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4.3 GOOD PRACTICE AND THE POLICY LESSONS DRAWN 4.3.1 Introduction The experience of Member States and regions in implementing these programmes in a variety of cultural contexts and conditions provides a useful opportunity to distill and benchmark good practices and procedures. This Section attempts to do this, on the basis of a comparative analysis, and using the evidence of the case study material presented in Volume 2. In particular, it seeks opportunities for transfer of good practices and the policy lessons learned to other beneficiary regions. The academic literature and many developing regions suggest that technology can be a driving force behind economic development if:

• it leads big or technologically leading companies to appropriate results early in the life cycle of products and thus benefit from above average rents (appropriability)

• it helps individual companies defend their market shares or moderately increase them through adaptation to technological change (individual support measures for innovation and technology transfer)

• it creates spillovers that lead to externalities benefiting the whole region (successful diffusion).

Research and technology policies, which are designed to create new knowledge address the first of the three points raised above. Innovation and technology transfer policies are related but different. Their target is the commercialisation of new products, proceses or organisational forms, which are new to their environment but not necessarily state of the art. Innovation is the corner stone of competition in the learning economy, but companies can be very innovative without major research efforts. Even under the most optimistic scenarios Objective 1 regions are unlikely to demonstrate commercial success in state-of-the-art research, but they can become very competitive through the rapid and appropriate adaptation of new knowledge. In that sense policies should concentrate on the sustainability of individual competitiveness (a positive, yet moderate effect to overall regional growth) and to diffusion and the creation of externalities. But experience shows that even under these considerations the linear view, although rhetorically denied, is still adopted in real life: measures support capacity enhancement considering it a first step that will then act as a catalyst for the diffusion of knowledge. This approach has been stronger under the first CSF and although it has been maintained to a large extent in the second, it has been complemented with measures supporting networking and cluster creation, as well as diffusion mechanisms. Under this assumption, the target of this Section is to identify and put together the relevant parameters of the success cases and regions studied which might be transferred and have a positive impact elsewhere.

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The following methodological remarks have to be taken into consideration:

• less transferable good practice examples were identified, than what was originally expected; many cases considered initially as a success proved less ambitious, when analysed in detail and others were so strongly embedded to regional circumstances that they are unlikely to be transferable elsewhere

• to fill the gap, certain additional, less ambitious cases were selected from the regional innovation profiles and added to the overall lessons

• the good practice examples were very unevenly distributed both among countries (it came as no surprise that Ireland scores best) and among the six selected themes with a higher concentration in the areas of Management and Capacity Enhancement, less so in Innovation Support and Funding Policy and almost not at all in Learning and Interaction; this led to the need to take a fresh look into the latter in the key issues section, Chapter 5, as it is considered to provide the best leverage on technology for regional development.

The selection process of what constitutes best or even good practice is not an easy task. As the notion of “best practice” suggests an optimal solution to a given target, we have adopted the term “good practice” which denotes that the issue addressed was well documented, consistent with theoretical models and policy targets and at least reasonably managed. Many countries or regions considered their policies as good practice examples. We used our judgement to select only the most relevant. We avoided selecting too many schemes, although this might please more Member States and regions and decided to select reference cases for the schemes most often used in the second CSF. For each of the most frequently appearing orientations, 1-3 reference schemes are described in detail to identify the issue, supplemented by short comments on:

• related schemes in less well performing in LFRs, and

• notes on practices from core regions. The latter are not be used as transferable cases, given the differences in the underlying conditions, but rather as an aid to a better understanding of the issues raised by the reference schemes. Thus, the following schemes were selected, as reference cases: On agencies and schemes supporting the management of RTDI resources

• Good management for policy implementation by the Irish Forbairt (now Enterprise Ireland)

• Good linkage between State and Regional Authorities in the French Scheme of Regional Delegates on Research and Technology

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On industry support schemes

• Measure 1 in Ireland On the idea of shifting from grant to equity or repayable loans • CDTI in Spain • Equity considerations in Ireland On the activation of the private sector

• The Federation of Industries of Northern Greece

• The Industrial Research Group in Ireland On the way to improve capacity utilisation through Cooperation

• The Irish PATs

• The Northern Irish ATCs

• The Portuguese Research Associations in the region of Norte On clustering as the best means to increase spillovers

• Clustering in Saxony In terms of presentation we adopted the following approach: good practices were identified in the form of schemes or management practices that do not necessarily correspond to the selected themes that guide the overall study as a common methodological denominator. To avoid introducing new typologies, a double presentation approach was selected: schemes and themes. Schemes are presented in Section 4.3.2 to introduce the features, and then the original themes reappear in Section 4.3.4, borrowing relevant issues from the schemes described. A brief final section resumes the lessons drawn to provide as a basis for policy recommendations to the Commission. 4.3.2 Brief description of the good practice cases This section includes a brief description of the good practices studied, organised according to the main caveats that appeared to be the key lessons learned. The cases are described around their mission, crucial conditions for success and potential problems in their transferability. 4.3.2.1 Good practices on policy design and implementation: the reference case of Forbairt and the regional co-ordination issue of the French R&D delegates As funds for RTDI policies increased very rapidly in Obj.1 regions the best way to spend them efficiently becomes a very relevant issue. Originally most regions started by using their traditional policy departments for implementation, but it soon appeared that policy and management skills are very different and separating the two may have important merits. The case of Forbairt is studied here in that respect. At the same time the shift of power

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from the State to the regions and the need to co-ordinate policies has not been taken care of in all cases. In particular in desert regions, but not only these, this study identified a lack of regional co-ordination and the absence of policy makers able to offer a regional vision that would take national tendencies into consideration. The French example of appointing regional delegates for this purpose may offer a model for reflection. Although the scheme itself has not been evaluated, as far as we are aware, this unique organisational arrangement offers a concept which is worth consideration. 4.3.2.1.1 Forbairt Forbairt (now Enterprise Ireland) is the National implementing agency1 for industrial development in Ireland. It is a State body, set up by legislation with a Board of Directors appointed by the Minister for Enterprise, Trade and Employment. Forbairt reports to, and receives its budget from the Department of Enterprise, Trade and Employment (the Department’s Office of Science and Technology - OST - is responsible for R&D budgets). The management process in Forbairt can be divided into three stages: The Initial Design and Approval phase. Preparing and agreeing , with the EU, a National Development Plan, incorporating public and private financial commitment. The focus of the R&D sub-programme has moved from emphasising infrastructural development (CSF 1989-93) to developing the innovative capacity of Irish companies (CSF 1994-99). This was a deliberate policy decision and it has greatly influenced the composition of the four measures and their budgetary allocations. The Forbairt Implementation phase: The O.P., in reality, only outlines the Measures and their schemes. These Measures and schemes must be fully developed and approved before any applications can be sought and money committed. Thus, the management implementation process can be divided into three main phases: Detailed specification of the scheme, Marketing, eligibility and approval, Monitoring and reporting. On each scheme most of these tasks are undertaken by a specifically appointed small Management Unit (a Manager and secretary with additional support if the size of the sub-programme warrants it). Ideally, the Management Unit should be involved in all tasks except scheme authorisation, undertaking the project, auditing and evaluation. The reporting process is that the measure/scheme manager reports to an overall manager within Forbairt, and Forbairt reports periodically to OST and to the Industry Monitoring Committee. Forbairt has been in a position to make selections: not all potential clients can apply for every scheme. The design of the schemes specifies who is eligible and the application form re-affirms his/her eligibility. In relation to monitoring and reporting each project reports at least every six months. Forbairt prepared regular expenditure reports and periodically prepared impact statistics for the Monitoring Committee. Generally, this was done and as the final year of the 1 The Irish CSF Management Process is based on an important general principle: the division of responsibilities between policy makers (Government Ministers, their advisors and their civil servants) and implementing agencies (usually a separate agency or organisation).

