Innovation in “low-tech”

Earlier this year, the Europeans finishing up an interesting project on Policy and Innovation in Low Tech – PILOT. Their final report was issued in January with the following conclusion:

Much growth and employment in OECD countries still emanate from LMT [low-tech and medium-low-tech] industries, and LMT companies are relevant sources of innovations in the economy.
Innovation policy can be more effective when it is based on a more comprehensive understanding of the relationship between R&D and innovation.
Innovativeness is based on a particular enabling configuration of resources that a company possesses rather than on excellence in R&D alone.
Organisation practices – knowledge management and personnel policy in particular – play a vital role for competitiveness and innovativeness of LMT companies
Network relations between companies and supportive social networks on a regional level are of great and growing importance as resources for firm capabilities.
Interrelationships of low-tech and high-tech sectors in an economy are of major importance for the innovativeness of industry in general.

The report takes on (head-on) the standard image of the knowledge society and intangible economy as simply an R&D/S&T economy:

In the movement towards a knowledge based society in the European Union, the competence to generate, use and absorb new knowledge is increasingly viewed as critical for economic success and societal development. Against this background, the conventional wisdom sees high-tech, research-intensive and science-based industries as the key drivers of future economic prosperity. Such industries are regarded as the main source of highly sophisticated products that are not easily imitated elsewhere and, therefore, the policy conclusion is that high-cost industrialised countries should concentrate their efforts on promoting these industries. In this scenario, non-research-intensive, so-called low-tech and medium-low-tech (LMT) industries are deemed to offer little to enhance prospects for future growth, and as a result, they receive less explicit political attention and support. LMT sectors comprise for the most part mature industries such as the manufacture of household appliances, the food industry, the paper and print industry, the wood and furniture industry, the manufacture of metal products or the manufacture of simple plastic products.
. . .
LMT industries in the OECD countries employ many more people than high-tech industries. Moreover, many firms in these industries are innovative and knowledge intensive without, by definition, engaging in R&D to any great extent. Thus, they provide a striking challenge to currently held notions about the sources of future industrial growth. Our analysis suggests that while new sectors emerge within the economy, and some sectors disappear, this does not account for the processes of growth which actually occur across the OECD. The growth trajectories of the advanced economies seem to rest as much on such sectors as engineering, food, wood products, and vehicles and so on, as they do on such sectors as ICT or biotech. Medium-low and low-tech industries have persisted over the past decades despite the claims that we are undergoing a kind of structural revolution.
. . .
These research findings show that growth is primarily based not on the creation of new sectors but on the internal transformation of sectors that already exist. Over-emphasising the role of high-tech activities ignores this major dimension of change in advanced economies. As a corollary, in order to ensure continued future growth prospects for advanced economies, policy-makers need to focus on the processes of innovation and creativity in firms in all sectors, not just high-tech firms.

The report is also extremely insightful as to metrics of innovation:

Our research results, as reported in Sections 3.1-3.5, suggest that as an alternative to – better: in addition to – R&D expenditures, analysts must use other indicators of innovativeness and of the general level of technology in an economy. Firms may be classified according to their
• R&D intensity
• Design intensity
• Technological intensity
• Skill intensity (human capital orientation)
• Innovation intensity
• Organisational innovativeness.
The basic assumption is that these indicators together will capture the bulk of creativity, explaining successful firms and industries and showing the variety in all economic sectors. Thus we argue that the adoption of a family of indicators rather than a composite indicator is a more appropriate way to improve on available taxonomies.

The policy conclusions are in striking contrast to the standard R&D framework:

The policy problem is, therefore, to support building innovation-enabling capabilities for these companies to access knowledge resources in a critical and selective way.
. . .
In spite of the difficult overall economic situation of low-tech and medium-low-tech industries and the challenges of globalisation and growing competition, the future prospects of many LMT sectors and companies are not bad or may even be bright, depending on some structural conditions. This holds true for companies whose specific competencies cannot easily be copied by potential competitors; for firms that are active in markets where geographical and social proximity is a competitive advantage; and finally for companies that are able to absorb distributed knowledge (be it scientific or of any other type) and to employ up-to-date process technologies systematically and efficiently.
These conditions are not given for all LMT companies, and it is likewise true that not all companies in Europe are able to develop in this direction or really use structural conditions of this type in a competitive way when they face them. But there is no reason to believe that LMT companies are, in principle, less likely to face the challenge than research-intensive firms are.
What separates successful companies from others in the long run is the ability to innovate. And innovativeness is by no means an issue only for those with a high R&D budget. Hence, non-discriminatory support of innovativeness is a major policy topic. Our research findings lead to a number of problems concerning innovation policy in the low-tech and medium-low-tech sectors. Several policy issues should be highlighted.
• First, there is little if any awareness of innovation-supporting policies other than focusing on R&D.
• Second, it is an important policy task to devise measures and to support activities which aim at improving the knowledge base and the capabilities of low-tech and medium-low-tech companies.
• Third, policies should focus on the development of firm capabilities to meet the demands of cross-company co-operation with corresponding channels of communication, gateways and personnel responsibilities.
• Fourth, policies should encourage both the generation of knowledge and its diffusion between low-tech and high-tech sectors, and they should also promote stronger interrelationships between the sectors.
These considerations should also lead to a new understanding of the restructuring of the economic landscape of Europe in the early years of the 21st century. This future does not appear to foretoken wholesale structural replacement of “old” sectors with “new” ones, or a substitution of “old” technologies with “new” ones, so much as a continually changing blend of technologies of various vintages. This process of change is evolving as a restructuring of sectoral and technological systems, transformed more from within than from without. It is not dominated by industrial activities for which competitive advantage, capability formation and economic change are generated by front line technological knowledge. Rather, it is dominated by what are often pejoratively termed low-tech and medium-low-tech industries. And it is unambiguously characterised by the continuous combination and re-combination of high and low-tech attributes.

The result of this research comes to the same conclusion that I have in my own informal look at the economy: in the knowledge society and intangible economy, what matters is what you do with the knowledge and intangibles. Future economic prosperity can not be based on the pure production of knowledge and intangibles. It must be based on their utilization throughout the economy.
And our current “innovation” policy fails to reflect this fact.

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