Competitive European regions through

research and innovation1

Different theoretical approaches to innovation policies

Report Working Paper of

Gilberto Seravalli(*)

Department of Economics
Faculty of Economics
Università degli Studi di Parma, Italy

January 2009

1
This working paper has been written in the context of the report "An Agenda for a reformed Cohesion
Policy". It represents only the opinion of the expert and does not necessarily reflect the views of the
European Commission.
*
The author wishes to thank Mikel Landabaso (European Commission - DG Regio) for invaluable
discussions over the concepts here presented
 Abstract

The European Policy for Innovation plays a central role within the reform of the Lisbon
strategy. This policy that has conceptually evolved from a linear to a systemic approach
is negatively characterized by stratification and insufficient integration of different tools
that operate simultaneously without clear identification of specific and precise targets and
results. Despite extensive experimentation, especially on a regional level, the learning
process has been only partial both for the centre and the periphery. It is also for this
reason that this policy has been strongly criticized and does not elicit homogeneous
opinions even from its supporters. The traditional policy on public and private research has
been called into question: there are some positions that accept local policies and others
that refuse them or that, in theory would accept them but have strong doubts regarding
their implementation (particularly in underdeveloped regions). A shared idea, developed in
response to such difficulties, is that the transition from old to new types of interventions
has to be completed; this means going beyond previous policy tools linked to the linear
approach, and making room for new interventions belonging to the systemic approach:
measures supporting start-ups and small firms, seed venture capital funds, technology
transfer, R&TD valorization, cooperation and communication between research institutes
and business.

Within this framework, regional policy has a central and, for some, even exclusive, role.
Considerable criticism has been leveled against this key role given to local policy,
considered inappropriate and too difficult to manage from the periphery. However,
structuring this debate by reinforcing the contrast between different positions could harm
the prospects of achieving useful and practical regional policy. Hence it is necessary to
explore a different path resulting from the analysis of a crucial issue directly or indirectly
tackled within the debate, namely the existence or otherwise of an inevitable alternative
between the old and new kind of intervention. It may be argued that these two approaches
are not really alternatives (even taking into account strict budget constraints) by critically
analysing the arguments of those who consider them alternative.

The first argument is the idea that while in Europe there is little need of traditional
research policies since science research is already of a high level, the capacity to convert
results into of product, process and organizational innovation is lacking. This "European
Paradox" might, nevertheless, be called into question given the substantial gap between
Europe and the USA both in innovation and research. The second reason that underpins
the asserted necessity to complete the transition towards new tools for innovation policy is
that this change is required by the modern systemic approach to the innovation process. In
reality, supporting policies for research does not entail the acceptance of the linear
approach. The idea that the systemic approach to the innovative process implies new
interventions that exclude traditional ones is not justified for theoretical and practical
reasons. In the systemic approach context, we may find theories on economic change that
point to a large number of both new and old obstacles to innovation. Many useful
suggestions have been made for conditional interventions that might face specific
constraints arising in particular contexts, always remaining in the framework of a
systemic approach.

2
Bearing in mind the opportunities, apart from the constraints and obstacles, there emerge
some ideas for regional policy on innovation that lends importance to human capital,
public research and traditional industrial policy. However, some kinds of policies still
need to be defined, for the support of "generative relations", besides those already known to
support systemic innovation. It is far from easy to put together such articulated policies in a
context of scarce resources. If the old policy tools cannot be fruitfully laid aside, then the
solution that imposes a top-down or the opposite bottom-up approach is not sustainable.
Attention is focused on an explicit integrated position, top-down and bottom-up both in
content and management. Hence it is fundamental to define the expected procedural
results, their timings and the forms of inter-institutional cooperation, in order to underline
the conditions for evaluation to acquire a central role.

3
 TABLE OF CONTENTS

1. EUROPEAN INNOVATION POLICY ...................................................................... 5

1.1. Rationale............................................................................................................ 5
1.2. The framework .................................................................................................. 6
1.3. The policy in practice ........................................................................................ 7
2. DIFFICULTIES AND QUESTIONS.......................................................................... 8
2.1. Two mind-sets ................................................................................................... 8
2.2. Systemic approach and research policy............................................................. 8
2.3. A pragmatic strategy........................................................................................ 10
2.4. The territorial dimension ................................................................................. 11
3. THEORIES OF ECONOMIC CHANGE.................................................................. 11

4. REGIONAL INNOVATION POLICY..................................................................... 16

4.1. Contrasting perspectives.................................................................................. 16
4.2. Integration, assessment and learning............................................................... 16
REFERENCES .................................................................................................................. 18

4
1. EUROPEAN INNOVATION POLICY

1.1. Rationale

The Lisbon agenda was adopted in Spring 2000 to improve growth, innovation,
employment and social integration of the European Union. With the Lisbon strategy
(CONCL 2000), innovation and European competitiveness dependent on new
products, services, production processes and organisation forms gained increasing
importance. Innovation policies began to be considered as specific essential
components of industrial strategies. A process in this direction was in fact already in
place. Innovation was explicitly included in EU public documents from the early
1990s on the basis of the claim that the European Union suffered from an
inadequate innovation performance in comparison to the United States (COM
(1995/688). The first step was taken in 1995 with the Green Paper on Innovation,
followed one year later by the First Action Plan for Innovation in Europe.

