Next generation innovation policy The future of EU ... - Pianoo

Next generation innovation policy The future of EU ... - Pianoo

Next generation innovation policy The future of EU ... - Pianoo

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Next generationinnovation policyThe future of EU innovationpolicy to support market growthIn collaboration with:

Europe and the world: larger lags, smaller leadsAvailable data shows that around the world, it is mostly smallcompanies and young, leading innovators (so-called “yollies”)that contribute to growth and innovation through their talentand risk-loving attitude, which makes them “move“ the marketeconomy. Unfortunately, in this respect Europe also seems toperform quite badly compared with other regions of the world.US yollies contribute almost 40% of the R&D expenditure andsales of the top 1,400 R&D investing firms worldwide, whileEU ones only contribute approximately 7%. 5Figure 4R&D intensitiy and Yollies, EU vs. US605040302010%Following these tendencies Europe, absent a massive effort ofboth public and private players, risks being simply wiped awayfrom the “innovation map.”Figure 5EU vs. US – key indicatorsCountry averageNew doctorate degreesTertiary educationInternational co-publicationsMost cited publicationsPublic R&D expenditureBusiness R&D expenditurePublic-private co-publicationsPCT patentsSocietal challengesMed/hi-tech procuct exportsKnowledge-int.serv. exportsLicense and patens revenues-50 0 50 100 150 200 2500EUUSProportion of leading innovations that are young firmsShare of young firms in region’s R&D by leading innovatorsShare of young firms in region’s leading innovators’ net salesShare of young firms in region’s leading innovators’ employmentSource: European Commission (2011)Source: Bruegel/European Commission (2010)8

EU innovation: past mistakes,current prospectsThe EU innovation gap has a multitude of concurring causes,most of which have been extensively studied and highlighted inthe literature, as well as in official documents released by the EUand other institutions. 6 The level of public support to R&D andinnovation investments does not seem to be the real issue. It isnot the quantity of public funding of R&D and innovation, butrather its quality that hampers EU’s economic recovery.As a matter of fact, over the past few years there has been noshortage of initiatives on innovation policy in Europe. Aftera decade dominated by the Lisbon Agenda, the FrameworkPrograms for research, the 2001–2005 Multi-Annual Programfor SMEs, the Competitiveness and Innovation FrameworkProgram (CIP), the use of structural and cohesion funds, thei2010 and several other initiatives, EU institutions have realizedthat the ambitious goals set in 2000 had not been reached,and decided to put innovation even more at the forefront of EUpolicies for the years to come.This undesirable result can be seen as a combination of severalfactors.• First, responsibility for innovation policy is badly distributedbetween Brussels and national capitals. In several key sectorsin which innovation policy would require a coordinated andeven harmonized approach at the EU level (such as clusterpolicy or targeted policies that stimulate venture capital andR&D investment), national governments still retain theirprerogatives.• Second, regional policy funded by the EU budget has beeninsufficiently geared towards innovation, and coordinationof this policy with mainstream research and innovation policyin the European Commission has remained loose at best.One must add to this that the governance of regional policy,especially in terms of member states’ reporting of the way inwhich regional funds are spent, has been rather poor in thepast years.• Third, even within the European Commission, severalDirectorates General, DGs, and sub-offices have beensharing policy portfolios linked to innovation policy: inparticular, DG Enterprise and Industry has held responsibilityfor actions in support of SMEs and entrepreneurship (suchas the Competitiveness and Innovation Framework Program,CIP); DG Research has retained responsibility for the fundingof research up to the commercialization of innovation; DGInternal Market still manages the policy portfolio on intellectualproperty protection such as patent and copyright law of theEuropean Union; DG Competition is responsible for state aidsand the rules on technology ventures such as patent pools andother forms of R&D collaboration.• Fourth, a similar fragmentation was reflected also inthe availability of budget instruments for the funding ofinnovation. There are so many different programs for thefunding of innovation that companies wishing to receivefunding may have problems in realizing where to go andfor which line of budget to apply. This overlap of budgetinstruments, managed by different units and sometimesdifferent EU institutions, leads to sub-additively – i.e. the totalis worth less than the sum of individual components.Recently, with the second Barroso Commission, these problemswere addressed through attempts to centralize innovation policyin the hands of a new Directorate General (DG) for Research,Innovation and Science, chaired by Commissioner MáireGeoghegan-Quinn. The new DG will face major challenges. Forexample, in the aftermath of the financial crisis, which wipedaway a decade of economic growth, the EU has given itselfeven more ambitious goals compared with the Lisbon ones.The EU2020 strategy aims to reach unprecedented levels ofsmart, sustainable and inclusive growth, putting Europe in thedriver’s seat in the race for global competitiveness. But even ifthe new DG will to some extent, solve the problem of excessivelyfragmented competences within the European Commission –which is not guaranteed, given that DG Enterprise is maintainingits control on entrepreneurship and innovation – the problemof streamlining governance between the Commission andother EU institutions, as well as the need to efficiently allocatecompetences between the EU and national governments,will remain. In other words, getting governance right in theCommission is important, but only means fixing a piece of amuch bigger puzzle.Moreover, the new EU2020 strategy has been endowed with adedicated flagship initiative (“Innovation Union”), accompaniedby other innovation-related initiatives, such as “Digital Agenda”,“An Industrial Policy for the Globalization Era,” and “An Agendafor New Skills and Jobs”. This is leading to a new generation ofeven more ambitious policies, which seem likely to lead to anincrease in the already egregious levels of public spending, andat the same time appear constrained, if not frustrated, by thelack of EU competence on issues that still pertain to nationalgovernments.Next generation innovation policy9

EU innovation: past mistakes,current prospectsThe successor to the Competitiveness and Innovation Program,the renewed Entrepreneurship and Innovation Program (EIP),will serve as another cross-cutting instrument aimed at boostingentrepreneurship and innovation in Europe. Addressing as manyas 11 different components, the EIP will focus on cluster policyand emerging industries, public procurement and many moreissues. A carefully targeted initative, this is not.Although the Commission’s commitment is undisputed, itremains to be seen whether in this case, once more, a “wealth ofinformation” will create a “poverty of attention.”This proliferation of initiatives does not guarantee thatEU innovation policy will shift gear in the years to come,leading Europe back towards becoming a leader in research,development and innovation. The reasons why this is unlikely tohappen are manifold, and include the following:• A lack of a truly EU internal market for innovation includinglack of a Community Patent, but even more importantly alack of clear EU rules on technology transfer and a persistinglack of standardization. The fragmentation of performancein innovation is also a mirror image of the persisting absenceof a real internal market for many of the most innovativesectors, including, most notably, the services sector. Financialmarkets are fragmented and the level of regulation and taxesvaries across countries. While a degree of diversity is required,total lack of harmonization prevents cross-border venturecapital investment and the creation of funds in areas wherefinancing for innovation is needed. Furthermore, the obstaclesto individuals’ mobility (in terms of taxation, portability ofpension benefits, etc.) prevent professionals and businessesfrom reaching new markets and establishing their operationswhere opportunities are still unexploited. This calls for urgentaction at the EU level to ensure that the free movement ofcapital and services are finally achieved.The Innovation Scoreboard 2010 has highlighted that EUmember states can be divided into at least four differentgroups: (i) Denmark, Finland, Germany and Sweden all showa performance well above that of the EU27: these countriesare the Innovation leaders; (ii) Austria, Belgium, Cyprus,Estonia, France, Ireland, Luxembourg, the Netherlands,Slovenia and the UK are termed Innovation followers; (iii)the Czech Republic, Greece, Hungary, Italy, Malta, Poland,Portugal, Slovakia and Spain are below average in terms ofinnovation and are called Moderate innovators; (iv) finally,Bulgaria, Latvia, Lithuania and Romania perform significantlyworse than average and are termed Modest innovators. Atregional level, the situation is even more fragmented. The levelof innovation in regions varies considerably across almost allEU countries.Insufficiently targeted financial instruments for innovativeSMEs: many of the financial instruments used by the EuropeanInvestment Bank are unfit for the typical small company thatwishes to market innovative products or services. In mostcases, the minimum size of the loans that can be granted bythe EIB or other institutions is too big for small innovativecompanies. This is a major problem, since it is statisticallydemonstrated that small companies are the ones that mostoften prove able to implement disruptive innovation inemerging markets.• The fact that innovation patterns have changed enormouslyin the past years, evolving toward “open innovation” andmore regular cooperation between enterprises in the formof collective innovation efforts. As recently reported by theOECD, “the organization of innovative activities (technologicalas well as non-technological) across firm boundaries is clearlyon the increase, with more balance between internal andexternal sources of innovation. Industries such as chemicals,pharmaceuticals and information and communicationtechnology 8 (ICT) typically show high levels of openinnovation.”10 Next generation innovation policy

Open innovation refers to the use of internal and external R&Dsources; openness to external business models, a variety of IPgenerators and collaborations (SMEs, academics, etc.); andproactive IP asset management. This is leading to an increasein the number of companies collaborating in innovativeactivities. At EU level, this new concept poses a number ofchallenges, such as clarifying the scope and enforcementof IPRs to reduce transaction costs in creating collaborativenetworks; coordinating and tailoring public support schemesto reflect the evolving nature of innovative endeavors; andremoving barriers to the circulation and licensing of ideasacross EU Member States. The role of patents, technologytransfer and standardization is key in this respect, as will bediscussed below.Figure 6Traditional vs. open innovationInputsInputsInputsResearchResearchDevelopmentDevelopmentIdeas technologiesOut-licensedProductIn-licensed=CommunicationMarketBoundary oforganisationLine extensionsVia partners• The fact that research, development and innovation(R&D&I) activities are increasingly internationalized, whileinnovation policy in the EU remains essentially nationalin scope. Available data shows an increased desire to haveR&D closer to customers in foreign markets. 9 Companies areinternationalizing their research and innovation activitiesfollowing two broad strategies: (i) an asset-exploiting strategywhere firms seek knowledge about new markets to customizeproducts and extend the expertise generated at home; and(ii) an asset-seeking strategy, whereby firms gather newknowledge and tap into the resources of a host country.Examples of R&D internationalization include the creationof overseas R&D centers; alliances with local companies anduniversities; mergers and acquisitions of local firms; andincreasing research intensity of foreign production facilities.In this context, data shows clearly that in internationalcollaborations in ICT, US firms seem to be more active thanEU ones: EU-Asia inventive collaboration in ICT R&D is stillrelatively low, while US-Asia collaboration is significantlyhigher than, particularly after 2000. In 2006, the Aho Reportobserved that the net imbalance of R&D investment by EUfirms in the US compared with US firms in Europe increasedfivefold between 1997 and 2002; and several major Europeanfirms no longer site new R&D initiatives in Europe.Figure 7Evidence of the internationalization of R&D10%Inputs8Technology IdeasIn-licensedAcademiccollaborationsSource: Chesbrough (2009) – quoted by CEPS (2010).Joint ventures642019901992 1994 1996 1998 2000 2002 2004 2006EU & non-EU Inv, ICTEU Inv & non-EU App, ICTEU & non-EU App, ICTEU App & non-EU Inv, ICTSource: Daniel Nepelski, JRC from EPO PATSTAT and own calculationsNext generation innovation policy11

