................... ......................... The Innovation letter comprises three parts. The first part presents the new innovation policy, including solution options. The second part is an analysis of the Dutch Innovation position. The third part elaborates the solution options Part 1 Action for innovationTackling the Lisbon ambition Taking the Dutch knowledge economy to the top in Europe • Better innovation climate • More innovative companies • Exploiting innovation opportunities 3 Action for innovation The Netherlands has to change course. The present economic climate is exposing the most important structural shortcomings of our economy. Measured by international standards, we are generating too little growth with innovations. In the Europe of today, the Netherlands is still a fairly average player. However, in the international arena where innovation is an important weapon in the competitive battle, we are losing ground. The European Commission and international experts point out to us time after time the risks we are running as a result. In a modern economy, the success or failure of economic growth comes down to innovation in all sectors of our economy. What this means is cleverer production with the people we have, developing new products and services which we can use to generate income in the future. It also means new ways of organising and marketing. Innovation is all about human effort, demanding that creativity be unlocked through social innovations and involving people in the innovation process. The government too, though, will need to demonstrate creativity by innovating in the public services. Innovation must become the most important cornerstone of our future growth in prosperity. The government’s ambition is to turn the Netherlands into one of the most dynamic and competitive knowledge economies of Europe. This requires a structural modernisation of the Dutch innovation system, also in a social and cultural sense. More innovation requires us to break with the past. ‘Just act normally, that’s crazy enough’ is still our national adage. But that won’t do any more. The Netherlands has a culture of avoiding risk and the tendency to judge things too much in terms of results. ‘Whoever sticks his head above the parapet and fails should certainly not try again’ , is another adage we are known for in other countries. Whoever takes initiatives and risks and does not achieve immediate results is quickly discouraged by a lack of social recognition. This often leads to a situation where other countries benefit more from knowledge developed in our country than we do ourselves. We need to work towards a knowledge climate in which courage and business sense is valued, and in which quality and innovators feel attracted to our region. This requires, first and foremost, a cultural change. 5 Modernisation succeeds best in a culture in which creative minds can excel. By creating an environment that allows people to stick their heads well above the parapet. With scope to experiment, take risks and learn from failures. In education, research and the business community, competition in order to achieve the highest quality must become an important driving force. You excel by setting yourself apart from the rest, in a positive sense. We have excellent knowledge already available, and so the basic attitude must be: how can we use that knowledge and exploit it for economic purposes. Only by combining high-quality knowledge with a strategy for exploiting that knowledge we will create a knowledge and business climate that will draw and bind people and companies to the Netherlands. And our starting position is favourable, because we have all the right ingredients at hand. We also have a culture of consultation, which often means that the organisation of our society is rather complex and sometimes obscure. This is also true of our knowledge economy. Recently the OECD confronted us about precisely this issue: the Dutch innovation system is characterised by complexity, a large number of players and many different institutions. This raises the question whether our national institutions are still properly equipped for realising our European ambitions. We expect that the recently formed Innovation Platform will be able to act as an ‘ice-breaker’ in this respect, helping to create the conditions to get the vital social and cultural changes underway. That takes time and demands above all unorthodox and inspiring ideas, setting in motion a common course towards innovation. We expect of the Innovation Platform not only ambitions and initiatives, but also a clear picture of the concrete objectives that knowledge institutions, companies and government bodies want to see realised in a few years’ time. Entrepreneurs who want to excel by innovating may rely on a government that gives them the scope to do so. By supporting them in exploiting new and existing knowledge for economic purposes, both nationally and internationally. By encouraging R&D co-operation with knowledge institutions, making it possible to develop and exploit knowledge. By jointly investing in the development of technologies with which the Netherlands is to generate its income in the future. By offering tax facilities, so that entrepreneurs who want to innovate can actually do so. And by providing a whole range of facilities with which new and starting entrepreneurs can realise their business plans. Entrepreneurs who want to innovate must also be able to rely on a government that ensures it becomes easier to attract the right people. 6 We will not realise our international ambitions through this alone, though. Above all it is up to the companies themselves, and they will have to show daring and entrepreneurial ability to bring knowledge to the market. After all, innovation is the essence of doing business. Knowledge institutions will have to open up in order to work with entrepreneurs to bring excellent knowledge on to the market. And in research and education, top quality must go hand in hand with social exploitation of knowledge. Only through a joint effort can we kick-start the process towards an innovative and dynamic innovation climate in our country. This is the Innovation Letter from the Ministry of Economic Affairs. It forms part of a broader knowledge strategy for achieving a sustainable knowledge economy, in which the cornerstones of education and research also play an important role. The letter sets out which steps the government wants to take to strengthen the innovative ability of the Dutch business sector, including an outline of the intended action plans. This Innovation Letter aims to stimulate the debate and give substance to innovation as one of the cornerstones of the Dutch economy. It should certainly not be regarded as a policy document cast in stone, but as the first step in a rolling agenda for innovation. That is why the Innovation Letter is being