VINNOVA and its Role in the Swedish Innovation System - Accomplishments since the start in 2001 and ambitions forward

VINNOVA is the Swedish Governmental Agency for Innovation Systems. It was established in 2001, and has a budget for 2006 of 150 million euro, 5% of total government spending on R&D. Its mission is to promote sustainable growth by financing needs-driven R&D and by developing innovation systems. Its focus is to strengthen cooperation between academia, companies, and the public sector.

Sweden's governmental system tries to have good interplay with industry policy and university research. In Sweden around 4% of GDP is invested in R&D; 1% is government spending, and 3% from industry. We would like to see stronger output in economic growth, but are fairly happy with our current growth rate of around 5%. However, unfortunately the economic growth is currently not driving an increase in the number of employees, which we believe is due to many large companies investing more in process innovation than in new services and products.

We rely heavily on universities in our R&D system. Government R&D money goes in large part to universities. Relatively little goes to companies that are outside the military sector; however, military spending will decrease in coming years. Industry R&D investment comes primarily from large companies rather than small and medium-sized companies, something that needs to be addressed.

There are two types of research agency. The first includes the research councils for "curiosity-driven" research that does not directly address specific demands from industry or society. The other type of agency, which includes VINNOVA, is driven by the needs of business and society. VINNOVA is connected to both the ministry of industry and the ministry of education and science.

We are working very hard to understand and implement programs that support an effective and efficient innovation system. One important activity for VINNOVA is to develop research and innovation strategies for specific sectors in close dialogue with key actors in the respective sector. We do analytical work to try to understand the needs for a specific industry, what type of competence is available at the universities, what the international competitiveness is, and where the areas with possibility for sustainable economic growth are. We also often do small pilot programs. We are working in six areas: information and communication technologies (ICT), services and IT implementation, biotechnology, manufacturing and materials, transportation, and working life science.

In a small country like Sweden we cannot be competitive in all areas, so we have to focus on building strong groups in certain areas. We have special instruments to build strong environments for research and innovation. One such instrument is the VINN Excellence Centers. We also have a system that we have used for the regions to focus on R&D linked to their industry in order to be very competitive. We also try to strengthen the functions of commercialization of university research. Under current law it is the professors that own the intellectual property rights, not the university. This works fairly well, and some universities have been building innovation systems around universities. VINNOVA tries to strengthen these systems further.

We are also trying to develop our institute sector. The government will put in more money in the future, and there is also an ongoing process of consolidation of the institutes into fewer, stronger, and more competitive research institutes.

In order to improve the investments in R&D from small and medium-sized companies, we have adapted instruments similar to the Small Business Innovation Research program in the United States. We think that this will promote not only long-term economic growth, but also more jobs, because it focuses more on new products and new services.

We also strongly support international cooperation. Asia is a real winner in R&D investment, and the U.S. is keeping up fairly well, but Europe is losing out. We therefore have to be careful about this in Europe, although Sweden has been doing fairly well. We have investment from international companies as well. We believe that there are many opportunities for cooperation between Sweden and Japan but the links need to be strengthened for mutual benefit.

We have to increase our understanding of the innovation system. The old model was to meet with industry and researchers and discuss potential areas, and then develop appropriate programs. But we have to look more deeply to really understand what obstacles, regulations, or values in the industry and society have to be addressed. The best approach that we have seen so far is to compare Sweden with other countries and learn what happens around the world.

It is very important for the government to communicate the importance of innovation and research to the public sector, and to people. Without that, ordinary people do not support investment in research, development, and innovation, and then the budget cannot be increased. So we try to do that in various ways.

Despite VINNOVA's strong links to companies, most of the money goes to universities and research institutes; 20% of funding goes to companies and 10% goes more to public organizations. However we expect that the amount going to companies will increase in the future.

We invest around 20% of our budget in the ICT sector, and 10% into service and IT implementation. We are considering strengthening R&D related to the service sector in the future. Biotechnology and life sciences receive 20%; manufacturing and materials receive 20%; transport systems and automotive receive 20%; and working life science receives 10%.

