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Stockholm University Department of Political Science Political Science III Course part 3: Independent Research Project

The concept of National System of Innovation (NSI) On the Research of the Finnish case

2012-08-13 Linda Snellman 870324-3363

Supervisor: Magnus Reitberger Examiner: Lisa Dellmuth

   

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Table of contents Introduction 1.1 Aim of the research question 3 1.2 Theory 3 1.3 Presentation of the literature 6 1.4 Methodology 8 1.5 Material 9 1.6 Limitations of the research 9 1.7 Structure of the paper 10 Historical Analysis 2.1 The Origins of The National System of Innovation 11 2.2 The Case of Finland 17 Theoretical Background 3.1 Defining The Concept of The National System of Innovation (NSI) 19 3.2 Understanding The Finnish National System of Innovation 24 Concluding remarks 27 References 28

   

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Introduction 1.1 Aim of the research question This case study seeks to investigate the concept of National System of

Innovation (NSI) and the case of Finland in particular. The NSI concept can

be studied in several different ways such as from political, economical or

social perspectives. It can also be studied on various levels, such as regional,

sectoral or national. I have chosen to examine the National System of

Innovation (NSI) approach from a political perspective at the national level.

The research question of this paper is the following: How can we define the

concept of National System of Innovation (NSI)? How can we understand the

Finnish National System of Innovation?

The research problem could be formulated as follows: in which ways can we

study the National System of Innovation concept (NSI)? In which ways can we

explain and describe the National System of Innovation of Finland?

1.2 Theory This part seeks at explaining further the concept of the National System of

Innovation system (NSI) that is the main approach used in this paper.

Lundvall, a very known professor that has much researched innovation

systems, has described several interesting aspects of the NSI concept that I

will shortly mention in the following section.

Overall, it can be noted that the analysis of innovation systems usually

focuses on innovation and learning, (Lundvall 2008: p. 109). Lundvall in his

article, National Innovation Systems – Analytical Concept and Development

Tool, (2007), offers a good understanding of the concept of National System

of Innovation (NSI). More interestingly, he raises a pertinent question in his

article, is NIS a theory or a theoretical concept? (Lundvall 2008: p. 98).

Edquist has also published various books and articles on innovation

processes, innovation systems and innovation policy, and argues in Lundvall,

   

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that the NIS concept is not a theory. While Lundvall doesn’t agree. According

to Lundvall the concept of NSI can be a useful and interesting ‘focusing

device’ in social sciences, (Lundvall 2007: p. 98). To Lundvall, the NSI

concept can be argued to be a theory that can help to clarify and explain

certain phenomena, that in other ways would not be understood or identified.

Hence, in this way the NSI does exactly what a theory is supposed to do: ‘it

helps to organize and focus the analysis, it helps to foresee what is going to

happen, it helps to explain what has happened and it helps to give basis for

rational action’, (Lundvall 2007: p. 99).

This paper aims to study the concept of the National System of Innovation

(NSI) by looking at different definitions given by several scholars. Of course

there are various ways to define the NSI concept and every country has a

specific national system of innovation. In this paper, I shall focus on the

particular case of Finland.

Lundvall (2007), argues that, originally the definition of NSI includes features

‘that interact in shaping innovation processes as well as elements that link

innovation to economic performance’ (Lundvall 2008: p. 99). Lundvall then

mentions that there are two dimensions in national innovation systems,

namely economic structure and institutions, (Lundvall 2008: p. 99). He also

emphasizes that the most significant ‘resource in the current economy is

knowledge and the most important process is learning’ (Lundvall 2008: p. 99).

However, Lundvall himself argues that many of these were left without any

clear form, and therefore I shall introduce his other attempt to clarify and

develop the original ideas of the NSI concept. There are three main

characteristics that are central to the NSI approach: ‘National, System and

Innovation’, (Lundvall 2007: p. 99)

Lundvall has in his various publications studied the NSI perspective and

therefore, I see him as a scholar, the most suitable to give an example of a

definition in this theory section. According to him, we should ask ourselves the

following question: why focus on the National Level? He argues that the word

‘national’ does not play such a controversial role in the study of NSI as could

   

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be thought. First of all, to Lunvall, modern social science has too little

understanding of nation states. Neverheless, different approaches argue on

the importance of nation states, and Lundvall himself notes for example that

‘liberal philosophy sees the nation state as a barrier to the free market while

Marxists see it as diverting the attention from class struggle’ (Lundvall 2007:

p. 99). From a historical point of view, nationalism is seen in a context of ‘anti-

scientitic ideologies’, and hence it is rarely linked to the concept of the nation

state. Lundvall then remarks that social science has overall given little focus

to the nation state; however, most of the economic analysis has usually been

made at the national level, in which there has been strong emphasis on

‘comparing economic growth and the wealth of nations’. In this way, Lundvall

believes that the NIS concept can help to understand for example national

economic policy strategies, (Lundvall 2007: p. 99)

More interestingly, to Lundvall, the concept of ‘globalisation’ has become also

very significant to the study of the NSI concept. Globalisation has offered new

dimensions about national studies in different societal discourses. He

importantly argues that in order to understand various problems that are

linked to globalisation and regional economic integration in Europe, one must

understand in which different ways ‘the historical role of national systems’ has

been transformed, (Lundvall 2007: p.100).

At last, Lundvall notes that there are rarely several alternatives to study the

analysis of national systems, since every system in different countries has its

own characteristics. A successful research strategy to study the NSI approach

is to do so it from different perspectives, as global systems of innovation that

include both a empirical and theoretical research work.

