European Innovation Policy - Critical Assessment of Austria’s Smart Cities

Importance for Austria

Today, more than half of the world’s population is living in urban areas with an upward trend in global urbanization (United Nations, 2014a). This process will increase cities roles as the dominant environment in economical and social terms throughout the world. In Austria even two thirds of the population lives in urban areas (United Nations, 2014b) which makes sustainable energy, secure supply systems, efficient, ecological mobility and smart structural urban planning one of the main issues calling for pioneering solutions and strategies. Urban areas are defined as clustered human settlements with high population density alongside developed infrastructure and artificial environment.

Smart cities are supposed to bring intelligent system design, new technologies and comfortable infrastructure as well as energy distribution and generating together. Furthermore all relevant sectors shall be linked to one another by structural planning based on incremental innovation. Facilitating those key parameters “is typically cheaper and less environmentally damaging than providing a similar level of services to a dispersed rural population“ (United Nations, 2014a). If regions or whole nations flourish strongly correlates with their cities as innovative ecosystems and drivers for future competitiveness. Moreover, economic opportunities and growth based on systemic innovation derive from knowledge, talent and skill and the ability of a city to deploy high living standards and innovative possibilities, which are the pull factors for persons with those required skills (Schwab, 2016a: 76-8).

Those possibilities are manifold and particularly utilitarian and functional. For instance, technological solutions in urban infrastructure to minimize the overall urban footprint; efficient and smart supply systems managing the entire cycle of limited resources like water or energy while expanding quality of life and environment; future mobility with interconnected sensors to improve safety for pedestrians and non- motorized transportation while simultaneously providing improved public transportation to reduce pollution and congestion or personalized mobility-on-demand with the potential for leveraging unused vehicle capacity (Schwab, 2016a: 79; Austrian Research and Technology Report, 2016: 79).

Proposals to get there

Austrian measures, which are used as a generic case in the following, to face those major challenges of the future mentioned above, as a key factor for economic success, are relatively young. However, to fulfill the requirements takes a long-term perspective and is not only vital for Austria on a national, but for Europe on a supranational scale.
Since 2010 the Climate and Energy Fund and the Federal Ministry of Transport, Innovation and Technology (BMVIT) have collaborated on developing and funding strategies, solutions and technologies for more efficient urban economic activities as well as lifestyles. The recently launched program „City of Tomorrow“ intends to accelerate the necessary developments to face the challenges of the 21st century with holistic, long-term strategies to increase the quality of live for the urban population. In doing so the activities are embedded in transnational and European programs alongside cooperation with other international cities or business and research partners. One showcase project is called „TRANSFORM“. This pilot project in Vienna’s Urban Lakeside in Aspern is being developed into a multifunctional city district with offices, small-scale businesses, residential accommodations, research, science and education. The goals are making these innovations affordable, to reduce the carbon- dioxide emissions by urban farming and lower energy consumption accompanied by shifting to renewable sources of energy (Smart City Wien, n.d.).

The federal government implemented its first research, technology and innovation strategy in March 2011. However, regarding national innovations Austria is ranked tenth among the EU member states, according to an assessment conducted by the “European Innovation Scorecard” in 2016. Even though „one objective of the federal government’s RTI strategy is to increase Austria’s performance in research, technology and innovation in such a way that Austria breaks into the ranks of the leading nations for innovation“ this result is interpreted as a „successes in efforts by the government, industry, and public research“ (Austrian Research and Technology Report, 2016: 8).

To face future challenges the strategy foresees measures to strengthen universities in their core function of research and teaching, since the tertiary education and its cooperation with the industry is the driving force of Austrian innovations. However, a new financing expanding competitive research has been developed, but not implemented yet due to budgetary restrictions. Measures for structural programmes such as a tenure-track model or support for doctoral candidates were implemented but not completed yet, because further implementation and a coordination process from the stakeholders involved is required. Besides, a long list of approaches to accelerate gender balance in research has been produced, yet inequality persists.

To facilitate the expansion of research infrastructure, measures were implemented to encourage cooperation between various research stakeholders. In the field of innovation and corporate research a few steps were taken to encourage cooperation between science and industry to stimulate the demand-side of innovation or enable availability of capital for innovation-intensive enterprise creation. However, no breakthrough improvements could be made in attracting venture capital. The efforts to improve governance include performance agreements with research institutions to make funding more transparent and avoid multiple funding.

