1

Stock taking of Lithuania s science, technology and innovation system

Kristian Thorn Johnny K. Mogensen

May 2009

The World Bank The Danish Agency for Science, Technology and Innovation

2

TABLE OF CONTENTS

EXECUTIVE SUMMARY: ..............................................................................................................3

1. INTRODUCTION..........................................................................................................................6

2. THE LITHUANIAN STI SYSTEM..............................................................................................7

3. ENHANCED CAPACITY FOR SYSTEM OVERSIGHT AND GOVERNANCE .................8

3.1. Development of a coherent strategy for Lithuania s STI system..............................................9

3.2. Higher focus on monitoring and evaluation of government sponsored STI activities............10

3.3. Enhanced government implementation capacity in STI..........................................................12

4. STRENGTHENING LITHUANIA S SCIENCE BASE...........................................................13

4.1. Increased production of STI personnel ...................................................................................14

4.2. Reforming STI funding system to strengthen competition and accountability.......................16

4.3. Merger of state research institutions and integration between teaching and research ............18

4.4. Greater internationalization of Lithuanian research................................................................20

5. BOOSTING PUBLIC-PRIVATE R&D LINKAGES...............................................................21

5.1. Stronger incentives for public-private linkages.......................................................................21

5.2. Strengthen networking and dialogue between industry and science.......................................22

5.3. Development of funding instruments that boost public-private R&D collaboration ..............23

6. INCREASING INDUSTRY INNOVATIVE CAPACITY .......................................................25

6.1 Increase private sector R&D activity .......................................................................................25

6.2 Increased focus on the provision of knowledge services to low-tech companies ....................27

ANNEX 1...........................................................................................................................................30

3

Executive summary:

This report documents the progress of Lithuania in science, technology and innovation (STI) in areas singled out by three major international reports prepared by the Norwegian Research Council (1996), the World Bank (2003) and the CREST-OMC panel (2007). The task was to summarize recommendations of these studies, report on the progress achieved to date and point to priorities for the future.

From a low point in the mid-1990s the Lithuanian STI system has gradually strengthened. Funding for R&D has increased and Lithuanian research groups have stepped up their performance in terms of publication output and relevance. It is the opinion of the reviewers that marked progress is evident and visible with respect to the goals of the three reports. This development has indeed been very positive and shows the strong commitment for a continuous improvement of the basic framework conditions for R&D in Lithuania.

Nonetheless challenges remain. In order to further the development of STI-policies in Lithuania the report offers new recommendations in four areas: oversight and governance, science base, R&D linkages, and increasing innovative capacity.

The main findings of the report are summarized below.

Enhanced Capacity for system oversight and governance

Development of coherent strategy for Lithuania s STI system by a science and technology council

This recommendation remains highly relevant as Lithuania lacks a document that can stipulate a holistic approach, synchronize policy actions and guide investments in STI.

Lithuania would benefit greatly from an overall STI strategy with a clear link to the country s natural circumstances and industrial specialization.

Lithuania s Science, Technology and Innovation Commission should be re-energized. It would add significant value to the work of the Commission if a working group possibly consisting of relevant permanent secretaries

is established. This group could help prepare the Commission s meetings and oversee the drafting of documents, which feed into the formulation of a national STI strategy.

Higher focus on monitoring and evaluation of government sponsored STI activities

Significant progress has been made, but Lithuania still lacks a single or common evaluation practice that each STI program should undergo.

A more systematic approach based on a permanent M&E capacity in the Ministry of Economy and the Ministry of Education and Science is needed. All evidence produced should be channeled to key policy makers. Feedback loops would allow for the adjustment of policies and support programs over time based.

Enhanced government implementation capacity in STI

The recommendation remains relevant although Lithuania has established a new council for basic and applied research.

It is important to ensure consistency and a clear division of labor between the newly created Research Council and the Science and Studies Foundation. In the medium term it could be considered how the system could be streamlined and restructured into a single agency for independent and strategic research.

Despite several years of preparatory work, a technology and innovation agency has not been established in Lithuania. This is unfortunate as there is significant demand for a more transparent system where users are not required to access funding windows operated by several R&D support agencies.

The host of responses to Lithuania s need to develop new sources of growth is found in the interface between education, research and industry R&D. Therefore, much closer coordination is needed between the Ministry of Economy and the Ministry of Education and Science.

4

Strengthening Lithuania s science base

Increased production of STI personnel

The recommendations remain relevant, although some progress has been made in terms of enhancing the flexibility of the system and providing more funding.

A long-term plan for the development of human resources for STI should be mapped out on the basis of forecasts of future demand for researchers in all sectors of the economy.

The funding channels for an increase in STI personnel should be closely examined. It could be considered to supplement state scholarship programs with more PhD stipends awarded through universities.

Reforming STI funding system with a view to strengthening competition and accountability

In recent years, Lithuania has seen some convergence between institutional block funding and competitive funding. But movements have been marginal, and the recommendations still remain valid.

A larger proportion of public funding for STI should be allocated through competitive processes. The best approach would be a gradual reform of the funding system which take account of the need to develop the absorptive capacity of the research communities.

Merger of state research institutions and integration between teaching and research

The recommendation is still valid as Lithuania still features a high number of universities and public research institutes in Lithuania.

The planned consolidation of public research institutes and integration between research and advanced education should be carried out as soon as possible. However, it is unclear who is taking a leadership role in this process. It is recommended that the Ministry of Education and Science takes on a more visible and coordinating role.

It can be difficult to find a one-size-fits-all solution for the public research institutes. The reviewers recommend that the different public research institutes are individually assessed against the roles they are intended to play.

Greater internationalization of Lithuanian research

The recommendation has been addressed, albeit further incentives are needed in order to have more and sustainable international collaboration.

Lithuania should make full use of all funding schemes targeting international mobility e.g. Marie Curie scholarships within the Seventh Framework Program. Moreover, the institutional participation in FP7 could be better supported. For example, Lithuanian research institutions could be awarded seed money for partnering with other European institutions or receive funding for taking a coordinating role in projects under the program.

Boosting public-private R&D linkages

Stronger incentives for public-private linkages

The recommendation remains highly relevant as there is a need to clear up legal issues surrounding the establishment of university spin-off companies and the management of intellectual property rights (IPR) within public research institutions.

It is a matter of high priority to change the incentives governing IPR in Lithuania. International best practice underscores the need to strike an appropriate balance between incentives for the individual, the institution and the sponsor.

It remains pertinent for Lithuania to undertake a review of the legal framework and institutional HR policies with a view to stimulating entrepreneurship and boosting the creation of new knowledge intensive enterprises.

5

Strengthen networking and dialogue between industry and science

The recommendation is still relevant even though Lithuania has supported the creation of 28 National Technology Platforms.

It is not sufficiently clear if the technology platforms fulfill the function of better integrating industry and science. Before raising the expectations of so many technology platforms even higher, a thorough analysis of human resource, research opportunities, and especially business involvement is needed.

Development of funding instruments that boost public-private R&D collaboration

The recommendation remains relevant although significant progress has been made in terms of developing new instruments for public-private research collaboration. The challenge is now mainly one of design and implementation.

The Lithuanian valley initiative promises to create new patterns of interaction between education, research and businesses. Although the valleys enjoy wide support, several players see a risk in spreading resources too thinly with the decision to launch five valleys simultaneously. It could be considered to select a small number of pilots and gradually scale up of the valley initiative based on collected evaluative evidence. At the same time it is important to ensure that the valleys include business representation already in the design phase.

Increasing industry innovative capacity

Increase private sector R&D activity

The recommendation remains highly relevant despite a strong focus in Lithuania on stimulating private sector innovation through a long list of incentive schemes and support structures.

Lithuania is unlikely to make the transition into an innovation driven economy without the development of homegrown, knowledge-based businesses. In order to develop a culture of entrepreneurship it could be considered to expose university students to courses in entrepreneurship and business management. In parallel, efforts could be made to have more students spend time as interns in companies and undertake business focused projects and thesis work.

