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The state’s crucial role in stimulating innovation in Finland and Sweden Part 1

A new study indicates that the public sector has played a very prominent and increasingly important role in stimulating private innovation in  Finland and Sweden.

By Sara Torregrosa-Hetland, Post Doc Lund University, Antti Pelkonen, Science Specialist at Prime Minister’s Office of Finland, Juha Oksanen, Senior Scientist VTT, Astrid Kander, Professor Lund University

 The role played by the state in supporting innovation in private companies has been a long-term interest in innovation research and policy. Recently, this topic has gained increased attention, not least in connection to discussions on Grand Societal Challenges such as climate change and ageing population.

This has spurred an increased interest in debating the directionality of innovation policy, i.e. to what extent the state should aim at directing the course of innovation. At the same time, mission-oriented research and innovation policy have globally gained increased salience in academic discussions and policy practice.

The role of the state

An underlying understanding in these debates is that the state has – or at least may have – strong significance for private innovation. Yet, do we know how widespread the state’s involvement in private innovation actually is? What is the prevalence of publicly supported innovations?

Scientific evidence on these issues has thus far been sparse and been mostly limited to generalized claims such as Mariana Mazzucato’s (2013) argument that «the government has been the source of the most radical, path-breaking innovations».

Publicly stimulated innovations in Finland and Sweden

Our recent study (see Torregrosa et al., 2019) brings new evidence on this question in a Nordic comparative setting: We studied publicly stimulated innovations in Finland and Sweden in the period of 1970–2013.

We focused on two public stimulation mechanisms – public R&D funding and collaborative R&D – and provided a long-term, historical and quantitative assessment of the public sector’s contribution to private innovation (see Figure 1 below).

To our knowledge, our analysis is the first that is capable of showing the level of prevalence of publicly stimulated innovations at national economies, and moreover, to do so in a historical and comparative cross-country setting.

The analysis is based on a new innovation database that comprises information about approximately 6700 significant innovations developed in the two countries and which was gathered using the Literature Based Innovation Output (LBIO) method (see section 3 in our article for more details). Significant innovations are understood as innovations the editors of the journals have identified as important, and which have been the focus of at least one edited article or an overview article.

In the following, we discuss three key contributions of our study.

Figure
Figure 1. Share of significant innovations that received public funding or were developed in collaboration with public research. Finland and Sweden, 1970-2013.

Publicly stimulated innovations are widespread

Our analysis shows that publicly stimulated innovations have been widespread in both countries: in Finland, 35–55 percent of significant innovations have involved public funding and 25–65 percent of significant innovations have been developed in collaboration with public research.

For Sweden, the corresponding figures are 10–45 percent (public funding) and 15–40 percent (collaboration with public research). Our results suggest that the public sector’s role has been much more widespread than shown by few existing previous studies for other countries (US, Germany).

With respect to public funding, Block and Keller’s (2010) result was that around 20 percent of innovations were stimulated by public funding while in our results the share has been 2–3 times higher in Finland and also in Sweden almost constantly higher over the whole study period of nearly 40 years.

With respect to innovations stimulated by collaboration with public research, Mansfield’s (1998) and Beise and Stahl’s (1999) results suggested that 9–15 per cent of innovations were developed in collaboration with public research while our finding is that the share has been constantly3–5 times higher in Finland since late 1970s and around 1–3 times higher in Sweden.

The share of publicly stimulated innovations has grown over four decades

While the role of public stimulation has most often been studied through «snapshots» of particular periods of time, our analysis spans over four decades. During this period, the  significance of public stimulation has grown in both countries; both in terms of public funding and public research collaboration.

The growing significance of publicly stimulated innovations probably reflects national developments that are distinct to the countries, but it is likely that it also has to do with broader changes that are common for Finland and Sweden.

Such developments include issues like the general growth of research and innovation systems during that period, increasing importance of technology and innovation policies since the 1980s and the broad trend of opening up of companies’ innovation processes which started to characterise firms’ innovation activities towards the end of our study period.

Public sector support matters

The results of our study are strongly supportive with respect to innovation policy in the sense that they show that public sector’s actions indeed matter in stimulating innovation and play a crucial and even intensifying role.

Furthermore, the results also highlight the importance of collaboration with public research for private innovation. This is important given that the innovation policy is often strongly focused on public R&D funding and subsidies. Our research shows that innovations stimulated by collaboration have in certain periods been more frequent than innovations stimulated by public funding. This could call for policies that further incentivize companies to collaborate with public research institutions.

Part 2 of this article discusses why public stimulation is more significant in Finland than in Sweden and to what extent the different organisation of the  allocation of public R&D funding in the two countries has had an effect. 

Continue to part 2!

Torregrosa-Hetland, S. Pelkonen, A. Oksanen, J., Kander, A., 2019. The prevalence of publicly stimulated innovations –A comparison of Finland and Sweden, 1970–2013. Research Policy 48,  1373–1384.

Full list of references in part 2.

Photo of the Swedish parliament by mikdam.