Journal 37631312

OECD Reviews of Innovation Policy
Switzerland
Preliminary Version
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Examens de l’OCDE des politiques d’innovation
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FOREWORD – 3
Foreword
This review of Switzerland’s innovation policy is the first in a new

series of OECD country reviews of innovation policy. It was requested by
the Swiss authorities, represented by the Office of Professional Education
and Technology (BBT), and was carried out by the OECD Directorate for
Science, Technology and Industry (DSTI) under the auspices of the OECD
Committee for Scientific and Technological Policy (CSTP).
The report complements the OECD Economic Survey of Switzerland
2006, which contains a chapter entitled “Innovation: Areas of Improve-
ment”, by exploring issues raised therein in greater detail, and by addressing
additional topics that could not be covered in the Economic Survey.
This review draws on a background report prepared by the Swiss
Institute of Business Cycle Research (KOF) at the Swiss Federal Institute of
Technology (ETH) in Zurich (Arvanitis and Wörter, 2005) and on the results
of a series of interviews with major stakeholders of Switzerland’s innovation
system by the OECD review team. The review was drafted by Gernot
Hutschenreiter (Science and Technology Policy Division, DSTI, OECD) and
Michael Stampfer (consultant to the OECD; Managing Director of the
Vienna Science and Technology Fund) with the assistance of Michaela
Glanz and under the supervision of Jean Guinet (Science and Technology
Policy Division, DSTI, OECD).
OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

TABLE OF CONTENTS – 5
Table of Contents
Overall Assessment and Recommendations............................................... 7

Strengths.................................................................................................. 8
Challenges............................................................................................... 8
Recommendations..................................................................................... 10
Improving framework conditions for innovation .................................. 10
Improving the governance of the innovation system ............................ 11
Improving support to university-based research ................................... 12
Promoting innovation within firms ....................................................... 13
Chapter 1. Introduction............................................................................. 15
Chapter 2. Mapping Switzerland’s Innovation System .......................... 17
2.1 Introduction......................................................................................... 17
2.2 Macroeconomic performance ............................................................. 20
2.3 Public institutions and actors .............................................................. 25
2.4 Innovation inputs ................................................................................ 29
2.5 Innovation output and performance.................................................... 37
Chapter 3. The Swiss Innovation System:
Strengths, Weaknesses, Opportunities and Threats ............................... 45
3.1 Challenges for the Swiss innovation system....................................... 45
3.1.1 Challenges related to a changing economic environment ............ 45
3.1.2 Challenges related to innovation and human resources ............... 48
3.1.3 Challenges related to governance................................................. 50
3.2 A SWOT analysis of the Swiss innovation system............................. 51
3.2.1 Strengths....................................................................................... 52
3.2.2 Weaknesses .................................................................................. 53
3.2.3 Opportunities................................................................................ 54
3.2.4 Threats.......................................................................................... 54
Chapter 4. Governance and Public Policy ............................................... 57
4.1 Introduction......................................................................................... 57
4.2 Interplay among actors: legislation, departments, agencies, cantons .....62
4.3 The Bologna Process .......................................................................... 65
4.4 Giving policy advice: SWTR and other councils ............................... 66
4.5 Priority setting, evaluation and policy learning .................................. 70
4.6 Internationalisation issues................................................................... 76

6 – TABLE OF CONTENTS
Chapter 5. The Science System ................................................................. 79

5.1 Introduction......................................................................................... 79
5.2 Features of the Swiss tertiary education system ................................. 79
5.3 Swiss higher education landscape 2008 and other important policy
developments ............................................................................................ 82
5.4 Universities of applied sciences – current developments ................... 85
5.5 Funding the science sector.................................................................. 90
5.5.1 Introductory remarks.................................................................... 90
5.5.2 The SNF ....................................................................................... 91
5.5.3 A multitude of other actors........................................................... 95
5.6 Internationalisation issues................................................................... 96
5.6.1 CERN ........................................................................................... 96
5.6.2 International funding of research ................................................. 96
Chapter 6. The Business Sector in a National Innovation Systems
Perspective .................................................................................................. 99
6.1 Introduction......................................................................................... 99
6.2 Some properties of the system .......................................................... 100
6.2.1 Framework conditions................................................................ 100
6.2.2 Innovation dynamics of large and small firms ........................... 101
6.2.3 New technology-based firms, risk capital and venture funding ... 103
6.2.4 Clustering, networking and regional initiatives ......................... 105
6.3 Industrial innovation and public policy ............................................ 108
6.3.1 Helping SMEs to innovate ......................................................... 108
6.3.2 The case of CTI.......................................................................... 112
6.3.3 Relying on “supply side” technology transfer instruments ........ 115
6.3.4 Science-industry co-operation.................................................... 118
6.4 The services sector............................................................................ 123
6.4.1 Innovation in the services sector ................................................ 123
6.4.2 Some evidence for Switzerland.................................................. 124
6.4.3 The financial sector .................................................................... 126
6.4.4 The tourism sector...................................................................... 130
6.4.5 The construction industry........................................................... 131
6.4.6 The creative industries ............................................................... 131
References .................................................................................................133
Acronyms ..................................................................................................145

OVERALL ASSESSMENT AND RECOMMENDATIONS – 7
OVERALL ASSESSMENT AND RECOMMENDATIONS
Switzerland enjoys one of the highest levels of gross domestic product

per capita in the OECD area. Yet, growth of per capita income has been
among the lowest in OECD countries for an extended period of time.
Sluggish growth has largely reflected weak productivity gains. In the
absence of a significant pick-up in productivity, trend output growth can be
expected to decline further owing to population ageing. Reviving growth
through increased productivity is Switzerland’s main economic policy chal-
lenge in the longer term. Further improving the country’s high innovation
performance will play a key role in boosting productivity.
Framework conditions for innovation
• Many framework conditions for research and innovation are good,

including a reliable legal framework, a sophisticated financial system, a
well-educated labour force, generally favourable taxation, etc. Openness
of labour markets vis-à-vis the European Union facilitates balancing
demand and supply for highly qualified human resources for science
and technology (HRST).
• The lack of competition and market segmentation reduce incentives to
innovate in some sectors (e.g. construction).
• Barriers to entrepreneurship are still rather high. These include diffi-
culties in financing new innovative businesses, regulatory burden and
opacity, and a punitive bankruptcy law. Double taxation of dividends
makes equity financing expensive compared to internal funds and bank
loans. Together, the bankruptcy law and the high cost of equity financing
impair the creation and growth of small innovative firms. In fact, venture
capital is in small supply and, moreover, directed at long-established
firms and low-risk projects rather than at younger, highly innovative
firms.

8 – OVERALL ASSESSMENT AND RECOMMENDATIONS
Achievements and challenges
Switzerland performs very well in terms of nearly all available indicators

of science, technology and innovation, often holding with a leading inter-
national position. However, the stagnation in some indicators point to a
deterioration of Switzerland’s relative position vis-à-vis a number of
countries, especially some small European economies that have moved
ahead at a fast pace in recent years.
Strengths
• Strong industrial research and innovation. Switzerland has a strong and
varied industrial research base. It comprises both large, R&D-intensive
multinational enterprises which are at the forefront of industrial research
and a large number of innovative small and medium-sized enterprises
(SMEs) with strong positions in global market niches.
• A high-quality research-oriented university sector and a well-developed
research infrastructure. Industrial research benefits from an excellent
university-based public research sector, including the world-renowned
federal institutes of technology in Zurich and Lausanne, and a number
of very active cantonal universities as well as the some of the newly
established universities of applied sciences (UAS). These institutions
contribute effectively to Switzerland’s high performance in innovation.
• A strong services sector. This sector, which includes a highly developed
financial industry, plays an increasing role in the Swiss economy and
innovation system. Its contribution to innovation in other sectors as well
as its own innovativeness will therefore be of key importance for
Switzerland’s future economic performance.
• Orientation towards high quality. A pervasive orientation towards high-
quality products and services throughout the Swiss economy contributes
to high standards, performance and reputation.
Challenges
• International competition. The process of globalisation has led to fiercer
competition and new sources of competition, even in niche markets
where many Swiss small and medium-sized enterprises (SMEs) are
leading actors. There is stronger international competition for the location
of activities, including R&D, across the whole range of increasingly
global value chains.

• Insufficient innovation capabilities in parts of the economy. Although

most large and smaller Swiss firms show impressive innovative capa-
bilities, there are pockets in the economy which are less advanced:
enterprises in sheltered sectors which face too few incentives to inno-
vate and some SMEs with an insufficient capacity to innovate. The issue
is especially acute at the intersection of these two sets of firms.
• A comprehensive reform of the higher education system is moving in the
right direction but is not yet complete. Universities of applied sciences
have not always found their place in the innovation system. This will
require further specialisation and consolidation. In addition, despite
some progress, the education system does not sufficiently allow for
student mobility, and the participation of women in higher education
and science remains low by internationals standards.
• Effective management of co-operative arrangements with the European
Union (EU). The European Research Area and related programmes
have become vital for the Swiss innovation system. However, as a non-
EU-member country, Switzerland faces particular challenges. There is
room for improving the management of an increasingly dense and
comprehensive web of agreements.
Assessment of current policy settings and instruments
Coping effectively with these new challenges may require addressing

the following issues:
• Vulnerability of public funding of research and innovation. Public
funding increases were sluggish during the period of slow economic
growth. Although the government prioritised R&D spending for the
period 2004-07, planned increases have been partly crowded out by
other types of expenditure.
• A piecemeal rather than systemic approach to science, technology and
innovation policy, which reflects the current balance of power among
actors more than society’s long-term needs.
This is apparent in:
• An imbalance in public funding according to the type of research (basic
versus more applied research).
• The predominance of academics in governance and advisory bodies.
• The still minor role of the UAS in the Swiss research and innovation
system.

The consequences of these features are amplified by the current practice

of directing nearly all public funding instruments towards the academic
partner in science-industry co-operation. Ruling out direct public support to
industry has certainly avoided wasteful subsidisation of market actors.
However, too rigid an application of this principle may hinder the govern-
ment’s ability to respond efficiently to new challenges, particularly when
this involves addressing actors that have had little incentive and/or ability to
draw on the research system.
Recommendations
To improve innovation performance, the government should both meet

the needs of all actors more comprehensively and efficiently, and help some
actors to better articulate their needs. This involves the following priority
tasks.
Improving framework conditions for innovation

As pointed out by the OECD Economic Survey of Switzerland 2006,
creating even more innovation-friendly framework conditions would entail
notably:
• Pursuing efforts to increase competition and reduce market seg-
mentation, by revising the domestic market law, eliminating admini-
strative and technical barriers to EU imports and negotiating the same
access for Swiss products to the EU market.
• Removing administrative, regulatory and financial barriers to entre-
preneurship by streamlining authorisation procedures, reforming the
bankruptcy law, and improving the tax, institutional and legal frame-
work for venture capital.
• Improving the supply of human resources in science and technology by
pursuing the reform of the university system, including the speciali-
sation and the development of quality assessments of universities,
increasing women’s interest in sciences and engineering, and providing
students from non-EU countries graduating in Switzerland more time to
find a job in Switzerland.

Improving the governance of the innovation system

• Give high priority to public funding for science, technology and innova-
tion in order to maintain Switzerland’s world-class research and innova-
tive performance. Take measures to safeguard public spending priorities
more effectively, especially in an environment of fiscal consolidation
and mandatory increases in other types of expenditure.
• Ensure that increased contributions to international co-operation in
science and technology, notably to European programmes, do not crowd
out funding of national programmes which address the specific needs of
Switzerland.
• Maintain the Message concerning the Promotion of Education, Research
and Technology (ERT Message) as a multi-annual planning instrument
but ensure that it takes a more forward-looking approach to the needs of
the Swiss innovation system.
• Make the Swiss Science and Technology Council (SWTR) more repre-
sentative of the variety of stakeholders in the innovation system, notably
from industry and include a larger number of members from abroad.
Make better use of existing providers of strategic intelligence such as
the Centre for Science and Technology Studies (CEST).
• Foster the Swiss National Science Foundation (SNF) and the Innovation
Promotion Agency’s (CTI) own strategic capabilities, and make good
use of their experience as funding agencies when formulating overall
science, technology and innovation policy strategies.
• Promote more interchange between the public sector, industry and
academia regarding career patterns and mobility of researchers for co-
operative research.
• Improve priority setting through a more systematic dialogue among key
actors, making a more systematic use of advanced tools (technology
foresight exercises, technology monitoring or road mapping and evalua-
tions of programmes, institutions and policies). Revisit the role of TA
Suisse in this context.

Improving support to university-based research

• Raise the budgets of the SNF at least to the levels envisaged in the ERT
Message 2004-2007, and offer growth perspectives beyond 2007.
• Complement current SNF funding by well-endowed science prizes.
• Continue with the SNF Junior Professors initiative but ensure that junior
professors are well integrated into the universities and that the scheme
helps their subsequent academic careers.
• Make more use of foreign reviewers and peers in evaluations of re-
searchers, projects and programmes.
• Promote further consolidation and specialisation of the UAS sector,
including by better linking the development of UAS to regional and
trans-regional clusters of economic activity, in co-operation with the
cantonal authorities.
• Grant the UAS enough autonomy to enable them to develop relations
with the business sector and to compete with established universities in
certain areas.
• Allow, when appropriate, the UAS to offer master’s degree studies both
in order to increase their capabilities in the area of R&D and to improve
their responsiveness to the needs of the business sector.

Promoting innovation within firms

• Raise CTI’s budget at least to the levels foreseen in the ERT Message
2004-2007 and offer a growth perspective beyond 2007.
• Rebalance the portfolio of instruments towards more demand-oriented
measures while keeping this portfolio as lean as possible.
• Consider launching a CTI funding programme for small firms aimed at
a “first engineer” or “meaningful in-house innovation” projects. Under-
take a study to prove the rationale and more precisely determine scope,
size and instruments, possibly including direct funding, of such a pro-
gramme.
• Consider launching a “centres of competence” programme1 to catalyse
relations with a broader set of actors in the innovation system. Such a
programme should be implemented co-operatively by SNF and CTI.
• Give preference to strengthening technology transfer institutions that
are already strong rather than creating additional ones.
• Take measures to make science, technology and innovation policy more
responsive to the needs of the service sector, including the financial
industry. First, support more research in the higher education sector to
improve understanding of innovation in services. Second, consider pro-
moting co-operative research involving public and private actors through
the centres of competence approach referred to above.
1. Centres of competence, as understood here, are set up for a certain period of time to run a
multi-annual research programme established and co-funded by one or several uni-
versities or public research institutes and a number of business enterprises with some
support from government. This concept differs from that of the competence centres
currently operating in Switzerland.

1. INTRODUCTION – 15
Chapter 1
INTRODUCTION
Switzerland is a very prosperous country. However, growth of per capita

income has been weak in recent years, well below the OECD average.
Achieving a higher trend output growth path is Switzerland’s most important
longer-term economic policy challenge. A persistent lack of dynamism is
essentially linked to an underlying weakness in productivity growth. For this
reason, boosting productivity is of key importance for the future develop-
ment of the Swiss economy and to maintain Switzerland’s high standard of
living. Without a significant rise in productivity, trend output growth is likely
to weaken further as a result of population ageing.
Productivity growth can be stimulated in several ways. In the longer
term, building upon and further improving Switzerland’s innovation per-
formance will be of key importance. A leading position in innovation cannot
be taken for granted. While Switzerland still performs very well in terms of
nearly all available indicators of science, technology and innovation, some
have weakened during the period of slow economic growth. Evidence
suggests that the unfavourable business cycle is only part of the explanation
(OECD, 2006a).
Since the early 1990s, Switzerland has been losing ground relative to
other countries, including comparable small European economies. The on-
going globalisation of R&D poses new challenges: competition for the best
international locations of R&D centres has been increasing among the most
advanced countries, and new competitors entering markets for skill-intensive
and, specifically, R&D-intensive products and services are confronting
producers well-established in such markets. For a country with high labour
costs, strong performance in innovation is crucial to maintain competitive-
ness.

16 – 1. INTRODUCTION
Switzerland is endowed with valuable assets which allow the country to

respond well and seize new opportunities, not least because of its advanced
and sophisticated universities and industrial research. At the same time,
there is scope for improvement. For instance, all aspects of framework
conditions are not conducive to innovation, some parts of the innovation
system are more developed than others, and the governance of science,
technology and innovation policy would benefit from some adjustment.
Given Switzerland’s underlying strengths, this will mainly involve fine
tuning and, to some extent, rebalancing a very successful innovation system.
Switzerland may also gain from adapting its approach to innovation policy.
The experience of OECD countries shows that science, technology and inno-
vation policy can play an important role in fostering innovation performance
and economic growth. International good practices provide insights that can
be useful in deriving policy responses geared to Switzerland’s traditions and
new requirements.

2. MAPPING SWITZERLAND’S INNOVATION SYSTEM – 17
Chapter 2
MAPPING SWITZERLAND’S INNOVATION SYSTEM
2.1 Introduction
Switzerland is in many respects a most successful country. Building on

more than 150 years of peaceful development, the Swiss Confederation is
one of the safest and most prosperous places in the world. It has strong
performers in a number of industrial and technological areas, such as
pharmaceuticals, biotechnology, medical technology, machinery and equip-
ment, food, and the financial industries. Endowed with few natural resources,
Switzerland started early to rely on education, engineering skills and innova-
tion for its economic and social development. Companies such as ABB,
Nestlé, Novartis and Roche have their home base in Switzerland, and many
smaller enterprises have an excellent reputation and large export shares in
various high and medium technologies. Within the education sector, the
universities of Zurich, Basel and Geneva, and the two federal institutes of
technology of Zurich (ETHZ) and Lausanne (EPFL) have a long-standing
tradition of excellence with respect to their scientific output and the
achievements of their graduates.
Switzerland has achieved a top international position in a number of the
indicators widely used to measure the performance of innovation systems. It
ranks very high in patents, publications and citations, as well as in innova-
tion by business firms. Nevertheless, its relative position has weakened
somewhat over the past decade. While remaining at a high level, many input
and output indicators have tended to stagnate, and other economies both in
Europe and worldwide are catching up, some rapidly. This has gone hand in
hand with a slowdown in Switzerland’s economic growth, which was almost
flat in the 1990s. The low-growth trap has not yet been overcome and will
be addressed in Sections 2.4 and 2.5.
While the performance levels of the economy in general and in the
innovation system in particular remain high, the overall lack of dynamism
has become a matter of concern for policy makers. The extended phase of
slow growth was accompanied by rising public sector debt and federal
budget deficits in eight of the eleven years between 1993 and 2003 (Swiss
Federal Chancellery, 2005). Increases in public sector debt and deficits are

18 – 2. MAPPING SWITZERLAND’S INNOVATION SYSTEM
not excessive in the European context, but they have an impact on policy
making, including innovation policy, by making it difficult to allocate
additional resources in areas that are very important for future productivity
and growth, such as education and research.
The following section provides basic information about Switzerland’s
macroeconomic performance over the past 15 years and key data on the
Swiss innovation system. This information is complemented by a brief
presentation of the institutional landscape in science, technology and
innovation in order to provide an overview of the architecture of the Swiss
innovation system, its main components and their mutual relationships. No
details, judgements or conclusions are given at this stage. Next, drawing on
the background report prepared for this review (Arvanitis and Wörter, 2005)
as well as other sources, the chapter takes a first look at actors in the public
sector. Which are the governing institutions and who is in charge of public
funding of different activities in the area of science and innovation? Who are
the main performers and – taking an innovation system perspective – what
does the overall architecture look like? The following section then describes
the structure and main elements of public and private spending in this area,
ranging from science and research to technological and some non-
technological innovation activities. A large share of industry input and
concentration of public sector spending on the higher education sector are
two salient features of the Swiss innovation system. A final section focuses
on innovation output data to show that Switzerland has a rather small but
effective higher education and (publicly funded) science sector, which
attracts many qualified people from abroad.

Figure 2.1. Income and productivity levels, 2005
Percentage point differences with respect to the United States
Percentage gap in GDP per capita Effect of labour utilisation (1) Gap in GDP per hour worked
Turkey (2)
Mexico
Poland
Slovak Republic
Hungary
Portugal
Czech Republic
Korea
Greece
New Zealand
Spain
EU-19 (3)
Italy
OECD
Germany
Euro-zone (4)
France (5)
Japan
Finland
United Kingdom
Belgium
Sweden
Austria
Australia
Canada
Denmark
Netherlands
Iceland
Switzerland
Ireland
Norway
-80 -60 -40 -20 0 -80 -60 -40 -20 0 -80 -60 -40 -20 0
1. Based on total hours worked per capita.

2. GDP for Turkey is based on the 1968 System of National Accounts.
3. EU member countries that are also member countries of the OECD.
4. Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Portugal, Spain.
5. Includes overseas departments.
Source: OECD (2006b).

2.2 Macroeconomic performance
Switzerland is very prosperous: it ranks third among OECD countries in

terms of GDP per capita at current exchange rates and fifth in terms of
current purchasing power (2004). Gaps in income and productivity levels
vis-à-vis the United States are comparatively small (Figure 2.1). Lagging
labour productivity (in terms of GDP per hour worked) – partly compensated
by a high level of labour utilisation – accounts for the gap in GDP per
capita.
Although income and productivity levels remain high by international
standards, Switzerland’s growth performance has weakened since the early
1990s. In fact, GDP per capita contracted in the first half of the 1990s, and
from 1995 to 2005 its growth was among the slowest of OECD countries
(Figure 2.2). The OECD Economic Survey of Switzerland states that in terms
of GDP, the growth differential with the three largest euro area countries has
been approximately three-quarters of a percentage point a year since 1990,
close to 1 percentage point with Austria and the Nordic countries, and
2 percentage points with the United States (OECD, 2006a). With a number
of adjustments to deal with various distortions, the performance gap is
reduced but Switzerland’s growth performance still remains one of the
weakest in the OECD area.
Labour productivity growth, in terms of change in GDP per employee in
the business sector, was virtually nil in the first half of the 1990s, and again
close to flat in the last decade (Figures 2.3 and 2.4). The OECD Economic
Survey of Switzerland concludes that the main reasons for sluggish
productivity growth are a lack of competition in sheltered sectors, inefficient
product market regulations and high costs of services delivered by the public
sector or financed by compulsory contributions.

