasks division of clear a be should There challenges. future tackling for basis sustainable a provide not does ture struc- overlapping and fragmented current The sue: global and regional needs relates to a more general is- facing. is whole a as society needs global the meet to lence striveuniversitiesto encouraged excel- be for should while universities, than suited better are structure, they,which for needs regional given ownership their for specialize to incentives the given be should nics The role of public research organizations (PROs) organizations research public of role The qa acs t hge euain ol b sus be could education higher to access Equal ex- and globally-minded be should Universities of reconciliation view, of point systemic a From - - - - Source: Aghion etal. (2007). (notshown).top 50university ranking allEuropean countriesUS outperforms intheglobal its Scandinavian neighbors(adjusted for size). The age butthat itlagsbehind Switzerland, and theUK, that Finland scores better thantheEuropean aver atLooking theglobal top 500universities reveals universities relative to USA(=100). Population-adjusted oftop 500 Shanghairankings tier. but doesnotbelongto theglobaltop university ranking 15 onsize-adjusted Exhibit 60:Finland theEU- outperforms Source: CIMO. to Finnish universities. become smallerasmore foreigners found theirway foreign visitsandby foreigners seemsto have ment inmobility. For students, thegapbetween students (notshown) onlyshow aslight improve researchers are becoming lessmobilewhereas not show aclearimprovement. Teachers and at FinnishInternational mobility universities does Finland (right). Teachers andresearchers from Finland andto (left) universities. of international at Finnish mobility Exhibit 59:Nomajorimprovements attracting internationaltalent. The qualityofresearchisthekeyto search organizationstouniversities. republic from resources research basic returning of er education and research – one should explore ways togeth- bring to ability their – universities of feature unique another. the Given to field one from research policy-oriented, term, short its allocating in freedom of degrees more government the allow would which outsourced, be could PROs the by performed now ied to what extent the research and evaluation duties stud- be should it addition, In competition. through made available to all, with access granted potentially be should they databases), as (such research quality high- for requirement necessary a are that structures To the extent that the PROs have research infra- research have PROs the that extent Tothe 58 59 - - 2000 Switzerland Teachers and researchers researchers and Teachers 1467 Denmark Germany Sweden Norway Finland France 1352 EU-25 EU-15 -01 UK US 1218 -02 45 54 67 67 81 100 107 124 161 217 230 1182 -03 1291 -04 1411 -05 it should be kept in mind that it is a tool rather than rather tool a is it that mind in kept be should it Finland, in needed is exposure global more While ic. truly be would promoted thus nationalization inter The internationalization. increase also should research quality for incentives providing aligned, ly close- so internationalization and excellence search re- With engagement. international without reached be can research in excellence that unlikely is it time, quality.outstanding haveuniversitiesof same the At to is Finland to experts foreign attract to and munity com international the in academics Finnish of tion participa- the increase to way best the Wethat argue Internationalizing highereducation from 1265 -06 1223 Finland -07 2008 1201 2000 Teachers and researchers researchers and Teachers 2012 1743 -01 1832 -02 2003 -03 1739 -04 1637 -05 to 1772 -06 Finland 1733 -07 organ- 2008 1631 - - 83 Education, Research and the Economy 84

