I
INTRODUCTION



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I INTRODUCTION

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Innovative Flanders: Innovation Policies for the Twenty-first Century Recognizing that innovation is the key to international competitiveness in the 21st century, policymakers around the world are seeking more effective ways to translate scientific and technological knowledge into new products, processes, and businesses. They have initiated major programs, often with substantial funding, that are designed to attract, nurture, and support innovation and high-technology industries within their national economies. To help U.S. policymakers become more aware of these developments, a committee of the National Academies’ Board on Science, Technology, and Economic Policy undertook a review of the goals, concept, structure, operation, funding levels, and evaluation efforts of significant innovation programs around the world. As a part of this effort, the committee identified Flanders, a region of Belgium with substantial autonomy, which is recognized for its comprehensive approach to innovation. Based on initial meetings in Washington and Brussels, and with the endorsement of Flanders Vice Minister-President Fientje Moerman, it was agreed to organize a conference that would review regional innovation policies in the context of the policies and programs of the Flanders government, and their interaction with those of the European Union.1 This chapter highlights the main points of this conference. It begins with an overview of the changing landscape of global innovation and reviews the role 1Mrs. Moerman resigned as Flanders’ Vice Minister-President and Minister of Economy, Enter- prises, Innovation, Science, and Foreign Trade in October 2007. The conference reported here was held in September 2006. Titles and positions of all the participants reported in this volume are those of the date of the conference. 

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 INNOVATIVE FLANDERS Box A What is Innovation? “Innovation is a strategy that provides resources to talented people in an a tmosphere which promotes creativity and is focused on outcomes ranging from new products, to customer satisfaction, to new scientific insights, to improved processes, to improved social programs. [It is] designed to create wealth and/or improve the human condition.” Dr. Mary Good, University of Arkansas at Little Rock that public-private partnerships play in advancing American competitiveness. The chapter then turns to review the initiatives taken by the Flanders government to reinforce its position further as a global center of research and innovation. While the American and Flanders economies differ vastly in scale and struc- ture, both confront common challenges in innovation, including the need to transform existing institutions and invent new policies mechanisms for the future. A premise of the conference—and hence this report—is that a comparative per- spective is necessary to understand the global environment for innovation-based competition. A detailed summary of the insights, observations, and the status of current policies captured in the conference proceedings can be found in the next chapter. THE GLOBALIzATION OF INNOVATION Since the Second World War, the high standard of living found in the United States and Western Europe has been built on competitive markets that reward the innovator while providing consumers with better and more affordable products. In the United States, this potential for innovation has been sustained by a culture of entrepreneurship that encourages risk-taking by providing substantial rewards buttressed by robust government funding for basic science and technology, and reinforced by an open research and development (R&D) system that attracts the best minds from around the world.2 While still a powerful model, this paradigm began to change with the emer- gence of a distinctly new competitive environment in the 1990s. The introduction of new information and communications technologies across the world and the rise of new low-wage, high-skill entrants on the global stage have altered the 2See the presentation by Dr. Mary Good in the Proceedings section of this volume.

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 INTRODUCTION Box B Innovation in Flanders About the size of Connecticut and with a population of about six million, F landers encompasses the Dutch speaking region of Belgium. Constitutional r eforms in Belgium, begun in the 1970s, now provide the Flanders government with considerable autonomy to pursue its own social and economic policies. Until the middle of the 20th century, Flanders lagged economically behind Belgium’s French speaking region of Wallonia. With the decline of Wallonia’s power­ ful coal and iron industries after the Second World War, more modern business growth came to Flanders. By the end of the 20th century, Flanders was home to dynamic auto assembly, pharmaceuticals, engineering, metal products, food processing, chemicals, and brewing industries. Exports of manufactured products accounted for nearly 80 percent of Flanders’ gross domestic product (GDP). Recognizing the need to secure its peoples’ future prosperity in a rapidly chang­ ing and competitive global environment, the Flanders government decided to strengthen its own high­technology base, and has since implemented a broad range of programs to enhance its innovation capacity—the focus of this volume. THE NETHERLANDS Flanders GERMANY Brussels BELGIUM Wallonia FRANCE LUXEMBOURG FIGURE B-1 Map of Belgium. Intro Fig Box B-01