Increased focus on the provision of knowledge services to low-tech companies

The recommendation remains relevant although the Lithuanian Innovation Agency has made good progress in setting up a regional network of technology intermediaries.

Given the size of the economy, Lithuania will always be dependent on its ability to learn from others and adapt existing technologies to local needs. One option that could be explored is the creation of technology transfer centers in prioritized areas. Such centers could be physical entities or virtual organizations constituted by existing research institutes and specialized consultants. The centers should cover a significant proportion of their expenditure through the sales of services.

6

1. Introduction

The objective of this report is to document the progress of Lithuania in science, technology and innovation (STI) in areas singled out by three major international reports prepared by the Norwegian Research Council (1996), the World Bank (2003) and the CREST-OMC panel (2007). The task was to create a short executive note to be delivered to the Lithuanian Ministry of Education and Science addressing: (a) the key recommendations from those reports; (b) the progress, or lack thereof; and (c) the obstacles to progress.

The stock taking exercise has been undertaken in a collaborative effort between the World Bank and the Danish Agency for Science, Technology and Innovation (DASTI).

Data collection

To carry out the stock-taking exercise, the World Bank and DASTI team visited Lithuania November 13-14, 2008. The visit provided the opportunity to discuss the recommendations of the three reports with key players in Lithuania s national innovation system. The agencies visited are listed in annex 1 of this report. In addition to the qualitative evidence collected, this report have also benefitted from other sources such as the ERAWATCH 2008 Research Inventory Report for Lithuania. Finally, a feed back session with a number of stakeholders was held in Vilnius March 10. The meeting provided the opportunity to have a discussion on the initial findings and recommendations.

It is important to emphasize that many of the institutional and policy changes in recent years cannot yet be fully assessed in their effectiveness as they have not been evaluated. Thus, this report s assessment of new initiatives limits itself to short informed comments and should be regarded as an external contribution to ongoing discussions rather than evaluative evidence.

Structure of the analysis

Although R&D and innovation systems are typically much more complex than depicted below, the model provides a convenient way of visualizing some of the more important domains within a R&D and innovation system and the relationships between them.

7

A Simple Model of an R&D and Innovation System

Governance

Human resources

Business R&D and Innovation

Science base

R&D results

Contracts, Finance

Mobility

New re

sear

cher

s

Mob

ility

Resea

rch

resu

lts

Educated populace

Incentives

Nat

iona

l lev

elIn

tern

atio

nal l

evel

Governance

Human resources

Business R&D and Innovation

Science base

R&D results

Contracts, Finance

Mobility

New re

sear

cher

s

Mob

ility

Resea

rch

resu

lts

New re

sear

cher

s

Mob

ility

Resea

rch

resu

lts

Educated populace

Incentives

Educated populace

Incentives

Nat

iona

l lev

elIn

tern

atio

nal l

evel

The three reports include a wide range of recommendations at different levels of abstraction. For reasons of consistency, the recommendations have been organized based on the framework provided by the above model. In the following sections, all dimensions of the model are covered in turn with a view to analyzing whether the recommendations are still relevant and to what degree they have been implemented in Lithuania.

The report focuses on science, technology and innovation. Consequently, it does not analyze in full sector issues related to education. The governance and funding of education are only considered to the extent they are directly relevant for increasing Lithuania s capacity for research and innovation.

Before turning to the analysis of the recommendations, a brief overview of the Lithuanian STI system is provided.

2. The Lithuanian STI system

Background When Lithuania re-gained its independence in 1990, the country inherited a STI system with features typical of the Soviet era. Fundamental and applied research was concentrated in research institutes that operated largely separately from higher education. The majority of institutes had a very narrow specialization and was oriented toward the needs of the Soviet Union.

Lack of financing and the privatization of state owned enterprises caused considerable changes to the STI system during the early 1990s. Large USSR military based research institutes collapsed and experimental development divisions at public research institutions were reduced to a minimum or eliminated. Moreover, much of the former enterprise-level R&D capacity was lost.

Improving performance From a low point in the mid-1990s the Lithuanian STI system began to gradually strengthen. Due to targeted efforts, total funding for R&D as a proportion of GDP has grown from 0.46 percent in 1995 to 0.83 percent in 2007. Moreover, reductions in the number of active researchers have diminished. Lithuania currently has around 6,000 scientists.

8

In a number of areas Lithuanian research groups have stepped up their performance in terms of publication output and relevance. Between 1996 and 2006, the number of Lithuanian ISI publications rose by 15 percent annually (Science Council: 2008). Yet, Lithuanian researchers are still much less productive than the European Union average when scientific publications are considered in relation to public expenditure on R&D (EU Key Figures 2007). One of the underlying reasons is the funding structure, relying largely on institutional funding for research institutes rather than competitive program funding.

Low private sector capacity for R&D The main challenge for the modernization of Lithuania s STI system is the isolation of the research community from the private sector. Interaction among companies, research institutions and universities is modest and occasional and Lithuania relies too heavily on government funded R&D.

The private sector invests only 0.24 percent of GDP in R&D and most alarmingly employs merely 4 percent of all researchers in Lithuania. The business sector is characterized by low-tech industries, with some pockets of high tech excellence such as IT and laser technology companies. The inadequate knowledge absorptive capacity in private enterprises is evident in data for the commercialization of R&D. In 2003, Lithuania submitted 6 EPO patent applications per million inhabitants, far short of the EU average of 128.

Key players in Lithuania s STI system The two key ministries responsible for STI policies in Lithuania are the Ministry of Education and Science and the Ministry of Economy. The former focuses on research and the education of young researchers, and the latter is responsible for policies and support programs related to innovation and technology development. In addition, the Prime Minister s office has a small unit that deals with knowledge economy issues, and the Ministry of Finance plays a role in overseeing the implementation of the European Union structural funds invested in research and innovation.

The most prominent STI support agencies are:

Lithuanian State Science and Studies Foundation: Awards grants for scientific research and experimental development and provides support to PhD students.

Research Council of Lithuania: Awards competitive funding of public research programs financed through EU structural funds and advises the government on issues related to research.

Lithuanian Innovation Center (LIC): Provides guidance and support to Lithuanian research institutions, industry and SMEs in innovation, high-tech entrepreneurship and technology transfer matters.

Despite the fact that Lithuania is in its second decade of independence, the science sector remains one of the least restructured. The public science base is highly fragmented taking into account the size of the country (3.4 million inhabitants). There are 31 state higher education establishment (15 university-type establishments and 16 colleges) and 17 private higher education establishments (6 university-type establishments and 11 colleges), 17 state research institutes, 18 university research institutes and 8 state research establishments in Lithuania. In addition, various state and public institutions take part in R&D activities.

3. Enhanced capacity for system oversight and governance

This section assesses Lithuania s capacity to formulate, review and implement policies for STI through three recommendations: (a) Development of a coherent strategy for Lithuania s STI system by a science and technology council; (b) Higher focus on monitoring and evaluation of government sponsored STI activities; and (c) Enhanced government implementation capacity in STI

9

3.1. Development of a coherent strategy for Lithuania s STI system by a science and technology council

Recommendation

All three studies recommend that Lithuania formulates a strategy for STI which devises policies for the long-term development of the country s national innovation system and provides a basis for allocating resources.

To formulate such a strategy it is recommended to set up a permanent council with significant representation from the business and research communities. Furthermore, it is suggested that the council is chaired by the prime minister and includes all ministers with a stake in STI policies.

Status

This recommendation remains highly relevant.

Lithuania has formulated a number of key policy papers on STI. Most importantly, a White Paper on Research and Technology was published in 2002. However, this document was indistinct in its recommendations and focused exclusively on issues related to research. Moreover, no new funding was linked to the White Paper in order to ensure adequate follow-up action. For this reason, Lithuania still lacks a document that can stipulate a holistic approach, synchronize policy actions and guide investments in STI.

In several interviews it was pointed out that Lithuania was driven first by independence and subsequently by its accession to the European Union. With the successful completion of both processes a strong need now arises for adopting a new common objective that could guide a third wave of reform and pave the way for Lithuania s transition to a knowledge-based economy.

