Carla I. Koen. Comparative International Management

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MANAGING RESOURCES: NATIONAL INNOVATION SYSTEMS 381

enterprises. The government provided subsidies that helped to strengthen the infrastruc-

ture for risk capital. The government also worked with the ﬁnancial community to

introduce measures designed to stimulate the provision of higher-risk investment capital

and allow technology ﬁrms to undertake the rapid growth trajectories commonly seen in

US technology clusters. Institutional support by the federal government is heavily concen-

trated on national laboratories and departmental laboratories. Since the 1970s, there

have been attempts to improve the links between the national laboratories with industrial

technology. Since the 1980s, federal states and some cities have supported science parks to

attract new high-tech ﬁrms to their region or to facilitate the spin-off of new ﬁrms from

existing organizations. Innovation centres were established, providing space and infra-

structure facilities for new science-based ﬁrms.

A key factor in the technological strength of any country is the innovation activities of

business enterprises. R&D is only a part of these innovation activities, but in many indus-

tries it is an essential part. In Germany, about 63 per cent of total national R&D is ﬁnanced

by the business sector, a much higher percentage than in the USA, France, the UK or Italy,

but a lower percentage than in Japan, where it is 78 per cent. At the aggregate level, gov-

ernment has not been an important source of funds for R&D performed in the business

sector. In 1987, for example, it ﬁnanced about 12 per cent of all R&D performed by the

business sector. About 31 per cent of domestic industrial R&D capability (as measured by

R&D employees) is accounted for by the six top spenders: Siemens, Daimler-Benz, Bayer,

Hoechst, Volkswagen and BASF.

To date, the German industry has shown a strong technical capability in those areas

where it has a long tradition of technological strength. Germany has tended to be strong in

complex products, involving complex production processes that depend on skilled and experi-

enced employees on whom responsibility can be devolved. Germany is the undisputed leader

in improving and upgrading technology in the ﬁelds in which its industry is established (e.g.

chemicals – BASF, Schering AG, Bayer, Hoechst; machine construction – Bosch; motor vehi-

cles – Daimler-Benz, Volkswagen, Audi, BMW; electrotechnical products – Siemens and AEG).

Where radically new areas of technology emerged in the decades after the Second

World War – for example, computers, biotechnology and electronics – or where, because

of the post-Second World War policies of the allied countries German industry had to

start anew (as in aircraft), industry developed less technological dynamism (with the

exception of nuclear power). In industries of large complex systems, where technology is

changing rapidly and where government organizations play a key role as customers (such

as telecommunications), German industry does not exhibit technological dynamism.

8.7 The French Innovation System

The French system is essentially a creation of the post-Second World War period. The

higher-education sector, with its dual component (the universities and the Grand Ecoles)

dates back to the late eighteenth century and to subsequent developments at given periods

of the nineteenth century (the Napoleonic period). But, otherwise, today’s institutions

This section draws essentially on Chesnais (1993: 192–226).

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382 COMPARATIVE INTERNATIONAL MANAGEMENT

and mechanisms have all evolved out of those that were built just after the Liberation from

1945 to 1949, and again from 1958 to 1966.

The French national system of innovation consists to a large extent of a set of verti-

cally structured and fairly strongly compartmentalized sectoral subsystems, often

working for public markets and involving an alliance between the state and public and/or

private business enterprises. The most important subsystems are those that concern elec-

trical power production (conventional and nuclear), telecommunications, space, arms

production and electronics. However, the state–enterprise relationship also exists in pet-

roleum, railway equipment and transport systems, civil engineering and marine

technology.

Of all sectoral subsystems, the military subsystem of innovation is one of the largest.

In fact, a large part of the French high-tech industry (perhaps really all of it outside the

medical sector and pharmaceuticals) has been shaped by the pervasive inﬂuence of

defence markets and military demand (Chesnais and Serfati, 1990, 1992). This inﬂuence

did not necessarily have positive outcomes. It has, for example, been argued that the dis-

astrous balance of the French electronics industry, despite the attention and ﬁnancial

support it has received, cannot be dissociated from the fact that the military has had pri-

ority in setting the industry’s R&D and industrial objectives (Serfati, 1991).

Moreover, in instances where new technologies emerge in the defence sector, as in

laser technology, the transfer to civilian use has proved a complete failure. The strong ver-

tical organization of innovation in many sectors has been pointed to as a signiﬁcant

obstacle to the horizontal inter-industry and inter-sectoral transfer of technology.

Barriers to inter-industry ﬂows of technology have been further accentuated by a strong

secrecy stemming from the important military component of technology production.