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 INNOVATIVE FLANDERS landscape of innovation, creating new challenges for the continued technological leadership of the United States.3 Technological Transformations The information and communications revolution, made possible in large part by faster and cheaper semiconductor products, has changed the economics of innovation. Taking advantage of the potential offered by new information and communications technologies, many large firms have transformed themselves from vertically integrated enterprises, often with significant in-house R&D capa- bilities, into flat, virtual, and globally networked enterprises.4 With Moore’s Law, which predicts the regular and rapid increase in microprocessor capacity, expected to continue for at least another 15 years, the continued decline in cost and increase in capacity of information technologies is likely to continue to underpin this revolution.5 In this new paradigm, talent does not necessarily have to be based in or drawn to the United States, but can be accessed from across the globe. As Mark Myers of the University of Pennsylvania noted in his conference remarks, large firms no longer invest in in-house scientific research as they once did, drawing instead on needed technologies through investment, partnerships, and acquisitions of small innovative firms. Production and sales are similarly fragmented, based on worldwide supply chains and a worldwide customer base. As Dr. Myers noted, this new reality means that each nation must have poli- cies that address the globalization dynamic. New models of cooperation among governments, industries, universities, and others are necessary to sustain the “knowledge commons” on which innovation depends. And new types of invest- ments in education are necessary to prepare the workforce of the future even as skilled workers migrate with increasing ease across the world. 3These concerns are highlighted in a recent report of the National Academies. See National Acad- emy of Sciences, National Academy of Engineering, Institute of Medicine, Rising Aboe the Gather- ing Storm: Energizing and Employing America for a Brighter Economic Future, Washington, D.C.: The National Academies Press, 2007. Drawing attention to the possibility of an abrupt loss of U.S. leadership in science and innovation, this report led to the passage of the America Competes Act of 2007. This act, passed with bipartisan support in Congress, focuses on increasing research investment, strengthening educational opportunities in science, technology, engineering, and mathematics from elementary through graduate school, and developing the nation’s innovation infrastructure. 4For a review of some of the implications of the ongoing revolution in information and communi- cations technology for businesses, see William J. Raduchel, “The End of Stovepiping,” in National Research Council, The Telecommunications Challenge: Changing Technologies and Eoling Policies, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2006, p. 31. 5For an analysis of the nature of Moore’s Law and its impact on the U.S. productivity growth, see National Research Council, Enhancing Productiity Growth in the Information Age, Dale W. Jorgenson and Charles W. Wessner, eds., Washington, D.C.: The National Academies Press, 2007.

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7 INTRODUCTION Box C A Chinese Perspective on Innovation and National Competitiveness “In today’s world, the core of each country’s competitive strength is intellectual innovation, technological innovation, and high­tech industrialization.” President Jiang Zemin August 23, 1999 The Rise of New Entrants Another challenge to continuing U.S. leadership in innovation and com- petitiveness comes from newly competitive participants in the global economy. China, most notably, combines the advantages of high-skill and low-wage knowl- edge workers with substantial state and foreign investments backed by a strong sense of national purpose in acquiring new capabilities and participating in product markets based on advanced technologies.6 One element of this strategy focuses on attracting and developing high- technology industries to the Mainland. As Alan Wolff of Dewey Ballantine LLP noted at the conference, China’s leaders see the acquisition of technological capabilities and control of national market as a means of maintaining national autonomy and generating political and military strength. (See Box C.) This high-level commitment is evident in the rapid rise in Chinese R&D expenditure. In 1999, China’s R&D spending accounted for 6 percent of the total world expenditures in R&D. By 2005, China accounted for 13 percent of the world total of $836 billion spent on R&D.7 Mr. Wolff reported that China plans to increase its R&D spending to 2.5 percent of GDP by 2010, raising it to international target levels. In addition to national focus and generous funding, China has also adopted powerful policies to encourage innovation. These policies include exemptions from sales tax income earned from the transfer of technology developed exclu- sively through foreign direct investment in R&D, a 50 percent discount in cor- porate income tax for foreign R&D investors with rising development expenses, 6For a comprehensive review of the innovation policies of India, another major new entrant, see National Research Council, India’s Changing Innoation System: Achieements, Challenges, and Opportunities for Cooperation, Charles W. Wessner and Sujai J. Shivakumar, eds., Washington, D.C.: The National Academies Press, 2007. 7Based on purchasing power parity. See Organisation for Economic Co-operation and Develop- ment, Main Science and Technology Indicators, Paris: Organisation for Economic Co-operation and Development, 2006.