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CSF approaches more attention is being paid to the draw down and to whether the total budget can be spent or not. The management unit or its technical representatives should visit and monitor each project at least twice a year. The management unit usually does not have adequate resources, either staff or money, to undertake all the visits. Evaluation and Auditing: "As compared to its predecessor, the current CSF 1994-99 contains significant developments in the use of quantitative indicators as a means of monitoring the implementation of the CSF". This approach was novel and in many respects experimental. The evaluation assessed their relevancy, reliability and availability. The main problem is that the data is being collected to comply with impact requirements, and they are not being used as a management tool. Consequently, the main recommendation is that the O. P. indicator performance measures need to be integrated with the internal administrative systems of the implementing agencies “to ensure there is clear responsibility for the achievement of O.P. targets”. There was generally a low awareness of the aims, structure, financing and performance criteria of the O.P. Most sub-programmes would have had a review in the first tranche of CSF funds and a second review as part of the 1994-1999 Programme. In addition, there was a macro and micro economic review of the total CSF programme and a mid-term evaluation of the Operational Programme of the Department of Enterprise and Employment. This history shows how the review process can be very effective in continuously refocusing a sub-programme or measure to achieve more defined objectives and give a better return for the EU and Irish State investment. The key elements of ‘good practise’ in designing R&D CSF Programmes in this case seem to be:

• Separation of policy making and implementation to provide the necessary checks and balances

• Inputs from the users/beneficiaries

• Proposals and suggestions from the implementation agencies

• Clarity in the overall economic/behavioural objectives to be achieved

• Decision-making and priority setting by the separate policy entity The State Agencies, particularly Forbairt, are well structured and able to administer the schemes efficiently. They have a tradition of administering grants to industry over many years. Forbairt has the confidence and support of its parent Government Department.

• Publication of an Operational Programme to guide the next phase – the development and implementation of detailed schemes

• Continuity between the CSFs is another important factor in Ireland's ability to spend its R&D Sub-programme funds because the project executives dealing with companies understand these schemes and can assist companies use them where appropriate.

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4.3.2.1.2 The French Regional Delegates for Research and Technology The Ministry of National Education, Research and Technology in France has nominated 28 Regional Research and Technology Delegates (DRRT), one per French region, responsible for the transmission of the main national policy messages to the regions:

• the reinforcement of research,

• technology transfer in particular to SMEs,

• innovation support,

• training and

• diffusion of the scientific and technical culture. Organisationally the DRRTs are under the prefect and they are expected to:

• Co-ordinate the research efforts of laboratories, universities and other relevant organisations at regional level

• Organise the necessary action to reinforce existing regional poles of knowledge and create new ones.

• Develop actions promoting innovation

• Facilitate innovation finance. In this mission the delegates expected to co-operate with:

• Public services and agencies

• The representatives of the productive forces (chambers, unions etc.) and

• Local and regional councils. Financial resources for their activities are provided from

• The Development Contracts between the State and the Region

• Specific initiatives from interested cities (e.g. Strasbourg) or transregional co-operation (Ile de France)

• CSFs It should be noted that the DRRTs are often researchers who are entrusted with the mission of co-ordination and regional policy promotion. The concept is useful because it provides at least one person with an overview of regional targets and means. While some Delegates have been more effective than others, the overall impression is that they help to improve the complementary of regional and national policies, an interface which is not well understood in many regions. Thus, a network like this, which connects

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regional and national authorities in terms of policy synergy, may be a means of providing LFRs with a more concrete policy orientation. The crucial conditions for success are related to the creation of an extensive network based on the determination and management ability of a central authority and relatively mature relationships between the national and regional authorities. In France the exercise is based on the existence of the Development Contracts between the State and the Regional Authorities, and on the long history of development plans in France plus the relatively new power of the regions. The network is well established because out of the 28 French regions only 6 (of which one is not a NUTS II region) have Objective 1 status. The mission of the Delegates goes well beyond the networking functions and their responsibilities are extensive. Direct replication of the model is not proposed, rather the concept of having specialists who can link together different levels of government, national and regional, and advise regional authorities accordingly, is a concept for consideration in other LFRs. Success will depend on the organisation of national-regional powersharing. 4.3.2.1.3 Enlarging the lessons learned and the potential of transferability Both the effectiveness/efficiency of overall management and the role of national/regional collaboration are important issues and their importance will grow as more funds are dedicated to RTDI and the role of the regional level increases. In the most developed Member States, the separation of policy and implementation at the national level has gained momentum. In Germany, support schemes are managed by non-profit organisations (RKW, DFG, Zenith etc.). The Federal Ministry has the full responsibility of its policy, but entrusts implementation (often through open calls for proposals) to individual federal or regional development agencies. This movement is adopted more and more by the governments of the Länder (e.g. Bremen created an umbrella management company for RTDI that now manages the regional schemes on behalf of the Senator). Similar tendencies are observed in Sweden, the Netherlands and the UK. From the richer countries only Italy seems to keep the old model, where MURST continues to play a dual role. In the cohesion countries, Ireland and Spain have modernised their management schemes. Portugal and Greece use more the traditional model. The case of Greece presents a particular interest in its efforts to externalisation. In order to cope with the limited resources of the public sector, the Greek administration uses two types of support: either regional schemes are entrusted to development agencies or monitoring and management is supported by private companies, following ad hoc calls for proposals. This partial and ad hoc externalisation, (adopted by all O.P.s not only RTDI) resolves some immediate problems and got the system into operation, yet it creates severe problems of delays in the ex ante evaluation by consultants. It hampers long term performance through the lack of continuity, and the