We must now define what a ‘system’ will refer to in this research paper. To do

this, I would also want to use to a definition from Lundvall. Some policy

makers have described the ‘system’ in mechanistic ways assuming that the

system can be easily constructed, governed and manipulated. However, this

is not that clear according to Lundvall. The original definition of a system is

clearer to him, and it is based on simple ideas, and it can be explained as

   

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follows: ‘First that the whole is more than the sum of its parts, second that the

interrelationships and interaction between elements were as important for

processes and outcomes as were the elements and that therefore we might

expect each national system to develop its own unique dynamics’, (Lundvall

2007: p 101).

The final aspect to be introduced here is innovation. Lundvall raises the

following question, ‘what is innovation?’. To Lundvall, following the tradition of

Schumpeter, innovation means ‘new combinations’. According to Schumpeter,

innovation can be for example, ‘new processes or ‘new forms of organization’

and so on. As I noted, Lundvall also argues that there is no universal way of

defining and analyzing innovation systems, and certainly no objective way to

choose between various definitions. (Lundvall 2007: p. 101) Nevertheless, the

authors of the Nordregio report, that is an analysis of the Nordic innovation

policies of relevance for regional innovation systems, namely Regionally

Differentiated Innovation Policy in the Nordic Countries - Applying the Lisbon

strategy (2008), notes that there is usually a common way to classify

innovation systems, and it is generally done in a hierarchical order, national,

regional and local systems. The analysis also addresses central questions

such as ‘how national policymakers can best apply the broad Lisbon strategy

goalsto the specific creation of regional innovation policies adapted to the

Nordic context’, (Hedin et al. Nordregio 2008: p. 28), However, in this

research paper I shall focus on the national level of innovation systems.

1.3 Presentation of the literature I shall shortly describe the literature used in this paper and the scholars that I

see as most important for this study. Lundvall, Freeman, Archibugi, Edquist,

and Schienstock, among several others, are all internationally recognized

scholars in studies of social sciences but more significantly in innovation

studies.

This research has used several of Lundvall’s publications, such as the

interesting article, National Innovation Systems—Analytical Concept and

   

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Development Tool, (2007) and the book written in collaboration with the

widely known Italian economist and political theorist, Archibugi, The

Globalizing Learning Economy, (2001). Lundvall has been working for a long

time particularly focusing in the field of innovation, as a professor at the

Department of Business Studies at Aalborg University in Denmark and he

currently teaches at Sciences-Po Paris, in France. Lundvall has been inspired

by Schumpeter and Nelson, and Lundvall’s mentor is Freeman. They have

both been working on several important projects and collaborations studying

innovation systems and the learning economies. Freeman is an English

economist that can be seen as one of the founders and directors of Science

and Technology Policy Research in England. He is considred as one of the

most recognized researchers in innovation studies. This paper has used

Freeman’s article, The 'National System of Innovation' in historical

perspective, (1995).

I have also used various publications and policy reviews in this paper, written

for example, by the Organisation For Economic Co-Operation and

Development (OECD). Such as its publication entitled National Innovation

Systems (1997), which is very significant paper for the study of national

system of innovation since it includes the basic definition of the NSI approach.

I have also used some other publication of the OECD, such as the

Governance of Innovation Systems (2006), examining different countries,

including Finland. In addition, I used the OECD paper, Innovation Policy and

Performance (2005) which also studies the case of Finland. Lastly, I have

studied several policy reviews from the Science and Technology Policy

Council of Finland, for example Knowledge, innovation and

internationalization (2003) or Science, Technology, Innovation (2006),

Helsinki. I have then used documents published by the Finnish Government

such as the Government's communication on Finland’s National Innovation

Strategy To The Parliament (2009).

   

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1.4 Methodology This paper has used a case study method to focus on the concept of National

System of Innovation (NSI), and to further investigate the case of Finland,

which is the single unit to be studied.

The unit of analysis of this paper is the concept of National System of

Innovation (NSI), that can be defined and understood in different ways, but

which can help also to explain the Finnish model of innovation system.

This paper will study generally the National System of Innovation from an

empirical perspective, to give the reader an understanding of the historical

background, and then offer in a second part a theoretical analysis that aims to

conceptualize the NSI concept.

The case study method has of course weaknesses and strenghts. Alexander

& Bennett has studied case studies in social sciences, and in their book, Case

Studies and Theory Development in the Social Sciences (2005), they mention

that case studies are usually strong where formal methods are weak. For

example, the case study method usually includes a small number of variables,

contrary to the statistical method that aims to include as many variables as

possible to provide the best explanations possible. One of the strengths of the

case study method is its potential to achieve high conceptual validity, in the

sense that case studies generally allow the researcher to reach ‘high levels of

conceptual validity’. This helps the researcher to investigate various indicators

that can best represent the theoretical concepts, which in this case is the

National System of Innovation approach (NSI) that can help understand the

Finnish model also. This is difficult to achieve in statistical studies.

The ontological considerations that Bennett & Alexander, but also Gerring

mention, is that there is a real world out there, and we know how it works, this

research is following this approach as well.

   

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1.5 Material The material in this research consists of primary and secondary sources. The

timeline stretches/spands a time period going from 1980 until today, since the

concept of National System of Innovation (NSI) became significantly

recognized, around the early 1980s. Most of the literature was written after the

1990s, and is quite topical enough to provide accurate information to the

research.

I have chosen to use books as, from Nordic writers such as Lundvall, as well

as international authors as Schienstock, and several others. The research

comprises also various policy reports and different other publications such as

from OECD or The Science and Technology Policy Council of Finland. All

material was written in English. The material was collected from the

Stockholm University library, the SUB database, Google Scholar and the

Internet.

1.6 Structure of the paper This paper is divided into two main parts; the main first part is a historical

analysis, in which important historical aspects are discussed of the historical

origins of the concept of National System of Innovation (NSI), and also

focusing on the case of Finland, and the development of Finnish Science and

Technology Policy that is an important part of Finland’s National System of

Innovation.