EU innovation: past mistakes, current prospects• The fact that patterns of collaboration and research aregradually moving towards the online world. The emergingimportance of “co-innovation” initiatives, which exploitthe potential of social networking and mutually beneficialcooperation between individuals belonging to differentgroups, is a first important example of the potential ofonline collaboration tools in the IT era. What was previouslyconsidered as the unique advantages of physical proximityin R&D&I (such as sharing tacit knowledge) is now beingentirely transposed in the online environment. 10 As a result,co-innovation is seen as the next generation of a phenomenonthat was previously termed “coopetition,” emerging alongwith the IT revolution. 11 Also, traditional policies such as thoseon clusters and actions in support of industrial districts areheavily affected by this changing pattern of innovation.• The fact that innovation value chains are becomingincreasingly complex. In an increasing number of markets,different complementary goods have to be assembled togetherto let end users benefit from the use of a product. Thesemarkets are often fraught with network externalities: the valueof a product increases along with the number of its users,and along the number of applications or additional productsthat can be accessed through it. At the same time, serviceinnovation has become as important as product innovation.Finally, the need to compete on a global scale has led to thegrowing importance of adopting a “value chain” approach, i.e.a holistic approach aimed at locating the weakest links in thevalue chain, and supporting them through dedicated policies. 12• The persisting tendency to “pick the winners” thatcharacterizes EU innovation policy in a number of fields, andespecially in standardization policy. Quite often, EU policyhas focused on supply-side support for specific technologiesand markets: the EU seldom lets industry and consumersdecide which products and technologies are likely to lead tothe best outcomes for society. In this respect, there seems tobe a lasting “GSM syndrome” in Europe, determined by thefirm belief that harmonizing the 900 MHz spectrum band forthe GSM technology in the late 1990s ultimately determinedEurope’s leadership in the field of wireless telephony. Theproblem is that this industrial policy initiative has grantedEurope a competitive advantage in the short term, but leftthe wireless market vulnerable to non-EU technologies asmarkets moved to 3G and now 4G phones: for example, inthe Long Term Evolution, LTE, patent pool that is shapingthe technology of 4G telephony, European companies havevirtually disappeared. 1312 Next generation innovation policy

What innovation policy?In the previous section, we have shown that the current“European gap” in innovation policy is likely to widen, regardlessof how much of the EU budget is dedicated to innovation-relatedinitiatives. The quality of innovation policy is clearly much moreimportant than the quantity. For example, the EU spends morepublic money than the US in promoting research, developmentand innovation, R&D&I, but the overall result is poorer. This hasan even more important consequence, outlined in a recent TaskForce on Innovation Policy run by CEPS: there is a wideninggap between the direction of public policy and the needs of theindustry.In addition, the current innovation landscape suggests thatunderstanding the causes of the current “innovation gap”in Europe might well be a necessary step towards finding anadequate solution, but is not likely to be enough to restoreEurope’s leadership in innovation. As markets, technologiesand innovation constantly evolve, conceiving a forward-lookinginnovation policy for today’s economy makes very little sense– it would merely guarantee that the policy actions would beold and obsolete when finally implemented. On the contrary, areally “innovative innovation policy” requires that governmentsdevote massive efforts to anticipating market developments bystrengthening the dialogue with market players and enablinginformation sharing between private parties in order to gatherinformation on market trends and future industry and consumerneeds.At the EU level, additional problems emerge since: (i) newforms of innovation require an ever-growing scale, and theabsence of a fully-fledged internal market does not guaranteescale; (ii) new forms of innovation require an holistic andcollaborative approach, and EU innovation policy is not gearedtowards that approach; and (iii) speed is nothing, withoutcontrol: a massive effort in the direction of funding R&D andinnovation does not guarantee results if not coupled withwell-targeted actions, the ability to meet industry demand, anapproach geared towards filling the gaps in the value chain, anda more widespread reporting and monitoring of policy actions bypublic authorities.In this section, we look at the current policy mix adopted at EUand member state level on R&D&I, and then explore emergingpolicy alternatives for the 21st Century.I. The current portfolio of policy tools: a critical lookPerhaps the most important problem in shaping innovation policyaround the world is the fact that innovation patterns changeeven more quickly for policy-makers, and by the time a newgeneration of innovation policy reaches the market, it is alreadyobsolete. Current policies that seek to stimulate innovation arethe result of what we understood about innovation since the1960s. These are mostly supply-side innovation policies, whichlook at the financing of new ventures by coupling public andprivate resources. Also, EU innovation policy is often fraught withuntargeted supply-side initiatives, and only recently started todevote more attention to the demand side.First, the greater part of EU initiatives in support of innovationrelies on the use of financial instruments such as loans andgrants, mostly managed by the European Investment Bank,which stands as the largest lender in the world (even largerthan the World Bank), through the European InvestmentFund. Over the past few years there has been a proliferationof these types of funding tools in support of R&D&I. Since thelate 1990s, financial resources amounting to almost €1 billionhave been provided by the EU budget under three successiveprograms, namely: the Growth & Employment Initiative (GEI)(€ 174 million during 1998–2001); the Multi-annual Programfor Enterprise and Entrepreneurship (MAP) (€ 289 during2001–2006); and (iii) the current EIP I (€ 506 million during2007–2013). These resources are managed by the EuropeanInvestment Fund (EIF) and are used to issue guarantees tocredit institutions and, more commonly, counter guaranteesto existing credit Guarantee Schemes (CGS). Based on thesemandates, during 2009, the EIF issued a total of € 2.2 billionof guarantees. Additional resources for credit guaranteeoperations are provided by the Structural Funds. Part of thesefunds is managed by European Investment Fund (EIF) underthe Joint European Resources for Micro to Medium Enterprises(JEREMIE) initiatives. At the end of 2009, the value of theJEREMIE mandates devoted to credit guarantees was in theorder of about € 770 million. The EIF has been very active inthe SME Securitizations market, participating in more than 50transactions. EIF operations typically concern tranches of up to€50 million, consisting of investment grade portfolios (minimumrating BB), with an average life of 10 years. Finally, supportto SME Securitizations can in principle be provided under thecurrent EIP, through the Securitization Window, which howeverhas so far remained non operational. Therefore, so far EIFhas been operating exclusively on its own account, chargingcommercial rates.Similarly, EU support for the financing of innovation has beencarried out through a variety of initiatives, including: (i) almost€1 billion already allocated to seed and start-up financing andtechnology transfer under the GEI and MAP (ETF Start Up, €324million); the GIF (€623 million) and the Technology TransferAccelerator Pilot Project (€2 million); (ii) Initiatives financedunder the Structural Funds; and (iii) resources managed by EIFon behalf of the European Investment Bank (EIB).Next generation innovation policy13

What innovation policy?Most of the budget available in the Competiveness andinnovation program, CIP, is dedicated to the use of fundinginstruments such as equity funding and the risk sharing financefacility (RSFF), aimed at bridging the so-called “valley of death”:the latter tries to solve the typical problem faced by EIP tools insupport for SMEs – i.e. the large size of loans, which is unfit toserve SMEs – by relying on credit lines set up with commercialbanks that have a retailing role for SME financing. Figure 8below shows the major instruments available during the differentphases of the life of SMEs and in particular for the so-called“valley of death” i.e. from the time when a start up firm receivesan initial capital contribution to when it begin generatingrevenues.Despite this proliferation of initiatives, today the number of SMEsfacing problems in accessing bank financing can be estimatedat between 2 and 3.5 million. Even assuming that only in 20%of the cases the difficulties experienced are not attributable tofundamental weaknesses but rather to the lack or insufficiencyof collateral, the number of SME facing a financing gap can beestimated at between 400,000 and 700,000. This is a quitesignificant number, greater than the number of SMEs thatbenefited from the support of Credit Guarantee Schemes (CGS)in 2009, which, as indicated above, was a record year for creditguarantee activities.Apart from the financial support for generic innovation activities,more specific types of innovation (e.g. eco-innovation, spacerelatedinnovation, key enabling technologies) and specifictypes of innovators (e.g. SMEs), the competence held by theEuropean Union in the promotion of innovation still appearsrather limited, and heavily constrained by a rather strictapplication of the subsidiary principle. Currently, in a number ofareas, the EU institutions cannot be very active in stimulatinginnovation, as their competence is limited to encouragingthe exchange of leading practices and/or cooperation acrossborders. For example, in cluster policy, public procurement,key enabling technologies, eco-innovation and even venturecapital the Commission most often has tied hands. On thecontrary, innovation and key enabling markets crucially needsupranational coordination and governance to work.Figure 8SME development and funding instrumentsSource: Renda et al. (2006)Enterprise’s revenues• Business angels• Early stage capital• Impact of Basel II onrisk capital for SMEsRisk capital• Seed capital action• ETF start-up• Guarantees• Technical assistance onguarantees• Asset backed securities• Impact of Basel II oncredit for SMEsDebt financing/guarantees• SME guarantees facility• Preparatory actionfor SMEs in the newfinancial environmentFormal venture capital fundsBank loans and guaranteesPublic stock marketsSeed/early stage VC fundsBusiness angelsEntrepreneur, friends, familyPre-seed phaseSeed phase Start-up phase Emerging growth Expansion“Valley of death”Enterprise’s development stageHigher riskEU policy developmentEU financial instrumentLower risk14 Next generation innovation policy

