Flanders: An Example of Best Practices
The United States Could Learn from the Belgian State’s Experiences
SOURCE: www.visitflanders.co.uk/
The Flemish government’s 20 years of cluster building offers U.S. policymakers some key lessons on how to guide technology innovation.
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Innovation Clusters
In regions around the country, clusters of universities and high-tech companies partner with local and regional governments to boost tech-based economic growth and create good jobs. The two best examples are Silicon Valley, the hotbed of computer technology in northern California, and the metropolitan Boston area connected by Route 128, which is a nexus of biotechnology research and development. For a primer on innovation clusters, see our “Regional Centers of Innovation 101.”
The federal government provides large sums of funding for basic scientific research, and boasts a variety of different programs to help companies and state and local governments prepare executives and workers for employment at young, innovative companies seeking to commercialize this research. But the federal government lacks a comprehensive approach for innovation policy. What’s needed is today is a clear-eyed blueprint for developing more innovative clusters around the country that links together federal programs, academic institutions, companies, and local and regional policymakers. In this series, Science Progress will feature bold ideas from innovation experts across the nation for how the Obama administration can develop an effective innovation policy that creates jobs, enables economic mobility, enhances science, and grows the county’s competitiveness.
Last year I had the honor to participate in the European Union Visitors Programme and saw first hand what the EU is doing to invigorate and accelerate innovation through the development of regional innovation clusters. While the United States continues to deliberate on the need and form of cluster initiatives, these incentive programs and strategies have already been maturing for some time in 26 of 31 European nations.[1] Within each of these countries, regional organizations are tasked to synergize the participation of universities and industry to overcome barriers to cluster formation and development.
Of particular significance was the opportunity for me to meet with staff at the Institute for the Promotion of Innovation by Science and Technology in Flanders (known by its Dutch abbreviation, IWT).[2] Flanders is a region of northern Belgium with substantial autonomy within the Belgian federal state; this community has benefited from a series of constitutional reforms that have decentralized power to various parts of the country and made Flanders more prosperous.[3] Many have recognized that a key component of this regional success has been their comprehensive model to innovation. In fact, the National Academy of Sciences recently undertook an international review of regional clustering efforts that foster innovation, and selected Flanders for a major symposium discussion and subsequent report.[4]
Since the late 20th century, Flanders has been at the crossroads of EU innovation, attracting foreign investment by multinationals to produce many of its technological exports, ranging from automaking to pharmaceuticals. Recently, business surveys indicate that Flanders is uniquely attractive to foreign direct investment in part because of well-targeted tax incentives, which make the region attractive to foreign investment in key growth areas such as services, logistics, nanotechnology, pharmaceuticals and communications.[5]
Case in point: Swiss food giant Nestlé SA was the most recent beneficiary of these tax breaks; relocating to Flanders allowed Nestlé to restructure its pension plans to benefit from a more favorable regional tax rate. Flanders also offers tax allowances for R&D personnel, with a one-time tax exemption for companies hiring additional research or quality assurance personnel.[6]Also, there are a set of other incentives, such as value-added tax, notional interest deductions and other incentives, which when taken together, a company can reduce considerably its taxable base.[7]
Of course, tax breaks alone cannot guarantee corporate participation and cluster growth. Fortunately, Flanders already benefits from a set of attractive strengths that include a well-located infrastructure, strong universities, and an educated workforce, but the Flemish government has long recognized that government intervention is still needed to overcome key innovation challenges (see sidebar). That’s why in the early 1990s it formed IWT to stimulate economic growth and nurture cluster development.
IWT is a regional public institution that provides research-and-development and innovation support to newly formed high-tech startup companies as well as long established public companies. It has several financial tools and an annual budget of about $307 million.[8] Any company that does business in Flanders can ask IWT for financial support for a technological project. Three types of technology projects qualify for support:
- Basic industrial research
- Prototype or development activities
- Mixed research that combines basic industrial research and prototype or development activities.[9]
Innovative Flanders: Strengths and Weaknesses
Innovation Strengths
Excellent transportation and logistical infrastructure; central location in Europe
A well educated, multilingual, hard working populace
Strong educational and research infrastructure, with five university-based institutes specifically designed for technology transfer
Ability to draw a substantial financial support from the EU for capacity building
Innovation Challenges
Technological time lag between investment and payoff poses political liabilities
Small-and medium-sized enterprises find it difficult to finance the developmental work needed to take a new idea to market
Cultural aversion to risk and inexperience with business formation and ownership
Suspicion of some technologies, such as genetic engineering, and especially genetically modified organisms.
(Source: Innovative Flanders: Innovation Policies for the 21st Century: Report of a Symposium.” The National Academies. 2008.)
While direct funding of this kind of basic and applied research is always vital to seeding new innovation opportunities, IWT’s role does not end there. The institute also provides a suite of support mechanisms to local industry in the field of technology transfer, searches for equity investment or joint venture partners, and international subsidy options.[10] Last but certainly not least, IWT has a coordination mission, which strives to create strong cooperation between all organizations in Flanders.[11]
IWT promotes knowledge transfer via platforms that allow a cluster’s universities and businesses to meet and collaborate.[12] It has set up the Flemish Innovation Network that allows companies, especially small- and medium-sized enterprises, to access the knowledge and expertise of about 250 advisors. So far, 1,100 small- and medium-sized enterprises and 250 large companies have benefited from this suite of services, including a number of successful university spin-off companies. One such startup from the Catholic University of Louvain, for example, developed its own microwave drying technology. It published a technology offer via IWT network services, which yielded several leads to possible applications for their technology, including an English company that supplies drying installations.