The urgency of developing a national STI strategy is underscored by the significant influx of European Union structural funds. Approximately 700 million Euros will be invested in research and innovation between 2007 and 2013. With no comprehensive strategy to guide these investments, the Ministry of Education and Science and the Ministry of Economy have developed a wide range of programs and indicators in collaboration with the Ministry of Finance. In several interviews it was pointed out that this has led to the situation where the need to spend rather than an overall policy vision is the driver for change. As a consequence, investment decisions in key ministries are not well articulated and unrealized potential exists for strengthening the link between new programs and Lithuania s economic development challenges.

It is the assessment of the review team that Lithuania would benefit greatly from an overall strategy with a clear link to the country s natural circumstances and industrial specialization. In recent years, Lithuania has been inspired by programs and priorities at the European level. However, not all activities and focus areas of the European Union are equally suited for the Lithuanian context. A national STI strategy could help prioritize activities and concentrate resources at sector issues specific to the Lithuanian national innovation system. Moreover, it could provide a solid basis for spending structural funds in priority fields and with quality.

The recommendation that a high-level council should be established in Lithuania to formulate and maintain a STI strategy continues to be relevant despite commendable efforts in recent years to make a reality of such an entity.

10

A Science and Technology Commission was established in 2002 with the responsibility to develop an overall innovation policy for Lithuania. However, the Commission was criticized for not having enough institutional power to have a tangible impact on the synchronization of policy actions, mainly due to its consultative nature. Its impact was also limited by not having a strong science and education policy representation, as these issues were coordinated in a parallel functioning Science and Education Commission.

In spring 2005 the two commissions were regrouped into a single Science, Technology and Innovation Commission. The Commission functions as the main coordinating body for STI policies, representing the science, education and business communities as well as the government. It is chaired by the Prime Minister of Lithuania whose office serves as the secretariat of the Commission. Similar bodies have been established in other countries (see box)

Science and Technology Policy Council in Finland The Finnish Science and Technology Policy Council is an entity chaired by the Prime Minister of Finland, responsible for advising the government and coordinating STI policy. The council was established in 1987, as an independent player in the policy-making process. In the early 1990s it was a key driver for introducing the concept of a national innovation system an important cornerstone for science and technology policy in Finland.

This new systemic view of innovation and technology was followed by a significant increase in STI investments and a stronger integration between technology and industrial policy in Finland. During the 1990s Finland moved from a resource-based to a knowledge- and innovation-driven economy, becoming the most ICT-specialized country in the world. During this development, the Finnish Science and Technology Policy Council was one of the most important drivers for change as the overall coordinator of science and technology policy.

Source: Ministry of Education 2008, Finland

From the interviews it is clear that the Science, Technology and Innovation Commission s role could be strengthened. The Commission has met infrequently and discussions have generally not been informed by drafted policy documents. Efforts to establish a more operational group below the Commission have so far been unsuccessful.

Against this background, the review team recommends that the Science, Technology and Innovation Commission should be re-energized. Among the key tasks is the development of a comprehensive STI strategy for Lithuania. It would add significant value to the work of the Commission if a working group possibly consisting of relevant permanent secretaries is established. This group could help prepare the Commission s meetings and oversee the drafting of documents, which feed into the formulation of a national STI strategy. Moreover, an inter-ministerial working group could facilitate coordination across key ministries such as the Ministry of Education and Science and the Ministry of Economy.

3.2. Higher focus on monitoring and evaluation of government sponsored STI activities

Recommendation

The World Bank and the OMC studies recommend that Lithuania significantly upgrade its monitoring and evaluation (M&E) capacity in order to track the implementation and impact of STI policies and decentralized actions. Specifically, STI statistics should adhere to OECD standards, e.g. the Oslo and Frascati Manuals. Moreover, the government should develop a system to collect STI intelligence based on well-established methods and routines using a range of quantitative and qualitative methodologies. Such evidence is expected to facilitate strategic decision making and policy learning at all levels.

11

To achieve the above, it is advised that the Lithuanian government establishes a dedicated unit specialized in technology and innovation studies. The agency would maintain a battery of STI indicators and review the multitude of dispersed subsidy programs, such as technology parks, valleys, grant schemes and financial incentives.

Status

Significant progress has been made, but the recommendation remains relevant.

In recent years, Lithuania has collected STI data in accordance with international standards. For instance, Lithuania now has readily available statistics on commonly used input and output indicators and participates in the European Community Innovation Surveys (CIS). Moreover, ad hoc evaluations have been carried out for a number of programs, such as the Innovation in Business Program (2003-2006).

Despite encouraging results, the interviews showed that Lithuania still lacks a single or common evaluation practice that each STI program should undergo. The Ministry of Economy so far manages evaluations of business support and innovation programs in an ad hoc manner. A more systematic approach based on a permanent, internal M&E capacity is warranted. The Ministry of Education and Science has recently established a unit solely responsible for M&E. This unit has an important task within a short time period to develop systematic evaluation practices, launch studies on the cost-effectiveness of government programs and undertake in-dept foresight activities as seen by other countries (see box).

Technological Foresight in the United Kingdom In 1994 the British government launched the first round of a technological foresight program. The program brought together experts from industry, government and academia, organized into 15 different, sector-specific panels. The aim was to ensure closer interaction between scientists, government, and industry, through a program that strived to identify future socio-economic opportunities and threats in the fields of science engineering and technology. In 1999 a second round of Technological Foresight was held, and in 2002 the program was changed to a rolling, permanent exercise, which continues to this day.

The most significant results of the British foresight program have been in the fields of nanotechnology and green technology, where the recommendations of the panels have helped to raise funds for research centers and partnerships.

Source: Government Office for Science 2008, UK

The reviewers consider it a matter of high priority that all evidence produced by central ministries is channeled to the Science, Technology and Innovation Commission headed by the Prime Minister. Feedback loops would allow the Commission to adjust policies and support programs over time based on real impact data.

Lithuania also has an important task of improving the coordination of M&E activities across several ministries in order to collect the best possible data with the resources available. For instance, the Ministry of Finance has recently assumed a key role in overseeing the results achieved with European Union structural funds invested in research and innovation. Such efforts should be coordinated closely with ongoing M&E activities in the Ministry of Economy and the Ministry of Education and Science.

Finally, the reviewers consider it critical that M&E practices are developed at all levels of the STI support system. Notably, the newly restructured Research Council should place high priority on developing solid evaluation practices as regards the implementation of awarded research grants. This would allow corrective measures to be taken in cases of underperformance.

12

3.3. Enhanced government implementation capacity in STI

Recommendation

All studies highlight the need to strengthen Lithuania s capacity to implement STI policies. The three reports recommend the establishment of two specialist agencies.

Firstly, Lithuania is advised to create an agency responsible for the allocation of funding for basic and applied research. All grants should be allocated based on scientific merit and quality in transparent peer review processes involving international expertise. Hence, the agency would stimulate an increase in the proportion of resources allocated for individual research projects in lieu of large institutional block grants.

Secondly, it is recommended that Lithuania creates a technology agency responsible for fostering public-private research linkages and supporting business R&D, technology transfer and the commercialization of knowledge. Establishing such an agency would involve merging a number of existing organizations with similar functions.

The suggested restructuring is expected to create a clearer division between policy making and implementation. Hence, policy makers would be better positioned to focus their efforts on policy design and strategy. Moreover, the proposed changes are expected to improve the effectiveness of the system by consolidating and streamlining a wide range of government STI activities operating with different underlying objectives and management practices.

Status

The recommendation remains relevant although advances have been made in regard to the creation of a funding agency for basic and applied research.

The Lithuanian Parliament recently approved to change the Lithuanian Science Council into a Research Council with the status of a permanently functioning agency. The Research Council is responsible for the development and implementation of programs of competitive funding for frontier research financed with EU structural funds.