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adoption of an accounting, rather than policy oriented approach. This system could work, if the administration had the human resources to exploit it. Although the separation model seems more appropriate there are problems of transferability. Good practice has to be put in context, if contexts are similar it is worthwhile trying to replicate it. The separation of policy and implementation, the introduction of an evaluation culture with continuity and feed back and the trust relationships among agents have worked in Ireland because there is a culture of co-operation among agents and the skills of the public administration are ahead of other LFRs. If other regions want to imitate this model it may mean a thorough shift of power, which will need very strong political backing to be implemented. In this sense, the Forbairt example is not just a managerial good practice, but represents the gradual shift of power and practices. By the same token, the appointment of research delegates only makes sense, if a real network is created and the national authorities can benefit from network externalities. If only few regions respond to the concept, then the regional level remains the only appropriate as regions cannot benefit from the exchange of information and common standards and support. At the same time, if the relationship between the State and the region is unequal (in terms of skills or power), then the delegates will find difficulties to co-ordinate their actions. 4.3.2.2 The Industry R&D Support: efforts to use public funds as a leverage to increase BERD All EU member states have adopted schemes that support industrial research directly. In most cases these schemes foresee a grant of approximately 50% and set different condition of co-operation, concentration in priority areas, track record of companies etc. The difference in performance of these schemes is judged mainly on their quality of selection, rapidity and flexibility, if results are to have a commercial value and transparency. 4.3.2.2.1 Reference case Measure 1 in Ireland Financial support for industrial product and process R&D has been available in Ireland since 1975 from the Industrial Development Agency (IDA). This scheme was very important to companies, especially to SMEs. In 1993 Measure 6 was introduced, managed by a private sector company, for the Department (Ministry) of Enterprise and Employment, and funded under the Industry Operating Programme. The purpose of Measure 6 was to encourage capacity building in Irish industry through support for R&D projects, which were required to be somewhat removed from product and process development. Projects were funded jointly by the CSF and industry, at no cost to the Exchequer. Grants were not repayable, but in some cases a form of equity in the company was sought. The rationale and terms for Measure 6 were drafted by the Department in consultation with Irish industry. In 1995 the former Products and Processes Development Grants scheme was merged with the objectives of Measure 6, to give a new funding mechanism, known as

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the Industry Research and Development Initiative (Measure 1). The objective of this measure was to bring about a substantial net increase in the level of high quality research and development in businesses in Ireland. This was expected to contribute to higher levels of export and import substitution, leading to higher levels of employment. Only expenditure directly related to R&D was eligible. Expenditure undertaken to commercialise resultant products, e.g. production equipment, or marketing, was not eligible. A second target is to get more R&D performers with a critical mass having an R&D budget of 2.0 MECU and at least 5 R&D staff. Numbers of R&D performers must be doubled or tripled, with finance to match. The state must also encourage more of the MNEs to carry out R&D, because of the benefits of the "copy cat effect": smaller companies local to the MNE will imitate. Also the growing tendency for sub-suppliers to be asked to design as well as manufacture has already helped R&D in Irish firms. A blend of Exchequer, CSF and Company funding is realistic. Where a grant is more than 1.3 MECU, some repayment is appropriate for successful projects, giving a revolving fund. In practice, the agencies have never liked this idea because of the extra workload, and it would probably not be claimed back. For projects costing less than 325 kECU, 50% funding is appropriate, or 160 kECU, whichever is the greater. For projects more than 325 kECU, there should be a maximum of 25% funding up to a maximum grant of 650 kECU. In practice, the RTI Initiative does not fund capital expenditure now, except for amounts more than 10% of the total project cost. As part of the mid-term review of the Operational Programme for Industry 1994-1999, additional funding of 39 MECU was secured to launch a new R&D scheme known as the Research, Technology & Innovation initiative (RTI). The main objectives were to advance the work started under Measure 1, to bring about a substantial net increase in the level of high quality research and development in businesses in Ireland, and to ensure an integrated and unified approach to research related activities. RTI covers:

• industry research and development

• product development and innovation

• process development and innovation

• technology acquisition where it is supporting part of the foregoing In particular, RTI, while having Research & Development as its core, is being broadened to cover the wider innovative and technological aspects of company development. There was a strong demand by Irish industry for the type of funding provided by Measure 1, and in fact all the funds were drawn down. About 30% of the applications came from young, small companies, which was in accordance with the objective of the Measure. Measure 1 attracted a relatively large

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number of first time R&D performers and new starts, especially indigenous. R&D carried out did not appear to affect turnover very much, but there was an increase in employment in 70% of cases. Most of the indigenous projects related to product development, which may develop wealth and employment, whereas projects from foreign owned firms related more to process improvements, which generate profit, and may reduce employment. Process developments were generally funded at lower grant levels than product developments. The success of the programme can be measured with its leverage effects: In the last few years, a Venture Capital market has been growing in Ireland. This is now an embryonic funding mechanism for R&D or for new technology-based start-ups. For the future, the Government is expected to move to more indirect measures, as done in many advanced member states and provide the right environment for business, including indirect supports via taxation. Tax concessions are good for cash flow as they take effect in real time. Capital gains tax should be used to build infrastructure, not fund current expenditure. The tax system should allow a firm to accumulate profits tax free as a Fighting Fund for orderly expansion, in which case the firm will have less need for grants. Another aspect that seems important and differentiating the Irish experience from similar programmes in other countries is the existence of the Industry Research and Development Group (IRDG): The IRDG is an association of the main R&D performing companies in Ireland. It was established in 1990, and now operates under the auspices of IBEC, the Irish Business and Employers Confederation. It has a total membership of 70 companies, and a full time Director. IRDG had a strong voice in formulating Measure 1. Their existence reinforces the role of the demand side, as it is a group that represents both the interests of industry and research. In other cohesion countries this role is undertaken by the industrial federations, which are not geared towards research, because their members are traditionally interested in more pressing needs, like funding, protectionism and labour markets. 4.3.2.2.2 Enlarging the lessons learned and the potential of transferability The Irish success is based, inter alia, on a good industrial climate which helped the creation of favourable market conditions that complement public support, a gradual shift that represents the ability to make choices and the activation of the demand side. As all cohesion countries and most Objective 1 regions have similar programmes supporting RTDI in industry, this case represents a valuable input for benchmarking ambitions and managing such schemes in Italy and Greece. The latter are heavily criticised for delays in the implementation of these schemes, lack of a clear policy orientation and limited emphasis on evaluation. The key message is that the public authorities should introduce frequent evaluation and not be afraid, based on the evaluation results, to redirect and fine-tune their support. For industry to apply for such support with the aim of

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becoming more innovative rather than just improve its liquidity, firms need to have confidence in the mechanism: transparency on dates and criteria, abilities of the evaluators, commitment on novelty etc. The establishment of a body similar to IRDG is also very helpful. Yet, overall the Irish success is based also in the strong GDP growth, that increased demand and availability of funds in industry, a condition that cannot be replicated based on RTDI policies alone. The Commission could play a useful role in benchmarking the industry support schemes in both advanced and LFRs and disseminating the results, based on parameters such as:

• frequency

• transparency

• flexibility and feed back

• evaluation to show the less performing regions that the introduction of the scheme alone is insufficient for success and help them identify the areas of weakness and how they might improve. 4.3.2.3 The issues of repayability or equity: the reference cases of CDTI in Spain and reflections on equity in Ireland The key idea of these case studies is that grants are efficient ways to promote RTDI but risk attracting too much dead-weight. Besides, as the Maastricht criteria restrict budget increases, it may be time to start thinking of ways to use additional leverages to increase efficient funding. Thus, despite the old idea that repayability may appear as a punishment of success, and that entrepreneurs are reluctant to offer equity and thus limit their freedom of manoeuvre, the issue can be put on the agenda again. 4.3.2.3.1 CDTI CDTI, the Centre for Technological Industrial Development, is a state-owned company, which belongs to the General Secretary of Industrial Promotion and Technology of the Ministry of Industry and Energy. The general objective of CDTI is to manage and develop the technological innovation policy of the Ministry. CDTI’s activities framework is governed by private law. This legal nature contributes, together with an agile organisational and functional scheme, to give dynamism to the decision making and the implementation of those decisions. CDTI finances between 40 % and 70 % of the total cost of five different types of projects prior to the competitive stage by means of reimbursable aids at 0 % interest rate. In December 1994, the European Commission approved the candidature of CDTI as an agency for the management of the aids provided through ERDF, included within the Community’s Support Framework for Spain

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and intended for the development of industrial technology in Spanish Objective 1 regions. Through the management of the funds known as the Global Grant ERDF – CDTI, CDTI is reinforcing tools for the support of technological innovation and offers companies, in less favoured Spanish regions refundable financing (ERDF aid) to pay for Technological Promotion, Innovation and Development Projects with the following characteristics:

• They cover up to 50% of the budget of the project.