The second part is a section in which I shall attempt to define the concept of

National System of Innovation, and I have used for this, several different

perspectives written by various scholars and notably, the work of OECD is

important to this matter. I shall also attempt to explain how can we understand

the Finnish National System of Innovation in looking at different publications

by the Finnish Science and Technology Policy Council, Finnish Government,

several scholars and the OECD.

   

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At last, the final part of this paper is a concluding summary of the main

findings of this study. I shall shortly describe the main aspects that have been

discussed/researched in this paper.

1.7 Limitations of the research One main limitation of this paper is that the concept of National System of

Innovation (NSI) is a very wide concept that includes several different

concepts and perspectives. Therefore, I had to leave out many relevant

approaches that are linked to the NSI concept, and I decided to focus on more

political aspects on the national level. However, the NSI can

   

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The Historical Analysis 2.1. The Origins of The National System of Innovation The purpose of this section is to illustrate the origins of the National

Innovation System. Scholars such as Freeman, Lundvall, and several others

have studied the development of the National Innovation System and I will be

using their theories/work as background.

Lundvall wrote a very interesting article in 2007 in which he discusses the

following question: ‘why we should study national systerms and national styles

of innovation?’ Accordingly to him, the National System of Innovation

approach concludes that important parts of the knowledge base are tacit and

emerge from routine basic learning-by-doing-, using and interactin rather than

from science and technology search activities. A sociological system

approach is functional and deterministic, whereas an innovation style

approach refers to patterns of behaviour. To understand the style of

innovation better a four-fold taxonomy of knowledge is proposed: knowledge

about facts, knowledge about principles and laws of nature, the skills and

capability to do something, and knowledge about who knows how to do what.

The mix of these four knowledge factors will characterize the style of

innovation, (Lundvall, 2007).

Lundvall then studies the importance of institutions. He argues that the focus

on ‘interactive learning’ evokes also the important role of economic structure

and institutions in determining the rate and direction of innovative activities.

‘Institutions’ understood as norms, habits and rules are deepily ingrained in

society. They play a major role in determining how people relate to each other

and how they learn and use their knowledge. In an economy characterized by

on-going innovation and fundamental uncertainty the institutional setting will

determine how the economic agents behave. One weakness with such a

broad definition of institutions may be that they exist in a vague form

everywhere as something ‘in the air’, (Lundvall, 2007).

   

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He then notes that an almost generally accepted distinction between a more

short-term perspective as characterizing corporate governance in Anglo-

Saxon countries and a more long-term one, in for instance, Japanese

investment decisions is one important example of how institutional differences

have a decisive influence on the conduct and performance at the national

level. It is quite obvious that this distinction is important not only for the

allocation of finance but also for other aspects of technical innovation,

(Lundvall 2007 p: 409-410).

Lundvall then poses an interesting question: why National Systems? He notes

that several scholars have ‘welcomed’ the concept of the ‘system of

innovation’ but have been critical of the focus on ‘national’ systems. There

have been numerous contributions refocusing the analysis on other levels

such as the region, the firm, the technology and the sector. These studies

have generally prensented themselves as more relevant than analysis at the

level of the national system. Some argue that the natonal level is not the most

relevant when it comes to analyzing innovation since innovation systems are

rather local or transnational than national in scope. Others have been critical

for political reasons and have argued that focus on the national level invites

policy-makers to look for protectionist solutions on ‘beggar-thy-neighbour

policies’. Krugman in Lundvall make a similar point to this, (Lundvall 2007: p.

412).

Lundvall, focusing on various policy arguments for analyzing Innovation at the

National Level, argues that despite globalisation of innovation activites

becoming stronger, the analysis of national systems is significant for the

following reasons:

- Standard economics is extremely national in its analytical focus. This is true for

almost all applied research in the field including the analyses by international

organizations such as OECD, the World Bank, etc. Analytical work on aggregates for

multinational regions, or at the level of the global economy, is still marginal and

exceptional. As a result the national dimension is already there, but it remains

implicit and un- specified-almost in a sub-conscious form. Explicitly emphasizing

   

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'national' systems may actually contribute to make the national dimension of standard

economics explicit and thereby transform it into a possible target for criticism.

- The dominating discourse regarding economic policy-including monetary and

fiscal policy as well as labour market and social policy refers to the national level. To

abstain from analyzing innovation at this level implies that the economic policy

discourse becomes completely dominated by a static allocation perspective. Actually,

this kind of imbalance in the debate may be one major reason for the hegemony of a

simplistic neo-liberal agenda for economic policy.

- Some experts have challenged the national perspective with a reference to the

process of globalization and the process of regional integration, especially the

formation of the European Union. There is little doubt that we are in the midst of a

process of change, which affects the economic role of the nation and specifically the

location of innovation activities in this context. But rather than concluding that the

national level becomes analytically less relevant, I would argue that this is yet

another reason for analyzing the role of 'national' systems of innovation. Pacinetti

discusses the historical role of the nation state as a framework for economic growth

and for the promotion of learning among producers and consumers. The modern

welfare states developed in the post-war period may be regarded in this light. They

did not only-and this is the aspect rightly emphasised by the Regulation School-

ascertain an income distribution which was compatible with a kind of sustainable

macro-economic growth. They also made it more attractive and less risky for broad

segments of the population to participate actively and positively in the process of

learning, innovation and change.

- It is correct that globalization and European integration represent strong and

complex challenges to the historically constructed national welfare states and to the

existing national systems of innovation. It is difficult to see how these challenges can

be understood if we do not take our starting point at the national level. And without

such an analysis it is also difficult to understand what kind of international

institutions are needed as substitutes for the old national systems when these are

undermined. The stronger the forces that tend to undermine the national systems the

stronger the need to understand the historical role of the nation.

