Regional Innovation Monitor

Transcription

1 Version: Final Date: 25 August 2011 Regional Innovation Monitor Regional Innovation Report (Prague) To the European Commission Enterprise and Industry Directorate-General Directorate D Industrial Innovation and Mobility Industries Vladislav Čadil Jan Vanžura Technology Centre ASCR

2 PREFACE The Regional Innovation Monitor (RIM) 1 is an initiative of the European Commission's Directorate General for Enterprise and Industry, which has the objective to describe and analyse innovation policy trends across EU regions. RIM analysis is based on methodologies developed in the context of the INNO-Policy Trendchart which covers innovation policies at national level as part of the PRO INNO Europe initiative. The overarching objective of this project is to enhance the competitiveness of European regions through increasing the effectiveness of their innovation policies and strategies. The specific objective of the RIM is to enhance the scope and quality of policy assessment by providing policy-makers, other innovation stakeholders with the analytical framework and tools for evaluating the strengths and weaknesses of regional policies and regional innovation systems. RIM covers EU-20 Member States: Austria, Belgium, Bulgaria, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and the United Kingdom. This means that RIM will not concentrate on Member States where the Nomenclature of territorial units for statistics NUTS 1 and 2 levels are identical with the entire country (Estonia, Latvia, and Lithuania), Malta which only has NUTS 3 regions, Slovenia which has a national innovation policy or Cyprus and Luxembourg which are countries without NUTS regions. The main aim of 50 regional reports is to provide a description and analysis of contemporary developments of regional innovation policy, taking into account the specific context of the region as well as general trends. All region al innovation reports are produced in a standardised way using a common methodological and conceptual framework, in order to allow for horizontal analysis, with a view to preparing the Annual EU Regional Innovation Monitor reports. European Commission official responsible for the project is Alberto Licciardello (Alberto.LICCIARDELLO@ec.europa.eu). The present report was prepared by insert Vladislav Cadil (cadil@tc.cz) and Jan Vanzura (vanzura@tc.cz). The contents and views expressed in this report do not necessarily reflect the opinions or policies of the Member States or the European Commission. Copyright of the document belongs to the European Commission. Neither the European Commission, nor any person acting on its behalf, may be held responsible for the use to which information contained in this document may be put, or for any errors which, despite careful preparation and checking, may appear. 1

3 Table of Contents 1. Main Trends and Challenges in the Regional Innovation System Recent trends in macroeconomic performance Recent trends in regional innovation performance Identified challenges 5 2. Innovation Policy Governance Degree of institutional autonomy Institutional-set up, co-ordination and implementation mechanisms Availability and use of policy intelligence tools Key challenges and opportunities Innovation Policy Instruments and Orientations The regional innovation policy mix Appraisal of regional innovation policies Good practice case Portfolio of innovation support measures Towards smart specialisation strategies Possible future orientations and opportunities 28 Regional Innovation Monitor

4 Appendices Appendix A Bibliography Appendix B Stakeholders consulted...31 Appendix C RIM Repository information Appendix D Explanation of factors of Innovation Performance, Governance and Policy Appendix E Statistical data Appendix F RIM survey responses...37 Figures Figure 1-1 Economic and innovation performance indicators for Prague...5 Tables Table 3-1 Existing regional innovation support measures...19 Regional Innovation Monitor

5 Executive Summary 1. Introduction: Main recent trends in the Regional Innovation System The City of Prague is an administrative, economic, research, and educational centre of the Czech Republic, as underlined by the high concentration of universities, research institutions and innovation system entities. Prague generates almost a quarter of the country s GDP, and GDP per capita stands at 172% of the EU average, placing Prague on the 5th position among European regions. The structure of GDP generation corresponds to a post-industrial structure, where more than 80% of GDP comes from the service sector. A comparison of the dynamism of individual sectors in Prague reveals a relative decline in the processing industry output in favour of the service sector. The structure of the processing industry is now showing a slight positive shift towards hi-tech production. The excellent economic performance is caused by a unique position of Prague in a settlement and economic system of the Czech Republic. Prague has a highly skilled workforce. The share of the total population holding a university degree or full secondary education is almost 84%. In Prague there are eight universities; their 36 faculties cover almost the whole range of study fields. Prague is the scientific centre of the Czech Republic. Roughly two thirds of the capacities of public R&D institutions and one third of the capacities of private R&D institutions are located in the region, inter alia there are 40 institutes of the Academy of Sciences of the Czech Republic and 50 other research institutes here. All this, combined with the high level of education enjoyed by the city s inhabitants, constitutes its enormous innovative potential. 2. Major innovation challenges and policy responses Based on the analysis of economic and innovation performances, three sectoral challenges for development of innovation performance in the near future have been identified. Challenge 1: Development of a strong, world-competitive biotechnology sector Prague has a large knowledge base in the field of biotechnology in particular and in pharmaceutical industry in general. Several highly respected institutes of Academy of Sciences and universities provide quality R&D results in many fields in the pharmaceutical and medical research. Excellent research is conducted especially in the fields of organic chemistry, biochemistry, molecular and cellular biology, computational chemistry, physico-organic chemistry and biochemistry, cell biology and pathology, neurobiology, neurophysiology, neuropathology, developmental toxicology and teratology, molecular epidemiology, molecular pharmacology, immunopharmacology, cancer research, molecular embryology, stem cells and nervous tissue regeneration. This research has a broad application in development of new medicaments, implants and therapies. The universities provide highly skilled graduates and attract PhD students from many developed countries. Research results are commercialised to pharmaceutical corporations from all over the world. Several corporations have located their R&D activities in Prague to utilise the local knowledge base, however the majority of R&D results is commercialised abroad. Research institutes established several start-up companies, which should carry out further development of their knowledge; nevertheless the economic growth of the companies is still slow. Links among academic and business spheres seem to be strengthening, and internationalisation of research activities as well as business operations is in the phase of intensification. The nascent biotechnology cluster could become one of the basic pillars of future competitiveness of Prague in the EU and world markets. Although universities and research institutes co-operate with foreign companies and Regional Innovation Monitor i

