A Norwegian "puzzle"?

Innovation is a key source of economic growth. However, available statistics for Norway does not entirely match this assumption. On the one hand, Norway is among the most wealthy and productive economies in the world. But on the other hand, Norway does not rank among the top countries in international comparisons of innovation and business research.

The seeming mismatch between innovation efforts and economic performance is referred to as the ”Norwegian puzzle” or ”paradox”. There are many possible explanations to the so-called ”puzzle”. The most common ones may be summarised as follows:

 

 

 

  • Innovation activites in the Norwegian economy are not fully captured by common innovation indicators
  • Norway’s industrial structure is not favoured by innovation surveys
  • The impact of the Norwegian model on innovation is underestimated
  • Innovation activities in the petroleum industry are underreported

 

 

Innovation activites in the Norwegian economy are not fully captured by common innovation indicators.

Surveys like the European Innovation Scoreboard (EIS) tend to place more emphasis on R&D-based indicators than the actual role played by R&D in determining economic performance in Norway. Non-R&D-based innovation seems to underlie the productivity performance of the Norwegian services sector. Moreover, many Norwegian firms focus on incremental process innovation instead of radical product innovation. Process innovation is not part of the composite indicator set used by the EIS.

Norway’s industrial structure is not favoured by innovation surveys.

The Norwegian business sector is dominated by small businesses in sectors with comparatively low measured innovation and R&D activity. Industry by industry, R&D spending in Norway is on or above the OECD average. If all OECD countries had the same industry structure, Norwegian industry would be the fourth most R&D-intensive country in the OECD.

The impact of the Norwegian model on innovation is underestimated.

There are many sources and drivers of innovation, and some are not easily captured by available quantitative indicators. In Norway, there is a belief that factors such as employees trust and participation, low wage dispersion and a high level of acceptance of technological change in the labour force, as well as strong welfare schemes, have crucial importance in our ability to adapt and innovate. Our specific socio-cultural framework combined with the openness of the economy and disciplined macroeconomic policy are seen as major “non-technological” contributors to strong economic performance.

Innovation activities in the petroleum industry are underreported.

The Norwegian petroleum sector performs large offshore development projects, involving many knowledge-intensive engineering activities. These may actually involve substantial development and innovation efforts. However, it is argued that the sector underreports these activities in innovation and R&D surveys. The reasons are unclear, but it part of the explanation may lie in tax-related or accounting-related issues. Moreover, it may also be explained the manuals defining innovation and R&D, who tend to be  orientated towards manufacturing and less towards resource-based activities like those performed in the North Sea.

 

Further reading:

INNO-Policy TrendChart: Country Report Norway 2004 and Country Report for Norway 2008

OECD (2008): Reviews of Innovation Policy: Norway

Report on Science & Technology Indicators for Norway

OECD: Economic Policy Reforms: Going for Growth 2006

Åge Mariussen /Nordic Innovation Center (2004): Building third generation nordic innovation systems