distributed to the members of both the Second chamber of Parliament and the Innovation Platform, as well as you as an interested party in the knowledge economy. Part I presents the new policy strategy, outlining in general terms the direction in which solutions are to be sought. The letter also contains a widely supported analysis of the problem areas in the Dutch innovation system (Part II) . Part III sketches the directions of the policy to be pursued. These need to be elaborated on further and are certainly not exhaustive. However, the R&D collaboration facility that has already been promised to the Second Chamber will be put into operation soon. Tax incentives will also be intensified. This is only the start, though. We invite the Second Chamber of Parliament, the Innovation Platform and the players in the knowledge economy to share their views with us on a wide range of areas on the definitive course to be followed, towards the most dynamic knowledge economy in Europe. We will also seek advice from the Social and Economic Council of the Netherlands (SER) , so that we can act quickly! Laurens Jan Brinkhorst Karien van Gennip, MBA Minister of Economic Affairs Minister for Foreign Trade 7 8 The challenge On course towards innovation The Netherlands has to change course Innovative ability of companies is the key The Netherlands must work towards a strategy in which the raising of sustainable added value is central. 1 Why this change of course? It is necessary because modern economies are rapidly changing into knowledge economies. In short: knowledge has become the key competitive factor. Moreover, the ageing of the working population makes it increasingly difficult in the long term to achieve economic growth through greater labour participation. The change of course is therefore essential to achieve a structural recovery of the Dutch economy. The key to this change of course is to strengthen the innovative ability of the Dutch business sector. 2 Innovation Box01Innovation is modernisation that manifests itself in products,services, processes or forms of organisation.The essence of innovation within companies is converting knowledge into money.Innovation leads to sustainable economic added value and exploits knowledge for solving social problems.The transfer and application of existing knowledge is important,especially in small and medium-sized enterprises.Innovation involves human effort and does not merely demand the development of technology.Innovation also depends on factors such as management, logistics and marketing,certainly in the service sector. An active innovation policy as well as a good general economic policy An essential prerequisite for strengthening innovative ability is a favourable general economic climate, good accessibility and sufficient room, a stimulating general business climate (including the tax system and limited administrative burdens) and healthy competitive relationships. 3 Wage restraint is also necessary in order to make our cost levels competitive. On top of that, an active innovation policy is important in order to enhance the innovative ability of companies. That policy is the focus of this letter (see box 2). 4 1AWT (Advisory Council for Science and Technology Policy) (2003) , Backing Winners. ‘Sustainable’ should be interpreted here in the broadest sense: it concerns the broad weighing up of economic, social and environmental interests as well as here/elsewhere, now/later. It is therefore not about (unlimited) economic growth in itself, but economic growth that takes other interests and consequences into account. 2Coalition Agreement for the CDA/VVD/D66 government (2003) , Meedoen, meer werk, minder regels (Participation, employment, deregulation) . 3Many of these issues will be discussed in the entrepreneurship letter of the Ministry of Economic Affairs (Action for entrepreneurs!) . 4Final report of the interdepartmental policy research (IBO) on technology policy (2002) , Samenwerken and stroomlijnen: opties voor een effectief innovatiebeleid (Co-operation and streamlining: options for an effective innovation policy) . For a summary of the theoretical and empirical substantiation of this policy, see IBO technology policy. 9 Innovation policy The government is firmly committing itself to the knowledge economy.. . ...and wants to pursue actively the European ambitions: the Netherlands, a knowledge economy of international standing Box02This letter focuses on policy aimed at improving a sustainable economic competitive position through innovation:the business-oriented innovation policy.Specialist departments are each responsible for using innovation as a tool for achieving,for example,social sustainability and environmental objectives.5 The innovation policy forms an important part of the policy focusing on the knowledge economy. The government is firmly committing itself to the knowledge economy. 6 In the meantime the Innovation Platform has been set up to draw up plans and develop a vision to give impetus to innovation in the Netherlands as the driving force for growth in productivity and economic development. In these times of limited budgets, the government is intensifying the budget for education, research and innovation. .800 million has been set aside for this, of which € 185 million is earmarked for priorities in the area of research and innovation. 7 The Innovation Platform will advise on how to use the resources from this available budget destined for research and innovation. In addition, € 100 million has been set aside for the WBSO (Promotion of Research and Development Act). 8 The government’s ambitions fit in with those of the European Council in Lisbon (2000) , where the member states agreed that the European Union has to develop within ten years into ‘the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion’ . The Netherlands’ ambition is to be among the leaders in Europe. 9 In Barcelona this objective has been translated into the aim, amongst others, of bringing R&D expenditure in Europe up to a level approaching 3% of GDP by 2010, of which 2% is to be privately financed (see box 3) . 5See Part II for a further explanation of these separate areas. Most of the business-oriented innovation policy comes under the Ministry of Economic Affairs (see the IBO technology policy) . 6Coalition Agreement for the CDA/VVD/D66 government (2003) , Meedoen, meer werk, minder regels (Participation, employment, deregulation) . 7The ‘4’ priorities: knowledge workers (including science and technology) , high-tech start-ups, focus and mass in research and collaboration between companies and knowledge institutions. 8This illustrates the importance that the government attaches to generic policy (see also IBO technology policy) . 9Ministry of Economic Affairs (2000) , De kenniseconomie in zicht: de Nederlands invulling van de Lissabon-agenda voor 2001 (The knowledge economy in sight: the Dutch interpretation of the Lisbon agenda for 2001) . 