The USA is widely acknowledged as the most innovative nation in the world. The size of US markets provides an advantage to the US innovation system. It allows US innovative businesses to grow large, delivering high returns from successful marketing or technological innovation. But the US Government plays a major role, perhaps greater than recognized, in shaping innovation. The Cold War years saw significant investment by the Federal Government in supporting Research & Development activities in industries and universities, especially in defence-related technologies, life sciences and energy. It provided a powerful impetus to the development and commercialization of new civilian technologies in commercial aerospace, semiconductors, computers, and computer software. These then attracted increased private investment into the development of civil technologies with wide commercial applications. The Defence Advanced Research Projects Agency (DARPA), created in 1958, remains instrumental in fostering these spillovers by developing technological initiatives, providing funding but also skills and management support to businesses, and providing a brokering function between university research, businesses and the public sector. The budget of this Agency is about $3 billion per year and funds exclusively challenge-led schemes in high-risk high-reward areas of life sciences, physical sciences and engineering. US federal research funding for academic and business institutions is distributed by governmental departments and agencies, including the Department of Defence(DoD) the Department of Energy (DoE), the National Science Foundation and the National Institutes of Health (NIH). The NIH has an annual budget of $32 billion and is the largest civil agency.

Over the last couple of decades, faced with more intense foreign competition, more limited financial resources and the growth of regional US clusters, federal policymakers launched more decentralized programs spread across a number of agencies. These programs sought to strengthen civilian technological capabilities by subsidizing and promoting joint research, encouraging collaboration between US universities and industry in technology development, and supporting collaboration between US industry and the federal laboratories. In the late 1980s programs such as the National Center for Manufacturing Sciences (NCMS), the semiconductor research consortium SEMATECH, the Advanced Technology Program (ATP) of the Department of Commerce, and the National Science Foundation¡¯s Engineering Research Centers all represented a new technology policy and relied on expanded funding from the private sector. Public procurement is also a lever effectively used by the US Government. The Small Business Innovation Research Programm (SBIR) requires Government Departments and agencies with large budgets to use 2.5% of their research procurement to support small business initiatives. SBIR funding is about $2 billion annually with additional contributions at local levels. For instance North Carolina matches all federal SBIR funds dollar for dollar. Other US initiatives in technology policy were to reduce antitrust restrictions on collaboration in research and improved intellectual property protection. Today¡¯s US Innovation System has some strong characteristics. Integrated innovation systems within US Government Departments (e.g. DoE, DoD and NIH) include support for research and proof of concept work, as well as support for product development and public sector organizations acting as a lead customer for innovative products and services through programs such as the SBIR, Public funding to undertake long-term, challenge-led research and R&D activities with universities and businesses. These programs have played a significant role in the development and commercialization of major innovations, e.g. telecoms and the internet. Increasingly the funding of these programs is linked to international collaborations.

 

An exceptionally strong public and university research base, supported through federal agencies like the National Science Foundation and National Institute of Health, provides a bridge to commercialization and help to de-risk private investment, funding activities at a later stage of the innovation cycle than UK Research Councils. The US also provides significant incentives for universities and business to commercialize innovations, through offering ownership of all IP arising from federally-funded research, which has encouraged US institutions to invest in their technology transfer and exploitation capability. The existence of diverse and large companies that are investors in R&D and also in wider forms of innovation, ranging from ICT companies such as IBM, Microsoft or Cisco, to aerospace and defence companies such as Boeing, and Life Science companies such as Pfizer, Amgen, and Johnson & Johnson. Large companies in non-technology-based sectors are also important customers for innovative products, notably Amazon and Wal-Mart, whose investment in logistics and supply chain management technologies in the 1990s had a significant impact on US retail productivity growth. A dynamic entrepreneurial culture which tolerates failure, linked to strong clusters e.g. Silicon Valley, Boston, Austin and North Carolina helps to drive innovation. The combination of the availability of venture capital, business angels, and other forms of public and private investment alongside strong mentoring programs, facilitate business start-up and rapid growth to large scale in high-technology sectors. The important role of new small businesses in commercializing technological advances appears to be unique amongst major economies. A successful government sponsored funding program for small businesses (SBIC). For every $1 an SBIC raises from a private investor, the Government provides $2 of debt capital, subject to a cap of $150 million. This attracted $840 million of private

capital in 2010-11. Since its inception, the SBIC program has helped finance thousands of small businesses, which have grown to a significant scale, including Costco, Amgen, Staples, Apple, AOL, FedEx, Intel etc. In 2009 the President announced a Strategy for American Innovation, a broad-based economic development strategy that channelled stimulus funding.

