Restructuring of RDI in ECA:alternative view and comments on the regional study

Prof. Slavo Radosevic

World Bank INSEAD conference, April 29th 2009

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How much R&D systems have changed?

• Science base of the ex-socialist countries is (still) firmly based on 6 areas around physics and chemistry

• Similar external pressures but inter-country differences in RTD environment– Policy of active/passive restructuring– Policy of preservation– Micro strategies

– An increasingly EU-ized R&D systems in CEE and post-Soviet R&D systems in CIS

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CIS vs. CEE: the emerging differences and similarities• A common challenge:

– weak innovation/R&D activity of BES: a gradual or not shift towards enterprise based R&D system (see next slide)

– Institutional (S&I policy) convergence– Not vision for learning (education/training) system (absorptive

capacity)

• Emerging differences – Integration into global production networks

– Big push from EU Structural Funds (2006>) – Weak horizontal coordination in CIS and the emerging in

NMS – An increasing emphasis on regional innovation policy– R&D systems with increasingly diversified portfolio of funding

forms (Institutional finding, programme, projects, grants, co-funding, etc.)

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R&D employment: limited re-orientation towards BES in EE (the longest available but different periods)

Increasing share of BES (China; Slovenia); Increasing shares of BES and HES (Czech R; Hungary, Lithuania); Increasing share of government sector (Russia); Increasing share of government and HES (Bulgaria); Increasing share of HES (Poland; Romania, Slovakia)

CountryBusiness enterprise

Government Higher

education Private

non-profit Not

distributedChina 0.47 0.29 0.18 0.00 0.20China 0.60 0.23 0.17 0.00Slovenia 0.42 0.34 0.22 0.03Slovenia 0.56 0.23 0.18 0.04Czech Republic 0.48 0.34 0.19 0.00Czech Republic 0.52 0.26 0.21 0.01Hungary 0.31 0.36 0.33 0.00Hungary 0.29 0.33 0.37 0.00Lithuania 0.03 0.48 0.49 0.00Lithuania 0.09 0.29 0.62 0.00Russian Federation 0.64 0.26 0.10 0.00Russian Federation 0.60 0.30 0.10 0.00Bulgaria 0.14 0.58 0.27 0.01Bulgaria 0.14 0.66 0.19 0.00Poland 0.28 0.25 0.47 0.00Poland 0.17 0.25 0.58 0.04Romania 0.71 0.23 0.06 0.00Romania 0.49 0.30 0.21 0.03Slovakia 0.32 0.41 0.27 0.00Slovakia 0.24 0.24 0.51 0.01

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EU NMS: vertical integration and horizontal fragmentation

EU Centers of excellence MNCs: parents and other subsidaries

weak horizontal linkagesNational centres of excellence Local FDI subsidaries

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CIS: still post-Soviet R&D system

• No examples of policy driven inter-sectoral restructuring (cf. legal and political obstacles?)

• Academy of Science System: preserved and marginally restructured• Higher Education System: remains undeveloped• Branch R&D: downsized in a bottom up fashion, cash flow vs. control

right conflicts; eligible for public funding but no significant effects• Enterprise In-House R&D: remains marginal

• However, huge differences in degree of convergence to market based R&D system between Russia … Ukraine … Armenia … Kazakhstan .. How much they have in common?

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Why still post-Soviet R&D system?plus ca change plus ce la meme chose

• A striking lack of change

• The autonomy of the R&D/Innovation systems > underestimated

• The extent of changes on supply and demand side > overestimated

• We overlook the importance of informal practices (cf. habits but also power politics) as determinants of innovation system, especially in conditions of demand – supply gap

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Policy issues

• RDI restructuring = (f) (changes in environment) (organisational restructuring of RDIs)– Only changes in public funding criteria without

organisational restructuring will not suffice and vice versa

• Complementarities between diversity of funding bodies, instruments and R&D performers

• Balance between R&D excellence and local relevance

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First best solution: prioritise locally relevant but internationally excellent R&D

Locally relevant Locally irrelevant Excellence (1) First best/ Virtuous

cycle (2) Second best/Islands of excellence but not relevant locally

Non-excellence

(3) Third best/ Locally relevant but mediocre R&D

(4) Bad strategic option/ Locally irrelevant and mediocre in terms of quality/ Vicious cycle

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RDI ECA study: a critical view• Excellent work… only why it is 20 years late? • RDI reform strategies are too much tied to two

questionable assumptions:– Clear separation of public private knowledge (goods)– Clear separation of technology push and market pull

• RDI are by nature bridging institutions (intermediaries) in between public and private knowledge base and in between technology (innovation) and market

• Linkage failure in ECA is largely due to agent failure (cf. weak local enterprises)

• Proper justification of public spending on RDI is difficult, because of ‘the invisibility and immeasurability of the services they provide in the end result of the innovation process’. (Klerkx and Leeuwis, 2008)

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Three strategic approaches to RDI restructuring• Ensuring autonomy of state R&D institutes‘

– If applied as the only solution it ignores private elements of knowledge base of RDI and underestimates the importance of management incentives. It leaves unresolved the issue of interaction between private and public stakeholders.

• Privatization of R&D institutes– It assumes that knowledge base of RDI is either private or public.

GOCO overestimates the issue of management incentives and underestimates the nature and specificity of R&D management of RDI (stakeholders vs. shareholders’ value).

• Active and gradual restructuring of R&D institutes– RDI institutes are not ordinary enterprises as they operate in

between public/private knowledge base– Their desired profile cannot be determined in advance

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‘ACTIVE AND GRADUALIST’ MODEL FOR SUPPORTING RESTRUCTURING OF R&D INSTITUTES IN ECA

• Activist: government through its agency facilitates restructuring of RDI on individual basis.

• Gradual: based on bottom up initiatives of RDI and requires involvement of other stakeholders.

• The most appropriate organizational and ownership profile of RDI has to be discovered in the process of active restructuring which should involve all stakeholders but which is also voluntary and sector specific.

• The final owners will differ in each individual cases and may involve pure public, pure private or different mixed forms in dependence of specificity of resources and private/public knowledge profile of the RDI

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Stages of RDI restructuring:

1. Institute diagnostics and strategic concept development

2. Restructuring plan developmentOption 1: Institute restructured into dominantly service (production) enterprise

Option 2: Institute restructured into dominantly public institute

Option 3: Institute restructured into R&D enterprise or R&D centre (intermediary function)

3. Implementation

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Criteria for selection of restructuring proposals:• Strategic interest of stakeholders (other RDIs,

industrial and other enterprises, universities, academies of sciences)

• The current status (‘health’) of RDI

• The restructuring potential

• Quality of proposal and commitment of top management.

• Demonstration effect