In Spring 2005, judging the results as non-satisfactory (EC 2004), heads of state and
government chose to refocus priorities on innovation and growth establishing a
longer programming period, a single set of Integrated Guidelines, and the
preparation by Member States of National Reform Programmes (CONCL 2005;
CONCL 2006). The reform, based broadly on the recommendations of a mid-term
review led by former Dutch Prime Minister Wim Kok to avoid the previous plethora
of different targets and fewer synergies between the different strands, has been
understood at most levels but the scenario between possible alternative settings is
still unclear. This uncertainty especially concerns the role and weight of European,
national, regional and local responsibilities2 The Union has three instruments for
innovation policy: Structural Funds (277 bn euro in 2007-2013) and the Cohesion
Fund (70 bn), a total of 347 bn for the "Cohesion Policy"3, the Framework
Programme (50 bn) and The Competitiveness and Innovation Framework
Programme (3.6 bn). They are very different in size, but also in their legal basis,
design and methods of allocating funds4. Nevertheless, the Commission is working

2
In the Kuhlmann‘s proposal, there are three alternatives: ―"i) the idea of an increasing centralized and
dominating European innovation policy arena; ii) the opposite, i.e. a progressive decentralization and
open competition between partly strengthened, partly weakened national or regional innovation
systems, and finally iii) the vision of centrally mediated mixture of competition and co-operation
between diverse regional innovation cultures and related governance structure." (Kuhlmann 2001).
3 "Cohesion policy focuses on promoting regional excellence. In the current programming period it has
become a major source of investment in support of the Lisbon Strategy in fields such as RTD and
innovation both in the least developed region where capacity for these activities needs to be created,
and in the more advanced regions where they need to be reinforced. For Cohesion Policy programmes
covering 2007-2013 Member States are required to 'earmark' between 60% and 75% of the resources
available for Lisbon-related investment, notably in RTD and innovation." (COM 2007/474 final, p. 3).
4
"Relating to their different Treaty basis, research and innovation instruments target specific themes,
while cohesion policy instruments target specific geographical areas. The first set of instruments
results in thematic specialisation, whereas the second seeks to promote an integrated approach. There
are also differences in implementation methods. The 7th Framework Programme essentially uses
competitive calls for proposals at European level. In the evaluation of proposals the Commission is
assisted by independent experts and the proposals are selected on the basis of excellence. The
Competitiveness and Innovation Framework Programme also uses calls for proposals at European
level for the ICT and Intelligent Energy components, while the other financial instruments work with a
permanent open call for expression of interest that will be considered by the European Investment
Fund (EIF) and the Commission. Cohesion policy programmes are implemented on the basis of shared
5
 towards their synergy and integration5. For now it is unclear in which direction this
integration will move. Perhaps towards "regionalization" of the Framework
Programmes, although this appears highly improbable. Perhaps towards
"nationalization with thematic specialization" of the Cohesion Policy. Or it could
move in other ways.

1.2. The framework

Both the design and practical implementation of innovation policies have undergone
several changes over time. Policy design has been driven by a framework issued by
the European Commission and the European Council, influenced by theories of
innovation process and their changes that have evolved from the "linear" to the
"systemic" approach6. In the former, innovation is seen as a well-identified
sequence of consecutive actions. Innovation starts with research activities
performed by an inventor or research group, which leads to an invention which is
not yet ready for commercial exploitation. Then applied research and development
activities, usually performed by industrial research laboratories, create a new or
improved product or process with a real commercial value. The resulting
innovations are sold, adopted, and eventually imitated by other firms. According to
this approach, some actors "demand" and others "supply" innovations. Firms
producing goods and services need innovation, driven by market competition.
Research departments, technology centers, and universities supply R&D lured by
the money they need in order to survive, and for prestige in the scientific
community. The linear model was rooted in the design and results of the first
practices of measuring innovation by means of R&D expenditures, in the 1930s,
with the enquiry of Holland and Spraragen (1933). In the 1940s and 1950s it was
common belief that supply would come first (Bush 1945) and demand would
follow. Then, starting with the celebrated contribution of Schmookler (1966) in the
1960s, demand was conceived as making the first and critical move. But also the
"demand-driven linear model" was criticized on the basis of empirical findings
(Mowery and Rosenberg 1979). In the second half of the 1970s, indeed, some
authoritative critics demolished the paradigm (OECD 1976).

management between the EU and the Member States in a system of multi-level governance. Whilst
they often also use competitive calls for tender, the scope of intervention is generally limited to a
region (though some cohesion policy programmes also cover a Member State or a group of regions).
Hence the selection process is based primarily on regional partnerships. Due to these differences, the
direct beneficiaries can differ as well." (COM 2007/474 final, p.4).
5
Cfr. COM 2007/474 final, SEC 2007/1045; SEC (2007/XXX).
6
According to Rothwell (1992), the evolution of models of innovation process presents five stages.
6
 According to the systemic approach (Nelson and Winter 1977; Nelson 1981; Kline
1985; Kline and Rosenberg 1986; Freeman 1987)7, on the other hand, innovation is
seen as a non-linear process that involves linkages and feedback loops amongst
actors whose role cannot be identified in advance. Their roles are economic and
scientific, internal and external to the firm, linked together by multiple causalities
and feedbacks and heavily dependent on the social, institutional and economic
context (Lundvall 1985; Dosi, Freeman, Nelson, Silverberg, Soete 1988; Nelson,
Rosenberg 1993, 1994). Innovation is then seen as not simply given by the
competitive environment and resources for R&D, and is not described in a simple
general way. In the systemic approach problems can arise not only on the resource
side, but the whole innovation process may be problematic.