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 INNOVATIVE FLANDERS and (like many countries) procurement regulations that favor national producers. The central and regional governments are also spending substantial sums to support leading industries, such as the construction of advanced semiconductor fabrication facilities.8 Like governments elsewhere, albeit on a larger scale, the public authorities have set aside large tracts of land for information technology and biotechnology science parks, and are providing incentives for major U.S. and European firms to conduct research and development in China. While some of these efforts, particularly those involving a “top-down” approach, may face drawbacks from bureaucratic rigidities, the sheer scale of China’s efforts will continue to have a global impact. THE INNOVATION CHALLENGE FOR THE UNITED STATES The emergence of China as a rapidly growing economy offers major growth opportunities for U.S. firms just as China’s desire to acquire and develop advanced technology poses significant challenges for U.S. policymakers. In any event, for the United States to maintain its leadership as an innovative economy, it has to adapt its policies to address these new technological and competitive realities. Dr. Mary Good of the University of Arkansas underscored the nature of the challenge faced by the United States. These challenges include changing demographics and unfavorable trends in investments on science. Noting that over a third of the science and technology (S&T) graduate students in the United States are foreign-born, and that nearly 60 percent of engineering graduates are foreign-born, she said that U.S. innovation depends on the availability and con- tinued presence of these foreign-born students.9 The question is whether they will continue to come and stay as other countries quickly build up their own research universities and job opportunities and our own immigration system discourages them from staying. What is needed, she affirmed, are immigration policies that admit educated newcomers while restricting illegal immigrants. At the same time, Dr. Good noted, the United States is not investing suf- ficiently in its future innovation capacity. Funding for public universities has declined, making it more difficult to replace retiring generations of scientists and 8For a discussion of policies adopted by the People’s Republic of China to support its semi- conductor industry, see Thomas R. Howell, “New Paradigms for Partnerships: China Grows a Semiconductor Industry,” in National Research Council, Innoation Policies for the 21st Century, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2007. 9For related analysis, see National Research Council, Policy Implications of International Graduate Students and Postdoctoral Scholars in the United States, Washington, D.C.: The National Academies Press, 2005. In 2003, international students earned 38 percent of the U.S.-awarded S&E doctorates and 58.9 percent of the engineering doctorates. See National Science Foundation, Science and Engi- neering Doctorate Awards: 200, NSF 05-300, Arlington, VA: National Science Foundation, 2004. Data are available at .

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 INTRODUCTION Billions of Dollars Seed Startup First-stage Year FIGURE 1 The collapse of the U.S. seed and first-stage venture capital funding: dwin- dling high-risk investments. SOURCE: National Science Board, Science and Engineering Indicators 200, Arlington VA: National Science Foundation, 2004.Fig 01 Intro engineers.10 Another factor weighing on the U.S. innovation system is declining investment in R&D from a variety of sources.11 While the federal investment has risen in constant dollars since 1976, almost all this increase has gone to the defense sector—where the focus is on development rather than on path-breaking research. Likewise, R&D spending by business is also characterized by a focus on development over research. Dr. Good pointed out that this focus on later stage development is also reflected in venture capital funding, where early-stage fund- ing for small R&D firms “is fast disappearing, and that’s got to change.” (See Figure 1.) According to Dr. Good, sustaining America’s innovative capacity requires that state and national policymakers pay attention to a set of three interlocking 10See Peter R. Orszag and Thomas J. Kane, “Funding Restrictions at Public Universities: Effects and Policy Implications,” Brookings Institution Working Paper, September 2003. The authors note that public educational spending per full-time equivalent student has declined at public institutions rela- tive to private institutions, from about 70 percent in 1977 to about 58 percent in 1996. Since roughly three-quarters of college students are enrolled at public institutions, they note that any decline in the quality of the nation’s public universities could have troubling implications. At the same time, they acknowledge that reductions in spending need not translate into a proportional reduction in quality. 11See Kei Koizumi, “Historical Trends in Federal R&D,” AAAS Report XXXII: Research and Deelopment FY200, Chapter 2, AAAS Publication Number 07-1A, Washington, D.C.: American Association for the Advancement of Science. Access at .

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10 INNOVATIVE FLANDERS Box D The Role of Public-Private Partnerships “Partnerships facilitate the transfer of scientific knowledge to real products; they represent one means to improve the output of the U.S. innovation system. Partnerships help by bringing innovations to the point where private actors can introduce them to the market. Accelerated progress in obtaining the benefits of new products, new processes, and new knowledge into the market has positive consequences for economic growth and human welfare.”a Government-Industry Partnerships for the Development of New Technologies A Report of the National Academies aFor an analysis of the conditions necessary for successful public­private partnerships, see the findings and recommendations of the NRC Committee on Government­Industry P artnerships, chaired by Gordon Moore. See National Research Council, Government- Industry Partnerships for the Development of New Technologies: Summary Report, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2003, pp. 2­3. priorities—expanding the nation’s talent base, investing in R&D of unexplored areas, and building the infrastructure for collaboration needed to bring new ideas to the market. She summarized the challenges faced by the United States as follows: • How do you get talent that does what you need it to do? • How do you raise sufficient support to give that talent opportunity? • How do you create an infrastructure capable of creating new and exciting things? In answering these questions, several conference participants pointed to the role that public-private partnerships—involving cooperative R&D activities among industry, universities, and government laboratories—can and have played in accelerating innovation in the United States. (See Box D.) The case of the semiconductor industry, seen next, illustrates how partner- ships have contributed directly to furthering the global competitiveness of a leading U.S. industry. The SEMATECH Research Consortium In the 1980s, American semiconductor industry leaders, facing growing competition from Japan, became concerned that they needed to improve manu- facturing quality and resolved to find a way to improve the situation collec-