- All this is not an argument against alternative analyses of innovation systems at the

level of intra- or transnational regions or at the level of technologies, sectors or

   

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firms. On the contrary, it is only by breaking down national systems into the sub-

systems that constitute them that we can understand how they develop. Neither is it an

argument for treating national systems as closed or even as especially coherent. The

specific way that a national system gets integrated into the international economy is a

key to understand its internal dynamics. My point isjust that it is legitimate and

important to make progress in the analysis of national systems, (Lundvall 2007: p.

413-414).

Freeman has written a widely known article among the scholars of innovation,

entitled The 'National System of Innovation' in historical perspective, 1995. He

interestingly agrees with Lundvall, in the way that contrary to some recent

work on so-called ‘globalisation’, his paper argues that national and regional

systems of innovation remain an essential domain of economic analysis.

According to Freeman, the first person who used the expression ‘National

System of Innovation’ was Lundvall, that in his ‘highly original and thought-

provoking book of 1992 on this subject. Nevertheless, Freeman mentions that

Lundvall would argue that the origins go back at least to Friedich’s List.

Friedich was a leading German economist, a forefather of the German

historical school of economics, and is regarded as the original European unity

theorist, who we can say, developed the National System, that we call today

the National System of Innovation.

Freeman also notes that national institutions have powerfully affected the

relative features of technical change and hence of economic growth in various

countries. The variations in national systems which have been described are

of course extreme contrasting cases. Nevertheless, Freeman notes that

these features have certainly played a role, of world development in the

second half of the twentieth century and they point to uneven development of

world economy. He notes that differences in national systems are also very

important between Japan, the United States and the EC and between

European countries themselves, as the major comparative study between

more than a dozen national systems of innovation illustrates.

   

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Lundvall has published an article together with, Johnson, Andersen and

Dalum, National systems of production, innovation and competence building,

(2007). They note that nobody expected the idea about the innovation system

approach when first discussed in 1980s, to become so widely know as it is

today. Accordingly to the authors, today’s OECD, the European Commission

and The United Nations Conference on Trade and Development (UNCTAD), have absorded the concept as an integral part of their analytical

perspective. The World Bank and IMF have been more reluctant but even

here change seems to be taking place. Sweden for example, has given the

concept legitimate status in its own particular way by naming a new central

government institutions (an ‘ämbetsverk’) VINNOVA which stands for ‘the

Systems’ for Innovation Authority’. Nevertheless, they argue that it is

interesting to speculate about why the concept has diffused so rapidly among

scholars and policy-makers. One of the reasons is that mainstream

macroeconomic theory has failed to deliver an understanding and control of

the factors behind international competiveness and economic development. In

addition, another reason could be that the extreme division of specialization

among policy analysts has become such a substantial problem that ana

analytical concept that thelps to overcome these problems was welcomed not

least among those responsible for innovation and science policy.

According to Lundvall, the concept diffused today tends to enter broader

circles of scholars and policy-makers focusing on economic growth and

development. Furthermore, the emphasis on national systems is, of course,

controversial to the authors in a context characterised by so-called

globalisation. They note that for example, in the case of Minerva, it is only

when an institution (in this case nation-state) is becoming seriously

threatened that we begin to understand the importance and fundamental

functions of national systems. Thus, it is also important to mention according

to Lundvall, that most empirical studies show how far globalisation processes

have undermined national systems which seems to indicate that the national

level is important for certain innovation activities. Finally, it might be argued

that the growing proximity and potential tension among national systems

   

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brought about by globalisation are factors increasing the demand for

understanding nation-specific systemic differences between innovation

practices that relate to international trade, (Lundvall 2002, p: 214)

The National System of Innovation (NSI) concept became more widely

diffused through Christopher Freeman’s book on Japan (Freeman, 1987),

through a publication edited by Freeman on small countries (Freeman and

Lundvall, 1988) and not least through the publication of the Dosi et al. book on

technical change and economic theory with contributions on national

innovation systems by Freeman, Nelson, Lundvall and Pelikan (Dosi et al.,

1988). More recent standard references on national systems of innovation are

the three books edited by Lundvall (1992), Nelson (1993) and Edquist (1997).

Other contributions referring to systems and operating at the national level

refer to ‘‘social systems of innovation’’ (Amable et al., 1997) and to ‘‘national

business systems’’ (Whitley, 1994, 1996).

Larédo & Mustard in their book of 2003, Research And Innovation Policies In

The New Global Economy: An International Comparative Analysis, note that

the analysis of science and technology policies is now an exercise of some

long standing, initiated by the OECD at the beginning of the 1960s. They note

that when reading the first analyses today, one can see the extent to which

they anticipated the conceptual developments of the 1980s and in particular

the pioneering works of Freeman and Lunvall on national system of

innovation. These authors have rekindled interest in international

comparisons, a primary result of which was the collection edited by Nelson, in

1993. After this, the 1990s have, according to Larédo & Mustard, been

characterised by contradictory changes; the emergence of Europe was offset

by the break-up of the Soviet Union and the ‘Balkanisation’, of the former

Eastern bloc countries. The authors have studied the analyses that were

conducted a decade ago. They have chosen to closer study closer Nelson’s

method, favouring national approaches, (Larédo & Mustard 2003 p:1-2) To

Larédo & Mustard, the shared thesis argues that national systems of

innovation of each country can be characterised having a specific body of

sectoral specialisations, of rules, routines, of institutional organisations and

   

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achievements. The NSI concept emphasizes economic of innovation focusing

particularly in learning processes, institutional, social and political factors.

The Case of Finland Lemola in Schienstock (2004) studies various phases that are important to the

development of Finnish Science and Technology Policy, which has shaped

the Finnish System of Innovation in important ways. In addition, Lemola in hist

article (2001), speficically studies convergence of national and technology

policies, focusing on the case of Finland.