1.3. The policy in practice

Also in terms of practice European innovation policy has evolved significantly over
the last fifteen years. In the early 1990s the emphasis was mainly on RTD expenses,
whereas now there are more measures supporting start-ups and small firms, seed
venture capital funds, technology transfer, R&TD+i promotion cooperation and
communication between research institutes and business (Bachtler 2007). However,
it was observed that the transition from the linear to the systemic framework is far from
complete. "Although it is the systemic model that now dominates in policy
discussions, many measures put into practice with the intention of promoting
innovation still appear to owe more to the linear view" (COM 2003/112, p. 7)8. On
the other hand, the process of regionalization has proceeded apace, supported by the
idea of the important role of the social and economic context in shaping and
sustaining the innovation process in the light of the systemic approach that entails a
"territorial approach" (OECD 1992, Lundvall 1992, Cook and Morgan 1993, Cooke
1998, Storper 1995, Amin and Thrift 1995, Storper 1997, Howells 1999, Barca
2004). A practical aspect of this regionalization is the increase which has already
occurred and has been projected in the share of funds allocated to innovation-related
activities in cohesion policy. The result is that, today, many different policy tools
operate simultaneously even within individual instruments such as cohesion policy.
This is not wrong in itself. The problem is that there has been more stratification than
integration among different tools and approaches, and there are good reasons for
dissatisfaction. Greater clarity is needed to identify specific targets for the better
implementation and assessment of policy tools. Without this assessment (Musyck
and Reid 2007), in the field, actors and policy makers (both at the bottom and at the
top) learn too little, and tend to proceed more on the basis of clichés than on effective
practices and results. Consequently, funding is available locally, but not the perception
of the strategy behind it. This state of affairs is not so recent. Criticism has already
been expressed, at times harsh, denouncing the lack of a coherent EU innovation
strategy (Lawton-Smith, Tracey, Clark 2003), or its considerable difficulties and
shortcomings (Luukkonen 1998, 2002; Bradley 2006; Bachtler and Wren 2006).

7
Godin (2007) shows that the idea goes back to several OECD papers (from 1963 onwards).
8
One reason is founded in the strength of routine, another in the retroactive effect on policy design
made by assessment and evaluation practices often "implicitly still based on an outdated, linear view
of the innovation process" (Molas-Gallart, Davies 2005, p. 1) and in the use of indicators (EC 2003)
of innovation scoreboards (Grupp and Moogee 2004; Katz 2006).
7
2. DIFFICULTIES AND QUESTIONS

2.1. Two mind-sets

To deal with this difficult situation, previous considerations seem to suggest the need to
complete the transition from a linear to a systemic approach. Indeed, this suggestion
is found in many of the different analyses mentioned, but often without the relevant
caveats to avoid possible adverse results. For many, this completion of the transition
to the systemic approach means less traditional research and industrial policies, and
softer measures, in the context of specific areas and local communities. In this
perspective, there will be plenty of room for a regional innovation policy dimension
that would become quite predominant as a "bottom-up" innovation policy. This
position stems from the idea that the distinction between linear and systemic views of
the relation between science and innovation fits with the distinction between
traditional research policies and new policies for innovation. This is, however, a
poorly founded idea, and there are good reasons for thinking that the two distinctions
do not coincide, and there is instead compatibility between a systemic approach and
traditional policies for research, in addition of course to new types of intervention.

Accepting this compatibility leads us out of the impasse brought about by strong
dissent over full regionalization of policies for innovation. Dissent manifests itself in
various ways. There are extreme opinions that follow influential contributions
(Boldrin and Canova 2001, Tabellini 2003), arguing that the whole cohesion policy
would only have redistributive results, a position that also emerges in the important
report on the future of structural policy in Europe (Sapir 2003). There are, moreover,
more or less skeptical opinions in favor too, outlining the poor administrative
capabilities (Oates 2005) in many regions.

2.2. Systemic approach and research policy

For the very defense of realistic regional innovation policy it seems worth noting
that there is no incompatibility between the systemic approach and traditional policies
for research. Those who think the opposite are often not following theoretical
arguments but pushed by the evocative force of the so-called "European paradox".
The fact that Europe is lagging behind the United States in the field of technological
progress was in this way qualified, inter alia by the European Commission9, with the
claim that EU scientific performance was excellent while its capability in transforming
the results of research into innovations and competitive business advantage was
weak. There are, however, recent data showing that European countries (with only
few exceptions) are weaker than the US in research as well as in development and
innovation. The Commission itself recently acknowledged this fact and has
redirected its analysis accordingly10.