All members have been selected in transparent selection processes which promise well for the Council s credibility and ability to make decisions entirely based on scientific considerations. In order to tailor the Council s activities to different beneficiaries, two committees have been created: One for the natural and technical sciences and one for humanities and the social sciences.

The Council should be supported in fulfilling its plans of providing large multi-purpose grants, e.g. packing funding for research, skills development and minor equipment. International experience suggests that this will allow the stability for researchers to engage in long-term research projects and facilitate the development of strong research groups.

The reviewers find it laudable that the Research Council is aiming at channeling funding according to five national research priorities. These priorities have been selected in a bottom-up process which began with the submission of 140 proposals for strategic research. Prioritizing the Council s funding decisions will make it easier to significantly impact the quality of research in areas closely linked to Lithuania s development challenges. The completed process could inspire the Commission for Science, Technology and Innovation to carry out a similar exercise at the national level.

13

The interviews did not provide evidence of how the activities of the Research Council will be linked to programs operated by the State Science and Studies Foundation. The two agencies are funded by different sources and vary in their legal status. In the short term it is important to ensure consistency and a clear division of labor between the Council and the Science and Studies Foundation. In the medium term it could be considered how the system could be streamlined and restructured into a single agency for independent and strategic research under the Ministry of Education and Science.

Despite several years of preparatory work, a technology and innovation agency has not been established in Lithuania. This is unfortunate as the interviews pointed to a significant demand for a more transparent system where users are not required to access funding windows operated by several R&D support agencies. At its core, a new agency could be responsible for enhancing public-private research linkages and stimulating private sector innovation.

The advantage of creating a single technology and innovation agency in Lithuania lies in the opportunities for adopting a more holistic approach to innovation. Hence, a new agency could be responsible for designing support schemes for entrepreneurs and innovative companies that cover the entire chain from experimental development to the commercialization of knowledge. As is the case for existing programs, it is advised to adjust the type of support schemes according to considerations of market failures and social returns.

An important issue not touched upon in the three studies of Lithuania is the insufficient coordination between the Ministry of Economy and the Ministry of Education and Science in regard to STI policies and their implementation. This difficulty is not specific to Lithuania. The cross cutting nature of STI policies is the rationale behind the decision in several countries to create ministries of science, technology and innovation, which in some cases also include the responsibility for research-based higher education.

From the interviews it is evident that the Ministry of Economy and the Ministry of Education and Science have agreed on a sharp division of labor. Funding is channeled to separate accounts and spend on programs that generally are divided according to ministry lines. However, the challenge is that the host of responses to Lithuania s need to develop new sources of growth is found in the interface between education, research and industry R&D. An example is the valley initiative which requires close coordination between investments in research infrastructure and business participation, e.g. via co-located technology parks. Consequently, the development of more efficient inter-ministerial coordination mechanisms could add significant value to Lithuania s STI support system.

The influx of European Union structural funds represents an important opportunity to stimulate collaboration between the Ministry of Economy and the Ministry of Education and Science. Hence, funding could drive the design and implementation of joint support schemes, including the insertion of researchers into industry, collaborative research consortia and the creation of spin-off companies from universities and public research institutions.

4. Strengthening Lithuania s science base

A solid science base forms the backbone of any national innovation system. In this section framework conditions for research education and academic excellence are analyzed focusing on the following recommendations: (a) Increased production of STI personnel; (b) Reforming STI funding system with a view to strengthening competition and accountability; (c) Merger of state research

14

institutions and integration between teaching and research; and (d) Greater internationalization of Lithuanian research.

4.1. Increased production of STI personnel

Recommendations

All three reports, but in particular the report from The Norwegian Research Council, recommend an increase in the production of STI personnel. Thus, further activities to increase the number of well qualified PhDs and post docs in the system should be undertaken in order to make the science base more sustainable and dynamic.

As a key element to achieve this end, it is suggested that the overall level of salaries, especially for young researchers needs to be increased in order to attract talent to the scientific and engineering career path. Proper financing of doctoral candidates by means of fellowships would also help to attract good students.

Moreover, reforms should be launched in order to increase the efficiency of the system. The time required to study for a doctor s degree should be reduced to three or four years, in line with European Union standards. Furthermore, Lithuania was one of the few countries that on time of the abovementioned reports still relied on the habilitation system. A PhD degree qualified for the position of docent at a university and the degree of dr. habil for the position of professor. The background reports question the fruitfulness of having two doctorates and wonder to what extent it is conductive to good and fruitful research to write a second dissertation.

Finally, mobility of students and researchers between the public realm and industry should be encouraged and related hurdles be dismantled.

Status

The recommendations remain relevant, although some progress has been made in terms of enhancing the flexibility of the system and providing additional funding.

The dr.Habil degree is no longer given. The procedure is still carried out, but no second dissertation is now required for professorship. It is foreseen that the new law for higher education still pending would further increase flexibility by removing the habilitation procedure (summary, lecture and

papers) entirely.

However, challenges still remain. During the last few years, Lithuania has witnessed a sharp decline in the number of researchers. In the period 1998-2003 alone, the number of researchers decreased by 22 percent.

Any country s ability to produce high-quality research depends critically on her endowment of researchers. Therefore, the decreasing trend in the number of active researchers in Lithuania urgently needs to be reversed even if the most recent data reveals a modest increase in numbers. At least three factors underlining the urgency of placing more focus on the development of human resources for STI can be highlighted:

Firstly, the demand in the public sector universities and public research institutions is expected to rise given the significant aging of the stock of STI personnel in Lithuania. Secondly, Lithuania is to some extent witnessing brain drain. Many of the most promising young researchers take part of their research training in foreign countries and do in many cases not return to Lithuania, leaving a

15

gap behind. Thirdly, industry is expected in the coming years to recruit more researchers (starting from a very low level) in order to increase the research capacity of the private sector.

From the interviews it is evident that the challenge of increasing the human resources base is not yet effectively tackled, although the implementation of the European Union Structural Funds has had a positive impact.

The New Researchers Career Program approved in December 2007 foresees a variety of actions, which encompass the support of the researcher s development, attraction of individual highly skilled researchers, support for short term visits abroad, mobility of researchers between science and industry, etc. Use of structural funds could also pave the way for doctoral schools, thus developing a critical mass of talent and improving the quality of the research training.

Indicators to monitor progress are defined in the program. Benchmarks were produced by Ministry of Education and Science. The process has been to allocate an earmarked lump sum and subsequently see how many researchers can be financed out of those resources. This seems to suggest that there has been no overall assessment or plan for the strategic objectives in terms of ph.d-production or post doc stipends.

Seen from the perspectives of the institutions, significant funding problems still exist. All of the interviewed institutions would like to increase their intake of PhD students but find themselves financially constrained. Reportedly there are few options for funding additional doctoral students out of the basic institutional block funding. Therefore, increases in PhD student intake are determined by the various state scholarship programs.

It was a common opinion among all the interviewed institutions, that the stipends provided were of insufficient size and did not provide real incentives either for students or universities to enroll or to establish a growth pattern in PhD production.

The reviewers recommend that a clearer strategic direction for the long-term development of human resources for STI is mapped out. Objectives for the production of PhD students and post docs should be determined on the basis of forecasts of future demand for researchers in all sectors of the economy. Moreover, an assessment of the full cost associated with the additional production of STI personnel should be carried out. This should include not only a critical review on the current level of PhD stipends but also the associated cost for institutions (overhead, research equipment etc.).

The reviewers also recommend that the funding channels for an increase in STI personnel be examined more closely. It could be considered to supplement state scholarship programs with more PhD stipends awarded through universities. This additional funding could be given directly to universities as an earmarked part of their institutional block funding and should ideally cover the full cost of PhD education.

The reviewers find it important that universities are provided with sufficient funding for their educational activities. There have been indications that the current institutional budget for education is strained to such an extent that universities in some cases substitute block funding for research towards education, thus crowding out the research effort at institutions.

