Regions are from Mars, Cities are from Venus

Written by Peter Ramsden, Freiss ltd in July 2016

Can social innovation ecosystems overlap with those for technological innovation?  Where are the connections?  Why is the uptake of European Structural Funds in support of social innovation so slow in the 2014-20 period? Where are the new opportunities?

I can’t be the only person to think that technological innovation is from Mars whereas social innovation is from Venus. Whereas city administrations are responsible for many aspects of daily life, it is common in many Member States that the regional level is more focused on economic and employment aspects.  Despite two decades of innovation policy since the Delors White paper of 1993, too many policy makers still carry a simple export base model of the economy in their heads.  They think in terms of manufacturing products in a European economy which is two thirds based on services.  They narrow the potential for new types of enterprise and innovation that address issues of human needs rather than consumption.

Managing authorities, preoccupied with administering the funds at regional levels of the EU may tend to think in somewhat linear and mechanistic ways about how innovation can be translated into growth.  For years the very definition of least developed regions and the prescriptions for their cure have focused on GDP.  The financial crisis found these very regions, in Member States receiving up to 4% of GDP through EU grants, to be still the most vulnerable.  In the case of Ireland, Spain, Portugal and Southern Italy thirty years of regional policy has failed to make the regions more resilient.  Indeed, they seemed to be the first to fall in the face of burst property bubbles, lack of competitiveness and reductions in demand. 

The development model that these regions had chosen was flawed and appears to have depended too much on investments in physical infrastructure and not enough on making connections between businesses and research structures.  In this the public sector failed to play an adequate role of brokerage and relationship building. 

Regional Smart Specialisation Strategies
Under the conditionality clauses of the Structural Fund regulations for the period 2014-20 all regions are required to draw up Regional Smart Specialisation Strategies now known as RIS3.  They include a process of entrepreneurial discovery which aims to bring together key actors from the private sector and research organisation with key public sector actors to identify key and emerging economic sectors.  A key aspect of the strategies is the focus on clusters.  Clusters have been in vogue since the mid 1990s and the popularisation of Michael Porter’s book the Competitive advantage of Nations which had translated his theory of competitive advantage for firms to that of countries.  The problem with the vogue for clusters is that regions adopted numerous clusters in particular the trendy ones such as nanotechnology, bioscience and digital. 

RIS3 builds on the original Regional Innovation Strategy pilots and the follow up RIS2 (2007-2014) in which many European regions had developed innovation strategies based on cluster approaches.  During the 2000s these strategies tended to include all possible clusters.  Everyone wanted to be in bioscience and nano technologies.  Smart specialisation as an approach attempts to encourage regions to focus more on their specialisms and assets and avoid simply creating a wish list of desired technologies.

This focus on specialisation combined with a more results based approach should lead to a stronger demand-led approach, in which the success will be judged in terms of indicators that measure the impact on the economic fabric and in particular on SMEs.

The weakness of this approach is that it may be translated into a somewhat linear approach to innovation in which factor inputs are seen to lead directly to innovation.  When selecting projects there is a risk that initiatives are judged in narrow way in terms of the basic sector of the economy  and in particular with a focus on manufacturing SMEs with export potential.  Most importantly, it may fail to recognise the shift of European regional economies towards services.  Whereas it is easy to conceptualise what is happening when an innovation leads to a new product whether it is a new drug or a new machine tool, it is less easy to understand what a more productive service looks like or how a team based approach in a service company might lead to better service design and delivery.  Let alone to understand where the next generation of information technology and automation is going to lead.

The originators of RIS3 would recognise the complexity of innovation systems.  However, when these get translated into selection systems for European funds, the risk is that too much emphasis is placed on easily measurable investments in physical infrastructures such as science and technology parks and not enough goes on the sophisticated soft interfaces that are needed to enable businesses to become more innovative. 

The relationship between the key stakeholders at regional or city-region level and in particular between SMEs, research centres and public actors are often referred to as the triple helix.  Like the analogy with DNA, the value of the relationships lies in their complexity and interactions.  It is not a single connection but a dense and interwoven set of relationships between entities in an innovation system.  It requires each of these entities to develop a new approach to their external relations and to reach out and in so doing transform their own operations.  It is easy to see this transformation in the way that Dutch technical Universities work in their local areas.  Harder to find in the more traditional structures of Universities in Southern Europe. 