According to Lemola, it was not until 1960s, that economic significance of

science and technology policy and research and development (R&D), was

raised as a topic of debate and development in Finland, which is later than in

larger and more developed OECD countries. In the 1970s, the development of

Finnish Science and Technology Policy proceeded quickly in Finland and

particularly from the early 1980s. Economic integration into Western Europe

was set as the main goal of Finnish economic and social policy as early as the

1960s. The concept of growth policy, which by then had gained a foothold in

Finland, advanced the role of government in supporting and promoting the

innovate activity of firms. Several significant changes took place during these

years, in the institutions and organizations of Finland’s Science and

Technology Policy, (Scienstock 2004: p. 270).

Lemola in Schienstock describes that during these years, the policy doctrines

were established that included central arguments of science and technology

policy. These comprised the definition of science and technology policy and

R&D, the main arguments for the role of government in R&D and for the

growth of R&D investments, and arguments and instruments for the promotion

of industrial R&D. These policy doctrines were adopted from Sweden and the

OECD. The first actual Finnish Science and Technology Policy programmes

were written in the early 1970s, and consisted to a large extent of translations

of OECD documents. For example the, Brooks Report 1971 was significantly

influential. It also included recommendations on the role of science and

   

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technology in social and economic development, and accordingly for the

development of a closer relationship between policies for science and

technology and all socio-economic concerns and governmental

responsibilities, found fertile spil in Finnish science and technology policy-

making. This led to the implementation of new planning mechanisms and to

the introduction of the first Finnish plan for increasing the financing of R&D. In

1963, a ministerial committee on science, later named, the Science and

Technology Policy Council, was established and that represented a new high-

level political body for the formulation of science and technology policy

guidelines, and for interministerial co-ordination of science and technology

activities. The model of the council was taken interestingly from Sweden

(Forskningsberedning), that earlier was adopted from the United States. The

third change that Lemola explains is the reform of the Academy of Finland in

1969-71. The new system was very much built on the basis of the Swedish

model (Forskningsrådet), (Schienstock 2004: p. 271).

Fourthly, a very important factor when it comes to the construction of Finnish

Science and Technology policy were the measures taken in aiming to improve

conditions of R&D in Finland. A new fund was created in 1967, under the

funding of the Bank of Finland, namely the Finnish National Fund for

Research and Development, (Sitra). Nevertheless, the Ministry of Trade and

Industry began in 1968 to support the research and product development of

firms, etc. This also opened a new way for institutional and organizational

changes outside the higher education system. The universities were put in a

central position in the Finnish modernization process and this for various

reasons. One reason was the increasing awareness of the significance of

higher education and basic research for economic and industrial

development, and accordingly, greater demand for employees with a

university degree. The second was the creation of a regional dimension,and

the political pressure to establish new universities outise the capital city of

Helsinki, (Schienstock 2004: p. 271-272)

   

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Theoretical Background 3.1 Defining The concept of National System of Innovation (NSI) The analysis which will be conducted here is a conceptual analysis aim at

clarifying the concept of the National Innovation System, (NIS). The NIS

concept is very wide and for that reason it is difficult to find one single

definition. However, I have chosen certain scholars that have published

litetature, which I see most relevant for the understanding of National Systems

of Innovation and of both how they work and they can be defined.

There are several different aspects that should be clarified, first of all, the goal

here is to find some basic conceptions of the concept and secondly, to explain

the policy perspective or the role of institutions and the government. In the

following sections, I shall study different perspectives given by various

scholars that have studied National Innovation Systems.

As noted earlier in the historical part, the OECD has been very influential in

providing basic arguments and definitions for the National Innovation Systems

approach. OECD has published various papers on the National Innovation

concept. For example, in its 1997 publication, OECD notes that the study of

national innovation systems usually focuses on flows of knowledge. The

analysis of the study is generally focused on improving the performance in

‘knowledge-based economies’. Overall, they mention that economic activies

are becoming increasingly ‘knowledge-intensive’ seen in various growth

areas. Hence, investments made by countries, are directed to research and

development, education and training, and innovative work that are seen

crucial to economic growth. The 1997 OECD publication also notes that a the

National System of Innovation (NSI) approach is concerned with the growing

attention given to the economic role of knowledge, (OECD 1997: p. 11).

Hence, while economic activities are becoming more knowledge-intensive,

   

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this also means that a wide and increasing number of institutions are

becoming important in this process, (OECD 1997: p. 12).

Nevertheless, according to OECD (1997), Innovation is a consequence of a

complex relationship between various actors and institutions such as public

and private research institutes, universities and so on. More interestingly, the

publication further argues that the concept is related to policy relevance. In

other words, according to OECD, for policy makers it is important to

understand the relevance of the national innovation system, and to identify

different aspects or problems. This can help policy-makers to see general

mistamatches within the system, ‘both among institutions and in relation to

government policies, which can thwart technology development and

innovation’ (OECD 1997: p.13).

OECD concludes that the understanding of the concept of national innovation

systems lies in understanding the linkages among the actors that are involved

in innovation is central to improve technology performance.

See Box 1 by OECD, which describes different definitions of National

innovation systems, given by various scholars.

   

21

Box 1. OECD, 1997, National Innovation Systems, Paris, p. 9

The OECD country that also included Finland, (2006) Governance of

Innovation Systems, investigated the information about society and

governance and their links to innovation policy in Finland and was written by

Oksanen. Oksanen mentions in the publication that the Finnish information

society and Science and Technology Innovation (STI) Policymaking has

developed rapidly in Finland. He notes that the driving forces to this matter

has been the international competitiveness and wealth creation in the global

economy aspects. Oksanen mentions that the information society have been

on the Finnish policy agenda, since the mid-1990s, and various strategies,

and action plans are still made, involving different actors such as stakeholders

representing private companies or civic associations. Hence, he notes that

10

Box 1National innovation systems: definitions

A national system of innovation has been defined as follows:• “ .. the network of institutions in the public and private sectors

whose activities and interactions initiate, import, modify and diffusenew technologies.” (Freeman, 1987)