Finally, it is recommended to encourage more inter-sectoral mobility. This could be in the form of specific dedicated schemes that support the transfer of scientists (and well-qualified students) to firms at least for a limited period. The Danish scheme training of industrial PhD in which industry

16

and the scientific institutions share the training and salary of a PhD could strengthen both the linkages and the attractiveness of the PhD career path.

4.2. Reforming STI funding system with a view to strengthening competition and accountability

Recommendation

All three reports address the balance between institutional and project-based funding for R&D. The reports suggest that more weight should be shifted in favor of the latter.

The low number of thematic and competitive programs leaves the Ministry of Education and Science without much leverage to set and implement priorities and it does not trigger competition within the scientific community. Moreover, the ministry has few opportunities to induce behavioral change through funding, such as more or different kinds of interaction within the science system or between science and industry.

Lithuania should strengthen the system for providing adequate and competitive financing of research programs and projects, based on scientific and scholarly arguments and peer review processes in accordance with international standards.

Status

In recent years, Lithuania has seen some convergence between institutional block funding and competitive funding. But movements have been marginal, and the recommendations still remain valid.

The bulk of public spending still goes directly to public R&D institutions. Total public funding accounts for 0.6 percent of GDP of which two-thirds goes directly to public institutions in the form of block funding. According to the Ministry for Education and Science some 7-10 percent of all research funding is now competitive funding. This is comparatively low compared with other countries inside the European Union, see illustration.

Government grants awarded for R&D through competition, 2005

0%10%20%30%40%50%60%70%80%90%

100%

Denmark Finland Norway Sweden

Prop

ortio

n of

sta

te s

ubsi

dies

.

Block grants Competitive grants

Source: Danish National Reform Program (2006)

The EU Structural Funds may in the forthcoming period provide an opportunity to further rebalance R&D funding in favor of more competition.

17

Also, institutional funding has in recent years been changed towards more performance-based funding, whereby the lump sums are allocated according to output (publications) and level of contract research or industry as well as public project grants (input). The budget formula for the institutional funding is 80 percent based on last year s budget and 20 percent on current performance. It is the reviewer s opinion that the balance of the budget formula for the time being is adequate. The split ensures a reasonable trade off between the need for budgetary stability on the one hand and incentives to improve performance on the other hand.

Systematic use of peer review processes to ensure value for money and high quality is critical for Lithuania. Hence, as more competitive funding becomes available a stronger demand for external peer reviewers will be needed. This is a problem for any small country and Lithuania is no exception. In order to maintain the principles of trustable and transparent procedures in the review process it was mentioned in several interviews that the build-up of a database of international review experts will be extremely important.

Based on the discussions with stakeholders the impression is that there is a high degree of consensus on the need for more competitive funding. Some stakeholders argue that as much as 50 percent of all research funding should be allocated on a competitive basis.

The reviewers warmly support the objective of allocating a larger proportion of public funding for STI through competitive processes. Increased competition will ensure that the funds go to the most qualified researchers and the best performing research environments.

Today, the research funding bodies the Lithuanian Science Council and the State Science and Studies Foundation have relatively low success rates, ranging from 20-40 percent depending on the program. It is therefore recommended that significant increases in competitive funding should be gradually implemented. This will ensure that the necessary absorptive capacity in the research communities is developed. A larger stock of STI personnel and more modern research infrastructure are preconditions for an effective use of further investments. Hence, it is recommended that the government take account of existing capacities when stepping up competitive funding.

Today, virtually all research funds that are distributed in competitive processes in Lithuania are awarded to individual researchers and research groups. As a consequence, research risks becoming dispersed and disconnected from the universities strategy for their research.

The Swedish Linnaeus Grant The purpose of the Linnaeus Grant is to create environments for basic research which afford synergic effects and are characterised by excellent scientific quality and potential for scientific renewal. This objective is to be attained by means of national competition among individual higher education institutions (HEIs) or collaborating HEIs.

The Linnaeus Grant is a supplement to the HEIs' own basic resources and the research councils' support for researcher-initiated projects. Linnaeus Grants may be expected to influence strategic priorities of the HEIs and exert a structural impact on the research system.

Source: Vetenskabsrådet, Sweden 2008

Therefore, the reviewers recommend that a proportion of the competitive funds available in the future should be allocated in competition between universities. Each university s management should oversee the submission of proposals for large-scale, multidisciplinary research projects. The proposals should subsequently be evaluated on the basis of their quality and relevance by international peers. Inspiration can be found in the Swedish Linnaeus Grants (see box).

18

4.3. Merger of state research institutions and integration between teaching and research

Recommendation

Lithuania needs to undertake a process of institutional consolidation by merging a number of state research institutes and discontinuing entities that are of low quality or of little relevance to education or innovation.

The Research Council of Norway and the OMC panel highlight the need to ensure a better linkage between research and education. It is considered of high importance for the quality of teaching and the recruitment of PhDs that students at the undergraduate level are exposed to recent research results and are inspired by good researchers. Hence, it is recommended that with the exception of large institutes with clear infrastructural responsibilities the public research institutes should be incorporated into or closely linked with the universities, and should have clearly defined teaching duties.

Alternatively, the World Bank study proposes to consolidate state research institutes into a Lithuanian Institute of Technology with a mandate to undertake technology development on a research contract basis.

Status

The recommendation is still valid.

Between 1995 and 2007 the number of research institutes was reduced. Today, there are 17 state research institutes, which are acting as independent institutions but also to some extent provide PhD programs. The research institutes have been granted a high level of autonomy, enabling the build-up of strong teams and independent boards and operating on separate budget-lines.

This autonomy has at the same time made them somewhat resistant to political influence and the need to adapt to new needs of society and the economy. An attempt has been made to rationalize the number of research institutes, and some of them were integrated into the university structures. Alongside the 17 state research institutes there are a similar number of university research institutes.

For a country the size of Lithuania, the number of universities (15 public universities and 7 private universities) and public research institutes are extremely high. In order to avoid duplication of efforts and reduce administrative costs it seems unavoidable that some form of consolidation is needed. This has also been the recommendation from all three independent reports as well as from the Lithuanian Science Council.

Some action has already been taken toward this end. A novel scheme of networks for state research institutes has been approved. The intention of the scheme is to see some state research institutes merge with universities. Other institutes will merge together and co-locate their facilities with universities and private companies. The remaining state research institutes will become technology institutes.

The intention is to implement the networks before July 2009. However, implementation plans still need to be developed. It is also the sentiment among several of the interviewed institutions and ministries that it is doubtful whether sufficient political focus on the follow-up will be ensured to see the merger process carried through.

19

On the part of the state research institutes there is significant skepticism. This relates to the economic conditions for the merger process which are not seen as in any way cost-neutral in the short to medium term. But it also relates to fear for the loss of autonomy. Several state research institutes point to the strained economic situation in universities and fear the institutes will be reduced to university departments. Also, a merger process may result in a heavy teaching load that would take away focus from research, among other things because universities reportedly do not have the financial space to place priority on research activities.

The valley initiative (see section 7.3) is by some seen as a driver for the merging process the carrot being government funding for new research infrastructure. Nonetheless, some of the interviewed institutions do not see the incentives as particularly attractive. The allocated budget for infrastructure is too limited to achieve the aims of the specific valley. Furthermore, the government will not ensure operational expenditure in the longer term. Some of the state research institutes call for more coherent and hands-on leadership on the side of the two involved ministries.

University merger process in Denmark In 2006 and 2007 the Danish government implemented a number of mergers of universities and government research institutes. Altogether 25 universities and research institutions became eight universities and three government research institutes.

The objective was to strengthen the universities research environments as well as their international visibility and competitiveness. Moreover, the aim was to widen the range of education programs.

Source: Danish National Reform Program 2007

The reviewers consider it a matter of high priority to carry out structural reforms in light of the very high number of universities and public research institutes in Lithuania. Many countries have completed or are in the midst of similar exercises (see box on the Danish Merger process).

Public research institutions have a number of important roles in the Lithuanian STI system. The structural set-up should be fitted to facilitate these roles:

As a connection between new applied research and education. Public research institutes do not educate bachelor and master s graduates (they have a limited number of PhDs). It is important that public research institutions get better integrated in universities in order for their research to underpin study programs.