9
cf. European Commission, Green Paper on Innovation.
10
cf. Snapshots "Key Figures 2003/2004": From "European Paradox" to declining competitiveness?
(ftp.cordis.europa.eu/pub/indicators/)
8
 Secondly, it is sometimes claimed that universities in Europe operate too
independently of business: greater focus on applied research which is useful to the
immediate needs of enterprises often accompanies the idea that universities and
research centers should change their attitude, which is traditionally too autonomous.
Here also we can dissent. Better complex (systemic) synergies between firms and
universities will emerge when both sides are at a similar, high level in their fields, and
strongly defending their identity formally and informally, than when they try to
interact by adapting to each other (Etzkowitz 2002 p. 10; Etzkowitz, Viale 2005, p.7).
This also means that it would be better in a social sphere and for business or
universities to keep defending the Open Science System and public funding for basic
research (Dosi, Llerena, Sylos Labini 2006, cit.). The celebrated Stanford
technology transfer program is a case in point11.

The third consideration is theoretical. The distinction between the linear and systemic
approach to the innovation process does not coincide, as often thought, with the
distinction between neoclassical theory and evolutionary theory of economic change.
The two distinctions concern different aspects. The first (linear - systemic) concerns
the nature of the actors and their actions in relation to the results. The second
concerns conditions, resources and constraints. Given actors with imprecisely defined
roles ex ante and multiple and circular causations between them (systemic approach),
what affects the results is both their knowledge and willingness to act and to risk
(neoclassical point of view) and the conditions of their learning (evolutionary point
of view). Innovation results are affected by the wide range of conditions, constraints
and resources considered by both the great families of theories of economic change.

The divide between the neoclassical approach (traditional and modern, as in

"endogenous growth"12) and evolutionary approach is in what they see affecting the
degree and nature of limits to the incentives for, and conditions of change in a market
economy. In the endogenous models, as economic changes are in a broad sense
characterised as, or linked to "ideas" that are non-rival, they produce "economies of
scale" that cannot be accommodated in the competitive market and social optimum
framework (Jones 2005). In the traditional neoclassical approach, economic change
is constrained by obstacles to the mobility of inputs and outputs that may require
public intervention. This orthodoxy conceives public innovation policy as a way to
remedy such failures. On the other hand, the evolutionary approach (in which we
may group together old and new theories) emphasizes the trial-and-error learning
process, which is not limited to optimisation of rational behaviour where results
depend on the input. In trial-and-error learning processes you cannot achieve results
even if there are resources. As a learning process, economic change requires in the
evolutionary approach more public support, not limited to the provision of inputs and

11
"The analysis demonstrates that [… it] was neither the result of purposeful design, nor driven solely
by pecuniary goals on the part of key individuals. Rather, the program emerged from the confluence of
multiple approaches […] The interaction of industry and academic science within the university took
on diverse forms, reflecting faculty efforts to make sense of new opportunities in the context of their
existing goals of preserving reputation and advancing their research programs. […] Norms of open
science endured […]. While some faculty engaged in patenting and licensing efforts to expand their
research programs, others approached commercializing as a means to protect their work from firms,
drawing a boundary around their science." (Colyvas 2007, p. 474).
12
"In the broad sense in which I use the term, the endogenous growth model of Romer and Lucas and
their many successors are entirely neoclassical" (Solow, 2005)
9
rules. This support will target the organization and action of various formal and
informal learning approaches.

Thus the distinction between the neoclassical and evolutionary theory of economic
change does not coincide with the distinction between the linear and systemic
approach to the innovation process. The first concerns the intensity and purpose of
public intervention, the second the actors and their roles we have to deal with in the
policy disegn. The neoclassical approach can thus be combined with both a linear
and systemic theory of innovation. However, when the unsatisfactory linear
approach is crossed with the neoclassical theory, you get an unduly simplified policy.
The neoclassical attention to resources, on the one hand, and the idea that the
innovation process takes place in recurring stages, on the other, give rise to the
possibility of designing policies simply addressed to the segment of this process which
is deemed more worthy of special support. Thus the idea of poor European
capability in the field of translation into innovations of scientific discoveries and the
idea that neoclassical and linear approaches coincide would lead to policies designed
solely or mainly for applied research. This would clash with the opposing entrenched
evolutionary-systemic position, which would mainly propose policies targeting
communication and cooperation between universities and firms, and supporting the
formation and activity of business networks. The result would be a singular loss of
interest in one case and another for basic research. This would be a serious mistake in
view of the data that show a significant delay in Europe also on this crucial side.
Neoclassical emphasis on resources combined with a correct nonlinear approach to
the innovation process leads, instead, to properly designed funding for basic and
applied research. The latter will then be usefully achieved by policies conceived in a
systemic and evolutionary approach.

