Innovation Systems and Innovative Performance: Voice Systems

Brigitte Unger [*]

Abstract

The literature on 'exit' and 'voice' countries (Anglo-American versus continental European economies and Japan) points to performance differences between these two generic systems of innovation. However, little has been done so far to study differences among voice countries. This paper suggests that four 'voice' countries, Austria, Finland, the Netherlands, and Germany, with stable long-term trust relations between economic actors and a relatively consensual style of decision making, show substantial differences in innovative performance. I argue that this is due to both sector specialization and the institutional environment. This is because the capacity to escape from historical patterns of industrial specialization depends in part on the set of institutions in a country. They provide important resources for innovation, such as capital and skilled personnel. Indirectly, innovations are affected by the system of economic governance, which is more or less corporatist in these four countries. However, a corpor atist regime can be responsive or rigid, depending on the degree of exposure to external challenges and crises (regime effect). Furthermore, the same responsive or rigid regime can result in different types of innovation, depending on whether firms have to operate in a competitive, highly exposed sector or in a sheltered one (sector exposure effect). The first tentative empirical results show that the regime effect dominates over the sector exposure effect.

Descriptors: innovation performance, technology lock-in, varieties of capitalism, national systems of innovation, corporatism

Introduction

Studies in the 'varieties of capitalism' literature have distinguished two kinds of 'generic' innovation systems: the 'exit' versus 'voice' model, or the 'type A' and 'type B' systems, (see, e.g., Nooteboom 2000), often exemplified by idealised models of the Anglo-American and the continental European-Japanese type (Dore 1986; Sako 1992). Relatively formal, distant and short-term relations between economic actors such as customers and suppliers, employers and employees, and between competing firms characterize type A systems. Actors operate individually on markets, business relations are formalized in contracts, and when dissatisfied, actors 'exit' the relation and look for new partners on the market. Relations, therefore, are often short-lived. Actors do not invest much in them, but are also not subject to hold-up problems. Firms and workers have relatively short-term perspectives.

In type B systems, economic actors establish longer lasting and more exclusive relations with each other, do not easily change partners and 'voice' dissatisfaction rather than exit the relationship and look for new partners. Actors invest in relation-specific assets -- e.g. workers in skills useful only for one employer -- and cooperate in finding new solutions to problems experienced by (one of) the partners. Such relations may develop into stable multiple networks, with organizations specialized in coordination at the nodes, such as trade associations. Economic actors in type B systems have more of a long-term orientation, again as regards the relations in which they are engaged.

These different types of relations between economic actors have consequences for the nature of innovations. Economic actors in 'exit' systems are more able to take risks by changing partners regularly -- and this should be conducive to more radical innovations. Actors in voice systems with long-term relationships, in contrast, can share knowledge more easily, and can invest in the further development of such knowledge. That should aid innovation. However, such new knowledge would be developed from the existing shared knowledge base. This would be more conducive to incremental innovations, the more so as the reliance of actors on long-term relations reflects their greater attachment to security, and their reluctance to take great risks. Empirical studies seem to confirm this view. Casper (2000) finds American biotechnological firms to be specialized in more risky sub-fields where more radical innovations can take place, while German biotechnology firms concentrate on less risky fields of research and product d evelopment.

This paper suggests that innovative performance not only differs between exit and voice countries hut also among voice systems; and that these differences are partly due to sector specialization and historical patterns of industrial organization, and partly to the combined influence of the institutional setting and a sector's exposure to external economic pressure. Stability and long-term orientation alone do not necessarily enhance innovation. They need external pressure to do so. Otherwise, stability can result in rigidity and paralysis. What holds for stable relations between economic actors also holds for their institutional environment. An institutional regime can be either responsive or rigid, depending on whether it is challenged from the outside or not, and firms that have to do business in a more responsive or more rigid institutional environment will react differently when they face strong or weak competition. Firms highly exposed to domestic or international competition, for instance, will be more inclined to make radical innovations in a responsive institutional environment than in a rigid one.