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11 INTRODUCTION tively.12 Despite the independence and fierce competitiveness among firms in the industry, the Semiconductor Industry Association took the unusual step of approaching the government and making the argument that active collaboration at the pre-competitive stage was necessary for the sake of long-term U.S. eco- nomic competitiveness and national security.13 SEMATECH, which brought together most of the largest semiconductor companies in the United States, was launched in 1987 as a new experiment in U.S. R&D strategy. This consortium has since been widely credited with playing a significant role in the resurgence of the U.S. semiconductor industry. 14 Its per- ceived success has stimulated similar cooperative efforts in Japan and Europe— including the Interuniversity Microelectronics Centre (IMEC), a microelectronics research facility on the outskirts of Leuven in Flanders. Today, SEMATECH continues to play a central role in developing the nanotechnologies necessary to move semiconductor research beyond CMOS and into the future.15 In his conference presentation, Kenneth Flamm of the University of Texas said that enhanced research collaboration, made possible by SEMATECH, helped to accelerate the rate of innovation in semiconductor technology and contributed to a rapid decline in the price of semiconductors.16 The development of a semi- conductor technology roadmap in particular helped “coordinate the complex process of technology development to a point where products could all come on 12See Jeffrey T. Macher, David C. Mowery, and David A. Hodges, “Semiconductors,” in U.S. Industry in 2000: Studies in Competitie Performance, David C. Mowery, ed., Washington, D.C.: National Academy Press, 1999. 13For a first-hand account of the formation of the SEMATECH consortium, see Gordon Moore, “The SEMATECH Contribution,” in National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, Charles W. Wessner, ed., Washington, D.C.: The National Academies Press, 2003. For a view from the Semiconductor Industry Associa- tion at that time, see also Andrew Procassini, Competitors in Alliance: Industry Associations, Global Rialries, and Business-Goernment Relations, New York: Greenwood Publishing, 1995. 14For an overview of SEMATECH, see National Research Council, Conflict and Cooperation in National Competition for High-Technology Industry, Washington, D.C.: National Academy Press, 1996, pp. 148-151. For an analysis of the empirical evidence, see Kenneth Flamm, “SEMATECH Revisited: Assessing Consortium Impacts on Semiconductor Industry R&D,” in National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry, op. cit. See also Peter Grindley, David C. Mowery, and Brian Silverman, “SEMATECH and Collaborative Research: Lessons in the Design of High Technology Consortia,” Journal of Policy Analysis and Management, 13(4):723-758, 1994. 15For a review of new product trends and the future research directions in semiconductor technol- ogy, see the remarks by George Scalise, President of the Semiconductor Industry Association, in the Proceedings chapter of this volume. 16See Kenneth Flamm, “Economic Impacts of SEMATECH on Innovation in Semiconductors” in the Proceedings chapter of this volume.

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22 INNOVATIVE FLANDERS These research centers represent innovative and, especially in the case of IMEC, world-class initiatives to encourage collaborative research. IMEC IMEC, established in Leuven in 1984, is the crown jewel of Flanders’ research efforts. Recognized as a world-class microelectronics research center, IMEC strives to be a “worldwide center of excellence.” As Anton de Proft, IMEC’s Chairman, noted at the conference, it is “the world’s largest industry commitment to semiconductor research in partnership—even though Belgians are hesitant to say they’re the biggest anything.” IMEC emphasizes pre-competitive research and attempts to address the “innovation paradox” by bringing researchers from academia and industry together under the same roof. This provides focus for university researchers and basic solutions for industrial partners. Research subject areas include chip design, processing, packaging, microsystems, and nanotechnology. IMEC’s stated mission is “to carry out R&D programs which are 3-10 years ahead of today’s industrial needs.”37 In doing so, noted Mr. De Proft, IMEC consciously takes risks, but can afford to do so by sharing them among many partners. IMEC now has “core partnerships” with Texas Instruments, ST Microelectronics, Infineon, Micron, Samsung, Panasonic, Taiwan Semiconductor, and Intel, and “strategic partnerships” with major equipment suppliers.38 In July 2005 IMEC produced its first 300mm silicon disks with working tran- sistors, using its second clean room, a new 3200-m2 facility. A production ASML 170i immersion 193nm lithography system was installed in fall 2006, offering capabilities even beyond those available at the U.S.-based SEMATECH. 39 Expressing the view of a U.S. core partner, Allen Bowling of Texas Instru- ments noted in his presentation that partnerships such as those with IMEC are now essential to sustain the semiconductor industry. He noted that a new product takes at least 4 years to develop fully, so that two or three products must be in development at one time, requiring more R&D capability than single companies have. One result is that costs of semiconductor research are increasing by more than 12 percent per year, while revenues are growing at 6.5 percent per year. Moving a new material or device into production requires 7 to 12 years of pre- competitive research, requiring the kind of intensive university input found at IMEC. “We leverage our dues substantially and gain great value from the IMEC focus on fundamentals,” said Dr. Bowling. “There are more than 1,000 process steps in making an integrated circuit, so we need lots of help.” 37IMEC Mission Statement. 38Greta Vervliet, Science, Technology, and Innoation, op. cit., p. 59. 39Allen Bowling of Texas Instruments, one of IMEC’s international partners, personal communication.