10 How to achieve the European 3% ambition Box03The European Action Plan ‘More Investment in Research’10plays a central role in achieving the European Ambition.It includes actions at a European and national level in order to realise the European R&D ambition.The Netherlands endorses this aim and regards the 3% target as a beacon for the innovation policy.11During the European Council in Brussels 2003,the Netherlands committed itself to implementing this Action Plan according to the Open Co-ordination Method,whereby the EU member states set common objectives,learn from each other’s experiences,monitor progress and hold each other to account for agreements made,and each year the European Spring Council will meet and discuss progress.This Innovation Letter is therefore the Netherlands’ initial elaboration of the EU action plan. 10Commission statement (2003) 226, Investeren in onderzoek: een actieplan voor Europa (Investment in research: an action plan for Europe) . 11In accordance with the recommendations of the Advisory Council for Science and Technology Policy (AWT) (2002) in the advice: Gewoon doen!? Perspectief op de Barcelona-ambitie 3% BBP voor O& O (Just do it!? Perspective on the Barcelona ambition 3% of GDP for Education and Research) 11 12 The Dutch knowledge economy: Ambitions and reality Still a long way to go The potential is there, but we are losing momentum Our neighbours are not being idle … At present the Netherlands is a fairly average player in the area of innovation.12 There is still a very wide gap between ambition and reality in the Dutch knowledge economy. The Netherlands is also losing momentum.13 The country has everything at its disposal to get the knowledge economy going, but nearly all the indicators on the knowledge economy point downwards.14 If this trend continues, we will drop below the (European) average. Technological developments are proceeding so fast that it is very difficult to catch up once you find yourself lagging behind. In addition, the knowledge market operates on an international playing field and the countries around us are not being idle.15 It is therefore time for action. And this is badly needed, as it is precisely in the area of innovation that the position of the Netherlands has weakened recently. We must turn this around: we must take action for innovation. By this we mean the government, but also companies and the knowledge infrastructure.16 (see box 4) Box04The challenges for the Dutch economy can be illustrated using the innovation system as an analysis framework (see part II for an illustration). Knowledge is at the heart of innovation.Innovation occurs through a continual interaction between the various players within the innovation system:knowledge institutions,companies,customers,intermediary organisations and the government.The strength of the innovation system depends on the exchange,interaction and collaboration between the various elements.The international dimension is important in this respect: innovation does not stop at national borders. Intensive collaboration is the key to succes Time for action This letter outlines the main themes of the new innovation policy, focusing on strengthening the capacity of the Dutch economy for growth. The proposed actions will contribute to realising the Netherlands’ ambition. 12See the IBO technology policy (2002) and the CPB study (2002) , de pijlers onder de kenniseconomie (the cornerstones of the knowledge economy) . 13EU trend chart, Innovation scoreboard 2001. 14CBS (2003) , Kennis en economie 2002 (Knowledge and economy 2002) and Nederland Kennisland (2003) Kenniseconomie monitor 2003: tijd om te kiezen (Knowledge economy monitor 2003: time to choose) . 15At present France, Germany and the UK, for example, are working on plans to give a strong impetus to their knowledge economies. For this see www.twanetwerk.nl where reports are regularly published on innovation policy intentions. 16These parties have all been calling in the recent months for more commitment to the knowledge economy. See, for instance, VNONCW, KNAW, NOW, TNO, VSNU (2003) , Kennis, Kennis, Kennis, Kennisstrategie 2010, actieplan (Knowledge, Knowledge, Knowledge, Knowledge strategy 2010, action plan) . 13 14 Three main themes of the innovation policy Ensure a ‘challenging’ climate Ambitions and current situation demand a modernisation of the innovation policy Innovation must come from within the companies themselves. The role of government is to ensure a ‘challenging’ climate: innovation must not only be possible, but also profitable for companies. The current business-oriented innovation policy works fairly well in parts.17 However, our ambitions to be among the leaders demand more. The policy demands modernisation and clear choices, all the more because the knowledge market is becoming more international and R&D and knowledge workers are becoming more mobile. The innovation policy concentrates on the factors that are crucial to companies in their decision to innovate (see box 5) . Innovate or not? Box05What decides whether or not companies innovate? Research has shown that apart from the general economic climate,which is important to all companies,the following factors in particular are important:an excellent and accessible knowledge infrastructure,the availability of well-qualified people and an attractive financial climate for R&D.In addition,sufficient dynamism is important for stimulating companies to innovate.18 Targeted approach for a number of persistent problem areas The Netherlands can point to a few strong areas. But it is precisely those factors that are important for innovation among companies where the Netherlands has a number of persistent problems in which the government has a clear role. These can be summarised as follows (see part II for a further analysis)19: 1. Innovation climate not attractive enough A glance at the figures shows that the climate in the Netherlands is insufficiently inviting for companies to innovate. This is evident, for example, from the fact that corporate R&D intensity is low from an international point of view (even after being corrected for the sector structure) and is falling further. Even greater causes for concern are the signs that corporate R&D is gradually being relocated abroad.20 An additional problem is the impending shortage of knowledge workers. 17IBO technology policy (2002) . A number of the tools, such as the WBSO (Tax Credit Scheme) , the Leading Technological Institutes and Syntens, are ‘best practices’ from an international viewpoint. See, for example, EU (2003) , Raising R&D intensity: fiscal measures. 18Ministry of Economic Affairs (2003) , Trends in R&D bij bedrijven (Trends in corporate R&D) . 19IBO technology policy (2002) , CPB (2002) , De pijlers onder de kenniseconomie (The cornerstones of the knowledge economy) and CBS (2003) , Kennis en economie 2002 (Knowledge and economy 2002) . 