6 research institutions, international collaboration with similar clusters abroad is very weak so far. This biotechnology sector is not directly supported by any specific regional programme or policy, and evolves spontaneously. Challenge 2: Excellence in an ICT sector In Prague, the ICT sector is developing very fast in terms of both qualitative and quantitative changes. As in the biotechnology sector, Prague s knowledge base is traditionally very wide, and is created by public universities, several institutes of the Academy of Sciences and some private R&D institutes. The ICT research topics of these universities and institutions are artificial intelligence, machine perception, robotics, and biomedical engineering with the focus to multi-agent systems, machine learning, data mining, pattern recognition, knowledge-based systems, medical data processing and collaborative robotics, control systems and software development. Similar to the above described biotechnology sector the majority of R&D results of the ICT sector is commercialised abroad (e.g. the Czech Technical University closely cooperates with USA based enterprises and national agencies). Nevertheless, the scope and high quality of R&D in this field have attracted several R&D departments of multinational enterprises to locate a part of their R&D activities in Prague. Prague s ICT application sector is focused on control systems, cybernetics and software development. Activities in the last mentioned discipline are not conducted only by multi-national corporations but by many small domestic firms as well. These companies are active mainly in design of web pages and Internet applications. The main advantage of the ICT sector is its wide knowledge base, specialisation and the attractiveness for foreign companies. On the other hand, despite the concentration of actors and their importance in Prague s economy, collaboration among them seems to be rather low. Thus, intensification of co-operation should be a potential, partial challenge in this sector. The development of the ICT sector creates an opportunity for development of other industries utilising its knowledge. Especially electronic, electric and automotive industries use R&D results and products of this sector. However, location of these industries in Prague cannot be expected because of high prices of plots of grounds, industrial properties and the lack of human resources. These industries will be rather located in the surrounding region. Likewise the biotechnology sector, this sector is not supported by any Prague s policies and programmes. The successful development of this sector is thus a result of path dependency (historical location of universities and research institutes) and the activity of market forces. Challenge 3: Strengthening of co-operation between academia and businesses Prague has a significant potential to become a leading knowledge centre among central European New Member States. As mentioned above, Prague concentrates crucial number of research capacities as well as innovative companies including transnational corporations. Nevertheless, intensity of co-operation in the field of research and development, namely between academic and business sectors, is rather low. There are many reasons for this, e.g. a lack of motivation of researchers and many others. Many analyses made at regional and national levels show that the most severe barrier is an underdeveloped innovation infrastructure like business incubators and science parks. Nowadays, there are only four very small business incubators and no scientific park in Prague. Their operations and further development are limited by the lack of finances, and do not provide a sufficient basis for intensive co-operation between academic and business spheres and for commercialisation of R&D results. The underdevelopment of the innovation infrastructure or even an absence of some types of the innovation infrastructure significantly contributes to the fact, that many R&D results are commercialised abroad instead of being commercialised in Prague. The low intensity of the local commercialisation has negative economic and social impacts on Prague, because profit resulting from capitalisation of R&D results is not generated in Prague but in foreign regions. Therefore, it would be prerequisite to establish a dialogue forum for co-operation between academia and business sector and develop suitable measures to be implemented at the regional level. ii Regional Innovation Monitor