The pervasive role of the state in the French economy and innovation system has

been explained by the historical weakness of French capitalism, along with the need it has

to receive state support, and by the important role played by the elite of the Grandes Ecoles

and the Grands Corps in creating particularly strong links between the state apparatus, the

public or quasi-public enterprise sector, and the private industrial and ﬁnancial sector.

By ‘corps’ is meant a highly trained expert personnel who successfully entered the

polytechnique and went on to one of the select engineering schools. These people, who

come from the same schools, to a large extent run the country’s major industrial enter-

prises, the nationalized industries and the public sector. Thus, at the heart of each of the

major innovation subsystems is a group of managers, research directors and private ofﬁce

ministerial advisers belonging to the same ‘corps’. These people possess a ‘lifelong passe-

port’ to the highest and best-paid jobs, within a system in which severe business failure

almost invariably goes unpunished (Salomon, 1986).

The strong role of the state in science and industry began in 1676 when Colbert

founded the French Académie Royale des Sciences with the explicit aim of fostering scien-

tiﬁc capacities and ﬁtting them into the machinery of government. Basic science was

immediately synonymous with expert science, seeking industrial and military appli-

cations. Both the institutional establishment of scientiﬁc research and much of

manufacturing industry were, from the very beginning, acts of state.

Driven by circumstances, the Napoleonic government tried to root science-based

innovation in industry. This led in particular to the birth of the country’s chemical

industry. However, once the impetus of the Napoleonic state-led and state-supported

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policies had petered out, French private industry did nothing to pursue the necessary

investment and maintain the ties with research. Hence, from the 1840s onwards, science

and industry were divorced. This is made manifest most clearly in the almost total absence

of the kind of industrial R&D laboratory that developed from the 1890s onwards in

the USA and Germany, and so France occupied a weak position in the ‘science push’

industries.

By contrast, in sectors where technological development took the form of pragmatic,

step-by-step innovations, as in aeronautics and automobiles, French inventors and entre-

preneurs were very active. Up to the Second World War, the French automobile industry

was the second largest world producer. Panhard (today just a military ﬁrm, producing

tanks) and Peugeot date back to 1890, and Renault to 1899. Michelin produced the ﬁrst

air-tube tyre in 1895. In aviation, too, Frenchmen ﬂying French planes held world records

on a par with their US rivals up until the Second World War. Farman and Breguet were

major international exporters of planes, and Gnome and Rhone, Hispano and Renault of

airplane engines between the two wars.

In general, however, France experienced a slow and uneven development of indus-

trial capacity in the nineteenth century. Industrialization came about in successive bursts

on the basis of government-guaranteed and bank consortium-ﬁnanced demand, notably

for railway building (both at home and abroad), ships and arms. The feats of French

engineering were principally those of large projects, involving large or very large amounts

of capital (e.g. the Suez Canal) and dependent on banks, which were otherwise uninter-

ested in investing. The heart of concentrated French industry was almost from the outset

situated in the iron and steel industry, and in products for the railways and the army. In

these critical areas, French industrialists went abroad to England and Belgium, and later

to Germany, to buy their technology. They even recruited their foremen and skilled oper-

ators in these countries.

The legacy of the Napoleonic period, with regard to the organization of teaching and

of research in science and technology, proved in time to be an obstacle to the development

of science and innovation. When Napoleon undertook the reorganization of French

higher education between 1806 and 1811, he largely re-established the centralized struc-

ture fashioned in the Ancien Régime in keeping with his increasingly conservative policies

in many areas. This structure gave primacy to the training of experts as distinct from

MANAGING RESOURCES: NATIONAL INNOVATION SYSTEMS 383

Box 8.4: The innovation system features that are speciﬁc to France

1. A pervasive element of state and military involvement in the production not just

of general scientiﬁc and technical knowledge, but often of technology per se in the

form of patentable and/or immediately usable products or production processes.

2. A dual-education sector producing at least one type of senior technical person little

known elsewhere, namely the Grandes Ecoles technical experts, elite engineers-

cum-industrial managers-cum-high-level political and administrative personnel.

3. The organization and funding of the largest part of fundamental research

through a special institution, the National Centre for Scientiﬁc Research (CNRS),

distinct from the higher-education sector entities, which are funded by the state

and governed by scientists in an uneasy relationship with the public authorities.

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researchers and creators. It was provided in the professional schools, which have come to

be known collectively as the Grandes Ecoles. The Ecole Polytechnique, for example, was

founded in 1794 and provided a grounding in engineering and science.