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2. MAPPING SWITZERLAND’S INNOVATION SYSTEM –
21
Figure 2.3. Growth in GDP per employee, 2000-2005 compared with 1995-2000
Business sector, average annual growth rate
2000-2005 1995-2000
%
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1995-2005
%
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d
C

Figure 2.5. Governance structure: the most important Swiss institutions for science and technology policy
Canton SWTR
Federation (government, parliament)
(government, parliament)
SUK (e.g.
Universities CRUS EDI EVD EDA Federal Horizontal
SBF, BBT)
government co-ordination
agency research (policy platform):
OAQ (steering Steering
Universities Abroad: in departments): Committee
of Apllied EDK UAS e.g. BAG (EDI), (consists of SBF,
ETH SECO co-operation
Sciences (UAS) Council BSV (EDI), BBT, other federal
Council with EDI
and EVD BUWAL (UVEK), offices, ETH
BLW (EVD) Council, SNF,
BFE (UVEK), KTI)
SBF (SNF, BBT
ARE (UVEK), SWTR
CASS, etc.) (KTI)
DSP (VBS)
SNF KTI
(promotion of (promotion of
basic research) market-oriented
research and
innovation)
ARE: Federal Office for Spatial Development, BAG: Federal Office for Public Health, BBT: Federal Office for Professional Education and Technology, SBF: State Secretariat for
Education and Research, BFE: Federal Office of Energy, BLW: Federal Office for Agriculture, BUWAL: Agency for Environment, Forests and Landscape, BSV: Federal Social Insurance
Office, CASS: Council of the Swiss Scientific Academies, CRUS: Rectors' Conference of the Swiss Universities, DSP: Directorate for Security Policy, EDA: Federal Department of
Foreign Affairs, EDI: Federal Department of Home Affairs, EDK: Swiss Conference of Cantonal Ministers of Education,, ETH: Federal Institutes of Technology, EVD: Federal
Department of Economic Affairs, CTI: Innovation Promotion Agency, OAQ: Centre of Accreditation and Quality Assurance of the Swiss Universities, SECO: State Secretariat for
Economic Affairs, SNF: Swiss National Science Foundation, SUK: Swiss University Conference, SWTR: Swiss Science and Technology Council, UVEK: Federal Department of
Environment, Transport, Energy and Communications, VBS: Federal Department of Defence, Civil Protection and Sports. Source: Arvanitis and Wörter (2005).
2.3 Public institutions and actors
The institutional setting appears broadly similar to that of many other

OECD countries: two ministries (départements) are responsible for science,
technology and innovation policy making and strategy. Within the ministries,
a number of sub-units and organisations have specific tasks, and a policy
steering committee acts as co-ordinating body. Both the Confederation and
the regions – the cantons – have competencies and funds for higher educa-
tion and thus for academic research. An advisory council serves as a strategic
steering body. There are two separate and independent funding organisa-
tions, one of which is responsible for the funding of science and the other
for the funding of more applied research. A number of governing and co-
ordinating bodies are clustered around the higher education sector, which
has three parts: the federal institutes of technology (the so-called ETH
domain, which also includes some public research centres), the universities,
and the universities of applied sciences (UAS). Industry also has a number of
strong sectors: pharmaceuticals, chemistry, electrical engineering, machinery
and banking. The institutions and their interplay within the innovation
system are discussed in more detail later in the report. The public and
private research performers are also described in individual chapters.
Viewed in greater detail (Figure 2.5), the institutional arrangement is as
follows. The federal government is responsible for the legal framework, the
bulk of public funding and the main directions of innovation policy. The two
departments in charge are the Federal Department of Home Affairs (EDI)
and the Federal Department of Economic Affairs (EVD). EDI has most of
the responsibility for higher education and basic research, and EVD is the
main actor in promoting applied research, entrepreneurship and science-
industry co-operation. EVD also steers one part of the higher education
sector, the technically oriented UAS, which are also currently upgrading
their capabilities in the fields of health, social studies and the arts. Switzer-
land has a very small federal administration, owing to a tradition of lean
government based on the principle of subsidiarity, by which anything that
can be decided or administered at the community level is as a general rule to
be decided or administered there. Other decisions are taken at the level of
the 26 cantons. For a country of 7.3 million inhabitants this implies a rather
high degree of decentralisation. Only in exceptional cases, where regional
policy making is clearly insufficient, is the federal level in charge. The
federal government has only eight departments including the Federal
Chancellery; this explains why higher education is under the Ministry of the

Interior.2 Lean government also means rather small ministries with

comparatively small staff. In the Swiss parliament, each chamber has a
parliamentary commission covering science, education and innovation
topics. Representatives of the administrative offices concerned are consulted
on a regular basis and on a wide range of relevant issues.
EDI has a number of federal offices and other institutional subdivisions.
For innovation policy, the main actor is the State Secretariat for Education
and Research (SBF), which only officially began operations in 2005. SBF is
the result of the merger of two agencies, the former Swiss Science Agency
and the former Federal Office for Education and Science. Its state secretariat
status formally gives it influence over federal innovation policy. SBF
represents the federal state in the areas of education and research in a
number of national and international committees. Its annual budget is about
CHF 1.7 billion (2005). At the international level, it supervises and finances
Swiss membership in multinational organisations such as ESA, CERN or
EU Framework Programmes. At the national level, it works towards a
coherent research and innovation policy. SBF is in charge of all aspects of
Swiss science policy, except for certain regulatory issues directly administered
by the ETH Council (see below). Furthermore it (co-)funds the cantonal
universities, more than 20 research centres, the Swiss Academies of Science
and some research funding institutions, most notably the Swiss National
Science Foundation (SNF). Another important actor within the EDI’s domain
is the ETH Council, the governing body of the two technical universities in
Zurich (ETHZ) and Lausanne (EPFL) and four research institutes, the Paul
Scherrer Institute (PSI, a kind of national laboratory), the Swiss Federal
Institute for Forest, Snow and Landscape Research (WSL), the Swiss Federal
Laboratories for Materials Testing and Research (EMPA) and the Swiss
Federal Institute for Environmental Science and Technology (EAWAG).
The Council is chosen by the federal government and consists of nine
members, including top management in the ETH sector. It steers and designs
ETH policy. With an annual budget of about CHF 1.8 billion, it is the
second big financial player in EDI.
The innovation policy agenda of EVD is vested with the State Secretariat
for Economic Affairs (SECO) and the Federal Office for Professional
Education and Technology (BBT). SECO acts as the Confederation’s compe-
tence centre for all core issues relating to economic policy. Within the State
Secretariat, a Promotion Activities Directorate deals with SME policy,
2. In Finland, the Ministry of the Interior enters innovation policy via regional policy and
co-ordinates a number of other ministries in the large centres of expertise programme.

regional policy and tourism, fields in which innovation is important. BBT

steers the Commission for Technology and Innovation (CTI), the Swiss
innovation promotion agency with an annual budget of about CHF
100 million. BBT is also responsible for the federal share of the UAS system
with a budget of about CHF 270 million. The EVD’s role in higher education
policy is the result of the evolution of vocational and upper secondary
training for mostly technical professions, for which it was responsible,
towards the UAS sector. BBT now manages the consolidation of this sector
and its better integration with the tertiary education sector.
Representatives from SBF, BBT, SNF, CTI, the ETH Council and other
federal offices form the so-called Steering Committee for horizontal co-
ordination of innovation policy. This committee acts as the most important
information exchange platform in this policy field.
External policy advice is provided by the Swiss Science and Technology
Council (SWTR). The SWTR was initially designed as an advisory body for
science policy, but its mandate was broadened in 2000 to include all matters
relating to science, education and technology policy. It mainly consists of
Swiss scientists – a point addressed below – and its tasks are to deliver
statements and reports and to organise evaluations. The SWTR governs two
important providers of strategic intelligence, TA Suisse for technology
assessment and CEST (Centre for Science and Technology Studies) for
strategic studies and data compilation.
The two major funding institutions have a long history: KTI – the
Commission for Technology and Innovation – was founded in 1943 as a
commission for the promotion of scientific research in a beleaguered
economy3 and received its present name in 1996. SNF was founded in 1952
as a private non-profit foundation following an initiative of Bern University
professor Alexander von Muralt. These two funding agencies have distinct
roles and different missions in the innovation system and both fund
university-based research.
CTI tries to improve links between science and industry and co-finances
market-oriented research, provided that the industrial partners contribute to
the project. According to Swiss innovation policy, business firms cannot be
funded directly by a federal agency. With an annual budget of about CHF
100 million (KTI, 2004), the agency is the smaller of the two funding
institutions and has weaker legal safeguards. A number of programmes
3. Therefore the legal framework was called Krisenbekämpfungsgesetz (literally translated,

“law concerning the combat of crisis”).

address certain technology fields, such as nanotechnologies or medical

technologies, certain types of actors such as the UAS, or certain stages in the
lifecycle of firms, such as the start-up phase. At first glance it works on a
mix of bottom-up and top-down elements. CTI relies on a “militia type”
body of experts for project appraisal.
SNF has a strong federal mandate and a high degree of autonomy. Its
main governing bodies are the Foundation Council and the National
Research Council.4 It is by far the most important instrument for project-
based and programme-based science funding. It supports investigator-driven
research in all disciplines, with excellence as its main criterion. It funds first
and foremost individual, bottom-up grants for researchers, along with scholar-
ships and various programmes ranging from bottom-up networks to top-
down priority-setting activities or other human resource activities. Its budget,
about CHF 400 million a year, comes from the federal government.
The cantons have their own administrative structures for economic and
education policy. There are relatively few specific funding instruments at
the cantonal level. Corporate tax arrangements are one important policy
instrument, and cluster structures supported by regional actors are another.
Cantons have strong structures in the area of higher education policy, as
they have primary responsibility for education policy at all levels.
Co-ordination of higher education issues is a matter of concern in
Switzerland; this is reflected in the operation of the university rectors’
conference (CRUS) and its UAS counterpart, the conference of the UAS for
steering and co-operation within sectors. The ETH Council has similar
functions for the ETH sector but also covers governance issues. The Swiss
University Conference (SUK) brings together cantonal and federal repre-
sentatives to issue directives concerning the recognition of previous studies
and qualifications which become binding through cantonal agreements. It is
responsible for the recognition of academic bodies. SUK can also award
project-specific grants and makes periodic assessments of certain network-
oriented funding instruments, the development of individual university
profiles and the balanced distribution of tasks among universities. The role
of the UAS Council is to balance cantonal and federal interests in its area of
competence. The important task of inter-cantonal co-ordination is carried
out by the Swiss Conference of Cantonal Ministers of Education (EDK).
Linked to SUK, the Accreditation and Quality Assurance Body (OAQ)
promotes quality of teaching and studies at Swiss universities. Finally,
4. Their functions are described in Chapter 6. They should not be confused with the Swiss
Science and Technology Council.

reform of the university sector is a main activity of the Swiss Science and
Technology Council.
An appraisal of the institutions and more detailed descriptions of key
actors and systemic aspects are given in Chapters 5-7. The foregoing short
description of the most important public policy actors reveals certain
features of the Swiss system:
• There is a strong reliance on the science sector, i.e. on universities, and
a rather limited number of policy actors and instruments for promoting
industrial innovation in a broad sense.
• There is no dominant actor. The arena is rather small, with the notable
exception of the governance of higher education.
Before undertaking a more in-depth analysis, it is useful to consider
some basic data on the position of Switzerland in terms of inputs into the
innovation system as well as innovation output and performance.
2.4 Innovation inputs
Switzerland has been traditionally viewed as having comparatively high

research intensity (defined as the share of gross expenditure on research and
development [GERD] in GDP), of the order of 2.9%.5 Among OECD
countries, only Sweden, Finland and Japan are more R&D-intensive, and
Korea and Iceland have now reached about the same level. Switzerland has
historically had a high level of GERD. GERD did not increase significantly
in the second half of the 1990s, and in the 1990s compound annual growth
rates of GERD at constant prices were far below the OECD or EU average,
but have picked up in recent years. The evolution of GDP itself, which is still
at a high level, has shown a tendency towards low growth. Among OECD
countries, Switzerland had the lowest rate of growth of GDP in the period
1995-2004.
The relative stagnation in Switzerland’s R&D intensity contrasts with
other countries’ more dynamic past performance and ambitions, which have
led some of them to set explicit R&D intensity targets (Table 2.1).
5. Compared to more than 2.7% in the second half of the 1980s.

Table 2.1. Targets for R&D spending
Country/economy Target Date Most recent

Austria 2.5% GDP 2005 2.3% GDP (2005)
Canada Top 5 in OECD 2010 1.99% (2004) (12th)
China 2.5% GDP 2020 1.23% (2004)
Denmark 3% GDP 2010 2.5 % (2004)
Finland 4% GDP 2011 3.5% (2006)
Germany 3.0% GDP 2010 2.5% GDP (2004)
Greece 1.5% GDP 2010 0.6% GDP (2004)
Hungary OECD avg. 2006 0.9 (2004)
Ireland 2.5% GNP 2010 1.2% GDP (2004)
Korea Double public investment 2007 2.9% GDP (2004)
Luxembourg 3.0% GDP 2010 1.8% GDP (2004)
Netherlands 3.0% GDP 2010 1.8% GDP (2004)
Norway 3.0% GDP 2010 1.6% GDP (2004)
Poland 2.2%-3.0% GDP 2010 0.6% GDP (2004)
Portugal Double public investment in R&D to 1% of 2010 0.8% GDP (2003)
GDP and triple business R&D
Russia 2.0% GDP 2010 1.15 % GDP (2004)
Spain 2.0% GDP 2010 1.1% GDP (2004)
Chinese Taipei 3% GDP 2006 2.56% (2004)
United Kingdom 2.5% GDP 2014 1.9% GDP (2003)
Source: OECD (2006b) and OECD Main Science and Technology Indicators (MSTI).
Between 2000 and 2003, Switzerland’s R&D expenditure amounted on

average to about CHF 10.7 billion annually. A little less than three-quarters,
CHF 7.9 billion, was private R&D expenditure, mainly by industry. The
remaining CHF 2.8 billion was public spending (Table 2.2). Of this, roughly
three-quarters is federal expenditure and one-quarter cantonal.

Table 2.2. Public R&D expenditures, annual average 2000-03

Estimations in CHF millions
Cantonal Federal Cantonal Federal Total

Total
research research (%) (%) (%)
Universities/ETH (without universities of applied sciences and projects with co-operation)
Cantonal universities 765 191 956 80 20 34
ETH - 923 923 - 100 33
Promotion of national basic research
SNF - 365 365 - 100 13
Scientific academies, institutions in art. 6
- 80 80 - 100 3
and 16 of the Federal Law on Research
International promotion of research
EU research programmes and COST - 168 168 - 100 6
International co-operation - 100 100 - 100 4
ESA - 122 122 - 100 4
Innovation promotion (CTI)
CTI and Top Nano - 91 91 - 100 3
Total public funding R&D 765 2 040 2 805 100
Private R&D 7 913
Total R&D 10 718
Notes: Support for secondary and tertiary education (“Ausbildungshilfen”) is not considered. Figures for federal
expenditures are taken from the public account (Staatsrechnung) 2000/01 and from the budget 2002/03. The data are
approximations Public expenditures for research at universities and ETHs were calculated based on data from the
Statistical Office (BFS, 2002). Based on the distribution of activities at universities and ETHs (teaching versus R&D
activities) in 2000, averages (weighted by employment) were derived for a university or ETH, respectively. The
weight refers to scientific personnel only. The proportion of research is 46% for universities and 53% for ETHs.
Public expenditures of cantons and the federal government on education and research were weighted by these
figures. Public expenditures for universities of applied sciences and project co-operation are not considered.
However, the federal government provided CHF 8 million for applied R&D at UAS for 2003. Not considered are
public expenditures for government agencies’ research which are determined by separate budget negotiations in the
Federal Parliament. For the period 2004-07 around CHF 615 million is planned for government agencies’ research
(see Schweizerisches Bundesrat, 2002).
Source: Arvanitis and Wörter (2005) based on Schweizerisches Bundesamt (2002), authors’ calculations.

Table 2.3. Evolution of R&D expenditure, selected countries
Business R&D Percentage share of business R&D expenditure
Average annual
R&D expenditure expenditure as a Average annual by size classes 2001 Average annual growth
growth rate of R&D
as a percentage of percentage of growth rate of rate of GBAORD,
expenditure, < 50 50 – 250 > 250
GDP, 2004 value added in BERD, 1996-2004 Total 1995-2005
1996-2004 employees employees employees
industry, 2004
Switzerland 2.94 2.8 3.21 3.4 10.6 19.6 69.8 100 -0.3
Netherlands 1.78 1.3 1.54 2.5 5.9 13.2 80.9 100 1.0
Sweden 3.95 4.9 4.64 4.8 n.a. 13.1 n.a. 100 5.4
Finland 3.51 8.0 3.67 8.7 10.0 12.6 77.4 100 2.2
Denmark 2.48 5.8 2.73 7.3 12.7 17.8 69.5 100 0.2
Austria 2.24 6.7 1.99 9.0 5.5 12.3 82.2 100 1.7
Ireland 1.20 6.5 1.07 5.3 20.5 28.7 50.8 100 10.1
Germany 2.49 3.1 2.51 3.9 5.8 9.3 84.9 100 -0.2
France 2.16 1.9 2.04 2.1 4.2 9.2 86.6 100 2.8
Italy 1.11 3.3 0.76 1.8 5.9 59.6 34.5 100 5.1
United Kingdom 1.88 2.9 1.70 2.3 14.4 20.5 65.1 100 2.4
United States 2.68 3.9 2.69 3.6 5.9 8.2 85.9 100 7.2
Japan 3.13 2.4 3.13 3.1 n.a. 7.0 n.a. 100 5.9
EU15 1.90 3.5 1.76 3.7 7.4 17.0 75.6 100 1.0
OECD 2.26 3.7 2.17 3.7 5.3 11.4 83.3 100 3.5
Column 1: Italy, Sweden, United Kingdom, EU15: 2003. Column 2: based on year 2000 PPP USD. Italy, United Kingdom, EU15: 1996-2003; Sweden: 1995-2003. Column 3: Sweden: 2003,
Austria: 2002. Column 4: BERD: business enterprise expenditure on R&D, based on year 2000 PPP USD; Sweden: 1995-2003; Austria: 1993-2002. Columns 5, 6 and 7: Switzerland,
Netherlands, Italy, France, United States: 2000; Germany, Denmark: 1999; Austria: 1998. Column 9: GBAORD: government budget appropriations or outlays for R&D, based on year 2000
PPP USD, Switzerland: 1996-2002; Finland: 1997-2005; Denmark: 2001-2005; Ireland: 1995-2004; Italy: 1995-2001; Germany, France: 1997-2004; United Kingdom, Japan: 1995-2003;
United States: 2000-2005; EU15: 2002-2003; OECD: 2000-2003. Source: OECD Main Science and Technology Indicators, 2006/1, OECD (2005c), Arvanitis and Wörter (2005).

In terms of international comparisons, overall growth of GERD and

business enterprise expenditure on R&D (BERD) has been below average.
Table 2.3 shows that for 1996-2002 Switzerland experienced a stagnation in
government expenditure on R&D (GBAORD). The latter has picked up in
recent years. Contrary to the catching-up hypothesis, Sweden and Finland
both had higher research intensities and experienced significantly higher
growth in GERD and BERD than Switzerland, and, to a lesser extent, the
same is true of the United States. Other small European countries such as
Denmark, Austria and Ireland also increased their investment in R&D at a
much faster pace.
Public funding of R&D is average by international standards, at about
0.65% of GDP; cuts in the 1990s primarily affected public research. Public
R&D expenditure is strongly focused on the university sector (Arvanitis and
Wörter, 2005, p. 20). In terms of spending for research (annual averages for
2000-03) the ETH sector and the cantonal universities each get roughly one-
third of the overall research budget. While the ETH sector is entirely financed
by the federal government, four-fifths of the funds for cantonal universities
are provided by the cantons. Another 13% is allocated to the Swiss National
Science Foundation for project- and programme-based science funding, and
another 3% goes to various scientific institutions, including academies.
Participation in EU Framework Programmes, international co-operation and
the European Space Agency (ESA) receive another 14%, and the remaining
3% go to CTI for funding mostly university-based applied research. These
figures (which exclude some public-sector research agencies and commis-
sioned research) show that about 80% of public spending is for a block
composed of the ETH sector, universities and SNF. If the four ETH research
institutes are omitted,6 the universities and SNF still account for more than
70%.7 Considering that Swiss universities also benefit from CTI funding and
indirectly receive a good share of the money for international programmes
and infrastructure, 80% to 90% of the core public R&D budgets seem to go
to the university sector (see also Lepori, 2005a, p. 11).
6. See Section 2.2; these are pure research institutions and do no teaching.
7. The ETH sector budget of about CHF 1.8 billion is composed as follows: ETHZ: CHF
940 million, EPFL: 430 million, PSI: 220 million, EMPA: 83 million, EAWAG and WSL:
47 million each, i.e. the two federal institutes of technology together get more than three-
quarters.

Project and programme funding are important vectors in an innovation

system, contribute to the quality of research and indicate specific directions.
An overview of project funding (Lepori, 2005a, p. 13) shows a variety of
sources for 2002 (i.e. before the SBF merger mentioned above), with most
of the funds allocated to the higher education sector. SNF is the single most
important funding institution in Switzerland and uses a broad variety of
instruments. The three most important of these are funding for bottom-up
projects (65-75%), academic competence centres (10-15%), and personnel
grants (10-15%) (see Section 5.5). CTI is much smaller but also has a
variety of instruments. One of the most interesting features of the Swiss
innovation system is EU Framework Programme funding. Switzerland is
now a full member of the Framework Programme and contributes an annual
lump sum of more than CHF 200 million. In a move away from Swiss
tradition, any firm can directly profit from participation in an EU project.8
International project or programme funding also includes COST and
EUREKA, or the international R&D programme Intelligent Manufacturing
Systems (IMS). A last chunk of money comes from research programmes
and contracts made directly by ministries. Commissioned research can be
tracked by a dedicated database (ARAMIS) managed by the State
Secretariat for Education and Research on which the Swiss Federal
Statistical Office bases its surveys. For 2002, CHF 82 million were devoted
to such projects. The regional and local authorities are reported to have
spent at least another CHF 49 million for contract research (Lepori, 2005a,
pp. 23 ff).
The Swiss Federal Statistical Office (OFS) has recently updated data on
federal input into the research system, excluding block funding for universi-
ties, the ETH sector and other research institutions (BFS, 2005b). A residual
of about CHF 1.4 billion is split roughly as follows: CHF 420 million for
SNF, CHF 280 million for international programmes and organisations,
another CHF 130 million for ESA, CHF 100 million for CTI. In addition, a
total of CHF 220 million was spent in 2004 for commissioned research and
in-house research of the federal departments, one-third of which went to the
agricultural sector, the largest single spending block. Over the years the
funds allocated to commissioned research have declined steeply, while those
for SNF, etc., have increased. The bundle of public R&D expenditure shrank
in the second half of the 1990s, but began to rise as of 2000. According to
the ERT Message 2004-2007, future budgets are expected to rise. This
upward trend is to some extent endangered by general budget cuts.
8. This issue is taken up later in the review.

Business sector R&D expenditure grew rather slowly, at an average

annual rate of 2.4% in the second half of the 1990s (up to 2001); this was
considerably below the averages for the European Union (4.4%) and the
OECD area (5.3%). However, more dynamic development has been observed
in recent years. Switzerland still ranks fourth among OECD countries in terms
of BERD as a share of GDP (2004). R&D intensity in both large and small
firms contributes to maintaining this position. Moreover, about 70% of
GERD is financed by industry, one of the highest shares among OECD
countries. Other European countries, some starting from significantly lower
levels, are shifting their overall funding patterns in this direction: in Finland,
Denmark, Sweden and Austria, BERD has grown faster than GERD.
Compared to Switzerland, BERD has been increasing at a considerably
faster pace and has been accompanied by a considerable rise in public
spending on R&D. The share of BERD performed by large firms (500
employees or more) was about 70% in 2003, well below the shares in
Sweden, the United States, France and Germany, but similar to those in the
Netherlands, Finland and Canada (OECD, 2004, p. 30).
While Swiss business firms’ domestic R&D investment have shown
little dynamism, they invest heavily abroad. For the period 1996-2000 alone,
business enterprise spending abroad rose by 76% (Schweizerischer Bundesrat,
2002, p. 2418). In 1989, CHF 6 billion was spent in Switzerland and about
CHF 5.5 billion abroad. In 2000, instead, industry R&D spending at home
was about CHF 8 billion, but expenditure abroad reached CHF 9 billion.
Swiss firms follow markets, people and research capabilities at universities
or research institutes.
Only a few OECD member countries collect data on the R&D activities
of their multinationals abroad. Among them, Switzerland is the only country
where R&D expenditure of its affiliates abroad represents more than the
R&D expenditure of all firms located domestically (Figure 2.6). More than
70% of this expenditure concerns two sectors, pharmaceuticals and elec-
tronics. Half of these R&D laboratories are located in Europe and most of
the others in the United States (OECD, 2005e).
Basic research seems to be a relatively more important part of the
research portfolio than in other countries.9 With basic research accounting
for 28% of GERD, Switzerland even surpasses the United States in this
respect. The ratio of basic research to GDP is 0.72% (2000), the highest
recorded among OECD countries. The main reason is university-based basic
9. International comparisons based on these data are not entirely reliable.

research. In addition, industry reports spending 10% of its R&D budget on

(in-house) basic research.
Switzerland has little room and few resources for a “third sector”. While
other countries have large national laboratories – such as the CNRS in
France, the TNO in the Netherlands or the Fraunhofer Gesellschaft in
Germany – Swiss spending patterns are simpler and more straightforward.
With a ratio of higher education R&D to GDP of 0.67%, Switzerland is
among the leading OECD countries, together with Sweden, Finland and
Canada. However, Switzerland has by far the lowest recorded share of
government R&D in GDP. The most important recipient is the ETH research
institute sector with an annual budget of about CHF 400 million.
Figure 2.6. Business sector R&D expenditure by affiliates abroad as a percentage of

domestic R&D expenditure in selected OECD countries, 2003
1995 2003
% 120
100
80
60
40
20
0
Switzerland (1) Germany Sweden Finland (2) Belgium United States Japan (3) Italy
1. 1996 and 2004.

2. 1993 and 1998.
3. 1997 and 2002.
Source: OECD, AFA database.

