The study of national systems of innovation dates back to the work of Friedrich List who in 1841 published The National System of Political Economy a book where the words innovation could easily be exchange for PE. The book set out to examine how Germany could leapfrog over the economic success of then global market leader the UK. In it List advocates not only the protection of infant domestic industries but also a wider range of measures aimed at accelerating or simply making possible industrialization and economic growth. Most of these policies were focused on learning about new technology and applying it.

Interestingly 150 years in 1991 the World Bank would echo these ideas concluding that intangible investment in knowledge accumulation on the part of the state was a more decisive factor in driving growth than physical capital investment. This very much echoed List's thinking such as:

"The present state of the nations is the result of the accumulation of all discovers, inventions, improvements, perfections and exertions of all generations which have lived before us: they form the intellectual capital of the present human race, and every separate nation is productive only in the proportion in which is has known how to appropriate those attainments of former generation and to increase them by its own acquirements."

It was in part due to List's advocacy that Germany went to develop one of the best technical education and training systems in the world which was on of the main factors contributing to Germany's overtaking the UK in the late 19^th C. and indeed of its maintaining that lead to the present.

In addition List recognized the interdependence of the importing of foreign technology and domestic technical development or what we might nowadays term "technological transfer". Thus List proposed that nations should not only acquire the technical achievements of other more advanced nations but they should increase them by their own efforts. List had a good example of this in practice in his native Prussia with regard to the acquisition of machine tool technology. Most of the key breakthroughs in this area in the early 19^th C. were made by British engineers. But the Prussian government recognized the importance of machine tool technology (it basically enabled the design and construction of metalworking precision machinery for all other industries) which took decisive moves to acquire the technology (despite the fact that the UK government was attempting to ban the export of machine tools).

The Prussian govt imported British machine tools for reverse engineering and for training German craftsmen who then disseminated the technology in German industry. British craftsmen were also attracted to Prussia by the govt there in recognition of the fact that much of the technology depended on tacit knowledge.

For us what is particularly important about List is not simply the fact that he analyzed many features of the national systems of innovation (including education and training institutions, science, technical institutes, user-producer interactive learning, adapting imported technology, promotion of strategic industries etc.) but also that he placed great emphasis on the role of the state in co-ordinating and carrying through long-term policies for industry and the economy.

Again his thinking was backed up by practice in his native Prussia where only the state could afford to send officials on costly tours of inspection of new technology overseas, to provide the necessary building and equipment for some R&D and to feed, clothe, house and sometimes pay students for a period of years. In addition the govt provided technical advice and assistance, awarded subventions to inventors and entrepreneurs and allowed rebates or exemption of tax on imports of industrial equipment.

One of the things List missed, however, was to foresee the rise of in-house professional R&D in industry and of TNCs - major new development that would profoundly challenge the whole concept of national systems.

For most of the 20^th C it was commonplace to study a national system of innovation simply in terms of its R&D and education system. Yet this approach was abandoned in favour of a wider qualitative analysis. To understand why and the implications it has for understanding national systems of innovation we need to consider other factors shaping such systems. Again let us recall that the rise of the in-house R&D department is a recent innovation first introduced in the German dyes industry in 1870. As such organization of R&D become commonplace it was possible at the end of the 19^th for one physicist to observe that the greatest invention of the 19^th C was the method of invention itself. The power of big science reached an apogee after WWII when the Manhattan Project and sideline development such as radar, computers, rockets and explosives resulting from large R&D projects impressed whole nations bringing the prestige of organized, professional R&D to an all-time high. Suddenly after WWII, pre-war proposals to increase R&D in Europe by an order of magnitude - which had previously seemed utopian - were achieved in a new postwar political climate.

This lead to a global trend to establish national research councils, national R&D labs and other scientific institutions to do research. Unsurprisingly the new science councils advising govt adopted a simplistic linear model of science and technology push. The Manhattan Project for example appeared to demonstrate the logic of such an understanding:

Basic Science - large scale development in Labs - applications and innovations.