In contrast to the German polytechnic schools (Technische Hochschulen), the French

engineering schools generally lacked the spirit of modern scientiﬁc research. Until well

into the twentieth century, most of them suffered from parochialism. Though one had to

have an extensive and broad mathematical education to be selected for one of the engin-

eering Grandes Ecoles, the training and curriculum at each school were designed to train

experts, civil servants and managers for a particular ministry. Students at the Grandes

Ecoles learned the results of science, not the methods of science. They became either

abstract mathematicians or production engineers who applied existing knowledge, rather

than research engineers, who could make substantial advances in the state of the art.

Indeed, while the engineering Grandes Ecoles compensate for some of the weaknesses of

the university system as far as preserving the level of education is concerned, they do not

with respect to the needs of industry (in terms of numbers of trained personnel) and do

so less still with respect to long-term basic research. R&D – in particular basic or long-

term research – remains weak, and in some instances is still marginal within the

engineering schools.

The Ecole Normale Supérieure was initially set up to train the teachers required by the

newly established system of secondary education. It passed through a precarious exist-

ence during much of the ﬁrst half of the nineteenth century but was able to build up its

research potential and develop its ties with the university in Paris. In the latter part of the

century, as a result of the reforms of Pasteur, the Ecole emerged as the best training

ground of French scholars and scientists. However, with its 30 science graduates each

year, the Ecole Normale represented much too narrow a base on which to build a sound

scientiﬁc ediﬁce.

The university system, which was abolished by the Revolution and restored in

Napoleonic times, was a centrally state-controlled system, which scarcely functioned.

Attempts to reform and strengthen the universities took place from the 1880s onwards as

part of a wider policy of strengthening through education, the political and social basis of

the Third Republic. However, the universities played only a small part in the production of

scientiﬁc and technical personnel compared with the Grandes Ecoles. The provincial uni-

versities often found it hard to survive, as Paris attracted both teachers and students, and

the competition of the Grandes Ecoles attracted a good proportion of students away from

the universities. As a result, the universities rarely offered a base for research of any mag-

nitude. Well into the twentieth century, the typical R&D laboratory was of the small

personal type that came with the professor’s chair. There the professor could pursue his

personal inclinations with a few assistants, though the research might not be at the fron-

tiers of scientiﬁc advance and the laboratory might be too small, ill equipped and isolated

to be efﬁcient.

In some cases, even a scientist of renown might not be lucky enough to have such

minimal conditions. Pierre Curie, for instance, had no research funds, no personal labora-

tory – not even an ofﬁce. His important work on magnetism was carried out primarily in

a corridor. His work with his wife Marie on radium was conducted under extremely

adverse conditions.

On being proposed for the Légion d’honneur, Pierre Curie wrote to a friend, ‘Please be

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MANAGING RESOURCES: NATIONAL INNOVATION SYSTEMS 385

so kind as to thank the Minister, and inform him that I do not feel the slightest need of

being decorated, but that I am in the greatest need of a laboratory.’ The Paris Radium

Institute was established only in 1910, four years after Pierre Curie’s death (Chesnais,

1993: 199).

By 1945, France’s industrial base was small and often extremely backward techno-

logically. Moreover, the industrial base (also including the coal and iron mines) and the

basic economic infrastructure bore the scars of the two earlier decades of chronic under-

investment, the impact of the slump of the 1930s and the destruction of the war. The

state of the industry in 1945 also reﬂected what have been called the secular Malthusian

tendencies on the part of a large proportion of the owners of capital and landed property.

More speciﬁcally, France has been described as a ‘stalemate society’ marked by:

a preference for stability and protection over growth and competition

a Malthusian fear of overproduction of material goods and of educated people

the burden of social, religious and political conﬂict

the fragmented structure and conservatism of French industry, and

the domination of agrarian and colonial interests over domestic industrial concerns

(Hoffman, 1963).

Indeed, France has had a number of brilliant scientists, but up to 1939 they had gener-

ally been almost completely deprived of adequate resources to carry out their research.

Between 1945 and 1975, however, large investments in R&D and two phases of inten-

sive science and technology (S&T) institution building took place, explaining a process of

growth and enormous transformation. The new innovation system that was built was a

‘mission-orientated’ type of innovation system in which ‘big was beautiful’. From 1945

onwards, a premium has constantly been given to large technology-intensive systems (as in

the military area, in electrical power, and in rail transport) or to products that are inherently

systemic (e.g. aircraft or space products). As a result, markets are almost always conceived

by project leaders as being public. At home these are created through public procurement.