The future evolution of Competiveness and innovation program,CIP, after the 2007–2013 multi-annual Financial Framework islikely to entail as many as 11 different lines of action: Financialinstruments; the Enterprise Europe Network, Eco-innovation,Clusters and emerging industries, Public procurement forinnovation, Key enablers: Technologies, ICT and Skills, Supportfor innovative SMEs, Space-related initiatives, SME supportabroad, Tourism and Targeted actions for competitiveness.II. Major obstacles towards a more innovative EuropeLooking at the areas of activity of EU innovation policy, andeven neglecting the fact that financial instruments represent thegreater part of all support activities, what emerges clearly is thatsupply-side policies are still the dominant way of engaging withinnovation for public policy-makers in Europe.However, availability of public funds is probably the leastimportant of the problems faced by European businesses seekinginnovative research and innovation paths. Merely increasingpublic funding is unlikely to represent an option as the EU isalready above the levels of public R&D funding on GDP observedin the US or Japan. At the same time, EU financial marketsare mature enough to support innovative ventures when theyhave a potential market in Europe and beyond. Certainly, thefragmentation of EU financial markets hinders the developmentof well-developed and pervasive venture capital. However,European businesses face a set of important constraints, whichgo well beyond the mere availability of equity funds. For example:(i) The lack of an internal market limits the incentive to developnew products, due to differences in technical standards,legal fragmentation and divergent conditions for marketaccess;(ii) The lack of clear and effective rules on technologytransfer limits European firms’ potential to exploit Europe’sexcellence in basic research;(iii) The predominance of national interests in EU innovationpolicy limits the size of accessible markets and thepossibility for European firms to engage in profitable crossborderco-innovation initiatives, which would bring togetherthe most productive and innovative European companiesfrom all member states;(iv) The lack of a comprehensive view of the innovationvalue chain leads policymakers to over-invest in fundinginstruments and under-invest in cheaper policy instrumentssuch as demand-side policies.Besides failing to capture the demand-side potential ofinnovation policy, current tools also fail to adopt a businessmodel approach to innovation. This, in turn, leads Europe toforego important opportunities. For example, in some casespublic support that ultimately aims to favor SMEs should bedirected at financial intermediaries, which are best placed toselect the most innovative SMEs in which to invest. The absenceof efficient and informed gatekeepers and investors is a chronicdisease of the European economy. What’s needed is helpinginvestors invest, rather than SMEs signalling themselves as moreinnovative than others.Finally, EU innovation policy is still insufficiently targetedat the services sector, which represents approximately 70%of the EU economy. Recently, the Expert Panel on ServicesInnovation chaired by Allan Mayo released an insightful reportrecommending that the European Commission develops aEuropean Service Innovation Center (ESIC) to strengthen thelinks between policy-makers, business and academia in thefield of services innovation. The ESIC would act as a centralhub of expertise, and would support the activity of a proposedHigh Level Group on Business Services, which the EuropeanCommission proposed to establish in its recent document“An Integrated Industrial Policy for the Globalization Era:Putting Competitiveness and Sustainability at Centre Stage.”Importantly, the Expert Panel’s report looks at specific typesof services that significantly contribute to the frameworkconditions in which business activity takes place. These aremajor drivers of innovation as they potentially change the wayin which innovation is achieved by businesses. These so-called“transformative services” include: 14• Networking, connecting and brokerage services which linkconsumers, firms and supply chains and improve the allocationand distribution of goods and information in society• Utilities and infrastructure services, such as telecoms, energyand waste disposal, that increasingly provide higher valueaddedservices for their customers• Knowledge Intensive Business Services (KIBS) thatcollaborate closely with their customers to help upgrade theirtechnology, organizational processes, and business models aswell as transfer knowledge and experience across sectorsGrowing emphasis on these types of services is highly consistentwith the idea that EU innovation policy should take a more“value-chain-oriented” approach and improve the conditions forinnovation to flourish in European universities, research centers,businesses, public administrations and even among customers.Based on these insights, it is time to broaden the mindset ofpolicymakers: innovation policy should take a holistic approach;it is currently too one-sided, too supply-sided, too narrow, notefficiently multi-level, obsolete, and too slow.Next generation innovation policy15

Towards innovative innovation policyThe previous sections have highlighted that EU innovationpolicy needs to be updated to fully consider industry needs andevolving market trends at a very early stage of formulation.Possible ways to accomplish this goal include the following:1 Use ongoing consultation of industry stakeholdersthrough permanent platforms.New technologies that can be used to enable this ongoingexchange include the use of expert panels and wikigovernment;public clearing-houses; and predictionmarkets. 15 These initiatives would help policymakersestablish policy directions and prioritize interventionsand industrial policy actions in order to achieve the mosteffective results. Currently “obscure” concepts such as keyenabling technologies (KETs) could be updated over time inlight of these exchanges of information; and, more generally,policy-makers would have the possibility of adding “control”to speed, by securing the possibility to fine-tune their policyactions on the basis of market developments, and targettheir actions in order not to waste public money, or deploypublic funding where private investment is possible andlikely.2 Enable more effective technology transfer in Europe.The empirical literature reveals an outstanding lag betweenthe US, Japan and Europe in technology and knowledgetransfer, especially between universities and industry. Thecauses are manifold, but essentially reside in the need fora less fragmented internal market (i.e. a larger potentialdemand for university-driven innovative products),more legal certainty and a business environment that ismore conducive to co-investment. One option might beto transform the role of the government to that of mere“command and control” regulator to that of “facilitator”of private-private partnerships and “Co-innovator” in thecontext of public-private partnership (see #5 below). Inaddition, governments can enable more effective technologytransfer by creating innovation platforms and promotingopen and interoperable environments to the benefit ofall SMEs (see #4 below). Finally, governments have themore general task of creating an environment that isconducive to a speedy and frictionless trading of technologyand information - i.e. reducing, to the extent possible,transaction costs to boost private exchange and sharing ofintellectual property and technology.3 Exploit the wealth of networks.As observed in the past years by scholars such as HarvardProfessor Yochai Benkler, networks have become thedominant way of producing innovation in a number ofsectors, where creativity and cooperation have becomemuch more important than capital markets and competitionas key drivers of innovation. Currently, EU innovationpolicy does not rely on the concept of network, but ratheron financial support of the promotion of geographicallyconcentrated clusters. However, the information revolutionseems to be departing from the concept of cluster toembrace a wider model of networks of clusters or networksof innovators, which share part of their R&D and exploitnetwork externalities and economies of scale whenmarketing their products. The EU27 is the ideal settingfor working on networks, and past experience in researchpolicy (for example, FP7 cooperation projects) has shownthat, when carefully managed, R&D&I networks can bringimportant results.4 Invest in innovation platforms.Innovation policy meets industrial policy whenever emergingplatforms are considered as a whole, and the business casefor investing in those platforms is taken as the startingpoint to develop policy strategies. The growing importanceof multi-sided markets in industries dominated bystandardization suggests that whoever is able to solve the“chicken and egg” problem typical of multi-sided marketswins the game. Policymakers should look at marketsaccording to their inherent economics, before they decideto regulate them or to intervene through untargeted policyactions.5 Facilitate co-innovation.Co-innovation has emerged as a way to extend the scale andscope of external partnerships and alliances to access andexploit new technologies, knowledge and markets. This termhas also recently been used to refer to cases in which clientscooperate in the development of innovation, communicatingtheir needs and specific requirements so that they arefactored into the R&D process at an early stage.Co-innovation labs have been established by companiesespecially in emerging economies, where they are able toestablish important contacts with local markets in order togain a competitive edge in hugely attractive countries suchas China, India and Brazil. At the same time, co-innovationwas used by some governments as a form of PPP forinnovation, as was the case in Singapore last year, with the16 Next generation innovation policy

launch of the Public-Private Co-Innovation Partnership (CIPartnership), a platform for the Singapore Governmentand local companies to co-develop innovative approaches tomeet government needs.The central idea behind the CI Partnership is that“Government can better serve the public throughinnovations borne out of public-private partnership.”Singapore companies can also grow their innovationcapability in the process, while building a valuable trackrecord at the same time. For the development of promisinginnovation ideas – from conceptualization to implementation– the Government provides more than $1.75m in funding foreach company at three critical stages.Funds are also available for projects involving demonstratingProof of Concept, projects demonstrating Proof of Value andprojects involving test bedding of prototypes. For each ofthese, the CI partnership entails that companies co-share asmall part of the cost to ensure that they have a stake in theproject, with SMEs getting greater support compared withnon-SMEs.6 Strengthen demand-side policies.The times of “governments as obstacles” should be put to anend. Governments can stimulate innovation in many ways,creating unprecedented opportunities for European markets.These include, most notably, the use of pre-commercial andearly-commercialization procurement, which can help makethe most of a sector (public procurement) that accounts foras much as 17% of the EU economy. The US and Japan havealready shown how profitable use of demand-side policiescan boost innovation.8 Unleash the hidden power of PPPs.Public private partnerships have proven at once beneficialand risky in Europe in the past. The variety of contractualschemes and governance modes that can be put in place hasled to an inefficient allocation of risks and the undesirableuse of public funds for services and investment that couldhave been provided by private parties only. Efficient PPPstoday are needed for all those enabling technologies thatare supposed to generate positive externalities that will notbe internalized by the private investor.9 Rethinking subsidiarity.In a globalized world, where superpowers speak of joiningforces towards common interests, the fact that innovationpolicy is still prey to national interests in Europe soundsincreasingly odd. While US, Indian and Chinese companies’team up to link their research efforts and create worldleading products, the European Commission is stillstruggling to retain some power in cluster policy or instimulating innovation networks. In most cases, Europe canonly enable the sharing of leading practices and, of course,give money.10 Improve the governance of EU innovation.Last but not least, the governance of EU innovation policymust be carefully revisited. Although the second BarrosoCommission has sought to streamline governance, thereseem to remain important margins for improvement, notonly in terms of subsidiarity, but also in terms of consistencybetween actions adopted at the EU level, in order to addconsistency and coherence to EU actions in support ofinnovation.7 Innovative financial instruments.As already mentioned, the proliferation of various types offinancial instruments, from credit guarantee schemes to theRSFF and equity funds did not succeed in unleashing thepotential for innovation in Europe to date. More targetedfinancial instruments are likely to be decisive in thisrespect, and include, among other things IP-backed finance,cooperation between governments and commercial lendersto develop standards for the use of intangible assets ascollateral. Allowing IP to be used as collateral will increasethe amount of funds a company, such as one in the hightechsector, would qualify for.Next generation innovation policy17