7 3. Innovation policy governance Support of R&D&I activities belongs to self-governmental functions of Prague. Prague, as a self-governmental territorial unit, has a large autonomy in designing its own regulations, development strategies (programmes) and budgets. Neither the Czech Government nor the Parliament is able to directly influence Prague s selfgovernmental functions and activities guaranteed by the act on the capital city of Prague. It creates a unique opportunity to specify a support to R&D&I activities according to Prague s needs. On the other hand, the wide autonomy (especially the financial, budgetary autonomy) also means that available resources are allocated among many activities, which Prague has to ensure in accordance to the Act. Responsibilities for the design and approval of Prague s developmental policies are divided among the City Council, the Municipal Assembly, the City Hall and the City Development Authority. Regarding the policy-making process, the Council and Assembly can initiate debates about the policy and order the City Hall and the City Development Authority to design the policy. Other important responsibilities are an approval of the policy and a budget allocated for the policy implementation. The Prague City Hall is in charge of policy design in general and its implementation. The City Development Authority of Prague is a specific body in the process of policymaking. As for R&D&I-related policies, the Authority is responsible for the preparation and monitoring of the Strategic Plan of the City of Prague. Coordination mechanisms for policy design have not been institutionalised yet. However, the Prague s Council for Research and Economy shall be set up in Its main aim is to utilise capability of experts and economists for the preparation of shortterm, mid-term, and long-term visions for Prague as an economic region of key importance in the Czech Republic. Prague innovation policy is realised mainly through operational programmes cofinanced by the EU Structural Funds. Prague implements two operational programmes in the current programming period Objectives of both programmes are based on single programming documents, which were prepared in the previous programming period. Comparing the implementation process in both periods, the significant simplification is evident. The number of institutions involved in implementation has been reduced, and the crucial tasks and responsibilities have been transferred to the regional level, that proved to be the most effective level for definition of calls, assessment and selection of project proposals as well as for monitoring, evaluation and communication with beneficiaries and the European Commission. We can say that the driving factors for this change came from the regional level, and were closely connected with the distribution of sources of EU Structural Funds in the present programming period. The main driving factor is the effort of the City of Prague representatives to gain more responsibilities in decision-making process in distribution of sources of EU Structural Funds and their utilisation for Prague s development. 4. Conclusions: future actions and opportunities for innovation policy The support for innovation measures in Prague has not been a hot political issue in the past neither in the present times. There is much space in complementing and fixing national innovation policy at regional level, but it is hard to achieve when necessary institutional setting has not been laid down in Prague. The innovation system in Prague can be best described as fragmented, because there are many institutions without any coordinated activities. The current innovation policy mix solves this problem only partly. Key challenges can be summarised into following points: The absence of the any compact and institutionalised innovation policy. So far, the City of Prague does not have a complex innovation policy. Support of R&D&I is not covered by a clear and official innovation strategy, and is fragmented into the operational programmes. The new innovation strategy Regional Innovation Monitor iii

8 (policy) should be designed according to modern and internationally accepted standards and should be used as the main tool for promotion of R&D&I activities. The lack of co-ordination mechanisms. There are no horizontal, multi-level and cross-border co-ordination mechanisms of R&D&I activities in Prague. Innovation policy should be implemented by the newly established Regional Development Agency and Prague Council for Research and Economy. The Council shall be not only an advisory body of the city but a co-ordination platform as well; the Agency shall be an organisation implementing the innovation policy. Application of evidence-based methods. Application of policy-intelligence tools is very underdeveloped theme in the process of programme design and its implementation. Design of the new innovation policy would deserve more prominent use of foresight than before, thus addressing more effectively emerging smart specialisation of the region in biotechnology and ICT. Greater emphasis could be placed also on evaluation of existing support measures, which should be not only a formal issue, but a tool for improving the policy. These challenges could be solved by the newly elected regional government, which has support for research and university education as one of its priorities. In this respect, the EU Structural Funds will continue to be the most important source for funding projects improving the innovative system in Prague, and hopefully it will continue in the next programming period. iv Regional Innovation Monitor