As suggested, the ﬁrst phase of institution building took place immediately at the end

of the Second World War (1945). In a signiﬁcant manner it began with the creation of a

capacity for R&D and production in nuclear energy, and subsequently for military pur-

poses (lodged in a major agency, the Commissariat à l’Energie, CEA). It also included the

reorganization and expansion of the National Centre for Scientiﬁc Research (CNRS) and

the creation under the Ministry of Post, Telegraph and Telephone of the National Centre

for the Study of Telecommunications (CNET). Among the numerical technical agencies

also established at the time under the Ministry of Defence, the most important was the

National Ofﬁce of Aeronautical Studies and Research (ONERA), which was given a

mandate both for military and civil R&D. The major public agencies in the industries that

had just been nationalized in energy and basic infrastructure followed suit.

The most portentous step was to move into nuclear research and production. This

was subsequently to lead France into one of the largest nuclear energy production pro-

grammes in the world. The building of the CEA’s central R&D laboratory and pilot plant

capacities at Saclay from 1947 onwards symbolized the start of a transformation of

French scientiﬁc institutions. In place of the small, poorly equipped laboratories of indi-

vidual professors that had characterized French science, large scientiﬁc resources were

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brought together in a complex of modern laboratories with teams of researchers and sup-

porting technicians. In a country where no large ﬁrm had yet set up a major industrial

R&D laboratory based on the US and German model, the building of Saclay was France’s

ﬁrst real step into twentieth-century fundamental and applied science.

The CNRS, though founded in 1939 as a belated result of the political interest in

science, began to play a role only from 1945 onwards. Through the establishment of

numerous laboratories and the research facilities that it administers, the CNRS has, since

1945, provided France with an infrastructure of research institutes similar to that created

in Germany after 1911 by the Kaiser Wilhelm Society (today the Max Planck Society). In

particular the CNRS has been able to establish and administer laboratories in newer ﬁelds

of research that could not be placed within the French university structure. Moreover, the

CNRS has supported the otherwise very weak university research by, among other things,

seconding researchers to university laboratories and by providing the numerous services,

assistants and equipment required by scientists, which neither the Ministry of Education

nor the university budget had supported adequately.

During the period 1945–58, the production and diffusion of technology were driven

almost exclusively by the state, and by innovation capacity lodged principally in national-

ized or publicly owned ﬁrms. In the second phase of institution building, which took place

after de Gaulle’s return to power and the setting up of the Fifth Republic (1958–66), inno-

vation continued to be driven strongly by the state. However, policies began to be enacted

to lodge at least a part of the innovative capacity within the industry’s national champions.

Major institutional decisions in science and technology concerned space research,

with the creation in 1959 of a Committee for Space Research. In 1962, under the inﬂu-

ence of de Gaulle, a national organization for space research was set up: the National

Centre for Space Studies (CNES). This time, however, public and private ﬁrms were

involved in the programme from the outset by contracting out a large part of the R&D to

the business sector. The same pattern of state–industry relationship, based on procure-

ment and often involving the same ﬁrms, was adopted for the arms industry. Military R&D

was moved out of the state sector and reorganized on the basis of R&D procurement to

industry. The only exception was the military atomic programme, which did not use ﬁrm-

based R&D procurement.

After 1965, the problems of the French computer and data-processing industries

brought about a further development and yet another pattern of state–industry relation-

ships. Faced with the difﬁculties of the French computer industry and spurred by a

hopeless US embargo decision, the French government launched a new ‘Major

Programme’ in the ﬁeld of data processing (le Plan Calcul) and set up a new private data-

processing company, which received massive ﬁnancial aid from the state. The state also set

up an Institute for Research into Data-Processing and Automatism (IRIA) and gave

further ﬁnancial assistance to the French components and peripheral equipment ﬁrms.

The 1970s and 1980s brought only shifts in emphasis in the area of overall R&D

resource allocation and the location of entrepreneurial capacity, along with a clearer

spelling-out of features that were already contained within the system as it had been built in

the previous phases. Two developments warrant special attention. The ﬁrst has been the

consolidation, based on institutions built during the earlier periods, of a large military-

industrial complex, which encompasses among other things, parts of the space programme,

a part of the activity in telecommunications, and the efforts made to maintain a computer

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and components industry. The industrial elements of the complex now represent France’s

most powerful and, at least in appearance, most successful high-tech corporations (in par-

ticular, Thomson, Aerospatiale and Matra). (The ﬁrst two are public ﬁrms, Matra is private).

