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Evaluating innovation policies: The German experience
Z’echnouation, 5 (1987) 317-330 Elsevier Science Publishers B.V., Amsterdam -
317 Printed in The Netherlands
EVALUATING INNOVATION POLICIES: THE GERMAN EXPERIENCE Frieder Meyer-Krahmer Department of Industry and Technology, German institute for Economic Research (O/W}, KiiniginLuise-Strasse 5, D- 1000 Berlin 33 (Federal Republic of Germany)
ABSTRACT Until recently, evaluations of technology policy were rare in the Federal Republic of Germany. Activities of this type on a larger scale were not started until the early eighties. Most of the evaluations performed concerned government incentives for small and medium-sized enterprises (SME). The main areas of research and development (R & D) and innovation promotion in small and medium-sized firms are the improvement of the capability and propensity to do in-house R & D, intensified cooperation in R & D between industrial firms and research establishments, the provision of more venture capital, and improved technology transfer. The underlying assumption is that these firms have bottlenecks, in particular in financing, in the personnel sector, and in obtaining information. A number of the existing support programs has meanwhile been investigated; the results of these investigations are covered in this paper. Initially, the underlying concept of impact analysis is outlined. Next, examples are presented of evaluations of general R & D funding measures, of grants for specific projects, of the debate about the most suitable instruments of promoting R & D in SME, and of technology transfer. Finally, some implications arising from the results of these analyses for technology policy in the Federal Republic of Germany are discussed.
INTRODUCTION Innovation policy consists of government actions aimed at technological developments and their implementation in the economy. Innovation is defined as the development of technologically new or improved products or techniques and their commercialization in the market or implementation within production. Impact analysis (or evaluation) means the examination and assessment of the effectiveness of government innovation policy. The key elements of impact research are analyses of the clients reached, the degree of goal attain-
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ment of a program and the actual effects achieved, both intended and unintended, as well as analyses of implementation and administration. In view of the thin empirical backing of impact hypotheses and the assumed bottlenecks of innovation in industry, analyses of the conditions underlying each program are regarded as an important additional element of such impact analyses. Verifications of the theoretical considerations of governments and ministerial bureaucracies on which the conditions and administrative handling of promotional instruments are based should also be included in impact analyses because they constitute the only way of ensuring that not only scientists, but also political administration may learn from the results. The most important programs investigated so far were mainly designed to support small and medium-sized enterprises, i.e. - general financial (called ‘indirect’) support of R & D (R & D investment tax credit; grants for R & D personnel), - support granted to specific projects (promotion of data processing; project funding by the German Federal Ministry for Research and Technology as far as this relates to small and medium-sized enterprises; initial innovations program ) , - promotion of technology transfer (innovation consulting) and R & D cooperation (contract research). Other analyses were conducted, or are being conducted, in the fields of energy, manufacturing technologies, humanization of the working environment, technology transfer from national research centers, and start-up of new technology based firms. The programs evaluated so far correspond to approximately one quarter of the expenditures made by the Federal Government to promote R & D and innovation in industry.
GENERAL FINANCIAL SUPPORT OF RESEARCH AND DEVELOPMENT In July 1978, the German Federal Government launched an extensive growth promotion program as a German contribution to an economic recovery. Part of the effort was a program promoting R & D in small and medium-sized firms in the manufacturing industries offering grants towards the costs of R & D personnel. The program became effective on January lst, 1979 and has since been managed by the Arbeitsgemeinschaft Industrieller Forschungsvereinigungen (Union of Industrial Research Associations, AIF) on behalf of the Federal Ministry of Economics. These grants towards the costs of R & D personnel have become an important element in the general concept of research and technology policy of the Federal Government vis-a-vis small and mediumsized enterprises, thus bearing witness to the growing importance of these firms within the innovation policy of the Federal Republic of Germany since the late
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seventies. The Fraunhofer-Institute for Systems and Innovation Research (ISI) has been commissioned to evaluate the program [ 1,2 1. While a figure of some 2000 firms eligible for grants under the program had been estimated before the program was started, already by 1979 some 4500 firms had applied for R & D personnel-cost grants. By 1983, this figure had risen to almost 7500. Over the whole period between 1979 and 1982, some 10,000 firms received such grants at least once. This amounts to about 22% of the firms employing more than twenty persons in the manufacturing industries. Over the same period of time, the firms received aggregate grants of approximately DM 1.5 billion. More than half of the firms supported in the first four years had less than 100 employees. Especially the firms freshly joining the program were mainly in this category [ 2 1. The program of grants towards the costs of R & D personnel supported especially such firms which had not previously profited from the government’s research and technology policy. The high level of utilization of these personnel cost grants is also a consequence of the specific area at which this funding measure is directed, namely expenditures for R & D personnel. One of the reasons why for example a program on external contract research has been accepted to a lesser extent is the fact that only a smaller number of the firms are engaged in external R & D. However, the popularity of the program tells nothing about the internal effects, if any, of these subsidies. In order to allow the impact of the program (i.e. the part of the program used by firms for additional R & D and innovation activities) to be assessed independent of the data furnished by the recipients of grants, a comparison was made between funded and non-funded firms. On the whole, it can be estimated that some 60% of the funding volume was used for additional R & D and innovative activities, the other 40% being spent on projects which would have been carried out also if there had been no grants. This indicates a 60% impact of the program, which is higher than the impact found for R & D tax credit in Canada, U.S. and Sweden [ 3 1. The impact of the German program is slightly higher than in the U.S., where the absolute level of effects achieved is considered to be unsatisfactory. The higher impact of the German program may be explained by the fact that the make-up of the program differs from the foreign programs in many respects. On the one hand, the funding rate of 40% is relatively high (especially since it refers to the aggregate gross wages and salaries of R & D workers and not only to their increase), which makes for a major financial impact. On the other hand, this type of support arouses more attention (applications filed with AIF and processed quickly by that organization, separate payment of the grants, as against slow processing by the internal revenue authorities and less visibility because of deduction from taxes owed). It must also be taken into account that the delinition of R & D leaves much freedom for interpretation to the firms. Especially in drawing the line between R & D and design efforts and between indirect and
direct R & D activities firms state that they have great freedom of decision. Inquiries among the firms receiving such payments showed that approximately one third of the firms interviewed strictly adhered to the definition of R & D, while some fifty percent made cautiously, some ten percent even excessively, liberal use of the program for their own benefit. This means that some two thirds of the firms receive grants which are clearly too high, in a small percentage of the cases excessively high. This detracts from the efficiency of the program to an unknown account. In addition, it was attempted to develop a typology of ‘free rider’ firms (for which the grant had no effect on their R & D budget decisions) and those firms which used the grants for additional R & D and innovation expenditures. The profile of firms which, according to their own statements, used all of the grants for increasing their R & D expenditures shows that these firms participated in the program every year since 1979 (which also shows that medium and longterm funding is more effective than short-term measures) ; the degree of organization in these firms is relatively high, they carry out major R & D projects and have hired new R & D staff in recent years; their R & D intensity is above average and, finally, the high-tech products they offer are frequently instrumental in securing them good market positions. ‘Free rider’ firms show a profile which is precisely the opposite in many respects [ 21. This means that dynamic firms use grants for additional R & D and innovation to an overproportional extent. The widely held assumption that these very firms were the ‘free rider’ companies has not been confirmed. In the public debate general, technology-unspecific R & D promotion is ascribed a positive influence on the innovation climate in firms. Braunling and Harmsen [ 41 already pointed out that the way in which general promotion measures are designed has a major influence on the general climate towards R & D and innovation atmosphere on a medium and long-term basis and is thus able to affect the average level of R & D and innovation expenditures. Also Biekert [ 51 strongly emphasized the psychological effects of general R & D promotion. The Bundesverband der Deutschen Industrie (Federation of German Industries ) had long accentuated the influence on the general atmosphere produced by general R & D promotion [ 6 1. Riithlingshijfer and Sprenger [ 71 point out that a twofold influence of general R & D promotion on company decisions is to be expected: On the one hand, it is claimed that the mere fact of a company receiving funds as a result of these promotion measures greatly strengthened the position of R & D managers in the battle for the limited budget available within the company. According to Biekert [ 51, the psychological effect of general promotion could be even more important in some cases than the funds proper. On the other hand, the fact that the government declared a certain corporate function, namely R & D activities, to be desirable by awarding a bonus for it, would strengthen the motivation of firms to incur R & D