9 1. Main Trends and Challenges in the Regional Innovation System 1.1 Recent trends in regional economic performance The City of Prague is one of the most economically developed regions within the EU, and it is economically the best-performing region in Central and Eastern Europe, with a potential for further economic growth. Prague is a natural economic, scientific, educational, cultural, and political centre of the Czech Republic. Prague is home to 11.3% of the population of the Czech Republic and generates almost a quarter of the country s GDP. In Prague, GDP per capita in purchasing power standard reached 42,800 in 2007, which was 172% of the EU-27 average (see the Figure 1-1), and placed Prague on the 5th position among European regions (CSO, 2010) 2. The excellent position of Prague, however, is partly given by the fact that the majority of capital cities of other EU Member States form a cohesion region together with their agglomerations (e.g. the Hungarian region Közép-Magyarország consisting of the City of Budapest and its hinterland), while Prague is the cohesion region formed only by the core city (which is the strongest economic unit in the Czech Republic) itself without its agglomeration. It means that the statistical data describing the City of Prague are not averaged together with data on its hinterland like in other capital cities within the EU, but describes only the city in its immediate borders. Thus, the excellent position partly results from a statistical definition of cohesion regions. In comparison to the Czech Republic average, Prague s GDP shows significantly higher growth dynamics, which results in deepening of regional differences in economic performance between Prague and the rest of the Czech regions. According to CSO (2010), Prague s GDP has increased steadily; in 2007, the level of GDP increased by 66.5% since 2000 and reached 215% of the Czech Republic average (200% in 2000), while GDP of the whole republic increased only by 53%. The high level of GDP and its high growth rate is positively influenced by a unique position of Prague in settlement and economic systems of the Czech Republic. According to CES (2009) 3, the following factors belong to the most important: (I.) concentration of the majority of services sector (finance, insurance, telecommunication);(ii.) concentration of gross value added generated by the governance sector; (III.) high level of commuting to Prague (18.5% people employed in Prague commute); (IV.) higher price level, and (V.) the highest wages. The exceptional economic position of Prague is further evidenced by the level of gross fixed capital investment that has increased by 160.9% in the period of , while increase in the whole republic was only 86.4% in the same period. In 2008, Prague concentrated 33.6% of gross fixed capital investment of the Czech Republic, while it was only 24% in The level of investment is positively affected mainly by high concentration of Central European headquarters of multinational enterprises and massive investment into technical infrastructure and building of new business parks, office buildings, shopping parks and flats. Excellent economic performance of Prague is further demonstrated by the highest labour productivity. Since Prague s labour force is the most qualified in the Czech Republic, labour productivity amounted to 148 % of the national average in 2007, and was nearly by a half higher then in the second best region Central Bohemia (CSO, 2010). The number of employees increased by 8% in period , and Prague employed 13.1% of the total Czech labour force in The employment rate 71.7% 2 CSO (2010) Czech Republic Statistical Yearbook, Prague, CSO. 3 CES (2009) Competitiveness Yearbook of the Czech Republic , Prague, CES VŠEM and Linde. Available at: Regional Innovation Monitor 1

10 - was the highest among regions of the Czech Republic and by 7.1 percentage points exceeded the EU average (CSO, 2010). This high rate results from a quality and attractiveness of Prague s labour market, highly skilled workforce, age structure, together with historical tradition of high women employment. Prague, with an unemployment rate of 3.1% in 2009, ranks among EU regions characterised by traditionally the lowest unemployment. In the long-term development, Prague s unemployment rate is the lowest in the Czech Republic. Its development follows the trends of the whole republic including the moderate upturn in 2009 caused by the world economic crisis. Roots of the lowest unemployment rate among Czech regions consist in successful economic restructuring taking place in the beginning of economic transition, high dynamics of economic performance, and the effective labour market highly affected by activities of multi-national firms located in Prague. The structure of employment and GDP generation is in line with Prague s specific status as a capital city with a high concentration of state administration authorities, educational and research institutions, central financial institutions, and large corporations. The structure of GDP generation corresponds to a post-industrial structure, where more than 80% of GDP come from the service sector. The structure of the processing industry is now showing a slight positive shift towards hi-tech production due to activities of multi-national enterprises, but the development of the hi-tech sector in Prague, and in the Czech Republic in general, is still lagging behind other countries, as evidenced by the low share of hi-tech output in exports, and the lower value added of exported goods. As for high-growth manufacturing industries, massive increase of value added and employment has been seen in the pharmaceutical industry and the ICT sector in the period This industry belongs to the most innovative branches not only in Prague s economy but the whole Czech economy as well. The growth of both industries is driven mainly by activities of multi-national enterprises as well as newly established small and medium enterprises. The crucial sector in Prague economy services has been characterised by a gradual penetration of foreign investment and a subsequent increase of business services and financial intermediation. These branches have ranked among pillars of economic growth and competitiveness of Prague. In addition to these branches, Prague competitiveness can be positively influenced by the high concentration of research capacities and universities of the Czech Republic. Dark side of the economic performance is the lower quality of environment. The negative influence of traffic in particular on air quality, noise pollution and occupancy of urban areas has grown. The total production of pollutants (e.g. SO2) has been considerably reduced in the last 15 years because of collapse of many environmentally problematic and obsolete factories, but the emissions of pollutants generated by automobile traffic have noticeably increased. To sum up, we can conclude that activities of multi-national enterprises are the most important factor of Prague s economic growth as well as strengthening of its competitiveness within the EU and the global market. These enterprises are active especially in progressive industries like business services, financial intermediation, pharmaceutical industry and the ICT sector; and have been attracted by the unique position of Prague within the settlement structure, the favourable economic structure with the high proportion of services, the traditionally massive concentration of universities and research institutes, good traffic accessibility and proximity towards Germany. The economic growth has been driven mostly by these economic and geoeconomic factors without interventions or even existence of regional economic or innovation policies. 1.2 Recent trends in regional innovation performance Prague s unique position in the field of research, development and innovation among the Czech regions is given by the specific historical development resulted in 2 Regional Innovation Monitor