2.3. A pragmatic strategy

The innovative non-linear process requires both resources and learning support.
While resources alone cannot overcome the lack of learning, the opposite also
holds. Thus, a "properly designed" type of policy results from a systemic approach of
innovation in which different theories of economic change suggest therapies for
differentiated constraints. This strategy that conceives diagnostics as a central activity,
is in line with the spirit of the position of the influential World Bank Report on
"Economic Growth in the 1990s: Learning from a Decade of Reform" (WB 2005). As
Dani Rodrik points out (Rodrik 2006, 2008), "the good news is that there is substantial
convergence in the policy mindset exhibited by micro evaluation enthusiasts, on the
one hand, and growth diagnosticians, on the other. The emerging "consensus" revolves
not around a specific list of policies, but around how one does development policy. In
fact, practitioners of this "new" development economics—whether of the "macro" type
or "micro" type—tend to be suspicious of claims to ex-ante knowledge about what
works and what does not work. The answer is neither the Washington Consensus
nor any specific set of initiatives in health or education. What is required is recognition
of the contextual nature of policy solutions. Relative ignorance calls for an approach
that is explicitly experimental, and which is carried out using the tools of diagnostics
and evaluation." (Rodrik 2008, p. 1). Within this setting the outdated idea that there are
general recipes is rejected; and we can also therefore say that the "territorial
dimension" of the design and implementation of policies should be definitively
acquired.

10
 2.4. The territorial dimension

For many, the need for a regional innovation policy is obvious (possibly as a partial
revision of cohesion policy to avoid simple redistributive logics and practices)
(Morgan, Nauwelaers 1999; Cooke, Boekholt, Tödtling 2000; Fritsch, Stephan
2005). There are, indeed, not only the reasons that underlie the constraints to
economic change that may be local: constraints are accompanied by opportunities. It
would not be easy, otherwise, to account for greater regional disparities than
national disparities, and the correlation between regional disparities and
technological capability (Gardiner, Martin 2004; Enflo, Hjertstrand 2006). In terms
of causality chains, there is broad consensus on a few mechanisms that are local
(Macpherson and Holt 2007; Cantwell and Iammarino 2003). Two appear the most
relevant, often highlighted in the literature. In essence, one mechanism concerns
relational learning, and the other links cumulative innovation and the dynamic
context of social, economic, human development. The first relates to the exchange
of knowledge which is so important in learning processes. Despite enormous
progress in information technology, important differences remain between
information and knowledge; spatial distance matters for knowledge spillover (Jaffe
1989, Keeble and Wilkinson 1999, but see a critic appraisal in Breschi and Lissoni
2001, Caniels and Romijn 2005). For the same reason, locally specific human
capital skills and specialized labour pools are important sources of innovation, as
well as local tried-and-tested company networks. The second mechanism relates to
self-reinforcing processes of local knowledge, production, innovation and local
development (Isaksen 2001).

Given the recognized presence of these localized opportunities and following the
Lisbon agenda, there is a general trend towards policy experimentation at regional
level (Bellini, Landabaso 2007). However, European regions should rapidly
overcome the age of experimentalism and the endless search for some "new" good
practice, and evolve into a more mature stage, both conceptually and in practice.
There are then both good reasons and strong doubts concerning regional innovation
policy. To better understand the difficulties we need a suitable definition of what
differentiates "regional innovation policy" from other possible conceptions. We will
return to this topic in the last section.

3. THEORIES OF ECONOMIC CHANGE

It may be useful at this point to set out a taxonomy of theories typifying the different
conceptual approaches to economic change and classify them into diagnosis and therapy.
This exercise is far from easy as it attempts to summarize both the historical
developments of theory and the reality of policy making. The taxonomy will also attempt
to separate into very distinct classes what may be quite complex and overlapping. Taking
into account both practical and theoretical considerations, the matrix that follows has two
main columns and two secondary columns, a total of four. In all cases, the non-linear
hypothesis of innovation processes is assumed.

11
The two main columns correspond to the main distinctions that emerge among the
theories with clear policy implications: i) the neoclassical view supporting the
accumulation and employment of inputs of economic growth and of public and private
R&D; ii) the evolutionary view supporting learning in trial-and-error processes13. In the
first main column we have a distinction between the traditional theory of growth (where
the growth of TFP is "exogenous") and the theories of "endogenous growth". The
fundamental theoretical background of the traditional neoclassical factor-based theory
and the new endogenous growth theory are in fact quite similar in representing the
crucial relevance of resources, some of which may have a social return which is greater
than the private one, so that market failures may occur, thereby justifying public
involvement in the economy. From the policy-making point of view, new growth theory
amplifies national or public involvement in the economy through traditional means
(defense, traditional infrastructure and competition policy) as well as through innovation-
related activities (especially public R&D and the public education system). These
policies tend to be national with some regional projections. The interventions supporting
basic research and firms may have a local dimension as the policy menu is conceived
according to the current regional situation and potential. The logic is, however, normally
top-down. The main tool will be a national-sectoral plan, even it is disaggregated into
regional sections.

In the second main column we have a distinction between the supporting actors‘
innovation activity (systemic actions for innovation) and those targeting actor relations
supporting their positive character and potential (generative relations). In these approaches,
self-reinforcing and differentiated local processes tend to emphasize regional policies (with
some national projections). The logic is bottom-up, and conceptually the national plan
would be the result of the sum of local programmes.

