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Title(Innovation) (Lundvall) National Innovation System
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Page 1

Working paper

National Innovation System:
Analytical Focusing Device and

Policy Learning Tool

Bengt-Åke Lundvall

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ITPS, Swedish Institute for Growth Policy Studies
Studentplan 3, SE- 831 40 Östersund, Sweden
Telephone +46 (0)63 16 66 00
Fax +46 (0)63 16 66 01
E-Mail [email protected]
ISSN 1652-0483

For further information, please contact Håkan Gadd
Telephone +46 (0)63 16 66 00
E-Mail [email protected]

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These micro-sociological structures have a major impact on the mode of innovation as well
as on what kind of innovations the system will give rise to. They will also affect the rate of
diffusion and the degree of efficiency in the use of new technologies. This is why similar
economic mechanisms and incentives may affect different innovation systems differently
and why a ‘pure’ economics perspective on innovation is too narrow. A major task for
innovation system analysis is to make these micro-relationships visible (to open the black
box of social interaction) and to see how they shape and are shaped by the macro-processes
in the innovation system. This perspective also leads us to make the distinction between
the core of the innovation system and the wider setting.

5.2.2 The core and the wider setting of the innovation system
On this basis we can define the core of the innovation system as constituted by firms and
organizations belonging to the knowledge infrastructure. In principle we include all firms
in the core since we assume that every firm has a potential for developing, absorbing or
using new technology.18 We also include them because they more or less are ‘sites of
learning’ where employees may renew their competences while working. We include all
organizations belonging to the knowledge infrastructure in the core as well. Again these
include both those involved in science-related activities and those that contribute to
competence building through education and training.

The wider setting refers to the institutions that shape human interaction in relation to
innovation. These institutions include, first, family pattern, education system, career
patterns in labor markets, inequality and social welfare systems. Second, they include in
the economic context especially the historical record of macroeconomic stability and the
access to finance. Third, they include the final demand from households and public sector
organizations. Fourth, they include government and public policy directly aiming at
stimulating innovation, including diffusion and efficient use.19

5.2.3 A method to study national innovation systems
In what follows I will sketch the outlines a method to study national systems of innovation
that moves from micro to macro – and back again to micro. The ‘model’ starts from the
following stylized facts:

• Firms play the most important role in the innovation system.
• Firms innovate in an interaction with other firms and with knowledge infrastructure.
• Firms’ mode of innovation and learning reflect national education systems, labor

markets, etc.

• Firms belonging to different sectors contribute differently to innovation processes.

18 Today with the wide diffusion of information and communication technologies this is not a far-
fetched assumption. For instance the wide diffusion of mobile phones in China has certainly
changed the mode of operation of drivers of the most primitive transport equipment – including
rickshaw bicycles in Beijing.
19 This way of setting the scene indicates a marginal role for public policy. What is intended is
rather to see the public policy mainly as intervening in relation to the core and the wider setting of
the national innovation system – we will in later sections develop a theory for public intervention.
Alternatively we could see public policy as endogenous. To some degree we take this perspective in
Edquist and Lundvall (1993) where we demonstrate how innovation policy in Sweden and Denmark
tends to reproduce rather than renew the strengths of the respective system.

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Therefore the first step would be to analyze what takes place inside firms in terms of
innovation in the light of organizational set up and human resources while taking into
account sector specialization.

A second step would be to analyze the interaction among firms and with knowledge
infrastructure, including both domestic and international linkages.

A third step would be to explain national specificities in these respects with reference to
national education, labor markets, financial markets, welfare regimes and intellectual
property regimes.

A fourth step would be to use firm organization and network positioning as factors that
explain the specialization and performance of the innovation system.

This method focuses the analysis on the central motor in the innovation system, i.e. the
total population of firms, their linkages to each other and to the knowledge infrastructure.
But it also recognizes that most parts of the socio-economic system may influence how this
motor works and not least how it affects the performance of the economy as a whole.20

This was the method used to organize the Disko-project analyzing the Danish innovation
system in a comparative perspective (Lundvall 2001). In the next couple of sections we
will discuss the design of innovation policy in the light of what we learnt from this project.
We will also draw upon experiences from OECD.

20 A similar distinction between core and wider setting might be witnessed in medicine. Experts
specialize and focus on the cardiovascular system and develop methods to measure and analyze
what takes place in this sub-system (EKG, measuring blood pressure and pulse rate). This does not
rule out that the expert recognizes that blood pressure and heart rhythm will reflect as ‘wider
setting’ the life style of the patient – including drinking, smoking and jogging. Neglecting this
‘wider setting’ when making the diagnosis and recommending a cure might make the analysis ‘more
rigorous’ but it would certainly have quite negative effects for the patient.

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