• Their refund term is five years after completion of the project.

• The funds are nominally repaid using constant regular payments at the end of each year and without interest.

• The company is not required to provide any kind of security for the funding to be granted.

• CDTI assumes the technical risk of the project, therefore, if the project falls through, the funding is automatically converted into a non-refundable grant.

These characteristics mean that these repayable funds are a financial instrument of great value for the support of technological innovation in the companies receiving them. CDTI develops activities for the promotion and publicity of all their activities, takes a pro-active approach and when applications arrive, begins a cumbersome but effective evaluation process. If the proposal is suitable for the CDTI programmes, the company will hold several meetings with the personnel of CDTI in order to define the most suitable approach and its classification within the CDTI system. Once the technological opportunity is identified, the following step is that the company gives a presentation of the complete project and that it presents the required documentation. Independently of this internal evaluation, CDTI asks externally (to other Ministries) for a technological report to determine the technological opportunities of the project and a sectoral report, to know the projection of the company in the market. Once the project has been finalised (when the last technical milestone has been reached) the final evaluation takes place leading to a final certification and the declaration of success or failure of the project. CDTI evaluates strictly and it even asks for an external opinion (of technological universities and technology centres) when there is no agreement with the company. Only 2% of the total projects are declared insolvent and in those cases the company does not have the obligation to payback the funding. If the company has finalised the project successfully, the obligation of return and reimbursement of the loan per year will be stated. The possibility exists of renegotiating the debt and of extending the period of amortisation.

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Managerially CDTI is very centralised. It does not have any branches in the different Autonomous Communities that manage the funds at regional level. CDTI considers that for better planning it is more apt to have a vision of R&D at national level. CDTI collaborates with centres in the Autonomous Communities (such as IFA in Andalusia and IMPIVA in Valencia) that manage part of the aids and establish the mechanisms of control asked for by CDTI, although CDTI is the one who manages and controls the projects in-situ. CDTI’s mechanisms and management are not as rigid as the ones from ministries, inter-ministerial commissions, associated centres, institutes of economic development, development agencies and so on. Its legal form almost enables CDTI to work like an agile private company without bureaucracy. Besides that, companies are attracted by CDTI for the following reasons:

• CDTI does not require a real guarantee for acquiring the assistance. On contrary the banks do.

• The periods of repayment are larger.

• Cost differences: it is still more advantageous to get a CDTI loan at o % interest than at a normal market rate (4 % at the moment).

• Credits are healthier than subsidies: It forces enterprises to be more involved in the project and to make use of the realised investments (the legal status of CDTI does not allow the granting of subsidies).

• Fiscally a loan and an R&D investment are more attractive than a subsidy. The entrepreneur can deduct the total investment and he can make is of the existing fiscal advantages for R&D projects.

4.3.2.3.2 Equity and R&D grants in Ireland In Ireland, the Industrial Authority has been taking equity in high risk R&D performing firms since 1988, but the equity is not usually directly related to the R&D funding, per se. The aim was to give the high-risk firm a better credibility with the lending institutions and thereby make it easier for the firm to leverage its own finance. Because grants and equity were processed by the same committee, the taking of equity and the grants became linked in the minds of many, but the IDA insist that the R&D grants themselves were not conditional on equity. IDA now holds equity in about 360 high risk investments and in less risky investments. It has taken preference shares at normal commercial rates, and now has about 150 of the latter. In 1991 the official policy of the IDA was that all R&D grant monies should be repaid from related profits, but implementation of this policy seems never to have been effective, nor enforced fully. It seems that it was too difficult to enforce. In 1994, the new Measure 6, which is CSF funded, introduced the idea of linking equity to R&D grants, but again this was never implemented. The idea was dropped when Measure 1 was introduced to replace Measure 6.

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4.3.2.3.3 Enlarging the lessons learned and the potential of transferability Equity participation, mainly in the form of venture capital, and repayability by bank loans, has been the motor behind the development of new technology in the most successful regions. Their use was generated by the market and the culture and ambitions of companies and financial sources permitted this successful matching. In LFRs the basic approach was that, as development should be based on stronger incentives, the idea of grants was introduced. Yet the proliferation of grants in the EU, which probably constitute the most generous transfer scheme for RTDI studied, have attracted proposals from companies that are more interested in short term financial benefits and less in the incorporation of technological change in their strategy. Thus, it may be timely to consider, at least for part of the grants, repayability and equity as a means to both assure the incorporation of strategy in the firm, and as a means to increase the overall funding available for company support. There are, however, important cultural and managerial factors that make it difficult to transfer the CDTI experience and even more the equity participation, as the Irish case demonstrates. CDTI was not efficient in running small R&D projects, thus it can only be transferred to regions and exercises with a broader policy vision, and which can afford the cost of setting up such a mechanism. The other problem of transferability of the CDTI experience is the acceptance of the repayability clause by industry. In earlier periods this approach was considered as a “punishment for success” and was gradually abandoned by most policy makers. Re-introducing it in a period of financial austerity may be sensible, but is likely to encounter resistance. 4.3.2.4 Activate the private sector: The Federation of Industries of Central Macedonia, the case of IRDG in Ireland One of the most striking differences between Objective 1 and core regions is the demand for technology transfer and the willingness of the private sector to invest in collective assets and take initiatives to complement public policy deficiencies. One of the key problems identified in the evaluation of RTDI under the first CSF was the limited participation of the private sector in the incentive schemes and the overwhelming benefits of the supply sector, notably universities, research laboratories and a considerable number of newly created intermediaries. Both examples mentioned below demonstrate that under certain circumstances, lobbies from the private sector can become a motor for change in LFRs, because they are the most appropriate organisations to activate demand and build public-private bridges. 4.3.2.4.1 The Federation of Industries in Central Macedonia The Federation of Industries in Central Macedonia played a central role in the effort to promote the idea of regional industrial policy. Taking the initiative to promote a public-private partnership it managed to play a catalytic role in trust

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and co-operation and promote this model in the difficult environment of the Greek Administration. The strategic vision commitment of certain people from the private sector, the competition with Southern Greece and the opportunities of the Balkan and Black Sea markets were the initial impetus. The Commission’s role has been also very valuable, applying a hands-on approach at a time when processes were running out of managerial control for the Greek government. The Commission used its power to support the region and promote it as a pilot case for many initiatives in the country. The case has little in common in industrial federations in other LFRs where they usually concentrate their activities in lobbying for labour market conditions, subsidies and legislation affecting industry, but they leave the role of development planning to the region or the state. The interventions contributed to institutional learning in two ways:

• by distinguishing the institutions of Northern Greece from those in other parts of the country; and

• by using past experiences to influence future actions and trigger new initiatives or adjustments in local industrial policy .