20See, for example, Deloitte and Touche (2003) , ‘Made in Holland II’ . 15 The Netherlands has too few companies that innovate 2. Lack of companies that innovate Not enough innovative activity actually gets off the ground in the Netherlands. In addition, almost two-thirds of Dutch companies with 10 or more employees did not engage in innovation during the period from 1998 to 2000. Finally, the Netherlands attracts little R&D activities from foreign companies,21 leaving a source of growth untapped. Insufficient focus and mass in research.. . 3. Research lacks sufficient focus and quantity International developments force us to make strategic choices. The Netherlands cannot excel in all areas. By concentrating focus and mass on the key points within a number of strategic innovation areas (in particular the ‘key technologies’ , see box 6) , companies can exploit new innovation opportunities much better. Key technologies Box06Innovation underlies the emergence and decline of markets,whereby key technologies play a crucial role.An example from the last century is electricity,while today ICT and life sciences are key technologies.These technologies produce all kinds of new products and services that are used in a large number of (existing) markets.They create new innovation opportunities in various fields and often also contribute to social objectives such as sustainability.22The Netherlands can build up a solid position for itself by making targeted choices in these areas. Certain elements within the Dutch research landscape still have an inadequate focus and mass. Moreover, collaboration between the business sector and universities could be better.23 21See, for example, Ernst & Young (2002) , Market share analysis of foreign investment projects. 22In other words: these technologies are ‘enabling’ , and offer opportunities for several sectors and markets (for example, the effect of ICT can be felt in areas from logistics to health care) . The potential social benefits of these technologies are significant. See IBO technology policy (2002) . 23See, for example, Luc Soete (2002) , background memo to the Innovation Lecture 2002. 16 …with ambitions in sustainability …and responding to the international environment Tackling these problem areas forms the core of the new innovation policy, which therefore has three main themes: 1. Strengthening the climate for innovation 2. Dynamism: towards more companies that innovate 3. Taking advantage of oppertunities for innivation by opting for strategic areas Two major threads run through these main themes. Firstly, the policy contributes to the aim for sustainability. The European Lisbon objective explicitly includes this aim. The ambition for sustainability forces us to explore and deal with tensions between the environment and the economy, and between economic and social ambitions. Innovations can help to reduce these tensions. Conversely, the policy that gives shape to environmental or social ambitions can contribute to the innovative ability of the business sector. Secondly, the international dimension is important. The internationalisation of the economy offers opportunities for using international knowledge better. It also means that a competitive national knowledge base is becoming more important. The policy is becoming more international too, as the EU plays an important role in innovation policy. It concerns here in particular initiatives to do with the R&D action plan (see box 3) , whereby the formation of a European Research and Innovation Area (an internal market for knowledge and research) is the central issue. Below follows a brief explanation of the main themes, stating for each theme what the solution options and initiatives are (see part III for the details),24 concluding with an outline of the coherence between these themes.25 24The detailing of the main themes is done according to the concept of ‘from policy budgeting to policy accountability’ (VBTB) . 25This letter is also an elaboration on the motion by De Graaf which asks for clarification, when presenting the policy plans, on how a future-oriented development of the knowledge economy is to be supported. Second Chamber documents 2001-2002, 28375, no. 35 and 2002-2003, 28600 XIII, no. 2. 17 18 The approach Increasing tax incentives for R& D More excellent and long-term R&D projects Main theme 1 Strengthening the climate for innovation The Netherlands as an attractive partner in and with which to innovate The Netherlands must become an attractive country in and with which to innovate. As already stated, it is important for the preconditions (such as legislation and regulations)26 to be properly in order. In addition, the following approach is envisaged27: 1. Intensify the WBSO to stimulate private R&D, 2. New tool for stimulating R&D collaboration, 3. New approach for tackling the impending shortage of knowledge workers. Intensify the WBSO to stimulate private R& D Generic financial incentives for stimulating corporate R&D are extremely important. The WBSO is the most important tool for stimulating private R&D, involving tax breaks for small and large companies. An extra € 100 million will be put into the WBSO, particularly to encourage small and medium- sized companies to invest in research and development, an intensification of almost 30% . This sum will be introduced in phases.28 In accordance with the generic character of this tax facility, the intensification for 2004 will be in the form of raising the percentages of the first and second tax brackets, extending the first bracket and increasing tax allowances for (starting) independent enterprises. For the years thereafter, there is still scope for proposals from the Innovation Platform. The total budget of the WBSO will therefore amount to some . 450 million in 2007, allowing us to broaden and deepen the corporate base engaged in R&D.29 New tool for stimulating R& D collaboration Encouraging (international) collaboration between companies themselves and between companies and knowledge institutions has a positive effect on private R&D in the Netherlands. This collaboration can be improved in the Netherlands,30 and for this reason a new tool is to be developed. 26These are partly dealt with in the entrepreneurship letter (Action for entrepreneurs!) . In the regions a number of these preconditions come together, such as industrial zones and training facilities. Better interaction between national and regional governments could lead to an improvement in innovative strength. The conditions for utilising knowledge are also important (including the IE system) . 27This approach fits in with the European conclusions of the Spring Stop (March 2003) . 28 .50 million in 2004, .75 million in 2005 and from 2006 the intensification will be .100 million. 