When we provide financing to universities, companies play a part as well, and often have to invest as much as the agency invests. This ensures that research is needs-driven, i.e. that research is responding to needs from companies and society. This investment is not only in cash; leading scientists in companies also work together with leading scientists at universities. Simply getting a research result and then informing the other party about the result is a hard way to accomplish technical transfer; but by working together in developing the result, technical transfer is more easily achieved.

The Government Research Bill presented to parliament in 2005 was approved in June 2005, and sets the budget for the coming years. There has been another policy document written by the government, Innovative Sweden, which took two to three years of discussion and learning through conflict between the different ministers, agencies, company leaders, and unions. Now I think we have a fairly good strategy that points out the importance of linking research and development to innovation.

VINNOVA annually receives an instruction from the government. They take into account Innovative Sweden, and we are implementing that. Part of Innovative Sweden involves R&D-programs in different sectors together with industry. For quite a long time there has been a strong R&D-program in the automotive field, which has now been strengthened further. New programs are created for: telecommunication; pharmaceuticals, biotechnology and medical technology; forest industry; metals; and aeronautics and space.

Sweden and Finland both are fairly strong in telecommunications. One contributing factor has been that is that the government operators, monopolies at that time, ordered a new telephone mobile system - in Sweden from Ericsson and in Finland from Nokia, which they developed. This was important innovative public procurement including R&D. We have now been tasked by the government with suggesting a new way of working with public procurement including R&D. I think that will be very important for the future.

At the beginning of VINNOVA's history there was a merger of a number of agencies. The research council was formed through five agencies becoming one. Our agency was merged from three separate agencies. Now the research councils and VINNOVA are the two main pillars in the new Swedish system. VINNOVA is responsible for needs-driven research and the development of policy measures based on an innovation system's perspective.

There have been a number of critical steps for us. One was to understand what needs-driven R&D was. This took time and discussion with government, universities, and industry. Another critical step was to increase the scope of programs beyond individual sectors, had been the tradition. Innovation systems are about interplay between actors; therefore we formed a division at VINNOVA that was actor-oriented, rather than divided by sector. For example we looked at what we could do to create the best program for small and medium-sized companies, or for research institutes, or for universities as organizations playing a role in innovation. All this has also implied that we have to understand the system; we have to do strong basic analytical work for our policy, including comparisons with other countries. This has also been very important to gain trust among other actors. We have had a technical foresight project, together with many other actors such as the Royal Academy of Engineering, and have established the "triple helix" approach. Triple helix means that we implement innovation systems in our program by connecting not only companies and universities, but also the public sector. We do that in our evaluation boards, so that when a university applies for a research project it is evaluated by a decision board that is comprised of researchers, businessmen, people from the public sector, and in some cases members of parliament.

Another critical step was to develop a national incubator program. We learned this from Israel, and we have imported the concept but modified it for the Swedish context. For instance, in Israel the incubator leader has equity in all of the companies. If the companies are successful, the incubator becomes very rich. An incubator based on government money in Sweden could not implement this aspect of the Israeli program. We therefore had to adapt the concept.

The fact that Swedish car manufacturers are now owned by American automobile companies has made the government aware of the need for an R&D policy in Sweden which does not put Swedish companies at a disadvantage in the competition for resources inside the big international groups. In fact investments in R&D have turned out to be one of the few tools available to the government for influencing the investment decisions of international firms.

The terms basic research, applied research, and development are often used. Sweden would like to be both a scientifically progressive country and a country which derives economic and social benefits from progress in science. In the Swedish system, research councils are mainly involved with curiosity-driven research, whilst VINNOVA really focuses on needs-driven research, which could also sometimes be very basic research.

In some of my discussions with researchers I tell them that the purpose of research is to transform money into knowledge and competence. Innovation is the other way around: you have the knowledge and competence, and you want to translate them into money. You can also say that society is divided by these two approaches, and there is a need to have stronger links between the people working with research and those working with innovation. I think that is critical for a knowledge-based economy.