Evaluation of the Finnish National Innovation System to raisethequalityofresearch. An adequateunitsizeisaprerequisite have earned, are often are earned, students have points study of number the as such ures, meas- Observable teaching. of quality the of ability” “unobserv- the is them The providing in difficulty incentives. main appropriate have should staff ing size and high quality research. In addition, the teach- well-functioning for high-quality university teaching are an prerequisites adequate that argue We University teaching with adequatecompensationmustbeavailable. out them. with- pool student the averagethat on talented more are they if system, the improve only they that yond While these benefits are not to be underestimated, be- in Finland regardless of where they ultimately locate. nodes with networks social international span to ly like- more also are they education their after and ing diversity.Dur increase and international more tem sys- the make necessarily They panacea. a not is se ers (tuition fees). However, international students and be rewarded for providing programs for foreign- should be able to experiment with different programs cles ratherthanbymoredirectmeasures. advanced by removing its explicit and implicit obsta- an end to itself. Internationalization is perhaps better help in solving the current queuing problem caused problem queuing current the solving in help versities. uni- at Master’s programs for apply to qualifications necessary the acquire should polytechnics at dents Stu- degree. the obtain to order in absolve to dents stu- Master’s require they studies additional what Similarly,mission. through think should universities ad- their rethink universities that requires thus and backgrounds diverse are with students programs admit to Master’s ready the that necessitates This fields. first-choice the than other enter or program and place study first the choose quickly to risky less it makes only. BA This to granted first is right study would be important to move towards a system where to letstudents‘vote withtheirfeet’ invarious forms. Third, to attract foreign experts, attractive posts attractive experts, foreign attract to Third, universities students, foreign attract to Second, Granting study rights first to BA would already would BA to first rights study Granting it entry, late of problem the reduce to order In dangerous. 60 One solution is solution One unit per - universities have something that firms want. want. World- firms that something have universities because materialize should ISLs research. and tion educa- with cooperation close in happens that thing not a separate third activity of universities. It is some is dissemination relevance.Knowledge for condition pre- a often is research academic in excellence tries, coun- frontier for Rather, contradict. not do evance search agendas and ISL priorities. Excellence and rel- re- the setting in making policy top-down avoid and research world-class for strive to universities tivate mo- to is society for research of relevance high a tee top-down programs. in underrepresented being risks that habitat a kets, created or re-created firms in new science-based mar newly is interactions ISL for habitat natural more A competence bases on both sides of the ISL interaction. this approach may jeopardize renewal, the development of the for vision or aspiration real lack and das, agen- research term short very have research, basic of relevance the seeing difficulty have sectors tional acronym: SHOKs). If established players in the tradi- (Finnish Innovation Technologyand Science, for Centres the and is this sectors. of traditional example An companies established of needs the on phasis orientation in policymaking related to ISLs, with em- ble long-termeconomicgrowth. to smooth industry-science links, but not to sustaina- bitious enough or lacking the world class, would lead and companies frontier to damaging is institutions educational ocre dustry–science links (ISLs). Collaborating with medi- of match a be should There Improving industry–sciencelinks be freeaslongonegraduatesinduetime. strong incentives to study faster. Education could still give they as preconditions, political without studied cation. gest a re-evaluation of the strong stance on ‘free’ edu- tion examinationshouldbeassessed. matricula- the on more relying by process plication ap- the Waysstreamline system. to admission the by In general, we argue that the best way to guaran- top-down a of impression the is issue related A In order to reduce average study times we sug- we times study average reduce to order In , vouchers, and other schemes should be should schemes other and vouchers, Fees, - am being not parties Both versa. vice and supply in in- in demand 61 Strategic - - tencies andforgelocallinks. at the university to gain understanding of the compe - presence on-site having while affairs, legal like ities, technical- and industry to contacts to related sources re- pool to is proximity and mass critical combine to university.a at presence haveon-site to solution One resources across TTOs. At the same time it is essential of pooling some require to likely is mass critical ing es, and expertise to stimulate ISLs effectively. Achiev- TTOs in Finland do not have adequate scale, resourc - the that seems It contacts. relevant the has and sity univer the of activities research the screens that try indus- and university between facilitator a rather is TTO well-functioning a of role The TTOs. ac- of tivity marginal a however, are, activities ey-making mon- These 2009b). 2009a, (Tahvanainen, and spin-offs onlicensing centers inFinland (TTOs) offices world technologyfrontier. the at operate truly that firms the attract to way best class research and excellently trained students are the Source: Kotiranta etal. (2009). nic rectors seemto bethemostpositive. from cooperation withcompanies, whilepolytech- heads are leastconvinced ofthebenefitsemerging search for newideas. Overall, university department towards amore academic, basicresearch-driven towards solvingidentified given problems than joint seemedto projects be slightly more oriented nel was alsodeemedimportant. The nature of andcompetent person- expertise complementary motivations to cooperate onbothsides. Access to to access funding, external isamongtheprimary funded research programs, i.e. theopportunity inpublicly to participate The sheeropportunity technic rectors. leaders, university rectors,department andpoly (right); comparing theopinionsofuniversity andthebusinessneedsinvolvedcompanies (left) between universities/polytechnicsprojects and ofjoint oftheobjectives research Importance sides. funding motivates cooperation onboth Exhibit 61:Access to external public have adequatescale,resources,andexpertise. University technologytransfer off ices should uh f h dsuso o tcnlg transfer technology on discussion the of Much - Provisionoffurther education/training people/personnel Supply of competent Take partinpublic programs (funding) Help indeveloping/testing aprototype in solving Support specific problems Access complementary to expertise Access basicresearch,to general ideas Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: Polytech.rectors Educ.: University Educ.: rectors heads Univ.dep't Educ.: - unimportant All consider in higher education education higher in objectives Business co-operation ahead andexecutetheirplans. an even longer time to allow universities both to plan overstable be should rules funding General them. to react to universities allowing ahead years sufficient principles funding future the announce to important is It assessment. quality the implementing in used • • measure ofresearchqualityandquantity: two-part a suggest We funding. university locating al- in discipline by output research quality-adjusted emphasizes universities Finnish of system financing quality.the emphasizing for rules proposal Our funding universitiesincentivesthrough autonomous provide to is research academic of quality the crease Finland in research of quality the the that argue We Conclusions

