Innovation after Lisbon: New ideas for innovation policies in Europe

Life after Lisbon has been disappointing for Europe. The aim to turn Europe into the most competitive knowledge based economy of the world has remained vague, with results far off the mark. Equally poor have been the outcomes of European Union efforts in 2005 to give the Lisbon strategy a new start, trying to combine sustainable growth with employment, competitiveness with solidarity.A key indicator to assess the results achieved so far is labour productivity, as an increase in the GDP per occupied person can be considered a (rough) indicator of economic success and a condition for rising standards of living (if they are not achieved neglecting human and environmental sustainability). Results have been poor and volatile (see Fig. 1).

Figure 1 – Labour productivity growth (rate of growth of real GDP per occupied person in EU27), 2002-2006, percentages


Four policy areas are identified in the new Lisbon Strategy: investing in people and modernising the labour market; unlocking the business potential especially of SMEs; investing in knowledge and innovation; meeting the challenges of climate change and of the rising price of energy. It is also necessary to be aware of the complementarities between the policy areas listed above, as piecewise interventions are not as effective as coordinated and coherent policies.

Let us focus on innovation policy, where EU actions have stressed the economic incentives underlying innovation activity, leading often to a strengthening of the system of intellectual property rights. In addition, EU policy has tried to increase the mobility of researchers, to pool the resources of the EU and Member States in order to improve the effectiveness of research projects, to develop a new generation of world-class research facilities and communication systems. Such actions represent, to some extent, a step ahead with respect to the rather mechanistic approach characterizing many policies implemented in the 1990s. They were considering only the part of the innovative process connected to firms’ expenditure to introduce innovations (mainly through R&D efforts and the acquisition of machinery incorporating new technologies); the complexity of research activities and knowledge creation preceding the introduction of an innovation as well as the interaction between suppliers and users were largely ignored. Equally ignored was – and is – the importance of innovation inputs coming from the demand side. Furthermore, these policies made large use of automatic mechanisms – such as tax incentives to innovating firms – as they could (and would) not rely on either an efficient bureaucracy – able to select and monitor specific programs, and to encourage “important” innovations in key sectors – or on forward-looking policymakers – orienting technological change on the basis of economic and social priorities.

As we learn more on the complexity of innovation (considering in particular the results of European Innovation Surveys published recently by Eurostat in Science, technology and innovation in Europe, 2008 edition), the need to rethink some of the current innovation policies emerges, taking into account the differences across technologies and industries, the variety of innovations introduced by firms, the diversity of innovative strategies that are pursued and of the economic results that are obtained.

Building on such evidence, more content and vision could be added to a renewed Lisbon Strategy. The starting point we propose is that innovation policy should be creative and selective. Creativity is very important. Innovators’ behaviour changes through time making past recipes outdated and public resources for innovation are scarce. Therefore, it is necessary to focus on specific research fields and economic sectors, involving in the decision process all economic and social actors. It is necessary to avoid that a too market-oriented approach leads to prefer economic over social activities, private over public ones, enterprises over non-profit organizations. Human wellbeing cannot be reduced to GDP growth. The following points suggest some criteria that might inspire the selection of priorities for innovation policies.

1. An innovation based on knowledge and research

The policy framework should reconstruct a virtuous relationship between knowledge, research and innovation. Innovation efforts are necessarily based on open, shared knowledge, accessible to everybody, supported by pure research funded by public money. In the last twenty years, privatization policies in the knowledge creation field (such as tightening intellectual property rights and laws inducing universities and research centres to sell their research output on the market) have hampered the diffusion of knowledge and innovation.

The effects of these policies have been negative under many respects. The public knowledge base, where universities naturally operate, has shrunk. On the other hand, monopolistic positions of a few large, global firms have been strengthened (for instance in the pharmaceutical sector), preventing large part of the world population to have access to new goods (for instance, anti-Aids drugs). The work by Mowery and Sampat (2005) has shown that economic incentives for firms and researchers were not successful in spreading innovations. The diffusion of innovations has slowed down and new ideas and technologies have become more costly.

As a consequence, in order to speed up the introduction of innovations and to develop new economic activities in advanced technological sectors, it is necessary to provide public funds for research and to relax intellectual property rights in an effort to support the creation of publicly accessible knowledge bases.

2. An innovation based on new rules for property rights, cooperation and standards.

Innovations in information technology, communications, biotechnology and genetics are reshaping the boundaries between economic production and social activities. Free music files are increasingly displacing (expensive) CDs. The same applies to Linux with respect to Windows. Alongside the copyright, the model of copyleft is emerging, leaving free access to ideas. In biotechnologies and genetics, the ethical relevance of decisions on research and production (for instance regarding GMOs, clonation, etc.) makes evident the impossibility to define rules on the basis on a purely economic and market logic.