 

Although the Japanese economy faces the major problems of an ageing population, negative economic growth over recent years and a fragile environment, the Japanese innovation system still remains one of the most effective in the world. It is based on central government and the role of the Ministry of Economy, Trade and Industry (METI), large conglomerates and social and educational innovations. The industrial and economic miracle of Japan was carefully designed and directed. In the 1960s and 1970s Japan was a big importer of technology through various mechanisms of technology transfer while simultaneously developing the basis for self-reliance and the ability to absorb technologies. Since the 1980s Japan has been at the forefront of most generic technologies. This transformation has been done on the basis of a national consensus in which central government played a leading role. METI shapes the long-term economic development of Japan. Technology forecasting and targeting is under its responsibility, which it performs in collaboration with the Ministry of Education, Culture and Sports, Science and Technology (MEXT). METI creates the ¡®technology strategy maps¡¯ through consultation with industry, academic institutions and government departments. Research, development and innovation are seen as strategic priorities by the Japanese government as well as by industry. The capacity to mobilize very large resources in pursuit of strategic priorities is a feature of the Japanese innovation system. Research expenditure represents about 4% of GDP. METI supports innovative investment through research and funding agencies such as the National Institute of Advanced Industrial Science and Technology and the New Energy and Industrial Technology Development Organisation. However large corporations provide about 80% of the national research expenditure.

Japanese large corporations have close links with central government. The strategic visions developed by METI are used as guiding maps for future industrial developments by industry associations and large conglomerates such as Mitsubishi, Honda, Mitsui and Sumimoto. They allow for large strategic investments with long-term objectives. They also facilitate the access of the world markets through strong marketing strategies and networking. In the 1980s most of their research was conducted by in-house laboratories. More recently, they have been developing research collaborations with universities and research institutes.

 

Flexibility within Japanese companies and the dedication to quality of product design and development is also a feature of Japanese innovation. Thorough product design and aims for customer satisfaction are the main factors behind the constant quality improvements of the Japanese products. Companies often have the practice of rotating engineers from the R&D departments to the shop floors and back again which gives them additional customer knowledge. Japan also has among the highest skilled workforce in the world. A high proportion of Japanese complete a higher level of education and a significant proportion of them study science and engineering. On-site training is considered by companies to be the most important element in the formation of technical skills. In addition, companies often have established formal training courses and skill formation centers. This is favoured by an economic system where traditionally employment in a Japanese company is for life.

In August 2011, METI released a 5-year science and technology plan. It identifies innovative culture and funding for science and technology as a national priority. The plan includes a target of R&D of 4% of GDP, with corporations contributing 3% and Government 1% (about ¡ê190 billion).

 

 

Germany built much of its economic success over the past decades through maintaining high-value added engineering and heavy industries, which demonstrates the strength of the German innovation system. It is the integration of high-tech into medium and low-tech products that forms the basis of German innovation. The German system has a decentralized structure with multiple actors, strong SME networks, and national technology and infrastructure priorities. Germany is committed to increasing R&D spend to 3% of GDP by 2015. Investment in education and research remains a priority through the economic crisis. R&D spend was 2.8% of GDP in 2009 ¨C two-thirds of this provided by industry. Some federal states (Lander) have their own innovation programs which contribute to competition, regional differentiation and cluster development, with over 3% of GDP invested in R&D in Bavaria and Baden-Wuerttemberg. Germany¡¯s Laender are involved in joint policy co-ordination processes and co-fund research organizations and university infrastructure.