ly crudequantity-basedmeasure. necessari- the complement ‘light’to a peer-review of publications and count quality-weighted discipline-specific a Academy of Finland of Academy the of expertise The All All consider important most critical challenge is to increase to is challenge critical most disagree All in higher educ. co-operation educ. higher in business needs of Importance . The best way to in- to way best The . could be could new agree All All 85 Education, Research and the Economy 86

Evaluation of the Finnish National Innovation System increase thequalityofresearch. The mostcrucialchallengeisto Source: Veugelers, Toivanen, and Tanayama. programs withaBAfrom polytechnics. sustained by easyaccess to (university) Master’s to universities. Equal access to education canbe basic research shouldbeshifted ofPROs activities assessedandthe shouldbecritically tions (PROs) the role andtasksofpublicresearch organiza- regionally oriented nature Also oftheircurriculum. shouldmaintainpolytechnics themore appliedand incentives to excel inacademicresearch, while environment. Universities shouldbegiven strong order to reduce thefragmentation oftheresearch Division oftasksbetween institutionsisneededin research andeducation structure. Exhibit 62:An outlineofastreamlined riculum. Within universities the universities Within riculum. cur their of nature oriented regionally and applied research, while academic in excel to incentivesgiven be should sities environment. research the of fragmentation the reduce to order in needed is betweeninstitutions tasks of Division structure. research and education should be shifted to universities. Equal access to ed- to access Equal universities. to shifted be should PROs of activities research basic the and assessed ly critical- be should (PROs) organizations research lic pub- of tasks and role the Also changes. structural dictating Education of Ministry the by than rather incentives to reacting universities through happen Second, it is necessary to necessary is it Second, polytechnics should maintain the more the higher the streamline specialization