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risks, thus adding to the readiness for innovation and the innovation potential of the whole economy. Our study [ 21 confirms that hypothesis only inasmuch as the status of R & D within firms is improved by the grants and the motivation of firms, where it exists, is strengthened (amplification effect). However, no ‘Sleeping Beauty’ effect caused by the grants towards personnel costs was discovered, i.e. no firm was found to have embarked on R & D for the first time solely as a consequence of the program (it should be added that the program was not specifically designed to produce such an effect). Mere financial incentives do not appear to be able to make firms start technical development work of their own. Direct personal contacts and consultation coupled with financial support are probably needed to achieve such a swing in corporate strategy and its practical implementation which, after all, is associated with major structural changes, internal obstacles to venturing into unknown territory, finding new outlets, etc. GRANTS
FOR SPECIFIC
R & D PROJECTS
In the Federal Republic of Germany, data processing (DP) was supported by the Federal Ministry for Research and Technology in three program phases between 1967 and 1979, with rather ambitious goals: (1) raising the level of performance in DP; (2) attaining a solid level of international competitiveness; ( 3 ) increasing the technological autonomy of the national DP industry. Most of the support came in the form of funds for specific R & D projects; to a smaller extent funds were made available to users of DP and for training and science. The results of the whole exercise are considered to be relatively modest in the program evaluations available [ 8,9]. Criticism is leveled especially against the onesided orientation of the funding measures to technological projects. In general, the result is that the German firms succeeded in reaching the international standard of technology, but this did not ensure the entrepreneurial transformation into advantageous competitive positions. The program should more specifically have been guided by overall market strategies of the firms (and advanced these). But translation into the market was hardly taken into account in the funding schemes and, in addition, was an aspect not even properly cultivated by the firms themselves. Instead, the whole program was strategically concentrated onesidedly on the development of universal computers, neglecting newly developing product/system segmentations, which would have been explorable if a careful and sensitive assessment of technical developments and market strategies would have been undertaken. Furthermore, the inability to stimulate sufficient public demand, in contrast to the situation in the U.S., was regarded as a particularly negative aspect. In the U.S., that demand had been of a military nature. Coordinating demand in the civilian sector meets with the limits of the political systems in both countries,
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as such demand is difficult to coordinate because of the fragmentation caused by the federalist structures. The findings of these evaluations seem to confirm some of the arguments heard in US. discussions (e.g. ref. lo), in which it was regarded as not very meaningful (arguing against the ‘picking-up-the-winners’ concept) for the government to define the details of future profitable technologies by funding R & D projects, because the limited amount of information available to the government, its lack of flexibility in adapting to changing market structures and market signals during the development process, and its lack of competency in industrial exploitation rendered the government unable to do the job. Nelson’s [ 111 analysis of the incentives granted to manufacturers of semiconductors and computer manufacturers in the U.S.A., in Japan and in the Federal Republic of Germany shows that no ‘national champion’ was elected within the framework of this government support in the U.S.A. and in Japan, while just that is what happened in the Federal Republic of Germany. Instead, the measures taken in the former countries were deliberately designed to enhance competition among several domestic vendors. According to Nelson, this had the consequence of avoiding a situation in which the competitive position of the semiconductor industry (and hence also government support) depended on the development of one or a few firms. The choice, and priority funding, of one ‘national champion’, however, prevents this very type of risk sharing. To us this empirical evidence shows only the practical difficulties of R & D project funding, but it cannot be used as a general argument against this type of government action. Specific lacks of the development, e.g. of new manufacturing technologies or of productivity of natural resources, need specific government reaction. When government’s reason for technology-specific funding deliberately is to give incentives towards technically and economically high risk R & D, the rate of failure must inevitably be high. But above all, to judge the adequacy of government involvement it must be differentiated what this involvement is aiming at: the judgements will clearly differ if government activities are aiming at high technology funding for reasons of competitiveness of domestic industries, or of developing technologies for public needs. The further question of interchangeability of directive or nonselective R & D promotion (especially for SME’s) will be dealt with in the following paragraph. THE DEBATE ABOUT INSTRUMENTS
APPROPRIATE
PROMOTION
The discussion about technology-specific project funding (‘direct’, such as support for data processing industry) and general, nonselective R & D promotion (‘indirect’, such as R & D tax credits or the grant for R & D personnel) has found its reflection in official government documents to such an extent
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that, for instance, the budget of the German Federal Ministry for Research and Technology (BMFT) is subdivided into these very categories. Usually, a ratio of technology specific project funding to general nonselective R & D promotion is established. This ratio has developed from 14.4:1 (1976) to 4.81 (1980) and on to 2.4:1 (1984). This development is regarded as a positive trend by the present German Federal Government, as more general promotion had been achieved not only in absolute, but also in relative terms. The goals, at least those of industry-related technology policy, have remained more or less unchanged. This development is based on the hypothesis that general promotion can replace technology-specific project support without any loss in effectiveness in reaching the goals. It can be tested in detail whether the goals of these instruments of promotion, the target groups they reach, the in-house effects they produce, and the implementation of the programs differ from each other to such an extent that it would be hard to uphold the idea of the substitution capability of these promotion instruments. A survey of promotion strategies, in-house effects, and management of these promotion instruments is presented in Table 1. It is seen that two differences exist with respect to the goals of promotion: project funding by BMFT within technology-specific programs is meant to promote high technology to reach an international level, while grants towards the costs of R 8z D personnel primarily seek to raise the general level of R & D activities. However, the instruments used for promotion differ also in terms of the deficits assumed: both tools are based on the idea that government support should remove existing deficits in firms; these deficits are of a technological nature in the technology-specific project funding by BMFT, while in the case of grants towards the costs of R & D personnel they represent general deficits of small and medium-sized firms. By definition, the selectivity of the two instruments of promotion differs greatly. R & D project support has been said to have a high level of selectivity and also a high degree of concentration with respect to branches of industry and regions (cf. refs. 12 and 13). However, this finding is based on the support to large firms which receive a big share of the industry-related R & D expenditures of BMFT. For the funding of small and medium-sized firms the thesis is not confirmed. The overall distribution across sectors of industry of small and medium-sized enterprises reached by technology-specific project funding (in total 10 programs of the BMFT supporting different technological areas) differs in only a few sectors of industry when compared to the distribution of general R & D funding (distribution of budgets and firms promoted). A similar result is obtained on a regional basis (Federal States; cf. ref. 12). Though limited to specific sectors of technology, project funding thus has no higher selectivity within the manufacturing industries than have grants towards the costs of R L?z D personnel. Naturally, both incentives preferably reach those branches of industry in which R & D is carried out most frequently and on a large scale.