Government 2.0:anticipating society’s needsIn recent years, scholars and public administration expertshave frequently spoken of an upcoming “Government 2.0”era, in which citizens can be involved not only as taxpayersand customers of public services, but as co-creators and coregulators,thanks to the use of modern services to stimulatethe participation of individuals in public policies. In the UnitedStates, for example, Barack Obama announced in his firstspeeches as President that his objectives included creating amore open government (“A clear commitment changing theway government works with its citizens: government should betransparent, participatory and collaborative”.) The former Headof the Open Government Initiative in the Obama administration,Professor Beth Simone Noveck, inspired this transition with thedefinition of Wiki Government. 16In a recent article, Hilgers and Piller (2011) define Government2.0 as the combined effect of four concomitant revolutions: aneconomic revolution (Wikinomics); a technology revolution(Web 2.0); a social revolution (social networking) and ademographic revolution (the Net generation, or the generationof “digital natives”). 17 These four forces call on nationalgovernments and the EU to revisit the ways in which theyinterpret their role towards citizens and also businesses.The same authors highlight that new ideas and insights into thedirections public policy should take are already being drawn fromcitizens in a growing number of cases. For example, the City ofBoston has developed its own iPhone App, establishing a usefulbilateral channel to communicate with citizens. Big initiativessuch as RebootBritain have confirmed that also in the UK theuse of the web and “crowdsourcing” techniques to empowercitizens and administrations is more than simply a promise.Examples are becoming countless also in Europe, and especiallyin the UK, where citizens’ participation in local public policy hasbecome widespread through initiatives such as askbristol.com,the Birmingham’s “Open City” project and the Berlin-Lichtenbergparticipatory budgeting initiative.If these options can be implemented to enable the participationof citizens to public policy, why shouldn’t they be applied toinnovation policy? The secret might lie in providing innovativebusinesses, researchers and citizens with a common platformaimed at exchanging ideas and technological solutions to betteridentify society’s needs. Co-designing policies, co-delivering ofresults and co-evaluating existing policies are possible avenuesof reform for an administration that is traditionally (and so far,almost inevitably) distant from civil society such as the EuropeanCommission.Figure 9Forces that transform governmentSource; Hilgers and Piller (2011)WikinomicsAn economic revolution:• Open innovation• Mass collaboration• Networked business models (e.g. iTunes)• Openness, Peering, Sharing, GloballyWeb 2.0Technology revolution:• Internet is not just websites,its an active platform forcontent• Active users• Internet is ubiquitousOpen government• Openness• Transparent• Collaborative• Participatory• Effectiveness and efficiencyNet generationA demographic revolution:A life with IT: Today’s 13–30 year old. Differentconsumption /expectation. No passive readers,viewers, voters.Social NetworkingA social revolution:• Online Collaboration in peers (CBPP)(Wikipedia, Linux, OSS, etc.)• Division of Labor18 Next generation innovation policy

This possible channel of communication is even morepromising as the European Commission is investing in thecreation of a public “cloud” and on a European strategy forCloud computing. 18 In this context, the European Commissioncould organize contests for developing applications that improvepublic services in the years to come. As reported by Hilgersand Piller (2011), during the contest “Apps for Democracy,”47 software programs entered the platform within 30 days:with prize money amounting to USD 50,000, softwaredevelopment expenses of more than USD 2 million were saved(www.appsfordemocracy.org). This is crowdsourcing: an open,constant, creative competitive dialogue for the development ofinnovative services through collective intelligence.Next generation innovation policy19

Next generation technology transferTechnology transfer has traditionally been one of the key enginesof innovation in industrialized countries, especially whereeducation systems are well developed, and universities producea wealth of innovative solutions through basic and appliedresearch. In Europe, knowledge and technology transfer betweenuniversity and industry is still a missing link in the innovationvalue chain. Among the factors that have hindered thedevelopment of university-industry partnerships and academicspinoffs, the most evident are the absence of an entrepreneurialculture in many European universities, the lack of a full-fledged,pan-European patent and the limited development of innovationmarkets and intermediaries.In the US, royalties from licensed inventions pay more than 3%of universities’ research bill, while in the UK it is only 1%, and inmany European countries much less. US institutions such as theMassachusetts Institute of Technology in Cambridge, MA, startedlicensing patents back in the 1940s, and the 1980 Bayh-DoleAct has boosted the creation of technology transfer institutes inUS universities. While in 1972 there were only 30 universitieswith a dedicated institute for tech transfer, in 2003 they weremore than 300. The issue of promoting more technology andknowledge transfer in Europe is even more crucial since thecommercialization of innovation and the promotion of venturecapital are evident, urgent problems. And tech transfer isparticularly needed in key enabling technologies, such asphotonics and nano-technologies, where universities hold thecore of the scientific knowledge that could be usefully appliedat the industrial level. The time is ripe to discuss an EU-styleBayh-Dole Act, tailored to the needs of European universities andindustry. Accordingly, the European Commission has announcedan ad hoc communication on the future of technology transferand the European Research Area for June 2011.But the problem of technology transfer is not only related tothe mere exchange of IPRs and information between universityand industry. Academic spinoffs and direct licensing to younginnovative companies crucially need a fully functioningecosystem, which includes the promotion of venture capital andthe emergence of open innovation intermediaries. Innovationintermediaries are actors specialized in the articulation andselection of new technology options; in scanning and locatingof sources of knowledge; in building linkages between externalknowledge providers; and in developing and implementingbusiness and innovation strategies (Bessant & Rush 1995;Howells 2006; Lopez-Vega 2009.)In particular, recent work by Diener and Piller (2011) usefullyrefers to the role of emerging actors defined as Open InnovationAccelerators (OIA), i.e. innovation intermediaries that operateon the behalf of organizations seeking to innovate in cooperationwith external actors from their periphery. Their mission is tobridge structural disconnected knowledge pools caused by thelack of diversity within a firm. OIAs offer one or several methodsof open innovation (e.g, idea contests, broadcast search, cocreationtoolkits) and complementary services for the innovationprocess.In short, OIAs engage in scanning and gathering information,and facilitating communication and knowledge exchange. Butnext generation technology transfer needs the creation ofinnovation platforms and hubs, where intermediaries can operatein search for valuable new ideas and opportunities, closing thegap between universities and industry. The form of those newplatforms and hubs is discussed in the next section.Figure 10Open innovation acceleratorsSource: Piller (2011)3 2 1University scientistsActivities on research site:• Screening of problems• Reaction only when problems seems to beknown and cost to answer affordable• Transfer of solution idea• Transfer of suggestion for contract researchscreening of problemstransfer of possiblesolutionOpeninnovationplatformbroadcasting problemsCompaniesActivities on company site:• Transfer of problems• Screening and evaluation of problems• Transfer of “best” solution• Contracting of further directed research20 Next generation innovation policy

From markets to platforms,networks and hubsTraditional innovation models are based on the idea of marketsand firms. The market economy has determined the emergenceof complex, internalized value chains in which the R&D activityof firms took place mostly as an intramural set of tasks. Theneed to preserve trade secrets or the technical information andtacit knowledge embedded in patented products has been thedriving force of this development, with businesses replacing therisks and transaction costs of market exchanges with hierarchiesin which information and knowledge was kept within theboundaries of the firm (Williamson 1975).Alternative governance mechanisms that emerged in the pastcentury could also entail the participation of a multitude of firms.However, this was mostly a “one-to-many” type of governance,with a single undertaking retaining control over the wholevalue chain and related industrial results. Even in IT industries,at the outset, prevailing business models were based on theexternalization of certain functions, but always tied to nondisclosureagreements.Today, the development of new technologies, the prominentrole of network externalities in many innovation markets, theadvent of Web 2.0 and the increasing sophistication of industrialcustomers and households have made those business modelsobsolete. Even in traditional innovation-intensive and patentintensivesectors such as pharmaceuticals, companies haveembarked in a radical transformation of their business models.And the role of the government, from that of regulator andenforcer, has become increasingly one of “facilitator” and“co-innovator”.In order to fully exploit the potential of new technologies, itis necessary to move from a concept of “market” to a morevalue-chain-oriented approach. Economic theory has begunto move away from the concept of market when Michael Porterintroduced the idea of “cluster policy”, drawing also on existingindustrial realities, such as that of industrial districts in 20 thCentury Italy. Porter’s ideas were ground-breaking for innovationeconomics and policy. Today, it is widely acknowledged thatthe cluster form has a very important impact on transactioncosts and knowledge-sharing, and can prove very important forinnovation and competitiveness, skill formation and information,growth and long-term business dynamics. A recent studypublished by the Metropolitan Policy Program at Brookingsemphasizes the potential of clusters run by well groundedstrategies to accelerate sustainable growth and employment.Figure 11 below shows the positive relationship betweenemployment in clusters and GDP per capita for regions ofEurope.Given that 38% of European employees work in industries thatconcentrate regionally, clusters are extremely important for theEU economy. Recent studies have found that companies thatbelong to industry clusters achieve greater productivity andinnovation, and those new firms that belong to clusters exhibithigher survival rates and growth 19 .Despite the fact that Porter’s ideas have permeated innovationpolicy in many EU member states, there is evidence thatEurope is lagging behind other regions of the world in termsof the dynamism of clusters and the organization of a full-Figure 11Clusters and prosperitySource: European Commission, Innovation Clusters in Europe: A statistical analysis and overview of current policy, 2007.GDP per capita (PPP adjusted), 200470,000 60,000 50,000 40,000 30,000 20,000 y=833342x 2 –16467x+22886R 2 =0.394110,000 0% 10% 20% 30% 40% 50% 60% 70% 80%Share of employees in strong clusters, 2005Next generation innovation policy21