Strategically the first move was to reverse the lack of co-operation and sometimes mistrust among regional actors. While all analysts agreed on the diagnosis, no action was undertaken to change institutions and create a new momentum. Thus a sequence of actions was designed, starting with the foundations of few new actors, covering existing market gaps, and then more ambitious strategic exercises were adopted that triggered a snowball effect with new measures, programmes and actors. This case study seems to prove that it is possible to trigger institutional learning and change informal rules of regional co-operation, based on the initiative of the private sector, even when the legislative environment and the skills of the public sector are a barrier rather than a support to modernisation. Initiatives undertaken by the collective bodies of industrial interests in Central Macedonia initiated a process that is slowly reducing uncertainty, and which is expanding geographically and becoming increasingly ambitious. This process occurred as a direct consequence of gradual learning and adjusting. 4.3.2.4.2 The Irish Research & Development Group IRDG was created by the R&D managers of the Irish manufacturing companies. Initially it was a lobby group that was then funded by CSF resources. It has a target to double BERD as a percentage of actual turnover by 2005. This excludes the contribution to the Irish average from basic research carried out by MNEs. The estimated cost for this is 220 MECU p.a. to be made up of 90 MECU Exchequer and CSF funding and 130 MECU industry funding. The best way to build capacity for R&D is through product and process development: Measure 6 and Measure 1 did exactly this: they were not intended to fund pre-competitive research. IRDG provides an awareness and information service on grant schemes for its members. This

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seems to be highly regarded as being timely and focused, and superior to anything Forbairt or SFADCO have to offer. IRDG also help members write proposals for Measure 1 and similar funding and vet proposals before being submitted. This service also is well regarded. 4.3.2.4.3 Enlarging the lessons learned and the potential of transferability The real transferability problem in this case is the personality of individuals. In both cases managers/owners with firm belief in technology management and public-private partnership were present. Long termism is the constituent element of success and federations usually do not have the human resources and the strategy to invest in such an undertaking. Short and medium term problems, mainly economic cycle and labour market considerations attract more of their resources. The process in Central Macedonia spanned about ten years, beginning at a point where agents in the region independently pursued their own targets and interests, and ultimately arriving at a point where most regional agents managed to build alliances with the goal of achieving collective efficiency. A level of trust has been built up and expectations have risen; consequently, one may argue that uncertainty has been reduced. Learning by interaction occurred and informal rules were modified: The problems of transferability are connected with the important barriers (financial, internal conflicts of power, external pressures, etc.) linked to any effort of change that ultimately discourage the pioneer. Continuity and external allies are the crucial factors for success. But to do this in a private sector initiative, a project champion is needed with a vision, persistence and a leadership that is not controversial. This is usually a very difficult condition to achieve, as industrial federations are unwilling to invest the time and effort that such a policy needs. 4.3.2.5 Capacity enhancement and interaction: the Advanced Technology Centres in Northern Ireland and the Irish Programmes on Advanced Technology The issue of how to increase capacity in LFRs is relevant, because empirical evidence shows that supporting research alone is an insufficient condition for development. In order to increase capacity utilisation, diffusion and network economies, three models are analysed where good management was combined with an effort to better link scattered capabilities. 4.3.2.5.1 Advanced Technology Centres in Northern Ireland The Technology Development Programme (TDP) is an EU-supported scheme which aims to assist the development of existing and new research centres with the principal objective of supporting major proposals – with a market driven technological capability – within Northern Ireland industry and the universities, in order to develop and carry out leading edge, industrially exploitable and above all, commercially focused research, which will

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demonstrably improve the competitiveness of Northern Ireland industry. The programme is focused on enhancing Northern Ireland’s (NI) research capability through large-scale investments. The programme has gone through both CSFs and already in its first evaluation it scored well in terms of efficiency. The strong university orientation of the programme can be seen from the analysis by performing sector. Considering all types of projects, the universities received 60 per cent of the grant assistance approved, with industry receiving 40 per cent. However, the lower award rates for industry mean that the combined total costs of the 18 assisted projects are roughly shared between the two sectors, with industry accounting for slightly the larger proportion. The big challenge for the TDP was to balance the tensions, both within firms and universities, between industrial relevance and leading edge research. Management was highly praised. Selection of projects was by competitive application. The selection system was rigorous and well structured and there is no reason to doubt that the best projects were chosen. In addition, a number of successful contractors took a positive view of the appraisal procedures, noting that the technical appraisal in particular had proven very useful in tightening up proposals and pointing up areas for improvement. The following points suggest that TDP has performed, in substance rather than just management, better than others have:

• The TDP is a good case demonstrating that late absorption does not need to trigger panic and lower quality. The first batch of centres also started slowly with the result that, by end-1996 and three years into the CSF programming period, only 20 per cent of the ERDF allocation had been spent. However, there was a noticeable pick-up in 1997 and the proportion drawn down accelerated to 58 per cent

• The NI authorities appear to deal with the issue of time by having a degree of flexibility in their stated objectives for other programmes, thus allowing a certain amount of substitutability between schemes. With a programme like TDP, where the implementation time-scales are relatively long, it is necessary to approve all of the funds early on in the life-cycle of the CSF programming period to ensure that expenditure targets are met. However, this means that there are no funds available to provide a degree of flexibility in responding to changed circumstances, such as the emergence of new technologies or the identification of a particularly attractive opportunity (e.g. a mobile foreign direct investment project with a strong R&D component).

• The collaborative element “aims to promote collaboration between research centres and industry for the purposes of technological development and technology transfer”. The realisation of this aim is most directly observed within the programme itself, by way of collaborative university-industry projects. Of the three supported, two involved the same firm, with the university centres playing a relatively minor role in one of the projects. The third collaboration is between a university centre and a campus spin-off company. Other forms of collaboration have, however,

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been developed and these are likely to be a critical success factor for the TDP in meeting its objectives.

Given its scale, limited budget, and orientation, it is not unexpected that the TDP directly involves very few firms. The profile is, however, somewhat surprising in the extent to which SMEs have been successful in accessing the programme. Overall, the profile of industry participants is a mix of low-technology traditional sectors and high technology oriented firms in fast-growing markets. In the industry projects, it is early days as yet in terms of commercial impacts such as growth in sales or employment. There have, however, been a number of benefits. Apart from the investments in equipment and staff, there has been a notable effect on the RTDI strategies of the companies involved. In a number of projects, the company is now already engaged in, or more likely to embark on, pre-competitive research projects. TDP has, therefore, been instrumental in widening the research horizons of these firms, helping to shift their research strategies back along the R&D curve from sole reliance on experimental developmental research to applied pre-competitive and even basic research. The leverage of greater pre-competitive research is helping to fill an area of the technology gap that is particularly deep in Northern Ireland 4.3.2.5.2 The Irish Programmes on Advanced Technology The Irish PATs constitute a similar to ATCs but more transferable initiative, since this is a medium to long term strategy approach for a development of a technological infrastructure to serve Irish industry. To be eligible for co-funding PATs should have defined technical goals and must undertake industrially oriented R&D with a progressively increasing proportion of funding coming from national and international companies. PATs must earn 50% of their income from non-State sources within five years or face closure. However, their official Government terms of reference allow an adequate level of flexibility for the adjustments necessary for development of best fit to each industry's specific needs, and for optimisation of the concept of diffusion. The PATs provide a range of services and activities, which typically include:

• Contract research, technical consultancy and information services for Irish companies and multinational companies located in Ireland and outside Ireland;

• They compete for EU Framework projects and other international projects;

• They undertake and sponsor industry related research in their own centres and associated university departments.

