SUMMARY
This article aims at gaining a deeper insight into the structure of
National Innovation Systems (NIS) in transition economies, which may
allow for developing policy recommendations that help to stimulate more
systemic and effective NIS in these countries. A great part of the
existing studies focusing on NIS in less developed and transition
countries argue that the specific nature of the NIS and related problems
in less successful countries in terms of technological development and
economic performance are different from developed countries. Therefore,
we have to identify approaches on analyzing innovation systems that do
work in transition economies. The following questions will be answered:
Why is the NIS important for the economic development of a country? What
are the approaches of NIS that are applicable to the specific situation
of transition countries? Refering to the fact that a process-based
approach is appropriate to describe and analyze the innovation systems
of countries in transition: What are the most important types of
knowledge and learning processes for these countries?
KEYWORDS
national innovation systems; transition processes; economic
development; knowledge and learning processes
INTRODUCTION
Since its initial implementation by Freeman (1987), Lundvall
(1992b) and Nelson (1993a), the National Systems of Innovation (NIS)
approach has been developed and evolved continuously emphasizing its
importance for the development of economies. Most of the literature
concentrates on analyzing the NIS in developed economies, but for a
short period of time more and more studies focus on the NIS in less
developed and transition economies. Examples for such studies are
publications by Arocena and Sutz (2000), Gu (1999), Intarakumnerd et al.
(2002), Inzelt (2004) and Radosevic (2002, 2004). All of them argue that
the specific nature of the NIS and related problems in less successful
countries in terms of technological development and economic performance
are different from developed countries. But do approaches on analyzing
systems of innovation work or do not work in transition economies? This
paper aims at gaining a deeper insight into the structure and impact of
NIS in transition economies, which may allow for developing policy
recommendations that help to stimulate more systemic and effective NIS
in these countries.
The paper is organized as follows. Section 2 illustrates the
necessity of implementing the concept of NIS in transition countries by
comparing the applicability of two fundamental approaches to analyze
systems of innovation. Section 3 examines the process-based approach on
NIS based on a general reflection of the impact of knowledge and
learning as essential determinants serving the overall function of
innovation systems. Section 4 presents conclusions and recommendations
for further research.
NATIONAL INNOVATION SYSTEMS IN THE CONTEXT OF TRANSITION COUNTRIES
What are possible approaches to describe and analyze economic
development and the differences in economic success between countries?
In item 2.1 one of these approaches is introduced, which is generally
used to answer the question, why economic growth rates differ across
countries and, due to this, why technological gaps exist. The concept of
National Innovation Systems (NIS) is classified into it in order to
identify its advantages for analyzing and explaining economic
development. In item 2.2 the possibilities of applying the concept of
NIS to the conditions and requirements of transition economies is
dicussed briefly. As we will see, for countries not belonging to the
group of highly industrialized countries, the NIS approach must be
fitted to their special characteristics and requirements.
TECHNOLOGICAL GAPS AND NATIONAL INNOVATION SYSTEMS
Empirical comparisons among countries show that strong distinctions
with respect to the economic performances exist; (1) countries can be
assigned either to the group of 'leaders' or to the group of
'followers', who have the opportunity to catch up. The
literature on technology-gaps seems to be very useful for explaining
differences in growth rates. The main difference between the
neoclassical inspired and this literature is how technology is
understood. While traditional neoclassical theory does not see
technology as a source of cross-country differences in GDP per capita,
'[t]he technology-gap theorists [...] see technological differences
as the prime cause for differences [...] across countries'
(Fagerberg (1994: 1155). Gerschenkron (1962) and others see technology
and knowledge respectively as embedded in the organizational structure
of a country. Due to this, technology could not be seen as a public
good; technology transfer is therefore more difficult and costly.
Technological change is consequently not a question of replacing
outdated technology with a more modern one, but to continually transform
technological, economic and institutional structures.
The literature on 'postwar following and catching up'
points out, that comparisons among different countries show strong
distinctions with respect to the productivity growth rates, which tend
to vary inversely with productivity levels. Abramovitz (1986) introduces
the catch-up hypothesis for explaining this coherence and argues that
differences among countries in their productivity levels create a strong
capability for future convergence of these levels. The catch-up
hypothesis argues that being backward in terms of the level of
productivity offers a potential for rapid progress. The larger the
technological and therefore the productivity gap between leader and
follower, the stronger the follower's potential of productivity
growth. The catch-up process of followers is self-limiting; the
possibility of making large leaps by replacing outdated with
best-practice technology becomes smaller as the follower catches up.
