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2 Theoretical Framework

2.8 Innovation Systems

Innovation systems is a framework of support for innovation in specific geographical areas, in close proximity or within a country’s borders, often within specific industrial sectors. These support systems have evolved over a period of years, often through targeted government funding policies that govern and strengthen them (Fagerberg et al., 2009; Fagerberg & Srholec, 2008). Innovation systems are therefore a flow of information, of interactivity built between existing knowledge

infrastructures, private businesses, government policies, regulations and law, and informal norms and culture (Isaksen & Karlsen, 2010).

Figure 4

Simplified illustration of an innovation system (adapted from A. Isaksen, 2010, p. 17)

Innovation systems are often a result of a country’s policies, regulations, and existing businesses. They therefore often develop national characteristics, which are also called National Innovation Systems (Lundvall & Borrás, 2005). The National Innovation System is similar to an innovation system but is constrained to the interactivity between actors in a country. It follows a specific pattern and develops its own national characteristics (Fagerberg et al., 2009). These national characteristics are often sectoral, countries over many years implementing policies and regulations biased towards natural

resources or other industries in which the government sees there is a competitive advantage (Lazonick & Mazzucato, 2012).

Sectoral innovation systems, a sub-branch of national innovation systems, could for example be oil and gas, or other industries such as automotive (Germany) and watches (Switzerland). Sectoral innovation systems are defined by a nation investing over many years, both public and private actors, policies and capital, into developing specific sectors of its economy (Pavitt, 1984). Another sub-branch of the national innovation system is the regional innovation system. The sectoral and national innovation systems are intertwined, sectoral characteristics and the needs of the firms in these sectors influencing government policymaking and the further development of the national innovation system (Fagerberg et al., 2009).

The regional innovation system (RIS), developed in the 1990s, is a theoretical concept that is fairly new (Cooke, 1992, 1998; Asheim, 1995). This can be explained as a smaller scale version of a national innovation system that belongs to a specific region, or a geographic concentration of firms and entrepreneurs (Lagendijk & Cornford, 2000).

The government, to create these innovation systems, whether they are sectoral, regional or national, must incentivize research institutions, universities, foreign investors and private organizations to collaborate, invest in R&D and train the domestic workforce with specialist

domain-knowledge (Wicken, 2009a). This is achieved through public industrial policies, for example tax incentives, subsidies or other direct funding mechanisms.

Research on innovation and productive environments have attracted the attention of scholars all over the world for a long time, these scholars primarily focusing on Silicon Valley and similar areas in the US (Aslesen, Isaksen, & Karlsen, 2012). The main focus is on the networks in these systems, interaction being a result of policy intervention to increase innovation capacity and collaboration. This consists of a regional infrastructure that supports the firm throughout its life-cycle (B. Asheim, 2012), and is measured by the level of collaboration between firms, government, policymakers, universities and research institutions to increase innovation, which in turn increases the GDP and productivity of a particular region (Aghion et al., 2011).

According to Schumpeter (1934), innovation is a highly collaborative effort and is conducted through the active participation of an entrepreneur who commercializes a business idea, banks or investors bearing the financial risk. Important characteristics of an innovation system are that it contains a strong vocational education system, has a well-developed infrastructure for technology transfer, a well-organized chamber of commerce and a highly-developed production capacity (B.

T. Asheim & Isaksen, 2002). Sectoral, national and regional innovation

systems converge in a complex interplay between policymakers, private actors, knowledge institutions and culture. Policies can, furthermore, direct and create industries, and incentivize sectoral development in certain geographical regions (Lundvall, 2011).

Examples of this include the placing of the headquarters of national oil champion Equinor in the Norwegian city of Stavanger in the 1970s, or even the recent placement of Nysnø (The Government Sovereign Climate Fund) also in Stavanger, to strengthen its economy in the midst of the oil crisis post 2014. Both were very clear national policies aimed at increasing productivity in specific regions of Norway (Enersgård, 2018). These innovation systems create, however, path dependencies and certain structures, firms outside of the paths experiencing poor support for their innovations. Narula (2002), for example, has argued that the Norwegian national innovation system provides little support for knowledge-intensive ventures that fall outside of the nation’s innovation system.

There have, despite the popularity of the concept of innovation systems, been very few studies that have investigated the impact of national innovation systems over a long period of time (Acs, Audretsch, Lehmann, & Licht, 2017). Scholars also disagree on how to describe a nation’s innovation system (Fagerberg, 2003). The studies that exist are also, as with research on individual entrepreneurs, focused on the

top-down study of generic variables. There has also been limited research on how government funding policies impact entrepreneurs from their perspective, and whether there is any difference in their affiliation to the national or sectoral innovation system (Uyarra & Flanagan, 2010).

2.8.1 Innovation Systems and Norwegian Funding Policies

The Norwegian government funding policies implemented in the post-war era involved a dualistic support system that would 1) correct market failures, and 2) support existing industries and upgrade technologies with sectorial advantages within path dependencies (Fagerberg & Srholec, 2008). This dualistic system also gave birth to various institutions and organizations that support entrepreneurs and companies in various stages of their lifecycle, such as universities, research organizations and export agencies. Most importantly, many of these funding policies were specifically targeted at specific industries, to re-enforce the existing national innovation systems (Wicken, 2009b).

Norwegian government institutions that support innovation and entrepreneurship have evolved over recent decades. Their mission and goals remain, however, the same. Understanding the Norwegian government funding policies on innovation, and their impact on entrepreneurs requires a knowledge of how the Norwegian economy has evolved from the end of the 1800s to the time of writing, and the

foundation for the funding policies implemented during this era (Wicken, 2009b). Norway was below the average GDP of Western European countries at the beginning of the 1900s, but was one of the wealthiest countries in the world by the early 2000s (Fagerberg &

Sapprasert, 2011).

Many suggest that this achievement is largely due to the abundance of oil and gas in the North Sea. This is, however, not entirely true.

Productivity was most likely accelerated by the exploration of oil and gas. Governance, policies and a solid existing innovation system have also, however, been key in this wealth-creation (Narula, 2002). The growth of the Norwegian economy has often been characterized as a

‘paradox’, due to productivity and income being amongst the highest in the world (without the oil and gas sector) (Fagerberg & Sapprasert, 2011; Kroknes, Jakobsen, & Grønning, 2015), but with an innovation rate that is low compared to its Scandinavian counterparts. A deep dive into the Norwegian economy is required to understand why this has occurred.

2.9 The Three Layers of the National Innovation