It is worth noting that approaches (3) and (4) have incompletely clarified margins.
Approach (3) includes well-identified and practised policies, but its hypothesis of
uncertainty is a little inconsistent; approach (4) is more consistent, considering radical
(ontological) uncertainty in innovative processes, but does not yet have adequate policy
specification. This distinction within evolutionary theory comes from an analysis of
relational learning and changing (Maskell and Malmberg 1999). "Learning exhibits path-
dependent features that can prevent learning outside the confines of existing knowledge
and institutional routines." (Dosi, Freeman, Fabiani 1994). Thus, from a policy perspective
similar limits of incremental learning have been outlined by Charles Sabel (1996). In a series of
papers Sabel explored new forms of regional policy that attempt to move beyond
programmes designed purely to encourage incremental learning on the part of firms
(Henderson 2000). Consequently, in theory and in practice we may have two policy designs.
Both field studies (e.g. from Henderson 2000 on Wales, to Rossi and Russo 2008 on
Tuscany) and the specific literature (Davidson 1996, Lane and Maxfield 1997, Dequech
2004, Lane and Maxfield 2005, Lane, Pumain, Van der Leeuw, West 2008) show that policy
design can be conceived (for example in order to support networks) either: i) as targeting the
network activity, or ii) as targeting its generative character. There are substantial differences
in practical terms. In order to assess the projects‘ achievements, in the first case (approach
3) indicators will relate to publications, workshops, training courses, software, patents
and prototypes.

13
Consider also that in the neoclassical economy the basic structure of the system remains constant for
long periods of time, while in the evolutionist view it is constantly changing.
12
In the second (approach 4) they will relate to changes in network composition, partners
involved and their competences, its organization, kinds of interactions. Learning by
monitoring entails, in the second case, studying the effects of the programme over a longer
timespan while policy interventions have proven to be most effective when supporting
"multivocal" actors (e.g. service providers) and when they were able to distinguish and
support, among the network actors, the key actors in generating innovation potential. This
could be considered difficult to implement and not strictly necessary in the 3rd approach. If
the innovation is predictable, at least in terms of probability, agents are able to design,
without support, the composition of the network, its organization, the right kind of
interactions, their different roles and functions. The results can be assessed in the short to
medium term. This shows that the main divide between approach (3) and (4) involves their
different theories about uncertainty: epistemic (approach 3) versus ontological uncertainty
(approach 4), and consequently the divide between incremental and "really new"
innovations (products and processes that are new for the firm and the market, or the
technology paradigm, the term ‗incremental‘ referring to those innovations that are only
new for the firm).

