The applicability of the concept of national innovation systems to transition economies.

Lagging countries have always tried to develop, but with varying success. As Dahlman and Nelson (1995) argue, being successful in terms of development requires more than just getting access to the technologies of leading countries. 'Even countries with very low overall levels of education, productivity and income, and general modernity have enclaves of enterprises operating technologies [...] recognizably similar to those employed in firms in advanced countries' (Dahlman and Nelson (1995: 88). These enclaves have to spread and to diffuse across the economy in order to gain sustainable economic development. A successful development process is possible, if the economy is able to successfully use technology. This is depending on its technological capabilities. The term 'technological capability' covers knowledge and skills needed to acquire, assimilate, utilize, adapt, and create technology. It is embodied in people and institutions and requires strong interactions among these. The more a following country disposes of technological capabilities and the better it is able to accumulate these, the more successful the intended development process will be (Dahlman and Nelson (1995: 89f). This view focuses on the path-dependence of technological change; prior capabilities are important for future rates and directions of technological change. Private firms are identified as the main location in accumulating technological capabilities and are therefore crucial for the competitiveness of a country. The level of technological capability of a firm is influenced by its relationships with other actors, as they operate in a complex industrial network characterized by competition and cooperation. Consequently, innovation and technological change is not only a technological, but also a social process resulting from informal and formal communication networks.

Networks of agents, sets of policies and institutions that influence the introduction of technology new to the economy add up to a definition of NIS. Lundvall formulates a 'broad' conception of NIS as '[...] the elements and relationships which interact in the production, diffusion and use of new, economically useful knowledge [...] and are either located or rooted inside the boarders of a nation state' (Lundvall (1992a: 2). He argues that it is the combination of the 'structure of production' and 'the institutional set-up' that constitutes an innovation system (Lundvall (1992a: 10). The expression NIS contains the term 'Innovation' as a key-concept, which nowadays plays a fundamental role for the competitiveness of a country, as innovation is defined as new knowledge or a new combination of existing knowledge. In this context, innovation implies processes of change undertaken by firms that are affected by a set of economic, political, social, cultural and scientific factors. The 'narrow' approach of NIS defined by Nelson (1993a) emphasizes organizations that facilitate the creation and diffusion of knowledge as the main sources of innovation (Nelson & Rosenberg 1993). But as Lundvall explains, these organizations are 'embedded in a much wider socioeconomic system' (Freeman (2002: 195). We will adopt a concept of NIS that encompasses both the broad and the narrow approach by defining a NIS as consisting of the elements 'Learning process', 'Institutional set-up' and 'Economic development'. Innovation is, first, a result of interactive learning processes, because interactions in an economy result in new combinations of existing or in new knowledge. Second, innovation is a cumulative process. These characteristics lead to the conclusion that the institutional setup of an economy will affect innovation processes. 'If innovation reflects learning, and if learning is interactive, it follows that learning is rooted in the institutional set-up of the economy' (Johnson 1992: 34).

The two elements 'Learning process' and 'Institutional Set-up' correspond to the Lundvallian approch of NIS, while 'Economic development' describes Nelson's approach. Nelson argues that differences between innovation systems of a group of nations are at least partly the result of differences between the economic and political circumstances and priorities of these nations (Nelson 1993b). He identifies those factors that have an impact on the economic structure of a nation--industrial development, factor and historical endowment. The profession and direction of the technological development, the quantity and quality of relevant natural, human and infrastructure resources and the historical experiences of a country result in specific geographical and political structures, that explain different national structures of production. From this follows that both the learning process and the innovation system are built upon different bases and are individual forms of expression of the national history. The whole approach of NIS is illustrated in Figure 1.

[FIGURE 1 OMITTED]

In section 2.1.1 the element 'Institutional Set-up' of an innovation system is defined and explained. In section item 2.1.2 the necessity of a process-based approach on NIS is discussed. The 'Learningprocess' as an element of innovation systems is explained in detail in section 3.

Institutional organization and change

Systems are made up of a number of components and the relations between them describing the structure of the system. In general, the literature on innovation systems identifies organizations and institutions as the main components. It can be argued that institutions and organizations play different roles in the process of innovation with complicated, but important relations between them. North (1990) defines organizations as players of a game, while institutions are the rules that decide on the way the game is played. By constituting constraints and incentives for innovation, institutions constitute the behavior of organizations (Edquist 2000: 532). '[...] organizations are formal structures with an explicit purpose and they are consciously created. They are players or actors. [...], institutions may develop spontaneously and are often not characterized by a specific purpose' (Edquist & Johnson 2000: 171).

Analyzing NIS has to include the character, structure, and change of an organizational set-up, as organizations are the main engines for technological change and innovations respectively. We distinguish between private and public organizations. Firms are the most important private organizations relevant for innovation, as they play the central role in innovation processes. In addition to effective production processes, firms have to be able to innovate over a long period in order to stay competitive. Because of this, they have to possess certain competencies, like carrying out routinized search for new knowledge by changing their search routine if necessary, and being able to use the search results, absorbing 'foreign' and using 'unexpected' knowledge. Public organizations are subdivided into three categories. First, there are innovation-oriented organizations that produce knowledge, like universities and research institutes. Second, some organizations have the function of distributing knowledge, like science parks. It is not sufficient to create or to get access to new knowledge and technologies respectively. These new technologies have to spread and diffuse across the economy in order to gain sustainable economic development. A third category of organizations has to regulate knowledge, as patent offices or standard-setting organizations that do create a part of the institutional framework for private organizations. Private organizations and public organizations of all three categories are necessary for an innovative economy. According to the Frascati Manual (2002), we include as an additional organization 'Abroad' into our approach of NIS beside the commonly used research triangle--business enterprises, government and higher education. 'Abroad' contains all international organizations and foreign governments that may have an influence on the NIS of the considered economy. International relationships are of great importance for national entities and these do influence the learning system, as they provide input in form of new knowledge. Furthermore, they can provide stimuli for different innovation policies or new approaches for problem solving.

The relations between the components of a system describe the interdependence between these and shape the dynamics of the system (Carlsson 2002: 234). Linkages between different participants depend on the institutional set-up of an economy, so that especially the relations between institutions and organizations are important for innovation processes and for the structure and performance of the innovation system. Institutions are a set of common habits, routines, rules and norms that regulate relations between individuals and groups within as well as outside organizations. Furthermore, '[f]ormal institutions are more 'visible' than informal ones; formal institutions are codified and informal ones must be indirectly observed through the behavior of people and organizations' (Edquist & Johnson 2000: 174).