The criticism on this hypothesis especially targets the definition
of technological backwardness as only being determined by the economic
factors of a country. But social characteristics explain a substantial
part of a country's failure to achieve a similar high level of
productivity as an economically advanced country. Hindering social
characteristics can reduce the full technological leap that a country is
able to make envisaged by the catch-up hypothesis. Following this line
of thoughts, Gerschenkron (1962) points out that the gap may be
difficult to close by the following country. First, he argues that in
backward countries there will normally be a great part of society that
resists change. Second, latecomers face larger requirements for capital
and other advanced factors; catching up requires a great amount of
efforts and institution building by the follower. Therefore, the idea of
'social capability' suitable for absorbing more advanced
technologies was introduced, which influences the catch-up process of a
country. The term is defined as 'to designate those factors
constituting a country's ability to import or engage in
technological or organizational progress' (Fagerberg (1994: 1156).
Abramovitz (1986) identifies technical competence, and political,
commercial, industrial, and financial institutions as the main factors
of social capability. Furthermore, he introduces the term
'technological congruence': For countries that differ much
from the leading country in terms of economic factors it may be
difficult to apply the technology of the leader country, as technologies
are shaped by the environment they have been developed in. This idea
reemerges as a result of the considerations concerning the recently
developed concept of NIS. The development process occurs at the national
level. Country-specific factors influence this process and therefore
technological change and give technologies of different countries their
specific national orientation. Lundvall (1992b) and Nelson (1993a) among
others, are using the term 'National Innovation Systems', as
countries can be seen as separate systems that have their own dynamics.
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).
The institutional set-up regulates the relations between
individuals or groups and thus influences the pattern and subject of
communication and interaction in the economy. As innovations are mainly
results of interactive learning processes, institutions affect
innovation. Influencing innovation processes by the institutional set-up
takes place through different channels emerging from three basic
functions of institutions (Edquist & Johnson 2000: 176f). First,
institutions reduce uncertainty about the behavior of others by
providing information. As a result, relationships are stable enough to
make communication possible. Second, they manage conflicts and
cooperation between different parties. Third, institutions provide
incentives by establishing salaries and wages, income taxes,
intellectual property rights, etc. These functions do not only create
stability to society, but also the needed stability for technical
change. Because of institutions, innovative activities 'can to some
extent be handled systematically and in organized forms, and this makes
more concentrated efforts and more rapid progress possible'
(Johnson 1992: 26). Even if the institutional set-up of an economy is
characterized by a large degree of stability, completely rigid
institutions would prevent economic development. Institutions do change
continuously. In general, there are two different forces behind
institutional change. First, different conflicts concerning political
and social relations or income and power distributions repeatedly have
been forces behind institutional and social change. Second, the
classical force behind institutional change is technological change.
Freeman and Perez (1988) illustrate this in their concept of
techno-economic paradigm. They argue that a change of techno-economic
paradigm has such extensive consequences for all sectors of the economy
that its diffusion is accompanied by a major structural crisis of
adjustment, in which social and institutional changes are necessary in
order to achieve a better 'match' between the new technology
and the old socio-institutional framework.
Lundvall (1992a) argues that innovation is rooted in the existing
economic structure of a nation, as innovation reflects learning and
learning is partially a result of routine activities. A second
characteristic of innovation systems is the importance of the
institutional set-up of an economy, because the relative stability of
institutions over time enables organizations to act and survive in an
uncertain world and provides the opportunity of innovative activities.
The impact of the institutional set-up on the learning process appears
in manifold ways. For instance, if a great part of the society resists
change, as they tend to be critical towards innovations even if the
advantages are obvious, then this informal institution is an
innovation-blocking one. The stock of knowledge will not change, even if
necessary and this will hamper economic development. Furthermore,
institutions can directly affect the rate of innovations. Adequate
incentive systems are necessary to support innovative activities of
organizations. One possibility is to design educational policies in such
a way that human resources of the economy are able and willing to gain
and master new technology. This may help to increase the rate of
realized innovative ideas. Simultaneously, the institutional set-up
depends to a certain degree on the learning process of an economy, as
new knowledge influences the norms and habits of society or gives reason
to new policies and governmental rules. Figure 2 illustrates this
inter-relationship.
[FIGURE 2 OMITTED]
'Structure-based' versus 'process-based'
approaches of innovation systems
Comparing the definition of NIS with important aspects of
technological development shows that the elements contained in a NIS are
necessary for a successful process of development. The combination and
effectiveness of different institutions, their interactivity and the
emphasis of the relevance of knowledge and diffusion are elements
constituting a NIS. Both concepts argue that factors like culture,
factor endowment or institutional arrangements are important for the
future rate and direction of economic development, focusing both on the
path-dependence of technological change. Trying to analyze the prospects
of a technologically backward country to develop raises the question
about the actual state, effectiveness and development of the
country's NIS.
