INNO Policy TrendChart on trends and challenges in demand-side innovation policies in Europe

Submitted by empirica on 28 November, 2011 - 22:23

Demand-side innovation policies are important policy instruments that intervene alongside demand, instead of a supply-driven push. They aim to increase the demand for innovations, to improve the conditions for the uptake of innovations, or to improve the way demand is articulated. Some famous success stories of demand-side tools where regulation, standards or public procurement played a critical role in spurring innovation include the internet, the GSM for mobile telephony, aircraft jet engines, high-speed rail technology, or recent eco-innovative developments.

The relevance of demand-side measures has been highlighted by the European Commission’s “Innovation Union” Communication, which argues that “the potential of the single market should also be activated through policies that stimulate the demand for innovation”. It also says that a “bolder approach associating the supply and demand sides is needed”. A growing awareness amongst policy makers of the need to make better use of the power of public spending for innovation, plus the recent focus on seeking solutions to societal challenges, provides a new basis for the spread of demand-side innovation policies.

INNO Policy TrendChart, the longestrunning innovation policy monitoring tool in Europe, has looked deeper into the subject, identifying the trends in the deployment of demand-side innovation policy at national level in the EU Member States. It also offers an overview of recently introduced demand-side innovation policy measures and assesses how far there are patterns. The analysis covered 31 European countries (EU 27 plus Norway, Iceland, Switzerland and Liechtenstein) and relied heavily on the information provided by the TrendChart country correspondent network during the period of June/September 2011.

It found a general trend in strategic documents and policy measures towards more demand-based approaches. And compared to the 2009 policy brief it features more prominently across the board. In a number of countries demand-side innovation policy has become an explicit part of recent innovation strategies, even if it is often not labelled as such.

Several experiments and pilot projects to test new approaches are under way or are being planned, despite current debates as to where the boundary lies between supply- and demand-side measures and what kinds of interventions are legitimate and appropriate. However, a majority of countries still focus largely on supply-side instruments. Even in countries with clear commitment, it is still relevant to promote the discussion of how to implement demand- side innovation policy tools, and what their impact can be.

In general, a relatively slow shift can be observed towards a demand-supply mix. Countries have adopted a move towards demand-based measures in different ways and to different degrees. In some there appears to be merely lip service, without a real definition or design of measures. In consequence, it is still too early to say whether demand-side type of activities meet expectations, if they will be continued, and what form they may take in the future.

There have been few systematic evaluations or impact assessments of demandside innovation policies. Such evaluations that exist of demand-oriented diffusion policies and innovative public procurement highlight the need for demandoriented policy measures to be designed with market and supply-side conditions in mind if they are to have a significant impact over time on innovative market areas.

Given that innovation policies are functionally and in time tightly intertwined with other policies, experience suggests that an integration or at least close coordination with related policies appears indispensable.

As for types of measures, the report found that there is a strong focus on public procurement of innovation, and, more recently, pre-commercial procurement has received particular attention. The UK, the Netherlands or Belgium (Flanders) have been pioneers, but Spain, Sweden, Italy and the Czech Republic are now experimenting with pre-commercial procurement schemes.

Regulations remain important influences on innovation activities, however, and these remain very much in the domain of sectoral, industrial policies, rather than an explicit element in innovation policy. Support to user-driven innovation is an emerging approach within demand-side policy, but concrete support measures are not common. Green technologies have been a particular focus of current demand-side policies; particularly, green public procurement is recognised as a priority. Examples of eMobility initiatives as launched in a range of countries (Estonia, Germany, Portugal, the Netherlands, and Lithuania) were also identified and examined in the report.

There are indications of more systemic policies, combining different demandbased instruments or even demand- and supply-side approaches. These range from demand-led supply-side policies, where supply support is focused on areas with a clearly defined demand (e.g. societal challenge), to lead-market types of mix, focused largely on the demand side itself, with some underpinning supply-side support. This suggests that in the future interventions might be designed in a more holistic manner, focusing on the specific context of challenges and sectors rather than launching trendy but isolated innovation policy initiatives.

The report draws attention to the potential danger that demand-based measures might be rolled out prematurely and with high transaction and learning costs in certain cases. Support in understanding the challenges and opportunities of different forms of measures is needed. Only “intelligent learning”, rather than a simple policy of copying, can make the roll-out of demand-based measures successful. To that end, the EU can provide an important test bed. It is essential that the challenges of those policies and the importance of context and accompanying policies are stressed, and evaluations of early applications should be widely shared and discussed.