From markets to platforms, networks and hubsfledged cluster policy. Specifically, clusters – defined as regionalagglomerations of co-located industries and services – are toofragmented and need to be consolidated in order to emerge astrue competitors with other world regions.The European Commission is today heavily committed to helpachieving world-class clusters in the EU: 20 however, so farsubsidiarity constraints have limited the possibility for Europe tosuccessfully stimulate and foster the emergence of such globalscaleclusters. More centralization at the EU level, today, wouldcertainly enable a more efficient and effective cluster policy.Economists and industry experts seem to agree on one fact:geographical proximity belongs to the past of cluster policy,while modern clusters are community-driven, not geographybased.As reported in a recent study by Cisco (2011), modernclusters and so-called “innovation hubs” should be characterizedas “digital communities of interest, cohering through closeintellectual proximity, and not solely through geographicproximity,” also due to the growing power of online socialnetworks and collaboration tools in the business sphere. 21But this is only part of the story. Besides becoming morecommunity-driven and increasingly digital, clusters arealso heavily affected by the changing structure of certainmarkets, and the complex dynamics of competition in manyindustries. Many new markets, including those for new enablingtechnologies and transformative services, are characterized bythe following features:• Modularity: products are composed of several “complementaryunits”, often produced by different companies, which mustinteroperate to enable use of the product. In many cases, thereis a need to pool different patents and other IPRs (intellectualproperty rights) in order to enable the creation and marketingof those products.• Interoperability. The increasing complexity of value chains inmany markets and the modularity of modern system goodslead mostly to the predominance of incremental innovationover disruptive innovation. “Innovating together” is a lot easierwhenever businesses and researchers share common themesand objectives, something that can be achieved only throughinnovation platforms.• Complexity/convergence. The challenge in many markets isto merge inventions and technological solutions developedfor sectors that were previously separate. Ideally, the clusterof the future may merge competences and skills developedin different areas of specialization, and different geographicregions.The consequences of the changing nature of clusters for EUinnovation policy are dramatic. Several governments havealready understood the potential of creating communitiesconducive to joint innovation and sharing of ideas on prioritiesand technological solutions by government, industry, clients,academia and citizens.• In the UK, the Technology Strategy Board (TSB) wasestablished at the end of 2004 to ensure the technology andinnovation priorities for the UK reflected business needs andhad a clear market focus leading to wealth creation. To supportthis approach, in November 2005 the TSB introduced theconcept of Innovation Platforms, i.e., a new way of workingfor Government and business that is seen as an opportunityto generate more innovative solutions to major policy andsocietal challenges. The TSB is currently investing, alongwith business and public sector partners, in five InnovationPlatforms: (i) assisted living; (ii) low carbon vehicles;(iii) intelligent transport systems and services; (iv) lowimpact buildings; and (v) network security. Over the nextthree years the UK government plans to introduce a furtherfive Innovation Platforms, in areas that address other majorsocietal challenges. 22• In the United States, innovation platforms have been putat the center of the Obama administration’s innovationprogram. The 2011 Strategy for American Innovationspecifically cites the need to “catalyze innovation hubs andencourage development of entrepreneurial ecosystems,”looking for new opportunities to bring talented scientists andentrepreneurs together to support innovation in cutting-edgeareas. This concept underlies the Department of Energy’sEnergy Innovation Hubs program and is also driving theStartup America initiative’s focus on building connectionsbetween established and new entrepreneurs, including thosemaking the leap from lab to industry. 23 Several innovation22 Next generation innovation policy

platforms have been created in recent years also byuniversities to bridge the gap between academia and industry,civil society and government. For example, MIT’s Innovationin Informational health (IIH) platform has partners in theUnited States, Nicaragua, Honduras, Peru, Tanzania, India andPakistan. Figure 12 below shows the model adopted by theIIH: the Accelerated Product Development (APD) framework(shown at far left) is informed by the collaborative innovationand takes those research ideas into hands-on projects. The IIHAPD can take an idea from inception, into medical feedback,through clinical feasibility studies and trials and provideassistance in funding.• The concept of innovation platforms is also being adoptedat EU level, in particular through the work of the EuropeanInstitution of Innovation & Technology (EIT). Since 2010,the EIT has worked intensively on the creation of a number ofKnowledge and Innovation Communities (KICs), which arede facto innovation platforms characterized by co-locationof innovation centres, and a multitude of interconnectedcommunities. In December 2009, the first three KICs werelaunched in the fields of Climate Change Mitigation andAdaptation (Climate-KIC); Sustainable Energy (InnoEnergy)and Future Information and Communication Society (EIT ICTLabs). One example of the types of players involved and thegeographic coverage throughout the territory of the EU, isInnoEnergy KIC. The community involves 13 companies, 10research institutes and 13 universities. Half of the partnersare from the industry, and the KIC features strong connectionswith the industry and venture capitalists.The initiatives launched by the EIT are indeed promising,because they also take a pan-European perspective in a settingin which national prerogatives tend to prevail over an otherwiseobvious case for centralization. With a strengthened EUlegal framework for venture capital, cross-border investmentand dispute resolution, Intellectual Property protection anduniversity-industry partnerships, these types of knowledgecommunities can really bring Europe to higher levels ofcompetitiveness.Figure 12MIT’s IIH platformSource: MITNeed findingFunding andbusinessdevelopmentAcceleratedproductdevelopmentIdeation andresearchMultidisciplinaryinteractionCollaborativeinnovationClinical trialsMedicalfeedbackNext generation innovation policy23

Harnessing the powerof demand-side policiesRecently, President Obama announced that he has directed“agencies to purchase 100% alternative fuel, hybrid, or electricvehicles by 2015”, in order to reduce the environmental impactof the federal fleet. By doing this, the US Government will alsostimulate innovation in the field of green vehicles.This is a perfect example of how governments can stimulateinnovation by acting not only as facilitators and regulators, butalso as customers in need of new products and services. Byexpressing their needs for innovative products and solutions,governments can become engines of new investment and theapplication of innovative technological solutions. As stated i.a. bythe Aho report in 2007, demand-side innovation policy is at oncethe most promising and the most under-represented approach inEU innovation policy. The EU2020 strategy and, in particular, theInnovation Union flagship initiative, contains some elements ofdemand-side policy, but a lot more seems to be needed to makepublic procurement an engine of innovation and growth.Europe should also boost public procurement of innovativesolutions, in particular through pre-commercial procurement.Public procurement in the EU represents around 19.4% (€2,200billion) of the EU’s GDP. Public authorities have a substantialpurchasing power that they could use to stimulate innovation.However, in contrast to other countries, only a few innovationsare supplied or demanded by public procurers in Europe. InJapan, a long tradition of demand-side policy is now beingconsolidated in the 4 th Science and Technology plan, which ismostly based on the idea of prioritization of R&D for sustainabledevelopment and the creation of Innovation Platforms. In theUS, public procurement – including through the Small BusinessInnovation Research initiative (SBIR) – plays a substantial roleboth in developing technology and providing innovative solutionsto societal challenges if they cannot be addressed with existingproducts and services. The US public sector procurement of R&Dis about 20 times bigger than in the EU. However, it should benoted that a large amount of the US public sector procurementof R&D relates to defence and space budgets.Public procurement is insufficiently used to stimulate innovationin Europe for several reasons. These include the wrong incentives(procurers tend to favor low cost, low risk solutions); lack ofknowledge and capabilities of public procurers; no strategythat links public procurement with public policy objectives (e.g.health, environment, transport) and research, development andinnovation (R&D&I) support initiatives (typically grant funded);fragmentation in demand; barriers to access to public contractsas SMEs cannot cope with public procurement at the first stage,they often act as subcontractors. This hampers the access ofpublic authorities to the innovative potential of SMEs, who play akey role in creating innovations and innovative solutions.Figure 13Innovation policy: taxonomy of measuresSource: Orange (2010)Innovation policyDemand-sideinnovation policies3.1. Public procurement3.2. Regulation3.3. Support for privatedemand3.4. Promotion of user-driveninnovation3.5. Systemic approachesSupply-sideinnovation policiesR&D support(grants, tax incentives, publicventure capital)Provision of scientific base(research centers, infrastructure,trainings, mobilityprogrammes)Information & brokerage(international technologywatch, benchmarking, patentdatabases)Networking measures(incubators, science parks,cluster support)Public procurement networks and LMIIn 2006, the European Commission launched the Lead MarketInitiative (LMI) to boost the use of public procurement forinnovation. A “lead market” is the market of a product or servicein a given geographical area, where the diffusion process of aninternational successful innovation first took off and is sustainedand expanded through a wide range of different services.The long-term goals of the Lead Market Initiative were clearlystated in the conclusions of the May 2008 CompetitivenessCouncil: (i) to remove obstacles to enable European enterprisesto enter new and fast growing global markets and (ii) tofacilitate the faster uptake of new products, services andtechnologies. The six lead markets chosen were sustainableconstruction, technical textiles for intelligent personal protectiveclothing and equipment, bio-based products, recycling, eHealthand renewable energy. These markets are highly innovative,provide solutions of broader strategic, societal, environmentaland economic challenges; and have a strong technologicaland industrial base in Europe. Under the LMI, three publicprocurement networks became operational in September 2009:24 Next generation innovation policy