Effects onR&D - Share of high-risk, expensive and longerterm R & D projects - Enhancement of R & Dorientedness
branches, regions Clients - Degree of participation - Innovativeness - Typical R & D projects
- Selectivity - Concentration on
Support strategies - Goals
Evaluation criterion
Mainly in firms with existing technology-orientedness
As a rule, clearly positive
Very broad Low to high, but mostly low Mostly small projects close to the market
Very limited Medium to high Some relatively highrisk, expensive and longer-term projects
Small
dominate
regions dominate
Large
(b) Balancing general deficits of small and medium-sized enterprises Very low R & D-intensive branches and regions
(a) General improvement of R & D potential
Grants towards the costs of R & D personnel
of grants towards the costs of R & D personnel and
(a) Supporting high technology to reach international level (b) Balancing technologyspecific deficits Very high R & D-intensive branches and
Technology-specific project funding (only when small and m~ium-sib enterprises are concerned)
Type of incentive
Empirical findings of comparison of promotion strategies, clients, effects, and administration of technology-specific project funding in the Federal Republic of Germany
TABLE 1 5?
- Certainty of funding for multi-annual projects
- Amount of grant
Administration - Barriers to acess, especially for first-time applicants - Transparency of the different support possibilities - Costs of application and administration - Control - Consulting
- First launch of major high-risk projects - Venturing into new areas of technology - Influence on accelerated structural change - Secondary effect: added know-how for follow-on projects on the balancing of deficits in innovation financing
on innovation and competitiveness - Time to commercial application
Longer lead time (up approval), then stable basis for calculation
Small Administrative: low, technical: none Lower, both absolutely and relatively Uncertainty about future changes in conditions of funding
Medium
Large, both in absolute and relative terms I=ge Administrative and technical consulting available High
Only a small percentage of firms have grave financial deficits
Only a small percentage of firms have grave fmrincial deficits
Good
Differing, as a rule limited
Often large
LOW
Diffuse
Occasional
Low, but restricted to manufacturing industries
Rare
Frequent
High
Nonexistent
Short
Long (relatively so for small and medium-sized firms) Relatively frequent
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Comparisons of the in-house effects on industries of the two instruments of promotion show that grants towards the costs of R & D personnel essentially produce amplifying effects, while the project funding shows a higher incidence of prime moving effects, such as first launches of major, more risky R & D projects or ventures into new sectors of technology. The results of the analyses investigating the problem of deficits in innovation financing, however, show less differences. In both analyses, only a small percentage of small and mediumsized firms receiving grants show major deficits in financing; these are in particular very small and young firms. Consequently, neither study confirms the important role frequently ascribed to deficits in innovation financing in small and medium-sized firms. PROMOTING
TECHNOLOGY
TRANSFER
In this field there are impact analyses available on technology-unspecific support schemes designed to promote cooperation among firms and producers of know-how (such as manufacturing companies, engineering firms, laboratories, research establishments, universities), special incentives offered to improve cooperation among universities and industry, technology transfer from research establishments to industry and, finally, the promotion of innovation consultants who, in a way, work as mediators or catalysts between producers and users of technology. In the study by Allesch et al. [ 141, the technology-unspecific financial aid given to small and medium-sized enterprises to assist them in contract R & D is analyzed. The funds made available were to reduce the financial risk of innovation in cooperation with external partners and intensify technology transfer. This funding measure had been based on the assumption that small and medium-size firms had no permanent need for R & D or lacked the technical, personnel and financial preconditions for executing R & D. However, this assumption was found to be incorrect. The program was used above all by industries from R & D-intensive branches (such as machine building and electrical engineering). Most of the firms funded fall in the category of dynamic, innovative companies. Their innovation activities are predominately productoriented. This is plausible, as the type of fabrication in single parts or small lots prevailing in small companies leaves little room for rationalization, and the flexibility, i.e. fast switchover to new products, which represents one of the main competitive advantages of these firms, does not permit standardized automatic fabrication. Almost all these firms carry out in-house R & D and have a background of experience in the use of external consulting and smaller R & D contracts. Another important finding relates to the characterization not only of technology buyers, but also of technology vendors. Private R & D institutes receive most of the contracts, followed by engineering consultants and manufacturing
firms. Only roughly one fifth of the contracts go to university institutes, most of them for test jobs. This confirms findings made in other studies (cf., e.g., ref. 15), namely that the idea, prevalent in public debates, of the great importance of polytechnical schools, universities and other public research establishments as producers of know-how directly usable to industry needs to be modified considerably. The establishment of new cooperative relations between firms which had not been very innovative before or had made little or no use of external sources of know-how and technology vendors is perceived only on a very small scale. For the majority of companies funded, contract R & D is a proven concept of their innovation activities. The prime impact of the support given lies less in triggering decisions about first launches of innovations or about using external problem solving capacities for this purpose but rather in putting cooperation with external know-how vendors on a more permanent basis and in reducing the financial risk associated with such ventures. The most important effects of this measure thus lie in the steadying influence they exert on cooperative relations, in some cases in lengthening the period of cooperation, and in improving access to specialized knowledge. Learning effects, such as those possible in first contacts with external know-how vendors, rarely occur. Similar results were achieved also in promoting innovation consulting. Since the late seventies, the establishment of innovation consulting bureaus has been supported from public funds in the Federal Republic of Germany (cf. refs. 16 and 17). Within the framework of an analysis of the clients of such services it was attempted not only to gain an insight into the size and branch structure of the firms mainly reached by this public support measure, but also to learn which part of the original target group was in fact reached and what were the special characteristics of the innovative behaviour of the firms that were consulted. As the program deliberately was designed for firms unable to solve technical problems in-house and therefore needing external help, it was of special interest to see to what extent the actually reached target group differed from that reached by R & D support programs. It was seen (cf. ref. 18) that the structural differences between firms receiving innovation consulting and those receiving R & D support are slight indeed. Most of the firms working with innovation consultants also carry out development work of their own, i.e. they are basically in a position to solve technical problems as they occur, as far as their available manpower is sufficient, both quantitatively and qualitatively. The small number of firms reached which do not carry out development work of their own (roughly one tenth) mainly include firms relying on the development efforts of their suppliers (e.g. of the machine building industry) or seeking solutions to isolated technical problems, e.g. in the case of conditions imposed for reasons of environmental protection. One important assumption about the clients of innovation consulting thus is found to be incorrect, i.e. that small and medium-sized firms without any R
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& D of their own (especially in st~ct~ally weak regions) are a kind of ‘natural’ target group (cf., e.g., ref. 19). It is especially this target group which is hardly reached at all.