Against this background it is not surprising that cross-funding between

the public and the private sector is only average or below average. The
government funds only 1.5% (2004) of business sector R&D, one of the
lowest shares – together with Japan – among OECD countries. Lepori (2005,
p. 11) indicates that 3% of overall public funding goes to the private sector
and that the two biggest recipients may be ESA and the EU Framework
Programmes. On the other hand, the share of industry funding of university
research tends to be higher. About 9% of the overall higher education R&D
expenditure (HERD) is financed by industry (2004), more than the OECD
and EU15 averages.
Besides adequate funding of R&D, knowledge-based economies need a
sufficient supply of qualified R&D personnel. In 2003, 44% of the Swiss
labour force worked in science and technology, and about half had an
educational background in S&T. About one-quarter of the Swiss labour
force has S&T training. This share is one of the highest among OECD
countries, but at 1.04%, the average annual growth rate for 1999-2002 is
low. Once more the picture is one of low growth at a rather high level (BFS,
2005c; OECD, 2004).
2.5 Innovation output and performance
The output and performance of an innovation system can be observed at

different levels. A very important “output” is highly skilled people, i.e.
young graduates at the start of their professional careers. Publications and
their impact show the quality of the science sector. On the technological and
industrial side, patents are a robust but not always sufficient output indicator.
More broadly, the pace and intensity of industrial innovation can be measured
by a mix of input and output indicators: the number or share of new products
and processes, the number and quality of collaborative efforts, or the share
of innovative products in turnover are indicators typically included in
innovation surveys.
Overall, Switzerland ranks high in terms of most of these indicators
(Figure 2.7). Scientific output is world class in many respects, while
graduation rates and the number of students in relation to population size are
average or below average. At the same time, investment per student is high
and the qualifications of graduates seem good. Overall, Switzerland is a net
importer of talent. The Swiss Innovation Survey (Arvanitis et al., 2004) and
reports to the European Trend Chart project (European Commission, 2003a,
2004a, 2005b) show very good performance in patents, a high rate of inno-
vation among both small and large firms, and high value added in high-
technology manufacturing. However, in eight out of 12 indicators Switzerland
is reported to be losing momentum compared to the EU25 averages, notably

for patents with the European Patent Office (EPO) and the US Patent &
Trademark Office (USPTO), where Switzerland’s position is still very
strong. Its position in terms of levels of performance is also still very good,
but many countries are catching up, some of them rapidly. One reason for
the weakening Swiss position in patenting may be insufficient development
of business sector R&D. Only in areas such as lifelong learning, tertiary
education and employment in high-technology services is Switzerland
moving ahead.
Figure 2.7. Switzerland’s innovation performance

EIS 2005 innovation performance of Switzerland
550
losing momentum moving ahead
500 5.3
450
1.1. New S&E graduates
1.2. Population with tertiary education
1.5. Youth education attainment level
400 2.5. University R&D expenditures
financed by business sector
3.4. Early-stage venture capital
350 3.5. ICT expenditures
5.1
4.1. Employment in high-tech services
4.2. Exports of high technology products
300 4.5. Employment in medium-high and
high-tech manufacturing
5.2 5.1. EPO patents per million population
250 5.2. USPTO patents per million population
5.3. Triad patents per million population
5.4. Community trademarks per million
5.4 population
200
150 3.4
1.2
3.5 4.1 4.2
4.5 1.5
100
2.5
falling further behind catching up
1.1
50
-10 -5 0 5 10 15
Country growth rate minus EU growth rate
Source: European Commission (2005c).
The tertiary education sector is small and expensive. On average,

Switzerland spends the equivalent of 67% of GDP per capita per student,
whereas the EU25 average is just 37% (BFS, 2005a). In 2004, 1 057
graduates left the Swiss university sector at the bachelor level, 9 816 at the
diploma level, 287 at the master’s level and 2 768 at doctoral level (BFS,
2005). In 2001, 15.0% of all graduates were in science and 14.1% in
engineering, with both figures above the OECD, EU25 and EU15 averages

(OECD, 2004). In 2000 the share of PhDs as a percentage of the population

at the typical graduation age was higher in Switzerland (2.6%) than in
Sweden (2.5%), Germany (2.0%) or Finland (1.9%). In terms of science and
engineering alone, Sweden had a slightly higher percentage of doctorates
(1.2% compared to 1.1% in Switzerland). Further, the share of business
researchers increased by 6.5%, far above the average for the OECD (3.6%)
or the EU (2.9%) (Arvanitis and Wörter, 2005).
Figure 2.7. Switzerland’s innovation performance (continued)

EIS 2005 innovation performance of Switzerland relative to EU average
INNOVATION DRIVERS
S&E graduates 63
Population with tertiary education 129
Broadband penetration rate 191
Participation in life-long learning 289
Youth education attainment level 108
KNOWLEDGE CREATION
Public R&D expenditures 102
Business R&D expenditures 156
Share of med-high/high-tech R&D 101
Enterprises receiving public funding 64
Business financed university R&D 91
INNOVATION & ENTREPRENEURSHIP
SMEs innovating in-house 211
Innovative SMEs co-operating with others 114
Innovation expenditures 192
Early-stage venture capital 153
ICT expenditures 124
SMEs using non-technological change 148
APPLICATION
Employment in high-tech services 127
Exports of high technology products 125
Sales new-to-market products
Sales new-to-firm not new-to-market products 170
Med-hi/high-tech manufacturing employment 107
INTELLECTUAL PROPERTY
New EPO patents 344
New USPTO patents 264
New Triad patents 498
New community trademarks 206
New community designs 192
EU = 100
In 2003, 32.2% of all graduates at the doctorate level graduated in

medicine and pharmacology and 29.9% in science; the shares were 12.2% in
the social sciences and humanities and 12.8% in the technical sciences. The
Swiss system of doctoral education is also very attractive for foreign students,
and more than 38% of all doctorates in 2004 were awarded to foreigners.
The share was highest in economics (53.7%), followed by the technical
sciences (51.2%) and science (50%) (BFS, 2005). Because Switzerland
receives a rather high share of its “student talent” from abroad, immigration,
labour market regulations including work permits are key issues.

Switzerland’s scientific output and “impact” are very high by inter-

national standards (Figure 2.8). Swiss researchers publish a great deal in
good journals and rank at the top in citation indices. An international
comparison of 31 countries (King, 2004) shows that Switzerland has a
(rising) world share of 1.84% in scientific publications, 2.95% in citations
(1997-2001), and an even higher share in the top 1% of citations. Switzerland
is the world leader in terms of citations per paper.10 This comparative study
sees Switzerland as part of a group of very competitive smaller European
countries: “Thus, taking Belgium, Denmark, Finland, the Netherlands,
Sweden and Switzerland together, with a total population of 53 million, in
1997-2001 this group generated 12.7% of the most cited papers, putting
them in the same bracket as the United Kingdom (12.8%) and Germany
(10.4%). Since the combined GDP of these countries is marginally (6%)
smaller than that of the United Kingdom, their combined science citation
intensity is higher” (King, 2004, p. 316). OECD data confirm Switzerland’s
leading position. The number of published articles per million inhabitants is
highest in Sweden, followed by Switzerland. Finland, Denmark, the United
Kingdom and the Netherlands follow at a considerable distance.
At the same time the Swiss research portfolio is highly specialised. In
2001, clinical medicine accounted for 32.7% of Swiss publications,
biomedical research for 16.1%, physics for 13.4% and chemistry for 12.8%;
while engineering and technology accounted for only 6.6%. For 1986-2002,
the higher education sector (universities, ETHs and UAS) produced more
than two-thirds of all scientific publications, other research organisations
accounted for 21%, and the business sector for 9%. The share of scientific
publications from industry is higher in pharmacology (50%) and in
immunology and food sciences (more than 25% each) (Arvanitis and
Wörter, 2005; Lepori, 2003; OECD, 2004).
10. Impact in this context means how often publications are cited. King also draws a
comparison between scientific wealth (citation intensity) and material wealth, establishing
a clear link between the two.

Figure 2.8. Scientific and engineering publications by economy, 1991 and 2001
Published articles per million inhabitants
1991
1.6 Sweden
1.2 Switzerland
1.0 Israel
0.8 Finland
0.8 Denmark
7.3 United Kingdom
1.9 Netherlands
2.3 Australia
0.4 New Zealand
3.5 Canada
0.5 Norway
30.9 United States
0.0 Iceland
0.9 Belgium
0.7 Austria
32.5 EU15
6.7 Germany
4.8 France
34.6 EU25
82.0 OECD
8.8 Japan
0.3 Ireland
2.4 Spain
3.4 Italy
1.2 Chinese Taipei
0.5 Greece
0.4 Czech Republic
0.4 Hungary
1.7 Korea
0.3 Portugal
0.1 Slovak Republic
0.9 Poland
2.4 Russia
100 World
Country share in total
0.6 world scientific articles, Turkey
0.4 2001 South Africa
0.5 Mexico
1 400 1 200 1 000 800 600 400 200 0
Source: OECD (2004) based on National Science Board (2004).

Population data from OECD MSTI database, June 2004.

Patenting provides another measure of the performance of innovation

systems. In 2001, Switzerland had 110.9 triadic patent families11 per million
inhabitants, far ahead of Sweden (92.3), Japan (92.2), Finland (83.0) and
Germany (69.4), and three times more than the EU15 average (36.2).
Switzerland still leads, but the absolute number of patents is stagnating and
its position is weakening with respect to the EU15; in 1990 Swiss patents
were 7.9% of total EU15 triadic patents, declining to 6.4% in 1995 and to
5.9% in 2001. The picture is similar for patents registered with the EPO.
Over 1990-95 Swiss patent registrations were as much as 6.0% of total
EU15 registrations with the EPO but they dropped to 5.3% for 1996-2001.
In ICT and biotechnology, two fields with high potential, Switzerland is
losing momentum. Swiss patents accounted for 4.6% of EU15 patent
registrations in ICT in 1990-95 but only 4.1% in 1995-2001. The figures for
biotechnology are similar: in 1990-95 5.1% of EU15 patent registrations
with the EPO were Swiss, but in 1996-2001 only 4.5% were (OECD, 2004).
In 2002, Switzerland had a slightly positive technology balance of
payments, behind Denmark, Sweden and Finland but comparable to the
Netherlands and Austria. In 2001, the technology balance of payments
amounted to 30.4% of Swiss GERD (OECD, 2004).
The share of high-technology exports as a percentage of total exports of
manufacturing goods increased from 18.4% in 1998 to 22.9% in 2002,
i.e. above the OECD average (20.5%), and is in the range of Finland and the
Netherlands. There is a rather high level of specialisation in pharmaceutical
products, scientific instruments, chemical products and non-electrical
machinery. In contrast, the Swiss position is comparatively weak in
technology-intensive product groups such as aircraft and aerospace,
computers or electronics.
In terms of innovation indicators (such as the share of firms introducing
product and/or process innovations, share of firms with R&D activities,
patent applications and new-to-the-market products), the Swiss manu-
facturing sector saw a marked decrease in innovation performance between
1991-93 and the late 1990s. Since then its performance has stabilised. The
situation has been similar in the services sector, although the tendency to
scale down innovative activities was somewhat less pronounced than in
manufacturing. Swiss firms still maintain their top ranking in innovation
11. Triadic patent families are defined as a set of patents taken at the European Patent Office
(EPO), the Japanese Patent Office (JPO) and the US Patent & Trademark Office
(USPTO) that share one or more priorities (see OECD, 2005c, p. 68).

performance, but the lead over countries such as Sweden, Finland and
Germany is narrowing.
In terms of public/private partnerships (P/PPs), the position of Swiss
science and research institutions is good. The propensity of Swiss firms with
R&D activities to engage in co-operative R&D with universities is 27.4%, a
figure comparable to that of other advanced European countries. In 2000-02,
only Sweden (31.8%) and, in particular, Finland (50.6%) had higher shares
of firms co-operating on innovative activities. In Switzerland, publications,
patents, prototypes and new products are more likely to be the result of joint
projects between universities and firms than between business enterprises
(Arvanitis and Wörter, 2005).
In summary, in terms of nearly all indicators measuring knowledge and
innovation output, Switzerland still performs well by international standards
and in a number of respects it leads. At the same time, its relative position
vis-à-vis other countries, including some EU15 members, has weakened.

3. THE SWISS INNOVATION SYSTEM: STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS – 45
Chapter 3
THE SWISS INNOVATION SYSTEM:

STRENGTHS, WEAKNESSES,
OPPORTUNITIES AND THREATS
3.1 Challenges for the Swiss innovation system
As a highly developed, small, open economy, Switzerland faces a

number of challenges – as well as opportunities – many of which have an
international dimension.
3.1.1 Challenges related to a changing economic environment

• Slow economic growth over an extended period – as in Switzerland
over the past 15 years – poses a challenge to the innovation system.
Loss of momentum and scaled-down innovative activities may have
long-lasting effects on innovative performance (OECD, 2006a).
• While the catching up of lagging countries can be considered a
predictable – although by no means automatic – process, various
countries have had better performance than Switzerland in the recent
past. Within Europe, countries such as Finland, Sweden, Denmark,
Ireland and Austria have been more dynamic in several respects. On the
one hand, their GDP has grown much faster in both absolute and per
capita terms; on the other, they have increased the input into their
innovation systems more rapidly. These countries show different patterns
and trajectories: some started in the early 1990s at a comparatively low
level in terms of economic and innovation performance (with Ireland
and, to some extent, Finland suffering from severe economic crises);
some were economically prosperous, despite low innovation input
(Austria); still others started with a high income level and a well-
endowed research system but went through an economic crisis
(Sweden). From the early 1990s onwards all of these countries – not to
mention newly industrialised economies such as Korea, Singapore or
Chinese Taipei – had better economic performance and more dynamic
development than Switzerland in terms of most innovation indicators
(Figures 3.1 and 3.2).

46 – 3. THE SWISS INNOVATION SYSTEM: STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS
Figure 3.1. Performance of six small European economies
Com pound annual grow th rates of GDP
14 .0 0 0
1990-1993
12 .0 0 0
10 .0 0 0
1994-1997
8 .0 0 0 1998-2001
6 .0 0 0 2002-2003
4 .0 0 0
2 .0 0 0
0 .0 0 0
-2 .0 0 0
AUT DNK FIN IRL SW E CHE
GDP per capita

US Dollars , current prices and PPPs, 2002
32,646
30,455
29,759
29,231
28,872
28,144
28,035
27,865
27,209
26,495
26,576
26,143
25,359
40,000
24,300
1991
22,818
22,477
21,286
18,698
19,037
18,666
18,303
17,990
17,885
30,000 1995
12,891
20,000 2000
10,000 2002
0
AU T D NK FIN IRL SWE CHE
Tertiary attainm ent for age group 25-34
50
39.2
39.2
37.6
36.3
33. 6
33.3
30.3
30.6
1991
29.3
35
40
28.6
27.2
25.6
26.5
27
21.3
21.5
20.3
19.7
30 1995
18.7
14.8
15
20 2000
8.7
7.9
10 2002
0
AUT DN K FIN IR L SWE CHE
Gross dom estic expenditure on R& D as a % of GDP

4.3
5.0
3.7
3.4
3.4
1991
3.4
4.0
2.7
2.7
2.7
2.6
1995
2.3
3.0
2.2
2.0
1.9
1.8
1.8
1.6
1.6
1.5
2.0
1.3
2000
1.2
1.2
0.9
1.0 2001
0.0
AU T DNK FIN IRL SWE CHE
Export shares of high-technology industries in OECD countries

57.9
80.0
50.2
40.7
37.7
34.1
33.8
60.0
28.8
28.6
27.3
26.9
24.6
21.9
22.1
20.7
21.5
17.1
15.7
16.3
15.1
15.0
13.1
40.0
10.4
10.6
1991
8.5
20.0
0.0 1995
AUT DNK FIN IRL SWE CHE 2000

2002
Note: Data for gross domestic expenditure on R&D as a percentage of GDP are for 1999 instead of
2000 for Denmark and Sweden, and for 1996 instead of 1995 for Switzerland. Source: OECD (2005c).

Figure 3.2. Overall innovation performance of six small European economies
Summary innovation index, 2005
SWE 0.72
CHE 0.71
FIN 0.68
DNK 0.60
AUT 0.51
IRL 0.42
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80
• Globalisation poses formidable challenges and offers opportunities to

all advanced countries as well as others. The rapid growth of emerging
economies, such as China and India, provides new market opportunities,
rapidly changes the international division of labour and leads to the
entry of new competitors in a variety of (high-technology) markets in
which they may enjoy considerable cost advantages. Some emerging
economies are rapidly developing their knowledge base. Even if they
are generally still far below Swiss standards, massive public and private
investment in selected areas is expected to have an impact on their
technological competitiveness. Overall, Switzerland seems to cope quite
well with these challenges and opportunities. Nevertheless there remains
scope for improvement by drawing on the country’s innovative capabili-
ties and advantages in science and technology. Some industries may
find themselves in a more contested position. However, the history of the
Swiss watch industry, its decline and re-emergence, shows that Switzer-
land can mobilise a high degree of ingenuity and adaptability.
• Emerging fields such as biotechnology and structural adjustment in
traditional sectors pose formidable policy challenges. Most countries
have abandoned direct industrial policy interventions and concentrate
on framework conditions and on supporting processes of adjustment and
change. Switzerland has not favoured policies targeting “national
champions”. Although framework conditions are good in general, there
is again scope for improvement. Moreover, there is some evidence that
individuals are less ready to operate in risky contexts (unlike the
engineers/entrepreneurs that spurred Swiss manufacturing innovation a
century ago), and some evidence of a lack of “intrapreneurship” within
firms.

• Switzerland is surrounded by the European Union and its internal

market. The latter offers a number of growth opportunities to its
member states, including the rapidly developing markets of the ten new
members and at least two accession countries. Comparisons between
Sweden, Finland and Austria, which became members in 1995, and
Switzerland show that the former have had better economic performance
(Pointner, 2005; for a comparison of Austria and Switzerland, see
Breuss, 2005). Switzerland has entered into a dense network of bilateral
contracts in order to participate in the common market12 while main-
taining what are perceived as specific Swiss advantages.
3.1.2 Challenges related to innovation and human resources

• Human resources are at the centre of innovation systems, owing to rapid
technological change and to the complexity of societal challenges.
Skills must be provided at various levels, and higher education deserves
special attention. Switzerland has a good education system with a strong
focus on vocational and upper secondary professional schools. Early
selection implies restricted access to the Gymnasien (the upper
secondary schools that are the main route to university studies) but
choices are also affected by culture: careers based on vocational training
or upper secondary professional schools are highly valued and well
paid. The university sector is well financed but rather small, and the
number of graduates is low by international standards (OECD, 2003b).
The authorities are aware of this challenge and have undertaken a
number of reforms. A second important aspect of human resources is
the openness of borders, including generous working permit regulations
and attractive living conditions. Switzerland is a net importer of a
highly educated workforce and gives long-term rights to reside without
granting Swiss citizenship.
12. These bilateral contracts enlarge the 1972 free trade agreement in the areas of freedom of
individual movement, technical trade barriers, public procurement, air and land transport,
agriculture and last but not least research. The goal of these contracts was a far-reaching
equal legal status for individuals and firms from the EU and from Switzerland
(Pointner, 2005, p. 105). In two referendums (the last in autumn 2005) Switzerland opted
for open labour markets.

• The organisational structure of universities and the higher education

sector in general plays a crucial role in meeting the demand for well-
educated graduates and fuelling the innovation system. Many OECD
countries, specifically those in which governments have strong direct
involvement in higher education, are currently reforming their university
sectors. The goals are often the same: greater autonomy, use of manage-
ment principles, better indicators, building on strengths, the bachelor-
master-PhD structure. Switzerland has a growing but still relatively
small university sector. As in many continental systems, public
governance is strong, and there are few private actors such as business
schools. For its size, the Swiss system is very complex, owing to an
intricate balance of powers between the federal and the cantonal level
and – deriving from this balance – the three types of universities, with
their differing legislation, logic and entry points. As the OECD Tertiary
Education Review (2003b) shows, selection takes place at 14 years of
age with the choice of upper secondary school. Horizontal barriers
between universities appear quite high. Swiss policy makers give great
attention to finding solutions to these issues and the Bologna Process13
seems to be the instrument of choice.
• A further challenge for all innovation systems, and specifically for
universities as producers of knowledge, is the quest for “more relevant”
scientific research.14
13. The Bologna Process is a multilateral initiative of about 40 mostly European countries
aimed at structuring their higher education systems along common principles to make
them more open for trans-national study programmes. The process has been in operation
for a decade, with its most significant feature the three-stage bachelor-master-PhD
curriculum.
14. Following an influential book of the 1990s (Stokes, 1997), the call for “more relevant”
scientific research comes under the heading of “Pasteur’s quadrant”. Citing Pasteur as a
scientist who achieved both better scientific insight and better solutions with application
potential, Stokes criticises both the traditional continental European university model
characterised by single professors who hold a chair for a narrow field and have life-long
governance of a rather small department, and the US science policy of the second half of
the 20th century. The first is criticised for being too rigid and specialised, the latter for
relying too much on pure, curiosity-driven research, the results of which are believed
somehow to “trickle down” and sooner or later lead to industrial applications. Besides
Pasteur, two of the remaining three quadrants of the matrix are occupied by Niels Bohr
(great scientific insight/no application or problem orientation) and Thomas Edison (no
scientific insight/great use or problem orientation). The fourth quadrant remains void for
good reason.

• Many European countries fear an erosion of their national research base

as “their” large firms increasingly invest in R&D facilities located in the
United States and, increasingly, in Asia. Firms are not necessarily
motivated solely by lower costs; they may also seek proximity to key
markets and to strong academic partners for co-operation and graduates
or they may wish to avoid restrictive domestic regulations in areas such
as biotechnology. Switzerland appears to be affected by these develop-
ments, but not to an extent that would put its research and innovative
capacity at risk.
• The innovative capacity of firms is a key driver of long-term economic
growth and prosperity. Most countries provide various types of support
to business enterprises to improve their innovation capacity. Swiss firms
seem to perform satisfactorily in terms of the share of new products and
processes (Arvanitis et al., 2004; European Commission, 2005). How
well they translate innovative performance into growth is a different
issue. To provide favourable conditions for firms’ growth and help them
realise their potential deserves the attention of policy makers.
3.1.3 Challenges related to governance

• Each OECD member country has its distinct balance of power between
federal, regional and local governments or administrations. Countries
offer a wide range of constitutional structures, with different implications
for economic policy and the innovation system. Large administrations
and pronounced multi-level systems can pose serious challenges, as can
underdeveloped government functions or excessive centralisation.
Switzerland has a three-tier system based on bottom-up principles. This
has numerous advantages, but there is a looming danger of overco-
ordination, pork barrel funding and policy “blind spots”. A plethora of
co-operative policy bodies (Sieber, 2003) may lead to governance by
the lowest common denominator. “Magic formulas” for political
representation, cantonal influence and proportional participation of the
different language areas could also affect the set-up of the innovation
system, in terms of whom to hire and where and how to invest (see
Chapter 2; an overview of the history and burden of excessive
federalism, mainly concerning fiscal misallocations and obstacles to
implementation of reforms, is contained in OECD, 2002b)

3.2 A SWOT analysis of the Swiss innovation system
The following analysis of the Swiss innovation system addresses its

strengths, weaknesses, opportunities and threats by referring to the
challenges outlined above and applying a systems perspective (Table 3.1).
This analysis is designed to contribute to a better understanding of the
elements of the system, i.e. the three “strings” of the so-called “triple helix”
and their interrelations, and to derive some recommendations (see Chapters
5 to 7).
Table 3.1. Swiss strengths, weaknesses, opportunities and threats
Strengths Opportunities
• Strong industry (large and small firms), good • Building on scientific strengths
framework conditions
• Active internationalisation, new market
• Many sectors of Swiss industry (and services) opportunities
strong in innovation, high level of industrial
• Attractiveness as a workplace for foreign experts
research
• Clustering within Switzerland and in trans-border
• Very good university sector
co-operations
• Strong research infrastructure
• Strong academic output (people, publications,
etc.) and impact
• Strong application-oriented professional education
• High-quality approach in all sectors
• Language skills and ability to master intercultural
settings
Weaknesses Threats
• Slow economic growth • Decline in innovative performance after extended

period of stagnation
• Lack of entrepreneurship and of competition in a
number of sectors • Exposure of SMEs to new international
competition
• Lack of “demand orientation” in the innovation
system • Public sector deficits plus rising social security
costs crowding out fresh money for innovation.
• Some innovation system actors underdeveloped,
policy learning difficult • Consensus-based policy making getting too
strong in innovation policy
• Innovation issues not strongly represented in the
political arena • Competition between national and EU innovation
funding
• Small numbers of higher education graduates;
education system not permeable enough

3.2.1 Strengths
• Strong industry (large and small firms), good framework conditions.
Switzerland has a strong industrial base. However, its scope is limited in
terms of its technology portfolio (although still broad for a small
country), and a number of traditional strengths have been declining. The
presence of export-oriented manufacturing and service networks helps
traditional sectors to meet the challenges ahead. Switzerland is generally
reported to have conducive framework conditions in terms of its labour
laws, working time, company laws and intellectual property protection.
One shortcoming which has a negative impact on innovative performance
is barriers to competition in some sheltered sectors of the economy. For
industry data, see Section 6.2.
• Many sectors of the Swiss economy, including some important service
industries, are strong in innovation, with a high level of industrial
research. The Swiss Innovation Survey (Arvanitis et al., 2004) provides
ample evidence in this respect. Not only is the pharmaceutical industry
a constant innovator, fields such as precision machinery, medical tech-
nology or micro-technology are strong as well. For more detail, see
Section 6.2.
• Very good university sector. Swiss universities have a strong inter-
national reputation. ETH Zurich and the University of Zurich are among
the world’s top 60 universities. EPF Lausanne is growing and focusing
on its key strengths. For data see Section 2.4, and for more detailed
information regarding universities, see Section 5.1.
• Strong research infrastructure. The research infrastructure, pre-
dominantly located at universities, is modern and of high quality. An
example is ETH Zurich with its Imaging Centre or the Centre for Micro
and Nano Sciences. See Chapter 5.
• Strong academic output and impact. This includes graduates, publica-
tions and other output from the academic sector. Most indicators are
stagnating, but at a very high level. Overall, education is considered
good at all levels, including universities and UAS as well as vocational
training. See Section 2.4 and Chapter 6.
• Strong application-oriented professional education. Strong application-
oriented basic professional education and advanced vocational training
(tertiary level B) and vocational training at university level, mainly at
UAS (tertiary level A) contribute to the sustainable development of
Switzerland’s innovative performance and to the diffusion of new
knowledge.