The balance of activities in any PAT depends on a number of factors, such as: the skills of their staff, the needs of Irish and international industry, the skills of their university colleagues, the availability of international R&D funds, and the willingness of industry to work with and fund the PATs.

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The development of the PATs during the last four years has been dynamic and it has led to many changes, primarily personnel changes. Approximately 20-25% of the staff change each year and the structures have also changed significantly. Some of the changes arose through the privatisation of existing Centres or part of Centres. Privatisation occurred when it became apparent that it was the best way to meet industry’s requirements or there was a danger that a Centre could end up in direct competition with private consultants. Closures arose primarily through lack of industrial demand. Other changes in direction have also occurred in addition to the spin-offs and closures. The evaluations reveal that in general, the PATs have been successful in enhancing the capacity of the universities. They effectively co-ordinate the efforts of many academics and help provide a more industrial and strategic focus to the academics’ research. They also fund post-graduates – currently 180 are being funded. In addition, they have been successful in “building and co-ordinating the research strengths of the third level sector”. The academics associated with the PATs in the universities would generally agree that they have made a significant contribution to the research efforts of associated university departments. In fact, they have contributed in a number of ways including the funding of post graduates, assisting academics secure research funding from industry and national and international sources, and by providing equipment to academics and allowing access to the PAT’s equipment. Furthermore, the degree of self-sufficiency of the PATs has increased significantly over the years as well. The early reviews show that apart from two notable examples, the impact of the PATs on industrial development and diffusion of advanced technology and advanced technology skills, which were primary objectives of the PAT concept, have been limited. The reviews found a low level of awareness of the needs of industry, and particularly the needs of the indigenous sector, lack of awareness of, and focus on client needs, and lack of the commercial skills necessary for service promotion and service development. An alternative approach would be to develop the PATs along the lines of the UK Research Associations (RAs). The RAs grew independently and over time to support their specific sectors, during the late 1960s. The UK Government provided support to the RAs to develop the services essential to their specific industries. In provision of this service, the RAs typically provide test and analysis services, R&D, often in association with and funded by industry, training, information, technology monitoring and forecasting. They also work closely with similar research institutes worldwide. The RAs are staffed by scientific and technical experts, but also have strong business management skills. Much of their operational funding is provided by industry, whom typically pay membership levies, based on the size of the company, and also pays commercial rates for any services provided. Unfortunately, Irish industry to too small to fully provide the support for the PATs. Nor will industry-willing pay for new technology expertise where it still remains unconvinced that it needs the expertise. As a consequence the State must continue to provide support for the PATs and the NMRC as it is a

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necessary industrial development support. Despite the technology transfer success of some of the PATs, the contribution the PATs can make to industry is limited due to the conservatism of many companies. For example, companies rarely joint venture with PATs under the State’s R&D grant schemes. Some companies regard the PATs as potential competitors, particularly in the PATs’ provision of consultancy services. 4.3.2.5.3 Industry Associations in the North Region in Portugal Growing co-operation between the region's Industrial Associations and the various technology centres in the region is a notable feature. Co-operation between Industry Associations and the Technology Centres and Research Institutes in the North region is facilitating technology transfer to industry and helping to raise the credibility of the regional technology infrastructure with local industry. The most notable examples are in footwear and in metals. In the footwear case, an alliance between CTC (Centro Tecnologico do Calcado) and the Industry Association for the leather industry (APICCAPS) is helping the industry to develop ambitious strategies for international leadership in the shoe industry based on advanced design and automated production systems. State of the art automation projects have been managed for firms by the Technology Centre (CTC) in association with APICCAPS, followed by demonstration to other firms in the sector. The closer association of the technology infrastructure with industry is also helping the development of CTC also, which has doubled its human resources in the past five years. Similar developments are evident in metals and to a lesser extent in textiles and clothing sectors in the region where co-operation between the industrial associations and the technological infrastructure is also growing. 4.3.2.5.4 Enlarging the lessons learned and the potential of transferability The idea of linking capacity is mature in all LFRs. It is unlikely to follow the models from core countries where a high number of institutes are linked under the same administrative umbrella2 because the overall size of the scientific community does not justify such an intervention. But the idea of connecting institutes in the same or complementary fields of research and build capacities that are more likely to serve a wider range of interests, following the model of the U.K. research associations makes sense even for smaller scale activities. The programmes have been very concise because of the size of the region and include practically two types of programmes offered in other regions: enhancement of university capacity and industry support. Bigger regions and multi-regional programmes are unlikely to be able to follow the same pattern. 2 The Fraunhofer Gesellschaft in Germany, the CNRS in Paris and CNR and ENEA in Italy, for example.

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Their merit lies in good management and a rapid creation of a good reputation. Following the Northern Irish case, all actors can learn from the model for the management structure of the university projects, including especially the Industry Steering Group and the commercial project manager, as well as by the project appraisal procedures. Again, the rigorous technical and financial appraisals combined with a well-structured weighting and scoring system for assessing individual proposals made the difference to other similar projects. The programme in the Republic of Ireland has been successful; because there was a clear market gap because the county lacked non-university research laboratories. Yet, it demonstrates that the same structure can be very successful, if market and personal conditions are favourable, while with the same framework, other similar structures are less successful. The key issue for Objective 1 regions, as demonstrated also by the case of the Greek research associations is that persistence and identification of a sector/region specific strategy are important for the success of these undertakings. But overall, in LFRs they are unlikely to have the success demonstrated in the UK research associations where industrial companies are ready to participate in funding and to take risks. 4.3.2.6 Promoting economies of scope rather than isolated intangible investments: 4.3.2.6.1 The reference case of the Technology Clusters in Saxony The establishment of regional technology based clusters and the promotion of networking between firms in the cluster, has been an aim of regional policy in Saxony since German reunification, and especially since 1993. Efforts have been made to relocate firms and to attract new ones with certain technological specialisation. Microsystems technology in the Dresden area is an example and the semiconductor industry in the Frieberg area is another. Dresden is the centre of a microelectronics/microsystems cluster with approximately 30 to 50 firms, according to the Ministry of Economic Affairs. There are three large enterprises at the core of the cluster - American Microdevices (AMD)Saxony Manufacturing GmbH Dresden, Siemens and Zentrum fuer Mikroelektronik (ZMD) Dresden. This one is the most developed cluster in Saxony. In the Frieberg area, about 40 km southwest of Dresden there is another cluster in materials/semi-conductors, comprising in the main three large manufacturing firms - Frieberg Compound Materials, Bayer Solar and Wacker Siltronic. There are also several complementary research groups in these areas at Frieberg University. In the Chemnitz, an area with an old industrial structure, there is another technology cluster in mechanical engineering that emerged from larger firms, which have closed -mainly Kombinat Maschinenbau. This cluster has between 50 to 100 small firms –

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To support this policy, technology transfer points were established, which support the networking of firms that settle in these areas. These efforts have improved the locational attractiveness of these areas, making them much sought after as industrial locations, according to the Ministry of Economics. The evidence of the interviews shows that these firms work in close co-operation with other firms, as well as with university and non-university research institutions. The regional research environment is improved and now considered to be comparatively good. Overall, these efforts have considerably enhanced regional networking. According to the Ministry of Economics, the objective of establishing regional competence clusters and networking has been achieved. 4.3.2.6.2 Enlarging the lessons and the potential of transferability Clustering has been a tool that is widely promoted under the second CSF both as a tool of technology as well as for industrial policy. The widely studied success cases of Emiglia Romagna in Italy and Baden Würtenberg in Germany have attracted attention3 and as both the OECD and the Commission of the EU adopted networking as a valid regional development strategy efforts in this direction proliferated. The Nordic countries have promoted networking and clustering as policy analysis with major success cases reported from Denmark and Finland. In the Obj. 6 region studied in Sweden, research on wood processing is interesting and could be used as an example. Wood processing pertains to wooden products and bio-energy.