11 traditionally high concentration of research institutions, universities and innovating firms. Almost one third of all the organisations performing research and development are located in Prague. Prague has almost 50% share of all the organisations performing R&D in the governmental sector and more than 35% share in the public university sector. To be more specific, 21% of innovating firms, 75% of institutes of the Academy of Sciences of the Czech Republic, 43 % of universities (public and private) and 30 % of other research institutes (including private companies) have their seats in Prague (Pechlát, 2006) 4. This fact also relates to other characteristics like an employment rate in R&D and expenditure on R&D, etc. Prague concentrated 41.5% of total intramural R&D expenditure in Its value increased in current prices by % since 2000, while growth in the whole Czech Republic reached only 126%. In purchasing power standard in constant prices R&D expenditure allocated in Prague increased by 96.9%. This growth significantly exceeded the growth rate of the Czech Republic (63.4%) and the EU-27 (18.3%). Support to research and development from the national budget was at the level of approximately 2.6% of GDP in Prague (Czech Republic 1.54% and EU 1.85%). From a sectoral aspect, the structure of R&D institutions in Prague is very diverse and covers all main specialisations. The quality of many of these workplaces is held in high esteem on the international stage. Technical research and development is carried out primarily at universities (especially the Czech Technical University and the Institute of Chemical Technology); research in natural sciences is mainly conducted at the institutes of the Academy of Sciences. The Czech Technical University research is focused on civil-, mechanical- and, electrical engineering, nuclear sciences and physical engineering, architecture, transportation sciences, biomedical engineering and IT. The Institute of Chemical Technology CT Prague is known for both the depth and broadness of its research activities in almost all branches of chemistry. Research areas of the Academy of Sciences consist of three main groups (I.) mathematics, physics and Earth sciences, (II.) life and chemical sciences and (III.) humanities and social sciences. In comparison with other regions, the Prague workforce is significantly more qualified and traditionally has greater skills and professional flexibility. In 2008, the share of citizens aged over 15 with tertiary education accounted for 25.5% of the workforce (the highest share among regions in the Czech Republic), with completed secondary school education 43.9% and with vocational training 19.1%. In Prague, there have been more than 100,000 students enrolled at 36 faculties of 8 universities. This, together with the above average proportion of the population with secondary education and other occupational skills, creates a favourable background of human resources (Pokorny et al. 2008) 5. The quality of human resources is displayed e.g. by employment in science and technology. 20.5% of workforce in science and technology of the Czech Republic is concentrated in Prague. An employment in science and technology increased from 284 thousands to 346 thousands in Since the number of researchers and engineers stagnated in this period, the increase was caused mainly by creation of jobs for skilled workers in subsidiaries of transnational corporations. In the Czech context, Prague holds a strong position in the field of research and development results i.e. in the number of awarded patents and registered utility models. Nevertheless in comparison with the most developed EU countries, the number of patent applications significantly lacks behind. Considering the low number of patents, R&D institutes evidently do not deal sufficiently with the issue of protecting 4 Pechlát J. (2006) R&D&I basis in Prague, Prague, URM. Available at 5 Pokorný O., et al (2008) Innovation Potential of Czech Regions, Prague, Technology Centre ASCR. Available at: Regional Innovation Monitor 3

12 their intellectual property rights. The low level of patenting activity is also caused by the poor motivation among researchers, whose work is assessed mainly on the basis of publishing criteria. Several highly innovative industries exist in Prague such as the chemical industry (represented mainly by pharmaceutical industry), automotive, ICT and financial intermediation. Besides these industries, activities of innovative companies are important in many other branches as well. Therefore we cannot say that the high-tech sector is the most innovative and vice versa. Innovative performance of firms and sectors rather depends on firm strategies and a position of subsidiaries in corporate hierarchies. In terms of size categories of firm, there are important differences between large companies and small and medium-sized enterprises (SMEs) (Čadil, 2008) 6. In general, SMEs are often considered as more innovative than large enterprises. Nevertheless, this general observation does not hold true in Prague. Innovation survey conducted by CSO (2010) 7 shows that more innovative are large companies, especially multi-national enterprises. This fact indicates that the sector of innovative firms consist of two main parts: (I.) more innovative multi-national corporation locating in Prague their R&D activities, and (II.) less innovative SMEs suffering by the lack of capital necessary for R&D and implementation of innovation and by managerial and personal weaknesses. This duality creates a potential threat for the further development of Prague s innovation environment and performance. Although Prague dominates in concentration of innovative firms, universities and public research institution, intensity of co-operation among business and public research sectors is rather weak in general. Innovative firms most often co-operate with their suppliers. The highest intensity of co-operation is in research and development, machinery and automotive industries. The low level of co-operation between academic and private sectors could be seen as a severe barrier for the further strengthening of Prague s competitiveness, and reveals that technology transfer offices of universities and research institutes do not provide their services in a full scope and intensity. Concerning types of innovation, organisation and process innovation are major types of innovation implemented by firms in Prague. Pazour, Pokorný and Kucera (2010) 8 revealed that process innovation had the most significant influence on the extensive growth of small and medium enterprises. As they mention, it corresponds to the fact that this sector remains in a phase of steadily increasing effectiveness of production, and implementation of process innovation is more likely connected with the extensive growth, i.e. with extension of production capacities and new job creation. The fact that Prague is the most developed region, with the most educated population is reflected in its broadband internet access. By its share of households with broadband internet access achieving 62%, Prague significantly exceeded other regions as well as the national average, which was 54%. Nevertheless, this high level causes that a growth rate in period is the lowest among Czech regions, with the growth rate of 34.8% (national average 92.9%). The high level of broadband internet access together with availability of ICT experts (university graduates) and concentration of universities, research institutes and R&D regional centres of multinational enterprises (i.e. Microsoft or Sun Microsystems) create a competitive advantage of Prague and a growth pole of Prague s competitiveness. 6 adil V. (2009) Sectoral Analysis of Business Innovation in Prague, Ergo 1: CSO (2010) Czech Republic Statistical Yearbook, Prague, CSO. 8 Pazour M., Pokorný O., Ku era Z. (2010) Process innovation: Driver of enterprise growth in the Czech Republic, in OECD, High-Growth Enterprises: What Governments Can Do to Make a Difference, OECD Publishing. 4 Regional Innovation Monitor

