Regional Innovation Policies in a Globally Connected Environment: Lessons from Europe

By Michele Mastroeni, University of Edinburgh

A preview of Michele Mastroeni’s CIPS lecture on October 18, 2013

Industry leaders and governments have pursued innovation as a source of economic growth for the last two decades. While firms have been striving to harness innovation in order to move beyond their competitors, governments have struggled to find a way to create and maintain an environment that encourages innovation within their jurisdictional boundaries.

The European Union’s efforts to encourage innovation-led economic growth focus predominantly on the regional level of governance, with its most recent approach being ‘Smart Specialisation’. Smart Specialisation offers a potential solution to Europe’s challenges in pursuing its innovation agenda—but as described to date, such an approach is limited.

Any successes and failures that Europe faces in the pursuit of Smart Specialisation may be useful lessons for Canada.

The European Commission (EC) describes Europe’s innovation system as made of ‘hotspots’ of exploratory research, development and innovation, along with lagging regions—in other words, a centre-periphery polarization in innovation efforts. According to the EC, many European regions are duplicating each others’ R&D efforts and investing in developing platform technologies (e.g. biotechnology, nanotechnology, ICT) even when their European neighbours may be more advanced in the area.

In order to correct this problem and achieve a strong ‘Innovation Union’, the EC has committed to the policy concept of Smart Specialization, according to which the more technologically advanced European regions would concentrate on producing cutting-edge platform technologies while entrepreneurs in other regions would develop the applications of these technologies based on local economic needs. The result would be a division of innovative labour across Europe.

As currently conceived however, the Smart Specialization approach faces several hurdles. It depends on entrepreneurs in Europe taking the lead in creating market opportunities—but the EU faces problems in developing and supporting entrepreneurialism, which is a cornerstone of innovation. Some regions in Europe have demonstrated strong entrepreneurial capacity (e.g. Cambridge, UK; Baden Wurtemberg in Germany; Emilia Romagna in Northern Italy). However, many others lack the institutional support needed to translate entrepreneurial efforts into a critical mass that would make up a new economic sector or sub-sector capable of generating economic growth.

As well, much of the knowledge and complementary technologies needed to launch successful innovation will not be present in a single region. Ideally, entrepreneurs would have EU-wide access to knowledge resources, networks and lines of communication to facilitate national and international knowledge exchange. Because private entrepreneurs alone will not be able to fulfill the EC’s innovation objectives, the he public sector will be at least partially responsible for creating this innovation environment. Governments across all levels (national, regional, and municipal) must be able to combine their efforts to ensure that the required complementary institutions are in place.

A policy framework to address these challenges should provide generalizable principles adaptable to the variety of contexts and development pathways that different regions will encounter. Such a framework must be dynamic (i.e. historically and chronologically aware of change); sensitive to its cultural and geographic context; and conscious of the fact that the incentives of policy makers are different from those of the entrepreneurs and innovators they attempt to influence. The framework must also indicate to policymakers and industry stakeholders the different system layers (i.e. economic institutions, infrastructure and access to resources) that must be added, along with the appropriate timing, in order for a functioning innovation system to take root.

As it stands, Smart Specialization seems to be a rehash of Ricardian economics and comparative advantage—with the added hope that entrepreneurs will naturally appear to develop technological innovations regardless of the initial resources, experience, and support networks they might have to work with. My colleagues and I at the Innogen Institute (University of Edinburgh) are working on a policy framework that can help to overcome these challenges.

Any successes and failures that Europe faces in the pursuit of Smart Specialization may be useful lessons for Canada. Relevant Canadian issues include the efforts of individual provinces to spur innovative activity within their borders; the existence of national organizations such as the funding councils (CIHR, NSERC, SSHRC); the National Research Council; whether a Canadian innovation union is being successfully built and leveraged; and whether cross-border knowledge exchange with the United States can be better utilized.

For more on this topic, see “Regional Innovation: How To Be Smart, Sustainable and Robust” in the World Financial Review, May-June 2013; and a special issue of the journal Technology Analysis and Strategic Management.

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