• The required research was identified through a systematic analysis of the whole industry chain: from planting the tree cutting it, classifying the wood, drying, processing etc. In each of the shackles of the chain, relevant research was identified.

• All wood processing projects are carried out by public research organisations. Only research costs are financed by the structural funds.

• In the absence of an existing technology transfer organisation a new one was created (Trainnova) to transfer the results to regional SME’s . Trainnova is paid for each SME that it transfers knowledge to.

• The scheme is very much appreciated by industries interviewed. It improves their competitiveness. It is one of the few schemes where public research really serves the needs of SME’s

Networking and innovation is closely linked together: companies cannot innovate in isolation. Quality improvements succeed best in interactive environments. Costs can be reduced through external economies and/or 3 The idea of a new production paradigm through networking, based on the seminal work of M. Piore and C. Sable in “The New Industrial Divide” and the work of M. Porter on clusters in “The Competitive Advantage of Nations” have triggered a new approach and regions more and more try to concentrate their activities in a small number of sectors aiming at economies of scope. This is opposed to earlier strategies trying to attract FDI and achieve economies of scale.

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economies of scale. While the latter have been amply used in the past and are still relevant for certain industries, the former become more and more a focus of attention as innovation shifts towards the centre of competition. Companies can benefit from the knowledge which is incorporated in the human capital in certain localities or knowledge available in neighbour organisations be it other firms or public research laboratories. Thus in the modern mode of production external economies are closely related to agglomeration economies. Many regions thus present more or less systematic efforts to promote networking and clustering. The incentives range from simple schemes favouring co-operative projects rather than individual grants (features like that appear in almost all research grants by now as well as the SME Initiative in Greece) to wider choices on the support/generation of regional clusters. The latter is the case in the Saxony and a similar study was launched aiming at the concentration of resources in few clusters in Castilla Y Leon in the future. The promotion of clusters is a difficult task, because although it is a fashionable tool, it reflects choices made by policy makers that practically eliminate support in the sectors outside the selected clusters. It thus takes a very efficient administration able to make the right choices and a strong political support to resist pressure from sectors threatened with diminishing support. Another problem of transferability is the propensity of firms to co-operate, which is a different cultural feature from one region to another. 4.3.3 Lessons by the original key themes The good practices identified in this study can be translated into transferable items classified under the original key themes of this study. The emphasis here, in order to be practical, is on who and how should proceed with the dissemination of good practices and who is the relevant decision making body. They are presented on Table 4.3.1 by primary (P) and some secondary (S) effects. The primary lessons are the areas which these programmes have targeted directly and where they have been most successful. But there are some secondary lessons to learn from successful measures, as in the process of their implementation they have also had some positive intended effects. Management and funding appear to be the themes where primary lessons were concentrated, while learning and interaction and policy are less represented.

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Table 4.3.1: Good practices by theme and their primary and secondary objectives/outcomes Capacity Innovation Manag. Learning Funding Policy

Forbairt P S P P Regional Delegates

P S

CDTI P P P Equity funds P Measure I S P P P ATCs P P P S S PATs P P P S S Norte P S Federation of Industry CM

S P P

IRDG P S Clusters in Saxony

P P

A transversal lesson from the best practice cases is that management is very relevant and the basic principles for effective and efficient public management, well studied and diffused in the literature, are far from being always respected. Good management can make a less well-designed project end up with some success and bad management can totally undermine the most inspired policy measures. In particular, a combination of the best practice cases selected with the overall impression from the schemes studied under this evaluation leads to the following key points: 4.3.3.1 Capacity enhancement Capacity enhancement has been the easiest task in the implementation of RTDI measures. Universities and research laboratories are usually in a position to design their hardware needs and proceed with the purchase of equipment that can be used then for research purposes. Public agencies have the tools to monitor and evaluate capacity enhancement support mechanisms. Problems in this topic may then arise, if capacity utilisation is lower than anticipated, but overall the standard mechanisms of public procurement were sufficient for the capacity enhancement in public organisations. There were equally no major problems encountered in the capacity enhancement of firms, which respected the rules of the game. Monitoring this type of intervention was more an accounting than a management process and all national and regional administrations have responded. Yet, there are further issues to be considered under this theme:

• few, if any, efforts were undertaken to promote sharing of capacity (as the Greek networking measures) in order to improve utilisation; researchers

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are in general reluctant to share except for very expensive calculation power; this may be an issue to take up in the new planing process,

• bigger capacity instruments, like science parks and incubators appear less successful than was expected in the first CSF; except for few cases, most of these exercises are still highly dependent on subsidies and have reduced their ambitions,

• it may be time to consider the idea of turning capacity enhancement to bigger and more ambitious projects ( as suggested by the CDTI and the ATCs cases) and reduce support to smaller scale, difficult to manage initiatives, as there is now a basic infrastructure and additional equipment can be purchased within the framework of research projects,

• countries or regions that grow very rapidly need a different treatment in terms of capacity enhancement than those growing in a moderate pace, because the former soon encounter with bottlenecks that constrain their future growth, while the latter are still need to better utilise their existing capabilities.

In terms of policy the capacity issue seems to have been well understood by all actors in the Member States and there is no particular scope in the dissemination of good practice. The most relevant lesson is that the Commission is in the right track, when negotiating with the Member States in trying to impose good management and utilisation, rather than the creation of new facilities. Although the research lobbies are very effective in demonstrating needs for extending capacity, regional development considerations4 should be the only guidelines (for the ERDF, other sources may be used differently) for extending capacity. Further it is important to insist on adopting principles for good management: assure public-private partnerships as far as possible (give the productive forces and adequate role in participation or management) and promote capacity utilisation through co-operation and good management. Setting milestones and evaluation criteria is a point to insist on and for good justification when capacity is enhanced. There is no doubt that at a certain stage and as Obj. 1 regions grow, their need for capacity enhancement will be higher, but this should be co-ordinated with growth and not independent of it. 4.3.3.2 Innovation Support Innovation support has increased considerably in the second CSF in comparison to the first. In practically all regions there are industry supporting schemes that foresee innovation and technology transfer encouragement. All the good practice schemes that were launched for capacity enhancement include an innovation and technology transfer element and some programmes are specifically designed for that purpose only. Yet there is a high difficulty to really manage such dedicated programmes (as the brokerage scheme in Greece) because they are small scale and soft action oriented, limiting 4 Technology transfer projects, share of generation of funds through contracts with the productive forces and unsatisfied demand demonstrate the type of indicators to be used.