As a competent player in commissioned research assignments for different parts of government, including some regulatory tasks. Public research institutes should also act as a contractor on particular assignments such as the preparation of scientific reports or monitoring tasks on certain issues (environment, energy, food standards etc.)

As as a link between public and private research. As mentioned, this interaction is modest and occasional in Lithuania. Public research institutes should have a specific industry-orientation in their research.

The reviewers find that the implementation of the network initiative could be an important step forward towards the consolidation of public research institutes. It is, however, unclear who is taking a leadership role in this process. It is recommended that the Ministry of Education and Science takes on a more visible and coordinating role in this phase.

The reviewers also find that it can be difficult to find a one-size-fits-all solution for the public research institutes. Clearly, there are significant differences in terms of size of external funding, volume of government contracts, level of educational involvement etc. On that basis, The World

20

Bank proposal of one large institute of technology should be seen as a long-term vision rather than a short term reality.

The reviewers recommend that the different public research institutes are individually assessed against the roles they are intended to play. In some cases, a fusion with universities would be advisable (if only limited contract research with industry, for example). In other cases, mergers among a number public research institutes should be advanced. A united effort across different institutes would make Lithuania more competitive and allowing for more cross-disciplinary approaches. In yet other cases the most sensible solution would be to allow for independence. In all cases, budgets for public research institutes should be safeguarded in the short term via separate contracts and budgets within either universities or other new institutional constructs.

A feasible way to prepare for such an exercise is to undertake an independent benchmarking of the science system and the institutions within it, conducted by international experts.

4.4. Greater internationalization of Lithuanian research

Recommendation

The reports recommend that Lithuania should extend its contacts with Western research.

It is important to send young researchers and graduate students abroad to meet educational needs that are not easily covered in Lithuania and to broaden their scope of knowledge. This is necessary, in particular, in fields that are important but weakly covered in Lithuania.

The background reports highlight the importance of establishing programs for the international exchange of researchers.

Status

The recommendation has been addressed, albeit further incentives are probably needed in order to have more and sustainable international collaboration. This applies to the mobility of individual researchers as well as international collaboration at the project level.

The ERA Watch function for Lithuania mentions trends towards increased openness and internationalization of STI are not specifically addressed by Lithuanian R&D policy. Some of the interviewed institutions draw attention to the escalating problem of brain drain. The most talented young researches take part of their training often at the post doc level abroad and never return to Lithuania. Better salaries and the opportunity to work in world-class research environments are making the retention of many of the most promising researchers difficult.

In addition, some of the institutions refer to the limited funding for international mobility. It is hoped that the Researchers Career Program to some extent can remedy this situation.

Lithuania participated in the Fifth and Sixth Framework Programs of the European Union. The results have not been satisfactory. Lithuania was not able to retrieve the contributed funds via projects operated by national science institutions. The statistics available for the Seventh Framework Program indicate some improvement for Lithuania, although there is still room for further improvement, see table below.

The other benefits of ERA participation in international networks and integration of the Lithuanian STI system within European structures

are according to some of the interviewed institutions not or insufficiently exploited by the Lithuanian R&D sector.

21

Relative national contribution to EU-budget 2006 and national share from FP7 in 2007, selected countries Country Contribution to EU-budget

(percentage), EU27 Share of FP7 commitments in 2007

(percentage) Lithuania 0.2 0.2 Slovenia 0.3 0.6 Denmark 2.1 2.5 Estonia 0.1 0.3 Latvia 0.2 0.1

Source: Authors own calculations on basis of statistics from eCorda

On the basis of the discussions, the reviewers recommend that further incentives for participation in international research collaboration are considered. A foreign exchange visit as part of a PhD degree should be encouraged. The use of world-class laboratory facilities in other countries as part of the doctoral training will certainly benefit not only the PhD student but also the Lithuanian mother institution.

Therefore, Lithuania should make full use of all funding schemes targeting international mobility

e.g. Marie Curie scholarships within the Seventh Framework Program. Moreover, institutional participation in the Framework Progam could be better supported. For example, Lithuanian research institutions could be awarded seed money for partnering with other European institutions or receive funding for taking a coordinating role in projects under the Framework Program.

5. Boosting public-private R&D linkages

Due to Lithuania s legacy of highly specialized research institutes the STI system is challenged by insufficient linkages between public and private entities. Considering that 96 percent of all research personnel work in the public sector, it is essential for the country s economic development that companies can tap into this capacity. Moreover, the development of new sources of growth in Lithuania is dependent on the country s ability to encourage entrepreneurship and stimulate the creation of new knowledge-based companies. Intersectoral flows of knowledge are analyzed below based on the following recommendations: (a) Stronger incentives for public-private linkages; (b) Strengthen networking and dialogue between industry and science; and (c) Development of funding instruments that boost public-private R&D collaboration.

5.1. Stronger incentives for public-private linkages

Recommendation

The OMC panel recommends that Lithuania strengthens the framework for the commercialization of research. Notably, it is advised to clear up legal issues surrounding the establishment of university spin-off companies and the management of intellectual property rights (IPR) within public research institutions.

This should be achieved by enabling universities and research institutions to own IPR and to build up an incentive system for the exploitation of intellectual property with a share of derived revenue being distributed to inventors and individual researchers. In terms of spin-offs, it is recommended that universities are better able to establish and own equity in start-up companies.

Status

The recommendation remains highly relevant.

22

Faced with very low numbers of Lithuanian patent applications, nationally as well as abroad, the Ministry of Economy has created an incentive program, where applicants being awarded a patent from the European Patent Office (EPO) or the United States Patent and Trademark Office (USPTO) receive a reimbursement of 100 percent for all expenditures incurred in the application process. Despite being very generous, the program has not had the envisaged effect.

The main reason for this is the inadequate legal framework for IPR in Lithuania. Several years of discussion has regrettably not led to legislative changes. Incentives are such that individual researchers or the hosting research institutions benefit very little or not at all from patenting activity. Moreover, there are very limited options for selling IPR or transferring intellectual property to spin-off companies.

It should be considered a matter of high priority to change the incentives governing IPR in Lithuania. International best practice underscores the need to strike an appropriate balance between incentives for the individual, the institution and the sponsor (see box below). The overriding concern is that intellectual property produced by Lithuanian researchers is commercialized as effectively as possible to the benefit of the economy.

The US Bayh-Dole act The Bayh-Dole act from 1980 is a part of the US legislation dealing with intellectual property rights emerging from federal government-funded research. It allows for the transfer of exclusive control over government funded innovation to universities, business and non-profits institutions. These are in return expected to actively promote and commercialize their inventions, thereby spreading them to small business and US industry. The federal government, however, retains march-in -rights, if it estimates that the intervention is not being made reasonably available to the public.

Source: USPTO 2008

In addition to changing legislation, it is important to consider how to strengthen the support structure for IPR. The interviews revealed insufficient experience and capacity on part of public research institutions to engage in patenting and licensing activities. One option is to provide advisory services, e.g. through technology transfer offices imbedded in institutions or located close to researchers.

An important channel for commercialization is entrepreneurship and the creation of spin-off companies. There are examples in Lithuania of researchers turning knowledge and know how into a commercial success. However, the general pattern is that the policies surrounding public research institutions make it difficult to encourage personnel to set up enterprises and own equity in spun off entities. Researchers setting up a company risk loosing their access to key research infrastructure and have few options for going on sabbatical leave, which considerably adds to the risk of starting a new business. Hence, it remains pertinent for Lithuania to undertake a review of the legal framework and institutional HR policies with a view to stimulating entrepreneurship and boosting the creation of new knowledge intensive enterprises.

5.2. Strengthen networking and dialogue between industry and science

Recommendation

The report of the World Bank and the OMC panel both suggests that Lithuania should create more opportunities for interaction and networking between industry and science.

23

Status

The recommendation is still relevant even if some action has already been taken.