13 Figure 1-1 Economic and innovation performance indicators for Prague Source: Eurostat. 1.3 Identified challenges Challenge 1: Development of a strong, world-competitive biotechnology sector Prague has a large knowledge base in the field of biotechnology in particular and in pharmaceutical industry in general. Several highly respected institutes of Academy of Sciences (mainly the Institute of Experimental Medicine ASCR and the Institute of Organic Chemistry and Biochemistry ASCR) and two universities (Charles University in Prague an Institute of Chemical Technology) provide quality R&D results in many fields in the pharmaceutical and medical research. Excellent research is conducted especially in the fields of organic chemistry, biochemistry, molecular and cellular biology, computational chemistry, physico-organic chemistry and biochemistry and in related disciplines, cell biology and pathology, neurobiology, neurophysiology, neuropathology, developmental toxicology and teratology, molecular epidemiology, molecular pharmacology, immunopharmacology, cancer research, molecular embryology, stem cells and nervous tissue regeneration. This research has a broad application in development of new medicaments, implants and therapies. The above mentioned universities provide highly skilled graduates and attract PhD students from many developed countries. Research results are commercialised to pharmaceutical corporations from all over the world. Several corporations located their R&D activities in Prague to utilise the local knowledge base, however the majority of R&D results is commercialised abroad. Research institutes established several start-up companies which should carry out further development of their knowledge; nevertheless the economic growth of the companies is still slow. Links among academic and business spheres seem to be strengthening, and internationalisation of research activities as well as business operations is in the phase of intensification. The nascent biotechnology cluster could become one of basic pillars of future competitiveness of Prague in the EU and world markets. Although universities and research institutes cooperate with foreign companies and research institutions, international collaboration with similar clusters abroad is very weak so far. This biotechnology sector is not directly supported by any specific regional programme or policy, and evolves spontaneously. Challenge 2: Excellence in an ICT sector In Prague, the ICT sector is developing very fast in terms of both qualitative and quantitative changes. As in the biotechnology sector, Prague s knowledge base is Regional Innovation Monitor 5

14 traditionally very wide, and is created by three public universities (the Charles University, the Czech Technical University and the Czech University of Life Sciences), several institutes of the Academy of Sciences (especially the Institute of Computer Science ASCR, the Institute of Information Theory and Automation ASCR and the Institute of Mathematics ASCR) and some private R&D institutes. The ICT research topics of these universities and institutions are artificial intelligence, machine perception, robotics, and biomedical engineering with the focus to multi-agent systems, machine learning, data mining, pattern recognition, knowledge-based systems, medical data processing and collaborative robotics, control systems and software development. Similar to the above described biotechnology sector the majority of R&D results of the ICT sector is commercialised abroad (e.g. the Czech Technical University closely co-operates with USA based enterprises and national agencies). Nevertheless, the scope and high quality of R&D in this field have attracted several R&D departments of multi-national enterprises to locate a part of their R&D activities in Prague. A case in point is Honeywell, Sun Microsystems or Microsoft. Thus, Prague s ICT sector is focused on control systems, cybernetics and software development. Activities in the last mentioned discipline are not conducted only by multi-national corporations but by many small domestic firms as well. These companies are active mainly in design of web pages and internet applications. The main advantage of the ICT sector is its wide knowledge base, specialisation and the attractiveness for foreign companies. On the other hand, despite the concentration of actors and their importance in Prague s economy, collaboration among them seems to be rather low. Thus, intensification of co-operation should be a potential, partial challenge in this sector. The development of the ICT sector creates an opportunity for development of other industries utilising its knowledge. Especially electronic, electric and automotive industries use R&D results and products of this sector. However, location of these industries in Prague cannot be expected because of high prices of plots of grounds, industrial properties and the lack of human resources. These industries will be rather located in the surrounding region. Likewise the biotechnology sector, this sector is not supported by any Prague s policies and programmes. The successful development of this sector is thus a result of path dependency (historical location of universities and research institutes) and the activity of market forces. Challenge 3: Strengthening of co-operation between academia and businesses Prague has a significant potential to become a leading knowledge hub among central European new Member States. As mentioned above, Prague concentrates crucial number of research capacities as well as innovative companies including transnational corporations. Nevertheless, intensity of co-operation in the field of research and development, namely between academic and business sectors, is rather low. There are many reasons for this, e.g. a lack of motivation of researchers and many others. Many analyses made at regional and national levels show that the most severe barrier is an underdeveloped innovation infrastructure like business incubators and science parks. Nowadays, there are only four very small business incubators and no scientific park in Prague. Their operations and further development are limited by the lack of finances, and do not provide a sufficient basis for intensive co-operation between academic and business spheres and for commercialisation of R&D results. The underdevelopment of the innovation infrastructure or even an absence of some types of the innovation infrastructure significantly contributes to the fact, that many R&D results are commercialised abroad instead of being commercialised in Prague. The low intensity of the local commercialisation has negative economic and social impacts on Prague, because profit resulting from capitalisation of R&D results is not generated in Prague but in foreign regions. Therefore, it would be prerequisite to establish a dialogue forum for co-operation between academia and business sector and develop suitable measures to be implemented at the regional level. 6 Regional Innovation Monitor