Sectoral interests and needs Municipalities should All other ministries Univer- - granted up to the to up granted the limiting suggest for foreignstudentsinplace. programs attractive and experts foreign for tunities oppor career be should there addition, In gagement. en- international without reached be can research in excellence that unlikely is it economy global the in Withresearch. - of quality the rewardfor universities Finland to experts foreign attract international to and community the in academics Finnish of participation ty) Master’s programswithaBA frompolytechnics. (universi- to access easy by sustained be can ucation Fourth, in order in Fourth, way best the that argue we Third, organizations Re-organized research Public Research The research andeducationsystem The Primary and secondary education secondary and Primary Knowledge and human capital human and Knowledge Ministry of Ministry Education of Academy of Finland of Academy TalentFinland . This only. level degree Bachelor Universities we graduation of age the reduce to Excellence, Excellence, Polytechnics ht r initially are that rights study Global Regional, Applied Vocational Education Graduate Bachelor to increase the increase to is to is - versities have something that firms want. For firms For want. firms that something have versities uni- because materialize ISLs Worthwhile excellence. of aim The research. academic world-class stimulating proach, ap- bottom-up a of importance the stress again we vide strongincentives tostudyfaster. pro- they as preconditions political without studied be should schemes other and vouchers offer. addition, they In that education the in allow specialize to and both universities and polytechnics between tasks of division the wouldenhance This also grams. pro- Master’s the entering and Bachelor’s the iting ex- when establishments and fields change to dents stu- for easier it make that taken be helpful, must measures be truly To establishment. educational or field wrong the choosing of risk the decrease would they reinforce eachother. Relevance andexcellencearenotcontradictonary; To(ISLs), links industry–science enhance further rules emphasizingit(seetheFull for details). Report funding through incentives universities autonomous viding pro by achieved best is which Finland, in research of quality • • • • • research are sectors asfollows: The objectives in reforming the Finnish education and (public) andrecommendations.Exhibit 63:Summary tors to therest ofsociety. sec- the dissemination knowledge from efficient Enhancing Tackling theproblem oflate graduation. Increasing internationalization. lapping activities. reduceto fragmentation over- sectors and Streamliningthe ofresearch.Increasing thequality The most pressing and timely challenge is to increase the increase to is challenge timely and pressing most The in innovation activity calls for calls activity innovation in pioneering - dictonary; theyreinforceeachother. contra- not are excellence Relevanceand productive. counter be would research academic for areas ing select- in innovations.approach A mercial top-down to those areas that have the promise of yielding com allocated be then will funding Applied research. in strength of areas of build-up the allow will This ria. up, where funding is based on strictly academic crite- achieve to the riseinqualityofsupply. ty of demand needs to be raised simultaneously with quali- the this, change To world-class. are firms ish research ic dence available suggests that maybe that suggests available dence means evi- this limited The students. frontier and research world-class technology the at operating adequate scale, andresources expertise, to trulybeefficient. search. addition, In technology transfer offices should have an re academic for areas selecting in making policy top-down avoid to need the stress we links industry–science enhance Master’sprograms. Tothe further entering Bachelor’s and the exiting when establishments and fields change to students for easier is it that ensure and programs Master’s and elor’s recommendation is to make a clear between distinction Bach- re-assessed. shouldbecritically (PROs) researchpublic organizationsof tasks roleand the addition In a clear division of tasks between universities and polytechnics. To reduce the problem of late graduation, our main policy policy main our graduation,late Toof problem the reduce recommendwe sector Toeducation higher the streamline Linked to the above, we argue that the best way best the that argue we above, the to Linked relevance the innovation paths of average Finn- average of paths innovation the nor of academic research is research academic of academ neither bottom - - - - 87 Education, Research and the Economy 88 Evaluation of the Finnish National Innovation System currently deployed (public)resources. the of out most the getting on been rather has focus The funding. innovation and research e.g., sources, republic available the of size the regarding stance strong a take not does panel the task, its with ance accord In reforms. and adjustments related posed tensively discussed governance and steering and pro- novationex- has report this Thus, whole. a as system but theproposalsofthisevaluation gomuchfurther. impact considerable have will They SHOKs. of up ramp and introduction the and act, inventionversity uni- the reform, university the including place, ing and politicalwilltotakethemuchneededsteps. courage sufficient is panel’sthere the that thus belief is It shake-ups. fundamental demand even and pect ex- system the of actors key currently and change of acceptance high a is There flexible. and adaptive ing substantially changeFinland’s innovation landscape. would – implemented if – which proposals concrete of number forwarda put has panel The success. ture siderable upsidepotentialthatcouldbeunleashed. evaluationrevealsnevertheless Finland con- that has The good. track still is performance current its admirable and record an has system The practices. and instruments, organizations, structures, governance, policy innovation its reforming in urgency of sense tionally andglobally. na- both quest this in elements central be to continue welfare. Education,research,andinnovation policies and growth of sources sustainable find to countries high-income (current) the for especially challenging it make consumption and production of patterns bal glo- Shifting roles. their redefine to have na- may tions all where order, world political and economic future challenges. meet better to policies its reforming and updating is countries, advanced other many with along Finland, sizing theopportunity A smallcountryadvantagein 10. TheWayForward Finland must seek better ways to develop the in- developthe to better ways seek must Finland tak- are and taken have reforms several Indeed, be- of advantage country small a enjoys Finland fu- guarantee not does performance good Past a and opportunity golden a both has Finland new a to lead may crisis global unfolding The - innovation policyhasbeenreduced. regional/local public (or publicly supported) actors in of number the Overall, Finland. in centers gy-driven technolo- and science- few a are There policies. tion respect to the EU), national, regional, and local innova with - (particularly international between labor ample newsocietalvalue creation. generated has which information, produced publicly all to applies same The users. interested all to sible acces freely are organizations research public the of ganizations. Data and information gathered by many or research public 4–5 into re-organized been have duties remaining the universitiesmovedand to been has research academically-oriented The completed. fewer publicinnovation policyorganizations. considerably are there and 2000s early the in ployed instruments has been reduced to a tenth of those em - policy innovation of number The reduced. been has alization. for high-quality research, education, and internation- incentives provide to renewed been has system ing financ- university the 2010s, early the in period tion between polytechnics and universities. After a transi- tasks of division redefined the including completed, governance, anddecision-makingareinplace. steering, cross-ministerial efficient and explicit for knowledge, and of nurturers as roles proper assumed maximize current and future welfare to and well-being. They have information and knowledge, capital, human enhancing in responsibility joint a assumed ment and the Economy exploit them to generate high societal value. societal high generate to them exploit and innovations, and ideas novel nurture research, high-quality conduct education, world-class provide effectively to streamlined been has system novation in and research education, The societies. knowledge leading globally the of one be will Finland 2020 By ... by2020 There is a clear and understandable division of division understandable and clear a is There been has system research sectoral of reform The system support enterprise the of complexity The been has system education higher the of Reform The Ministry of Education of Ministry and enablers, , and the , the , Mechanisms incentives. Ministry of Finance have Ministry of Employ of Ministry ua capital human - - - - Exhibit 64: An outline of (public) actors andresponsibilitiesExhibit 64:An outlineof(public)actors intheFinnish national innovation system.