• Language skills and ability to master intercultural settings. With its

intercultural and multilingual setting and its favourable position in
lifelong learning, Switzerland is in an advantageous position.
3.2.2 Weaknesses
• Slow economic growth. For long-term developments, see Chapter 2.
• Lack of competition and entrepreneurship in a number of sectors. Inno-
vation is stifled in sheltered sectors. Cartels are reported to be strong in
some areas (OECD, 2002b). As in other European countries, there
seems to be a lack of entrepreneurship in various sectors. For industry,
see Chapter 6.
• Lack of a “demand orientation” in innovation policy. Owing to the
absence of direct public support for innovation in the business sector,
innovation policy instruments are predominantly oriented towards the
“supply” of applied academic research, e.g. through the establishment,
maintenance and networking of transfer institutions, UAS networks, etc.
Helping small firms define and solve problems requires sending out
university professors. For a view on such policies from a systems
perspective, see Chapters 5 and 7. A broad range of public support
mechanisms for private sector R&D are being used by (or within) the
EU, but they are largely not used in Swiss innovation policy (European
Commission, 2003c).
• Some innovation system actors are insufficiently developed; policy
learning is difficult. There could be a case to strengthen the position and
independence of CTI and to broaden its portfolio. Other resources with
greater potential include the policy advisory bodies and the federal
administration, where a number of competencies could be further
developed (e.g. distributed strategic intelligence). See Chapters 5 and 7.
• Innovation issues are not strongly represented in the political arena.
Parliament appears to have few resources for policy analysis. See
Section 4.2.
• Small number of higher education graduates; education system not
sufficiently permeable. Switzerland is catching up, but although a lot of
money is being spent, the system produces relatively few graduates.
Mobility within the education system is not yet high enough; broad
access to higher education remains a difficult issue (OECD, 2003b). See
Section 2.4 and Chapter 6.

3.2.3 Opportunities
• Building on scientific strengths. This core asset should be further
strengthened. More than a third of Swiss PhD positions are filled by
foreigners. See Chapter 5.
• Active internationalisation, new market opportunities. Qualified people
can enter easily, but freedom of movement within Europe could in
effect make recruiting from non-European countries such as China and
India more difficult. There is lively discussion about internationalisation
based on past experience. Switzerland is well equipped to act inter-
nationally.
• Attractiveness as a workplace for foreign experts. Switzerland has a
very high share of non-nationals. Highly skilled specialists and low-skill
workers have qualifications that complement the predominant skill
pattern among nationals and therefore fulfil important roles in the Swiss
innovation system.
• Clustering within Switzerland and in trans-border co-operation. There
seems to be room for new collaborations within the Alpine region
(500 km radius). Baden-Württemberg, Bavaria, northern Italy, western
Austria, parts of France and Switzerland, regions well-endowed with
technology, could gain from pooling strengths. See Chapter 6.
3.2.4 Threats
• Decline in innovative performance after an extended period of
stagnation. Switzerland still has a powerful innovation system, yet
declines in some indicators may indicate the need to take strategic
decisions.
• Exposure of SMEs to new international competition. How to help
innovative small and medium-sized firms maintain their position or
expand into new markets in an increasingly globalised world is an issue
for all industrialised countries. See Section 6.3.
• Public sector deficits plus rising social security costs crowding out
fresh money for innovation. This was the case in the 1990s and even
recently, part of the extra allocations in the federal multi-annual budgets
(Schweizerischer Bundesrat, 2002) were withheld in an attempt to
contain public deficits. Budget consolidation therefore tends to come at
the expense of long-term investment, also in research and innovation.
See Chapter 4.

• Consensus-based policy making becoming too strong in innovation

policy. A tendency towards harmony, mainstreaming and “go slow”
prevails too often. See Chapter 4.
• Turf wars between national and EU innovation funding. There is a
danger of crowding out national funding when EU budgets are raised.
Taking into account their specific roles, EU programmes and national
initiatives should generally not to be treated as substitutes. See Chapter 4.

4. GOVERNANCE AND PUBLIC POLICY – 57
Chapter 4
GOVERNANCE AND PUBLIC POLICY
4.1 Introduction
A primary objective of this review is to provide an independent
comparative assessment of the strengths and weaknesses of the Swiss
innovation system in a changing global environment. For a description of
major features of the innovation systems approach see Box 4.1.
Box 4.1. The innovation systems approach
The concept of innovation systems emerged in the 1980s owing to the increasing inadequacy
of a purely linear model and a move towards systemic thinking and the need to draw policy
makers’ attention to systemic failures (Nelson, 1993; Rosenberg, 1982, 1994; Edquist, 1997;
Lundvall, 1992, 2002). Since then, this broad conceptual framework for innovation policy has
become the dominant paradigm for many OECD countries, leading inter alia to intense activities
among OECD and EU countries in terms of comparative assessments and identification of good
policy practices regarding public intervention in innovation systems. Important features of the
innovation systems approach are noted below.
While individual (types of) actors are of key significance, linkages between them are equally
important. A country’s long-term, cumulative success in innovation cannot be achieved by actors
operating in isolation. This does not imply that secrecy and in-house R&D are no longer important
for firms, or that scientists should spend most of their time networking. In many cases, the
resources required for innovation are not all available at a single place. Innovation processes have
become more complex, and there is an influential strand of literature claiming that the nature of
scientific work has changed (“Mode II”, see Gibbons et al., 1994; Gibbons, 2001).
Though an innovation system has many facets, one key to success is the presence of innova-
tive firms and their capacity to solve problems. This does not diminish the role and importance of
other actors, in particular the science sector. In the innovation system approach the unit of analysis
is often a network or a set of actors instead of a single actor. The linear model of science push and
automatic market uptake has been replaced by more multi-actor, feedback-driven and collaborative
settings.
Policy makers and policy analysis concentrate less on the bounded rationality of individual
actors than on path dependencies. A system can be seen as the expression of its past. History and
culture matter in order to understand what drives actors and to see what can be changed and under
what conditions. Contexts must be understood and analysed and good governance principles
should be a major issue in policy discussions. The concept of distributed strategic intelligence (see
Kuhlmann, 2001b; Bührer and Kuhlmann, 2003; Smits and Kuhlmann, 2004) has been developed
to come to terms with multi-actor arenas. The “arena model” states that there is no single
dominating actor in an innovation system, which requires that all sets of actors need a common
understanding and the capacity to formulate their strategies in a co-ordinated way. This is very
demanding and cannot be simply ordered top-down.

58 – 4. GOVERNANCE AND PUBLIC POLICY
In applying the national innovation systems approach, the Swedish

innovation agency VINNOVA and Finnish innovation policy makers use the
so-called “triple helix” metaphor. This stands for close interaction within the
innovation system between public authorities, universities and other research
institutions, and industry. Each actor has a distinct role but is also aware of
the role and behaviour of the others. A variety of linkages of different kinds
and qualities bridge the gaps. The helix image evokes the importance of co-
operation, of expertise embedded in all three “strings”, and of trust, as well
as a process of co-evolution. In Finland (Romanainen, 2001) large funding
programmes are designed as to fully reap the benefits of this approach; they
include firms of all sizes, universities, research institutions and public sector
institutions engaged in longer-term co-operation15.
In the light of international experience, the set of public actors in
Switzerland and their interrelations appear to be both simple and complex.
As seen in Chapter 2.2, two ministries, a few intermediaries and two clear-
cut funding agencies appear at the federal level. Public research is con-
centrated at a number of universities. Some activities typical of other
countries – such as direct business funding or fiscal incentives for R&D –
are not part of the Swiss policy toolkit. Complexity arises when entering the
federal-cantonal interplay in higher education, which involves numerous
councils, types of schools and regulations.
Based on the innovation systems concept, the set of actors (Section 2.2),
and the challenges and SWOT analysis (Chapter 3), this chapter relates
Swiss innovation policy to policy trends in the OECD area, discusses some
important issues regarding the interplay between legislation, ministries and
agencies and asks why so much energy is devoted to the Bologna Process,
one of the main arenas where Swiss policy makers meet. In this regard, the
roles of the Swiss Science and Technology Council and other advisory
bodies are discussed to consider whether they can provide substantial input
into the governance of the Swiss innovation system and whether they can be
seen as a good representation of the “triple helix” approach. This leads to the
more general question of priority setting – an area in which Switzerland
displays an active policy record – and to issues of policy learning and
evaluation. Once more, the “triple helix” and the “arena” metaphors are
employed. Internationalisation matters and policy recommendations conclude
the chapter, deferring discussion of all public policy instruments exclusively
targeting either financing or operating higher education or the business sector
to Chapters 6 and 7.
15. For the helix see also Lepori (2003).

Governance consists of a set of “hard” and “soft” measures to influence

the behaviour of public and private actors. Beyond government and
legislation, governance in innovation policy broadly defined (e.g. Lundvall,
2002) ranges from funding science and innovation to relevant regulations,
policy advice and programmes, as well as to features deriving from cultural
specificities. Governance always encompasses relations between actors and
is not restricted to a single level. Multi-level governance involves relations
between the levels of European, national and regional policy making, for
example, or the relations between ministries, agencies and their customers
(see Kuhlmann and Edler, 2003; Boekholt and Arnold, 2002; OECD, 2003a;
or various contributions in Edler et al., 2003). The role of government is
understood in a comprehensive way, as encompassing both activist and
hands-off policies, the elements actually in place at a certain time in a given
country, as well as elements that may be missing.
The OECD Science, Technology and Industry Outlook (OECD, 2004,
p. 47 ff) reports a number of recent developments and overall trends in
OECD member countries’ science, technology and innovation policy. All
these developments belong to the sphere of “governance”. A discussion of
recent developments in Switzerland in light of these international trends and
developments leads to the identification of a number of differences (as well
as similarities) which provides a useful tool for reflecting upon the policies
concerned (Table 4.1). The European Trend Chart project (European Com-
mission, 2005b) has come forward with similar comparisons.
A fairly clear picture seems to emerge from this exercise. While there
are operative planning and evaluation mechanisms in place, policy makers
refrain from “grand designs” and rapid changes. A question to be considered
here is whether there is too much reliance on the past and too little analysis
of the current and future needs of the Swiss innovation system in a rapidly
changing global environment. Some of the nodes in the governance network
could become ineffective, and spending follows rather traditional patterns in
terms both of quality and quantity. Compared to the EU and most of its
member countries, which use a differentiated mix of direct public support
mechanisms for private sector R&D in an attempt to systemically raise R&D
intensity (European Commission, 2003c), the portfolio of instruments in
Switzerland is restricted to “supply-side” measures, i.e. institutions, pro-
grammes and funding schemes primarily target the “knowledge-supplying”
higher education sector. Funding flows all go in this direction. Non-inter-
ference in the operation of markets is a powerful guiding principle for public
policies towards most sectors of the economy. Nevertheless, there is some
demand for a stronger Swiss innovation policy (Hotz-Hart and Küchler,
2002).

From an innovation systems perspective, intermediary institutions,

networks, linkages and the ability to understand the other players can be
seen as crucial for the functioning of the system. Accordingly, the chapters
devoted to the three “strings” of the “triple helix” – this one on public
governance, Chapter 5 on the science system and Chapter 6 on the business
enterprise sector – will include recommendations for new or better inter-
mediaries, public/private partnerships or forums. However, intermediary
institutions have no value apart from serving the three “strings”. This
implies that intermediaries are important and should prosper, but only in
close relation with the major actors in the innovation system: the business
sector as the main source of income and wealth, the science system as the
main provider of knowledge, and the public sector responsible for the public
good called governance. For this reason, this review does not contain a
distinct chapter devoted to intermediaries.
The “triple helix” metaphor evokes a constellation in which all three
partners in the innovation system – public authorities, universities and other
research institutions, and industry – are well-integrated in policy and
strategy formulation and engage in an ongoing dialogue. The current Swiss
situation appears rather different. In Switzerland, the attention of policy
makers – in accordance with the direction of funding – is relatively strongly
focused towards the universities and other public performers of research. In
addition, university professors come close to holding a monopoly position in
public advisory bodies. In contrast, the dialogue between industry and public
policy makers appears weak.
Swiss innovation policy is deeply rooted in the experience and thought
of past decades. Lepori (2003) describes the evolution of the country’s
research policy from 1945, showing the early beginnings of a predominantly
science-oriented policy; developing key technologies such as nuclear power
produced rather mixed results in terms of performance. The early beginnings
of the CTI did not lead to a “grand design”, while SNF and universities
prospered. The author shows the roots of the objections to public funding of
industry and more applied research. The late 1980s saw key technology
programmes as a significant policy innovation and in the 1990s the UAS
sector emerged, followed by streamlining in the public sector. While the
development of national instruments was slow, integration with swiftly
changing EU policies in the area of research and technological development
progressed rapidly. This may to some extent be indicative of a perceived
insufficiency in the portfolio of instruments available at the national level.

Table 4.1. Trends in innovation policies
Feature in the innovation

Comment (OECD trend and Swiss trend) Swiss position1
system
1) Strategic planning for OECD: Priority setting, strategic plans become good practice.
innovation CHE: Federal multi-annual messages, linking budgets to priorities; ***
no “grand design” beyond.
2) New governance structures OECD: New laws and institutional structures, e.g. for better policy
for innovation policy co-ordination, higher university autonomy, integrate research
better into society and economy.
**
CHE: Many small steps regarding technology transfer, reforms in
the education system and other fields. Ongoing discussion about
new interplay between departments and advisory bodies.
3) Increased public R&D OECD: Despite budget constraints, public expenditure for R&D
expenditure continues to grow.
*
CHE: Due to budget constraints, public expenditures on R&D
grew only moderately following long-lasting stagnation.
4) Transition to more project- OECD: Block grants are declining, while project and programme-
based funding in public based grants are growing.
research institutions *
CHE: Change only at a moderate level, largely between
commissioned research and agency funding.
5) Strengthening of policy OECD: Direct public funding for business R&D decline moderately
initiatives to encourage while tax incentives for R&D gain in importance, more support for
industrial R&D and innovation innovation in SMEs, better IPR regimes.
*
CHE: Mostly “supply-side” measures: technology transfer (though
the CTI technology transfer programme also includes demand-
side elements), IPR.
6) Increased attention to OECD: Better IPR legislation, more funding programmes to
science-industry linkages improve science-industry linkages. **
CHE: Again only “supply side”: IPR; CTI funding for universities.
7) Growing concern about OECD: Better career perspectives, public understanding,
human resources for science international mobility programmes, new education curricula.
and technology CHE: Challenge to enlarge higher education sector in general, **
obviously no problem to attract foreign S&E
students/graduates/experts.
8) Greater attention to policy OECD: In many countries formal evaluations of policy instruments
evaluation have become compulsory. ***
CHE: Implementing international good practice.
1. The number of stars indicates the relative position of Switzerland (stars do not indicate “good” or “bad”).
*** = fully in international mainstream; ** = well in line; * = only a few/ad hoc activities in Switzerland;
0 = absence of such a policy (instrument).
Source: OECD (2004, p. 47 ff) for the categories.

4.2 Interplay among actors: legislation, departments, agencies, cantons
The overall system was outlined in Section 2.2, and attention now shifts
to the interplay of actors. The so-called “arena model” concept, initially
developed to describe Germany’s highly decentralised innovation system
(Kuhlmann, 2001a) is used as a reference. In an arena no overarching and
dominant actor exerts control. Rather, a multitude of (public) actors have
varying degrees of power and influence – sometimes depending on the
context – and are continuously engaged in negotiations with different
partners and competitors. Parts of the arena are populated by private actors
(business firms), but these are left aside here as public governance is
presently the centre of attention. While the Swiss “arena” basically follows
typical practices, it seems to be a little smaller, with fewer agencies and
programmes and a leaner policy portfolio in terms of instruments and target
groups. Its procedures involve long negotiation processes rather than quick
skirmishes. One part of the arena seems very crowded, an observation that
will be addressed below.16
Parliament appears to have few resources for analysis and policy drafting.
Science and innovation are not very well represented, and a few members of
parliament (MPs) seem to have a strong network and influence in this policy
field. The overall role of parliament in the governance system is important
owing to the detailed planning process embodied in the so-called “Message
concerning the promotion of Education, Research and Technology” (ERT
Message). The relation between the legislature and ministries, i.e. the two
federal departments in charge, is characterised by the preparation and issuing
of these four-year budget and planning documents. The ERT Message is
prepared every fourth year by the Swiss government and passed by the
parliament. The ERT Message 2004-07 contains a budget allocation of more
than CHF 17 billion for the period. This provides a growth perspective for
most Swiss research funding and performing institutions. Nevertheless, in
the wake of fiscal consolidation, budget increases have been reversed lately,
leading inter alia to a 15% reduction for CTI, thus setting its budget back to
the status quo of about CHF 100 million a year. The Message defines three
overarching goals (Schweizerischer Bundesrat, 2002, p. 2368 ff):
16. For multi-level governance in a programme context see also Stampfer (2003).

• Renewal of Swiss higher education, with the ETH sector strengthening

fields of excellence and creating graduate schools; the cantonal
universities receiving more resources for the humanities and junior
positions; and finally, the UAS strengthening their applied research
capacities and gradually giving up the two-tier system of cantonal and
federal UAS. Nationwide portfolio building and the Bologna Process
provide the main links between the three types of universities.
• Strengthening research and innovation funding: SNF, CTI and technology
transfer by higher education institutions are the three instruments of
choice. SNF is to support the goals of quality higher education, and give
more funding to the humanities, graduate schools or targeted research
programmes. CTI basically continues to fund entrepreneurship, project-
oriented, project-based research and international co-operation.
• Strengthening national and international co-operation.
The two ministries have a similar set-up; both are an umbrella for a state
secretariat and a few agency-style operational units.
The relation between the departments and agencies is based on their
legal status. SNF has a strong position because it is legally independent and
is organised as a foundation. The only remaining governance instrument –
apart from a (theoretically possible) new law on the organisation of
research – is allocation of funds. As Swiss innovation policy making is
based on multi-annual planning and budgeting documents, SNF can rely on
a stable mid-term perspective. Its internal proceedings and leadership issues,
including senior positions, are not subject to negotiations with the govern-
ment. CTI instead can rely neither on a high degree of independence nor on
firm legal safeguards. Moreover, at least from outside, it is difficult to fully
understand and describe briefly the relationship between CTI and BBT. CTI’s
mid-term financial perspective can be compared to that of SNF. The 2002
evaluation of both agencies recommended a doubling of SNF and CTI
funding (SWTR, 2002) in order to strengthen their main instruments.
Although a strong budget increases were foreseen for both SNF and CTI
(Schweizerischer Bundesrat, 2002, pp. 2426 and 2432), this has not happened,
and the increase is threatened by budget cuts. Strengthening the position of
CTI in the Swiss innovation system, in both financial and organisational
terms should be considered. The ETH Council is another interesting institu-
tion that links EDI and the ETH sector: it acts as a board with a broad
governance agenda which ranges from controlling and supervision to
allocation. Complementing this vertical governance, its steering committee
brings together representatives from departments and agencies for horizontal
policy co-ordination.

Inter-agency relations: SNF and CTI, as the two main agencies, claim
that they co-operate at the operational level.17 There is a certain overlap
between their portfolios as both primarily address university-based
researchers. This is not a matter of concern as their agendas differ sufficiently.
From this perspective it was reasonable not to follow suggestions made a
few years ago to merge the two funding bodies. Moreover, there seems to be
broad consensus about the relative positions of these agencies. Inter-agency
co-operation has intensified over the years. Originally SNF and CTI met
once a year, but now most SNF sections identify projects that may affect the
economy and give them to CTI staff for comment. This appears satisfactory,
although more could be done.18 The increasingly blurred lines between basic
science and applied research should encourage SNF and CTI to interact
more intensively with respect to funding.19
The federal and the cantonal levels meet at one important level. Both
are engaged in higher education policy. The numerous councils, conferences
and steering bodies that link the federal and cantonal levels, the cantons,
higher education institutions of the same type, and those of a different kind
face many challenges. On the one hand, they are concerned with financial
and regulatory affairs, from canton-wise student quota financing to recog-
nition of diplomas. On the other hand, they are trying to develop a new,
simplified system for which the Bologna reform process is a strong common
denominator and catalyst. However, the cantons and the Confederation do
not meet at the level of business promotion. The federal level takes a hands-
off policy and therefore lacks instruments, while the cantons dispose of few
forms of direct funding. Their main instruments seem to be provision of
infrastructure and tax relief for firms willing to (re)locate.20 A kind of back-
17. CASS, the association of the Swiss Academies of Sciences, is also listed as a funding
organisation (Arvanitis and Wörter, 2005, p. 5). The ETH Council was previously
responsible for funding for nanotechnologies, but this funding was transferred to CTI.
18. In Austria, for example, the equivalent to the SNF, the FWF (Fonds zur Förderung der
wissenschaftlichen Forschung), has been included as organising body for scientific
reviews in a large science-industry co-operation programme managed by another agency.
Now, FWF and the innovation promotion agency FFG (Forschungsförderungsgesellschaft)
run back-to-back programmes for “translational research” (linking oriented basic research
to applied research) called “TRP” and “Bridge” with a joint steering committee.
19. As an example of joint action see the DORE programme for applied research at the
cantonal UAS (social sciences and humanities). The ongoing DORE III is administered
by SNF alone.
20. Compare numerous federal-state (Bund – Bundesländer) funding instruments, also in the
area of economic policy, in Germany and Austria. Corporate tax policy is cantonal, while
personal income tax is local.

stage, where cantons and the federal government also meet, concerns regional
policy. Until the beginning of the 1970s Switzerland had no explicit regional
policy, although the federal constitution includes a commitment to equity
and protecting the economically threatened (and later, mountainous) regions.
Today there is a broad range of laws and approaches, mainly dealing with
financial equalisation. At the end of the 1990s, the focus of regional policy
shifted from reducing disparities to promoting efficiency and increasing
regions’ competitiveness. New instruments beyond infrastructure support,
such as the Regio Plus programme or InnoTour, were introduced. However,
regional policy should be further developed in three directions: i) in addition
to mountainous and economically disadvantaged areas, federal regional
policy should cover all types of regions; ii) regional policy should focus on
indirect support that benefits the entire region instead of supporting individual
activities or sectors, and individual support measures such as tax concessions
should be abolished; iii) sustainable rural development strategies should be
based on natural and cultural endowments (see OECD, 2002b, p. 97 ff).
Finally, governance also shapes the relation between agencies and their
clients. New funding programmes, their goals, target groups, signals and
incentives are the outcome of overall policy goals. At the programme level,
the following policy goals are important: encouraging science-industry co-
operation (a number of CTI programmes), entrepreneurship (more CTI
programmes); strengthening thematic strong points (a number of SNF and
CTI programmes); building critical mass in scientific research (SNF NCCRs);
furthering international co-operation (SNF outgoing grants, some CTI initia-
tives). This shows that programme goals are quite in line with the overall
goals of the ERT Message. The comparatively small number of policy
initiatives helps. Comparable countries nowadays operate a plethora of
programmes for every problem identified.
4.3 The Bologna Process
The ability of a set of policy actors to react to bottlenecks and to display

a system-oriented agenda seems to be crucial for innovation policy. There
are nevertheless cases in which one topic becomes so important that many of
the policy actors in an arena narrow their agenda for a certain period of time.
This allows changes based on a broad consensus but may also draw attention
away from other important issues. To a certain extent this seems to be the
case for the reform of tertiary education in recent years and the introduction
of the three-stage Bologna system. This reform includes streamlining, a
better policy governance system and clearer profiles for Swiss higher educa-
tion institutions (see Arvanitis and Wörter, 2005, p. 4).