15 2. Innovation Policy Governance 2.1 Degree of institutional autonomy Prague is a specific self-governmental territorial unit combining functions and activities of self-governmental regions (kraj) with functions and activities of municipalities, which are defined as self-governmental units as well. Furthermore, Prague administers some state functions delegated by the Czech state. Both selfgovernmental and state functions are defined in the Capital City of Prague Act (Act No. 131/2000 Coll., on the Capital City of Prague) 9. Besides Prague s functions, the act specifies the institutional framework, regional laws creation process, division of the Prague territory into further self-governmental units (Prague boroughs), economic management, etc. Self-governmental function is administered by the Mayor, the Municipal Assembly and the City Council. Prague can e.g. submit law proposals to the Parliament of the Czech Republic, approve an urban (land use) plan of the Prague territory, approve and realise a development programme of Prague, approve a municipal budget, approve local regulations (regional ordinances), etc. One of the most important powers, nevertheless not mentioned in the act, is that Prague designs, implements and cofinances own operational programmes funded by the EU Structural Funds. For an overview of institutional autonomy see figure 2-1. Prague City Hall is an executive body in Prague s governance structure. The City Hall carries out activities and tasks in accordance to the Mayor and to the Council s needs and decisions. Prague s budget is designed by the City Hall in close co-operation of self-governmental bodies being responsible for its approval. Budget design and its approval are independent on decisions of the Czech Government and the Parliament. Budget revenues consist of two major parts (I.) local tax revenues (e.g. a realty tax), and (II.) a share of national tax revenues (Prague receives a proportional share of national tax revenues which is computed on the basis of the number of inhabitants, firms, etc.) given by the specific act. Although about 90% of the budget revenues are created by the share on national tax revenues, Prague can use them freely on activities defined in the Capital City of Prague Act. In order to ensure that the financial management is effective and transparent, the Municipal Assembly has established a specific steering committee, which checks the financial operations in Prague financial management. The steering committee consists of elected members of the Assembly. The Capital City of Prague Act enables Prague to establish specific allowance organisations for realisation of some activities, which belong among self-governmental functions. Moreover, Prague can establish and manage private companies. Support of R&D&I activities including allocation of a relevant part of the Prague budget belongs to self-governmental functions of Prague. The above-mentioned act on the Capital City of Prague provides Prague power to design its own regional policies and to allocate funds for their realisation. The act says that Prague shall create suitable conditions for social and economic development of its territory. It means that Prague can directly support R&D&I activities of public and private research institutions, universities and firms, as well as stimulate foundation of innovation support infrastructure like business incubators, technology transfer centres and science and technology parks. Prague can support these activities directly through programmes or 9 Act No. 131/2000 Coll., on the Capital City of Prague Regional Innovation Monitor 7