The establishment of the „smart specialisation“ concept of the European Commission the Austrian Research Promotion Agency (FFG) wants to successfully integrate Austria in supranational RTI policy and furthermore raise its visibility there. A stronger international orientation among Austria’s RTI stakeholders should be encouraged by the internationalisation strategy „Beyond Europe“. To encourage the relation between research and society, progress could be made by establishing high standards for scientific integrity and highlighting research as a social achievement shaping the future (cf. Austrian Research and Technology Report, 2016: 8-10). Furthermore, the enterprise birth rate stagnates in Austria stagnates on the same level since 2009 after the decrease in 2008 due to the financial crisis (Austrian Research and Technology Report 2016: 103). „Despite the catching-up process in recent years, Austria has lost some of its dynamic momentum since the economic and financial crisis of 2008 with respect to its overarching goals, such as joining the group of innovation leaders or achieving an overall R&D intensity of 3.8 % (private and public sector) of its GDP. The major challenge for reaching this intensity target is increasing the R&D intensity of the private sector“ (Austrian Research and Technology Report, 2016: 10). The Lisbon agenda targeted a R&D intensity ratio of 3 % for the year 2010. Hence, the equality of around 1,9 % with China in 2012 means that, relative to its size, the EU is not as productive as it could be given the positive relationship between productivity and R&D. Especially since China’s research intensity has
tripled since 1998, whereas Europe’s barely increased (Van Noorden, 2014; Stancí et al., 2012: 6).

Analysis from a R&D policy point

The construction of a techno-economic paradigm occurs “in the perceived spaces of innovation, where the entrepreneurial opportunities are increasingly mapped for the further development of the new technologies or for using them advantageously in the existing sectors” (Perez, 2009: 9). A rapidly growing industrial sector provides major opportunities for social re-distributional policies, whereas a decline results in less economic welfare raising the question about sustainability of social and welfare models (Soete, 2007: 282).

Investments in social and human capital are increasing research capacity, geographical proximity can be overcome by developed networks of information flow to increase absorptive capacity with external sources of knowledge in order to result in better technological and innovative performance. Institutional restructuring and appropriate innovation policies will be an inevitable part of the industrial revolution in order to reach technological congruence with innovation leaders (Soete, 2007: 279- 81). It is therefore paradoxically that Austrian’s approach seems to be more reactive than proactive in providing those possibilities and means to take advantage of a techno-economic process since “the changes are so profound that, from the perspective of human history, there has never been a time of greater promise or potential peril” (Schwab 2016a: 2).

The modern interconnectedness and multidisciplinarity both increase the dynamic of shared knowledge exponentially and with the global nature of the ICTs in the 21st century quantum jumps in innovation will holistically influence all industrial countries and societies directly. Thus, multi-stakeholder cooperation across science, politics, nations and industries is required. As Aristotle said: “The whole is more than the sum of its parts”. The constitutive characteristics of each part a system contains of, unfold their full innovative potential and capacity to transform the economy and even society when compounded in an interconnected, interdependent synergy. However, the transformation driven by an industrial revolution is surrounded by a mist of uncertainty and institutional complexity, which limits the ability of all stakeholders involved to shape a collective future by a comprehensive, globally shared understanding of how a possible industrial revolution based on systemic innovation might holistically reshape the industrial, cultural, economic and social context. Innovations reach an inflection point “in their development as they build on and amplify each other in a fusion of technologies across the physical, digital and biological worlds“ (Schwab 2016a: 1). But to ensure this amplification the importance of research and innovation needs to be on the political agenda to establish governmental regulations encouraging research to ignite the fourth industrial revolution Schwab (2016a; 2016b) is predicting.

The initiating role of innovation is profound of our economic perception of nowadays, because structural growth is based on techno-economic cycles. This might result in temporary cyclical instability since innovation fluctuations may cause a decrease of investments. Vice versa, systemic innovation or increased investments therefore may result in a higher output. The key variables are inventions, investment activities, diffusion, innovation and assimilation which determine the succession in the future of present innovation and have to be systematically explored during the long-term cycle of economic growth (Kurz, 2005: 43-5). Despite the inevitable systemic and structural changes to establish an environment, where an industrial revolution with its major wealth-creating potential can take place, “today’s decision-makers, however, are too often trapped in traditional, linear thinking, or too absorbed by the multiple crises demanding their attention, to think strategically about the forces of disruption and innovation shaping our future” (Schwab, 2016b).

According to Carlota Perez (2002) the current techno-economic cycle our society is experiencing, now requires fundamental underlying realities to be primarily reformed by the government. However, various powerful groups and lobbies are interfering globally with this reformation since “organisational inertia is a well known phenomenon of human and social resistance to change” (Perez, 2009: 13). Change inducing mechanisms can either derive from the pressure of competition or the goal to be an innovation leader in the future even though the social status quo is disturbed. Therefore this will be a crucial factor in how Austria or Europe faces the future challenges of a shift in techno-economic paradigms, which depend on organizational principles, different business models, facilitating infrastructure and conditions embracing systemic innovation in order to enable influential industries’ role as engines of growth.