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2 INTRODUCTION Box G Open Innovation and the IMEC Payback for Flanders In a key exchange during the conference, Kenneth Flamm of the University of Texas asked Dr. de Proft what he termed an “impolite question” about the partici­ pation of large multinational semiconductor companies in IMEC. “Was not IMEC essentially subsidizing research for these firms, none of whom had production facilities in Flanders?” Calling the question “astute and pertinent,” Anton de Proft, the Chairman of IMEC, noted that the grants were not discounts on commercial contracts, but were meant to support fundamental research as a basis for further research programs with industry and with a view on long­term spill­over effects for the region. When you dig deeper, he went on, you see payback for the region at many levels. He emphasized the presence of the residents, about 300 bright minds from around the world, spending their creative years here, and building up networks. They are all people likely to move up in their organizations, where they will be in positions to make decisions about where to put their R&D centers or other activi­ ties. Over 200 PhDs, he added, are performing their doctoral research at IMEC. IMEC also is interacting with local industry and has created over 25 spin­off companies, among which are some very fast growers. IMEC’s activities are also generating a strong secondary economic impact in the region, with over €42 million in subcontracting to the local industry. The overall economic impact, he concluded, is a multiple of the government funding. “Our government is smart enough to understand not to look for direct matches, but to promote some formative behaviors without trying to steer the economy.” The 2005 budget of IMEC was about €235 million, about half of which came in the form of revenues from contracts with international industry; the remainder came from Flemish industry, the Government of Flanders, the Euro- pean Commission, and several smaller organizations.40 In all, IMEC has about 1,500 employees, including nearly 500 non-payroll industrial residents and guest researchers representing approximately 50 nationalities. Flemish Interuniversity Institute for Biotechnology (VIB) A second research institute that shows every sign of becoming another IMEC is Flanders’ biotechnology facility. As Dr. Lieve Ongena, Senior Science Adviser to the Flemish Interuniversity Institute for Biotechnology (VIB), noted in her presentation to the National Academies delegation, the motivation for focusing on biotechnology is straightforward: “We had a lot of activity, but no transla- 40Greta Vervliet, Science, Technology, and Innoation, op. cit., p. 57.

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2 INNOVATIVE FLANDERS tion from the universities to the economic growth of Flanders.” VIB was given a compound mission designed to overcome that problem. Formed in 1995 as a not-for-profit institute, VIB’s mission is fourfold: to invest in basic research, to train young researchers, to commercialize discoveries, and to explain science to the public. It is an “institute without walls,” staffed by scientists from Antwerp, Gent, Brussels, and Leuven. The plan has been success- ful, and the VIB now has 60 research groups in nine departments, and a 50/50 cost- and profit-sharing partnership with its four universities. Addressing these missions, VIB has developed three core activities: 1. Biomolecular research focusing on molecular mechanisms of life. The broad objective is to concentrate on work of “strategic importance,” including cancer research, cardiovascular biology, neurodegenerative disorders, inflamma- tory diseases, growth and development, proteomics, and bioinformatics. 2. An active patenting and licensing function whose goal is to transform the results of strategic basic research into industrial and social value. 3. A program to convey accurate and interesting information about science to the public. The VIB supports 850 scientists and technicians, of whom 300 are PhD stu- dents. The total research budget is €60 million, half of which is a “strategic grant” from the government; the rest comes from the EU, the U.S. National Institutes of Health, and industry, with the proportion from industry growing. The VIB uses two routes to transfer knowledge into societal benefits. For discrete discoveries, it may file a patent and license the technology to companies. If the “platform is wide enough,” it may spin off its own company. The VIB has done this in four cases—for dVGen (using a microscopic worm for drug dis- covery), Peakadilly, 41 CropDesign, and Ablynx (using camel antibodies as a tool for drug targeting). Profits are used to promote growth and generate additional money for research. A fifth startup, SoluCel, is a small company in Finland, and during the Leuven conference a sixth spin-off was announced, ActoGeniX, which uses a bacterium as a living drug delivery tool. To date, these startups employ more than 280 people and represent more than €220 million in venture capital. To aid in firm formation, the VIB now plans to open its own small business incubator. Said Dr. Ongena, “If we have an idea, we want to be able to start a business tomorrow.” To date, she added, the VIB had been efficient at commer- cializing, operating at the favorable cost of €1 million per record of invention and €2 million per patent. 41Since the time of the conference reported in this volume, Peakadilly (a biotech company located in Ghent, Belgium) has changed its name to Pronota.