16 by establishing intermediary institutions. Moreover, the Act No. 130/2002 Coll., on the Support of Research and Development, 10 allows regions (Prague) to prepare, fund and implement regional R&D programmes. However, the act on the Capital City of Prague does not explicitly mention support to R&D&I activities, so such support activities are not obligatory. Although Prague can establish intermediary institutions and other organisation for support to R&D&I, no such institution in this field has been set up yet. The reason is the lack of politicians will to support and develop R&D&I activities. To sum up, Prague, as a self-governmental territorial unit, has a large autonomy in designing its own innovation strategies (programmes) and in allocating a relevant budget for their realisation. Neither the Czech Government nor the Parliament is able to directly influence Prague s self-governmental functions and activities guaranteed by the Act on the Capital City of Prague. Although Prague has a large autonomy in support of R&D&I activities, design and implementation of relevant policies or programmes is significantly determined by the politicians will, which has been rather low recently and still remains very weak at present. 2.2 Institutional set-up, co-ordination and implementation mechanisms The current institutional set-up is a result of significant changes in division of responsibilities and competencies among the state, Prague and its boroughs taking place in the last 20 years. Following the trends of subsidiarity, the Czech government has decentralised its responsibilities to lower territorial (geographical) levels. The most important milestone in this process was the Act on the Capital City of Prague, which came into force in The Act exactly defined responsibilities and competencies of the Mayor, the Municipal Assembly, the City Council, the Prague City Hall, organisations established by Prague and Prague s boroughs. Since that time the institutional set-up and co-ordination of self-governmental activities conducted by Prague have stabilised and have been going on only with minor changes (e.g. establishment of the Department of EU Funds of the Prague City Hall as the Managing Authority for implementation of operational programmes co-funded by the EU Structural Funds). According to the Act, responsibilities for the design, discussion and approval of Prague s developmental policies are divided among the City Council, the Municipal Assembly, the City Hall and the City Development Authority. These responsibilities are defined in detail in the Statute of the Capital City of Prague, the Organisation Order of the City Hall, the Rules of Procedures of the City Council and the Statute of the City Development Authority of Prague. The Municipal Assembly executes the most important powers in terms of independent operation of the city in accordance with the Act. As a supreme self-governing body it is allowed to reserve the right to decide about other matters of independent operation of the city, which fall within the powers of other bodies of the city by the law. The Municipal Assembly has 63 members. The City Council is an executive body in terms of independent operation of the city. The Council has 11 members and it consists of the mayor, 4 deputy mayors and 6 councillors. Regarding the policy making process, the Council and the Assembly can initiate debates about a policy and order the City Hall and the City Development Authority to design a policy. Other important responsibilities of the Council and the Assembly in this field are approval of the policy and a budget allocated for the policy implementation. 10 Act No. 130/2002 Coll. On Support of Research Development and Innovation 8 Regional Innovation Monitor

17 The Prague City Hall is in charge of policy design and its implementation in general. The City Council can charge individual departments with the creation of specific policies and programmes in the field, which the departments are responsible for. Once the policy or the programme is approved by the Council (in some cases also by the Municipal Assembly), the department has to implement them, in co-operation with other departments (e.g. economic, financial and audit departments). The City Development Authority of Prague is a specific body in the process of policy making. The Authority is a contributory organisation established by the City of Prague dealing with preparation and processing of strategic, town-planning and territorial development documents for the City of Prague. As for R&D&I-related policies, the Authority is responsible for the preparation and processing of the Strategic Plan of the City of Prague 11 that is a long-term conceptual document setting the objectives, priorities and paths for dealing with key questions of development of the city in a 15 to 20 year timeframe. Need for further development of R&D&I activities is stressed in the plan, especially in priority axe Competitiveness. The Authority, as an expert institution, was involved in the design of the Regional Innovation Strategy for Prague that was prepared by the Technology Centre ASCR; and participated in designing Prague s operational programmes co-financed by EU Structural Funds. Last year, the City of Prague established the Prague Regional Development Agency as its contributory organisation. According to the certificate of incorporation the agency should assure the city marketing, revitalisation of brown fields in the city, promote the development of innovative technologies in small and medium enterprises, provide consultancy services, etc. This proclamation shows that the agency could become an important institution in the field of innovation support. However, it is only at the beginning of its operation, and the exact definition of its activities and responsibilities are unclear; therefore it is too early to judge its significance as an innovation support organisation in the Prague innovation system. Talking about institutions dealing with R&D&I support, it is worth mentioning that the City of Prague has not established a specialised City Hall department aimed at coordinating the Strategic Plan and innovation support measures. At present, no department or institution is responsible for this task. Partly it is a result of the absence of political will. The City of Prague supports R&D&I activities mainly through operational programmes co-financed by the EU Structural Funds. Before the Czech Republic accession into the EU, Prague did not support these activities at all. There were two reasons for this (I.) the lack of politicians will and (II.) favourable economic development, which did not motivate Prague s political representatives to start discussions on new tools for stimulating economic growth. Prague implements two operational programmes in the current programming period Operational Programme Prague Adaptability is co-financed by the European Social Fund while Operational Programme Prague Competitiveness is cofunded by the European Regional Development Fund. Both programmes are described in detail in the next chapter. Operational Programme Prague - Competitiveness was prepared by the Department of EU Funds of the Prague City Hall in co-operation with the City Development Authority of Prague playing part of an expert body. In order to focus programme objectives and priority axis more precisely, an expert group was established. It covered many important regional stakeholders like research institutes, universities, ministries, professional organisations, associations, etc. The expert group discussed important topics in analytical as well as strategic part of the programme, and provided some 11 Strategic Plan of the City of Prague. Available at: Regional Innovation Monitor 9