29The Tax Credit Scheme (WBSO) aims to encourage more companies to engage in R&D and companies that already engage in R&D to do more R&D. 30See, for example, CBS (2003) , Kennis en economie 2003 (Knowledge and economy 2003) and De Man et al (2002) , Samenwerking en innovatie (Collaboration and innovation) . 19 Approach to tackle the impending shortage of knowledge workers The tool devotes particular attention to the small and medium-sized enterprises and collaboration with knowledge institutions. Projects submitted will be tested, amongst other things, on aspects of sustainability (economic, ecological, social) . The scheme comes into effect in January 2004 and will replace four existing schemes at the same time.31 This should lead to a sizeable number of new, high-quality R&D projects in the Netherlands. New approach to tackle the impending shortage of knowledge workers The causes of the impending shortage of knowledge workers (and scientists, technicians and researchers in particular) lie in the bottlenecks in education and the labour market, as well as a lack of opportunities for foreign knowledge workers. These bottlenecks will need to be tackled coherently. The ministries of Education, Culture & Science, Social Security & Employment and Economic Affairs will present the analysis of the shortages and the concrete measures to tackle the problem (divided across seven main themes in education, the labour market and migration) at the end of the year in a joint memorandum on knowledge workers/delta plan science/ technology. The role of the Ministry of Economic Affairs will be above all to stimulate initiatives and experiments in the business sector in order to make ‘science’ careers more attractive. Public/private mobility will also be encouraged. In addition, a system of differentiation for administrative charges and faster procedures could help to attract knowledge workers from abroad. 31Technological Collaboration, Economy, Ecology & Technology programme, a part of the Energy programme subsidies decree (including Energy saving through innovation) and the scheme for Technical Development projects. The scheme is a result of the government’s reaction to the IBO technology policy (2002) . 20 The approach Make high-tech start-ups a fully- fledged part of the innovation policy Exploit the potential of small and medium-sized enterprises Main theme II Dynamism: towards more companies that innovate More innovative companies ensure more dynamism It is extremely important for more innovative companies to set up business in our country. The policy on competition is an important tool for creating dynamism.32 In addition, the following approach is envisaged: 1. Stimulate new innovative business activity, 2. Exploit the potential of small and medium-sized enterprises, 3. Attract knowledge-intensive activity to the Netherlands. Stimulate new innovative business activity An important prerequisite for dynamism in the knowledge economy is enough new innovative activity.33 The past few years have seen various initiatives for high-tech start-ups, (such as BioPartner, Twinning, Dreamstart) : temporary initiatives often focused on specific areas of technology. These initiatives sometimes proved effective.34 The high-tech start-up policy has now become a fully-fledged part of the innovation policy. This means: structural investment in an approach for all high-tech start-ups, for which purpose the TechnoPartner draft is being worked out in greater detail in consultation with the Innovation Platform, and it is being examined whether a part of the knowledge budget can be used for this. TechnoPartner is characterised by an integral approach: from information supply, creating networks, coaching and financing to facility-sharing. The objective is for there to be more and higher-quality high-tech start-ups.35 Exploit the potential of small and medium-sized enterprises Small and medium-sized enterprises do not make nearly enough use of knowledge already available to others, even though existing knowledge can play an important role in developing new products, processes or services. That is why the dissemination of knowledge is being stimulated.36 32A relevant aspect relating to innovation as regards competition is that in an EU framework the group exemption for technology (transfer) is being reviewed. 33The coalition agreement therefore explicitly mentions that the climate for starting enterprises in the technology sector must be enhanced. 34For example, BioPartner’s objective is to increase the number of starting enterprises in the area of Life Sciences. The programme aims to achieve an average increase of 15 starters a year. With about 60 new enterprises in the last three years, BioPartner has more than met its ambition. 35In filling out the details of this action, the commitments made to the Second Chamber regarding high-tech start-ups will also be included (i.e. to see whether the contribution to universities for high- tech start-ups can link up better with the Leading Technological Institutes, Second Chamber documents 2002-2003 28600 XIII, 51) . 36Intermediary institutions too such as TNO can also play a role here, and are currently being evaluated. The HBO (higher vocational education) can also play a role in the transfer of knowledge to small and medium-sized enterprises. 21 More knowledge-intensive business activities from foreign companies to come to the Netherlands Syntens will adopt an even more focused approach in exploiting the potential of small and medium-sized enterprises by concentrating on the enterprises in this sector that really do want to innovate.37 The exchange of knowledge between these companies and the knowledge infrastructure will be actively stimulated (for example through network creation and knowledge vouchers) . This will allow the small and medium-sized enterprises to maximise their potential, giving them the impetus they need to develop innovative behaviour. Attract knowledge-intensive business activity to the Netherlands Knowledge is the crucial competition factor. An international competitive battle for this production factor is in full swing. The policy to attract business activity must respond to this by focusing more strongly on knowledge- intensive activity. The Netherlands must present its strong technological (scientific) areas on the international stage. Companies invest where the business climate is favourable and where they have access to excellent knowledge. Through technological matchmaking, as well as seeking and linking strategic partners, foreign companies come into contact with this knowledge and the Netherlands in its turn can benefit from the knowledge of these foreign companies. This has proved to be an important factor for subsequent opportunities to attract foreign business activity. Targeted marketing and matchmaking must ensure that foreign companies will start pursuing more knowledge-intensive business activities in the Netherlands. In addition, through better collaboration in the regions between the various players (universities, Regional Development Agencies (ROMs) , Syntens, provinces, municipalities, service providers, other educational institutions, etc.) the Netherlands can create genuine ‘hot spots’ that will attract (foreign) knowledge-intensive companies to a particular region. Some regions are already very successful at this (such as Amsterdam, Noord-Brabant and Twente) . 