CONCLUSIONS In summary it can be said that the thesis of the basic possibility to substitute technology-specific project funding by general, nonspecific R & D promotion appears to be in need of revision. Differences not only regarding the goals, but also the clients actually reached, their innovation behaviour, the relative importance of new technologies as determinant factors for the market positions of those firms, and the in-house effects found, indicate that the two instruments of promotion are more likely to supplement each other. Confirmation is found of the high degree of utilization of general R & D promotion, the little influence it has on entrepreneurial decisions, and its suitability for quick and unbureaucratic operation. What has also been confirmed are the disadvantages of there being little opportunity for control and the support being given to mainly incremental innovative activities. It was not possible to investigate whether there are any major differences between the two inst~men~ with respect to ‘free rider’ effects. The technology-specific project funding by BMFT programs, however, reaches those small and medium-sized firms which are characterized by a particularly high degree of technology-orientedness and innovative capacity, acting as a trigger especially for these dynamic companies to venture into bigger, riskier R & D projects and into new sectors of technology. This instrument of promotion therefore appears to be particularly suitable in causing firms to move into new, high-risk areas. An important number of these projects were successful not only technically but also economically. However, it should not be overlooked in the discussion about different kinds of financial incentives that there are other alternatives to these instruments. In some areas of technology and innovation policy, public procurement and regulating or re-regulating measures are possibly much more efficient tools of government intervention than are financial incentives (e.g. ref. 20). As far as these areas are concerned, the debate about technology-specific project funding and general, nonspecific R & D promotion may well be irrelevant. It was seen that the idea underlying the programs, namely that small and medium-sized firms suffered especially from the problem of financing innovation, aplied to only a small part of the firms supported. This has the following implications on technology policy: The support of R & D and innovation in small and medium-sized firms by the Federal Government is geared mainly to controlling bottlenecks. The determination of a bottleneck to innovation leads, almost automatically, to the inference of the need for the government to take action. The prevailing idea is that of the ‘needy’ small and medium-sized firm requiring help. The detection of bottlenecks thus serves as a legitimation for
government steps in technology policy. The findings reported in this paper can be used as critical arguments against that view, showing that the much lamented bottlenecks in the firms receiving support are much less frequent than had so far been assumed by the political administration. This is true at least for the financing of innovations, less so in the fields of market information and management. Alternative approaches which could be used were, for instance, policy concepts in which small and medium-sized enterprises are regarded as factors increasing competition and thus serving as levers to be used to increase the rate of structural change. The reasons for the government to take action would then start from the comparative advantages of such firms, reducing the problem of bottlenecks to a secondary matter. Among the firms actually reached by the government through financial incentives, those open to subsidized firms’ activity tend to dominate. In particular, firms convinced of the importance of R & D activities for their own sake participated in the program for in-house R & D personnel; firms regarding R & D contracts as useful supplements to their internal R & D activities (and with successful experience in the past) participated mainly in the program supporting external R & D contracts. Firms using innovation counselling normally made more frequent use of external consultants and also were more open to using consultants than other comparable enterprises. Consequently, it is difficult for many programs to reach firms for which the activity subsi~zed is only marginal. German experience indicates that financial incentives will be unlikely to induce firms to start in-house or external R & D or to carry out technical innovations for the first time. Such a change in a firm’s innovation behaviour is difficult or impossible to achieve with financial incentives, but it seems to be possible to a limited extent through innovation counselling.
ACKNOWLEDGEMENT Support for research underlying this paper was provided by the Deutsche Forschungsgemeinschaft (grant no. KR 212/11-l), whose contribution is gratefully acknowledged.
REFERENCES 1
2 3
F. Meyer-Krahmer, G. Gielow and U. Kuntze, Impacts of Government Incentives towards Industrial Innovation. An Analysis of the Federal Programme Funding R & D personnel in the Federal Republic of Germany. Rezearch Policy 12 (1983). F. Meyer-Krahmer, G. Gielow and U. Kuntze, Wirkungsanalyse der Zuschtisze fir Personal in Forschung und Entwicklung. FhG-ISI, Karlsruhe, 1984. E. Mansfield, Studies of Tax Policy, Innovation end Patents: A Final Report, University of Pennsylvania, 1985.