“Indeed, the space of the technologically possible is much greater than that of the economically profitable and socially acceptable.” Therefore the responsibility of any stakeholder involved is required to “steer the research effort in particular directions” (Perez, 2009: 2) without solely having financial profit in mind, but to aim for a beneficial outcome for a part of the interdependent, interconnected system. Especially since inventions or innovations might result in unexpected performance outcomes, which resembles Robert K. Mertons (1976) influential article title The Unanticipated Consequences of Purposive Social Action. Those unanticipated consequences include ignorance, imperious immediacy of interest, basic values, self-defeating prediction and error, which a lot of inventions are based on.

Since the “topic of smart cities is one of the essential actions that was implemented as part of setting priorities in the RTI strategy” (Austrian Research and Technology Report, 2016: 79) the following chart is supposed to take a closer look on how Austria is planning to address this issue. In the course of this some key parameters have been selected and set in comparison with the overall programme structure of the Austrian Research Promotion Agency. Thus, this chart provides a limited insight in the multiple numbers of involved institutions in specific research field besides reflecting the institutional complexity inhibiting research and development on a national scale.

Policy recommendations

A pattern or cycle, like Carlota Perez (2002) elaborated, is an accurate historic analysis, but to drive innovation further it takes commitment, interconnectedness, interdependence and synergetic action of all stakeholders involved. Bearing the European Union’s or Austria’s R&D policy in mind, one might be tempted to predict that Schwab’s (2016a; 2016b) claimed fourth industrial revolution is going to happen without them taking a leading role in it. Governments inevitably face disruption by dynamic technological change. Their structures need to be adapted to the increasing demand of transparency and efficiency especially in terms of regulation where linearity might limit the possible development of technological revolution. Administration needs to be continuously adapted while collaborating closely with business and civil society (cf. Schwab, 2016b).

However, this political inability to embrace change-inducing mechanisms as proactive measures to enable the EU’s position as an innovation leader pervades as well its society. Change with its negative connotations and disruptive characteristics is not embedded in the fervent hope or possibilities a technological revolution might bring, but exploited by populist politics. An innovative quantum jump might undoubtedly lead to whole industries getting obsolete while initiating others, but without the national as well as transnational policy addressing this issue and providing solutions, the fertile environment for groundbreaking future developments will hardly be embraced by the civil society. Especially since inequalities are increasing due to constant disruption of labour markets, the benefits are overshadowed by the instrumentalized fear of casualisation of lower educated classes and blue-collar workers. Indeed, the largest beneficiaries of the fourth industrial revolution account for persons possessing intellectual and financial capital. Nevertheless, “innovation is a collective process” (Perez, 2009: 4) modifying institutional context and even culture. It is constituted of constant change, which is not embraced by a great part of the society (Schwab, 2016b). Hence, the ones most affected by industrial disruption need to be reintegrated by more inclusive education systems to equip them with the required skills in less rigid labour markets, while inserting them in an active community life. Furthermore, ensuring social welfare to prevent casualisation or an unconditional basic income will inevitably lead to a change in social paradigm and eventually to a changing techno-economic paradigm.

Showcase projects like “TRANSFORM” are among other pilot projects the proof that demands for an urban restructuring with sustainable energy, improved mobility and economic solutions are certainly ubiquitous. Thus, the priority of the political focus should be more on stimulating demand-side measures. Implementing improved network systems facilitating systemic innovations and particularly fiscal measures to subsidise funds, attract private ventures and capital funds. This requires the establishment of better incentives for investors or tax reductions for corporations increasing the volume of R&D.

Since a modal split, high living standards and new smart technological solution in urban infrastructures, renewable resources and increased efficiency regarding energy, building and mobility has not only favorable effects for the Austrian government, but also its citizens, it should have a strong interest in ensuring those solutions or at least providing the fertile environment for this social innovations to develop. However, as the figures above showed the research regarding the future of smart cities is very limited. Instead of trying to systemically innovate or drive development further the current technology used for urban restructuring is only experiencing incremental innovation. New inventions might definitely have a primitive performance, which might even be worse than the existing sophisticated technology albeit higher production costs, but the important part is their immense potential. Even though this is also the critical dimension because of unpredictable factors and externalities leading to possibly success or failure.

To conclude my assessment, I want to stress that a fourth technological revolution is inevitably going to happen at some point and it is strongly related to today’s decision- making how disruptive this change and revolution will sweep over countries an regions. Instead of passively reacting to external innovations, change inducing mechanism require application beforehand to enable Austria’s or the EU’s position to become an innovation leader instead of a follower, who is suffering from the lack of preparation.

References

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