The elements of NIS described in this article so far are components
and relations among these in terms of main actors and institutions
shaping the innovation process of a country. The main literature on
innovation systems defines organizations and institutions as its main
components, as they constitute the 'structure' of such a
system. But this 'structure-based' approach includes a
fundamental weak point. Different definitions of innovation systems
point out different institutional and organizational set-ups and
particular set-ups vary among systems; every definition in this respect
picks out certain subjective determinants influencing an innovation
system. But what are the determinants of innovation? Until now, this
question can not be answered systematically and in detail. How can we
decide about the importance of certain determinants? Edquist (1997)
tries to solve this problem by defining NIS in a more general way as
'all important economic, social, political, organizational,
institutional and other factors that influence the development,
diffusion and use of innovations' (Edquist 1997: 14). Even if this
definition includes all determinants influencing an innovation system,
the overall problem remains: One has to pick out certain determinants
when trying to analyze NIS. But, this will cause biased results, as
institutions and organizations can have different duties and
responsibilities in terms of activities in different countries.
Therefore, we will follow an approach that has been developed at the
'Centre for Innovation, Reserach and Competence in the Learning
Economy' (e.g. Edquist 2004), Edquist & Hommen (forthcoming),
Hogselius (2005). The point of departure is the overall function of
innovation systems that is considered to be creating, diffusing and
using innovations (Edquist 2004: 190). Different kinds of activities are
needed to fulfill this function,. Activities are defined as factors that
influence the development and diffusion of innovations and can therefore
be interpreted as the determinants of the overall function. In the
following, thinking of activities as determinants of innovation systems
will be labeled as a 'process-based' approach of NIS, because
this approach is appropriate to describe the actual processes that take
place in a system (Hogselius 2005). In the literature there is no
agreement on activities that should be included in an innovation system,
only that activities taking place in an innovation system do outreach
R&D activities (Galli and Teubal 1997; Johnson & Jacobsson 2003;
Liu & White 2001; Hogselius 2005). In the context of this article,
we will not try to argue about the relevance and importance of certain
activities, but we will survey activities on a more general level.
Activities are defined as determinants serving the overall function of
innovation systems in terms of creation, diffusion and utilization of
innovations. Innovations are new knowledge or a combination of existing
knowledge. As we will see, change of knowledge occurs on the basis of
learning processes. On this account, even without specifying a certain
list of activities, we can analyze the applicability of a
'process-based' approach by interpreting activities as
determinants building new and combining existing knowledge with the help
of learning and forgetting. This brings us back to our starting point,
as our definition of a process-based approach corresponds to the
Lundvallian approach, who recognizes that 'the most fundamental
resource in the modern economy is knowledge and, accordingly, that the
most important process is learning' (Lundvall 1992a: 1).
Applicability to transition economies
To what extent is a process-based approach of NIS transferable to
the case of transition countries? Even if many efforts have been
undertaken to develop the concept of NIS through various approaches,
there are not as much studies focusing on NIS outside the group of
highly industrialized as on developed countries. Examples for this are
studies in Nelson (1993a) or the study of Dahlman and Nelson (1995)
examining the relationships among social absorptive capability, NIS and
economic performance in developing countries. Arocena and Sutz (2000)
argue that, for using the NIS approach in the 'South', the
approach has to be complemented by a southern perspective, as the
concept of NIS has been developed in the 'North', e.g. in
developed countries. Furthermore, 'Southern heads are also needed
for adapting such intellectual tools when the situation and possible
futures of a peripheral country are studied' (Arocena and Sutz
2000: 55). Then, the approach can be useful for studying the specifics
of innovation policies and processes in developing countries. They point
out that the NIS approach was build upon empirical studies rooted in
Europe, the U.S. and Japan, whose institutions work in a system like
manner. In developing countries, micro-innovative strength remains
isolated and encapsulated. In addition, many institutions that are
important for innovative activities do not exist. Beyond this,
'[...] industrial innovation in developing countries is highly
informal, i.e. not products of formally articulated R&D activities.
In addition, dominant cultural patterns of these countries undervalue
scientific knowledge and technological innovation' (Intarakumnerd
et al. (2002: 1446). If the concept of NIS should be useable in
developing countries, it has to be adapted to the specific
characteristics of these countries. Nevertheless, studies in this area
are an exception. (2) As we will see, this line of reasoning is
transferable to problems emerging when using the concept of NIS in the
'East', i.e. in transition economies of Central and Eastern
Europe. Compared to structure-based approaches of NIS, a process-based
approach is particularly suitable for analyzing systems of innovation in
these economies.