Innovation is more and more a social, cumulative and open process, which, due to the growing role of cooperation among innovators, makes technological progress faster, more efficient and effective compared to the results achievable by the market.

Therefore, strengthening the public good nature of knowledge should be at the core of a new approach to innovation policy. This principle should be applied defining, in those sectors where technological progress is faster and has a less predictable direction, rules encouraging public access to knowledge and cooperation among economic actors, favouring network externalities and the integration of innovative activities.

An example of this kind of policies is the introduction of Linux as operative system in the public administration in several countries (e.g. Brazil) and in the municipalities of many large cities, (e.g. Rome, Paris etc.).

Finally, new environmental, health and social standards should be defined, constraining firms’ choices on technologies and productive processes in order to shape the direction of technological progress and attempting to overcome possible “lock in” mechanisms.

3. A user-driven innovation

Tight interaction among innovation producers and users has long been regarded as a key factor for the innovative success of a country. However, it is often the case that in sectors where technological progress is faster – such as information technology, communications, energy, the health sector and social services – the role of users has not received the due attention. Innovation producers dominated the scene, hampering the expansion of new activities and not exploiting the full potential of new technologies. What is missing today is more coordination among organizational, institutional and social innovations together with a greater support to demand, favouring the emergence and the growth of new markets for new goods and services.

A new “user friendly” innovation policy could use two instruments. The first one is “empowering the users”, letting them (in particular networks of sophisticated users) define specific applications of existing technologies that may lead to the development of new goods and services that could meet economic and social needs and have large markets. The second instrument is a smart use of public demand to orientate the technological and productive choices of researchers and firms. Concrete examples are environmental friendly technologies, renewable energy systems, “green” public transport and so on.

4. An employment friendly innovation

The Lisbon Strategy has the explicit target to combine growth with social and environmental sustainability. As innovation often has labour displacing effects, we need to introduce a clear distinction between the development of new products, with a major job creating potential, and the introduction of new processes, that lead to job losses. Public financial support to the introduction of innovation should be primarily directed to innovative activities aiming to create new products and open up new markets. Vivarelli and Pianta (2000) showed that unfocused financial support to the introduction of “supply driven” innovation by firms led, within a context of weak aggregate demand and slow growth, to shrinking employment in Europe in the 1990s. Research, development and design activities and experimental production should receive the incentives and subsidies that at present go to labour saving process innovations.

5. Adequate funding for knowledge creation and innovation

Where additional resources for research and innovation can be found? Within the European Union, there are huge differences in the extent to which Member States fund innovation. As national budgets are heavily constrained by the requirements of fiscal stability, it is necessary to think about new sources of funds. Possibilities include the introduction of a specific tax on the income or wealth of top income groups (the social groups that has most benefited from innovation) whose revenues are to be used to fund the policies illustrated above. At the EU level, proposal have been made for financing EU development projects through the emission of Union bonds; there is also some scope for new priorities to the European Commission budget, reducing the weight of the Common Agricultural Policy to the benefit of research and innovation expenditures. More funds may come also from the banking sector and non-profit organisations that may direct funds to research effort of great social relevance, with the help of tax benefits to voluntary contributors.

This effort to design new approaches to innovation policy has to be based on the shared perception that they will benefit the whole of society. These policies cannot but be based on a wide social consensus on the distribution of the productivity gains deriving from technological change. In the past decades, innovation has benefited mainly firms and consumers, leading to higher profits and lower prices, in a context of increasing international competition for firms and of financial investors in search of short term returns. Workers, on the other hand, have often experienced reductions in the purchasing power of their salaries, job losses and greater insecurity. The result has been an increase in economic and social inequalities. On the contrary, benefits arising from technological progress can and should lead to greater real wages, less working hours and better working conditions. These, together with income redistribution, should be a top priority within the Lisbon process if it really aims at combining economic growth and social cohesion.

ReferencesEurostat (2008), Science, technology and innovation in Europe, 2008 edition, Luxembourg, European Commission.D. Mowery e B. Sampat (2005), Universities in national innovation systems. In J. Fagerberg, D. Mowery e R. Nelson (eds.), The Oxford Handbook of Innovation, Oxford, Oxford University Press.M. Vivarelli e M. Pianta (eds.) (2000), The Employment Impact of Innovation, London, Routledge.

One Response to "Innovation after Lisbon: New ideas for innovation policies in Europe"

  1. Guest   May 18, 2008 at 1:46 pm

    Very interesting approach. Do you see innovative technology funding as a complement to the current flexicurity Lisbon strategy with a new focus on compensating displaced workers?