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G. Braunling and D.M. Harmsen, Die Wirksamkeit von Fiirderungsprinzipien und Instrumentarien der Forschungs- und Technologiepolitik. Gottingen, 1975. E. Biekert, Wirtschaft und Staat als Partner im technologischen Innovationsprozess - Aus der Sicht der Wirtschaft. Vortrag anltilich der Fachtagung Forschung und Technologie. Hannover, 1976. BDI (Bundesverband der deutschen Industrie) , Bonn vernachliissigt indirekte Forschungsforderung. BDI-Mitteilungen Nr. 9, 1974. K.Ch. RBthlingshofer and U. Sprenger, Effizienz der indirekten steuerlichen Forschungsforderung. Ifo-Institut, Miinchen, 1976. G. Scholz and L. Thalacker, Technologiepolitik als sektorale Strukturpolitik: Die deutsche Computerindustrie. In: H. Hartwich (Editor), Strukturpolitik. Aufgabe der achtziger Jahre. Opladen, 1980. ADL/SRI ( A.D. Little, SRI International), Die Entwicklung der Datenverarbeitung in der Bundesrepublik De&s&land. Progmmmbewertung der DV-Fardenmg des BMFT 1967-1979. Bonn, 1982. R. Nelson, Government Support of Technical Progress: Lessons from American History. ISPS, Yale University, Working Paper No. 850, New Haven, 1982. R. Nelson, High-Technology Policies. A Five-Nation Comparison. Washington, 1984. W. Bruder, Innovationsorientierte Regionalpolitik und rliumliche Entwickhmgspotentiale zur Raumbedeutsamkeit der Forschungsund Technologiepolitik des Bundes. Politische Vierteljahresschrift, Sonderheft 10,198O. Th. Ellwein and W. Bruder, Arbeitsbedingungen und Innovationspotentiale mittelgrosser Industriebetriebe in strukturell unterschiedlichen Regionen des Bundesgehietes. Schriftenreihe ‘Raumordnung’des Bundesministers l%r Raumordnung, Bauwesen und Stidtebau 06.041, Bonn, 1980. J. Allesch, H. Fiedler and H.-J. Martin, Fijrderung der Auftragsforschung, Zwischenbilanz Eine Untersuchung der TU Berlin der Fiirdermafinahme “Externe Vertragsforschung”. ( Technologie-Transfer-Stelle) in Zusammenarbeit mit IS1 Karlsruhe im Auftrag des BMFT. Koln, 1983. F. Meyer-Krahmer, Innovation behaviour and regional indigenous potential. Regional Studies 19 (1985). G. Briiunling, J. Pinter and G. Walter, Darstellung, Bewertung und Perspektiven iiffentlich gefdrderter Pilotvorhaben zur Innovationsberatung - eine Zwischenbilanz. Karlsruhe, 1981. H. Rieger, Technologieund Innovationsberatung der Industrie- und Handelskammern Mittlerer Neckar und Ost-Wtirttemberg. Informationen zur Raumentwicklung, Heft 7/8 (1980). F. Meyer-Krahmer, Riiumliche Aspekte der Innovationspolitik in der Bundesrepublik Deutachland: Ergebnisse einer Erfolgskontrolle. In: E. Brugger (Editor), Regionale Innovationsprozesse und -politik. Bern, 1984. K. Landfried et al., Innovationsforderung durch Hochschulen. Zur Regionalentwicklung und Hochschulstabilisienmg am Beispiel Kaiserslautern. Informationen zur Raumentwicklung, Heft 5,1983. Th. Allen, J. Utterback et al., Government Influence on the Process of Innovation in Europe and Japan. Research Policy 7 (1978).
317 Printed in The Netherlands
EVALUATING INNOVATION POLICIES: THE GERMAN EXPERIENCE Frieder Meyer-Krahmer Department of Industry and Technology, German institute for Economic Research (O/W}, KiiniginLuise-Strasse 5, D- 1000 Berlin 33 (Federal Republic of Germany)
ABSTRACT Until recently, evaluations of technology policy were rare in the Federal Republic of Germany. Activities of this type on a larger scale were not started until the early eighties. Most of the evaluations performed concerned government incentives for small and medium-sized enterprises (SME). The main areas of research and development (R & D) and innovation promotion in small and medium-sized firms are the improvement of the capability and propensity to do in-house R & D, intensified cooperation in R & D between industrial firms and research establishments, the provision of more venture capital, and improved technology transfer. The underlying assumption is that these firms have bottlenecks, in particular in financing, in the personnel sector, and in obtaining information. A number of the existing support programs has meanwhile been investigated; the results of these investigations are covered in this paper. Initially, the underlying concept of impact analysis is outlined. Next, examples are presented of evaluations of general R & D funding measures, of grants for specific projects, of the debate about the most suitable instruments of promoting R & D in SME, and of technology transfer. Finally, some implications arising from the results of these analyses for technology policy in the Federal Republic of Germany are discussed.
INTRODUCTION Innovation policy consists of government actions aimed at technological developments and their implementation in the economy. Innovation is defined as the development of technologically new or improved products or techniques and their commercialization in the market or implementation within production. Impact analysis (or evaluation) means the examination and assessment of the effectiveness of government innovation policy. The key elements of impact research are analyses of the clients reached, the degree of goal attain-
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ment of a program and the actual effects achieved, both intended and unintended, as well as analyses of implementation and administration. In view of the thin empirical backing of impact hypotheses and the assumed bottlenecks of innovation in industry, analyses of the conditions underlying each program are regarded as an important additional element of such impact analyses. Verifications of the theoretical considerations of governments and ministerial bureaucracies on which the conditions and administrative handling of promotional instruments are based should also be included in impact analyses because they constitute the only way of ensuring that not only scientists, but also political administration may learn from the results. The most important programs investigated so far were mainly designed to support small and medium-sized enterprises, i.e. - general financial (called ‘indirect’) support of R & D (R & D investment tax credit; grants for R & D personnel), - support granted to specific projects (promotion of data processing; project funding by the German Federal Ministry for Research and Technology as far as this relates to small and medium-sized enterprises; initial innovations program ) , - promotion of technology transfer (innovation consulting) and R & D cooperation (contract research). Other analyses were conducted, or are being conducted, in the fields of energy, manufacturing technologies, humanization of the working environment, technology transfer from national research centers, and start-up of new technology based firms. The programs evaluated so far correspond to approximately one quarter of the expenditures made by the Federal Government to promote R & D and innovation in industry.