Agencies, governments, and industry researchers all over the world are struggling with this, and we must collaborate and learn from each other and work together. I look forward to more global industry and more globalization of research. Sweden is a very small country; we cannot win through closing our society; rather, we must open our society and win through interplay with others. I believe that goes for the whole world; closed societies and closed innovation have never produced winners. I am very much looking forward to more international cooperation.

Comment: VINNOVA operates under the ministry for industry, the equivalent of Japan's METI. However, VINNOVA is directed by the minister for education and science, who also has a counterpart in Japan. This is very innovative and very important. Innovation is about knowledge, and knowledge must flow freely; so any artificial boundaries are the biggest obstacles for innovation. I hope that Japan can adopt European practices for its own institutional design.

Q: Do you have good policies implemented in Sweden to encourage people in different sectors to cooperate with each other on the ground?

A: The Swedish, like the Japanese, do not like to fight; we like to hide the fighting. In some situations, with sectors having different values and different contexts, it is very hard to understand one another. Then you must be careful not make agreements too soon. You must address your own needs, but not only that, you must also say, "what can we do for you?" That starts a better dialogue. But the problem is not in talking about this, the problem is in implementing.

I also think that one of the difficulties in the academic area is that in Europe we historically have two types of university. One is those universities that are highly independent from government, society, and industry. On the other hand we have a history of engineering, medical, and agricultural universities, founded to address the needs of society. The solution for us is to be good at both types, but also to understand that historically there are different routes.

Q: How can we persuade Japanese voters to allow government investment in R&D areas that do not immediately benefit people, as in Sweden, especially when it competes for budget with welfare spending or public investment?

A: One reason that Sweden has good government investment in R&D is that Sweden is famous for R&D; something that we are proud and happy about. This is a part of the Swedish society's values. In addition, many people in Sweden understand the importance of R&D. Nevertheless, there is of course argument about budget allocation.

I think we do two things in the agency and the research society. One is to do analytical work in order to really understand how investment in R&D could give good returns in terms of economic growth. This allows us to defend our budget from others who might want to take it.

To receive even more money from the government, it is important to show examples of implementation from research, at the universities, companies, and the public side, i.e. examples of very important innovation and research that has gone into new business and job creation, etc. Also people from industry, rather than from the agency and the government, should demonstrate this to the public.

Q: Why are private sector companies investing so much in R&D?

A: There are several reasons. One is that the strong sectors in Sweden are for example ICT, pharmaceutical, and automotive, which naturally invest heavily in R&D. Compare this to Norway, which is a more oil-based country that does not invest so much in R&D. Looking at sectors in different countries, the difference is not so big between countries if you take into account that the industries are different.

We have a large number of very international companies that grew up in Sweden; around half of them are owned by foreign companies. So there is tough competition within these large international groups as to where they want to perform their R&D. I think it is actually very good to do the R&D in Sweden. We have very capable engineers, and they are also cheap. AstraZeneca says that it is about half the cost of the U.S. That is in turn an effect of the rather egalitarian wage structure that we have in Sweden. So for labor price reasons we can keep a lot of the R&D in Sweden. As a matter of fact, in some areas it is almost as expensive to find the best scientist in China as in Sweden. If you want really top scientists you do not go to China for the low costs.

Q: What do you do to encourage people to work together on a daily basis?

A: We finance instruments and programs, and we will also introduce in the future mobility programs to allow people to move from university to industry and vice versa. Normally in Sweden when you have left university for a company, you stay in the company sector. It is rare that you would go back to university, but this is very valuable, as a real understanding of how a company works requires you to be inside the company. We have many instruments for scientists at universities to work together with people involved in development at companies.

The key thing is that we give incentives to universities, industry, and the public sector to all invest and work together. This means that high value should be delivered by all parties. In order to accomplish this some of our schemes include long-term financial support.

Q: With the wage level for scientists and engineers so low, how do you continue to attract talented people and keep them within Sweden?

A: That is a challenge, and many people point to the high taxes and cost of living in Sweden. It is not the ideal place to make a lot of money, but my personal opinion is that the rather good living conditions can attract people. If you attract people at a very early stage then they become attached, regardless of the economic conditions. So I think it is very important that we can attract young scientists or engineers during their study period.