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monitoring and evaluation possibilities. The combined schemes are also difficult to manage and often they miss their primary objective, which is innovation, and concentrate on capacity enhancement (mainly when research organisations are participating) or dead-weight (when companies are applying with liquidity rather than strategic targets). The good practice cases suggest that innovation promotion needs a very strategic and persistent approach and the application of strict criteria (CDTI, ATCs, the Castilla Y Leon RTP), even if this costs time and provokes resistance. In particular, the ATC study demonstrates that it is better to delay absorption and target ultimate good output than vice versa. Most importantly, the cases show that innovation support is likely to work best, the more the productive sector is involved:

• either with the creation of demand-led, dedicated bodies participating in policy design (like the IRDG in Ireland),

• by participation in the boards of the support oriented laboratories or intermediaries (like the UK research associations) or

• by the ownership of research structures. This means that the public sector would be willing to reduce its own power of policy design and management, which is unlikely to occur, unless there is strong political emphasis and support. In some countries one has even observed the opposite direction (like those Greek research associations which lost their autonomy and were transferred to universities). Dissemination of good practice can be very valuable here. Benchmarking the innovation support activities in terms of:

• Timing

• Trust in the ex ante evaluation

• Strategic approach

• Tendencies of risk

• Etc. A indicating to regional or national schemes where they strongly deviate from top performers, is an essential service the Commission can offer. 4.3.3.3 Management The management of the whole RTDI exercise is difficult and complex. Many agencies are by now able to demonstrate good management structures. The ideas of separating policy from implementation, continuity and consistency and the promotion of an evaluation culture constitute the most important elements in this direction. In some regions this culture is easier to assimilate than in others.

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There was no identification of a need to act under private rather than public law to be efficient. Both cases were represented. What was more a common denominator was the need to be pro-active. In LFRs, firms are not sensitised to technology creation and for this reason public bodies need to address their constituencies, rather than react to their requests. The good practice examples can be demonstrated in a dedicated workshop with policy makers (high in the hierarchy) from the cohesion countries. Setting the theme and comparing management resources, the effects of externalisation and absorption/effectiveness is a theme that has not been addressed. The internal policy and implementation aspect are the entire responsibility of the Member States and the Commission has no right to interfere in this aspect, during the negotiation. Yet, it can play a pro-active role in helping less efficient administrations reflect on new aspects, which they usually avoid when overburdened with current work. 4.3 Learning and interaction Learning and interaction are identified as the key element of diffusion and success of technology policies. It has been widely adopted in the targets of the CSFs, but the cases studied show that in terms of implementation, learning and interaction are less successful than targeted. Even successful programmes, like the PATs, saw their success in their immediate projects, rather than in triggering a co-operation culture among themselves. Clusters and networking, which are becoming the flagship of Community policy, remain also more limited to the nature of collaborative projects, than to a real concentration of productive efforts. All collaboration and networking promotion programmes have this ultimate target, but there are no indications that the co-operation culture is now emerging independently of support schemes. Interaction has been best promoted with small scale projects, like the placement of graduates and students in companies and only in few cases through the persistent strategy of individual agencies. Admittedly this theme is the most difficult to implement, because it constitutes the introduction of new behavioural rules and the passage from a low cost to a learning society. Dissemination of best practice here has been widely undertaken by both the academic and empirical literature and by a very wide number of international workshops. A more ambitious study from the Commission demonstrating which of the wide variety of adopted programmes led to the intensification of real clusters, may be a good way to demonstrate divergence between rhetoric and real achievements. 4.3.3.5 Funding Funding mechanisms are increasing their efficiency in all regions. Accounting techniques are improving and the design of budgets benefits from past experiences.

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The most relevant discussion in terms of funding is the idea of the re-introduction of repayability, based on the Spanish experience of CDTI. There are important arguments in favour (better management for firms, possibility to fund more projects and thus achieve a better leverage effect) but also against (punishment of success, the practice of core regions). As in the case of interaction, the case of innovation finance has been amply studied in the international literature and the key obstacle for transferring good practices is the lack of willingness of private finance to match public incentives. Thus it seems that in terms of diffusion of best practice models, the ground is covered by EVCA and other similar associations. 4.3.3.6 Policy Policy design needs to become more ambitious and follow some universal rules, despite the diversity of the regions:

• involve the private sector as much as possible in the design phase (dedicated or inspired bodies rather than federations with general missions are more appropriate)

• assure continuity but mixed with flexibility: continuity should not lead to rigidity, because there are always new lessons and circumstances to adapt to; yet the productive sector needs to know the basic rules of the game, because radical and frequent changes make it difficult to react

• human capital is a key element for innovation and technology transfer, and in the LFR context it is of very high importance to shift it to the centre of policies (despite difficulties to manage such schemes), with placement schemes and with new curricula making studies directly relevant to industrial research, and

• emphasise quality more than absorption. 4.3.4 Conclusions and recommendations This analysis was used in order to recommend new directions for technology and innovation policies in the programming process and negotiations for the third CSF, which will take place in the 2nd half of 1999. As stressed earlier each environment is unique and success is not easy to replicate. In the end of each measure the conditions of success are presented. In summing up these good practice cases, one can conclude with three types of recommendations: Three areas, where tendencies suggest that they could and should be generalised; in this case measures should be taken at the national level and the Commission has no formal right to intervene. Yet, as enough evidence exists that these directions would strongly contribute to the effectiveness of innovation policies in LFRs the Commission should insist in discussing with the Member States their attitudes and milestones towards or their alternatives in this direction. The three most relevant areas for negotiation under this item are:

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• impose good management practices in the overall management of the Funds

• find ways to assure persistence and political backing in longer term exercises

• set milestones and impose the evaluation culture5. The second way the Commission can intervene to support the diffusion of best practice is through the organisation of workshops, with targeted audiences to raise issues that are mature, but as yet not addressed. There are indications that the diffusion of the specific policies would be important, yet skills may be lacking, resistance can be anticipated to be high or other informal rules can be a barrier. Two priority areas are sugegsted under this item:

• the merits of separation of policy and implementation

• the ways collective bodies from the productive sector can intervene and supplement policies.

The Commission can also undertake follow up “training” programmes where good practice cases go into details of daily management, rather than just presenting the case. Finally, the Commission can launch studies for benchmarking (comparison with best practice cases) the measures that practically all regions adopt, but where the impact differs strongly and the demand side requires a better public management. In this case, real benchmarking indicators should be used in three priority areas: • support for industrial research and innovation, examining in particular the

rapidity and overall contribution of the same type of scheme in selected countries

• benchmarking the cost of technology and innovation policy and funds flowing to the public sector, compared with funds received by the actors implementing research and innovation

• econometric analysis in selected regions. This type of action should be accompanied by dissemination activities.

5 There is no doubt that the Commission has gone a long way in this direction and has virtually taught some Member States what evaluation means and how it should be used. Yet, some Member States learned faster than others did, and the where the quality or the feed back are still not satisfactory are not rare. This point thus is means to emphasise and encourage reinforcing an existing tendency, not a recommendation for the introduction of something new. Rather the management and sanctions for lack of evaluation is proposed.