National Innovation Systems

Case studies for Ugandan workshops

“To understand national innovation systems, it is essential to understand how technical advance occurs in the modern world, and the key processes and institutions involved.”

“Today, R&D facilities, staffed by university trained scientists and engineers attached to business firms, universities or government agencies, are the principal vehicles through which technological advance proceeds in fields such as…...”

“There are important interindustry differences in the nature of technical change, the sources, and how the involved actors are connected to each other…”

Richard R. NelsonNathan RosenbergNational Innovation Systems

IRELAND

Area: 70,280 sq km

Population: 3,969,558

GDP (PPP): $117 billion (2003 est.)

Per capita GDP: $29,800 (2003 est.)

The Story of the Celtic Tiger

•In the 1990’s Ireland became the OECD’s star after decades of underachievement;•This could be seen as a tardy convergence, and was in part due to EU financial aid;•Ireland had a very high rate of increase of total factor productivity in the 1990’s, based on imported technology;•The technology came bundled with foreign direct investment, especially in ICT and other high technology;•FDI was attracted by access to the European market, low taxes, attractive government policies, cultural links with the US, and an educated workforce;•While Ireland had free higher education since 1968, it had high unemployment and high brain drain until the 1990’s, when the Diaspora began to return;•R&D expenditures are only now catching up with the OECD.

Growth in per capita GNI: Ireland

  GDP growth average (%/year)

Fixed capital growth (%/year)

Employ-ment (%/year)

Total Factor Product-ivity (%/year)

1971 - 1986

3.7 4.7 0.2 2.1

1987 - 1997

6.2 2.3 2.0 4.0

Irish Economic Performance

•Ireland’s TFP performance in 1987-97 was higher than both that recorded in countries like France, Germany and Japan between 1950 and 1973 and recent levels of TFP growth in East Asia.•During the 1990s Ireland actually reverted to its pre-1970 practice of investing less than the EU average;• Technology transfers from the U.S. and other OECD nations fueled the growth in TFP;•The major way in which technology has been transferred to the Irish economy during the 1990s has been through direct foreign investment. •Ireland’s DFI success due to its low corporate tax rate, a well-educated workforce, and the 1992 EU Single Market program.

•The EC’s regional aid programs led to a doubling in real terms of the Structural Funds between 1987 and 1993; ‘Cohesion’ funds for the four poorest EU members were substantial. This amounted to a transfer of 18 per cent of 1994 GNP over a six year period.•Structural Funding was associated with trade liberalization and a more coherent approach towards government investment and expenditure generally.•Exchequer Borrowing Requirement (EBR) fell from an average of 11.8% of GNP in 1985-87 to 2.5% of GNP in 1988-90, prior to the large increase in structural funding.• Relative to the borrowing of earlier years, structural funding was rather small; but relative to the borrowing of the 1990s (the EBR averaged 2.0% of GNP between 1991 and 1997) it was extremely high.

•Since 1987 the Irish government promised to reduce personal taxation and improve social welfare entitlements in return for wage moderation.

•Among the results of these partnership agreements has been a dramatic reduction in industrial disputes, and a large fall in labor’s share of income.

•Wages and salaries accounted for 60.7 per cent of GNP in 1985, and just 42.8 per cent in 1997.

•Unemployment rate fell from 17.1 per cent in 1986 to 5 per cent in early 2000.

•Wage moderation and industrial peace presumably also helped directly in attracting inward investment.

Growth in the last half of the 20th century was largely due to convergence. But why did Ireland converge so late?

• Only recently did Ireland’s human capital endowment became sufficiently favorable.•Free second-level education became available to all in 1968.•Ireland’s human capital endowment depends as much on migration flows as on the flow of graduates from secondary schools and universities. •A recently-computed index of human capital employed in the Irish economy (with 1951 being equal to 100) stands at 91 in 1966, 92 in 1971, 108 in 1981, 107 in 1989, 115 in 1991 and 121 in 1994. A large proportion of the educational system’s output emigrated in the 1980s, and returned in the subsequent decade.•Centralized wage bargaining was first introduced into Ireland during the 1970s, but was abandoned during the 1980-87 period. A new start was made in 1987 with a series of national programs.