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2 INTRODUCTION Finally, the VIB places a high priority on communicating its work to society. The goal is to reach all levels of society, including the press and media, policy makers, teachers, students, doctors, patients, and scientists in other fields. For example, the “Scientists@work” school project invites groups of 10 to 15 students to the labs to work on a project for half a day. The immediate goal is to give them an authentic feel for careers in biology. The longer-term goals are to attract more bright students to science and to educate the public about controversial issues, such as the debate now raging in Europe over the safety of biotechnology. Flemish Institute for Technological Research (VITO) The third Strategic Research Initiative, VITO, is Belgium’s largest and best- equipped multidisciplinary research center for energy, the environment, and materials. Its objective is to develop and encourage sustainable technological developments for government, industry, and SMEs. VITO seeks to do as much of this in partnership with industry as possible, and has recently increased contract research for industry to about 25 percent of income. VITO has its roots in a Belgian agency started in 1988 to focus on nuclear and non-nuclear energy issues. It was overhauled in 1991 as an autonomous public research company, with the Flemish government as its sole shareholder. More than 80 percent of its work is performed on behalf of the Flanders Ministry of Environment and Energy. It has a staff of 510, 90 of whom hold PhDs, and a budget of €35 million for 2006. As VITO’s Managing Director, Dirk Fransaer, noted in his presentation to the National Academies delegation, VITO focuses on nine technology fields in addition to Exploratory Strategic Research (SBO) and strategic support tasks. The technology fields include decentralized energy systems, power technology, surface treatment, soil cleaning technology, innovative water purification, reactor technology, environment and health, air quality, and remote sensing. The SBO is medium-term research that aims to build up scientific capacity as a basis for economic and/or social applications. Research Centre for Broadband Technology (IBBT) This new center, opened in 2004, is a dispersed “virtual” center that focuses the missions of 13 existing research groups with the goal of becoming Flanders’ fourth Strategic Research Initiative. It was founded on the premise that Flanders needs to be a leader in information and communications technology (ICT), and that to be a leader it requires large public investments in multidisciplinary basic research. According to Dr. Waele, IBBT’s general manager, the mission of IBBT is to develop multidisciplinary human capital and perform demand-driven research for industry and government. Its primary emphasis is on ICT innovations for the health care industry, which is seen to have the greatest potential for marketable

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2 INNOVATIVE FLANDERS ICT uses. Research funded by the program will be primarily pre-competitive, requiring business partners to contribute at least 50 percent of costs. Major ICT firms working in Flanders include Philips, Siemens, and Alcatel. IBBT intends to recoup its investments by both licensing and spin-offs. According to Dr. Waele, it does not seek to hold a portfolio of companies, but to create as many new firms as possible. Once a company has revenues, IBBT will take a low percentage—typically 5 percent. IBBT gauges its success based on value added for companies and for the Flemish economy. It also uses secondary academic excellence indicators, as measured by spin-offs, and has plans to launch a business incubator. IBBT has the freedom to work with foreign companies without restriction, as long as they are active in Flanders. “Our goal is to stimulate economic activity,” said Dr. Waele, IBBT’s general manager. “Borders are a thing of the past in terms of scientific collaboration.” Funding for Research with an Economic Focus This last category of funding from the Flanders government goes to compa- nies, research institutes or universities, and individuals who seem likely to pro- mote “greater technological innovation in Flemish companies.” They are designed to advance the goals of the Flanders government by: • Creating conditions that increase technological innovation in companies; • Creating conditions to achieve greater cooperation between academia and companies, and between companies themselves; • Promoting a climate of innovation. University Interface Services The goal of this program, according to Mrs. Moerman, is to encourage universities to use their knowledge and expertise for the benefit of the Flemish economy and to develop a university culture where excellence in education and research is linked to innovative enterprises. The Flemish government supports university interface activities that encourage cooperation between university and industry and promote the creation of spin-off companies. Cooperative Ventures Funding for industry-initiated cooperative ventures includes various R&D subsidies for companies operating in Flanders and wishing to commercialize or otherwise add value to their research; support postdoctorate research; and create of economic networks that encourage innovation.

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27 INTRODUCTION TABLE 1 Summary of Key Innovation Funding Sources and Institutes in Flanders Innovation/Funding Agency Role Budget Flanders Fund for FWO finances basic Annual budget €119 million (2006) Scientific Research research, carried out in which includes approximately €50 (FWO) the universities of the million to fund individual researchers, Flemish Community and €50 million to support Research Teams, in affiliated research and €2 million to promote Scientific Contacts.a institutes. Flanders Institute Government agency Annual budget €240 million (2005) for the Promotion providing funding including approximately €75 million of Innovation for industrial and for R&D projects, €15 million for SME by Science and technological R&D, innovation projects, €37 million for Technology (IWT) and technology transfer strategic basic research, and €30 million for Cooperative Innovation Networks.b services. Interuniversity The IMEC mission is “To The 2005 budget of IMEC was Micro-Electronics perform R&D, ahead of approximately €235 million, about half Centers (IMEC) industrial needs by 3-10 of which came in the form of revenues years, in microelectronics, from contracts with international nanotechnology, design industry; the remainder came from methods and technologies Flemish industry, the Government of for ICT systems.” Flanders, the European Commission, and several smaller organizations.c The Flemish VIB is a non-profit Total income of €62 million in 2006, Interuniversity scientific research with the Flanders government funding €31 million.d Institute for institute. Biotechnology (VIB) The Flemish Institute Research organization €61 million in 2006. Own income for Technological to stimulate sustainable generated is €32 million, with the Research (VITO) resource development. balance of funding from government grants.e Research Center IBBT focuses on €17 million grant from the Flanders government.f for Broadband applied research in ICT Technology (IBBT) in cooperation with companies and the government. aMinistry of Education and Training, Higher Education in Flanders, 2007. Access at . bIWT Brochure. Access at .. cGreta Vervliet, Science, Technology, and Innoation, op. cit., p. 57. dVIB, Annual Report 200. Access at . eVITO, Annual Report 200. Access at . fIBBT, Annual Report 200.