A number of important co-ordinating bodies are engaged in: i) bringing

the cantons together with the universities; ii) finding a financial equilibrium
between the cantons with universities and those that have students but no
universities; iii) shaping common policy principles for challenges like the
Bologna Declaration and other goals such as quality assurance; and
iv) organising co-ordination between the federal and the cantonal level.
Comparable governance and co-ordination structures exist for the UAS
sector and for the ETH domain, and universities and the UAS have their
own platforms. Working groups are wrestling with the overall reform process,
and issues of overall innovation policy need to be addressed. The institutions
involved in the reform process include the two relevant departments, the
governments of the cantons in which universities are located, the ETH
Council, the Swiss University Conference (SUK),21 the UAS Council, the
OAQ for quality assurance and various other intergovernmental or inter-
institutional conferences like EDK or CRUS. There is an active SNF-
appointed project group. Finally, one of the main activities of SWTR is
university reform. The reform process extends over a decade, is coupled
with the ERT Messages and seems to be on the right track.
Clearly, a large number of bodies and activities are involved in or related
to higher education reform, which is indeed an issue of key importance. On
the other hand, too exclusive a focus may divert attention from other problems
in the system, in particular the slowly deteriorating innovative capacity in
the business enterprise sector.
4.4 Giving policy advice: SWTR and other councils
The Swiss Science and Technology Council is the central advisory body
for the Swiss government, mainly for the Federal Council but also for the
cantonal level. Currently it consists of 11 members, all but one of whom are
Swiss scientists from various fields.22 Up to 15 members may be named.
SWTR has a secretariat and financial resources for its work. Moreover, with
TA Suisse for technology assessment and CEST for strategic studies and
data compilation, the council has two important providers of strategic intel-
ligence. It has a considerable record in science policy advice. The “T” for
technology was added in 2000, and the council’s mandate was enlarged to
21. SUK was founded in 2001 on the basis of the new University Promotion Law (Universitäts-
förderungsgesetz, UFG 2000). It is described as the first strategic federal and cantonal co-
operation body in this policy field.
22. One person is from abroad. One Swiss member is a university professor with ample
industrial background.

cover all matters relating to science, education and technology policy. At the
same time its legal basis speaks of it as the “voice of science”.
SWTR describes its function as follows: “The SWTR formulates general
concepts for the Federal Council and suggests measures for their imple-
mentation. On its own initiative, or at the request of the Federal Council, the
Federal Department of Economic Affairs or the Federal Department of
Home Affairs, the SWTR takes a position on policy issues and problems
relating to science, higher education and technology. The SWTR is also
open to requests by other federal or cantonal authorities.”23 It provides
statements and reports and organises evaluations. It works on the basis of a
regulation of 2000, which in turn derives from Article 5a of the Swiss
Research Law (Forschungsgesetz, FG). As regards its role in and impact on
the Swiss innovation system, at least five observations can be made:
• First, SWTR has produced major documents and activities in recent
years, the so-called “Nine Points (Neun Punkte) programme (SWTR,
2002a) and the well-planned SNF/CTI evaluation (SWTR, 2002b).24
More and more of its publications focus on the regulation of higher
education. At the same time, some stakeholders in the Swiss system
point to a lack of visibility and clarity in terms of its role.
• Second, while on paper the SWTR’s agenda is very broad, in recent
years it seems to have concentrated on a few international issues and
especially on matters regarding university reform, convergence of the
different university sectors, and the broad introduction of the three-stage
university system. As mentioned, all Swiss advisory and co-ordination
bodies participate in the Bologna process.
• Third, the Council is composed of scientists, and ten out of the eleven
members come from Swiss universities. The composition of the Council
may to some degree influence its agenda.25
• A fourth issue regards the somewhat precarious standing of SWTR in
the debates on Swiss institutional reform. A more active role might
mean a stronger position in a changing framework. This would imply a
broader agenda, coming from the Council itself.
23. See www.swtr.ch/swtr_en/aufgaben.htm

24. It served as a blueprint for the Austrian evaluation of the two large research funding
bodies FWF (SNF equivalent) and FFF (KTI equivalent but different instruments).
25. The Swiss paradigms and the recent history (2000-03) of SWTR seem to influence the
choice of topics as well.

• Fifth, the SWTR’s adjunct think tank CEST has a strong mandate based
on SWTR’s regulations.26 Some CEST studies are of high quality and
provide a good basis for policy making. Unfortunately, many actors –
including SWTR – seem to have mixed feelings about CEST, and in
recent years there have been misunderstandings, university criticism
targeted at certain studies (“Champions League”), and an unclear
governance relation between SWTR and CEST. SWTR seems unaware
of its unusual position: few advisory councils in Europe have such
resources. TA Suisse, the Council’s second adjunct, has also achieved
international renown for the quality of its work. CEST appears to be
underused as a resource and its future is unclear. It is recommended to
find a more effective role for CEST as a provider of strategic intel-
ligence.
It appears doubtful whether the SWTR in its current form can provide
the necessary advice and be a catalyst for change in the Swiss innovation
policy system. A minimum requirement is a more balanced composition,
with a good mix of Swiss and foreign members, and the inclusion of a
number of members from industry.
One example of a successful high-level advisory body is the Finnish
Science and Technology Policy Council (see Box 4.2), which reflects the
“triple helix” approach and may serve as an interesting example. There are
of course limits to the power of an advisory council. A “mixed” case in this
respect is the Austrian Council for Research and Technology Development
which was founded in 2000. It consists of eight members, seven national and
one international expert. Four are nominated by the Minister of Education,
Science and Culture and four by the Minister of Transport, Innovation and
Technology. Half of the members represent science and research, while the
other half represents economic/industrial interests. The Council acts as a
small independent group that focuses mainly on advisory activities and as a
network builder for the government. The government is obliged to discuss
the recommendations of the Council according to a certain procedure but is
not obliged to follow them. The Council became very influential as in 2001
the Ministry of Finance linked its allocation decisions for extra funding for
research and technological development (RTD) – over EUR 1 billion in six
years – to Council recommendations. This gave it great freedom for starting
new initiatives and setting priorities, but at the same time shifted the balance
26. “Provides and examines the basis for an all-Swiss research, higher education and
technology policy … performs analyses … in an international comparison … and
evaluations.”

from advice to decision making and raised some discussions of democratic

legitimacy.
Box 4.2. The Science and Technology Policy Council of Finland

The Science and Technology Policy Council of Finland (STPC) was established in 1987 as
“successor” of the Science Policy Council (established in 1963). It functions as a high-level
political body for the formulation of Finnish science and technology policy guidelines and is the
main inter-ministerial body co-ordinating and integrating science and technology activities. Its
main tasks are to advise the government and the ministries, to prepare proposals and reviews for
the Council of State and the ministries, to issue statements on the allocation of public funds to
science and technology, and to act as an expert body for any questions relating to science and
technology. Though it only participates in drafting science, technology and innovation policy and
legislation by formulating guidelines and national strategies, as it formally only has advisory
capacity, the STPC is mainly responsible for the strategic development of Finnish science,
technology and innovation policy (SATW, 2004; Lemola, 2002; Seppälä, 2002).
The members of the STPC, which is chaired by the Prime Minister, are the Minister of
Education and Science, the Minister of Trade and Industry, the Minister of Finance, and up to four
other ministers. Further, the membership includes ten other members with a stake in science,
technology and innovation policy, including representatives from the Academy of Finland, the
National Technology Agency of Finland, universities and industry as well as employers’ and
employees’ organisations. They are appointed by the Council of State for three years. This
corporatist structure is based on the Finnish tradition of decision making and consensus building
and ensures broad-based discussion among stakeholders and thus support for policies, which at
least ensures their smooth implementation. The STPC functions as a forum for discussion where
policy makers and main stakeholders develop a common political knowledge and future vision of
the Finnish education and science, technology and innovation system. The STPC has two sub-
committees with preparatory tasks: the science policy subcommittee, chaired by the Minister of
Education and Science and the technology policy subcommittee, chaired by the Minister of Trade
and Industry. In addition each of the Council’s subcommittees draws on the knowledge and the
advice of two experts (SATW, 2004).
The Council’s strategic guidelines and issue statements are published as part of a science and
technology policy review every three years. These policy papers analyse past developments, draw
conclusions and make proposals for the future. For example, in its review of 1990, the STPC
promoted the concept of a national innovation system, understood as a complete set of public and
private factors influencing the development and utilisation of new knowledge and know-how.
Following several OECD recommendations, the concept of a knowledge-based society was
launched in 1996. In its review Knowledge, Innovation and Internationalisation 2002, the Council
stresses the importance of the rapidly internationalising innovation framework and the pressures
for structural and operational change in Finland. It urged the need for increased government R&D
expenditures. Public funding is to increase faster than the estimated growth in GDP, which would
mean an increase of EUR 300 million from 2002 to 2007. The money is to be allocated to
promising Finnish research areas such as the life sciences, environmental technologies, ICT, health
and to the knowledge-intensive services sector (European Commission, 2004b; Lemola, 2002).
Sources: SATW (2004); Berghell and Kiander (2003); Seppälä (2002); Lemola (2002); European Commission
(2004b).

There is generally strong reliance on academic advice in the Swiss

system. SNF is governed by academics. The CTI Commission and other
bodies also show strong university representation. An interesting case is the
powerful ETH Council, on which a number of academics have a dominant
position, owing to participation by the institutions governed by this body.
However, two of the nine members have an SME background (one of whom
also has a background in politics), a third comes from a large pharmaceutical
company and a fourth is named by the School Assemblies. This council thus
has a better balance than others. The overall Swiss picture is completed by
what seems to be a strong influence of academic groups in informal policy
making. In terms of the “triple helix” metaphor this seems to indicate that:
i) the distance between industry and the government is quite large; ii) advisory
bodies cannot be described as balanced; iii) the balance between “militia”
members and professionals in some settings should be closely reviewed.
Such arrangements carry a risk of lock-in.
4.5 Priority setting, evaluation and policy learning
There is a considerable degree of thematic priority setting in science.

The reform of higher education includes portfolio management, fostering
strengths and profiles, and allocation of much university investment to a few
selected fields. Both ETH Zurich and EPF Lausanne strongly focus on
biosciences, with ETH Zurich and the University of Basel building the
Systems X campus for systems biology in Basel. SNF funding includes
national research programmes (NRP) based on socioeconomic priorities and
a broad-based search for these priorities.27 CTI also funds priority areas in
key technologies, such as nanotechnologies and medical technologies.
Overall, bottom-up approaches seem to dominate allocations of university
block grants and SNF funding, followed by structurally motivated inter-
ventions like CTI’s to the UAS, entrepreneurship funding or SNF NCCRs.28
Compared to the general orientation of Swiss innovation policy, readiness to
set priorities appears strong, especially in the university sector, where targeted
ETH investments or SNF NPRs have a long tradition.
27. Each NRP is devoted to a single theme of socio-political relevance. The themes are
selected by the Confederation on the basis of a consultation of interested milieus,
including the public and public administration. Social and medical sciences are well
represented. NRP programming started in the 1970s (Lepori, 2005a, p. 15).
28. NCCR are academic competence centres around a certain topic. Their main rationale is
not the choice of topics (which is a strictly bottom-up process) but better structuring of
the research landscape and creating groups and networks of a critical size.

On the basis of the national innovation systems (NIS) approach, most

other OECD countries complement “thematic” priorities by “functional” and
“structural” priorities in order to foster the long-term development and
functioning of their innovation system. There is also a growing interest in
and need for priorities determined by societal needs and opportunities. Thus,
priority setting becomes increasingly context-dependent and involves a
growing number of actors and stakeholders. The balance between top-down
and bottom-up approaches is changing as well. However, owing to differences
in national framework conditions and policy traditions, national priority
setting is still implemented in a variety of ways (see Box 4.3).
Box 4.3. International trends in priority setting in science and technology

S&T policy in Canada still features a rather high degree of fragmentation. Over the last years
the government launched several programmes and initiatives focused on single issues and aspects
rather than on the innovation system as a whole. To arrive at a coherent national innovation strategy
remains a challenge. Initiatives mostly focus on S&T infrastructure. Recently, the issue of tech-
nology commercialisation has been addressed. The structure of S&T policy making is characterised
by a divide between bodies within the government that deal with science issues and those that con-
centrate on broader S&T agendas. For example, the Advisory Council on Science and Technology
(ACST) almost exclusively deals with single issues while the Council of Science and Technology
Advisors (CSTA) provides an overall evaluation of the performance of government departments
and agencies in S&T areas.
S&T policy in Ireland has induced a rapid increase in R&D spending in recent years. Science,
technology and innovation policy now ranks very high on the political agenda. For some years
Ireland has set priorities on its own, replacing priorities that were prominent owing to participating
in the European Structural Funds. Priorities are now set on the thematic as well as on the functional
level, with some emphasis on the latter. Thus, a key instrument of the National Development Plan
(NDP) 2000-2006 is the Programme for Research in Third-level Institutions (PRTLI) which offers
the opportunity to build infrastructure and to develop the careers of Ireland’s brightest researchers.
Thematic priorities are set in a rather broad manner (biotechnologies, ICT). However, though the
present NDP gives some guidance, a coherent strategy for S&T policy and priority setting is still
lacking. Reasons may include the changing landscape of S&T policy actors.
S&T policy in New Zealand recently set four general long-term goals: knowledge, economy,
environment, society. The two more mission-oriented goals (environment, society) are to be
achieved by means of dedicated and thematically oriented funding schemes. Thematic priority
setting covers a broad range of topics including generic growth technologies but also areas in
which New Zealand has comparative advantages and strengths (e.g. agro-business). As the priorities
are directly tied to instruments and funding schemes, they are very important for the country’s
research activities. The system of priority setting in New Zealand is not only very consistent but is
also well established, implemented and monitored. It can thus be regarded as a very instructive
example.

Box 4.3. International trends in priority setting in science and technology (continued)
The S&T priority setting process in Korea is highly formalised and government-driven. While
in the past S&T policy focused on commercialisation and imitation of foreign technologies, Korea
now concentrates on functional priorities in order to become more innovation-oriented. Thus, basic
research, the development of core technologies and innovations with a ten-year horizon has been
given priority in recent years. Ten priority industries and eighty target technologies are to promote
industrial growth. Some of the priorities are clearly mission-oriented as they relate to national
security, nuclear energy and a healthy society. The priority-setting process is characterised by less
aggregation of thematic focuses than in most other countries and involves a wide range of actors at
the political level, including the National Science and Technology Council and the ministries. It is
clearly top-down in approach.
The system of science, technology and innovation policy and priority setting in the Netherlands
is mainly bottom-up. It is highly complex but with well-differentiated levels. While functional
priority setting mainly takes place on the highest policy level and ministries are responsible for
mission-oriented co-ordination and priority setting, more detailed policy development is under-
taken by a large number of executive agencies. The system is characterised by a high level of input
from professional consultancies and reliance on expert-based technology foresight (“Technology
Radar”). Though practices are very advanced at all these levels, the complexity of the multi-level,
multi-actor priority setting process makes it difficult to ensure coherence of science, technology
and innovation policy.
S&T policy of the United Kingdom is traditionally more science-oriented than in most other
European countries. In principle, thematic priority setting is carried out by the Research Councils
in a bottom-up process. However, the government has stimulated co-operation between the
independent Research Councils in order to promote multi-council programmes of societal relevance
with a clear mission orientation. Additionally, priority setting at the regional level has gained in
importance, and foresight initiatives are prominent. Another British S&T strategy is to focus on a
limited number of co-operative applied research initiatives (e.g. LINK) to promote knowledge-
intensive business clusters.
Sources: Gassler et al. (2004); HEA (2003); OECD (2003a, 2004).
Systematic evaluations and strategic studies (foresight, technology

monitoring, road mapping) are important instruments in support of the
further development of Switzerland’s innovation policy and its adaptation to
future requirements.
Evaluations are established as good practice in Switzerland. Most pro-
grammes are subject to external interim or ex post evaluations. Foreign
experts are frequently called upon as evaluators, but Swiss evaluators also
show a high degree of professionalism and contribute to the development of
sophisticated methodologies. Different methodological approaches are used
to obtain scientifically sound results and recommendations. The background
report for this review (Arvanitis and Wörter, 2005, pp. 72 ff) identifies a
number of common results emerging from programme evaluations (for an
overview see Table 4.2):

Table 4.2. Main programme evaluations and results
Main results
Programme Method
+ -
CIM (1) (1990-96) Survey, econometric SMEs are more competitive, no No funding effect in large firms
CHF 102 million analysis – impact windfall gains, soft measures, and windfall gains likely.
analysis greater impact.
CIM (2) (1990-96) Survey, interviews Service offerings, CIM centres in More information necessary
CHF 102 million line with expectations and firms about diffusion level and possible
perceived CIM very well. clients and duties of CIM centres.
Microswiss (1) Descriptive analysis Greatest impact on SMEs, soft Larger firms’ windfall gains to the
(1992-97) measures more effective. Focus fore, lack of qualified staff, SMEs:
CHF 110 million on new users. cost aspects main obstacle.
Microswiss (2) Surveys, interviews Participation and technical impact Executives and heads of
(1992-97) good, communication between marketing less involved,
CHF 110 million centres and customers good, economic impact partly lacking,
success greatest in further non-technical topics not part of
education and training. the training programme.
CTI-MedTech Survey, international Well designed and meets the External experts to be more
(ongoing programme, experts needs of the applicants, involved in project evaluations,
evaluated in 2004) programme with diverse topics. accompanying research
recommended, programme
management to be broadened.
TOP-NANO 21 Evaluation completed. Report in 2006.
CTI-UAS Evaluation completed. Report in 2006.
Energy 2000 Evaluation-synthesis, Quantitative goals, long duration, Strong leadership missing –
(1990-2000) empirical research some sectors launched products programme design not good,
CHF 50 million early, behavioural change some sectors launched products
annually caused, quantified goals reached late, no additional investment
in large parts, “energy 2000” effects, no additional employment
label, innovations. effects.
MINAST (1996-99) Survey, expert 83% satisfied with the research Project budgeting and project
CHF 55.6 million interviews partner, 92% interested in further controlling carried out by both
public funding, research, 100 jobs created by partners, complex and
CHF 73.0 million 2000, 35 new products expected multidisciplinary projects to be led
private investment by 2003, efficiency of knowledge by industry partner, property
transfer promoted. rights to be contractually
regulated from the beginning.
LESIT (1992-95) Patent analysis, Research promoted in electrical No considerable promotion of
CHF 110 million survey engineering, skill level increased research in physics, research
in physics, job market evaluated quality not seen in citation index,
skills, R&D activities promoted, skill level in electrical engineering
turnaround tendency in patent crowding-out effects, few new
applications, involved firms patents filed.
improve market position.

Table 4.2. Main programme evaluations and results (continued)
Main results
Programme Method
+ -
FP3 (1990-94) Data base of Swiss High additionality, new R&D Participants to be more scattered
Swiss contribution: participation, survey, networks built, economic benefit- around sectors and branches,
CHF 135 million expert interviews oriented participation, FP3 participation to be improved in
compensates lack of ICT manufacturing and non-
promotion. manufacturing businesses.
FP4 (1995-99) Data base analysis, Scientific benefit high, Swiss Economic benefit lower,
Swiss contribution: survey, interviews international network increased, concentration of participants still
CHF 372 million participants more allocated. high, budget mainly absorbed by
federal institutions and
universities, weak participation in
humanities and social sciences
programmes.
COST (1971-), International experts, Scientific benefits high, cost- Economic benefits meagre,
project evaluation data base analysis, benefit ratio satisfying, criticism directed to
between 1996-2000 survey, expert administration BBW good, open administration in Brussels,
interviews to new participants. overlap of different programmes
(COST, FP, EUREKA).
Source: Arvanitis and Wörter (2005).
• Windfall gains are more likely in large than in small firms.

• Soft measures like training or consulting are very effective.
• Programmes are generally well absorbed.
• International programmes lead to intensified network building.
• Some programmes funding applied research show good scientific results.
One caveat is that these summary results have to be seen in the light of
the nature of CTI funding.
As of 2004, a strategic controlling of the entire education, research and
innovation area is being put in place. This instrument could be further
developed in order to mitigate the tendency of Swiss innovation policy to
look to the past and to provide a platform for policy learning. Evaluations of
institutions were of special importance in recent years:
• An auto-evaluation of the ETH sector followed by an international peer
group led to positive conclusions and important inputs into the ERT
Message 2004-2007 regarding tenure track, graduate schools and the
Bologna process.

• SNF and CTI were evaluated in 2001/02 (SWTR, 2002b). This evalua-
tion gave both institutions good marks in general and confirmed their
positions in the Swiss innovation system. The bottom line for both
institutions includes a “more of the same with more funding” message.
For CTI more discovery-oriented projects without business firm partici-
pation and a stronger focus on new high-technology enterprises were
recommended, while SNF recommendations mostly concerned internal
governance structures. A number of recommendations have already
been implemented by both institutions and the government, with the call
for more financial resources partly reversed owing to federal budgetary
constraints (“Kreditsperre”, see Schweizerischer Bundesrat, 2002,
p. 2367). An in-depth evaluation of the overall innovation system has
not yet been conducted.
Policy learning involves a number of instruments and mechanisms,
mostly on the “soft” side of the innovation policy spectrum. In this respect,
there is some evidence for the existence of two bottlenecks in Switzerland:
i) policy forums tend to be used to deal with complex co-ordination issues
(see above on the Bologna process) rather than collaborative learning
processes; and ii) the strong reliance on “militia” members from the academic
sector could be more balanced if the recruitment strategies of agencies placed
more emphasis on hiring full-time innovation policy experts. As Table 4.3
shows, there are many elements of distributed intelligence and learning, but
it is difficult to find learning ensembles or a learning system (for a general
discussion see Smits and Kuhlmann, 2004).
A potential route in this regard might be greater involvement of large
firms in learning and mechanisms for the exchange of good practice. Such
companies have ample experience with complex organisational and techno-
logical innovations and are leaders in many international markets. The
public sector could learn and profit from their experience. If areas of strong
common interest – internationalisation, portfolio building or organisational
learning – can be identified and good learning frameworks installed, there
would be little danger of opening the door to special interests. This proposal
is prompted by the opinion, recurrently voiced by various stakeholders, that
the interface is minimal between the large firms, which are one of the
country’s great assets, and the government.

Table 4.3. Some learning instruments
Instrument Comment concerning Switzerland Swiss position *)

Exchange of personnel between Relatively little interchange between public sector and
*(*)
parts of the “triple helix” industry, strong presence of academics in policy advice
International exchange and Growing numbers of EU-CHE interfaces, many new
**
learning forums ERA-Nets., EUREKA, ESA, etc., as common forums
Explicit learning forums Not easily identified, view from outside is institutional
*
boundaries and formal co-ordination bodies
Programmes as source for learning CTI set-up provides good learning opportunities for
and intelligence important features of the system: entrepreneurship, **
science-industry co-operation, etc.
Foresight, technology assessment, Some well-designed institutions are in place, but would
*(*)
benchmarking merit more attention
Discussion of evaluations, Evaluations seem to be generally discussed and the
***
specific feedback results taken up in policy formulation
1. The number of stars and 0 indicate the relative position of Switzerland: *** = fully in international mainstream;
** = well in line; * = only few/ad-hoc activities in Switzerland; 0 = absence of such a policy (instrument).
An example of an effective learning forum is the Austrian RTD Evalu-

ation Platform (Box 4.4), started about eight years ago, which has many
activities for integrating a better evaluation culture into the Austrian system.
4.6 Internationalisation issues
Swiss policy makers and research communities seem to have responded

well to the challenge of stronger integration with European research. Swiss
research has always been open internationally, and the Swiss research
communities approached European research funding schemes step by step.
Impact assessments of previous Framework Programmes (FP) show the high
impact of Swiss FP contributions in the 1990s as regards new co-operation
patterns, strengthening of scientific capabilities, establishment of new research
fields as well as the high economic impact on both small and large firms
(Balthasar et al., 1997). Starting with the 6th FP, Switzerland no longer funds
its participants on a project basis but participates fully. Annual payments
before this switch were about CHF 120 million (for 2002, see Lepori,
2005, p. 20); for 2005 about CHF 200 million was transferred to Brussels.

Box 4.4. The Austrian Evaluation Platform: an example of mutual learning

Platforms for mutual learning can be important instruments for building consensus and putting
policy issues higher on the agenda. For their part, evaluation issues need an underlying culture and
common understanding. Both methodological questions and individual evaluations need broad
discussion, transparency, standards, feedback and shared values. While the Anglo-Saxon and
Scandinavian countries have a longstanding culture in this respect, evaluation of RTD policy in
Austria was underdeveloped until the 1990s. Only a few elements, such as ex ante project evaluation,
met international standards. Reasons included a lack of awareness among policy makers, few
existing explicit funding programmes, the predominance of institutional block funding without
quality criteria and, more generally, an innovation system that was still in the making.
In the mid-1990s a small number of administrators and researchers created the Austrian RTD
evaluation platform (Plattform FTEval) as a loose network to discuss methodological issues and to
present new evaluations. “Struggling for a higher rank on the policy agenda” (Stampfer, 1998) was
its mission and main goal. A workshop series regularly brought together Austrian and foreign
experts, and a newsletter documented and diffused the results. Over the years the community grew,
partly because of the platform’s work, partly owing to the growing need for legitimacy of public
spending. “Value for money”, outputs and impacts as well as indicators for measuring them
became more pressing issues, as public R&D expenditure started to accelerate. The platform grew
as three ministries, many important federal and regional funding agencies, the Austrian Council for
Research and Technological Development, the Quality Assurance Agency and five evaluation
research institutions joined the Plattform, which is now an association of more than 15 institutional
members. Its annual budget of EUR 100 000-150 000 comes from membership fees and contracts.
The scope of its activities is broad. Apart from regular workshops and newsletters, Austrian RTD
evaluation standards were developed, which include teaming up Austrian and foreign evaluators.
Studies include an evaluation manual for the Austrian Council for Research and Technological
Development. Training courses for programme managers assist them to get a basic understanding
of project, programme and policy evaluation. In 2003, an international RTD evaluation conference
was jointly organised with the OECD in Vienna; a second conference took place in spring 2006.
Internationally the platform serves as a contact point for the European Commission, US networks
and the German Evaluation Society, among others. To avoid collusion, the platform’s mission does
not extend to specific evaluations.
This initiative – with low costs and a “militia-based” administration – has helped to give
evaluations a higher profile in Austria. Methods, standards and common understanding undergo
continuous improvement. Internationally it is seen as a good practice learning initiative.
Sources: OECD (1998); Plattform Forschungs- und Technologieevaluierung (2003); Stampfer (1998).

The Swiss research community has responded positively to the long-

term goal of a European Research Area (ERA) (European Commission,
2000); institutions such as the SNF are well integrated in activities to design
a new European Research Council. SNF is also a member of EuroHORCs,
the umbrella organisation of the European science funding councils. Swiss
experts take part in European policy processes, SwissCore, located in
Brussels, acts as a link between the FPs and the Swiss research communities.
Switzerland is also a member of international institutions such as ESA,
CERN (in Geneva) and the Institut Laue-Langevin. While European
research agendas seem to be viewed positively, the relation between EU
programmes and national policy making needs further clarification. ERA-
Nets are considered good models and some Swiss institutions are involved.
The need for a strong national policy is recognised. This implies that national
priorities should not be cut as a result of Switzerland’s relatively costly
participation in European programmes such as ESA. The danger that such
cuts may be taking place owing to an ongoing need for budget consolidation
is also recognised.