R&D intensity (business enterprise sector R&D expenditure as a percentage of domestic product of industry) rose from 0.8 per cent in 1991, to 1.34 per cent in 1997.

IRELAND

Research in universities amounting to 0.09% of GDP is funded by the government; higher education does work equivalent to 0.26% GDP.

The percentage of scientists and engineers employed as a percentage of the work force in Ireland is very high (17.3%).

Regarding internationalization, Ireland’s inward share of FDI as a percentage of GDP is 1.77%, which is above average for EU states.

Ireland’s expenditure on innovation falls below the European average in both manufacturing and services, being 3.3 % (EU

average is 3.7%) and 2.1% (EU average is 2.8%) respectively.

IRELAND

Patent applications from Ireland to the European Patent Office are very low, averaging a share of less than 0.15% of applications annually.

Scientific publications, at 0.3% of all OECD scientific publications, or 401 articles per million population, are slightly below the EU average.

Clusters of multinational software companies have successfully developed in Dublin, Galway, Limerick and Cork with major IT hardware multinationals also springing up in the same regions. This is related to the supply of qualified staff available, as all the cities mentioned contain a number of third level institutions.

Irish NSI policy has been built upon, and is still heavily dependent on, the strategy of encouraging Foreign Direct Investment. An institutional structure is in place to accomplish this. The Industrial Development Agency (IDA) is “in charge of promoting foreign investment through some of the most attractive incentive packages in Europe”

IRELAND

IRELAND

Examples of Irish Innovation Networks

Supply Network Shannon: SNS is an open, sectoral network of engineering and electronics sub-supply companies established in January 1999 to promote, developand market sub-supply capability in the Shannon region and thereby reinforce the region as a world-class source of engineering and electronics sub-supply products and services.

The European NETWIN (Networking for Innovation): A three-year pilot funded by the EU involved the establishment and co-ordination of local business networks in six regions (including Roscommon in Ireland) and, based on the experience gained, the formulation of an operational and reproducible methodology including analysis grids, key success factor identification,recommendations, questionnaires and case examples that could be used by operators such as local development agencies and SME advisory bodies to detect, develop, monitor and evaluate local SME networks and clusters.Irish Photonics Association: a smallorganization was set up in2002 with support of Enterprise Ireland is simply an association of photonics companies, academic researchers and other interested organizations.

M50 Enterprise Platform Program: The Enterprise Platform Program is aimed at the Institutes of Technology and is designed primarily to encourage researchers in the Institutes to commercialize the results of their research. The objective of the Program is to assist entrepreneurs to make the leap from employment to full-time operation of their own business by providing training, mentoring, incubation space, funding and other supports over a twelve month period.Atlantic University Alliance: pooling the individual expertise and resources of the three Irish universities and making themavailable to indigenous SMEs in the West, Mid-West and South of Ireland.

CHILE

Area: 756,950 sq km

Population: 15,823,957 (July 2004 est.)

GDP (PPP): $154.6 billion (2003 est.)

Per capita GDP: $9,900 (2003 est.)

The Story: Chile

•Economic reform started in Chile in the mid 1970’s;•Chile returned to Democracy in 1990;•Economic growth was high from 1976 to 1981, but Chile saw a major recession in the early 1980’s. Rapid growth resumed from the mid 1980’s until 1998.•Key industries for growth during were based on Chile’s natural resources – agriculture (whine and fruit(, fisheries, forests. (Copper earlier had been Chile’s major export, but exports were diversified);•The growth could be attributed to growth and quality improvement of capital and labor, as well as increases in total factor productivity;•Technology was largely imported, •Chile is now seeking to use its good institutional and policy environment to move into new industries and technologies in order to strengthen growth.