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2 INNOVATIVE FLANDERS Support is also provided for developing sustainable technologies, prepar- ing spin-off companies, and incentives to encourage innovation in SMEs. The Flemish Innovation Cooperative Ventures (VIS) program supports collective research, technological services, projects that simulate innovation for particular issues, and activities to stimulate subregional innovation. For 2006, the budget of the program was estimated at €160 million. New Experiments in Financing R&D In 2001, the government created a program called Arkimedes, which tries to overcome cultural aversions to risk by providing government guarantees and tax credits for people who invest in several kinds of small-denomination bonds. As described by Rudy Aernoudt, the money raised by these bonds (“a pool of pools”) goes into several R&D funds, whose effectiveness is measured by the number of innovative companies produced. Risk is said to be low because the loans are spread among numerous companies, although the program is still too young to draw firm conclusions about its effectiveness. THE ROLE OF THE CATHOLIC UNIVERSITY OF LEUVEN The Catholic University of Leuven (K.U.Leuven), the oldest university in Belgium, plays a significant role in Flanders innovation strategy. K.U.Leuven’s R&D mission is “to promote and support knowledge and technology transfer to industry.” According to Professor Koenraad Debackere of K.U.Leuven, this mission is carried out at three levels. At the top are researchers on the payroll. As of 2005, he reported, K.U.Leuven supported 974 researchers, a number that had doubled in 5 years. Many of these do research for industry. At the middle level, the univer- sity is actively involved in three areas: contract research, spin-off formation and regional development, and IPR and licensing. The third level is industry itself. Traditionally, he said, the university had two basic missions: research and teaching, which are still fundamental. But in that traditional academic environment, faculty research was done in “almost a pure ivory-tower setting.” Nowadays, how- ever, universities in many European countries are charged by the government to cre- ate structures and activities that support the commercialization of their research. K.U.Leuven’s Matrix Structure At K.U.Leuven, which Dr. Debackere considered an unusual case for Europe, there is a “full matrix-like structure” that gives academic researchers incen- tives to collaborate with industry. The academic subjects are divided into three groups: biomedical research, the other exact sciences, and the arts and humani- ties. Within each are the faculty members and the different departments, “the

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2 INTRODUCTION Box H Growing the University’s Economic Role According to Dr. Debackere, Leuven’s success at commercializing R&D is based on: • A critical mass of high­quality, internationally competitive research. “This is why IMEC is very strict in its performance assessments.” • An integrated approach to technology transfer, such as incentives for multi­ disciplinary teams and high value­added services. • Clear incentives and policies to encourage individuals, research groups, and departments to pursue spin­off opportunities. • Creation and acceptance of an entrepreneurial climate in a university context. • A Flemish legal context that is positive with respect to the exploitation of aca­ demic research and IP. normal hierarchy where people are recruited and promoted on the basis of their teaching and research abilities.” At the same time, the university has a horizontal structure with about 50 research divisions under the umbrella of a central office of R&D. The divisions are organized on an interdepartmental basis, and professors of research become members of one of those divisions, under which they can organize their indus- trial involvement. Any proceeds from their work remain within the division. What drives them, said Dr. Debackere, is a desire to be part of a strong research environment where they can compete and collaborate with the best of their colleagues. In order to promote a strong collaborative research environment, the univer- sity lets the faculty reinvest the income in infrastructure, equipment, and post- doctoral scholars. “Although this has been criticized as ‘social welfare’,” he said, “we regard it as the best kind of social welfare, because everything is reinvested in the research.” In order to support the divisions and their activities—which include applied research, technology transfer, and the generation of new compa- nies—about 40 people are employed to provide management support, IT support, and consulting on the incubation of new companies. “Leuven Inc.” Dr. Debackere said that in Leuven, more than 100 spin-off companies had already been created, leading to the nickname “Leuven Inc.” Part of its success in expanding entrepreneurship, he said, grew out of the formation of effective networks. Some of these were horizontal: contact between universities, IMEC,