• “ .. the elements and relationships which interact in the production,diffusion and use of new, and economically useful, knowledge ... andare either located within or rooted inside the borders of a nationstate.” (Lundvall, 1992)

• “... a set of institutions whose interactions determine the innovativeperformance ... of national firms.” (Nelson, 1993)

• “ .. the national institutions, their incentive structures and theircompetencies, that determine the rate and direction of technologicallearning (or the volume and composition of change generatingactivities) in a country.” (Patel and Pavitt, 1994)

• “.. that set of distinct institutions which jointly and individuallycontribute to the development and diffusion of new technologies andwhich provides the framework within which governments form andimplement policies to influence the innovation process. As such it isa system of interconnected institutions to create, store and transferthe knowledge, skills and artefacts which define new technologies.”(Metcalfe, 1995)

   

22

Finland’s scicence and technology policy making has been ‘more concrete

and more coherent’ than other development policies of the information

society’, (OECD 2006: p. 34) Oksanen then discusses the focus on

governance in the development of the information society in Finland and the

dialogue with innolvation policy. It indeed brings several challenges, but also

opportunities to Finland. (OECD 2006: p. 35)

OECD has in addition published a report in 2005, that is very interesting for

the case of Finland. It is a cross-country comparison focusing on innovation

policy and performance. As the OECD 2006 publication notes, Finnish

Science and Technology, and Inovation (STI) policies have been highly by

other countries. The paper is a qualitative description of the Finnish innovation

environment, policies and performance. The central emphasisof is to study

long-term development, to clarify and identify particular characteristics of the

structure and dynamics of the Finnish innovation system and importantly, the

process of policy-making, (OECD 2005: p. 99).

As other authors such as Lemola have noted, the OECD report mentions the

changes that took places in the 1980s, were crucial for the setting up of the

institutional agenda of Finland. For example, Tekes (The National Technolofy

Agency) in 1983, was created mainly to govern and promote technology

programme mechanisms. What is most interesting in the report, is that it

states that a key institution in the Finnish innovation system is the Science

and Technology Policy Council, established in 1987. Since its creation it has

had a high political status and has been directed by the Prime Minister. The

members of the council are key players in the innovation such as cabinet

ministries of science, ministers appointed by the government, universities, and

other institutes and agencies, (OECD 2005: p. 103).

As a result, OECD has concluded that the Finnish case of the Innovation

system is quite ‘straight-forward’ in the sense that its main structures were

created in the 1980s, following technological development. OECD notes that

Finnish firms also played a key role in diffusing new knowledge and

technologies. Overall, the Finnish case can be seen as successful according

   

23

to the OECD publication, even though it took few decades to become what it

represents today. Some of the reasons for the success were a creation of a

policy consensus that was effective in the development of the knowledge-

economy and the fact that timing was also right, (OECD 2005: p. 112).

Ormala for Schienstock discusses the Finnish Innovation System in a

European perspective, (2004), Embracing the Knowledge-Economy: The

Dynamic Transformation of the Finnish Innovation System, studies Finnish

Innovation Policy in the European Perspective. As noted by, Archibugi and

Lundvall, knowledge has become the driving force of economic growth, social

development and employment in various industrialised countries, and the

primary focus is the competitiveness aspect in the world markets. Ormala

notes that in general, OECD countries has been going through a process of

transition from resource-based economies towards knowledge-based

economies. He also argues that the concept of the national system of

innovation is a complex entity.

Lundvall has written several books, publications and articles that study the

concept of National Innovation Systems. His book National Systems of

Innovation: Toward a Theory of Innvovation, 1992, as in this other

publications, seeks to provide the reader with a theoretical understanding of

interactive learning and innovation. He for example mentions that the concept

‘national system of innovation’ is useful when it comes to public policies at the

national and international levels. He argues that the government should

promote innovation in different ways, and therefore notes that it is relevant to

know in which ways the government can intervene. As in his several

publciations, he questions why the analysis of innovation should focus on the

national level. In his book (1992), he notes innovation analysis on national

level, is significant since internationalization and globalisation are increasing

(Lundvall 1992: p. 4).

Nevertheless, he also questions the role of the government in an innovation

system. To him, government policies usually either diffuse weaknesses of the

national system or introduce positive mechanisms to make the innovation

   

24

system successful. It is also important for government to understand how

investments in science and development of new technology is important to

understand at a national level, (Lundvall 1992: p. 5). Lunvall also mentions

that institutions are important in the system of innovation, as collective agents,

and they play a key role in innovative activities of economic life. For him,

institutions make possible for economic systems to act in this world, and it is

the ruling and guiding of institutions that make the innovation process

possible. He also explains in Archibugi, for example, that the focus has now

moved from science policy with broad social objectives towards an innovation

policy that is focusing on the impact of economic performance, (Archibugi &

Lundvall 2001).

Sigrid together with several other contributors, in the Nordregio Report, of

2008, aims to identify the Nordic Model of Innovation, that explains that the

Nordic countries, share similar characteroistics regarding their governance

challenges and policy styles. (Nordregio Report 2008: p. 25).

Understanding The Finnish National System of Innovation

I shall now focus on a question that was earlier stated in the research

question: How can we understand the Finnish National System of Innovation?

Lemola notes that in many respects, the Finnish Science and Technology

Policy that is a important part of its National Innovation System. According to

him, The Finnish System of Innovation is a well working system that involves

different actors, such as the government, universities and several other

research institutes. Finland has overall been following OECD

recommendations on the NSI concept, and the Finnish NSI concept has

almost become indentical to the one of OECD, as defined in the publications.

Overall, we can say that the Finnish Science and Technology Policy has been

strongly focusing since the 1990s, on the further development of science and

technology, after surviving the economic recession of the early 1990s.