The Sustainable Construction and Innovation Network(SCI-NETWORK) brings together a strong group ofpublic authorities and other key stakeholders wishing todrive sustainable innovations in public construction andregeneration projects across Europe. The network hopes tohelp combat the cross-border fragmentation of the sector andensure the spread of good ideas. Specific working groups willfocus on three topics: renovation of existing building stock,innovative building materials, and the use of life-cycle analysis(LCA) and life-cycle costing (LCC). 24• The Low Carbon Building (LCB) – healthcare networkwill create a platform for a network of public procurementstakeholders that wish to be proactive in stimulating innovativelow-carbon building solutions for the health care sector. Aplatform for a network of public procurement stakeholdersthat wish to be proactive in stimulating innovative low-carbonbuilding solutions for the healthcare sector will be created.Demonstration pilots will take place in all consortium countriesaiming at collating, testing and developing further the toolscreated and enabling the spread of leading practices. 25• ENPROTEX seeks to spark innovation of protective textilesthrough public procurement to meet the future needs offire and rescue services using a number of methodologiesincluding; establishing and sustaining a specialized platformof European Network of Public Procurement Organizations;developing cooperation among public procurers; providingan interface with both end-users and manufacturers. Inparticular, the project will aim to provide industry with forwardcommitments for the procurement of protective textilesproducts to encourage innovation in the sector. 26The SBIR experienceIn the 1980s, the US launched the Small Business InnovationResearch (SBIR) and Small Business Research Initiative (SBRI),which focus on using the procurement of public authoritiesto foster R&D and innovation. The main objectives are tostimulate technological innovation, to use small business tomeet federal R&D needs, to foster and encourage participationin technological innovation by minorities and disadvantagedpersons, and to increase private sector commercializationof innovation derived from federal R&D. These initiatives areespecially targeted at SMEs and offer a way of connectinginnovative new enterprises with public authorities to explorenew ideas and bring forward technologies and services. Publicauthorities run a competition for innovative ideas, and winningFigure 14Pre-commercial procurement: a schemeSource: European Commission (2008)Pre-commercial procurementPublic procurement forcommercial roll-outPre-commercialtendering(WTO GPA* notapplicable)Company ACompany BCompany CCompany DCompany EIntermediateevaluationselectionCompany CCompany DCompany EIntermediateevaluationselectionCompany CCompany ECommercialtendering(WTO GPA*applicable)CompanyA, B, B, D, Eor XPhase 0CuriositydrivenresearchPhase 1SolutionexplorationPhase 2PrototypingPhase 3Original development of a limitedvolume of first products/servicesin the form of a test seriesPhase 4Commercialisationof products/services(commercial development)Product ideaSolution design Prototype First testproductsTypical product innovation life cycleCommercialend-products*GPA = Government Procurement AgreementNext generation innovation policy25

Harnessing the power of demand-side policiesenterprises receive contracts (not grants) for R&D. The UK andthe Netherlands developed SBIR/SBRI-initiatives based on the USSBIR policy, which has the longest history.Since 1982, 17,500 enterprises have been involved with USSBIR for an amount of USD 27 billion. The projects have resultedin 68,000 patents and more than USD 36.5 billion of additionalequity. Almost half of the SBIR projects that passed through thetwo phases of the selection have reached the market.In 1999, Joshua Learner of Harvard Business School compared500 companies that had received SBIR contracts with 900matched companies which hadn’t and concluded that the SBIRfirms had created five times as many jobs over a 10 year period.In regions with high levels of entrepreneurial activities, suchas Silicon Valley and Boston, the difference was 17 times. Ananalysis of companies receiving National Science Foundationcontracts tells a similar story.In the UK, a similar initiative was established in 2001 and had avery slow start because only a few departments adopted it. Infact, the SBRI wasn’t successful in the period 2001–2008 fora number of reasons, including lack of focus on innovation inspending departments, but also lack of legal certainty as regardsthe need to apply EU procurement or state aid legislation. In2008, the UK SBRI was remodelled in a way that resembles morethe US SBIR.The Netherlands introduced a twofold SBIR-like scheme, onedepartmental SBIR and one managed by the NetherlandsOrganization for Applied Scientific Research (TNO). Eightyproject ideas from TNO have been put forward within theDutch SBIR, which resulted in 299 requests for backgroundinformation. In total, 142 proposals for feasibility studies weresubmitted, of which 27 were carried out, and 10 successfullymoved on the next phase of R&D. So far, only four have beencompleted. Out of the total number of companies that putforward a proposal, 95% were SMEs. In 2010 a first evaluationof the Dutch SBIR was carried out, mostly as regards the projectselection process, with overall positive and reassuring results.Green Public ProcurementOne area where public procurement can prove decisive for thefuture of European competitiveness is certainly eco-innovation,part of which is the so-called “green public procurement.” This isdefined at the EU level as “a process whereby public authoritiesseek to procure goods, services and works with a reducedenvironmental impact throughout their life cycle when comparedto goods, services and works with the same primary functionthat would otherwise be procured.” 27 Areas where green publicprocurement is being launched at EU level include “white goods”(energy-efficient refrigerators, ovens, washing machinesand tumble dryers); components (high-efficient motors);Figure 15Competitions launched in the UK SBRI454035Number of competitions30252015National Institute on Drug AbuseFood Standards AgencyTSB/Department of Energy and Climate ChangeDepartment for Environment, Food and Rural AffairsTSB/Department of Communities and Local Government10Department for TransportHome Office5National Health ServiceDepartment of Health0Q408Q109Q209 Q309 Q409Competitions to dateTimeQ110Q210ForecastQ310Ministry of DefenceNote: Forecast correct as at March 2010Source: TSB26 Next generation innovation policy

housing (energy-efficient water mixer); office blocks (controland monitoring systems, sun shading technology and lightingsystem); public transportation (hydrogen buses); the transportsector (hydrogen powered fuel cell, electric car, electricmotors, city buses); wastewater treatment (environmentalbiotechnology); chemical components (DEHP-free component);healthcare products (e.g., continence care products); andenergy-efficient components (pumps).So far, available studies have shown that using publicprocurement in support of eco-innovation can bring substantialbenefits to the EU economy, such as a 25% reduction in CO 2emissions from certain activities, with no significant additionalfinancial burdens for the taxpayers. 28 However, once againthe lack of an internal market is hampering the attempts ofthe European Commission in the direction of a strong uptakeof green procurement in the EU27. Some countries speakof “sustainable procurement,” whereas other countries arealigned with the EU definition of “green” procurement; andother countries have not defined any strategy in this respect.Furthermore, countries use different taxonomies of productsand different “green” criteria, making it very difficult to comparenational experiences and coordinate the advancement towardsreaching environmental policy goals. Finally, attempts to steerthe EU toward green public procurement have so far focused ona limited set of products.Beyond traditional procurement: the promise of prizesBesides incorporating innovation and other policy goals in theprocurement process of EU public administrations, there is muchmore that governments can do to stimulate innovation in theprocurement process. As observed in the previous sections,crowd sourcing practices can be used effectively during theprocurement process for public services, especially whencoupled with prizes and awards. The use of these tools hasincreased enormously in the past years. Recently, the UKgovernment has announced a £1 million prize for thebest technology platform proposed by citizens that wouldbe able to tackle “common problems.” In April 2010, the USWhite House Office of Science and Technology Policy (OSTP)began requesting public input on how to implement PresidentObama’s innovation strategy, under the slogan “Governmentdoes not have a monopoly on the best ideas.” A website calledchallenge.gov was developed to host all government challengesthat could be solved by citizens and stimulate participation.But many other websites already exist. As an example, NASAscientists trying to devise a formula for predicting solar flaresdecided to post their problem online and offered a USD 30,000prize to anyone who could solve it. The contest was posted onInnoCentive.com, and out of 579 examiners a retired radiofrequency engineer from New Hampshire won the prize.Examples are countless: The European Commission has alsobeen experimenting with stable consultation platforms such as“Your Voice in Europe,” but these initiatives have so far seldompushed themselves towards the creation of a real collaborationbetween the private sector and government in the developmentof innovative solutions to tackle socially relevant problems. Thisis, in our opinion, the next step in several countries around theworld. As recalled also recently by a report of the EuropeanInternet Foundation “Digital World in 2025,” the future that canbe envisaged is one of mass collaboration, in which consumersbecome producers (or “pro-sumers”) and governments andbusinesses open up their boundaries and production processesto citizens and civil society. After all, we have already seendisruptive innovation coming from mass collaboration effortsand community-driven innovation such as open source softwareproducts and creative commons licensing.Recently, the launch of the “Social Innovation Europe” initiativein March 2011 was encouraging. The use of mass collaboration,“government as a platform” concepts and “government as acustomer” concepts has permeated the European Commission’splans for social innovation in a way that promises interestingdevelopments.In the future, crowd sourcing and similar variants will becomea more important way of conceiving innovative solutions, and,most importantly, for societal challenges faced by EU’s ageingand increasingly multi-cultural society. This is why achievingbroadband penetration throughout the European Union asquickly as possible is becoming a priority. Investing in keyinfrastructure is the first turning point of modern innovationpolicy. Europe has no time to wait for competition to lead tolong-term investment when it comes to modern communicationstechnologies. The time is already ripe to go beyond consultationand centralize innovation-related crowd sourcing into a commonEU platform. Every day spent waiting for investment in highspeedbroadband is a day of delay in the global context forinnovative solutions, competitiveness and growth.Next generation innovation policy27