The second novel, but totally logical, development concerned the steps taken ﬁrst to

build new links between the research capacity accumulated within the public sector and

all ﬁrms that are ready to take the innovations to market, and later to authorize and even

force public research centres to move downstream towards the market and to become

‘technological entrepreneurs’ in their own right. These changes are far from a full-scale

privatization of public-sector R&D, but they represent a step in that direction. The status

of the R&D laboratories was changed in the 1980s from administrative public institutions

to a new generic type of status with some attributes of private law. Under this new status,

laboratories have been empowered to establish subsidiaries, acquire shares and seek

cooperation around speciﬁc projects with scientiﬁc and industrial partners in public

interest groups (GIP) and scientiﬁc groups (GS). These possibilities give the major agencies

more incentive to involve themselves in exploiting and marketing their innovations.

By the end of the 1980s, however, industrial R&D, or R&D carried out within ﬁrms,

remained signiﬁcantly weak. In fact, a group of no more than 150 ﬁrms account for the

bulk of French R&D. According to a survey, these 150 ﬁrms carry out 75 per cent of R&D

and receive over 90 per cent of direct government support for R&D. The concentration of

R&D by industrial branch is necessarily extremely high. In 1987, eight branches

accounted for over 85 per cent of total R&D expenditure: electronics 23.2 per cent; aircraft

17.8 per cent, automobiles 10 per cent; chemicals 10 per cent; pharmaceuticals 7 per

cent; energy production 7.2 per cent; data processing 5.2 per cent; and heavy electrical

material 4.7 per cent. Industrial branches that account for a signiﬁcant part of French

exports (agriculture and food processing) or still represent fairly important components of

French industrial GDP (metallurgy and metal working, textiles, machinery) account for

only a very small fraction of industrial R&D. This picture conﬁrms quite logically that, to

a large extent, France’s innovation system still consists essentially of sectors dominated by

public procurement and state funding of technical activities.

8.8 Conclusions

The four-country overview of some of the main institutional features of the national

innovation systems shows that there are clear institutional differences between countries,

leading to different trajectories of innovation. Aside from the differences, there were a few

similarities that seem to be required in order for an innovation to function. In one way or

another, in all four countries we found a link between basic research (carried out at uni-

versities or research institutes) and applied or commercial research. Military R&D and

procurement has played a substantial role in all countries (except Germany, since after the

Second World War, as it was not allowed to build up a military complex). The importance

of spillover from military to civilian technology can be seen from the relatively poorer per-

formance of the German telecommunications and aircraft industries.

The most striking communal feature, however (albeit to different degrees and in dif-

ferent ways), is government support for research and education. Government support,

especially in developing the institutional ediﬁce, seems to be a necessary condition in all

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countries for ﬁrms to innovate. This conclusion underlines the point made by Edquist and

Johnson (1997) that innovation activities are so uncertain and conﬂict-ridden that they

need institutional support in order to become an important activity. This is not the tra-

ditional view of the relationships between institutions and innovations. It is indeed more

common to see institutions as entities that introduce stability, even rigidity, into the

economy and act as brakes to innovation rather than accelerators.

But, as we have seen in the case of these countries, the institutional set-up does

change over time. Institutional rigidity is, in the long run, a threat to technical change

and, as a consequence, would make long-run economic development impossible. We have

observed here, however, that institutions may have both supporting and retarding effects

on innovation. The balance between them is clearly different between countries and

changes drastically over time. The countries discussed have also shown that a speciﬁc

institutional set-up can neither permanently support nor retard innovation (i.e. France).

This picture conﬁrms that an economy’s ability to generate growth depends on its ability

to generate technical change, and, at the same time, on its ability to adapt and renew its

institutions to support growth and innovation.

Study Questions

1. Explain why, despite globalization, the concept of a ‘national’ innovation system

still makes sense.

2. Explain why institutions matter in an analysis of an innovation system.

3. Explain why history matters in systems of innovation analysis.

4. Explain in what way the anti-trust statutes of the USA have had an effect on the

structure and performance of the innovation system.

5. Explain the factors that are argued to have contributed to the prominent role of

new, small firms in the postwar US innovation system.

6. Explain how government protection in Japan helped the indigenous industry.

7. Explain how the emphasis on tacit knowledge in Japanese industry stimulates as well

as hampers innovation.

8. Explain the features of the German system of innovation that contribute to the

German industry’s strength in chemicals, automobiles and electrotechnical prod-

ucts.

9. Explain the features of the innovation system of France that have contributed to

an emphasis on large-scale and systemic innovation.

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