   

25

Nevertheless, Lemola in his article of (2001), and in Schienstock (2004) in

their book together note that, the building blocks of Finnish science and

technology policy doctrine of 1990s can be understood as a central part of the

national innovation system and also the knowledge-based society. The

concept of a national innovation system was introduced as a key instrument

for defining the Finnish sciene and technology policy, mainly with the help of

the Science and Technology Policy Council in 1990. The role of the Science

and Technolofy Policy Council is still strong in the development of the Finnish

national innovation strategy, as noted in several reports written by the Council

itself such as the review (2003) Knowledge, innovation and

internationalization, or, (2006) Science Techonlogy and Innovation (2006),

that clearly both emphasize the role of a sustainable and balanced social and

economic development, Both reports alsoput great emphasis on the further

development of the innovation system of Finland.

In order that to better illustrate the Finnish Innovation strategy that is offered

in the report of the Science and Technology Policy Council of Finland (2002), I

decided to include the picture below, which shall explain the Finnish National

Strategy of Innovation, which emphasizes greatly societal and economic

development as basic prerequisities for social and technological innovations

to be possible. See Figure 1.

   

26

Figure 1. Science and Technology Policy Council (2003), Knowledge,

innovation and internationalization, p. 5

This similar National Strategy of Innovation is mentioned in the 2003 and

2006 reports written by the Science and Technology Policy Council, which

shows that Innovation is a significant part of the Finnish Science and

Technology Policy development plan. Overall, Finland in its Governmental

reports, the National Strategy has focused enhancing a combination of

societal and economic development has a basis for developing a good

innovation environment in Finland.

!

! "

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

"!#!$!%!&!"!#!'!!(!$!)!#!$!*!+!,!

(-./01!023!45.62-1-7/.01!/22-804/-29!

>1(1(?4$%$-(%!*)1!$'')2+-$)'.!!$'')2+-$)'!('2$1)'5('-%!

@),$(-+&!+'3!(,)')5$,!3(2(&)05('-!

   

27

Conclusing remarks

We can conclude that the Finnish National System of Innovation

strategy/approach is very close to the OECD model, since it Finland adopted

its model originally from Sweden and OECD. Looking at Finland’s National

Innovation strategy, when studying various policy publications, for example, of

the Science and Techology Policy Council and the Finnish Government, we

can find that Finland has been emphasizing a knowledge-based economy,

that seek to put the successful development of the National Innovation

System as today’s main task, but also as one of the relevant future goals.

However, Finland has gone through an economic recession as well, and,

considering the fact that it is a small country, it has not been easy to recover

from this recession. Many of the authors of this research, such as

Honkapohja, notes that Finland has survived the recession partly due to a

successful strategy of Finnish Science, Technology and Innovation Policy.

The different organizations, intstitutions and the Finnish government play a

key role in the development of Finland’s System of Innovation. What can be

understood from the various Finnish policy documents, the Finland has

emphasized along many years, a National Innovation Strategy, that enhances

a combination of societal and economic development as a basic prerequisite

for social and technological innovations to further develop.

Overall, it can be noted, that several scholars, as Lundvall, Edquist, Archibugi,

Freeman, and OECD, among others, have been generally very important for

the study of National Systems of Innovation (NSI). Nordic writers such as

Schienstock has also studied the Finnish System of Innovation and its

relevant aspects that are interesting to study closer. The Science and

Technology Policy Council, together with various other Finnish institutions and

the Finnish Government have been very influential for the successful

development of Finnish Science and Technology Policy, that is a central part

of the Finnish System of Innovation.

   

28

References Books Archibugi, Daniele & Lundvall Bengt-Åke (2001), The Globalizing Learning Economy, Oxford University Press Castells, Manuel & Himanen, Pekka (2002), The Information Society and the Welfare State: The Finnish Model, Oxford University Press, Sitra’s publication series, Helsinki George, Alexander, L. & Bennett, Andrew (2005), Case Studies and Theory Development in the Social Sciences, The MIT Press Gerring, John (2004), What Is a Case Study and What Is It Good for?, American Political Science Review, Volume 98, Issue 02, May Honkapohja, Seppo & Koskela, Erkki A. & Leibfritz, Willi & Uusitalo, Roope (2009), Economic Prosperity Recaptured: The Finnish Path from Crisis to Rapid Growth, The MIT Press Schienstock, Gerd & Kuusi, Osmo (1999) Transformation Towards a Learning Economy, SITRA Schienstock, Gerd (2004), Embracing The Knowledge Economy: The Dynamic Transformation of the Finnish Innovation System, Edward Elgar Publishing Limited Tisdell, C.A. (1981), Science And Technology Policy: Priorities of Governments, CHAMPAN AND HALL, New York Publications, articles and online books Biegelbauer, Peter & Borrás, Susana (2003), Innovation Policies in Europe and the Us: The New Agenda, Ashgate http://www.google.se/books?hl=sv&lr=&id=zRapkAKZLDMC&oi=fnd&pg=PR7&dq=Innovation+Policies+in+Europe+and+the+Us:+The+New+Agenda&ots=LpwxjkNjf7&sig=KBldJZ9oJPKFNMmOeNsEBS196Mw&redir_esc=y#v=onepage&q=Innovation%20Policies%20in%20Europe%20and%20the%20Us%3A%20The%20New%20Agenda&f=false Edquist, Charles & Hommen, Leif (2008), Small Country Innovation Systems: Globalization, Change and Policy in Asia and Europe, Edward Elgar Publishing Ltd http://www.google.se/books?hl=sv&lr=&id=s9giP7KhtJ0C&oi=fnd&pg=PR1&dq=Swedish+and+Finnish+national+innovation+system&ots=trcFvJbhyi&sig=aQXr3qk1fzcMGTXYwU8dMgNt8DI&redir_esc=y#v=onepage&q=Swedish%20and%20Finnish%20national%20innovation%20system&f=false

   