5. THE SCIENCE SYSTEM – 79
Chapter 5
THE SCIENCE SYSTEM
5.1 Introduction
This chapter draws extensively on existing work, specifically the OECD

Tertiary Education Review (OECD, 2003b), the ERT messages 2000-2003
and 2004-2007 (Schweizerischer Bundesrat, 1998, 2002), and a number of
other Swiss policy papers. It does not offer much policy advice as the main
indicators show very good performance and strong ongoing reform. A number
of critical issues relating to the science sector are discussed elsewhere:
university reform is covered in Chapter 4, while the strong reliance on
“supply-side” technology transfer is fundamentally an industry-related topic
and is discussed in Chapter 6.
A short description of the Swiss university system is followed by
considerations on the process of university reform. The new universities of
applied sciences (UAS) sector are covered next, before turning to science-
oriented project and programme funding. Finally, selected internationali-
sation issues are discussed.
5.2 Features of the Swiss tertiary education system
Switzerland has a dual and diversified tertiary education system. There

are, on the one hand, the ten cantonal universities and the two federal
institutes of technology (ETH Zurich and EPF Lausanne) and, on the other
hand, the universities of applied sciences (UAS), which were upgraded from
upper secondary schools at the end of the 1990s. In 2004 there were about
110 000 students at Swiss universities and about 44 000 at the seven UAS.
Responsibility for the various institutions is shared by the cantons and the
Confederation. Universities are organised and regulated on the cantonal
level, ETHs by the Confederation, and the UAS may be governed either by
the cantons or federally, depending on their fields of study. Thus, a network
of cantonal, federal or joint bodies runs the tertiary education sector. A
variety of legal frameworks and agreements for universities and UAS
regulate their creation, organisation and administration, and a huge number
of policy makers and stakeholders are involved (see Figure 5.1 and Chapter 4)
(OECD, 2003b; Bund und Kantone, 2002).

80 – 5. THE SCIENCE SYSTEM
Figure 5.1. Organisation of Swiss universities and UAS
Swiss Science Swiss Federal

Cantons and Technology Commission
Government
Council for the UAS
Federal Department Federal Department

of Home Affairs of Economic Affairs
Swiss ETH
Conference of Board
the Cantonal State Secretariat
Ministers of for Education
Education and Research Federal Office
Swiss for Professional
University Education and
UAS Conference
Council Technology
coordinates coordinates
subsidies
Universities Cantonal Federal Federal

of Applied universities Institutes of research
Sciences Technology institutes supervision
subsidies
Conference Rectors Conference of
of the UAS the Swiss universities
However, not only are competencies and powers divided between the
federal and the cantonal level, they also share responsibility for funding. The
Confederation accounts for 25% of total expenses of the cantonal universities
and 28% of cantonal UAS. Research funding is mainly provided by the
federal level via SNF and CTI. These two institutions are considered below.
Overall Swiss universities perform quite well according to standard higher
education indicators. For this reason, it is more rewarding to look at the
Swiss higher education system with respect to its interaction with other
actors of the Swiss science and innovation system.
While the two ETHs in Zurich and Lausanne focus on engineering
sciences, mathematics, natural sciences and architecture, the ten cantonal
universities offer a wide range of studies, with some profiling (e.g. Basle,
Bern, Geneva, Lausanne and Zurich in medicine or St. Gallen in economics,
law and the social sciences). The ETH domain also contains four national
research institutes: PSI, WSL, EMPA and EAWAG.
The overall international performance of Swiss universities is very good,
as reflected, among others, by the rankings published by the Shanghai Jiao
Tong University (2005). There are six Swiss universities among the world’s

top 200 universities and among Europe’s top 80 universities. ETH Zurich is
ranked 27th worldwide and fifth – after the universities of Cambridge and
Oxford, the Imperial College London and the University College London –
in Europe. It is followed by the University of Zurich (world rank 57, Euro-
pean rank 13), the University of Basle (87th and 28th, respectively), the
University of Geneva (world ranking group 101-152, European ranking
group 36-56), the ETH Lausanne and the University of Bern (world ranking
group 153-202, European ranking group 57-79). In spite of the shortcomings
of such rankings, Switzerland can clearly rely on excellent universities as
the basis of its science system. It has not only some excellent research uni-
versities but also a set of excellent higher education institutions.
The important position of the ETH domain (including the four national
research institutes) in Switzerland is underlined by publication data. All six
institutions rank among the top 30 of about 700 Swiss institutions in terms
of absolute numbers of publications (ETH Zurich ranks 2nd, EPF Lausanne
ranks 7th, PSI 9th, EAWAG 15th, WSL 27th, and EMPA 30th). The ETH
domain’s publication output has grown relative to overall publication volume
since the beginning of the 1980s and accounted for almost 5% of publica-
tions in 1998-2002. The share is even higher in engineering, computing and
technology as well as in physical, chemical and earth sciences (ETH Board,
2004).
Swiss universities also perform well compared to other countries in
terms of their share of foreign students and graduates. More than one-third
of all PhD students (37%) come from abroad (36% are women). This makes
Switzerland the leading country in this respect, ahead of the United Kingdom,
Belgium and the United States. Sweden, Denmark and Austria attain about
half of this figure. There is also a large number of foreign university professors
and other academic professionals in Switzerland. Swiss universities have an
excellent reputation, and Swiss science is internationally recognised. This is
a major asset as regards the European Research Area and the European
Higher Education Area. Swiss firms have not recently faced any shortages
when seeking to recruit good graduates (see OECD, 2004).
Swiss universities also seem to prepare their students quite well for the
requirements of the labour market. Between 1985 and 1999 almost 40% of
their graduates of a given year entered professional life immediately, and a
further 25-30% found jobs within three months after graduation (Arvanitis
and Wörter, 2005). The fact that students undergo a strong selection process
during their studies, especially in the ETH domain, may contribute to this
result. In addition, Swiss universities have a strong focus on technology
transfer (see Chapter 6). In this respect and also in terms of general policy,
university autonomy has been strengthened considerably in recent years.

A salient feature of Swiss university governance is the procedure for

recruiting staff in the ETHs, which can serve as an example of good practice
for other countries. Appointment of professors is one of the major responsi-
bilities of the ETH management team. The presidents of the two ETHs have
full responsibility and participate in all strategic decisions. They decide
upon the call for the professorship according to the long-term strategic plans
of the ETH and then appoint a delegate who organises the recruitment
procedure. Next the ETH Board nominates the recruitment committee which
includes external members. The detailed job description is advertised inter-
nationally. The recruitment committee also actively searches for and contacts
candidates. Applications are screened by the commission and candidates are
chosen for an interview and to give a lecture. The commission then makes
its recommendation on the appointment to the president, who remains free to
look for another candidate. The president must also obtain the funding and
the infrastructure needed for the new professor. In addition to the strong role
of the president and the “headhunting” which ensures a long-term, proactive
recruitment policy, the institution provides various services for its academic
staff, e.g. it assists in finding a job for the professor’s spouse, in arranging
schools for the children, etc. This approach has allowed ETH Zurich to attract
successfully international faculty of high quality. About 40% of the academic
staff are foreigners coming from positions at foreign institutions, about 30%
are Swiss recruited from foreign institutions, and the remaining 30% come
from faculty positions in Switzerland (Schmitt et al., 2004; Herbst et al.,
2002).
5.3 Swiss higher education landscape 2008 and other important policy
developments
As in many other European countries, the Swiss higher education sector

is undergoing a series of reforms. Besides the very important step taken in
1996 to upgrade the former upper secondary schools to UAS, Switzerland
has engaged in three further stages of reform. A timetable for the period
2000-07 was set by the Swiss government and parliament. In the first stage
of the reform process, the Federal Council submitted a message on the
education, research and technology system for 2000-03 under the heading
“To reform and invest” (Schweizerischer Bundesrat, 1998). The two guiding
principles were the intensification of co-operation between higher education
institutions and the priority of quality over quantity. Policy measures con-
centrated on five strategic objectives:

• To create networks of higher education institutions.

• To integrate these networks into international co-operation programmes.
• To promote excellence in education and research.
• To apply knowledge more effectively.
• To improve the effectiveness of the mentioned networks.
In 2000 the new Act on the Promotion of Universities (Universitäts-
förderungsgesetz, UFG) came into force. It ensured a structural framework
for co-operation relative to universities between the Confederation and the
cantons and introduced new operating rules for universities. Funding based
on the quality of the services provided by the universities replaced the
former policy of “automatic payment”. Further, under the UFG quality
assessment is carried out nationwide using uniform criteria, and in 2001 the
OAQ, a new and independent accreditation and quality assurance body, was
established. Steering at the system level and co-operative activities were
strengthened by setting up the Swiss University Conference (SUK).
The second stage of reform was triggered by the ERT Message 2004-
2007 (Schweizerischer Bundesrat, 2002). The main issue addressed was the
need for a considerable increase in funding to improve the productivity and
valorisation of research. Overall funding increased from CHF 14 245
million for 2000-03 to CHF 17 346 million for 2004-07, an increase of
21.8%. Of the additional CHF 3 101 million, CHF 865 million are devoted
to the ETHs (+ 12.4%), CHF 561 million to the cantonal universities
(+ 26.6%), and CHF 285 million to the UAS (+ 33.4%). Basic funding for
the cantonal universities increased by about one-third, and project-based
funding rose by 17.7 %. The most striking feature of UAS funding is that
CHF 40 million is provided for integrating the social sciences and humanities
in the UAS, a topic that was not addressed in the previous ERT message.
The largest budget increase is in the category “research, innovation and
valorisation of knowledge”. With a total of CHF 2 993 million, this is an
increase of 43.0%. SNF (+ 46.3%) and CTI (+ 51.6%) will gain most from
the additional CHF 900 million. Here the priorities are to improve the career
prospects of early-stage researchers and to provide more funding for the
social sciences and humanities (tasks assigned to SNF) and to focus on new
technologies, life sciences, nanotechnologies, ICT and promoting entre-
preneurial spirit (primarily assigned to CTI). The SWTR recommends,
among others, the promotion of the social sciences and humanities as well as
of the career prospects of early-stage researchers (SWTR, 2002a). Clearly,
the increased funding is not distributed indiscriminately; it focuses on
strengthening the linkage between research and its valorisation for the
economy and society as a whole (Schweizerischer Bundesrat, 2002).

This step in the reform is accompanied by a major project called Swiss

Higher Education Landscape 2008 (“Hochschullandschaft Schweiz 2008”).
As the potential of the UFG for joint steering of the university sector has not
been fully realised and since the UFG ends in 2007, discussions have
continued, and the Swiss Higher Education Landscape 2008 aims at a funda-
mental structural reorganisation of the Swiss higher education system. By
2008, the system is to be unified and governed under a single framework
law, such that the structure of all cantonal universities, the federal ETHs and
UAS is treated equally. The heart of the process is thus an extensive reform
of governance. In the report of the project group in charge (Projektgruppe
Bund-Kantone Hochschullandschaft 2008, 2004) major challenges and
weaknesses of the Swiss higher education landscape were identified. While
the Swiss tertiary education sector has expanded over the last decades,
research activities have become more important and there is a need to
improve efficiency in order to ensure quality in the face of scarce funding.
Indeed, the major weaknesses addressed by the report are lack of efficiency
and transparency in the system’s organisational structures29 as well as in the
allocation and use of available funds. Steering at the national level is largely
lacking, tasks are not shared among institutions and beneficial competition
does not always occur.
The main recommendations were to intensify co-operation between the
national level and the cantons, while keeping political steering competencies
clearly separate and mainly with the Confederation. Further, the latter con-
tinues to fund research through SNF and CTI. However, higher education
institutions are to have extensive autonomy accompanied by various steering
instruments such as performance agreements. The structural reform aims at
reducing the number of bodies in charge of the higher education and
research agenda and at streamlining procedures. There are to be three central
bodies, the Conference of University Governing Institutions (Konferenz der
Hochschulträger), which is mainly responsible for the steering and regulation
of the overall system, the Conference of Rectors/Presidents of the Higher
Education Institutions (Konferenz der Rektoren/Präsidenten der Hoch-
schulen), which co-ordinates the institutions, and the Higher Education
29. There are indications of organisational weaknesses on both the overall level (see the
section on the Bologna Process) and on the level of intra-university governance. A study
by CEST, juxtaposing ETH Zurich and MIT (Herbst et al., 2002) asks why, in relation to
input, MIT produces more output in terms of PhDs, citation impact and other relevant
indicators. In seeking an answer, the authors point to issues of organisation and list a
number of success factors, including professional management, graduate schools, flexible
centres and programmes instead of strict disciplinary boundaries, etc.

Council (Hochschulrat), which is an advisory body including experts from

science, industry and society at large. Financial transparency and cost
efficiency are to be provided by using a model of standardised costs per
student. The institutions get block funding on the basis of their performance
agreements and are obliged to report on their activities and spending. Finally,
institutional profiling is to be encouraged. All these reforms centre on the
Bologna Process and the European Higher Education Area, which aim at
harmonising European study structures. Like most other European countries,
Switzerland is heavily engaged in the debate and makes the issue of study
structures its main reform objective.
In parallel, the initiative called Hochschulmedizin 2008 deals with higher
education and research in the field of medicine alongside the Swiss Higher
Education Landscape 2008 in connection with the reform of the health system.
Sporn and Aeberli (2004) in an interesting study on (potential) profiles
of Swiss higher education institutions in an international context suggest a
reform of the Swiss system towards a system consisting of three types of
higher education institutions pursuing different objectives: globally oriented
institutions such as ETH Zurich, European institutions like the University of
St. Gallen, and more distinctly nationally or regionally rooted institutions
such as the University of Lucerne. They consider that this strategy would
strengthen Switzerland’s position within the (global and European) higher
education area.
To summarise, most Swiss actors are increasingly aware that Switzer-
land’s future prosperity is linked to the development of the science and
education system and express a strong commitment to reform. The importance
of this issue notwithstanding, it should be borne in mind that the Swiss
innovation system consists – or should consist – of a broader set of inter-
linked actors and institutions. This issue is addressed in Chapter 6.
5.4 Universities of applied sciences – current developments
The establishment of universities of applied sciences (Fachhochschulen)

is quite recent. This sector was created in the mid-1990s, in three European
countries with similar upper secondary and tertiary education systems:
Switzerland, Germany and Austria. All three countries faced the same
challenges: i) medium or low participation rates in tertiary education;
ii) proven dual systems, high standards of vocational training; iii) very good
upper secondary (technical) schools, providing engineers without tertiary
graduation; iv) new requirements owing to the transition to a knowledge-
based economy. The creation of the Swiss UAS sector was initiated by the
Conference of Directors of the Swiss Engineering Schools in 1990. The
sector was created in 1996, with the individual UAS a cluster of upgraded

upper secondary schools: 28 former upper secondary technical schools

(mostly so-called “HTL”), 21 upper secondary schools with a economic or
administrative focus and nine design schools formed the core of the seven
UAS with nearly 200 study courses (see EFHK, 2002). In Austria, instead,
UAS-type Fachhochschulen were created from scratch.
Table 5.1. Key figures on UAS in Switzerland and Austria
Austria Switzerland
1993 1997
(newly established) (upgrading of Fachschulen)
Course-providing bodies 18 i) 7 v)
Population 8 117 754 ii) 7 415 100 vii)
UAS per million population 2.22 0.94
Studies/degree programmes offered 136 i) 220 v)
Range of studies offered per UAS 1-26 i) 9-81 v)
Places for first-year students at UAS 7 342 i) 14,137 vi)
Range of first year students' places per UAS 60-1 110 i) 422-3 246 vi)
Places at UAS degree programmes 25 554 i) 42 016 vi)
Range of places at UAS 120-3 576 i) 1 535-10 385 vi)
Average number of students per UAS 1 419 i) 5 135 vi)
5 906 3 681
Teaching staff at UAS of which full time: 1 044 ii) (full-time equivalents) vi)
of which part time: 4 862
R&D staff (full-time equivalents) 169.8 iii) 989 vi)
Higher education budget for UAS degree
77 536 000 iv) 646 871 961 vi)
programmes (EUR)
Expenditures for R&D at UAS (EUR) 21 144 000 iii) 114 035 656 vi)
% from the central state 53.6 iii) 26.9 vi)
% from the federal states/cantons 26.4 iii) 48.4 vi)
% from others (other public sources,
private sources, international 20.0 iii) 24.7 vi)
organisations, EU, etc.)
Sources: i) FHR, 2005 for the academic year 2004/05; ii) bm:bwk, 2004 for the academic year 2003/04; iii) bm:bwk
et al., 2005 for the year 2002; iv) bm:bwk, 2002 for the year 2001; v) EFHK, 2002 for the year 2002, vi) information
provided by BFS for the year 2004; vii) BFS (2005d).

The seven UAS cover the seven larger regions of Switzerland. They are
decentralised, and most UAS have quite a large number of locations. After a
period of fast growth, the UAS sector has a total of more than 44 000
students. About two-thirds of Swiss engineers are educated in the UAS
sector. As the OECD Tertiary Education Review (OECD, 2003) and other
sources show, many governance challenges arise from the fact that parts of
the UAS system are governed and financed by the cantons, while others are
federally governed and financed owing to the traditional federal control over
technical schools. Overall governance (laws and licences) is at the federal
level. The federal responsibility for the UAS lies with EVD, while EDI is
responsible for the universities. The streamlining of the higher education
system is discussed in the governance chapter of this review; it was also
subject to an in-depth analysis in the OECD Review of Tertiary Education
and has been addressed in a number of Swiss publications (Schweizerischer
Bundesrat, 2002; and for a detailed overview OECD, 2003, pp. 62 ff).
“Reforming and investing … and stabilising” has been the motto of
UAS policy (EFHK, 2002, p. 7). The EFHK review in 2002 evaluated the
sector and gave marks from 1 (low level of development) to 4 (high level)
for a number of the sector’s key features. Formal and teaching-related
features got higher grades than management and leadership. With a mark of
2.83 the “Applied Research Policy of UAS” achieved a good result (ranked
four in twelve indicators).
Regarding research, the UAS are in a difficult position. There are
relatively few permanent and full-time staff (but more than in the Austrian
UAS-type Fachhochschulen). UAS are new institutions and lack a track
record, while applied research and valorisation require customers’ trust.
Swiss innovation policy has devoted effort and resources to developing this
sector. There seems to be some connection between the absence of direct
funding of SMEs and the emphasis on providers of applied research. Some
stakeholders hold that the sector lacks sufficient resources, does not grow
fast enough and faces many difficulties. A comparison of the Swiss and
Austrian UAS sectors (Table 5.1) shows that the Swiss UAS fare better in
terms of structural indicators regarding size and receive more money for
research than their Austrian counterparts. No real block funding is provided
for UAS R&D but at least three significant funding initiatives help to
develop applied research and industry co-operation at Swiss UAS:
• DO REsearch (DORE) is a programme to raise the research competence
of the cantonal part of the UAS sector, i.e. the non-technical fields. This
common initiative of SNF and CTI aims at better research in the social
sciences and humanities (SNF and KTI, 2003). For 2000-03, 119 projects
were funded and received a total of CHF 6.5 million. More than 300
partners from industry and the public sector doubled the programme

funding. International experts were positive about this approach, but

proposed clearer criteria for the kind of research funded, a better
research strategy and some upgrading of the quality of the projects.
• Funding the personnel costs of projects run by the (technical) UAS is a
major pillar of CTI’s strategy. This has to be seen in the light of
Switzerland’s overall policy for funding of R&D. Within CTI there is a
UAS expert group and more than 20% of annual CTI funding is
allocated to this sector. In 2004, 84 projects (apart from competence
networks, see below) received CTI funding of CHF 21 million, and
another CHF 31 million of private funds. Most of the projects are in
“enabling sciences” and “engineering”. A recent priority of CTI is
linking funding to strategic portfolio building at the UAS, granting even
more than the usual 50% maximum for such projects. CTI funding, with
its external reviews and quality criteria, has been instrumental in setting
standards within a short period of time. An evaluation of the agency’s
UAS funding policy was recently completed.
• The networks of UAS research groups in different fields are the third
instrument. In 2004, 11 UAS networks received CTI bonus funding.
These networks should fulfil an exchange and knowledge transfer
function, but are viewed critically by experts in the field as being prone
to over-administration and deadweight losses. They are considered to
have been useful in the first phase of the UAS. Now, other, more
industrial cluster-oriented instruments are under discussion.
• A very important source of research funding in the UAS is the dedicated
funding within the basic funding made available for establishing research
competencies by the Confederation through OPET.
One trend seems to be the link-up of UAS with existing regional
strengths and clusters. One example is UAS Aargau/North West Switzerland
(FHNW) which is located in the region where most of the plastics industry,
large parts of machinery construction and power engine industry (ABB,
Alstom) and the life sciences are clustered. This UAS has about 250 full-
time professors, mostly with industry and market experience; part-timers
from industry are also an important resource. Applied research is performed
by the professors and their staff and industry requirements are addressed in
the curricula. This UAS has an annual R&D budget of CHF 20 million (20%
of its overall budget), CHF 7 million from industry and the rest from the
cantons and CTI. A large share of contributions comes from big corporations,
but medium-sized firms are also important partners. Diploma theses act as a
first stepping stone. Co-operation with small firms poses specific challenges.

While the overall development of the UAS appears positive, a closer

examination reveals some areas of concern. One issue already discussed is
UAS governance. Apart from the disadvantages of shared governance
between the federal and cantonal levels – which implies time-consuming
procedures involving federal and cantonal actors – the seven UAS also have
rather complex internal governance structures. Taking the UAS Zurich (ZFH)
as an example (Figure 5.2), one can easily understand that much effort is
needed to co-ordinate the various units and that the existing governance
structures may be unable to fulfil this task satisfactorily. However, reform is
on the way and in 2006/07 the eight institutions of the ZFH will be integrated
into three autonomous higher schools with strengthened steering structures
at the institutional level.
Figure 5.2. Current governance structure of the UAS Zurich (Zürcher Fachhochschule)
Governing Council
Directorate
Concordat for Education Concordat
UAS Council HS Department Council for Education

Executive Board
UAS Zurich
Conference of Rectors
School Council School Council School Council School Council School Council School Council School Council School Council School Council
Rectorate Rectorate Rectorate Rectorate Rectorate Rectorate Rectorate Rectorate Rectorate
HS Zurich HS HS HS HS HS Pedagogical HS
Wädenswil HS for Technology, for Design for Music for Applied for Social HS for Therapeutic
Winterthur Economy and and Artsl and Theater Psychology Work Pedagogy
Administration
HS = High School
Source: Sporn and Aeberli (2004).
The highly integrated Swiss UAS set-up thus seems to be more a formal
labelling than a functional organisational structure. This is pointed out by
Sporn and Aeberli (2004) who consider the present co-ordination and steering
mechanisms paralysing, particularly as they do not allow for the strategic
positioning of individual UAS. In particular, they feel that co-operation
beyond cantonal borders (and between institutions belonging to the same
UAS) is in urgent need of improvement.

Further, the idea that UAS might act as an intermediary between basic
science and the market deserves more thorough discussion. An alternative
approach would be for UAS to develop their own competencies and get their
main inspiration not from science or potential ETH/university networks, but
from the problems and needs of “their” business firms.
In order to enable the UAS to fulfil their role with respect to their
business sector clients, it seems necessary to reconsider one specific feature
of the Bologna reform as implemented in Switzerland (Hotz-Hart et al.,
2006). Currently, the UAS are essentially constrained to provide bachelor’s
degree courses while master’s degree studies are almost exclusively offered
by the federal institutes of technology and the universities. Without sub-
stantially increasing the scope of master’s degree studies at the UAS there is
a risk that their knowledge base dries up and that they will end up as mere
teaching institutions without being able to fulfil their wider tasks in the area
of R&D and innovation.
Challenges for the future of the sector and for enabling even stronger
applied research capacities include a drive towards better portfolio building
and co-operation around demand-driven structures such as industrial clusters
or networks. An alternative or complementary approach might be to grant
the UAS enough autonomy to enable them to develop an independent profile
vis-à-vis their clients – even beyond the region in which they are located –
and to compete with established universities in certain areas. Transfer routes
between UAS and universities still seem complex, but large-scale reform is
under way. All in all, the UAS sector seems to be a very successful
innovation in the Swiss system, as regards both teaching and applied R&D.
It proves the ability of the Swiss innovation system to come up with new
structural elements if the need is there.
5.5 Funding the science sector
5.5.1 Introductory remarks

The university sector receives significant funding as well as incentives
to act in specific ways. On the one hand, block funding is linked to certain
indicators (OECD, 2003b, p. 103). On the other, a large share of the funds
goes to quality-assessed projects, including most CTI and nearly all SNF
funding. While CTI’s ultimate goal is to boost economic growth, scientific
excellence is the SNF’s exclusive or main criterion. It should be mentioned
that CTI instruments provide funding for 800-1 000 research posts in public
research organisations. A number of smaller, private non-profit foundations
fill niches in the overall portfolio, while ETH Zurich, for example, also
supplies competitive grants from internal funds. EU funding or COST
allows for the setting up and financing of transnational scientific projects.