Knowledge and human capital Enablers

Ministry of Education Ministry of Employment and the Economy Ministry of Finance Ministry of Sectoral interests and needs and interests Sectoral TalentFinland EnterpriseFinland Incentives All otherministries

Global The research and education system FinNodes Finpro Invest in Finland

Academy of Finland

Research Education R&D&I Ventures Banking

Universities Finnish Industry Excellence, Graduate Investment Global Tekes Seed Fund Vera Finnvera Business Public Accelerators Polytechnics SHOKs research Bachelor organizations Regional, Tekes YIC & TULI Applied Re-organized F. for Finnish Inventions Municipalities Vocational

Regional Primary and secondary education Municipalities Regional offices TE-Centres 89 The Way Forward Bibliography

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1 Driven in part by certain perverse incentives the current system offers. 25 Obviously the process is continuously re-directed (and may lead to an entirely unrelated direction), it may be halted at any stage, and there are feedback loops with the steps, 2 Or that of polytechnics. but for simplicity these issues are ignored in the illustration.

3 Page 10 of the October 2008 strategy of Tekes (PEOPLE—ECONOMY—ENVIRONMENT: 26 This also touches upon companies in business-to-business markets, as in the current Priorities for the future) implies that SHOKs could attract over half of the resources of Tekes operating environment they can maintain cost-effectively their core B2B orientation and by 2012 (primarily at the expense of non-program funding), which the panel considers ex- still gain better understanding of the needs and desires of the ultimate users, which are cessive. Since then the expectations of both Tekes and the SHOKs have been scaled down: not necessarily fully and reliably transmitted by the immediate customers or other partici- it is currently planned that some one-tenth of resources could be devoted to SHOKs, which pants of the supply chain. the panel considers more appropriate. 27 In certain cases there is no feasible way for an end-user or even the immediate cus- 4 While regional, TE-Centres also serve as the front-end in national innovation policy tomer to contribute, unless they happen to have a doctorate in, say, polymer chemistry, matters. nanotechnology, or corporate law.