Views from industry stakeholdersResults of a survey among industry experts,scholars and civil servantsIn the past sections, we have explored possible ways to improveEU innovation policy by finding new ways to involve stakeholdersin the dialogue on the future direction and priority of innovationpolicy. In light of this approach, we surveyed a limited numberof industry experts, scholars and civil servants to gathertheir perceptions on where EU innovation policy should beimproved in the years to come. The focus has been towardsthe view of industry stakeholders who have innovation as partof their agenda. In order to get a timely and recent input, weperformed this task during a number of events held at CEPSduring February–March 2011, as well as by disseminatinga questionnaire (see the Annex to this Report) to CEPSCorporate Members, a number of industry association at EUlevel (Businesseurope) and in some member states (TheNetherlands, Italy, Sweden). We have collected 54 responses,which provide a first set of views on the main problems perceivedby stakeholders with respect to EU innovation policy.Figure 16 below shows the percentage of respondents thateither partly or fully agreed with the proposed questions. Asshown in the figure, the questions that met the strongest favourof the respondents were the need to focus on innovation andskills and the need to use PPPs in support of deployment ofenabling technologies such as broadband. At the same time,a number of key questions were answered positively by therespondents.In particular, the following results can be highlighted:• 96.3% of respondents agree that university-industrypartnerships and technology transfer should be furtherstimulated in Europe. Looking at the current state ofknowledge and technology transfer in the European Union,the fact that this statement was one of the mostly agreed inour survey may not be unexpected.Figure 16Percentage of respondents who agreed with the questions (all 54 respondents)19. There should be a dedicated EU agency for innovation37.0%25.9%18. A community patent would foster more innovation for SMEs25.9%55.6%17. EU innovation policy should focus on education and skills16. PPPs should be used to deploy of technologies such as broadband networks15. Europe should foster university-industry partnerships and tech transfer51.9%51.9%22.2%74.1%48.1%48.1%14. Europe needs to strenghten IP backed finance for SMEs29.6%37.0%13. Lack of labour mobility is a key obstacle to EU competitiveness33.3%25.9%12. Public procurement should be used to create demand for innovative29.6%44.4%11. Innovation policy should be more centralized at the EU level37.0%22.2%10. EU and national governments can do more to create demand for innovation18.5%74.1%9. Fiscal incentives should be used more frequently25.9%33.3%8. Tax incentives should be used more frequently33.3%40.7%7. EU innovation policy should focus on key enabling products/services44.4%33.3%6. Europe needs permanent consultation of industry stakeholders22.2%70.4%5. EU policy is too fragmented, and needs more coordination18.5%70.4%4. EU policy too focused on competition, not on investment51.9%29.6%3. Innovation policy in the US and Japan is more effective than in the EU25.9%48.1%2. Innovation policy in the EU has failed to failed to fully match industry needs44.4%37.0%1. Innovation policy in the EU has failed to fully match industry needs55.6%18.5%0 20 40 60 80 100%Partly agreeFully agree28 Next generation innovation policy

• 92.6% of respondents think that EU and nationalgovernments should do more to create demand forinnovation. This confirms the need to move towards strongeruse of demand-side innovation policy, in line with what wehave envisaged in the previous sections. Another relatedresult of our survey is also the fact that 74.1% of respondentsconsidered that public procurement should be used to createddemand for innovation.• 92.6% of respondents also think that industry stakeholdersshould be consulted on a regular basis and as a permanentmeasure. This, as we have remarked in the previous pages,can be seen as a useful way to collect views on industryneeds and organize innovation policy in a more targeted way.This view is also partly matched by the fact that 74.1% ofrespondents considered EU innovation policy has failed to fullymatch industry needs.• 88.9% of respondents are in favour of stronger coordinationof innovation policy at the EU level. Innovation policy is seenas too fragmented at national level. This view is in line with theidea that subsidiarity should be reconsidered when it comes toinnovation policy. If one considers that 81.5% of respondentsreplied that EU innovation policy should be thoroughlyreformed, there seems to be room to advance ground-breakingchanges in the way innovation is promoted in Europe. At thesame time, the centralization of EU policy at the EU level andthe creation of an EU agency have met with less support onthe side of respondents. It therefore seems that coordination,even more than centralization, is the most supported optionfor the future of EU innovation policy.• 81.5% of all respondents think that EU innovation policy hasbeen so far too focused on competition, and not enough onproviding investment incentives.• However, the expansion of traditional innovation tools suchas fiscal incentives was subject to a broader disagreementamong the respondents. Perhaps this could be an indicationthat these tools are considered to be only partly effective inpromoting real innovation, due to the fact that they have beenin use for a long time in the European Union, and with limitedresults.In addition, the great majority of respondents think that acommunity patent would foster more innovation for SMEs,and that EU innovation policy should focus on key enablingtechnologies and services.Figure 17 below shows the breakdown of our respondents.Figure 17Breakdown of respondents (n = 54)Media, 7%Consultancy, 4%Other, 18%Business, 56%Public administration, 15%Annex 2 to this report provides all the results of our survey,broken down by type of respondent.As mentioned in the beginning of this section, these resultsare representative of a selected group of industry experts, asrepresentatives of the business community. The responsesreceived seem to fully confirm what we have described asthe future prospects of innovation policy at the EU level forthe years to come. Respondents – and in particular businessrepresentatives seem to expect a more coordinated policy, withbetter use of demand-side policy actions, tighter cooperationbetween academia and industry, renewed efforts in educationand a permanent dialogue between government and industry.Next generation innovation policy29

Annex I: QuestionnaireThis questionnaire has been designed for the purpose of collecting industry views on the future directions that public policyshould take in order to stimulate innovation and progress in European countries. We highly value your ideas and your time:accordingly, we have designed a short set of 20 questions for you to answer. Should you have more time to dedicate to thequestionnaire, we would highly appreciate if you could express your views also in the text box we have included in Part III.PART I – LOOKING BACK1. Innovation Policy in the EU has failed to fully match industry needs I fully disagree I partly disagree I partly agree I fully agree Not sure2. Innovation Policy in the EU should be thoroughly reformed I fully disagree I partly disagree I partly agree I fully agree Not sure3. Innovation Policy in the US and Japan is more effective than in the EU I fully disagree I partly disagree I partly agree I fully agree Not sure4. EU policy so far has focused too much on competition, and not enough on investment incentives I fully disagree I partly disagree I partly agree I fully agree Not sure5. EU policy is too fragmented, and needs more coordination I fully disagree I partly disagree I partly agree I fully agree Not sure30 Next generation innovation policy

PART II – LOOKING FORWARD6. Europe needs forms of permanent consultation of industry stakeholders to identify industry needsand act accordingly I fully disagree I partly disagree I partly agree I fully agree Not sure7. EU innovation policy should focus on key enabling products/services I fully disagree I partly disagree I partly agree I fully agree Not sure8. Tax incentives should be used more frequently to stimulate the supply of innovation (e.g. throughtax credits) I fully disagree I partly disagree I partly agree I fully agree Not sure9. Fiscal incentives should be used more frequently to stimulate the demand for innovative products(e.g. through tax exemptions or rebates for consumers of new technologies) I fully disagree I partly disagree I partly agree I fully agree Not sure10. EU and national governments can do more to create demand for innovation I fully disagree I partly disagree I partly agree I fully agree Not sure11. Innovation policy should be more centralized at the EU level I fully disagree I partly disagree I partly agree I fully agree Not sureNext generation innovation policy31

Annex I: Questionnaire12. Public procurement should be used to create demand for innovative products and services I fully disagree I partly disagree I partly agree I fully agree Not sure13. Lack of labour mobility is a key obstacle to EU competitiveness I fully disagree I partly disagree I partly agree I fully agree Not sure14. Europe needs to strengthen IP-backed finance for SMEs (i.e. financing of innovation that relies onpatents as a collateral) I fully disagree I partly disagree I partly agree I fully agree Not sure15. Europe’s innovation policy should encourage more university-industry partnerships andtechnology transfer I fully disagree I partly disagree I partly agree I fully agree Not sure16. Public-private partnerships should be used to accelerate the deployment of enabling technologiessuch as broadband networks I fully disagree I partly disagree I partly agree I fully agree Not sure17. EU innovation policy should focus on education and skills I fully disagree I partly disagree I partly agree I fully agree Not sure18. A Community patent would foster more innovation for SMEs I fully disagree I partly disagree I partly agree I fully agree Not sure19. There should be a dedicated EU agency for innovation I fully disagree I partly disagree I partly agree I fully agree Not sure32 Next generation innovation policy

PART III – YOUR VIEWS20. Below, you can express your suggestions for the future of EU innovation policy in Europe, with neither limitsnor space constraintsNext generation innovation policy33

Annex II: results of our surveyResults for all respondentsFulldisagree, %Partlydisagree, %Partlyagree, %Fullyagree, %Not sure,%Total, %1. Innovation Policy in the EU has failed to fully match industry needs 0.0% 18.5 55.6 18.5 7.4 1002. Innovation Policy in the EU should be thoroughly reformed 3.7 11.0 44.4 37.0 3.7 1003. Innovation Policy in the US and Japan is more effective thanin the EU0.0 7.4 25.9 48.1 18.5 1004. EU policy so far has focused too much on competition, and notenough on investment incentives3.7 11.1 51.9 29.6 3.7 1005. EU policy is too fragmented, and needs more coordination 0.0 11.1 18.5 70.4 0.0 1006. Europe needs forms of permanent consultation of industrystakeholders to identify industry needs and act accordingly0.0 7.4 22.2 70.4 0.0 1007. EU innovation policy should focus on key enabling products/services 3.7 14.8 44.4 33.3 3.7 1008. Tax incentives should be used more frequently to stimulate thesupply of innovation (e.g. through tax credits)0.0 22.2 33.3 40.7 3.7 1009. Fiscal incentives should be used more frequently to stimulate thedemand for innovative products (e.g. through tax exemptions orrebates for consumers of new technologies)7.4 18.5 25.9 33.3 14.8 10010. EU and national governments can do more to create demand forinnovation0.0 0.0 18.5 74.1 7.4 10011. Innovation policy should be more centralized at the EU level 3.7 33.3 37.0 22.2 3.7 10012. Public procurement should be used to create demand for innovativeproducts and services11.1 7.4 29.6 44.4 7.4 10013. Lack of labour mobility is a key obstacle to EU competitiveness 7.4 25.9 33.3 25.9 7.4 10014. Europe needs to strengthen IP-backed finance for SMEs (i.e.financing of innovation that relies on patents as a collateral)0.0 11.1 29.6 37.0 22.2 10015. Europe’s innovation policy should encourage more universityindustrypartnerships and technology transfer3.7 0.0 22.2 74.1 0.0 10016. Public-private partnerships should be used to accelerate thedeployment of enabling technologies such as broadband networks0.0 0.0 51.9 48.2 0.0 10017. EU innovation policy should focus on education and skills 0.0 0.0 51.9 48.1 0.0 10018. A Community patent would foster more innovation for SMEs 0.0 0.0 25.9 55.6 18.5 10019. There should be a dedicated EU agency for innovation 11.1 11.1 37.0 25.9 14.8 10034 Next generation innovation policy