37It will involve, for instance, the technical enterprises or the ‘follower’ enterprises in the sector. In working out the details of this action, attention will also be given to the profile of Syntens and the performance indicators (Second Chamber documents 2002-2003 28600 XIII, 59) . 22 The approach Providing incentives… Main theme III Taking advantage of oppertunities for innovation by opting for strategic areas. Making choices in order to exploit innovation opportunities better The purpose of this main theme is for companies, public knowledge infrastructure and the government together to create focus and mass in areas that strengthen Dutch competitive ability, and which have the potential to produce considerable social benefits. That policy demands clear and well- considered choices, the starting point being that within the key technologies it is all about carefully selected key points in which the Netherlands excels or can excel in science and the business sector. The government does not make these choices itself, but in consultation with the stakeholders. This approach can be successfully applied too in other areas of science and technology that provide attractive opportunities for interesting innovations. The Innovation Platform will be consulted on the policy to be pursued relating to the key technologies. The aim is for the Netherlands to excel in these key points and become one of the European leaders. The Advisory Council for Science and Technology Policy (AWT) too recently recommended this explicit choice for a limited number of key points.38 In order to achieve focus and mass, we envisage the following approach: 1. Create conditions for joint knowledge development and use, 2. Stimulate programme-based R&D collaboration on key points, 3. Link up to international knowledge clusters, 4. Total commitment to the choices made. Create conditions for joint knowledge development and use In order to achieve this focus and mass, the government must create an environment in a generic sense that invites the business sector and knowledge infrastructure to develop and use knowledge together. This demands, first and foremost, the right incentives for universities, intermediaries and companies. 38AWT (2003) , Backing winners. 39Details to follow in the Science Budget of the Ministry of Education, Culture & Science that will be published at the end of the year. The starting point is formulated in the joint memorandum by the Ministries of Economic Affairs and Education, Culture & Science, It takes two to tango: opties voor verbetering van de wisselwerking tussen onderzoek en innovatie t.b.v. de volgende kabinetsperiode (options for improving interaction between research and innovation for the coming government term) . Any changes in the funding of universities could have implications in the long term for the policy tools discussed in action line III. 23 …at universities …intermediaries …and companies Programme-based R& D collaboration essential for key points At present the Ministry of Education, Culture & Science is working on modernising and improving the dynamism of university funding. This involves performance costing for university research where applicability is an element in assessing quality in innovation-relevant areas.39 The Ministry of Economic Affairs is working with the Ministry of Education, Culture & Science on a policy experiment for refunding patent costs and knowledge exploitation. This enables universities to pursue an active policy focused on the commercial application of the knowledge they have developed. In addition, an accessible and cheaper patent system is important. An effective interpretation of the bridging function of public institutions for applied research is extremely important for this interaction. A number of institutions are active in this area in the Netherlands, such as TNO and the Large Technological Institutes (GTIs) . At present, we do not have enough information to assess to what extent these institutions fulfil their bridging function properly, and so in the meantime an evaluation has begun into the way in which TNO and the Large Technological Institutes fulfil their bridging role. Another important point in this respect is the performance of these institutions in the international environment. Stimulate programme-based R& D collaboration on key points Companies too must be encouraged to work together with universities. The business-oriented innovation policy, through a number of tools, aims to challenge companies to seek collaboration with universities. Stimulating (international) collaboration forms the basis of the innovation policy. This collaboration is just one of the priorities that have been identified to be funded from the knowledge budget for research and innovation. The Innovation Platform will give its advice on this subject. Public/private collaboration is to be stimulated in a generic sense through the collaboration tool from main theme I. In more specific areas, companies are challenged to enter into a long-term commitment and achieve excellence in a number of key points: programme-based R&D collaboration. The example of catalysis (see box 7) makes clear what this means in practice. Programme-based collaboration moves from exploring the knowledge base, developing the road maps and carrying out R&D projects to setting up networks of excellence. 24 Programme-based collaboration in practice: catalysis New tool for excellence… … to put the Netherlands on the international map Choices must prove themselves internationally Box07A good illustration of programme-based collaboration is the approach to catalysis (a technology that accelerates chemical and/or biological processes and which can produce considerable benefits as regards sustainability).The following steps were followed for this: • 1989-1998:IOP (innovation-oriented research programmes) catalysis, strengthening of the ‘knowledge base’, •1991:Settingupcatalysisresearchschoolwithindustrialadvisoryboard, • 1998:Technology radar,exploration of the strategic potential, • 1998:Setting up top catalysis research school, • 2000:Catalysis road map,joint approach organised, • 2002:Setting up ACTS,structure for bundled research incentive, • 2003:Connection of ACENet,towards international excellence. In order to stimulate this long-term collaboration between companies and knowledge infrastructure, a new tool is to be developed. This tool builds on and brings greater coherence