GENERAL FINANCIAL SUPPORT OF RESEARCH AND DEVELOPMENT In July 1978, the German Federal Government launched an extensive growth promotion program as a German contribution to an economic recovery. Part of the effort was a program promoting R & D in small and medium-sized firms in the manufacturing industries offering grants towards the costs of R & D personnel. The program became effective on January lst, 1979 and has since been managed by the Arbeitsgemeinschaft Industrieller Forschungsvereinigungen (Union of Industrial Research Associations, AIF) on behalf of the Federal Ministry of Economics. These grants towards the costs of R & D personnel have become an important element in the general concept of research and technology policy of the Federal Government vis-a-vis small and mediumsized enterprises, thus bearing witness to the growing importance of these firms within the innovation policy of the Federal Republic of Germany since the late
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seventies. The Fraunhofer-Institute for Systems and Innovation Research (ISI) has been commissioned to evaluate the program [ 1,2 1. While a figure of some 2000 firms eligible for grants under the program had been estimated before the program was started, already by 1979 some 4500 firms had applied for R & D personnel-cost grants. By 1983, this figure had risen to almost 7500. Over the whole period between 1979 and 1982, some 10,000 firms received such grants at least once. This amounts to about 22% of the firms employing more than twenty persons in the manufacturing industries. Over the same period of time, the firms received aggregate grants of approximately DM 1.5 billion. More than half of the firms supported in the first four years had less than 100 employees. Especially the firms freshly joining the program were mainly in this category [ 2 1. The program of grants towards the costs of R & D personnel supported especially such firms which had not previously profited from the government’s research and technology policy. The high level of utilization of these personnel cost grants is also a consequence of the specific area at which this funding measure is directed, namely expenditures for R & D personnel. One of the reasons why for example a program on external contract research has been accepted to a lesser extent is the fact that only a smaller number of the firms are engaged in external R & D. However, the popularity of the program tells nothing about the internal effects, if any, of these subsidies. In order to allow the impact of the program (i.e. the part of the program used by firms for additional R & D and innovation activities) to be assessed independent of the data furnished by the recipients of grants, a comparison was made between funded and non-funded firms. On the whole, it can be estimated that some 60% of the funding volume was used for additional R & D and innovative activities, the other 40% being spent on projects which would have been carried out also if there had been no grants. This indicates a 60% impact of the program, which is higher than the impact found for R & D tax credit in Canada, U.S. and Sweden [ 3 1. The impact of the German program is slightly higher than in the U.S., where the absolute level of effects achieved is considered to be unsatisfactory. The higher impact of the German program may be explained by the fact that the make-up of the program differs from the foreign programs in many respects. On the one hand, the funding rate of 40% is relatively high (especially since it refers to the aggregate gross wages and salaries of R & D workers and not only to their increase), which makes for a major financial impact. On the other hand, this type of support arouses more attention (applications filed with AIF and processed quickly by that organization, separate payment of the grants, as against slow processing by the internal revenue authorities and less visibility because of deduction from taxes owed). It must also be taken into account that the delinition of R & D leaves much freedom for interpretation to the firms. Especially in drawing the line between R & D and design efforts and between indirect and
direct R & D activities firms state that they have great freedom of decision. Inquiries among the firms receiving such payments showed that approximately one third of the firms interviewed strictly adhered to the definition of R & D, while some fifty percent made cautiously, some ten percent even excessively, liberal use of the program for their own benefit. This means that some two thirds of the firms receive grants which are clearly too high, in a small percentage of the cases excessively high. This detracts from the efficiency of the program to an unknown account. In addition, it was attempted to develop a typology of ‘free rider’ firms (for which the grant had no effect on their R & D budget decisions) and those firms which used the grants for additional R & D and innovation expenditures. The profile of firms which, according to their own statements, used all of the grants for increasing their R & D expenditures shows that these firms participated in the program every year since 1979 (which also shows that medium and longterm funding is more effective than short-term measures) ; the degree of organization in these firms is relatively high, they carry out major R & D projects and have hired new R & D staff in recent years; their R & D intensity is above average and, finally, the high-tech products they offer are frequently instrumental in securing them good market positions. ‘Free rider’ firms show a profile which is precisely the opposite in many respects [ 21. This means that dynamic firms use grants for additional R & D and innovation to an overproportional extent. The widely held assumption that these very firms were the ‘free rider’ companies has not been confirmed. In the public debate general, technology-unspecific R & D promotion is ascribed a positive influence on the innovation climate in firms. Braunling and Harmsen [ 41 already pointed out that the way in which general promotion measures are designed has a major influence on the general climate towards R & D and innovation atmosphere on a medium and long-term basis and is thus able to affect the average level of R & D and innovation expenditures. Also Biekert [ 51 strongly emphasized the psychological effects of general R & D promotion. The Bundesverband der Deutschen Industrie (Federation of German Industries ) had long accentuated the influence on the general atmosphere produced by general R & D promotion [ 6 1. Riithlingshijfer and Sprenger [ 71 point out that a twofold influence of general R & D promotion on company decisions is to be expected: On the one hand, it is claimed that the mere fact of a company receiving funds as a result of these promotion measures greatly strengthened the position of R & D managers in the battle for the limited budget available within the company. According to Biekert [ 51, the psychological effect of general promotion could be even more important in some cases than the funds proper. On the other hand, the fact that the government declared a certain corporate function, namely R & D activities, to be desirable by awarding a bonus for it, would strengthen the motivation of firms to incur R & D
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risks, thus adding to the readiness for innovation and the innovation potential of the whole economy. Our study [ 21 confirms that hypothesis only inasmuch as the status of R & D within firms is improved by the grants and the motivation of firms, where it exists, is strengthened (amplification effect). However, no ‘Sleeping Beauty’ effect caused by the grants towards personnel costs was discovered, i.e. no firm was found to have embarked on R & D for the first time solely as a consequence of the program (it should be added that the program was not specifically designed to produce such an effect). Mere financial incentives do not appear to be able to make firms start technical development work of their own. Direct personal contacts and consultation coupled with financial support are probably needed to achieve such a swing in corporate strategy and its practical implementation which, after all, is associated with major structural changes, internal obstacles to venturing into unknown territory, finding new outlets, etc. GRANTS
FOR SPECIFIC
R & D PROJECTS
In the Federal Republic of Germany, data processing (DP) was supported by the Federal Ministry for Research and Technology in three program phases between 1967 and 1979, with rather ambitious goals: (1) raising the level of performance in DP; (2) attaining a solid level of international competitiveness; ( 3 ) increasing the technological autonomy of the national DP industry. Most of the support came in the form of funds for specific R & D projects; to a smaller extent funds were made available to users of DP and for training and science. The results of the whole exercise are considered to be relatively modest in the program evaluations available [ 8,9]. Criticism is leveled especially against the onesided orientation of the funding measures to technological projects. In general, the result is that the German firms succeeded in reaching the international standard of technology, but this did not ensure the entrepreneurial transformation into advantageous competitive positions. The program should more specifically have been guided by overall market strategies of the firms (and advanced these). But translation into the market was hardly taken into account in the funding schemes and, in addition, was an aspect not even properly cultivated by the firms themselves. Instead, the whole program was strategically concentrated onesidedly on the development of universal computers, neglecting newly developing product/system segmentations, which would have been explorable if a careful and sensitive assessment of technical developments and market strategies would have been undertaken. Furthermore, the inability to stimulate sufficient public demand, in contrast to the situation in the U.S., was regarded as a particularly negative aspect. In the U.S., that demand had been of a military nature. Coordinating demand in the civilian sector meets with the limits of the political systems in both countries,