It is difficult for big companies to attract foreign scientists for shorter times, and there are some tax exemptions and other procedures, although there are debates about whether that is working effectively. We pay in the order of 50% of our salary as tax. There is a tax incentive for recruiting top competence people to industry that can go down to 30%. It is called the expert taxation system. The drawback is that after a few years it reverts to the standard taxation system, so there is now discussion regarding the possibility of increasing its duration.

Q: In Japan we have a competitive funding selection process, but the result tends to be that money goes to more established universities, well known professors aged 55 or 60, rather than going to young talented scientists or engineers. How do you go about your selection process?

A: Giving competitive funding is often conservative; the old, established research groups will get a lot of money and the young promising researchers have more difficulty. But there are special instruments for this. One of the research foundations has created a special program for very talented young researchers. I think that has been a real success, both in terms of giving money for research and also recognizing these young researchers. So going through an international evaluation of being a brilliant young researcher also accelerates their career and provides more money from other agencies and internationally.

Q: Who can identify the areas of needs-driven basic research, and how are these determined?

A: It is not simple, but nevertheless it is important to recognize these two driving forces: curiosity-driven research and research that directly addresses needs. You can also view this as two systems, where one is totally bottom-up and only peer reviewed by scientists; whereas the other is more top-down.

Q: You mentioned a more activist innovation policy for joint government and industry R&D. Particularly in the U.S., but also somewhat in Japan, people are skeptical about government involvement in R&D. What do you see as being the value added by the government or VINNOVA in R&D projects? How can you guarantee effectiveness and efficiency of state intervention?

A: It is impossible to guarantee this, but you can have acceptance. The general view in Sweden is, as in Japan, such that our economists and political and company leaders ask the government to keep its hands out of industry. When we and the government introduce programs together with industry we therefore have to be very careful. To ensure that the projects are necessary, the instrument I use is to compare the situation with those in other countries, because you cannot have a situation in Sweden where we say that the government should keep its hands off programs together with industry, whereas in other places such as the U.S., Asia, and other parts of Europe they invest heavily in making their industry more competitive with R&D. Company leaders are listening to this and they understand.

When we evaluate proposals we look at the quality and the relevance. The quality we evaluate using scientific expertise, very broadly and often internationally. The relevance we evaluate by asking for joint funding from the industry. However with emerging industry you probably have to take a risk.

Q: Why was it that in 2001 you decided to launch this new institution?

A: The main reason was that there were too many small agencies, and it was a messy situation for the researchers and for the whole society. The new institution also provides the possibility of doing stronger programs, with stronger priorities.

Q: You have a lot of R&D in the business sector, which is market-oriented, I assume. But did you not say that this is funded by government?

A: Business sector R&D uses private money, with procurement of defense equipment being the only significant exception.

Q: Your business sector is quite competitive, with business sector R&D as 3% of GDP. Is it a problem that universities receive a relatively large proportion of funding?

A: The 3% is spending from the private sector; 1% is spending from government. Normally the vast majority of government funding goes to universities for fundamental research, and the money from the companies goes only to market-driven R&D within companies. VINNOVA tries to ensure that government spending and company spending are linked together with joint projects in industry and universities. That is why we almost always have co-financing in our projects.

Q: With such a large R&D investment, have you ever done research to estimate the marginal rate of return on R&D by the private sector or government? Do you have such statistics?

A: We have not done exactly those studies. If we were to do them, I think we would have to look at these companies' activities worldwide. A very large portion of the business results are outside Sweden, so we do not feel that one can make calculations of return on R&D based only on data for Sweden. It is very important that the R&D activities in Sweden actually translate into value creation in Sweden; that is our main concern, and that is a slightly different question. I do not think we have any good ways yet to analyze this.

We did a rough overview estimate of old programs, and found a benefit of around 10 times the investment. But of course many aspects of such calculations can be questioned. I think we have to increase investment in methodology so that we can address issues like this better.