13
I Neoclassical
Part 1 1 - Traditional
A - Key issues The traditional theory of
growth stresses that
resources are the main
effective limit to
development. The growth of
product depends mainly on
the accumulation of capital
and on the aggregate
elasticity of substitution of
factors.
B - Justification Market and decentralized
decisions are, sometimes,
for public unable to fully and
intervention efficiently employ, allocate
and reproduce resources.
This may happen in the case
of natural monopolies or
externalities or common and
public goods. These
circumstances may relate to
factors of production as such
or to goods and services
complementary to them. In
these cases, without public
intervention, directly
overcoming these
bottlenecks or providing
regulations or incentives, the
rate of economic growth
would be less than the
potential.
C – Policy fields Public goods and services,
law and order, liberalization
of markets, government
efficiency.
14
Ontological vs. epistemic uncertainty (Davidson 1996)
2—
"Endogenous"
growth
Theory of "endogenous
growth" underlines the diverse
capacity of different
economies to acquire and
apply new knowledge, even in
the case of "followers". These
different capabilities lie in
specific internal resources,
especially R&D expenditures.
The aptitudes of different
economies in this field are
historically conditioned. On
the other hand, the market and
decentralized decisions are
unable to provide such
investments in a socially
optimal amount.
R&D activities have: positive
externalities, public good
nature, imperfect and
asymmetric information.
Projects with an unattractive
rate of return from a private
perspective might be
beneficial for society at large;
companies might be reluctant
to fund risky but valuable
projects and highly qualified
personnel may be unaware of
recruitment opportunities in
innovative undertakings.
Because of this, without
public intervention regional
differences in growth and
productivity are likely to be
self-reinforcing. Regions that
initially lead in science and
technology and have
concentrations of skilled
workers attract further
resources and capabilities.
Public funding of basic and
applied research, support to
high-tech and leading edge
technological development,
higher education.
14
Evolutionary
3 – Systemic
actions for
innovation
Some "evolutionary" theories
(old and new) state that
productivity growth may be a
result of dynamic economies
of scale. Others outline a
feedback between social
environment and productivity
growth. This makes the
innovation definitively non-
linear, mostly endogenous,
partially auto-driven and
partly independent of
resources, depending instead
on many actors' decisions.
Those features commonly
attributed to R&D activities
are in fact, widespread in all
actions the many actors must
play to learn in a trial-and-
error process. Without public
intervention the necessary
cooperation between actors
may be impossible where the
local productive social an
institutional structure is weak
and fragmented. Regional
differences are likely to be
self-reinforcing, with little
regional convergence or even
divergence over time despite
economic integration. This
may occur not only because
leading regions maintain their
advantage but also because
less developed regions cannot
catch up.
Industrial and regional policy Industrial policy embedded
based on a broad definition of with a renewed regional
R&TD+I considering also
innovation in services and
organizational innovation.
4 – Generative
relations
"Ontological" uncertainty
arises when innovations
entail real discontinuity
along technological, market,
organizational frontiers. In
this case one cannot keep
considering the
actors‘(bounded) decisions
as central, as it is when
innovative capabilities are
confronted with "epistemic"
uncertainty14. When the
innovation process is really
unforeseeable even in a
probabilistic sense, the
generative potential of
relations should be placed at
the centre.
When innovation processes
are really unforeseeable even
in a probabilistic sense, it is
useless to think of future
actors‘payoffs (possibly
affected by public
intervention). Making
innovation relations work, on
the other hand, is not
impossible even in less
developed regions. It is,
however, a hard task, except
for those who already have
extensive experience. Some
regions, local systems and
firms may have cumulative
advantages when they have
many people with experience
of working out of normal
routines and mutually
depending on a wide
internal-external network
that may be local but also
"global". Innovation
networks are unstable with
the difficulties of preserving
leadership coupled with the
essential heterogeneity of
actors.
policy.
 Neoclassical
Part 2 1 - Traditional
Mainly national programmes
D – Policy tools in the fields of
infrastructures, order and
justice, education, public
services, finance, labour.
Regional programs such as
articulation of those
programs. Financial
incentives to private
enterprises to support
activities with positive
externalities. Reforms for
market efficiency.
E – Main policy National governments and
actors some administrative
decentralisation.
F – Expected The main result envisaged by
outcomes and this approach is a
discontinuity in the rate of
their times growth of GDP. This must be
considered a very long-term
result. Assessing the
effective impact of policies
requires, therefore,
establishing some
"intermediate goals". They
may be in terms of quantified
supply of public goods and
services, of progress in
accessibility of wasted
resources, of progress in
education, financial services,
efficiency of public
administrations and markets.
G – European Traditional national and regional Concentrate funding on
approach economic policy
2 — "Endogenous"
growth
Provide basic R&D
infrastructures. Finance R&D
efforts, big science in
particular. Utilize Tax
incentives and rebates for
companies undertaking R&D
efforts. Support critical
masses in R&TD+I and
centers of excellence,
competence centers. Provide
funding for tech-starts.
National governments,
national science foundations,
public-private science
foundations, universities,
public R&D labs,
multinational high-tech
companies with internal
leading edge R&D facilities.
Local governments where the
main research facilities are
located.
The link between basic
research investment and
concrete results of new
products and process is to be
considered indirect, full of
uncertainty, projected in the
long term. The results to be
monitored have to be,
therefore, in terms of
research outcomes and in
terms of consolidation and
the reputation of relevant
groups of researchers in the
public and in the private
sector, and in terms of higher
education.
European R&D Framework
Programme, based on pre-
competitive research in a
limited number of leading
edge technological fields:
maintain international
character of projects and
competitive tendering based
on excellence criteria. Work
with national governments
and/or strong business
associations and global
corporate players.
15
Evolutionary
3 – Coordinate
actions for
innovation
Cooperation-based policies.
Cluster promotion, the
geographical concentration
of firms with active channels
for transactions, dialogue
and communications, that
share common opportunities
and threats. Technology
transfer, entrepreneurial
promotion, financial
engineering targeting new
ventures, technology parks.
Science and technology
programs for economic
development: clusters of
firms in medium and high
tech sectors, leading
universities with R&D
facilities, technological
platforms, technology
"corridors", public private
partnerships. Local and
regional governments.
The actions supported by
these policies are probably
the most valuable also in the
short term: number of new
networks between firms and
between research and
business, number of
stabilizations of such
networks, number of firms
and other subjects
participating in technology
transfer programs
entrepreneurial promotion
programs, financial
engineering targeting new
venture programs,
technology parks, technology
centers, measurement of
volume and value of these
activities. The final results
(innovations), must be
considered in the medium-
term and mainly as
incremental innovation.
Redirect Structural Funds
towards catalytic incentives
to promote innovation:
especially technology and
knowledge transfer between
education establishments and
business, and between large
firms and SMEs.
Improvement of evaluation
targeted at establishing best
practices in schemes and
facilities dedicated to "triple
helix" (universities, business,
institutions)
4 – Generative
relations
Manufacturing extension programs,
incubators, university - enterprise
networks, provision of advanced
business services including
knowledge management. Network
monitoring. New tools to be
designed in order to support
generative characters of
relationships and networks.
Regional and national
innovation strategies and
programs: SMEs, regional
development agencies,
universities, technology
transfer centers, regional
governments, network of
firms, associations.
The expected results of this
policy are more radical
innovations and "really new"
products and processes. These
results should be monitored by
a specific activity built to
detect the effects of policies in
the medium-long term, also
several years away from actual
policy implementation. It is
useful, moreover, to establish
in this case intermediate
objectives which are useful in
the short term and coherent
with the (new) policy tools to
be implemented.
Still much to be done. It might
be as on the left, but with more
emphasis on learning for
innovation policies; and for
new evaluation capacities
targeted not only towards
"networking" but also towards
medium term and uncertain -
unexpected innovation results,
as well as on intermediate
objectives to be established (as
above).
4. REGIONAL INNOVATION POLICY