5.5.2 The SNF

The single most important funding institution is the SNF, created in
1952 as a foundation by the Swiss Scientific Academies following an
initiative of Bern university professor Alexander von Muralt. It is an
institution with strong self-governance and a very good track record, as an
international evaluation recently confirmed. As already mentioned above,
SNF has a broad variety of instruments at its disposal, the three main ones
being bottom-up projects (65-75%, varying), competence centres (10-15%,
varying) and personnel grants (10-15%, varying). With an annual budget of
about CHF 400 million, SNF’s position is strong and it is well-endowed30 by
international standards. Nevertheless, slow budget growth, a fast rise in
applications and the large number of excellent Swiss researchers led to a
downturn in acceptance rates and to a relatively small average size of project
grants. However, as will be seen, future prospects appear brighter (see also
SWTR, 2002b).
The importance of an institution like SNF lies in the strict link between
quality and funding. According to SNF, the evaluators and the Swiss
government, this is achieved best via bottom-up, individual project funding.
The ERT Message 2004-2007 states: “The Federal Government shares the
view that free and project-oriented scientific research in all fields should be
the main benefactor of rising SNF budgets after years of stagnation”
(Schweizerischer Bundesrat, 2002, p. 2419, own translation). Accordingly,
annual budget increases of 10% are to be provided, with special attention to
the humanities at universities and the UAS, clinical research, interdisciplinary
research, promotion of women and international co-operation. This implies a
certain balance between bottom-up principles and more top-down signals.
Apart from project funding, ongoing or future priorities involve human
resource development, namely the establishment of graduate schools, funding
of post-docs abroad and SNF chairs. Problem-oriented research is based on
national research programmes (NRP) and national priority programmes
(NCCRs, also known as Nationale Forschungsschwerpunkte – NFS), with
groups of scientists interacting around an important topic. NCCRs are
scientific research networks – run on behalf of the Swiss government – that
are to a certain extent open to industry collaboration (at industry’s own cost)
30. An international comparison (EU Commission and FWF, 2004) shows Switzerland
holding a medium position regarding “share of competitive science funding per
inhabitant”. There are huge differences across countries. Sweden has six times more
competitive project funding per inhabitant (i.e. not per researcher) than Austria;
Switzerland and Denmark are on the middle ground, and Germany (DFG grants only) is
behind Switzerland.

and have a transfer component. An NFP has a socially important mission. In

2002, the SNF awarded a total of CHF 368.5 million for promotion of
research and fostering of young scientists, 18.7% of which was devoted to
national programmes (NRP: 2 %, NCCR: 15.6%; Swiss Priority Programmes:
1.1%). As NCCRs structure the research landscape in Switzerland they play
an important role by improving co-operation and thus avoiding duplication.
Further, they promote scientific excellence not only at the national but also
at the international level (Edler and Rigby, 2004). NCCRs are discussed
again in Chapter 6, when dealing with competence centres in an inter-
national context. For most of these instruments growth has been promised,
but has been partly withheld owing to overall budget constraints (see
Schweizerischer Bundesrat, 2002, pp. 2418ff; Lepori, 2005a, 2005b).
SNF is not only a well-designed institution with adequate instruments; it
is also well-endowed. More money should be available, but there is a growth
scenario: the ERT Message 2004-2007 envisages budget increases of nearly
50% as compared to 2000-03. However, budget cuts are already taking effect.
Are there missing elements? The SNF/CTI evaluation (SWTR, 2002b),
the Neun Punkte Programm (SWTR, 2002a) and other sources (Schatz,
2003a) call for larger and longer-term grants for truly outstanding researchers.
This means not just larger average project grants, but a few big chunks of
money with a double goal: to give generously to the best and to achieve
wide media coverage and public attention, thus raising awareness of science.
The Netherlands, Germany and Austria use this instrument very successfully
(see Box 5.1).
Another issue worth considering is the use of Swiss scientists as peers.

SNF uses a mix of foreign and local peers. Even taking into account the
large number of excellent researchers in Switzerland, the incidence of “Swiss
reviewing Swiss” may not be entirely satisfactory. Even the most advanced
small countries have only a limited number of excellent people in any field.
This issue may become more pressing if SNF raises the amount of funds per
grant. The Austrian Science Fund (FWF), for example, relies entirely on
international reviewers.

Box 5.1. Selected scientific awards

Three national awards provide incentives and support for outstanding individual scientists.
The award of a large sum provides excellent scientists with an opportunity to further develop their
research agenda and their team.
The German Leibniz Prize
The Gottfried Wilhelm Leibniz Prize is Germany’s highest scientific award. Since 1985 it has
been awarded annually by the German Research Foundation (DFG) to scientists of any discipline
performing research in Germany. The prize aims at improving the working conditions of out-
standing scientists, at widening their research opportunities and at lowering their administrative
burden. The prize is EUR 1.55 million for experimental, instrumentation-based fields and EUR
770 000 for scientists working in more theoretical areas. The money is granted on a project basis
for up to five years. In particular, the money is spent to promote young up-and-coming scientists
with a specific research project and to intensify international collaboration. Thus, the prize is
conceptualised as an advance payment for future performance and output. The prize may be
divided among several outstanding scientists. Candidates cannot apply for the award themselves
but have to be nominated by others, e.g. by heads of higher education institutions. A special jury
recommends candidates who are expected to realise high scientific potential in the near future to
the general research support grants committee (Bewilligungsausschuss für die Allgemeine Forschungs-
förderung), which makes the final decision. By 2005, 228 Leibniz Prizes had been awarded,
including 49 for the humanities, 64 for the biological sciences, 81 for (natural) science and 34 for
engineering. The awards are coupled with a large ceremony and strong public relations activities,
making them a major communication instrument for the excellence of German research and the
role of science in society.
The Austrian Wittgenstein Prize and the START Programme
The Wittgenstein Prize is the highest Austrian science prize and was first announced by the
Austrian Science Fund (FWF) in 1996. It is awarded to outstanding scientists who have produced
scientific results of importance for the Austrian research system. It includes an amount of up to
EUR 1.5 million and is awarded once a year. Normally the award goes to one or two scientists,
each getting the full amount. The money is granted for a period of five years and is intended to
improve the research opportunities of the winning scientist(s) and his or her research team. The
prize is open to any scientific field without any quota. Potential candidates have to be nominated
and are subsequently subject to an international peer review. Decisions are taken by an international
jury on the basis of at least six reviews. The prize is awarded by the Austrian Minister for
Education, Science and Culture. According to the president of the FWF, the Wittgenstein Prize
aims not only to foster outstanding scientific research but also to give science a personal face in
order to increase public interest in scientific research. In particular, the winners are expected to
train and promote young scientists. Another programme worthy of mention is the START
Programme aimed at outstanding young researchers of any discipline aged 35 or under at the time
of application. Researchers have the opportunity to plan their research and to build their own
research groups. The prize amounts to up to EUR 200 000 a year and is awarded for six years with
an interim review after three years. The prize is publicly announced once a year. Candidates who
are not yet full professors can apply and applications are first checked by the local committee of
the FWF and the Wittgenstein/START jury and are then subject to an international peer review.
Final decisions are taken by the jury on the basis of four reviews. On average about five
researchers annually receive the START Prize.

Box 5.1. Selected scientific awards (continued)

The Dutch Spinoza Prize
The Spinoza Prize, established in 1995 and awarded by the Netherlands Organisation for
Scientific Research (NWO) is the Netherlands’ most prestigious science award. It is conceived as a
personal award for outstanding researchers of international reputation. A maximum of four prizes
is awarded annually. The winners receive EUR 1.5 million to use for their research for a period of
five years. However, the recipient has to provide a financial plan including costs of staff, materials,
travel costs, etc. Candidates for the Spinoza Prize are nominated by the principals of universities,
the chairs of the departments of Literature and Physics of the Royal Netherlands Academy of Arts
and Sciences (KNAW), the chair of the Netherlands Society of Technological Sciences and
Engineering, the Dutch National Network of Female Professors, the chair of the Social Sciences
Council and the chairs of the NWO research councils. Each of these may nominate no more than
two candidates. The nomination procedure is strictly confidential and even the nominated candidates
are not to be informed. Based on the advice of the Spinoza selection committee, the Governing
Board of the NWO takes the final decision on the recipients of the four prizes. Criteria for
selection are not only the place of tenured position, the age and the performance of the nominated
scientists, but also whether he or she is an inspiring mentor able to attract young researchers,
including from abroad. The prize offers great opportunities and benefits for the candidate’s
research activities.
Sources: www.dfg.de; www.fwf.ac.at; www.nwo.nl
The good practice programmes of SNF include the Junior Professors

scheme (SNF Förderungsprofessuren). Since 2000, the agency has funded
outstanding young senior post-docs at Swiss universities to enable them to
carry out their research more independently. Young scientists can build up
their own first team outside of the strict hierarchies, with a status equivalent
to an assistant professor, while still being part of a department. Up to now
the programme has brought more than 200 researchers to Swiss universities,
following a rigorous, two-stage and highly selective competitive tender,
often with a success rate of only 10%. Most applicants come from universi-
ties other than the host institution; they are often Swiss researchers seeking
an opportunity to return from abroad. The programme is open to all disciplines
and tries to raise the number of positions for women. The SNF grant includes
the salary, a bench fee and money to employ some junior researchers. The
junior professor becomes an employee of the host university but does not
receive substantial university funds. Research and publication are the main
focus of their work. The advantage of this programme lies in: i) the career
opportunity it provides young people; ii) the inflow of outstanding young
people who do not have to “serve a master”; and iii) the contribution it
makes to turning the Swiss university system towards a more tenure-track
path. Some disadvantages (and opportunities for improvement) involve:
i) potential career dead ends owing to the four-year limit on contracts or
failure to integrate; ii) potential integration difficulties into teaching and

curricula; iii) potential overload of the recipients, who act as professors but
lack much support and are often under pressure to write a “habilitation”
(though this is not a formal requirement). It seems that owing to the strict
selection process, most junior professors chosen (by SNF) have a good
chance to get a full professorship (from the universities) after the four-year
term (Jurt, 2004). The challenge for the future lies in better linking funding
programmes, career reform towards tenure track and general university
reform.
To summarise, SNF plays an important role within the Swiss innovation
system. Further strengthening this institution, i.e. providing it with more
money for funding, is a good strategy for three reasons:
• SNF sends the right quality signals to the science system, and bottom-
up projects play a key role in this respect.
• As Chapter 6 will argue, SNF-CTI co-operation could be stronger in the
future with respect to research with a mid-term commercialisation
perspective.
• The impact of some SNF funding initiatives on university structures
is delicate but important, as programmes such as NCCRs or Junior
Professors show.
5.5.3 A multitude of other actors

Although this review does not aim to provide comprehensive coverage
of all actors in the area, it is worth recalling that the rich tradition and great
achievements of Swiss science have also been shaped by a number of other
important actors, including:
• The innovation promotion agency CTI. CTI is the most important
source of funding with respect to the creation and maintenance of
research capacity in Switzerland’s UAS. CTI also funds a significant
part of the application-oriented research conducted at the federal
institutes of technology. In addition, it contributes to the formation of
the new generation of researchers by funding about 1 000 doctoral
students and junior academic staff at Swiss universities each year.
• The Confederation of the Swiss Academies of Sciences.
• Private non-profit foundations like the Hasler or Gebert foundations,
visible contributors but not the equivalent of institutions such as
Volkswagen Stiftung or The Wellcome Trust.
• Private universities such as IMD in Lausanne.

• A certain number of research centres, sponsored either by industry or by

government, ranging from the four important ETH sector research
institutes to privately sponsored institutions like the Fredrich Miescher
Institute or the Basel Institute for Immunology. Other notable institutions
with strong publication records include hospitals, IBM Rüschlikon (also
private), the Swiss Risk Research Institute or the Cancer Research
Institute ISREC. Large enterprises such as Novartis, Roche and Nestlé
contribute strongly to scientific publishing.
• Avenir Suisse operates as a foundation and independent think tank. It
was created in 1999 by 14 large Swiss firms. It deals with the socio-
economic development of Switzerland, concentrating on a number of
issues including education, research and innovation. Quality of schools,
the Bologna Process and international competition in higher education
as well as technology transfer issues are its main topics.
• Other project funding for scientific research comes from departments
and cantons through commissioned research (Auftragsforschung).
All these institutions have important primary or complementary functions
either in funding or performing or promoting high-quality research.
5.6 Internationalisation issues
5.6.1 CERN
Switzerland – together with France – hosts one of the largest and best-
known scientific research facilities in the world. When scientists want to
learn more about the secrets of the universe, they come to CERN.
Occasionally they come up with very practical inventions such as Tim
Berners-Lee’s World Wide Web. Thousands of foreign researchers work
and live in the area or visit CERN from abroad. CERN is the seventh largest
producer of scientific publications in Switzerland (Lepori, 2003). This fact
and the underlying potential do not seem to be adequately reflected in some
presentations of the Swiss innovation system. This may largely be a reflection
of the immense richness of Switzerland’s research landscape but it may be
also due to a strong concentration on current challenges (such as university
reform).
5.6.2 International funding of research

Since 1987 Switzerland has participated in the Framework Programmes
of the European Union on a project basis, and since 2004 it has unlimited
access and has moved from a project-to-project to a lump-sum finance
model comparable to that of EU member states. Its record in participating in

these large international programmes has been very successful. In FP5,

Switzerland was involved in about 1 600 projects, for CHF 481 million in
funding. Scientific institutions were able to acquire most of the returns;
participation and funds are concentrated in a few institutions. The ETH
sector accounted for 32% of Swiss participation in FP5 and for 34% of the
funds, and the university sector accounted for 24% of participation and 26%
of funds. However, the concentrated distribution of EU funds to the ETH
sector has diminished slightly from FP3 to FP6. As regards thematic
orientation, Swiss researchers are strongly represented in the fields of life
sciences and ICT. The Swiss institutions that were most successful in raising
money from the LIFE programme of FP5 were the University of Zurich, the
University of Lausanne and the ETH Zurich. For the IST programme, the
EPFL, the ETHZ and the University of Geneva are in a leading position
(BFS, 2004; Bieri et al., 2005). Policy documents by SBF and SWTR show
a positive attitude towards future involvement in European Research Policy
and the European Research Area, in particular as regards the new European
Research Council (ERC), whose aim is funding high-end scientific projects.
The Swiss science system will certainly perform well in the context of this
new and prestigious funding instrument which is expected to become the
European equivalent of the US National Science Foundation.
Participation in the science-driven COST initiative fosters internationali-
sation of scientific research. The institutional distribution of a total of CHF
12 million to COST in 2005 again shows that the ETH sector benefited the
most, accounting for 38% (CHF 4.69 million) of the funds, while the uni-
versities gained about 31% (CHF 3.69 million) (SBF, 2006). Besides the
Framework Programmes and COST, a multitude of other participations and
funding streams exist, e.g. in the context of ESA. While ESA generates a
two-way flow of far more than CHF 100 million a year, the main beneficiary
is not the academic but the private sector, namely Contraves (Lepori, 2005,
p. 30).
Another aspect of international funding of Swiss scientific research is
funding by private sources from abroad. However, it has been difficult to
obtain hard data on the attractiveness of the Swiss ETHs and universities as
contract research partners for foreign firms. According to a flow chart of
R&D funding provided by the Bundesamt für Statistik (BFS, 2006), foreign
investment into the overall Swiss R&D system equals CHF 685 million, all
of it going to private sector R&D.

6. THE BUSINESS SECTOR IN A NATIONAL INNOVATION SYSTEMS PERSPECTIVE – 99
Chapter 6
THE BUSINESS SECTOR IN A

NATIONAL INNOVATION SYSTEMS PERSPECTIVE
6.1 Introduction
This chapter concentrates on the source of income and wealth creation –

the business enterprise sector. It focuses on business firms, in particular on
their innovative behaviour and their ability to grow and improve their
competitive performance by introducing new products, processes and
services.
This review primarily addresses the role of policy in matters relating to
innovation. What can Swiss innovation policy do to support private sector
innovation, ultimately with a view to growth performance? What instru-
ments are available and how do they fit into the overall economic frame-
work? Do they constitute the best options available to help innovative firms
succeed? Are the public support mechanisms complete, systems-oriented
and portfolio-oriented, and are they successful?
This chapter first covers three relevant features of the Swiss industrial
landscape: the innovative behaviour of large and small firms, new technology-
based firms (NTBFs) and their support structures, and industrial clusters. It
then looks at existing forms of public support for private innovation,
including CTI and university transfer mechanisms. Both of these traditionally
address public actors in Switzerland, namely universities, but their main
mission is to spur innovation by firms that are sufficiently skilled to
formulate advanced needs. Some suggestions will be made about filling
possible gaps and a number of examples of foreign good practice illustrate
potential approaches. It turns next some important service industries and
their potential for contributing to innovative activity in the Swiss economy.
A final section focuses on international issues such as outward investment
by foreign firms.

100 – 6. THE BUSINESS SECTOR IN A NATIONAL INNOVATION SYSTEMS PERSPECTIVE
Swiss business enterprises are very innovative in many respects. Still,

they have not achieved their overall growth potential in the last 15 years and
a shift to an accelerated growth path will require a pick-up in productivity.
Innovation will be a key factor in improving economic performance.
Experience in OECD countries shows that well-designed innovation policies,
using an adequate mix of policy instruments, can contribute by spurring
private sector innovation.
Switzerland’s innovation policy tries to help spur industrial innovation,
but – in terms of public support for R&D – nearly exclusively through what
in this review is called “supply-side” instruments. These include sophisticated
forms of subsidy to universities and UAS in order to help firms. Scientists
define projects with industry participation, while the concept of valorisation
of knowledge leads to the creation of transfer centres and networks of
transfer institutions. This approach is well-founded and should, in general,
be maintained, although it seems to have limits. On the other hand, there is
no public support for mobilising demand for R&D and related services,
specifically in small firms. One notable exception regards new technology-
based firms (NTBFs), for which Swiss innovation policy applies a mix of
supply- and demand-side instruments. While the United Kingdom, for
example, generally takes a cautious approach to policy intervention, a recent
report dealing with business-university co-operation states that the “main
challenge for UK is not about how to increase the supply of commercial
ideas from the universities into business. Instead, the question is how to
raise the overall level of demand by business for research from all sources.”
(Lambert, 2003, p. 3) This may also constitute good advice for Switzerland.
6.2 Some properties of the system
6.2.1 Framework conditions

Many of the framework conditions for innovation are good. Switzerland
generally provides supportive framework conditions for research and inno-
vation, with a reliable legal framework, including for intellectual property
rights, generally favourable taxation, a highly developed financial system, a
well-educated labour force, etc. The international openness of labour markets
vis-à-vis the European Union facilitates the recruitment of personnel, in-
cluding human resources for science and technology (HRST).
Nevertheless, there is considerable room for improvement, in particular
in sectors where small companies active on a regional or national scale but
without graduates at management level predominate, e.g. in much of the
construction sector (OECD, 2006a). A lack of competition in sheltered parts
of the economy is one of the major causes for sluggish productivity growth.
Increasing competition through reform is therefore a major policy option for

boosting productivity. Fiercer competition can also be expected to have a

positive impact on economic performance by stimulating innovation.
Entrepreneurship is another area for potential improvement. Barriers to
entrepreneurship include difficulties in financing new and innovative
businesses, regulatory burden and opacity, and a punitive bankruptcy law.
Double taxation of dividends makes equity financing expensive compared to
internal funds and bank loans. The supply of venture capital is small and
tends to be used by older firms for low-risk projects rather than by younger
and innovative firms. Together, the bankruptcy law and the high cost of
equity financing slow the growth of small and new firms.
6.2.2 Innovation dynamics of large and small firms

The overall innovation performance of Swiss firms can be qualified as
good and, in many instances, excellent by international standards. A number
of multinational enterprises (MNE) are of Swiss origin or have their head-
quarters in Switzerland, some of them operating in areas of high technology
and successful in an environment where sustained innovation is indispensable
for success. Furthermore, there are a number of sectors of traditional Swiss
strength, such as machine construction, with firms of various sizes. The
SME sector is an important pillar of the Swiss economy; nearly 90% of all
firms employ fewer than ten people, and only 0.3 % of firms have more than
250 employees.
As regards private sector R&D, Switzerland’s historically excellent
position slowly eroded relative to other countries in the 1990s. While it led
the world in 1989 for business enterprise R&D as a share of GDP (ahead of
Germany and Japan, the only other OECD countries at the time with
business R&D intensity of over 2%), in 2000 it had fallen to fifth position
after Sweden, Finland, Japan and the United States. Since then, the growth
of business enterprise R&D has picked up but Switzerland has not regained
the first position.
Over the years, R&D spending by Swiss companies abroad has grown
much faster than investment at home. In 1989, about CHF 6 billion was
spent within Switzerland and about 5.5 billion abroad. By 2000 the situation
had reversed: while industry R&D spending at home was about CHF 8 billion,
spending abroad was CHF 9 billion (EVD, 2003). The strongest motives for
going abroad include proximity to markets and leading universities/research
institutes, better access to qualified staff and stronger direct and indirect
R&D funding (EVD, 2003, p. 30). The last of the motives may to some
extent reflect a lack of public support to industry in Switzerland. Outward
investment is driven by 12% of the innovating Swiss firms in sectors with
high R&D intensities (Arvanitis et al., 2004, p. 44).

The Swiss Innovation Survey (Arvanitis et al., 2004) provides an over-

view of the innovative capacity of Swiss firms. The survey is based on a
representative sample of more than 2 500 responding firms in the manu-
facturing and services sectors. The most recent survey is the fifth of its kind
since the late 1980s, and therefore allows for analyses of input, output and
market-related data over time. According to this source, the share of inno-
vating firms in industry exceeds 65%, with most industries’ share between
60% and 70%. Overall, new products are more frequent than new processes.
In the services sector (including construction) about half of respondents
claim to innovate, but there is greater variation across industries: while
information technology/research-oriented services and industry-related services
come close to the manufacturing average, most other service industries report
less innovation. In manufacturing, the textile and automotive industries both
report strong process and product innovation, while in electronics, machinery
or chemistry innovation is more product-driven.
For the period 2000-02, more than 34% of all responding firms reported
R&D expenditures (49% of all manufacturing enterprises and 24% of
services sector firms). The strongest industries in these terms are chemicals
(including pharmaceuticals), textiles, machinery, electrical engineering,
electronics, the watch and the automotive industries. There is high R&D
investment (in the range of 5-7% of turnover) in electronics, the watch
industry, automotive and energy, followed by chemicals/pharmaceuticals,
machinery and electrical engineering with about 3% each. There is a similar
sectoral pattern for patenting. The few industries that show a substantial
share of firms with a portfolio of more than five patents include the watch
industry, electronics, metals and chemistry/pharmaceuticals as top performers.
Innovation behaviour across all industries is correlated to size As regards
R&D expenditure, firms with fewer than 50 employees invest markedly less
and firms with more than 1 000 employees markedly more, while the size
classes in between are close to average.
Switzerland’s innovation performance has deteriorated sharply over
time. As Figure 6.1 shows, all indicators show a downward tendency with
stabilisation setting in only lately. Patenting and R&D activities suffered
severe declines. This goes hand in hand with a reported concentration on
core activities and more short-term innovation projects in many industries.
For the service industries the picture is less clear, partly owing to a lack of
data. The reduction in industrial innovation is a matter of particular concern
(Arvanitis et al., 2004, p. 64).

Figure 6.1. Innovation activities in industry, 1988/90-2000/02
Firms with innovations
Firms with
R&D activities
1988/90
1991/93
1994/96
1997/99
2000/02
Firms with
patent activities
Firms with products

new to the world
0 10 20 30 40 50 60 70 80 90 100
As a percentage of all firms
Source: Arvanitis et al. (2004).
In a comparison based on the Community Innovation Survey (involving

the performance of member countries and the EU average) Switzerland still
ranks at the top: it takes first place in Europe for the number of innovating
firms, second for innovation expenditures, fifth for number of innovators
basing their new products and processes on R&D. As regards R&D input of
firms Switzerland ranks second (after Sweden). In terms of size and innova-
tion, small, medium and large firms have an outstanding position in the
international arena. Medium-sized firms appear particularly strong. (For
overall comparisons, including of individual sectors, see Arvanitis et al.,
2004, p. 95 ff). However, as mentioned, the evolution of indicators over time
has been less favourable.
6.2.3 New technology-based firms, risk capital and venture funding

There is a range of evidence of dynamism among NTBFs:
• In the last six years, the ETH sector has spun off about 140 firms. This
is a considerable achievement (ETH-Rat, 2005).