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as such demand is difficult to coordinate because of the fragmentation caused by the federalist structures. The findings of these evaluations seem to confirm some of the arguments heard in US. discussions (e.g. ref. lo), in which it was regarded as not very meaningful (arguing against the ‘picking-up-the-winners’ concept) for the government to define the details of future profitable technologies by funding R & D projects, because the limited amount of information available to the government, its lack of flexibility in adapting to changing market structures and market signals during the development process, and its lack of competency in industrial exploitation rendered the government unable to do the job. Nelson’s [ 111 analysis of the incentives granted to manufacturers of semiconductors and computer manufacturers in the U.S.A., in Japan and in the Federal Republic of Germany shows that no ‘national champion’ was elected within the framework of this government support in the U.S.A. and in Japan, while just that is what happened in the Federal Republic of Germany. Instead, the measures taken in the former countries were deliberately designed to enhance competition among several domestic vendors. According to Nelson, this had the consequence of avoiding a situation in which the competitive position of the semiconductor industry (and hence also government support) depended on the development of one or a few firms. The choice, and priority funding, of one ‘national champion’, however, prevents this very type of risk sharing. To us this empirical evidence shows only the practical difficulties of R & D project funding, but it cannot be used as a general argument against this type of government action. Specific lacks of the development, e.g. of new manufacturing technologies or of productivity of natural resources, need specific government reaction. When government’s reason for technology-specific funding deliberately is to give incentives towards technically and economically high risk R & D, the rate of failure must inevitably be high. But above all, to judge the adequacy of government involvement it must be differentiated what this involvement is aiming at: the judgements will clearly differ if government activities are aiming at high technology funding for reasons of competitiveness of domestic industries, or of developing technologies for public needs. The further question of interchangeability of directive or nonselective R & D promotion (especially for SME’s) will be dealt with in the following paragraph. THE DEBATE ABOUT INSTRUMENTS
APPROPRIATE
PROMOTION
The discussion about technology-specific project funding (‘direct’, such as support for data processing industry) and general, nonselective R & D promotion (‘indirect’, such as R & D tax credits or the grant for R & D personnel) has found its reflection in official government documents to such an extent
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that, for instance, the budget of the German Federal Ministry for Research and Technology (BMFT) is subdivided into these very categories. Usually, a ratio of technology specific project funding to general nonselective R & D promotion is established. This ratio has developed from 14.4:1 (1976) to 4.81 (1980) and on to 2.4:1 (1984). This development is regarded as a positive trend by the present German Federal Government, as more general promotion had been achieved not only in absolute, but also in relative terms. The goals, at least those of industry-related technology policy, have remained more or less unchanged. This development is based on the hypothesis that general promotion can replace technology-specific project support without any loss in effectiveness in reaching the goals. It can be tested in detail whether the goals of these instruments of promotion, the target groups they reach, the in-house effects they produce, and the implementation of the programs differ from each other to such an extent that it would be hard to uphold the idea of the substitution capability of these promotion instruments. A survey of promotion strategies, in-house effects, and management of these promotion instruments is presented in Table 1. It is seen that two differences exist with respect to the goals of promotion: project funding by BMFT within technology-specific programs is meant to promote high technology to reach an international level, while grants towards the costs of R 8z D personnel primarily seek to raise the general level of R & D activities. However, the instruments used for promotion differ also in terms of the deficits assumed: both tools are based on the idea that government support should remove existing deficits in firms; these deficits are of a technological nature in the technology-specific project funding by BMFT, while in the case of grants towards the costs of R & D personnel they represent general deficits of small and medium-sized firms. By definition, the selectivity of the two instruments of promotion differs greatly. R & D project support has been said to have a high level of selectivity and also a high degree of concentration with respect to branches of industry and regions (cf. refs. 12 and 13). However, this finding is based on the support to large firms which receive a big share of the industry-related R & D expenditures of BMFT. For the funding of small and medium-sized firms the thesis is not confirmed. The overall distribution across sectors of industry of small and medium-sized enterprises reached by technology-specific project funding (in total 10 programs of the BMFT supporting different technological areas) differs in only a few sectors of industry when compared to the distribution of general R & D funding (distribution of budgets and firms promoted). A similar result is obtained on a regional basis (Federal States; cf. ref. 12). Though limited to specific sectors of technology, project funding thus has no higher selectivity within the manufacturing industries than have grants towards the costs of R L?z D personnel. Naturally, both incentives preferably reach those branches of industry in which R & D is carried out most frequently and on a large scale.
Effects onR&D - Share of high-risk, expensive and longerterm R & D projects - Enhancement of R & Dorientedness
branches, regions Clients - Degree of participation - Innovativeness - Typical R & D projects
- Selectivity - Concentration on
Support strategies - Goals
Evaluation criterion
Mainly in firms with existing technology-orientedness
As a rule, clearly positive
Very broad Low to high, but mostly low Mostly small projects close to the market
Very limited Medium to high Some relatively highrisk, expensive and longer-term projects
Small
dominate
regions dominate
Large
(b) Balancing general deficits of small and medium-sized enterprises Very low R & D-intensive branches and regions
(a) General improvement of R & D potential
Grants towards the costs of R & D personnel
of grants towards the costs of R & D personnel and
(a) Supporting high technology to reach international level (b) Balancing technologyspecific deficits Very high R & D-intensive branches and
Technology-specific project funding (only when small and m~ium-sib enterprises are concerned)
Type of incentive
Empirical findings of comparison of promotion strategies, clients, effects, and administration of technology-specific project funding in the Federal Republic of Germany
TABLE 1 5?
- Certainty of funding for multi-annual projects
- Amount of grant
Administration - Barriers to acess, especially for first-time applicants - Transparency of the different support possibilities - Costs of application and administration - Control - Consulting
- First launch of major high-risk projects - Venturing into new areas of technology - Influence on accelerated structural change - Secondary effect: added know-how for follow-on projects on the balancing of deficits in innovation financing
on innovation and competitiveness - Time to commercial application
Longer lead time (up approval), then stable basis for calculation
Small Administrative: low, technical: none Lower, both absolutely and relatively Uncertainty about future changes in conditions of funding
Medium
Large, both in absolute and relative terms I=ge Administrative and technical consulting available High
Only a small percentage of firms have grave financial deficits
Only a small percentage of firms have grave fmrincial deficits
Good
Differing, as a rule limited
Often large
LOW
Diffuse
Occasional
Low, but restricted to manufacturing industries
Rare
Frequent
High
Nonexistent
Short
Long (relatively so for small and medium-sized firms) Relatively frequent
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Comparisons of the in-house effects on industries of the two instruments of promotion show that grants towards the costs of R & D personnel essentially produce amplifying effects, while the project funding shows a higher incidence of prime moving effects, such as first launches of major, more risky R & D projects or ventures into new sectors of technology. The results of the analyses investigating the problem of deficits in innovation financing, however, show less differences. In both analyses, only a small percentage of small and mediumsized firms receiving grants show major deficits in financing; these are in particular very small and young firms. Consequently, neither study confirms the important role frequently ascribed to deficits in innovation financing in small and medium-sized firms. PROMOTING
TECHNOLOGY
TRANSFER
