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

It is often argued that especially linkages to Western systems of innovation will strongly shape the Eastern European systems. As we have seen, transition processes are defined as reorientation in terms of integration with global capitalist economies, even though socialist countries were never completely closed. Particularly the smaller socialist countries were dependent on trading with both socialist and capitalist countries. But, it was not the business of enterprises to trade on their own account, as it is common practice in market economies. Specialized trade organizations (Foreign Trade Organizations) were handling all trade relations of the economy. Most of the foreign trade in Central and Eastern Europe resulted of economic relations among socialist countries, mainly within Comecon that was supposed to ensure the coordination of the national plan under the guidance of the Former Soviet Union. This specific structure of international trade oriented the domestic economies towards the Soviet model resulting in domestic industries that were locked into a relatively backward technological environment and that were economically addicted to the Former Soviet Union. An example in this context is the shipyard VEB Volkswerft Stralsund in the former German Democratic Republic that produced trawlers mainly for the Soviet fishing fleet since the 1950s. After 1990 the Eastern European sales markets broke down and the trawlers produced by the company did not fulfill Western European standards. The company was saved from solvency by the German Treuhandanstalt, that allows for a basic reorganization and specialization of the company with the help of huge financial investments. But, these specific economic relations result in a political and economic compartmentalization under the guidance of the Former Soviet Union that strengthened the differences in the political and economic environments in East and West making communication in terms of exchanging knowledge between their systems of innovation difficult. Creating new knowledge in socialist systems was to be accomplished by the exploitation of Western technological advances. Therefore, Western technologies were imitated in order to develop them further domestically. In reality, this hardly ever worked, as the diffusion of imported technologies was minimal and the adjustment of these technologies to the domestic economy was not carried out. A good example is the U880 microprocessor manufactured in the former German Democratic Republic by the VEB Mikroelektronik 'Karl Marx' as an identical non-licensed copy of the Zilog's Z 80 microprocessor in California, USA. The company was not able to enhance the product during the socialist era of the economy, so that it was not competitive on Western European markets after the break-down of the socialist system. But, despite the great differences between East and West, some of the Eastern socialist economies had relationships with Western European countries in the past, like the Yugoslavian automotive manufacturer ZASTAVA producing cars under FIAT licence since the end of the 1950s. It can be argued that 'catch-up countries that are located in geographical proximity to leading systems of innovation or that have strong cultural, economic, political or other links to them, should have a clear advantage as compared to catch-up countries located further away from and having less affinities with advanced systems' (Hogselius 2005: 35). Geographical or cultural proximity eases communication, that is a crucial factor in the context of innovation. (3) Innovation depends upon interaction and interactive learning, that is much easier when the actors do share a communicative basis in terms of language or cultural background. According to this, transition countries that are conterminous with advanced Western European countries or had political or economic ties to these in the past have to have a clear advantage, even if the exploitation of geographical and cultural proximity depends upon political choices regarding both technological and sectoral specialization and investments in education. This could be an explanation for the weak innovative performance of Mexico in terms of profiting from its proximity to the U.S. (Hogselius 2005).

We can conclude that development of transition economies depends on the effective implementation of the interrelated processes of transformation and reorientation. How can we use the concept of NIS to analyze this specific situation in transition economies? As aforementioned, choosing a structure-based approach of NIS examining the organizational and institutional set-up of a country seems not to be reasonable in a transition context. If we break down a structure-based analysis to a simplified statement concerning the rorientation of a transition economy, we could receive the following result: 'The organization "Abroad" defined as international organizations and foreign governments that may have an influence on the economy was and still is weakly developed in terms of relationships to Western economies in most of the transition economies. Furthermore, as the institutional setup in socialist economies facilitated an anti-capitalistic economic, political and social environment, it hinders the development of ties to Western economies during transition.' The case of SACHALIN II exemplifies an obstacle for developing ties to Western economies occuring upon a lack of constitional legacy. The contracts for SACHALIN II were closed in the 1990s under the authority of the former Russian president Boris Jelzin. The stop of work on the project during 2006 was not related to environmental problems as argued by the Russian Ministry of Natural Resources. Background of this exercise of influence was the fact that SACHALIN II was the only project in that region without Russian participation and that today's president Wladimir Putin tries to keep the Russian oil and gas resouces under control of the government by only allowing international minority holdings. This results in the withdrawal of Shell being majority holder of the oil field SACHALIN II. Using the structure-based approach we get a segment of the whole system, because it is not possible to analyze the whole organizational and institutional set-up; using this approach causes biased results. What we aim at is an understanding about what is happening in these systems and in which way they do develop. Using a process-based approach in this context is more appropriate, as it describes the actual processes that take place in the system. Choosing activities that are needed to build new knowledge by learning processes as object of investigation can be carried out irrespective of the considered economy. Knowledge creation on the basis of learning processes is important for every system of innovation irrespective of the underlying economic system, as it represents the least common denominator for analyzing differing systems of innovation. As argued above, one institution or organization can carry out different activities and one activity can be carried out by different organizations. After identifying the activities realized in an economy, one can examine the organizations that do perform these and their performance in doing so in order to examine the division of labor in this economy.

PROCESS-BASED CONCEPT OF NATIONAL INNOVATION SYSTEMS

Until the mid-1970s international trade was identified as the main factor for economic growth, especially in developing countries. Lewis (1980) suggests, that developing countries have to build regional trade blocks among each other in order to become independent from stagflation in industrialized countries. But after the mid-1970s some important changes have shown that the decisive factor for economic success is not international trade measured by the export rate but international production. Japan has become an important competitor in a variety of industrial manufacturing sectors, because the competitiveness of a country depends on its ability to enhance its productivity and its innovative ability. This example, among others, suggests that learning and knowledge are the main factors of economic growth. Different studies in OECD countries show that the learning capability essentially determines the economic success of firms, industries, regions and whole countries (OECD (1996). Furthermore, the example of the Eastern Block and COMECON as cooperation among socialist economies shows that building regional trade blocks is not enough for sustained economic growth.

As a result of globalization tendencies and the spread of new generic technologies, like information and communication technologies (ICT), countries today face new challenges, as competition as well as learning has become more intense. They need to upgrade continuously the sources of their competitiveness in order to gain access to markets and technologies (Lundvall & Archibugi 2001: 2). The economies have entered a period where learning and knowledge are important for staying competitive in a globalizing market and for a successful process of development respectively, because the innovative ability is identified as a crucial aspect of economic success. Learning creates new knowledge und this knowledge is used to develop innovative ideas that can find their way into the economy in form of innovation. The concept of 'learning economy' emphasizes the high rate of economic, social and technological change underlying the development and destruction of specialized knowledge and aims at explaining the process of change in technology, skills, preferences and institutions.