The term 'transition' has to be defined in a twofold way:
First, transition processes are the transformation of socialist
economies into open market economies. Second, transition processes
include a reorientation from being integrated with other socialist
countries towards integration with global capitalist economies
(Hogselius 2005: 5f). Therefore, we define transition processes as an
'East-West' kind of transition in terms of marketization after
decades of central planning in the old Soviet-era structures. In
socialist systems economic life was under the control of a single party,
like the Socialist Workers' Party in Hungary or the United
Workers' Party in Poland. State ownership of means of production
was established. Furthermore, socialist economies are 'centrally
planned economies', as the plan was the main coordinating mechanism
encompassing the overall economic activities of the economy. Out of this
emerged a specific industrial structure. First of all, there was no
market at all; the tasks of the market were completely inherited by the
plan specified by political authorities. Second, there was a lack of
small and medium enterprises. The activities of subcontractors and
maintenance suppliers observable in market oligopolies were internalized
in socialist systems, as each big enterprise developed such units within
its own structure. Third, large socialist enterprises were not just
production and management units, but performed also political,
administrative and social functions (Lavigne 1995). This structure poses
one of the big problems of transition. The countries in Central and
Eastern Europe need a modern, market-oriented industrial structure.
Accordingly, transformation is intended to build a market economy with a
profit motive and reduced government intervention. But, even if
transition economies all aim at developing a market economy, this does
not imply that every country of Central and Eastern Europe develops
identical internal transformation processes and institutional and
organizational set-ups resulting from these. In fact, a multiplicity of
development paths and institutional and organizational set-ups are
observable in that region, since all economic, social, cultural and
political aspects of a country have an impact on the internal
transformation process. As organizations and individuals do create their
future based on their historical experiences, and as the historical
basis of transition economies differ, they are all building up different
systems of innovation, following the assumption of the path-dependence
of technological change.
Based on the argumentation of a structure-based approach on NIS
there is a twofold answer concerning the applicability to transition
economies: First, Eastern and Western European countries differ in terms
of their historical experiences and have therefore build up different
systems of innovation based on different institutional and
organizational set-ups. Compared to market economies, socialist
economies had organized their innovative processes in a completely
different way by placing the responsibility for the execution of these
processes on other types of institutions and organizations. 'For
example, nuclear power technologies developed rapidly after the war in
both capitalist and socialist worlds, but the different and separated
nuclear power systems of innovation favored radically different
technological solutions in Eastern and Western countries, and the
innovation process was organized in completely different ways and was
subject to totally different institutional arrangements' (Hogselius
2005: 33). Furthermore, as this approach was developed in Western
countries, it is based upon the principles of a market economy with
corresponding institutional and organizational set-ups. At that time, a
fully implementation of these can not be guaranteed in transition
economies. A lack of constitutional legality is one indication for an
inadequately implemented market economy as, for example, the asset
stripping and nationalization of the Russian petroleum company (Yukos
2004). Second, when applying the structure-based approach, national
transition processes in Central and Eastern Europe are not comparable
with each other, as every development path is based on its own national
history. As a result, institutions and organizations are restructured on
the basis of old values deeply rooted in the national realization of a
socialist system and selective borrowing from the West. One of the main
building blocks of structural transformation during transition is
privatization in terms of creating a greenfield private sector and
transfering state-owned into private enterprises. Transition economies
did pursue different aims when choosing their privatization strategies.
The Czechoslovakian government aimed at taking away state property from
its former communist management, that has almost completely survived the
change of the political regime. As sell-offs were impossible, but a fast
privatization process was favored, Czechoslovakia launched a
privatization programme based on vouchers, which allowed citizens to get
shares in state-owned enterprises at a symbolical price. Hungary, on the
other side, was the only transition country that tries to exploit the
fiscal potential of privatization by selling off state-owned facilities
instead of giving them away. Another example is the discussion on the
speed of the transition process. 'The choice of the shock therapy
meant that the new government excluded any move back to the past, and
capitalized on the political and social concensus so as to impose
drastic measures which would immediately lower the standard of living,
with the promise of a quick recovery [...]' (Lavigne 1995: 119).
This speed of transition was chosen by Poland, that was in a situation
of high inflation, large budget deficit and too high external debt.
Hungary, however, chose the approach of gradualism, as on the one hand
the communist power broke down before 1990 by internal divisions and its
population was turned rather to a market than to a socialist economy. On
the other hand, its new government was not able to agree on a clear-cut
programme.
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