In this field there are impact analyses available on technology-unspecific support schemes designed to promote cooperation among firms and producers of know-how (such as manufacturing companies, engineering firms, laboratories, research establishments, universities), special incentives offered to improve cooperation among universities and industry, technology transfer from research establishments to industry and, finally, the promotion of innovation consultants who, in a way, work as mediators or catalysts between producers and users of technology. In the study by Allesch et al. [ 141, the technology-unspecific financial aid given to small and medium-sized enterprises to assist them in contract R & D is analyzed. The funds made available were to reduce the financial risk of innovation in cooperation with external partners and intensify technology transfer. This funding measure had been based on the assumption that small and medium-size firms had no permanent need for R & D or lacked the technical, personnel and financial preconditions for executing R & D. However, this assumption was found to be incorrect. The program was used above all by industries from R & D-intensive branches (such as machine building and electrical engineering). Most of the firms funded fall in the category of dynamic, innovative companies. Their innovation activities are predominately productoriented. This is plausible, as the type of fabrication in single parts or small lots prevailing in small companies leaves little room for rationalization, and the flexibility, i.e. fast switchover to new products, which represents one of the main competitive advantages of these firms, does not permit standardized automatic fabrication. Almost all these firms carry out in-house R & D and have a background of experience in the use of external consulting and smaller R & D contracts. Another important finding relates to the characterization not only of technology buyers, but also of technology vendors. Private R & D institutes receive most of the contracts, followed by engineering consultants and manufacturing
firms. Only roughly one fifth of the contracts go to university institutes, most of them for test jobs. This confirms findings made in other studies (cf., e.g., ref. 15), namely that the idea, prevalent in public debates, of the great importance of polytechnical schools, universities and other public research establishments as producers of know-how directly usable to industry needs to be modified considerably. The establishment of new cooperative relations between firms which had not been very innovative before or had made little or no use of external sources of know-how and technology vendors is perceived only on a very small scale. For the majority of companies funded, contract R & D is a proven concept of their innovation activities. The prime impact of the support given lies less in triggering decisions about first launches of innovations or about using external problem solving capacities for this purpose but rather in putting cooperation with external know-how vendors on a more permanent basis and in reducing the financial risk associated with such ventures. The most important effects of this measure thus lie in the steadying influence they exert on cooperative relations, in some cases in lengthening the period of cooperation, and in improving access to specialized knowledge. Learning effects, such as those possible in first contacts with external know-how vendors, rarely occur. Similar results were achieved also in promoting innovation consulting. Since the late seventies, the establishment of innovation consulting bureaus has been supported from public funds in the Federal Republic of Germany (cf. refs. 16 and 17). Within the framework of an analysis of the clients of such services it was attempted not only to gain an insight into the size and branch structure of the firms mainly reached by this public support measure, but also to learn which part of the original target group was in fact reached and what were the special characteristics of the innovative behaviour of the firms that were consulted. As the program deliberately was designed for firms unable to solve technical problems in-house and therefore needing external help, it was of special interest to see to what extent the actually reached target group differed from that reached by R & D support programs. It was seen (cf. ref. 18) that the structural differences between firms receiving innovation consulting and those receiving R & D support are slight indeed. Most of the firms working with innovation consultants also carry out development work of their own, i.e. they are basically in a position to solve technical problems as they occur, as far as their available manpower is sufficient, both quantitatively and qualitatively. The small number of firms reached which do not carry out development work of their own (roughly one tenth) mainly include firms relying on the development efforts of their suppliers (e.g. of the machine building industry) or seeking solutions to isolated technical problems, e.g. in the case of conditions imposed for reasons of environmental protection. One important assumption about the clients of innovation consulting thus is found to be incorrect, i.e. that small and medium-sized firms without any R
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& D of their own (especially in st~ct~ally weak regions) are a kind of ‘natural’ target group (cf., e.g., ref. 19). It is especially this target group which is hardly reached at all.
CONCLUSIONS In summary it can be said that the thesis of the basic possibility to substitute technology-specific project funding by general, nonspecific R & D promotion appears to be in need of revision. Differences not only regarding the goals, but also the clients actually reached, their innovation behaviour, the relative importance of new technologies as determinant factors for the market positions of those firms, and the in-house effects found, indicate that the two instruments of promotion are more likely to supplement each other. Confirmation is found of the high degree of utilization of general R & D promotion, the little influence it has on entrepreneurial decisions, and its suitability for quick and unbureaucratic operation. What has also been confirmed are the disadvantages of there being little opportunity for control and the support being given to mainly incremental innovative activities. It was not possible to investigate whether there are any major differences between the two inst~men~ with respect to ‘free rider’ effects. The technology-specific project funding by BMFT programs, however, reaches those small and medium-sized firms which are characterized by a particularly high degree of technology-orientedness and innovative capacity, acting as a trigger especially for these dynamic companies to venture into bigger, riskier R & D projects and into new sectors of technology. This instrument of promotion therefore appears to be particularly suitable in causing firms to move into new, high-risk areas. An important number of these projects were successful not only technically but also economically. However, it should not be overlooked in the discussion about different kinds of financial incentives that there are other alternatives to these instruments. In some areas of technology and innovation policy, public procurement and regulating or re-regulating measures are possibly much more efficient tools of government intervention than are financial incentives (e.g. ref. 20). As far as these areas are concerned, the debate about technology-specific project funding and general, nonspecific R & D promotion may well be irrelevant. It was seen that the idea underlying the programs, namely that small and medium-sized firms suffered especially from the problem of financing innovation, aplied to only a small part of the firms supported. This has the following implications on technology policy: The support of R & D and innovation in small and medium-sized firms by the Federal Government is geared mainly to controlling bottlenecks. The determination of a bottleneck to innovation leads, almost automatically, to the inference of the need for the government to take action. The prevailing idea is that of the ‘needy’ small and medium-sized firm requiring help. The detection of bottlenecks thus serves as a legitimation for
government steps in technology policy. The findings reported in this paper can be used as critical arguments against that view, showing that the much lamented bottlenecks in the firms receiving support are much less frequent than had so far been assumed by the political administration. This is true at least for the financing of innovations, less so in the fields of market information and management. Alternative approaches which could be used were, for instance, policy concepts in which small and medium-sized enterprises are regarded as factors increasing competition and thus serving as levers to be used to increase the rate of structural change. The reasons for the government to take action would then start from the comparative advantages of such firms, reducing the problem of bottlenecks to a secondary matter. Among the firms actually reached by the government through financial incentives, those open to subsidized firms’ activity tend to dominate. In particular, firms convinced of the importance of R & D activities for their own sake participated in the program for in-house R & D personnel; firms regarding R & D contracts as useful supplements to their internal R & D activities (and with successful experience in the past) participated mainly in the program supporting external R & D contracts. Firms using innovation counselling normally made more frequent use of external consultants and also were more open to using consultants than other comparable enterprises. Consequently, it is difficult for many programs to reach firms for which the activity subsi~zed is only marginal. German experience indicates that financial incentives will be unlikely to induce firms to start in-house or external R & D or to carry out technical innovations for the first time. Such a change in a firm’s innovation behaviour is difficult or impossible to achieve with financial incentives, but it seems to be possible to a limited extent through innovation counselling.
ACKNOWLEDGEMENT Support for research underlying this paper was provided by the Deutsche Forschungsgemeinschaft (grant no. KR 212/11-l), whose contribution is gratefully acknowledged.
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