From Triple to quadruple Helix
In many parts of Europe there is increased understanding that pure technology is rarely enough for an innovation to succeed.  The emergence of the quadruple helix and the living lab movement testify to this shift.  In the quadruple helix, civil society organisations are added as the fourth component.  In living labs deliberative innovation is practiced with the idea of testing and developing the innovation as part of its diffusion. Cities increasingly market themselves as testbeds for the new innovations.  Many of the innovations that society and economies need can only be developed in close collaboration with end-users of services and technologies.

Despite this more holistic and complex view of innovation the design of the funds for supporting new approaches rarely keeps up.  Finland is an exception. They have taken their Integrated Territorial Investments (ITI)  2014 and 2020 to enable six cities to collaborate. There is one ITI concerning sustainable urban development. The ITI is called 6AIKA[1], The Six City Strategy – Open and Smart Services. It involves the six largest cities: Helsinki, Espoo, Vantaa, Tampere, Turku and Oulu. The strategy will be carried out between with the aim of creating new know-how, business and jobs in Finland. 

The Basque country[2] is rare among regions in explicitly recognising social innovation as a part of its wider RIS3 strategy.  They link social innovation to the notion of public innovation policies and new initiatives to foster a social open innovation model. Hopefully this will lead to relevant investments across the region. More recently, other French regions have followed this path[3].

Some Interreg programmes had also anticipated interest in social innovation and wrote their innovation axes accordingly.  This included the Two Seas Programme[i][4]

Opening up the new regulations, laying the path for social innovation
The Commission had anticipated growing interest in social innovation and deliberately wrote opportunities into the ERDF and ESF regulations.  These were explained in a comprehensive guide to Social Innovation in Cohesion policy[5] produced in 2014.  The guide explains in detail what social innovation is, how it has been developed in previous editions of the Structural Funds, provides examples of the types of projects that have been funded and goes on to provide a series of steps that regions can undertake to build social innovation into their policies.  

Slow roll out. 
It has become a commonplace in each new period of Structural Funding that there are delays in signing programmes and that this has knock on effects in delays in projects being funded. In short, the Structural Funds are notoriously slow to get going.  Although the new programme period started on January 1st 2014, and this became the date for eligible expenditures, there were no programmes approved at that date and relatively few were approved even 12 months later.  For the majority of programmes that were not approved until 2015 most of that year was spent building up their teams, drawing up processes, designing selection criteria and so on.  This is particularly true of the more complex new elements within the regulations for ERDF and ESF.  A good example is the delegation to cities under Article 7 of the ERDF for the delivery of integrated and sustainable urban development.  As a result few if any investments had been made by mid 2016.  In several Member States there were still discussions ongoing between cities acting as intermediate bodies and the regional and national Managing authorities about the exact nature of delegation and whether the same selection and scoring systems had to be used by cities that were delivering priorities from the Operational Programmes.

It means that by writing in mid 2016 it is still too early to say whether the opportunities set out in guidance are being taken up. However, there are reasons to be concerned that the opportunity and vision shown in the regulations may not be delivered on the ground by national and regional Managing Authorities. There are several reasons for this:

The ever increasing concern regarding audit and compliance with EU regulations such as those for procurement and State aids has an overall effect of limiting innovation and encouraging Managing Authorities to go for tried and tested approaches and to avoid the risk of the new.

Despite much rhetoric about demand based approaches and involving the private sector – especially in relation to innovation policy in general and smart specialisation in particular, there remains an overwhelming tendency for the funds to support public actors implementing publicly funded projects.  Many social innovation projects are hybrid in nature and involve close collaborations between helical actors in new types of institutional form.

The reverse of this tendency is that non-governmental organisations and civil society actors find it hard to access the funds and in some regions are not able to bid at all.  This problem is true for both the ESF and ERDF.  New types of actors such as social enterprises are often misunderstood and do not fit neatly into the public/private dichotomy. 