Results for business respondents onlyFulldisagree, %Partlydisagree, %Partlyagree, %Fullyagree, %Not sure,%Total, %1. Innovation Policy in the EU has failed to fully match industry needs 0.0 6.7 66.7 13.3 13.3 1002. Innovation Policy in the EU should be thoroughly reformed 6.7 13.3 46.7 26.7 6.7 1003. Innovation Policy in the US and Japan is more effective thanin the EU0.0 0.0 26.7 46.7 26.7 1004. EU policy so far has focused too much on competition, and notenough on investment incentives0.0 6.7 46.7 40.0 6.7 1005. EU policy is too fragmented, and needs more coordination 0.0 13.3 26.7 60.0 0.0 1006. Europe needs forms of permanent consultation of industrystakeholders to identify industry needs and act accordingly0.0 6.7 20.0 73.3 0.0 1007. EU innovation policy should focus on key enabling products/services 6.7 20.0 40.0 33.3 0.0 1008. Tax incentives should be used more frequently to stimulate thesupply of innovation (e.g. through tax credits)0.0 20.0 40.0 40.0 0.0 1009. Fiscal incentives should be used more frequently to stimulate thedemand for innovative products (e.g. through tax exemptions orrebates for consumers of new technologies)13.3 20.0 20.0 33.3 13.3 10010. EU and national governments can do more to create demand forinnovation0.0 0.0 13.3 73.3 13.3 10011. Innovation policy should be more centralized at the EU level 6.7 26.7 26.7 33.3 6.7 10012. Public procurement should be used to create demand for innovativeproducts and services13.3 6.7 20.0 53.3 6.7 10013. Lack of labour mobility is a key obstacle to EU competitiveness 13.3 13.3 40.0 26.7 6.7 10014. Europe needs to strengthen IP-backed finance for SMEs (i.e.financing of innovation that relies on patents as a collateral)0.0 6.7 33.3 33.3 26.7 10015. Europe’s innovation policy should encourage more universityindustrypartnerships and technology transfer6.7 0.0 20.0 73.3 0.0 10016. Public-private partnerships should be used to accelerate thedeployment of enabling technologies such as broadband networks0.0 0.0 40.0 60.0 0.0 10017. EU innovation policy should focus on education and skills 0.0 0.0 33.3 66.7 0.0 10018. A Community patent would foster more innovation for SMEs 0.0 0.0 33.3 46.7 20.0 10019. There should be a dedicated EU agency for innovation 13.3 20.0 26.7 26.7 13.3 100Next generation innovation policy35

Footnotes and list of references1 Paul Krugman, The Age of Diminishing Expectations, MITPress, Cambridge (MA), 1994.2 See “The World in 2025: Rising Asia and Socio-EcologicalTransition,” available online at http://ec.europa.eu/research/social-sciences/pdf/the-world-in-2025-report_en.pdf3 See European Commission, Background Information forthe European Council, February 2011, available at http://ec.europa.eu/europe2020/pdf/innovation_background_en.pdf.4 The data shown in this section, of course, must be readin light of the current debate on the connection betweenpatents and innovation. Currently the economic literatureis split as regards the correlation between the patentingactivity of firms and their innovation intensity.5 See Veugeler, R. and M. Cincera, Europe’s Missing Yollies,Bruegel Policy Brief 2010/06, August 2010.6 See, i.a. the Staff Working Document backing the InnovationUnion flagship initiative, COM(2010)546 for a review ofexisting evidence. Also, See, McMorrow et al. (2009),“The EU-US total factor productivity gap: An industry-levelperspective,” CEPR Discussion paper 7237.7 See OECD (2008), Open Innovation in Global Networks, atwww.oecd.org/dataoecd/48/35/41721342.pdf.8 Id.9 See, for a more detailed description and references, Granieriand Renda (2010), A new Approach to Innovation Policy inthe European Union, cit.10 See i.a. Bossink, B. “The development of co-innovationstrategies: stages and interaction patterns in inter-firminnovation,” R&D Management 32(4), 311-320.11 See Brandenburger and Nalebuff (1999), Co-opetition.A Revolution Mindset That Combines Competition andCooperation: The Game Theory Strategy That’s Changingthe Game of Business. Doubleday Business 1996.12 Perhaps the most important feature of new forms ofinnovation is “modularity,” as intended in the earlycontributions of scholars such as Richard Langlois.Increasingly complex products populate our markets:competition ”for the market” pushes firms towardsthe exploitation of direct and indirect network effectsby adopting semi-open and open architectures, whichfoster interoperability between products and a degree ofstandardization that helps producers of complementarygoods to innovate within a given dominant platform. AllIT markets, but also manufacturing sectors are interestedby this development – think about emerging clusters. Seei.a. Langlois, Richard N. 2002. “Modularity in Technologyand Organization,” Journal of Economic Behavior andOrganization 49(1): 19-37. Langlois, Richard N., andPaul L. Robertson. 1992. “Networks and Innovation in aModular System: Lessons from the Microcomputer andStereo Component Industries,” Research Policy 21(4):297-313. See also Garud, Raghu, Arun Kumaraswamy, andRichard N. Langlois, (eds) 2002. Managing in the ModularAge: Architectures, Networks and Organizations. Oxford:Blackwell.13 See for an illustration Granieri, M. And A. Renda (2010), ANew Approach to Innovation Policy in the European Union(July 8, 2010). CEPS Task Force Reports.14 See the Report of the Expert Panel on Service innovationin the EU, “Meeting the Challenge of Europe 2020. Thetransformative power of service innovation,” available onlineat http://www.europe-innova.eu/c/document_library/get_file?folderId=383528&name=DLFE-11303.pdf15 See generally Abramowicz, M., “Predictocracy: marketmechanisms for public and private decision-making,” YaleUniversity Press, 2008; Surowiecki, J., “The wisdom ofcrowds”, Anchor Books, 2005; Hahn, Robert W. and Paul C.Tetlock, 2006, “A New Approach for Regulating InformationMarkets,” Journal of Regulatory Economics 29, 265-281; Hahn, Robert W. and Paul C. Tetlock, 2005, “UsingInformation Markets to Improve Decision Making” HarvardJournal of Law and Public Policy 28, 213-289. And Arrow,K. et al., “The promise of prediction markets,” Science 16May 2008: Vol. 320 no. 5878 pp. 877-878 (2008).16 Noveck, B. (2009), “Wiki Government: How TechnologyCan Make Government Better, Democracy Stronger, andCitizens More Powerful”. Washington 2009.17 See Gotze, J./Pedersen, C. (2009), Government 2.0and Onwards. State of the eUnion. Download unter:http://21gov.net/wp-content/uploads/e-book.pdf. Hilgers, D./ Ihl, C. (2010), Citizensourcing - Applying the Concept ofOpen Innovation to the Public Sector, International Journalof Public Participation (IJP2) Vol. 4, No. 1, Jan. 2010, S.67-88. Howe, J. (2008), Crowdsourcing: Why the Power ofthe Crowd Is Driving the Future of Business. New York.18 See the speech by Commissioner Neelie Kroes,European Cloud Computing Strategy needs to aim high,SPEECH/11/199 of 22 March 2011.36 Next generation innovation policy

19 See Europe INNOVA/PRO INNO Europe Paper n. 9, “Theconcept of clusters and cluster policies and their role forcompetitiveness and innovation: main statistical resultsand lessons learned,” available online at http://ec.europa.eu/enterprise/policies/innovation/files/clusters-workingdocument-sec-2008-2635_en.pdf.20 See i.a. the Communication From the Commission to theCouncil, the European Parliament, the European Economicand Social Committee and the Committee of the Regions,“Towards world-class clusters in the European Union:Implementing the broad-based innovation strategy”,{SEC(2008) 2637}21 See, Lange, A. et al. (2010), “Next-Generation Clusters:Creating Innovation Hubs To Boost Economic Growth,” CiscoWhite Paper, at http://www.cisco.com/web/about/ac79/docs/pov/Clusters_Innovation_Hubs_FINAL.pdf.22 Source: Technology Strategy Board.23 See “A Strategy for American Innovation: Securing OurEconomic Growth and Prosperity,” by the National EconomicCouncil, the Council of Economic Advisors, and the Office ofScience and Technology Policy, February 2011.can contribute to the solution of environmental challenges.Public procurement can be used to stimulate innovationto solve environmental problems. On the next pages somepossible initiatives (public procurement networks andSBIR-like initiatives) are discussed which can contribute toenvironmental policy objectives.28 See i.a. the COWI Report for the European Commission, DgEnvironment, “Bridging the Valley of Death: public supportfor commercialization of eco-innovation,” Final Report May2009.About the reportThis Report is based on a combination of academic research,stakeholder consultation and a survey of industry expertsconducted through the targeted dissemination of questionnaires.The author of this study has written extensively on topics relatedto emerging new business models, Intellectual Property Rights,competition and regulation and industrial policy.24 Partners: ICLEI – Local Governments for Sustainability(Europe), Transport for London TFL (UK), City of Torino(IT), Department for Environment, Food and Rural Affairs(UK), Dutch National Procurers Association PIANOo (NL),Culminatum, Helsinki Region Centre of Expertise (FI),University of Klagenfurt (AT), Motiva, National Agency forEnergy Efficiency and Renewable Energy (FI).25 Partners: Department for Business, Innovation and SkillsBIS (UK), Dutch Centre for Health Assets TNO (NL),Norwegian Directorate for Health Affaires (NO), RawiczHospital (PL), Department of Health DH (UK), EuropeanHealth Property Network EuHPN (NL)26 Partners: Firebuy, the National Procurement Agency for thefire and rescue service in England (UK), Belgian Ministryof the Interior IBZ (BE), Dutch national Disaster ResponseAgency LFR (NL)27 Green Public Procurement (GPP) is defined in theCommunication (COM (2008) 400) “Public procurementfor a better environment.” The general objective ofthe Communication is: “to provide guidance on how toreduce the environmental impact caused by public sectorconsumption and how to use Green Public Procurement(GPP) to stimulate innovation in environmentaltechnologies, products and services.” Innovative solutionsNext generation innovation policy37

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