4.1. Contrasting perspectives

The considerations set out so far suggest two different perspectives in designing a
regional policy for innovation. In the first perspective the importance to be
attributed to identifying constraints and providing resources tends to suggest top-
down policies. In this setting, regional policy would be seen as a local projection, to
overcome local constraints and obstacles, of national sectoral policies in the fields
of public goods and regulation, for investment in research and development and
human capital. In practical terms it would be the "nationalization and sectoring" of
policy cohesion that would converge, despite its greater weight, to the logic of the
Framework Programme. In the second perspective, the emphasis on specifically
local opportunities, such relational learning and interrelated processes of innovation
and overall improving of context, could suggest a bottom-up policy approach. These
are two definitions that appear entirely alternative and that have been discussed in
the debate on regional innovation policy. One of the more interesting positions sees
them not as alternatives but as two integrated sides of a realistic and efficient
regional innovation policy (Doloreux and Parto 2004; Acs and Varga 2002). Indeed,
"simple" bottom-up policy has well-identified shortcomings: first, in terms of
inefficient widespread interventions even in cases where there is no real potential
or, more often, when it is blocked by strong local conservative interests; secondly,
since it simultaneously requires measures and good administrative capacity, which
is at best difficult, at worst impossible. However, the shortcomings of top-down
policy are all too evident. It would be unable to discover and exploit potential which
is still latent or not yet fully expressed. Secondly, centres of economic, technical
and scientific excellence (which are typically priority objectives of these policies)
would decline in the long run without the necessary attention to the overall quality
of the context. Such attention is practically impossible or very difficult in a top-
down sectoral strategy.

4.2. Integration, assessment and learning

What remains is thus the way of conceiving "regional" as widespread and

differentiated. We may then define regional policy as support for real local
capabilities, even if hidden, using incentives and by overcoming identified
constraints and obstacles for improved use of potential resources and development
of untapped relations between institutional actors, business, technical, social, aimed
at achieving new products, production processes, and organizational solutions. This
definition captures the elements of a report familiar to regional scholars. In the post-
Fordist economy, where economies of scale are less relevant, small and medium
sized firms can "play the differentiation card" through new, improved or different
products and processes. The concept of marginality, that used to "condemn" all less-
developed regions to the periphery of development, must be revised. These regions
may have resources and inaccessible untapped potential that remains spontaneously
so, even in the long term, which one can however make accessible and usable with
intentional action. "Regional innovation systems" and clusters are often crucial for
innovation processes to become effective. Innovation potential is often spread not
only spatially but also sectorally, and there are bright prospects in those industrial
and service activities involved in so-called (social and natural) sustainable growth.

16
What the definition does not consider is the bottom-up vs. top-down issue.
Decentralization is not enough to guarantee effectiveness and efficiency. Rebuilding
the economic future on innovation requires compliance with strict and challenging
"rules of the game". Global connections are necessary and therefore the role played by
"gate actors" has proved to be essential. Good government as well as good governance
is also necessary. Policy-makers do not need to be visionaries, but they do need to be
ready to exploit unplanned and unexpected windows of opportunity, to support new
initiatives and new actors even against established constituencies, and to provide
world-class services and manage global relations. Faced with these difficulties there
are those who believe that the task has to be avoided in many regions. This
dissenting view of the "practical" aspect emphasizes the rent-making risks of
policies that disseminate funding in situations where administration skills, monitoring
and assessment are weak. We must indeed consider the strict conditions necessary for
greater efficiency in political and administrative decentralization with respect to
centralization, as Oates (2005) stated in a literature review.

One might therefore propose explicitly to integrate the two perspectives, top-down
and bottom-up, in cohesion policy in the matter of innovation. By integration we
mean the construction of a sectoral and regional national plan in which central
government and regions and/or local authorities have the faculty to make proposals.
But for each proposal, which must be regional-sectoral and which must meet clear
and strict selection criteria, the other party must add complementary interventions to
create a concentrated set of functionally linked activities and initiatives. In this way
innovation policy should be developed at regional (local) level, without necessarily
abandoning traditional and national policy tools, such as human capital enhancing
policies, basic public research support and traditional industrial policy. On the other
hand, we should consider new regional innovation policies for systemic actor
support and for generative relations. This idea of complementarities has theoretical
and policy design implications, but it also has practical difficulties. Putting together
different policy tools is a hard task since the selection of priorities is constrained by
the scarcity of resources and the relevance of objectives. In the proposed framework
this difficulty is addressed through specific attention to the nature of the procedural
results expected, their timing, and the distribution of tasks between central and
regional governments.

17
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