However as a consequence the R&D system came to be seen as the only source of innovations, an impression reinforced by OECD systems for measuring innovation which used R&D measures as a surrogate for a range of other activities related to innovation (which might have included education, training, production engineering, design and quality control etc.). In particular the OECD approach completely ignored the importance of feedback loops from the market and from production into the R&D system.

Growing evidence in the 50s and 60s however made it clear that rates of technical change and of economic growth depended more upon efficient diffusion than on being first in the world with radical innovation and as much on social innovation as on technical innovations. This was reflected in the language of OECD Reports that started to stress the role of technology and diffusion alongside basic science.

What kind of evidence are we talking about - the fact that the success of innovations and their rate of diffusion depended on a variety of influence beyond formal R&D. Thus incremental innovations can from production engineers and technician. Many improvements to products and services came from interaction with the market. In particular the contrasting experiences of Asian economies who went through a remarkable period of technological catch-up and those of the Eastern Bloc and later Latin America which either collapsed or stagnated pointed to the importance of non-R&D factors.

Japanese success for example had been attributed to simply copying foreign technology. Yet as Japanese products and processes began to outperform their US and European counterparts in the late 60s and early 70s, this explanation was no longer adequate. As the 60s and 70s progressed it became apparent that Japanese expenditure on R&D as a percentage of R&D was surpassing either the US or Europe so perhaps one could indeed point to basic R&D as "explaining" Japan's success. Yet this did not explain how Japanese R&D activities were able to create products and processes of a higher quality, to shorter lead times and more rapid diffusion of new technologies. Moreover the contrasting example of the USSR showed that simply committing substantial resources to R&D did not guarantee successful innovation, and diffusion of innovation. Yet if there were extra-R&D factors at work, what were they?

The most striking contrast here lies in the USSR's huge commitment to military and apace applications with little or no spin-off to the civil economy. The Soviet system of innovation was also undermined by the weak social, technical and economic linkages in their system. For example the Soviet system was based on separate research institutes with the academy system (for fundamental research), for each industry sector (for applied research and development) and for the design of plant and import of technology (the project design organizations). These institutions simply had no or very weak links to one another - indeed here was a system where the linear technology push model did largely explain how innovation occurred.

What's more there were fairly powerful negative incentives to innovation at Soviet enterprise level such as the need to meet quantitative planned product targets. Thus whereas integration of R&D, production and technology imports was the strongest feature of the Japanese system it was very weak in the USSR except in the aircraft industry and related defence sectors. Finally the user-producer linkages which were so important in most other industrial countries were very weak or non-existent in the USSR.

Finally whereas the long-term visions driving innovation in Japan were generated by an interactive process involving government departments, industry and the universities in the USSR this vision process was more restricted and dominated by military/space requirements.

From this perspective, Ireland has been characterized as having a weak system of national innovation. In his study for the NESC Mjoset (1992) argued that the poor innovation record of Irish indigenous firms must be explained in terms of the innovation system within which they are located. Irish indigenous firms have weak links both to each other and to education and training institutions; innovation such as it is occurs within the foreign-owned sector. However, Mjoset is a curiously old fashioned study: he concentrates entirely on manufacturing industry and also does not really analyze the nature of the foreign-owned sector. This perspective is taken over by the government White Paper on Science, Technology and Innovation (Government of Ireland, 1996) which again concentrates solely on the indigenous sector. This ensures that some of the problems now developing in the politically powerful foreign owned sector are not addressed.

Given that Irish third level institutions do have close links to industry, the idea that the country has a weak system of innovation may appear surprising. The problem lies in the nature of the linkage. We have already seen above that there is no government funding for basic research. The recent White Paper justified this by assuming that the only economically relevant research is applied research and instrumentalises science policy as part of the needs of ‘industry’.