to forms of programme-based collaboration that have proved to be highly fruitful over the past few years. Examples of this are the innovation-oriented research programmes (IOPs) , the Leading Technological Institutes (TTIs) and successful programmes such as genomics and catalysis.40 A new aspect of this tool is that it stimulates an integral approach: from knowledge application to fundamental research and vice- versa. The aim is to develop a tailor-made tool to serve a portfolio of areas in various stages of development. This portfolio is fed by a careful process of innovation exploration supported by all parties.41 The tool provides more direction, coherence and focus in the national policy, enabling the Netherlands to respond optimally to the European environment. Link up to international knowledge clusters The success of the strategic choices will be measured by the international position that the Netherlands occupies in the chosen themes. International R&D collaboration and the transfer of knowledge are therefore important. 40See, for example, Economist (6 September 2003) . 41The Ministry of Economic Affairs has developed just such a process, see EZ (2003) , Innovatieverkenningen: het verkenningenproces (Innovation exploration: the exploration process) . 25 The Netherlands is committed to this Action plans for ICT and life sciences Commitment to energy innovation The Netherlands is committed to this, for example by stimulating Dutch participation (with active information focused on the key points) in the EU’s Sixth Framework Programme (FP6) and Eureka. Within national tools, extra funding opportunities have been created for projects that fit in which the objectives of FP6. The Technical Research Attachés’ network too will be used as actively as possible on the key points. Finally, the chairmanship of the EU and Eureka next year offer the Netherlands excellent opportunities for positioning itself internationally as well as influencing Community innovation policy.42 The latter is well underway (which is evident, amongst other things, from the recently created Community patent) . In concrete terms, the following plays a particular role within the context of the European research and innovation area43: • Setting up Technology Platforms • Reviewing the framework of state support for R& D • Reviewing the opportunities for making national tools available for international collaboration. Total commitment to choices made It is important to pursue robustly the themes that have already been carefully and successfully chosen by market parties and knowledge institutions. An integral approach is needed for these themes (in short, a government that does not use the accelerator and brake at the same time) . This approach is taking shape, for instance, through action plans for life sciences and ICT. In an integral approach, attention focuses on various aspects in the field of technology. It is not only funding, but also legislation, regulations and social acceptance that are important. In addition, the Ministry of Economic Affairs is actively working on innovation in order to facilitate the transition towards a sustainable energy balance in the Netherlands. The policy also focuses on long-term research and experiments that are important for a transition towards a sustainable energy balance. This involves aspects such as wind energy, biomass, gas and the modernisation of energy chains. 42An important activity in this context is Een informele Raad van Concurrentievermogen (An informal Council of Competitive Ability) , on the theme of knowledge and innovation. 43The EIB ‘Innovation 2010 Initiative’ and the EU ‘Action Plan for Growth’ are also relevant. 26 ICES/KIS 3 facilitates formation of Through ICES/KIS-3 (Interdepartmental Commission for Economic Structure key points Enhancement/Knowledge infrastructure) , a considerable financial incentive is available that can (also) be used to facilitate these themes and to form the key points. The purpose of ICES/KIS-3 is to strengthen the Dutch knowledge infrastructure through high-level scientific research with significant social impact. ICES/KIS-3 is an initiative of five ministries: Economic Affairs (EZ) , Agriculture (LNV) , Education, Culture & Science (OC&W) , Transport and Public Works (V&W) and Housing, Spatial Planning and the Environment (VROM) . The government has decided to make a sum of € 802 million available from the Economic Structure Enhancement Fund (FES) , and at the end of the year will decide on the allocation of the resources. 27 28 Coherence in policy Towards a new Dutch landscape: broad green valleys and high peaks Focus on sustainability and international dimension With a clear image Tools enhance each other and create dynamism The abovementioned policy lines enhance each other. The generic tools, such as those described particularly in the first two main themes, create a broad innovative breeding ground to form the basis for much of the policy. The third, more specific policy line focuses on a number of key points. The special focus on sustainability is shown, for example, in the choice of technology fields in the programme-based tool. The inclusion too of a sustainability criterion in the new collaboration tool is proof of this focus. The international dimension is reiterated in all lines, a dimension that focuses on joint knowledge development, the better use of knowledge abroad and the positioning of Dutch players on the international playing field. In concrete terms, it is primarily about making use and taking advantage of European tools, using where possible the national set of tools for international collaboration and actively participating in and influencing European innovation policy. This policy must produce the peaks in the landscape which will enable us to create a distinct profile for ourselves on the international stage. It strengthens and modernises the Dutch economy in both the industrial and service sectors. This coherence can be illustrated in diagram form as a ladder with six blocks. The new business-oriented set of innovation tools from the perspective of the entrepreneur 4.Programme-basedtool:long-termknowledgeaccrualinareascrucialtotheNetherlands5.High-techstart-ups:dobusinesswith3.Collaborationtool:makeuseofknowledgeofothersthrough1Transferofknowledge:familiarisationwiththeopportunitiesofexistingknowledgeandtechnology2.WBSO:stimulatemodernisationandinnovationCompanies6.Humancapital: Ensuregoodpersonnelandmaintainquality. An explanation of the new set of tools 1. Companies that want to innovate, and want to do that above all by using knowledge new to them, are supported in this knowledge transfer (such as through Syntens) . 2. For companies that want to carry out R&D themselves, the threshold for doing R&D is lowered through fiscal measures (WBSO) . Complex innovations demand the combination of knowledge that a single enterprise alone does not have at its disposal. The next step is R&D collaboration, whether or not internationally or together with the knowledge infrastructure. 