 

Germany has a well-funded research landscape. Some 70 Max Planck institutes specialize in basic research, while about 60 Fraunhofer institutes conduct applied research, collaborating closely with industry. About 80 Leibniz institutes and 17 Helmholtz large science centers engage in basic, strategic and applied research. The Federal and Lander Governments will increase base funding for Germany¡¯s research organizations by 5% per annum. The High-Tech Strategy is Germany¡¯s cross-departmental mechanism to promote innovation. With a €15 billion budget in 2006-2009, it promoted a mix of sectors and enabling technologies supporting national priorities and addressing global challenges: climate/energy, health/nutrition, mobility, security and communication. The second phase of the High-Tech Strategy launched in 2010 focuses on scenario-based innovation strategies and roadmaps. It places even greater emphasis on knowledge transfer, commercialization, and strategic science-industry partnerships. Industry plays an important role in defining priorities and in leveraging public-sector funding. The High-Tech Strategy has created long-term public-private partnerships in emerging technology areas. Industry is involved in roadmap development and priority setting. Leading companies such as BASF, Bosch, Daimler, Deutsche Telekom, Siemens and Deutsche Post DHL contribute to Germany¡¯s High-Tech Startup Funds launched in 2005 and 2011, providing over €500 million for start-ups. So far 250 start-ups have been supported, leveraging over €300 million in private-sector follow-on finance. Almost 80% of R&D is channelled into automotive, electrical engineering, chemicals and machine tooling industries, but Germany increasingly invests in advanced sectors like ICT, biotechnology and nanotechnology. The influential Mittelstand, family-owned innovative SMEs, lies behind Germany¡¯s leading position in export markets, from machine tools to laser systems. Recognizing this, the German government actively promotes innovation in SMEs. The Central SME Innovation Program (ZIM), launched in 2008 with an annual budget of €300 million, funds research co-operation between SMEs and between SMEs and research institutes. As part of Germany¡¯s economic stimulus package a further €900 million was provided in 2009-2010. The program successfully secured and created jobs during the crisis.

 

The Swedish economy, like other small economies, has a strong international orientation and this is reflected in its innovation system. The high performance of Sweden is also linked to the interplay between large multinational companies, industrial policy, university research, and dynamic public sector organizations. Around 4% of GDP is invested in R&D: 1% is government spending and 3% from industry. The Swedish industrial system is characterized by a large knowledge intensive and export-oriented manufacturing sector dominated by a small number of large multinational groups grown from traditionally strong domestic industries, such as Ericsson, Volvo, SAAB, AstraZeneca, Electrolux, etc. With the growth of clean technologies, digital and service sectors, and life sciences, SMEs are playing a strategic role but concerns persist about their ability to grow. Most government funding goes to universities. A few universities (Karolinska Institute, Lund, Uppsala, Goteborg, Chalmers and Stockholm) and the Swedish Royal Technical Institute dominate Swedish research. In 2009-2010 the Government released €250 million to 21 national Strategic Research Areas for the first time. The Swedish innovation system is made up of many organizations under the national innovation agency (VINNOVA) with a budget of around €200 million per annum. For instance, the industrial research institutes¡¯ main mission is to provide research services to the business sector, the Government covering the costs of facilities and skills development. Their work is demand-driven and they act as an interface between academic research and product development in the business sector. VINNOVA develops research and innovation strategies for specific sectors in close dialogue with businesses and key actors in the respective sector. It produces analytical work to try to understand the future needs for a specific industry, what type of competence is available at the Swedish universities, what the international competition is, and where growth areas are including information and communication technologies (ICT), services and IT implementation, biotechnology, manufacturing and materials. This type of approach aligning industrial and research needs will continue to drive Government funding for both research and innovation in the next National Research Bill in October 2012. VINNOVA is also moving towards challenge-led innovation as an overriding goal e.g. more innovative public sector procurement, maintaining its focus on four national priorities: sustainable cities; health wellbeing and medical; competitive industry; and information society.

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