5 Other policy tools are better suited for the job. 28 Attributed to Mandell in Business Week.

6 http://pxweb2.stat.fi/database/StatFin/ttt/tkke/tkke_fi.asp (on 9 Sep. 2009). 29 In the literature successful cases of using public procurement to promote innovation mostly relate to national defense (in this context including anti-terrorist and homeland 7 Neither of which is included in the reported percentage for 2010. security measures) or otherwise large-scale public projects lending support to the ob- 8 The original text in the survey is (in Finnish): INNOVAATIOJÄRJESTELMÄLLÄ tarkoitetaan servation. In Finland celebrated cases include building the Loviisa nuclear plant and the niiden yksityisten ja julkisten organisaatioiden muodostamaa kokonaisuutta, jotka osallistu- Helsinki metro as well as to the early purchases of ice-breakers. Aspects of the Soviet trade, vat tiedon ja osaamisen tuottamiseen ja soveltamiseen. Järjestelmän tavoitteena on edistää e.g., in the field of communications, arguably fall into this category as well. suomalaisten hyvinvointia. For the complete original questionnaire and its translation in 30 Our survey suggests that a tenth of the Finnish municipalities use innovativeness English, please see Kotiranta et al. (2009). among the criteria used in their procurement. Three-fourths of them nevertheless see 9 While subsequent policy documents have partly cured certain problems, significant ample scope for improvement in this. work remains to be done. 31 Rather than concentrating on customer needs, public bodies might rather focus on, 10 The latest EU jargon (EC, 2009) also employs a conventional definition: Innovation is e.g., maintaining and increasing their budgetary allocations. the ability to take new ideas and translate them into commercial outcomes by using new proc- 32 http://www.tem.fi/?l=en&s=2853 esses, products or services in a way that is better and faster than the competition (Nedis & Byler, 2009). 33 Upon commenting on the Finnish framework for the orientation on 10 June 2009, von Hippel criticized it for not including user-to-user aspect to a sufficient extent. http://www. 11 Similar proposal was made for the first time by theScience and Technology Policy Coun- tem.fi/files/23477/von_Hippel_-_User_Innovation.pdf cil (the predecessor of the Research and Innovation Council) in the early 1990s. The Council discussed the idea again in 2005; it did not, however, get support. 34 We would like to clear a few seemingly common misconceptions: As discussed above, emphasizing demand- and user-orientation should not be about the old demand pull vs. 12 The one recorded participation took place when Minister Antti Kalliomäki was in tran- tech push discussion. The orientation is not about promoting incremental closer-to-the- sition from the Ministry of Finance to the Ministry of Education. We would have gone further market innovation; in fact we argue for the contrary. The orientation does not imply that back in time in studying the conduct of the Council, but the pre-2002 minutes are mysteri- the targets of the policy should be let to determine policy objectives and instruments ously missing from The National Archives Service of Finland. – while the public sector should seek efficiency and fit-to-use, it should represent the so- 13 One anecdote: Several proposals have been made to increase, e.g., the funding of the ciety’s (not companies, even if often aligned) interests. The orientation is neither about National Research Institute of Legal Policy, the budgetary funding of which is a tiny fraction services vs. manufacturing nor technical vs. non-technical. of the total, less than half a percent. While well-justified from the knowledge-based society 35 This could include public predictions of market demand and user needs as well as viewpoint, the shift in resource allocation has, nevertheless, turned out to be impossible. subsidies for provider-user interaction. On the one hand, a formidable challenge is the 14 On top of which comes funding channelled through ministries, support of non-minis- creation of mechanisms efficiently capturing possibly highly fragmented user needs and terial public organizations (including the Academy and Tekes) as well as direct EU funding. expertise. In this domain there might be some scope for public intervention in the form of, e.g., virtual forums, laboratories, user communities, or events, in which users meet and 15 We wish to acknowledge that this does not imply that Tekes would not be fulfilling its share their expertise. On the other hand, spotting a curable market failure in this context mission. As pointed out in this Report, re-allocative aspects are not traditionally consid- – and thus the motivation for public intervention – is not easy. Furthermore, private actors ered in the domain of innovation policy. should have strong and aligned incentives to internalize any related externality, thus cur- ing the problem without direct public intervention. Finland has a long history of vibrant 16 An instrument is defined as an institution-specific direct or indirect intervention in a clusters (Hernesniemi, Lammi, Ylä-Anttila, & Rouvinen, 1996), which may be seen as such given application domain, where the application domain may refer to, e.g., the group of mechanisms. private actors that qualify for the suppor t or to the geography where the intervention applies). 36 Also von Hippel (2005, p. 12) echoes this by noting that Both fairness and social welfare considerations suggest that innovation-related policies should be made neutral with respect 17 Saapunki, Leskinen, and Aarnio (2004) report that in various public enterprise service to the sources of innovation. Edler (2007, p. 10), another leading author in the field, notes points there are approximately 13,000–16,000 officials (conservative estimate), of which that a comprehensive policy combines demand-side and supply-side mechanisms. about 4,500 are directly counselling firms. Larger companies are obviously contacted more often; there are currently some 15,000 enterprises with 10 or more employees in 37 We have not gathered empirical evidence on the existence of such biases in any of Finland. the relevant public organizations. It is nevertheless often conjectured in Finland that the system heavily favors technical innovation. Note that possibly existing biases cannot be 18 T&k-arviointi toiminta (2008), p. 159. directly inferred from, say, the industry distribution of an agency’s funding decisions, as the pool of available resources and historical incidences might significantly skew the 19 For example, the latest report issued by the predecessor of the Research and Innova- availability and quality of proposals seeking funding. Despite a supporting organization’s tion Council, the Science and Technology Policy Council of Finland (Linjaus 2008), the strat- announced goals and beliefs of impartially selecting the best projects, biases may be in- egy of the Academy of Finland (October 2006), and the strategy of Tekes (2008). troduced, e.g., via the educational background of staff or organizational culture. Biases 20 Source: Monitoring progress towards the ERA, Final Report, 6 May 2009. should not be assumed – there existence and underlying reasons should be analytically studied. 21 http://cordis.europa.eu/era/concept_en.html. 38 We emphasize that these conclusions are based on indirect evaluation and assess- 22 The Government’s Communication on the EU policy, highlights ways in which active ment. They are not the result of any complete or conclusive quantitative analysis of the influence on EU policies can take place (Valtioneuvoston selonteko EU-politiikasta, Val- extent to which the Finnish tax system encourages or discourages, say, a seasoned private tioneuvoston kansalian julkaisuja 16/2009, 8.4.2009. sector manager or an expert with international work experience to establish a firm and to become an entrepreneur. Nor have we found any comparative analyses of how well or 23 Contract notice 3688/420/2008, 27 Nov. 2008, pp. 1–2. badly the Finnish dual income tax system addresses this challenge, for example relative to the tax systems of the other countries that are R&D intensive. 24 http://www.tem.fi/files/23474/Kysynta-_ja_kayttajalahtoisen_innovaatiopolitiikan_ jasentely_ja_sisallot.pdf