But not all IWT interventions have been successful. After all, like it or not, there are still strong market forces at work. One notable example is Flanders Language Valley, an innovation cluster in Ieper, a town situated in a rural part of Flanders. In recent years, the language cluster entered a crisis due to problems with its core corporation, Lernout & Hauspie Speech Products. At its peak, Lernout & Hauspie had a market capitalization of almost $10 billion, but financial fraud and mismanagement led the company to its demise, bankruptcy, and purchase by Nuance Communications.
Extracting lessons learned from cluster formation and failures is an important evaluative area for IWT. To better interface these regional efforts with larger Pan-European ones, IWT also serves as the key Flanders point of contact for the E.U. Seventh Framework Programme, FP7, the E.U.’s chief instrument for funding research, bundles all research-related EU initiatives together to achieve the community’s goals of growth, competitiveness, and employment. Case in point: FP7’s Innovation Relay Centre initiative, a key E.U. effort to provide integrated innovation and business support to small businesses across the European Union, is a core supporter of the Flemish Innovation Network.
In sum, IWT provides a comprehensive strategy by leveraging its three core tasks: Subsidies, Services, and Coordination (see figure below).[13] The subsidies ensure basic research and development continues apace and leads to high-tech commercialization. The services help ensure commercialization succeeds. And the coordination provides the Flemish cluster with the links to other clusters and markets to create more innovation growth opportunities for Flemish institutions and companies.
(Figure reproduced with permission, Maarten Sileghem, IWT. Flanders, 2008).[14]
One additional service area for IWT could soon be to provide program evaluation and monitoring for its participants, an idea that staff have started to look at more carefully. The reason: third-party evaluation can be expensive and complex, especially for small-and medium-sized enterprises, and outcomes can be measured more comprehensively.
Potential Lessons for the United States
Naturally, the United States and Flanders differ considerably in size and innovation capacities, but there are still important lessons we can learn from Flanders when considering how to implement a national strategy to energize U.S. regional innovation clusters. Here are four clear lessons for U.S. policymakers:
- It is best to have a dedicated organization designed to nurture regional innovation clusters. An organization that emulates the IWT, with its three core tasks, can enhance the environment and conditions that are necessary for economic growth through university-industry cooperation and innovation. Today, the United States lacks that national program to develop such dedicated regional innovation organizations, and states and municipalities boast too many that are ineffective because there is not enough regional coordination or federal direction. This is a critical gap in U.S. innovation policymaking.
- Business research-and-development tax breaks and tax credits alone may not be sufficient, but it sure helps. Corporations are always looking to reduce the costs of doing R&D. One key role that a new IWT-like organization in the United States could do is assist participants in maximizing these tax credits, and serve as a general clearinghouse for possible deductions.
- It is important to refrain from picking “winners or losers” when considering who to fund. IWT, for example, has no thematic priorities. When one considers the large variety of clusters in the United States with their unique comparative advantages, it is more sensible to focus on improving the general sustainability of the environment for each cluster rather than trying to pick one over the other.
- In the end, it is all about creating jobs. The top outcome metric for an IWT-like organization should be the number of new jobs produced. Usually the discussion about cluster development is expressed either by total dollar investments, products produced, new companies created or drawn to the cluster or scientific discoveries. While these are valid measures of innovation, the true confirmation of a thriving regional economy is its ability to create new technologically-based jobs.
The long Flemish experiment building a regional innovation cluster within the federal state of Belgium and within the even more complex political and economic environment of the European Union clearly offers the United States some key lessons. As the Obama administration fleshes out its early policy decision to help foster these kinds of innovation clusters in our country, they would be well served to explore the Flemish cluster in detail.
Elmer Yglesias is a researcher at the Science and Technology Policy Institute, where he specializes in the evaluation of federal science and technology programs and their impact on the public good. The opinions expressed herein are those of the author and not of the Institute or any other sponsors. The author thanks the European Union Visitors Program for their support and meeting coordination with staff at the IWT-Flanders.
Endnotes
[1] “Clusters and Competitiveness,” EDA America, US Dept of Commerce, Economic Development Administration. Fall 2008 Issue. “Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies.” Brookings Institution:
http://www.brookings.edu/reports/2008/04_competitiveness_mills.aspx
[2] Institute for the Promotion of Innovation by Science and Technology in Flanders (IWT) website (including publications):
http://www.iwt.be
[3] See “Belgium’s devolution conundrum”: http://news.bbc.co.uk/2/hi/europe/7640198.stm
[4] “Innovative Flanders: Innovation Policies for the 21st Century: Report of a Symposium.” Committee on Comparative Innovation Policy: Best Practice for the 21st Century, the National Academies. Washington, DC. 2008. ISBN-10: 0-309-11606-6. (Report available at http://www.nap.edu)
[5] “Heart of Europe.” World Finance. World News Media, London:
http://www.worldfinance.com/news/worldnews/europe/article201.html
[6] World Finance, ibid.
[7] See “Notional Interest Deduction”, Deloitte.
www.deloitte.com/dtt/cda/doc/content//Notional%20Interest%20Deduction.pdf
[8] Ibid, IWT, http://www.iwt.be
[9] World Finance, ibid; IWT Activity Report, 2007.
[10] Ibid, World Finance, ibid; IWT Activity Report, 2007.
[11] Ibid, World Finance, ibid; IWT Activity Report, 2007.
[12] IWT Activity Report, 2007, pg. 9
[13] Sileghem, ibid. pg. 4.
[14] Sileghem, ibid. pg. 4.
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