The Technology Platforms established in 2006 is a positive step towards closer science-industry collaboration and is by the Ministry of the Economy considered one of the key business and science cooperation instruments. Lithuania has chosen to mirror the thematic areas of the European Technology Platforms.

At present, 28 National Technology Platforms (NTP) has been established. According to the ERA Watch for Lithuania the NTPs enroll 13 higher education institutions, 27 scientific research institutions, and 228 business representatives.

Some moderate financial support (0.6 mio. Euros) are provided by the Ministry of the Economy for the preparation of NTP development strategies and strategic research plans.

The interviewers did not get sufficient information to effectively assess the success of the NTPs. There has been no recent evaluation on the experiences and impact of NTP´s. However, it is unclear if all of the many platforms in different areas actually fulfill the function of integrating industry and science better.

Before raising the expectations of so many technology platforms even higher, a thorough analysis of human resource, research opportunities, and especially business involvement is needed. Furthermore, as small a country as Lithuania should consider a certain prioritization among the 28 platforms. It would be beneficial for all involved if the most relevant platforms for the Lithuania STI-environment were given a particular focus in terms of funding and/or policy support. One of the two relevant ministries should take on such a facilitating role.

5.3. Development of funding instruments that boost public-private R&D collaboration

Recommendation

The World Bank and OMC panel point out that the bulk of Lithuania s research capacity is found in public research institutes and universities. Significant innovative potential can therefore be unlocked by strengthening public-private research collaboration. However, there are barriers to realizing this potential in both sectors.

Public research entities have little tradition for working with private companies and few economic incentives to engage in cross-sectoral partnerships. The Lithuanian business sector, on the other hand, is mainly specialized in low-technology production marked by limited process and product development due to small scale and low knowledge absorptive capacity.

Against this background, the two reports recommend that Lithuania makes public-private research collaboration a key priority in its STI policies. Notably, Lithuania should develop new funding instruments targeted at stimulating cross-sectoral interactions and facilitate the formation of public-private research partnerships.

Status

The recommendation remains relevant although significant progress has been made in terms of developing new instruments for public-private research collaboration. The challenge is now mainly one of design and implementation.

24

Until recently there were few options in Lithuania for financing public-private research partnerships in which universities, research institutes and the productive sector come together to jointly work on specific research projects. However, this situation changed in 2008 when the Ministry of Economy made funding available for individual cross-sectoral projects. To ensure commitment on both sides, the requirement is that 50 percent of the total financing comes from private sources.

It is too early to evaluate the results. Nonetheless, in bringing the initiative forward Lithuania would benefit from taking into account international experience with cooperative research consortia in countries such as Australia and Denmark (see box). The experience inter alia shows that consortia can be an effective way of getting small and medium size enterprises (SMEs) involved in R&D.

Innovation consortia in Denmark The Danish innovation consortia are research and innovation projects jointly implemented by public and private entities. The objective is to develop new knowledge and technology that benefit not only individual companies but entire business sectors. Currently, consortia are found in fields such as pharmaceutics, wind energy, aquaculture, ICT and robotics.

Consortia are approved and partly funded by the Danish Council for Technology and Innovation. To be eligible for support a consortium must consist of at least two companies, a public research institution and a technology transfer entity all of which commit to working together for a period of 2-4 years. In the evaluation of proposals priority is given to consortia that include SMEs. All participating companies are expected to make substantial cash and in-kind contributions.

Source: Danish Agency for Science, Technology and Innovation 2008

For a number of years the Ministry of Economy has supported the development of science parks in Lithuania. By providing relevant infrastructure the objective is to facilitate interaction and co-location of public and private entities with a view to boosting research and innovation. The first science parks were established in 2002, and Lithuania today operates a total of 11 parks some of which are entirely private.

Despite significant advances Lithuania s science parks remain in the first development phase. The infrastructure is being built and the parks perform only a few activities specifically related to R&D. Moreover, an evaluation carried out by the Ministry of Economy found that the actual number of science parks is too high to ensure sustainability and quality. The Ministry of Economy should be supported in its plans to limit funding to a few promising parks and to refocus funding from infrastructure to support services such as technology transfer, business incubation and early stage financing.

A novel and promising initiative is the so-called Integrated Research, Study and Innovation Centers (valleys). With inspiration from Silicon Valley and Route 128 in the United States, the intention is to promote clustering and collaboration by concentrating EU structural funding for research infrastructure, science parks and research activities in narrowly defined geographical areas. Each valley is required to set up a governing structure with participation from key public and private partner institutions.

The Lithuanian valley initiative promises to create new patterns of interaction between education, research and businesses. The vision is that students will have access to vibrant research environments and high-tech companies. Participating businesses will find it easier to recruit talent and undertake R&D without heavy investments in research infrastructure. Finally, scientists will have better access to project financing and updated laboratories and research equipment.

25

Aside from facilitating public-private linkages, valleys hold the potential for a more cost-effective use of public resources as several players will benefit from each investment in facilities for R&D. Moreover, valleys are expected to provide the context for merging several existing research institutes around new investments in laboratories and scientific equipment.

A decision has been made to support five valleys. Two will be established in Vilnius, two in Kaunas and one in Klaipeda. Currently, three valleys have been approved and two are still pending due to remaining issues regarding the contributing partners and the required level of funding.

Although the valley initiative enjoys wide support, the interviews drew attention to a number of concerns. Most importantly, several players see a risk in spreading resources too thinly with the decision to launch five valleys simultaneously. Funding may not be sufficient to ensure investments in infrastructure, laboratories and equipment at a level that will ensure a critical mass of R&D capacity and changes in patterns of collaboration between public and private entities. Alternatively, it could be considered to select a small number of pilots and gradually scale up of the valley initiative based on collected evaluative evidence.

Moreover, key stakeholders warn that the concept is not sufficiently clear when it comes to business participation. Some of the valleys are developed almost exclusively by public research entities with the ambition that businesses will join the consortium at a later stage. However, this approach could prove difficult as the valleys may not be sufficiently tailored to business needs in their basic design. An effective way of addressing this concern would be to explicitly require valleys not yet approved to work closely with industry in the design phase.

6. Increasing industry innovative capacity

No country has made the transition to a knowledge-based economy without a strong contribution from industry. In the sections below it is discussed how to boost the innovative capacity of Lithuanian companies on the basis of the following recommendations: (a) Increase private sector R&D activity; (b) Increase the focus on the provision of knowledge services to low-tech companies; (c) Strengthen the knowledge absorptive capacity of Lithuanian companies through enhanced intersectoral mobility of researchers.

6.1 Increase private sector R&D activity

Recommendation

Lithuania s success in creating new sources of growth is closely linked to its ability to increase innovation in the private sector. It is against this background that the World Bank and OMC panel emphasize the ability to increase private sector R&D as a critical indicator of success for Lithuania s STI policies.

In leading OECD countries the private sector performs approximately two-thirds of all R&D whereas the share in Lithuania it is less than one-third. Hence, it is recommended that Lithuania adopts a wide range of policies and incentives targeted at alleviating market failures and getting private sector investments in knowledge off the ground.

Status

The recommendation remains highly relevant despite a strong focus in Lithuania on stimulating private sector innovation through a long list of incentive schemes and support structures. The key challenge is to boost the creation of new knowledge-based companies.

26

Reportedly there are some validity problems regarding statistics on private sector R&D in Lithuania. Nonetheless, according to official data there has been some growth in private sector innovation in recent years. Over the course of the last five years, private sector investments in R&D as a proportion of GDP have risen from 0.11 percent in 2002 to 0.24 percent in 2007. Consequently, there is evidence that market opportunities and government support structures have had some impact on innovation in the private sector.

The Ministry of Economy operates a number of programs aimed at covering the range from company experimental development to commercialization, see box below. A prominent example is competitive grants for the installation of permanent capacities by supporting the creation of company R&D departments and helping financing essential laboratory equipment in the private sector.