92 39 How the planned R&D tax credit supports the creation of HGEFs cannot easily be 49 The creation of HGEFs calls for a range of integrated resources and incentives to inferred from the mimeo that The Ministry of Employment and the Economy released be quickly made available in order to promote, accelerate and sustain exceptional firm in June 2009 (“T&k-menojen verovähennysjärjestelmää selvittäneen työryhmän (T&K- growth. This support should not exclusively be addressed to start up and early stage firms. verotyöryhmä) raportti 3.6.2009”) As we understand the planned new scheme, it provides It needs to be recognized that accelerated firm growth can occur at different times in a firms with an incentive to use R&D inputs, but significantly it does not reward them for firm’s life cycle (Ács, Parsons, & Tracy, 2008). producing commercially successful innovations. 50 The distribution of responsibilities for the policies relevant to enhancing the creation 40 See, for example, the numerous analyses and mimeos that the working group on the of growth ventures and the control of resources available to support the policies should reform of the Finnish tax system has produced and commissioned. They are available be evaluated critically and reconsidered. Currently, the responsibilities seem to be some- from http://www.vm.fi/vm/fi/05_hankkeet/012_veroryhma/06_esitysaineisto/index.jsp. We what scattered around the Ministry. For example, the Group responsible for Entrepreneur- acknowledge, in particular, that there are a number of desirable features that a tax system ship Development and Enterprise Support is part of the Employment and Entrepreneur- should ideally have and that guide the overall design of the system. See also Crawford and ship Department of the Ministry, the Group responsible for Growth Ventures is part of the Freeman (2008) who have explored the need to reform small business taxation in the U.K. Innovation Department, whereas a number of agencies and institutions providing support to new entrepreneurs and growth ventures are steered by the Ministry’s Corporate 41 See e.g., Kanniainen (2007), Henrekson & Sanandaji (2008), Keuschnigg & Dietz (2007) Steering Unit. and the mimeos produced and commissioned by the working group on the reform of the Finnish tax system. Kari and Kröger (2009) provide a number of additional references. 51 Entrepreneurial culture and tax incentives are complementary, if the effect of the former magnifies the desired effect of the latter. 42 General principles, like the “normal return to investment” in some tax models, do not seem allow for the additional required return that exceptional entrepreneurial risk-taking 52 See e.g. Autio et al. (2007) for a review and categorization of entrepreneurship policy may call for. We acknowledge that this is a complex issue, but argue that paying attention measures. to the (risk-taking) incentives of the (potential) owner-managers of HGEFs is important. 53 Besides their role in enhancing entrepreneurial culture, Finnish universities have a 43 This view is similar to the argument that it is the average (not marginal) tax burden number of other roles to play in the creation of HGEFs. One of them is technology trans- that affects the location decision of firms. For a recent analysis of the relation between tax fer. The available evidence indicates that the university system has not been a systematic neutrality and entrepreneurship, see Kanniainen & Panteghini, (2008). source of science- or knowledge-based HGEFs. One of the questions on which policy-makers have to take a stance is how strong an incentive universities and especially individual 44 The Minister of Finance is the permanent member of the Research and Innovation university researchers are given to commercialize university innovations (via e.g. licensing) Council. Interestingly, the minutes of the meetings of the Council reveal that, in the past, and create university spin-offs. the Minister of Finance has rarely formally participated in the formulation of the innovation policy via this forum. This is despite the Council being the premier forum for such 54 These figures are from Regional Accounts and R&D-statistics compiled by Statistics Fin- policy-making. land.

