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Smart specialisation strategies are only half the battle

The regions most in need of greater investment in innovation are those least equipped to spend such funds effectively, says Alasdair Reid.

Regional innovation policy in the EU dates roughly from the mid-1990s, when pilot regional technology plans were launched with co-funding from the European Regional Development Fund. From the start, the emphasis was not just on subsidising innovation but on helping regions to develop strategies to maximise the impact of those subsidies.

For example, an indicator of success at the turn of the century was the extent to which regional governments had switched from using ERDF funds to build the foundations for regional growth—such as transport networks, industrial parks and broadband networks—to using the funds to invest in knowledge-based development. In this first phase of regional innovation strategies, there were significant increases in ERDF allocations to research and innovation in regions as diverse as Castile and León, Wales and Central Macedonia.

However, as early as 2002, policy practitioners and analysts started speaking of a regional innovation paradox: the regions most in need of greater investment in innovation were those least equipped to spend the available funds effectively.

An evaluation of ERDF programming for research and innovation during 2000-6 identified four main bottlenecks hindering regional innovation policies: administrative, rather than strategic, management of ERDF measures, leading to a lack of synergies with other initiatives; a lack of expertise in managing complex research and innovation actions; a focus on investment in infrastructure rather than product development; and limited capacity to engage with broader sets of users, such as the public or not-for-profit sector.

In 2007-13, when the best-laid plans were brutally punctured by the economic crisis, similar problems arose in the new member states in central and eastern Europe. Structural funds for research and innovation were invested in infrastructure and in bringing firms’ equipment up to date. The four bottlenecks re-emerged as countries struggled to implement even brick-and-mortar investments in research facilities. 

Our experience at Technopolis of overseeing roughly €300 million in ERDF investments in Lithuania underlined the gap between strategic rhetoric and the harsh realities of implementing ambitious research and innovation policies.

On the one hand, the grouping of investment and partnership into five ‘valleys’ such as agri-food, IT and biomedicine presaged the shift to smart specialisation. On the other, the 20 major projects in the five valleys lacked robust business plans setting out, for example, how new research centres would be positioned at national and European levels. Also unclear was whether hard investments would be matched with measures to attract and retain the expertise required to compete in the European research area and work with regional firms.

Extrapolating from such individual cases, my colleagues and I tested in a recent paper whether the regional innovation paradox was still biting. We measured the influence, since 2000, of funding from the ERDF and Framework 6 on regional economic performance.

We estimate that for every 1 per cent increase in ERDF funding for research and business innovation, value added per capita grows by 7 per cent. However, ERDF funding had a lower effect on growth in eastern European regions than elsewhere in the EU, and ERDF and Framework 6 funding did not significantly affect innovation among small businesses in eastern Europe.

We found that past investment in human resources for science and technology in eastern Europe has not had a significant cumulative effect. These countries have not become more able to absorb ERDF funds.

In short, EU funding is not levelling the playing field, and the regional innovation paradox is still a reality.

This brings us to 2014-20 and the emphasis on smart specialisation. The core principle is that public-private resources should be concentrated on technological or market priorities with the potential to foster new activities and the adoption, dissemination and adaptation of technologies across a wide range of sectors. 

There are positives in this, but from appraising draft strategies and related ERDF operational programmes for the European Commission, we found that many countries and regions had recycled old ideas, building on past focus areas, and had not learned the lesson that a decent innovation strategy is only half the battle. The way to judge smart specialisation will be to look at whether countries and regions where ERDF money represents a substantial part of research and innovation funding manage to deliver on the promises they made in the strategies.

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Alasdair Reid is director of the Technopolis Group. See also the Journal of Economic Policy Reform doi:10.1080/17487870.2015.1013545 (2015).

This article also appeared in Research Europe