Recent programs operated by the Lithuanian Ministry of Economy The Ministry of Economy in Lithuania has in recent years launched a number of measures to stimulate the innovative capacity of Lithuanian companies:

Idea LT- Support for small and medium-size enterprises to prepare R&D feasibility studies.

Intellect LT- Support for enterprises implementing R&D projects. Projects can be implemented together with science or business partners.

Intellect LT +

- Support for enterprises investing into the development and enhancement of the basis for R&D.

InnoCluster LT

- Maintainance of activities of cluster (enterprise s cluster) coordinator s activities.

InnoCluster LT+

-Installation of general R&D and coaching infrastructure for cluster (enterprise s cluster).

Leader LT

Support for enterprises investing into new production technology in order to enhance labour productivity.

E - business LT

Support for small and medium-size enterprises investing into installation of ICT solutions in order to enhance labour productivity.

Process LT

Support for small and medium-size enterprises employing modern management methods and systems in order to enhance labour productivity.

New opportunities

Support for enterprise s export marketing and participation in exhibitions.

Innogeb LT-1, Innogeb LT-2

- Support for the activities of the innovation support service providers and related infrastructure (innovation and technology centres, science and technology parks, technological incubators).

Financial engineering - Assistance to SME s in gaining access to funding sources and increasing productivity in relation to the creation and development of new businesses and products.

Source: Lithuanian Ministry of Economy

As is the case for other countries, Lithuania is challenged by the need to find an appropriate balance between government support and business contributions, targeting market failures and avoiding crowding-out business expenditures with government financing. International best practice points to

27

a mix between grants and soft loans where the latter assume a more prominent share as the innovation process moves closer to a marketable product.

In April 2008 the Lithuanian parliament approved a new tax scheme which allows companies to deduct documented expenditure for R&D from their corporate taxes. The tax scheme is among the most generous in the world. When fully implemented companies will be able to deduct 3 Litas for every 1 Lita spent on R&D. Yet another amendment to the law on Corporate Income Tax was adopted in December 2008. By this amendment assessable profit for companies could be reduced by up to 50% of expenditures incurred by investing into equipment, means of communication etc. The strong commitment to stimulating private sector R&D should be applauded. However, there is a need to closely monitor the effects of the tax scheme. Other countries have had problems of clearly defining companies R&D expenditure, predicting revenue streams and ensuring that foregone taxes add real value in terms of increased private sector innovation.

As Lithuania moves forward the main challenge is the country s specialization in traditional, low-technology industries dominated by SMEs. A focus on upgrading these industries and increasing their knowledge absorptive capacity is indispensable. However, Lithuania is unlikely to make the transition into an innovation driven economy without the development of homegrown, knowledge-based businesses. To make a reality of this, the aforementioned incentives for the commercialization of research are critical. In parallel, there is a need to develop a culture of entrepreneurship particularly in Lithuania s universities.

Prominent companies such as Google and Microsoft were the creation of university students applying their knowledge and creativity in a business context. Among the options that could be explored in Lithuania is the exposure of students in the hard sciences to courses in entrepreneurship and business management. In parallel, efforts could be made to have more students spend time as interns in companies and undertake business focused projects and thesis work.

An increase in the number of researchers working in industry is critical to boosting private sector R&D in Lithuania. Intersectoral mobility schemes for students e.g. through the Structural Fund Researcher Career Program

will be important to achieving this end. Parallel to these efforts, it could be considered to support the insertion of researchers and knowledge workers in industry for limited periods of time. International evidence suggests that small subsidies for the mobility of STI personnel can have long-term effects on the private sector s capacity to absorb and develop new knowledge.

6.2 Increased focus on the provision of knowledge services to low-tech companies

Recommendation

A common fallacy in STI policies is a focus on the creation of high-tech companies at the expense of the technological needs of the majority of businesses. International evidence suggests that the most important indicator of a knowledge-based economy is not what is produced but how. A number of countries are marked by a significant export of high-tech goods without them adding much value as product development, design, marketing etc. is performed elsewhere. Hence, the key objective for Lithuania is to increase value added by applying more knowledge and technology at all stages of production. Lithuania should therefore also have strong focus on the adoption and diffusion of knowledge to existing companies benefitting the productivity in the whole economy.

The above point is echoed by the OMC panel which recommends that government support schemes in Lithuania should include companies in non-focus areas which are likely to remain the basis for the economy for several decades to come. Low hanging fruits could be harvested by transferring

28

technology and well-documented management techniques to traditional SMEs in Lithuania by supporting bridging or transfer institutions.

Status

The recommendation remains relevant although the Lithuanian Innovation Agency has made good progress in setting up a regional network of technology intermediaries.

The Lithuanian Innovation Agency operates five branch offices. Each office has two consultants who focus on the technology needs of SMEs and traditional industries. The consultants respond to requests from businesses or themselves contact SMEs in order to contribute to feasibility studies, technology scouting and adaptation.

While the existence of a support network is very positive it should be considered to place a higher priority on technology transfer in Lithuania. Given the size of the economy, the country will always be dependent on its ability to learn from others and adapt existing technologies to local needs.

One option that could be explored is the creation of a number of technology transfer centers in prioritized areas. Such centers could be physical entities or virtual organizations constituted by existing research institutes and consultants specialized in change management and technology adaptation. An operational source of inspiration for such centers could be the Danish GTS-enterprises, see box.

GTS Technological Service Institutes in Denmark

29

GTS-enterprises are private, non-profit organizations with the task of transferring and applying the newest technological and managerial knowledge in Danish firms, thereby promoting innovation in the business community. It is their job to constantly be on the forefront of technological development, capable of delivering know-how the moment it is needed by Danish enterprises.

The GTS institutes offer knowledge, technology and consultancy, co-operation on technological and market-related innovation, testing, optimisation, quality assurance, certifications and benchmarking - all of which contribute to enhancing the international competitiveness of the business sector and benefit society in general.

The GTS-institutes are based on five core values:

Customer-oriented The GTS institutes are close to the customers and base the services on their requirements. They combine advanced knowledge with practical experience and speak a language, which the customers understand. The institutes work for public authorities and private businesses of any size. Independent The GTS institutes are private institutions, independent of political and financial interests. Future-oriented Together, the GTS institutes offer a unique technological broadness, which qualifies them to accommodate the multi-sectoral technological solutions of the future. Research-based The GTS institutes advise the customers on the basis of international knowledge and research. The institutes develop and maintain strong innovation environments and capital-intensive facilities. The implementation of research and development projects is frequently based on international networks. Beneficial to society The GTS institutes are non-profit institutions and constitute the core of the Danish technological infrastructure. Surplus earnings are invested exclusively in research, development and innovation.

GTS-enterprises are approved by the Danish Minister of Science, Technology and Innovation for a 3-year period, and are continuously being evaluated and regulated through performance contracts. The tradition of GTS-enterprises contributing to the Danish industry is almost 100 years old and became part of the legislation in 1973. In 2007 the GTS-enterprises had an annual turnover of around US$400 million. Government funds make up approximately 20 percent of the total generated revenue.

Source: www.teknologiportalen.dk

International experiences suggest that technology transfer centers are most relevant if they are sector specific. As the technology needs of Lithuanian companies grow more sophisticated it is likely going to be difficult for the existing branch offices to provide services that are sufficiently specialized. Hence, collaboration between narrowly focused research institutes and consultants with more general knowledge of process and managerial innovation may be a way forward.

It is paramount that technology transfer centers in their design have a strong business focus and involvement. In a number of countries this has been ensured by requiring supported centers to cover a significant proportion of their expenditure through fees. Apart from ensuring a strong focus on client needs, the sale of services also ensures a real commitment on part of companies. Moreover, responsiveness to the needs of businesses can be ensured by including representatives from the productive sector on the boards of technology centers.

30

Annex 1

Ministry of Education and Science

Ministry of Economy

Ministry of Finance

Lithuanian Innovation Center

Lithuanian Science Council

State Science and Studies Foundation

Vilnius University

Institute of Biochemistry

Semiconductor Physics Institute

Lithuanian Knowledge Economy Forum