45 The need for the greater involvement of the Ministry of Finance in the design of 55 As part of the ongoing restructuring of the Finnish higher education sector the growth-enhancing policies has already been recognized. The remit and associated work number of universities is planned to decline to 15 by 2020 and the number of polytechnics of the working group on the reform of the Finnish tax system is a concrete example of this to 18. change. Another example of the Ministry’s efforts to meet this need is evidenced by the 56 report on HGEFs that it published recently (Rainio, 2009). This report, however, pays only For successful implementation of the reform, an issue to be dealt with is the divergent limited attention to the importance of tax system in creating entrepreneurial incentives. views of university rectors and department heads (see Exhibit 8 in section 2.1.). We also acknowledge that the Ministry of Finance has been involved in the design of in- 57 This would only require a separation of the research-based funding from the base novation and entrepreneurship policy at many formal and informal levels. However, the funding of universities, and an appropriate increase in the amount of competitive research point we want to emphasize is that taxation has not in the past been seen as a concrete funding. means to enhance the effectiveness of the Finnish innovation system and the sustaining of longer-term economic growth. The recent plans to introduce a new scheme for R&D tax 58 It is acknowledged that student mobility went up from 2007 to 2008, even if the con- credits can also be interpreted as a step towards the greater involvement of the Ministry tent of this raise is currently being debated in Finland. of Finance. 59 Aghion et al. (2007) give the best university of the Top 500 a score of 500, the next best 46 The UK’s HM Treasury has a Business and Enterprise Unit as well as a Growth and university a score of 499, and so on, down to a score of 1 for the lowest performing univer- Enterprise Tax team involved in tracking and responding to entrepreneurship and small sity within the Top 500. For each country, they then compute the sum of Top 500 Shanghai business policy developments in other ministries including the Department of Business, rankings that belong to this country, and divide the sum by the country’s population. Fi- Innovation and Skills. nally, all the country scores are divided by the US score, so that each entry in the column ‘Top 500’ can be interpreted as a fraction of the US per capita performance for the Top 500 47 In his recent assessment of the Finnish high growth entrepreneurship, Autio (2009) universities. This gives their Country Performance Index for the Top 500 universities. concludes that “high-growth entrepreneurship merits specific attention in a national innovation strategy because of the direct economic potential associated with the phenomenon”. 60 This particular measure would give universities an incentive to lower standards.

48 The authors of this analysis recognize that calls to streamline and segment the present 61 Universities (degree programs) should be allowed to experiment with maximum study public support systems may generate significant opposition as present organizational ob- times and minimum yearly study requirements (example: UK). The current law proposal jectives and responsibilities are challenged. makes it too easy for students to extend their study rights. Experimentation here may be important as the effects in Finland are unknown.

93 Ministry of Education

Evaluation of the Finnish National Innovation System Policy Report

www.evaluation.f i

Based on the June 2008 proposal for Finland’s National Innovation advanced by any. The panel puts forth an outline of (public) ac- Strategy, the Ministry of Education and the Ministry of Employment tors and responsibilities in the system, which particularly implies and the Economy commissioned an international evaluation of the changes in these two domains. Finnish national innovation system. An independent panel conducted the work with the support of Etlatieto Oy (a subsidiary of The panel calls for a clarification and coordination of the roles and ETLA, The Research Institute of the Finnish Economy). This Policy Re- interrelations of international, national, regional, and local innova- port summarizes the main findings of the evaluation panel. tion and non-innovation policies. In recent years local and regional public actors have grown important also in innovation policy, even Finland current has a well-functioning innovation system. It is, if they are largely ignored at the national level. The current national however, not enough to sustain the desired standard of welfare. innovation support has an ‘unspoken’ regional bias, which may not The rapid evolution of the global operating environment is induc- benefit regional development and may come at the cost of fore- ing both qualitative and quantitative changes in the geography of gone growth (Chapter 8). innovative activity. They bring about future challenges and opportunities that are not fully realized in Finland. The panel takes a strong stance for the ongoing university reform (Chapter 9). With relatively autonomous universities incentivized The panel welcomes the two new elements of Finnish innovation through appropriate funding rules, it has real potential to address policy – the broad-based approach (Chapter 4) and demand and the most pressing and timely challenge in Finnish higher educa- user orientation (Chapter 5) – but points out risks in their adoption – the increase of research quality. Polytechnics are important tion. The former should not lead to considering even minor chang- actors in the Finnish system with their strong regional and applied es as innovations or to labeling of all enterprise policies as innova- role. To streamline the higher education sector, the panel recom- tion policy. The latter should be interpreted as impartiality to the mends a clear division of labor between universities and polytech- source, type, and application domain of innovation. nics.

The main challenges – weak internationalization (Chapter 6) and Due to both internal and external factors, The Finnish innovation somewhat lacking growth entrepreneurship (Chapter 7) – re- system is at a crossroads. While some of the panel’s proposals are main orphans in the Finnish system. They are both side issues for laborious to implement, they are indeed needed to meet the Fin- a number of public organizations and not particularly forcefully land’s future challenges.