The audit tendency tends to encourage Managing Authorities to prefer smaller numbers of larger projects rather than the inverse.  Most developmental and innovative projects are by their very nature small-scale, and really need forms of funding that allows a growing, staged and ongoing form of funding rather than a single injection of capital at the startup phase.

The management of risk by the authorities charged with implementing the Structural Funds has a negative effect on innovative projects especially those that are proposed by non public authorities.

Where are the glimmers of hope?
As ever it is the most developed[6] regions that demonstrate the greatest ability to bend European Structural Funds to their will and exploit the potential that they hold for social innovation. 

Finland has a mature innovation policy framework and has been among the front runners in developing living labs in many cities and quadruple helix approaches (e.g. Jyvaskala). They have a strong tradition of developing new solutions to the ageing society for example in Espoo, as well as digital solutions with approaches to big and open data in Helsinki.

Belgium, especially Flanders has a history of participation in ESF learning networks and in entering new policy domains such as inclusive entrepreneurship.  Brussels is host to the Social Innovation Factory which works across the Flemish Community and operates as an innovative broker linking societal needs to new solutions. 

The Netherlands has been a leading exponent of triple helix approaches and in some regions has good alignment between the city and regional level.  This is evident in Rotterdam which has an Integrated Territorial Investment focused on the poorer area of Rotterdam South, in Utrecht, also an ITI city which will launch a Basic Income pilot to test out whether giving citizens a fixed amount of support can work as a policy initiative, in Amsterdam which has interesting approaches to the circular economy (for example at De Cuyver), and is innovating around dealing with affordable housing, managing the impact of AirBnB etc.  Finally, Eindhoven had become the poster child for the triple helix following retrenchment by Philips in the 1990s and has branded itself as Brainport and taken forward new approaches in security and elderly care (e.g. Slimmerleven).  Eindhoven is leading an URBACT network focusing on service design and is also member of the Smart Impact network on smart districts.

Poland is now the largest EU experiment in the implementation of the Integrated Territorial Investment at city level with 16 regional capitals and ITIs in 7 smaller sub regional inter-municipalities.  Gdansk is leading an URBACT network BoostInno on social innovation at city level. Poznan is also leading a network Gen Y city on youth and opportunity.

France has a strong social economy tradition, cities like Montpellier have developed local ecosystems based around incubation.  Nantes remains a world leader on inclusive procurement, while Lille is using an Integrated Territorial Investment to focus on poor neighbourhoods.  Paris has led on use of participative budgeting.  The BPI France launched a Fonds pour l’innovation sociale[7] in 2015.

UK, has one of the most developed social innovation ecosystems and many world class organisations such as NESTA and Young Foundation based in London.  At city level Manchester is one of the front runners.  It leads the URBACT Smart Impact network. It has been a leading proponent of financial engineering approaches to urban regeneration and is the first of the UK City Deals. UK has been the lead country in developing Social Impact Bonds worldwide since 2010.   

Germany has responded to the refugee crisis with many thousands of local innovative initiatives.  Cities like Berlin and Hamburg have continued their strong tradition of local action. 

Italy has also been a major migrant reception centre.  Several cities are focusing on social innovation including Torino which has recently opened an open innovation centre in a former factory complex and Genova which is leading an URBACT network interactive cities on how to develop two way communication. Siracusa has developed a communication platform for listening to citizens through the URBACT Genius project.

There are other examples of how social innovation has permeated the Cohesion policy and much of this can be seen in the country summaries across the EU 28[8].  Programmes like URBACT and the new Urban Innovative actions[9] are also raising the profile of social innovation within the funds and stimulating thinking at local and city level about how social innovation can become a central feature of the funds in contributing to the Europe 2020 goals of smart sustainable and inclusive growth.

While the cohesion policy has been slow to get into action in this period and is often seen as a barrier to social innovation, there has been progress at opening up the mainstream Structural Fund programmes to social innovation.  As always there are front runners and it is to be hoped that before the commitment period ends in December 2020 many projects led by all sectors will succeed in accessing funding. 

[6] Within the EU cohesion policy, European regions are defined as more developed, less developed or in transition.  More resources and higher grant rates are available in less developed regions. 
[8] See
[9] See parallel article on urban innovative actions on SIE website (July 2016).