3. The collaboration can be project-based (concrete collaboration projects that are often limited in time) , or 4. with a long-term programme-based character (in the form of long-term research programmes) . 5. In addition, special attention is given to start-ups that want to do business with knowledge. They are supported, for example, by information, referrals to and for high-tech startups but also by making seed capital available. 6. For each of the companies, it is important to focus attention on the availability of human knowledge and expertise. After all, innovation is all about human effort. 29 The complexity of the type of research increases and the degree to which research is undertaken together with others is intensified as one moves up this ladder. Of course, one block does not exclude another. A company that makes use of the WBSO can also participate in the tools for project or programme-based collaboration. In fact, the aim is precisely to have the various tools enhance and complement each other. For example, the set of tools focusing on human capital can be important for realising the objectives of the programme-based tool. After all, it is precisely where research collaboration in the long term is concerned that the availability of researchers is crucial. With this focus on six blocks of tools, the number of tools is substantially reduced (from 30 to 6).44 Financial framework Box 9 gives an indication of the financial picture that goes with these tools. The recommendations of the IBO technology policy are also reflected in this (see box 8) . Box08The financial resources of the business-oriented innovation policy are used where the market imperfections are the greatest (R&D),placing greater emphasis on public/private collaboration.45However,innovation is more than R&D.Non-technological innovation (such as new distribution concepts),non-technological aspects of innovation (such as marketing) and the phase of translating R&D to the market are important.It is questionable whether the financial policy underlying the innovation process is the most effective.46Innovation policy is more than money.The activities of Syntens,for instance,lie above all in the area of advice and communication.Most of the tools take full account of non-technological aspects of innovation.A policy experiment is being started up in the area of non-technological innovation.It is also being examined to what extent more private capital can be used for innovation. Focus of the business-oriented innovation policy 44This is also an elaboration of the Motions of Hessels and Netelenbos, Second Chamber documents 2002-2003, 28600 XIII, no. 28, and 2002-2003, 28600 XIII, no. 21. 45This is all the more important because companies are withdrawing from more long-term research and focus on short-term results. Partly on the basis of the IBO technology policy and the allocation of tasks in the previous government, the scheme for Technical Development Projects (TOP) , for instance, was abolished. 46The social benefits are less significant: see CPB (2002) , Pijlers onder de kenniseconomie. Opties voor institutionele vernieuwing (Cornerstones of the knowledge economy. Options for institutional modernisation) . 30 Once again: the policy is emphatically not just about money. Other policy instruments are being used too in all blocks. By allowing scope for experimentation as well as through regular and thorough evaluation, there is plenty of dynamism in the policy process. Available resources for innovation Box09The Ministry of Economic Affairs has earmarked €762.2 million for the year 2004 for business-oriented innovation.47The figure below shows expenditure divided across the six blocks.This summary does not include the incentive from ICES/KIS-3 (€802 million over 8 years).The underlying expenditure strengthens the entire Dutch innovation chain,on the part of both the companies and the knowledge infrastructure.In perspective,this incentive contributes to the public and private share of R&D 48,and with it the Barcelona objective. Available innovation resources for 2004 (total € 762.2 million) Humancapital26% 13% 53% 6%1%1% Programme- basedProject- basedWBSOKnowledgetransferHigh-techstart-ups This financial picture does not take account of any increases in the knowledge budget, although account is taken of increased intensity in the WBSO.49 As already mentioned earlier, € 185 million has been reserved for priorities in the area of research and innovation.50 47In the long-term perspective, the picture remains fairly stable as regards the sum (777.1 million euro in 2007) . However, the relative shares of the blocks do change (the WBSO share in particular increases). In the current long-term budget, resources will no longer be available for high-tech start-ups from 2006 onwards. 48In the Netherlands, a total of .8 billion worth of R&D is carried out, of which about .4 billion is by the business sector. 49From a technical point of view, with the WBSO it is not about expenditure but about reduced income. 50The ‘4’ priorities: knowledge workers (including science and technology) , high-tech start-ups, focus and mass in research, and collaboration between companies/knowledge institutions. 31 Conclusion 3 main themes with 10 concrete This letter outlines three main themes with ten concrete solutions that are solutions summarised in the table below: ..................................................... ..................................................... .......................... .................................................. ..................................... .................................. ........................ .......................................... .......................... ......................... ........................................... ........................ ................................ .............................. ................. These main themes allow us to pursue a course for a significant part of the knowledge economy: strengthening the innovative ability of the business sector. We will enter into debate on this with the Second Chamber and the Innovation Platform, with the aim of achieving a rolling agenda for the innovation policy. 32 33 Acknowledgements The innovation letter ‘Action for innovation’ is a publication of the Ministry of Economic Affairs. This letter has been presented to the Chairman of the Second Chamber of Parliament. October 2003 More copies of the Innovation letter may be ordered via www.ez.nl or (+31) (0) 70 3081986 (or 0800 6463951 from within the Netherlands only) Publication numbers: Part I: ‘Action for innovation’ 04I13 Part II: ‘Analysis of the Dutch innovation position’ 04I24 Part III: ‘Elaboration of the solution options’ 04I25 34 35 ......... ....