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0 INNOVATIVE FLANDERS startups, and other “innovation actors.” Others are vertical: technology clusters, such as DSP Valley that focus on design of hardware and software technology for digital signal processing, and L-SEC (Leuven Security Excellence Consor- tium), an international non-profit network dedicated to promoting the use of e-security. EVALUATING THE IMPACT OF POLICY INSTRUMENTS Given the challenges in accelerating innovation in Flanders, and in the European Union more generally, Flanders pays special attention to evaluating its efforts to spur innovation. It has found that despite the magnitude of its invest- ment, not all efforts are fully successful. The Flanders government in 2000 charged SOOS, the Policy Research Center for R&D Statistics, with answering such questions as whether the new commer- cializing role assigned to universities would add value for society and whether it would crowd out private investment. So far, the Policy Research Center has found a positive impact in patenting activity and increased technological activity and no crowding out effect, as tested by numbers of transfers of ownership rights. In all, reported Professor Van Looy, “the findings suggest a distinctive and considerable positive impact.”42 He added that more important than any single mechanism would be the sustained long-term political commitment of the government. Another evaluation study attempted to identify factors that produced success- ful new firms, and found some ambiguous answers. They found, for example, no “straight relationship” between equity financing and growth. They also found that rapid growth correlated with high failure rates. Small firms benefited from having teams of two or three founders, whose members had commercial experience, but more important seemed to be early involvement in international activities. One researcher observed that most Flemish policy measures have been designed to address the equity gap, but the mix of human resources is overlooked, and early- stage internationalization is the key.43 CONCLUSION The United States and Flanders differ enormously in scale, politics, and cul- ture. The U.S. population is about 50 times that of Flanders, and 30 times that of all Belgium. The people of Flanders assign a more prominent role to government, take a cautious view of risk-taking, and experience relatively little venture capital activity. Even so, the Flemish government has found that the process of innova- 42See presentation by Bart Van Looy in the Proceedings chapter of this volume. 43B.Clarysse, Policy Research Centre of Entrepreneurship, Enterprises and Innovation, conference presentation.

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1 INTRODUCTION Box I Growing a Regional Innovation Economy According to Luc Soete of the University of Maastricht, four conditions are necessary for stronger innovation­led growth and development. Most of these, he said, are already in place in Flanders: 1. High­quality human capital formation. Core elements for Flanders, he said, were universities, polytechnics, and professional training schools, including lifelong learning programs. These emphasized high quality, reduced failure and dropout rates, improving attractiveness to students from other regions and use of exchange programs as benchmark learning tools. 2. Open research practices. “IMEC is the clearest example of this,” he said. “Texas Instruments brings eight people here, and assumes that they learn as much as they ‘leak’. This openness attracts people.” It also strengthens the research pres­ ence, stimulates joint public­private initiatives, benefits from “foreign” knowledge and collaboration, and strengthens the regional research infrastructure. 3. Stronger innovation performance. He emphasized the importance of support­ ing local science spin­offs and entrepreneurs, for which Flanders has created spe­ cific policies. Flanders has also strengthened innovation by linking public research institutions, teachers, and local SMEs; embedding large multinational corporations in the public research infrastructure; and sponsoring public information projects to explain innovation. 4. Regional capacity to absorb innovation. Flanders’ support for regional “beta users,” or early adopters helps grow the seeds of innovation. Capacity absorption is also hastened by procurement policies, a regional presence abroad (e.g., at fairs), a focus on regional diffusion of knowledge, and cooperation with other “foreign” regions. tion seems to be less a function of scale than of human resources, a conducive environment, and political will. While many of the Flanders region’s policies and programs to support inno- vation are too recent to allow conclusive evaluation, some outcomes are already apparent. These include an increase in numbers of spin-off companies, high numbers of publication and patents in biotechnology, and the growing reputation and impact of microelectronics research conducted at IMEC. These initiatives, described in the conference proceedings found in the next chapter, are worthy of broader notice. Some of the policy measures discussed at the symposium may be of interest to countries and regions around the world, although this would normally be for adaption and adoption, rather than direct copying. To adapt them to the specific contexts and conditions of different national or regional innovation systems, it is necessary to understand considerably more about the specific designs of the dif-

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2 INNOVATIVE FLANDERS ferent policy measures discussed, as well as their roles in their specific innovation system and policy contexts. In addition, innovation policies and programs that address important challenges must be scaled in relation to the entire system or parts of the system they address. Innovation policies and the resources devoted to them often suffer from a “tyranny of small scale.” Even well-conceived programs cannot make a meaningful contribution to innovation performance unless the program and resources allocated are adequate to the task. Taking into consideration these caveats, policymakers in the United States can find instructive lessons in the broad goals, multiple instruments, significant funding, sustained activity, and regional branding found in the Flanders experi- ence. Such a comparative perspective is essential if we are to respond manfully to this century’s innovation imperative.