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Edquist, Charles (1997), Systems of Innovation: Technologies, Institutions and Organizations (Science, Technology and the International Political Economy Series), London: Pinter Publishers http://books.google.se/books?id=Sf0POR0ffWEC&pg=PA86&hl=sv&source=gbs_toc_r&cad=4#v=onepage&q&f=false Freeman, Chris (1995), The 'National System of Innovation' in historical perspective, Cambridge Journal of Economics 1995, 19, 5-24 Larédo, Philippe & Mustar, Philippe. (2003), Research And Innovation Policies In The New Global Economy: An International Comparative Analysis, Edward Elgar Publishing Ltd http://www.google.se/books?hl=sv&lr=&id=fNUvQVGLjT8C&oi=fnd&pg=PP13&dq=Finnish+Science+and+Technology+Policy&ots=TP_-S3Mm2_&sig=ZFAMpCTj2ns77-VvVuOWRCvd634&redir_esc=y#v=onepage&q=Finnish%20Science%20and%20Technology%20Policy&f=false Lemola, Tarmo (2002), “Convergence of national science and technology policies: the case of Finland”, Research Policy, Vol.31 Lundvall, Bengt-Åke (2007), National Innovation Systems: Analytical Concept and Development Tool, Industry and Innovation, Vol. 14, No. 1, 95–119, February Lundvall, Bengt-Åke and Borrás, Susana (1998), The Globalising Learning Economy: Implications for Innovation Policy, Brussels: Commission of the EU Lundvall, Bengt-Åke & Borrás, Susana (2005), Science, Technology and Innovation Policy, Chapter published in Fagerberg, Jan, Mowery, David C. and Nelson, Richard R. (2005) (eds): Innovation Handbook, Oxford: Oxford University Press, Chapter 22. Pages 599-631. Lundvall, Bengt-Åke (1992), National Systems of innovation: Towards a theory of innovation and interactive learning, Pinter, London http://books.google.se/books?id=iDXGwacw-4oC&printsec=frontcover&hl=sv&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false Lundvall, Bengt-Åke & Johnson, Björn (1994), The Learning Economy, Journal of Industry Studies, 1:2, 23-42 Lundvall, Bengt-Åke &, Johnson, Björn & Andersen, Esben S. & Dalum, Bent Dalum (2001), National systems of production, innovation and competence building, Department of Business Studies, Aalborg University Lundvall, Bengt-Åke (1998), Why study national systems and national styles of innovation?, Technology Analysis & Strategic Management Volume 10, Issue 4

   

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Ministry of Education in Finland, (2009), Evaluation of the Finnish National Innovation System – Policy Report, Taloustieto Oy (on behalf of the Ministry of Education and the Ministry of Employment and the Economy) http://www.tem.fi/files/24928/InnoEvalFi_POLICY_Report_28_Oct_2009.pdf Nelson, Richard. R. (1993), National Innovation Systems: A Comparative Analysis, Oxford University Press, New York http://www.google.se/books?hl=sv&lr=&id=YFDGjgxc2CYC&oi=fnd&pg=PR9&dq=swedish+science+and+technology&ots=Oo7uomXvWU&sig=bORJRBiigt8TcXudawwHTu8PKqA&redir_esc=y#v=onepage&q=swedish%20science%20and%20technology&f=false OECD (1999), Managing National Innovation Systems, OECD, Paris OECD (1997), National Innovation Systems, (OECD), Paris http://www.oecd.org/science/innovationinsciencetechnologyandindustry/2101733.pdf OECD (2005), Innovation Policy and Performance: A Cross-Country Comparison, OECD, Paris OECD (2006), Governance of Innovation Systems, Volume 3: Case Studies in Cross-Sectoral Policy, OECD, Paris Respectfully, the Steering Group hereby submits its proposal for a National Innovation Strategy to the Ministry of Employment and the Economy, (2008), Proposal for Finland’s National Innovation Strategy, Helsinki http://ec.europa.eu/invest-in-research/pdf/download_en/finland_national_innovation_strategy.pdf Sigrid Hedin et al. Nordregio (2008), Regionally Differentiated Innovation Policy in the Nordic Countries - Applying the Lisbon strategy (2008), Applying the Lisbon strategy. Nordregio Report Science And Technology Policy Council Of Finland (2000), Review 2000: The Challenge of Knowledge and Know-How, Helsinki http://www.minedu.fi/export/sites/default/OPM/Tiede/tutkimus-_ja_innovaationeuvosto/julkaisut/liitteet/Review_2000.pdf Science And Technology Policy Council of Finland, (2003), Knowledge, innovation and internationalization, Helsinki http://www.minedu.fi/export/sites/default/OPM/Tiede/tutkimus-_ja_innovaationeuvosto/julkaisut/liitteet/Review_2003.pdf Science And Technology Policy Council of Finland (2006), Science, Technology, Innovation, Helsinki http://www.minedu.fi/export/sites/default/OPM/Tiede/tutkimus-_ja_innovaationeuvosto/julkaisut/liitteet/Review_2006.pdf

   

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The Finnish Government of 2009, Government's communication on Finland’s National Innovation Strategy To The Parliament (2009) http://www.tem.fi/files/21010/National_Innovation_Strategy_March_2009.pdf The Steering Group hereby submits its proposal for a National Innovation Strategy to the Ministry of Employment and the Economy, (2008), Proposal for Finland’s National Innovation Strategy, Helsinki http://ec.europa.eu/invest-in-research/pdf/download_en/finland_national_innovation_strategy.pdf Research and Innovation Council of Finland Helsinki (2009), Internationalisation of Finnish Education, Research and Innovation, Research and Innovation Council of Finland Helsinki http://www.minedu.fi/export/sites/default/OPM/Tiede/tutkimus-_ja_innovaationeuvosto/erillisraportit/liitteet/KVstrategia_Eng.pdf