CHILE

Growth accounting for periods of rapid growth

Chile

•About three decades ago the Chilean economy began a deep process of economic reform. In the sixties and early seventies Chile had a closed economy with heavy state intervention.•Import tariffs were on average 105% with a high variance –some products had 0% while others 1000%. Copper represented more than 80% of total exports.•Price distortions were enormous with absolutely no relation between domestic relative prices and international prices. In the mid 1970s Chile started its process of economic reform.•After the military coup of 1973, the economy was moving from a highly intervened, towards a market-oriented economy. •Among the most important changes, the economic policy focused on price liberalizations, an aggressive opening of the economy to trade and international capital flows, a reduction of the size of government, and privatizations.

Chile

Chile

•In 1984 Chile started a long period of economic growth, not seen before in its history. Its economy grew at an average rate of 7% per year for fifteen years.•The economic boom from 1984 to 1998 was mainly due to TFP growth.•The most important determinants of this evolution of TFP were the evolution of terms of trade, improvements on the quality of capital, exogenous technological shocks, and the presence of distortions.•After the return of democracy in 1990, the major economic reforms formulated in the eighties were virtually unchanged. The newly appointed government reduced tariffs even further, from 15% to 11% (in 1991), and negotiated free trade agreements with Mexico, Colombia, Venezuela, Canada, Mercosur, the Eurepean Union, Korea, and the United States of America.

Chile

•The quality of labor (education) has increased steadily in Chile since at least 1960.•The quality of the capital stock was lower in 1985 than in 1960, but has increased rapidly since to surpass the 1960 level.•Good policies matter; the “share of fiscal expenditures on GDP” offsets the positive effects of the improvements of the quality of capital goods.•For the first time in a decade-and-a-half Chile had a recession in 1999. GDP fell 1.1% that year and, although growth resumed in 2000, it has not come back to its high levels since then.•It is now looking to new industries and new technologies to fuel its growth in the future.

CHILE: Stakeholders

•Government•Business (including state enterprises, especially CODELCO)•"Traditional" Universities•Other educational institutions•Organized civil society•Interested outsiders

Functions

•Policy and resource allocation•Regulatory (policy level)•Financing of contract research or technical services•Performance of innovation-related activities•HRD and capacity building•Infrastructure provision for innovation

Core functions of government Implementation functions

Chile has a variety of policies, programs and policy instruments dealing with aspects of scientific research, technological development and innovation, as well as technology diffusion, without a single body at the highest levels of government at which these policies were considered as a group.

CHILE

The National Commission for Scientific and Technological Research is ...designed to advise the President of the Republic on the planning of scientific and technological development.

The Presidential Advisory Commission on Scientific Matters advises the President of the Republic on the identification of actions which would accelerate the coordinated and sustainable development of science in our country.

CHILE: Key Innovation Financing Institutions

•CORFO: The Development Corporation•FONTEC: The National Fund for Technological and Productive Development•FONDEF: The Fund to Stimulate Scientific and Technological Development•FDI: The Fund for Development and Innovation•FIA: The Fund for Agrarian Innovation•FIM: Fund for Mineral Research•FIP: Fund for Fisheries Research•INDAP: Institute for Agricultural Development (extension and technology transfer)•Presidential Committee on Scientific Matters (Research Grants)•The Ministry of Planning (Scholarships for study abroad)•The Private Sector (<15% of the total)•Regional Governments

CHILE

CONICYT Funds•FONDECYT - The National Fund for Scientific and Technological Development •FONDEF - The Fund to Stimulate Scientific and Technological Development

Principal S&T institutions of the national system of innovation• The Universities•Technological institutes (INTEC, INFOR, IFOP, Fundación Chile, INIA, and CIMM)

Institutions providing the infrastructure for the national system of innovation•Standards and metrology•Intellectual property•Telecommunications and Internet infrastructure•Libraries•Major facilities for big science - the observatories

CHILE

Conclusions

•Ireland and Chile represent innovation success stories during the 1985 to 2000 period;•Both stressed innovation:

• Ireland in ICT related industries and •Chile in industries transforming its natural resources;

•Both benefited from human resource investments made before their growth spurts;•Both had developed policies and institutions that made economic growth and foreign investment more possible;•In both cases there were very great benefits to the people, with higher incomes, more jobs, and better social conditions;•Both countries are seeking to diversify their technological and industrial bases, in order to continue innovation lead growth.