Since there is no tradition of any social studies of science within Ireland, it is hardly surprising that there is little social scientific analysis of science and technology research in Ireland (see Cooper and Whelan, 1973; Yearley, 1989). Impressionistically it appears that Irish universities have used European Union funds to carry out their basic research, and have been forced into an opportunistic dependence on largely foreign-owned firms for further funds. The problem here is that such research is oriented to the immediate competitive needs of firms; there is no institutional system that can push research towards either pre-competitive research or even more importantly, towards applied research that will benefit a series of firms within Ireland. The relative under-development of an indigenous innovation system can be seen in the bibliometric data: Irish researchers are as likely as colleagues abroad to joint author papers (joint authorship is a sign of collaboration), but they are less likely than colleagues elsewhere to joint author articles with other Irish authors (CIRCA, 1996). In other words, Irish researchers networks lead outside the country; their research bears relatively little relationship to activities within Ireland.

In a rather similar way, the lack of any institutional framework means that ‘the manpower needs of industry’ are understood in Ireland simply as those skills which firms consider they immediately require. There are rather obvious problems with such an approach. If education is understood as directly applicable skills, this ignores that there are potential conflicts of interest between the firm and the individual (Murray and Wickham, 1983). At its simplest, the individual wishes to maximise his/her position on the labour market, which means the individual wants a skill which can be utilized by different employers. By contrast, employers will prefer skills that are locked in, thus ensuring that their investment is not poached by a competitor.

The result appears that Irish education tends to be either too general or too specific. For example, the education of electronics engineering in the 1980s led to graduate engineers to regard themselves as over qualified for their employment in Irish firms in production engineers. Consequently, one reason for emigration was that firms were not able to provide them with access to the research work (R&D) for which they believed their education had fitted them. By contrast, universities and RTCs have become increasingly willing to adjust or develop courses in lines with the needs of industry’, but these needs tend to be articulated by single firms who simply instrumentalise third level institutions to carry out training in the particular skills they require. In neither case are firms under any pressure to carry out general training themselves. Accordingly as McGovern has shown in some detail (1995), high technology firms in Ireland operate a slash and burn approach to Ireland’s much vaunted technological educational system. Rather than training and developing their human resources, they use up the latest products of the educational system secure in the knowledge that they can easily be replaced by next year’s batch of graduates.

Irish education has contributed to the Irish success story by its good general standard and high participation rates in both secondary and tertiary levels. Furthermore, the very weakness of any national system of innovation has made it easy for some small sections of the educational system to be instrumentalised for the specific needs of individual firms in the foreign sector. Beyond that, the claim that Irish education is ‘the best in Europe’ is absurd hype.

Globalisation

We've seen the argument that a variety of national institutions have shaped the relative rates of technical changes and of economic growth in various countries. It would appear that variations in national systems of innovations have been important features of world development in the latter half of the 20^th C and that they help explain uneven development in their world economy and divergences in growth rates.

Against this it has been argued that the whole concept of national differences in innovative capabilities determining national performance has been recently challenged on the grounds that TNCs are globalising the world economy. Or example it has been argued that national frontiers are melting before the creation of the interlinked global economy so that whilst previously national policies and differences were important factors in contributing to national success in innovations that the notion of national economies as being separate is out of date. It's certainly true that at a glance the activities of MNCs appear to override local variety and diversity. The largest corporations in the world have moved increasing portions of their new investment outside their domestic base into other countries. Whilst this initially saw them mainly invent in distribution and service networks, more recently MNCs have begun to establish R&D arms outside their home countries.

Yet against this it remains the case that a small minority of R&D activities of MNCs occurs outside their domestic market. Thus only 10% of US firms' R&D activity occurs outside the US whilst in Japan only 2% does. What's more a qualitative analysis of the transnational R&D activities of corporations suggests that most of it is either local design modification to meet national specification and regulations (localisation) or research to facilitate monitoring of local science and technology. The more original research, development and design work is till overwhelmingly concentrated in the domestic base.

Indeed if national systems of innovation describe precisely that "systems" - networks of linkages between different players in the R&D industry then there's little reason why the globalization of trade should dramatically affect the national specificities of those systems. Indeed as the Irish case study demonstrates, an American firm setting up an R&D capacity in Ireland could not expect to find the same set as linkages in Ireland as has been the case in the US for example.