• CTI’s start-up initiative (CTI Start-up) lists 100 successful firms founded
in the last ten years which already employ more than 25 people.31
Together, these 100 firms account for more than 8 000 new high-
technology jobs, of which 45% are in ICT, 39% in services and 10% in
biotechnology.
• In the Zurich area alone there are about 100 biotechnology start-ups,
indicating very active development in this area.
• ETH Zurich lists 55 spin-off companies younger than five years, and the
University of Basle a total of 16 since 1999.
• For 2002, Swiss universities report 55 spin-offs, 30 of them on the basis
of a licence agreement.32
• Basel’s two large pharmaceutical companies play a strong role in
spinning out but also in spinning in, i.e. acquiring promising bio-
technology companies, both globally and locally.
• While the role of the cantons is not easy to assess owing to a lack of
formal cantonal innovation policies, there is no doubt that the regional
level plays an important role in the success of young firms: a number of
technoparks – such as the large one in Zurich with about 200 tenants –
house and cluster young firms. Cantons also can provide cheaper
building sites and negotiate individual corporate tax rates with (new)
firms.
• The question arises as to why no “Rüschlikon Valley” clustering of
ICT-related activities has evolved. Answers may include risk adversity,
a lack of strong leading firms and lack of a leading role by Telco
Swisscom, and weak push from universities in the 1980s and 1990s.
Opportunities for NTBFs in ICT are seen in niches such as crypto-
graphy, finance or security.
For venture capital (VC), the Swiss market is described as quite small,
with the typical continental European “finance gap” between seed money
and large-scale investments for NTBFs. This gap – if it really exists in the
Swiss case – threatens the growth of high-technology firms and starves them
31. www.venturelab.ch/dt/top100.asp.
32. This scattered evidence has to be contrasted with the overall number of entrepreneurs
starting a company. In 2003, 11 200 start-ups were reported, mostly very small enter-
prises in the services sector with a strong but slowly declining role in the informatics
sector (BFS, 2005e).

on the way to an initial public offering (IPO).33 However, Swiss (cantonal)

banks and industry-financed funds (like the Novartis VC fund) are reported
to play an important role. In a European perspective, the country ranks
below average (64%) for high-technology venture capital while early-stage
VC is clearly above EU average (154%). The Global Entrepreneurship
Monitor (GEM) survey describes the Swiss VC market as modest, with
growing problems and fewer private actors in the early stage (Volery et
al., 2004, p. 25).
Public support for entrepreneurship is provided through CTI’s start-up
funding programme plus a mobilisation initiative called Venturelab. More
than 1 000 students a year take part in entrepreneurship workshops and
about 60-80 start-up firms enter the CTI coaching programmes. The CTI
Start-up label is seen as a trigger for VC: 21 young companies so labelled
were able to obtain CHF 90 million in VC in 2004 (KTI, 2005). The agency
launched its start-up programme in 1996 and has since labelled more than
100 firms out of 1 000 evaluations, of which 40% from the life sciences and
another 40% from ICT. An evaluation in 2003 stated that this initiative is
recognised by VC funds and other investors. It was recommended that CTI
should broaden the programme and sponsor comprehensive management
teams to support the foundation of high-technology firms, complemented by
teaching and awareness activities. CTI Venturelab and the relatively new
Start-up and Entrepreneurship programmes were the result of this
evaluation. The new Discovery Projects, with up to 100% CTI funding for
scientists’ risky ideas, also belongs to this category. A growing number of
private actors such as the De Vigier Foundation are also actively supporting
young high-technology firms.
Entrepreneurship as an attitude within society is compared inter-
nationally on the basis of a number of indicators (Volery et al., 2004)
relating to identification, evaluation and commercialisation of new ideas, the
common form of realisation being a start-up company. In the Global
Entrepreneurship Monitor (GEM), Switzerland has an average position.
6.2.4 Clustering, networking and regional initiatives

Swiss policy on clustering seems at first glance rather hesitant, in
contrast to neighbouring Austria, for example. However, there are a number
of traditional industry-driven activities, as well as various policy initiatives
33. This “continental European” phenomenon seems to go hand in hand with the aspiration of
many entrepreneurs not to become another Bill Gates, but to run their own 10-20
employee enterprise (“lifestyle companies”).

based on the so-called new regional policy. The latter attempts to build up
larger structures in seven regions by applying a number of policy instru-
ments and approaches, including clustering (for a critical view, see Wüthrich,
2003). At the cantonal level, some kinds of integrated policies have been put
in place around certain important topics. Clusters rely heavily on linkages
between similar and complementary firms within a certain geographical
area. Framework conditions shaped by public policy and a sound scientific
and educational base are crucial. Cantonal industrial support policies are not
very pronounced, though some cantons actively attract inward foreign
investment. Joint projects or networks tend to fall into an area between
cantonal and federal SME and CTI support (see OECD, 2002b).
In Switzerland regional strengths in biotechnology, machine construction
or finance appear to be promoted through both material and intangible
public support (infrastructure provision and common working groups). One
study (Berwert et al., 2004) identifies five interrelated clusters, specifically
in the central Swiss area: agro-food; service-related industries; metals/
machinery and construction; electrical equipment and chemicals/pharma-
ceuticals; and textiles. SECO presents six technology fields/clusters on its
website: biotechnology, medical technologies, ICT, micro- and nano-
technologies, services and environmental technologies. In addition, energy/
energy technologies is an active cluster with strong innovation and links to
scientific institutions. Examples of regional clustering include design clusters
and nanotechnology clustering in the Lake Constance region and a number
of Greater Zurich initiatives. Zurich has an explicit policy in fields such as
biotechnology (including MedTech and automatisation), finance and the
creative industries. Some clusters receive public support in the first years but
there seems to be disagreement over whether to abstain from support, to
support individual firms on the cantonal level or to promote clusters.
There appear to be advantages to bottom-up approaches based on
experience rather than on policy design, and industry-driven rather than
government-driven approaches (but with government support where appro-
priate). The UAS sector can help build strength in (emerging) clusters.
Generally, the best idea might be to support clusters for which industry has a
record and displays considerable initiative of its own. Box 6.1 shows how a
midwestern US state built up a significant industry-led and mostly industry-
sponsored life sciences cluster.

Box 6.1. Biocrossroads: biotech clustering in Indiana, United States

Drawing comparisons between US federal S&T policy approaches and those of (smaller)
European countries is often difficult and sometimes misleading. This is due to size differences and
also to differing policy portfolios. Examples include the important role of public high-technology
procurement and the existence of many national laboratories in the United States. For their part, many
European countries rely on direct federal funding of private S&T activities via projects and pro-
grammes. Public university dominance and block funding are also typical of European innovation
systems. While the characteristics of the Swiss system lie somewhere in between, the size factor alone
makes it difficult to use the US federal level as a benchmark.
At the level of individual US states there are interesting models of technology policy measures.
Indiana, a midwestern state with 6 million inhabitants, has a number of interesting features such as a
strong manufacturing base (machinery) and a large and successful health industry. The latter accounts
for about 275 000 jobs, mainly in the private sector. This is, in relative terms, the second highest con-
centration of biopharmaceutical employment in the United States. Notable strengths are biomedicine/
biotechnology with Eli Lilly the best-known and largest company. Other headquarters and affiliates
include Roche Diagnostics, Guidant, Bayer, Dow AgroSciences and Wellpoint. Indiana also hosts
very successful firms in the field of medical technology/implants, including Stryker or Zimmer, the
world’s largest orthopaedics firm. The university sector with Purdue University, the University of
Indiana and Notre Dame University plus the second largest US medical school, is strongly focused on
biotechnology. It attracts a considerable amount of federal (National Institutes of Health, National
Science Foundation, etc.) and foundation (Lilly Endowment, etc.) money. The universities invest in
technology parks and other outreach activities.
Policy makers in Indiana faced a number of challenges a few years ago. Biotechnology trends
drew more and more enterprise activities towards the East or West Coast for collaboration, spin-in
and human resource activities. The absence of an Indiana venture capital (VC) market made continuous
financing of start-up companies impossible. Though Indiana was recognised as a top emerging bio-
technology area, public and private actors saw the need to develop stable platforms to strengthen the
cluster.
In 2002, BioCrossroads was founded as Indiana’s life sciences cluster initiative on the basis of
two analytical studies. The interesting feature is the combination of a public mission with mostly
private financing. The Central Indiana Corporate Partnership, a group of leading businesspeople and
academics, was the driving force, actively supported by state and city representatives. The mission
aims at better leveraging of the state’s existing life science assets to create new jobs and spur new
business opportunities. A large board of leading figures from the public and private sector steers the
activities of a small management group.
Activities include: i) measures to boost entrepreneurial culture; ii) the identification and
development of promising new fields (e.g. building bridges to the sports business, as Indianapolis
houses a number of nationwide sports accreditation bodies and agencies); iii) human resource and
marketing activities; and iv) measures to build up a VC market. In 2003 a number of institutional
investors, co-ordinated by Biocrossroads, collected USD 73 million and created the Indiana Future
Fund (IFF) to invest in regional and national VC funds and better direct venture capital to specific
types of investment, mostly in Indiana. The money comes from public pension funds, corporations,
university endowments and foundations. This fund is managed by Crédit Suisse. Universities act as
investors and there is an interesting balance between large firms, public actors and private non-profit
institutions at the level of cluster policy making. IFF is complemented by the USD 4 million Indiana
Seed Fund for regional seed and pre-venture investment managed by BioCrossroads. Another
instrument is the publicly financed Indiana 21st Century Fund to foster science-industry co-operation.
Source: www.biocrossroads.com

6.3 Industrial innovation and public policy
6.3.1 Helping SMEs to innovate

For specific issues and framework conditions of importance to a particular
class of drivers of innovation in the business sector, SMEs, the picture is
more differentiated. The well-being of SMEs is important because they are
responsible for most business sector employment and play an important role
in the renewal of economies. They are a potential breeding ground for new
technologies, new forms of organisation and processes, and at the same time
constitute a stable, locally rooted part of the economy.
The OECD Economic Survey of Switzerland 2006 observes: “Firms are
typically much smaller in Switzerland than in most other countries: close to
90% of firms count less than 10 full-time employees and account for 25% of
value added. Innovation capability decreases with firm size and anecdotal
evidence suggests that very small firms face major difficulties to absorb new
technologies, due for example to the lack of a qualified engineer on the
payroll. The innovation capabilities of SMEs may also be more sensitive to
the business cycle than those of large firms, since they tend to derive a
larger share of their profits from the domestic market. Finally, product
market regulation remains much more stringent in Switzerland, implying
that competition and incentives to innovate are low in sheltered sectors.”
(OECD, 2006a)
The Swiss economy is in a slightly less advantageous position than
framework conditions suggest, e.g. for the creation of companies (such as
IPR protection or the quality of R&D facilities). While the Swiss propensity
to set up new companies is among the strongest in European countries, it is
still below the world average and has not progressed over the last years.
Even more importantly, “[E]stablished companies have a low entrepreneurial
orientation, as compared to other European countries. All in all, a low
percentage of Swiss jobs are provided by firms having an entrepreneurial
spirit, suggesting a low rate in business renewal.” (Haour et al., 2006, p. 1)
While “entrepreneurship” is a rather soft concept which includes attitudes,
the Global Entrepreneurship Monitor provides good international comparisons
and an appraisal of the dynamism of different economies. The GEM 2005,
like that of 2003, observes that Switzerland’s position is weak in the
financing and funding especially of young (and often very small) SMEs, in
particular owing to a lack of equity and credit-based financing (Volery et al.,
2003, 2006). Switzerland seems to be a special case: endowed – by inter-
national standards – with an extraordinarily large amount of equity, it
channels these riches into new and risky businesses to a very limited extent
(Volery et al., 2003, p. 24).

In the Swiss Innovation Survey (SIS) (Arvanitis et al., 2004), “lack of

finance” is identified as a significant barrier to innovation. Swiss firms rank
constraints related to risk, cost and available financial sources as the most
important. Five out of the six top-ranking “strong” and “very strong”
barriers are related to this issue (Arvanitis et al., 2004, 77 ff): high cost of
innovation (rank 1, more than 40%), long payback periods (rank 2, more
than 30%), lack of equity (rank 3, also more than 30%), high market risks
(rank 5, more than 25%), lack of borrowed capital (rank 6, more than 25%).
All lower-ranked factors/barriers are below 20%, many around the 10%
threshold, including regulatory, organisational and human resource factors.
Unfortunately, international comparisons are rather difficult as the European
Innovation Survey and the SIS use partly different questions and scales. Yet
the authors of the SIS conclude that Switzerland is one of a group of
countries that is most affected by financial barriers, in terms both of equity
and borrowed capital (Arvanitis et al., 2004, p. 129). This evidence is in line
with the GEM results reported above. All the major barriers found in the SIS
mainly affect SMEs, with high cost and lack of financial resources in the
lead (Arvanitis et al., 2004, pp. 81 ff). Interestingly, less than 10% (rank 19)
of Swiss firms perceive a lack of public R&D promotion funds as a strong or
very strong barrier. Yet public funding, e.g. of SMEs’ innovation projects,
may help to improve the availability of equity.34
Switzerland’s decision not to provide direct public support to business
R&D is a strong policy tradition (see European Commission, 2005b). In a
comparison of 11 industrialised countries, only Japan shows a comparably
low percentage of government financing to business sector R&D (data for
the mid-1990s, see Lepori, 2003). Switzerland is one of the very few OECD
countries that rigorously refrain from providing direct financial support to
firms for R&D or innovative activities. The Nordic and continental European
countries use such instruments, as does the United Kingdom, especially
through a number of SME-related programmes. A close look at the United
States shows that many of the 50 states engage in industrial innovation
promotion activities, and the federal level enters via public procurement
activities or long-term contracts through the Defense Advanced Research
Projects Agency (DARPA). The US federal innovation system includes
science-industry co-operation centres such as the NSF’s Engineering Research
Centres (ERC), long-term innovation funding such as the Advanced Tech-
nology Program (ATP) or SME-specific innovation funding like the Small
Business Innovation Research (SBIR) scheme.
34. The lack of equity capital is especially problematic as innovation projects are usually
financed from this source (Arvanitis et al., 2004, p. 82).

This review shares Swiss policy makers’ concerns about opening a

Pandora’s box that would lead to a proliferation of public funding schemes.
Some OECD countries, such as Austria and the Netherlands, currently need
to streamline their innovation policy portfolios (OECD, 2005b; Schibany
and Jörg, 2005). At the same time, policy should be flexible enough to allow
direct funding when it is needed and is likely to be the most efficient way to
support R&D and innovation, e.g. in SMEs. Results of both the SIS and the
GEM suggest at least the need for open discussion and perhaps some
experimental policy action.
The Swiss tradition of refraining from directly funding business firms
should be respected and, in general, should continue. At the same time, this
general rule should not strictly preclude exceptions, when net benefits can
be expected to be high and direct funding is more effective, e.g. when
sustainable changes in firms’ behaviour are part of a programme’s rationale.
Given the Swiss approach it is recommended to start with a more in-
depth external view of this issue. Long-held views may be locked in by
mutual confirmation among policy makers, enterprise representatives and
experts and may block discussion of alternatives. Based on Swiss evidence
as well as the experience of other OECD countries, steps to provide optimal
support for innovation in Swiss SMEs might include the following:
• Consider a comparative study on the innovation behaviour of small
Swiss firms, including those operating in traditional sectors, preferably
with participation by foreign researchers. A study giving special attention
to problem solving and capability building in SMEs could provide
evidence on a number of issues. What is the dynamics of the population
of innovative firms? How do such firms upgrade their capabilities and
innovative activities? How and by whom are problems and potential
solutions in science-industry co-operation projects identified?
• If this study shows a need (it may find that the public support portfolio
does not require another kind of intervention), CTI could set up a small
pilot programme with a few percent of its budget or some extra funding.
Funding for such a programme should be closely linked to problems and
demand as defined by firms and should aim exclusively at SMEs to help
them, for example, with their first steps towards in-house innovation.
• The funding could take the form of grants (with public funding limited
to a maximum of 50%) for smaller SME innovation projects, accompanied
by coaching and marketing support. An interesting option could be the
“first graduate engineer” or an “innovation assistant” within a firm. Such
programmes exist in many European countries and regions (Leitner and
Ohler, 2000). Another example is the United Kingdom’s SMART pro-
gramme (and its follow-up, the Grant for Research and Development
Programme) (Bodenhöfer et al., 2004, pp. 98 ff). However, it is strongly

recommended that, if implemented, there should be a single, not too

large programme.
The French OSEO/ANVAR programme illustrates important features of
SME support (Box 6.2).
Box 6.2. OSEO/ANVAR: supporting SME innovation in France
French innovation policy is best known internationally for big schemes, grand schools and
technology procurement initiatives. Nevertheless, in France SMEs are the backbone of the economy.
The French government supports the innovative activities of these firms with well-established,
regionally based instruments.
ANVAR (Agence National de Valorisation de la Recherche) was founded as an innovation
promotion agency by the French government in 1979. Since 2005 it is part of the OSEO group,
together with the SME development bank BDPME, its affiliate Sofaris and the SME agency
ADPME. Under the joint authority of the ministries for industry, small business and research, OSEO
serves as a one-stop shop for fostering innovation. “On the occasion of the renewal of its contractual
arrangement with the State for the period 2004-07, ANVAR’s role has been formally consolidated as
main organiser and co-ordinator of innovation support measures at the regional level.” (European
Commission, 2005) While the other branches of OSEO provide guarantees and comparable
instruments, ANVAR combines advice and soft loans for SMEs (in the French context, firms with
fewer than 2 000 employees). There is a special focus on young and newly founded firms and
research organisations can also be supported. Its mission is to tackle the technical, commercial,
financial and human challenges of innovation, based on the evidence that smaller firms have
difficulty financing risky projects at different stages of the innovation process. The agency can also
finance feasibility studies and has included the services sector as a target group of special importance.
The overall ANVAR budget in 2004 was EUR 160 million.
Three issues are of key importance: regionalisation, consulting and soft loans. “Regionalisation”
means that all fieldwork and funding have been decentralised. All applications are fully managed by
the 24 regional delegations. “Consulting” means that the regional chargés d’affaires provide advice,
networking, partner search, other funding options and information. Training and help in technology
transfer issues complement the portfolio. These delegations therefore need experienced employees,
which is not always the case. “Soft loans” means that funding consists of a credit to be paid back if
the project succeeds, otherwise it becomes a subsidy. An agreement with the assisted company
defines the criteria of success and eventual payback. ANVAR uses 85% of its budgets for interest-
free loans to SMEs and laboratories; these cover up to 50% of the expenditure relating to the
innovation or transfer project.
Other instruments include subsidies for preparing start-up businesses, together with the research
ministry, subsidies for students working on innovative projects with companies, and subsidies for
recruiting R&D engineers in SMEs. With CORTECHS, France also has a second instrument for
supporting the recruitment of technicians on innovative projects.
An evaluation based on a questionnaire covering successful and rejected applicants indicated that
ANVAR’s instruments are efficient and effective. Young and small companies reported a very high
net impact. Overall, 20% of respondents reported that they would not have started the project at all,
and 50% would have done the work at reduced scale or at a later stage (De Laat et al. 2001, p. 29).
Non-financial support was rated especially high by small and young firms. The evaluation generally
recommends that ANVAR focus even more on very small and new firms. Moreover it suggests that
the expert “militia” team should change from time to time and should include foreign expertise.
Sources: European Commission (2005); De Laat et al. (2001); Warta and Rammer (2002); www.oseo.fr.

6.3.2 The case of CTI

The CTI dates back to 1943, when it was founded as a commission for
the promotion of scientific research with a macroeconomic rationale. CTI is
a federal commission, part of EVD’s BBT, and acts as the main federal
innovation funding agency. Its central mission includes two terms: “Science
to Market” and “Valorisation of Knowledge”, which point both to the
ultimate economic goal and the Swiss “supply-side” policy principle. CTI
builds its interventions on the premise that Swiss science is excellent but
that there are bottlenecks for the application of scientific results. Its 2002
self-evaluation sees the agency’s focus as support to firms for the use and
transformation of new technologies and new knowledge into new products
and processes.
CTI’s four sections assemble some 50 additional experts who – together
with others – also act as evaluators. Though professional, full-time staff
manages the organisation’s daily business, the “militia” element appears to
be strong, especially in evaluating proposals and coaching of research teams.
Experts come from both science and industry, raising the issue of expertise
versus potential proximity to projects. Foreign evaluators seem to be the
exception rather than the rule, as pointed out in previous evaluations of CTI
programmes (Sturn et al., 2005).
CTI has a slowly growing annual budget of around CHF 100 million in
the multi-annual federal budget already described.35 This sum represents
about 3% of the overall public R&D budget. Funding of “applied” projects
concentrates on a mix of bottom-up and top-down principles; the recipients
are higher education and research institutions, with industrial partners
contributing as a rule at least 50% of the costs. Typically, a firm articulates
an R&D problem or an academic has an idea about problems innovating
firms might have. The academic then writes a proposal which is reviewed by
experts and co-funded by CTI and the industrial partner. CTI provides
financial support for industry-commissioned R&D performed by academia.36
The UAS and the ETH sector receive most of the funding. De facto the main
35. The last ERT Message foresees CHF 580 million for the four year period 2004-07, but a
number of budget cuts reflect the difficulties the Swiss government faces for maintaining
an expansionary perspective even in areas that contribute to future growth such as higher
education and innovation.
36. In the Austrian FIT-IT programme which funds embedded systems and similar enhanced
IT projects, one funding line is very similar. Evaluators found that it was mostly
university professors who “found” the problem, created the idea, wrote the proposal, etc.
(Zinöcker et al., 2005).

industrial target group is SMEs. CTI calls this overall approach the
“subsidiarity principle” (see also SWTR, 2002b). The agency also depends
on the principle of “technology transfer via brains”. The underlying bottom-
up principle is strong, while the top-down elements are moderate, such as
the setting of a number of priority areas which provide a structure for project
appraisal and soft prioritisation. They do not imply strictly defined pro-
grammes.37 The thematic areas make up a balanced portfolio (KTI, 2005):
• Life sciences in general with strong expectations regarding small high-
technology firms. Apart from funding projects, CTI runs or sponsors a
number of outreach, platform and network activities.
• Biotechnology (Swiss Biotech Association, Swiss Biotech Report).
• Medical technologies, as part of life sciences are supported by project
funding and information platforms. Science linkages are considered
especially important for this sector. A recent evaluation, mentioned
above, confirmed the importance of this initiative.
• Micro- and nanotechnologies, funding projects, platforms and compe-
tence clusters. One initiative was taken over from the ETH Council,
which started funding nanotechnology. As SNF is also engaged in this
field, patterns of co-operation exist. Another line (KTI, 2005) en-
compasses engineering technologies.
• Enabling sciences and engineering, both of which have a strong ICT
component; the second aims at small and very small enterprises.
CTI concentrates on technological innovation. For the few measures
regarding the humanities and social sciences, see the UAS-targeted DORE
programme. DORE is now entirely run by SNF. Evaluations of CTI funding
programmes show that funded firms have better innovation performance
than firms from a control group of non-funded firms (Arvanitis et al., 2005).
Another line of CTI priority setting addresses structural issues. Four main
strands can be identified:
37. Given the discussion of cluster-based policy in Switzerland, it is difficult to say whether
KTI priority areas in their present form can explicitly serve and be seen as cluster funding
programmes.

• Projects at UAS apart from the DO-RE initiative. For a description see
Section 5.4 on UAS.
• Funding of start-ups and fostering entrepreneurship in Switzerland. This
programme was discussed in connection with of the creation of new
technology-based firms.
• A number of international engagements like IMS or EUREKA comple-
ment the CTI portfolio. CTI also acts as a Swiss member in CREST and
other European S&T policy forums. The agency shows strong involve-
ment in various ERA-Nets. Outside Europe, activities with China are
gaining in importance.
• CTI contributes significantly to fostering knowledge and technology
transfer between industry and academia by promoting co-operation
between the two sectors. CTI WTT (knowledge and technology
transfer) was established recently and aims at actively connecting
demand and supply. WTT consortia, jointly launched by CTI and SBF,
aim to stimulate future demand for knowledge and technology among
SMEs.
CTI’s experience raises two interesting questions: First, does CTI
complement science funding in a way that orients knowledge towards
industry? Second, is CTI funding inspired, triggered and driven by industry
needs?
The answer to the first question is generally affirmative if: i) professors
have industry contacts or if firms have achieved a certain ability to formulate
technological problems calling for scientific co-operation; ii) CTI funding
induces “additionality effects” where it should, i.e. in the firms (which are
not funded directly themselves); iii) there is a link between SNF and CTI,
with some work done jointly. A potential gap between the two agencies is
now being closed; while a typical CTI project is applied and short-term
(duration of 12-24 months), a new line called “Discovery Projects” funds
more advanced and science-driven projects, again drawn up by scientists
and funded up to 100% by CTI. SNF funding continues to be more science-
oriented and curiosity-driven.
The second question is harder to answer. Basically CTI funding – with
the possible exception of the Start-up programme – follows the “supply-
side” approach discussed above. The underlying rationale seems to be partly
inspired by a linear model in which science outputs shape innovation. As
experience in other countries as well as the literature show, however,
innovation often shapes science, with strong interdependencies (Rosenberg,
1982, 1994). Furthermore, firms sometimes need support to move up the
innovation ladder, first towards better insight and better ability to formulate

what they need from science. For this reason, funding agencies need to
know more about firm behaviour, especially of firms that are as yet unable
to engage in advanced co-operation projects with top scientists. Put simply,
what CTI does is good and necessary. At the same time there should be a
discussion about whether CTI covers all important lines of action. One
programme for direct SME support38 is described in Section 6.3.1.
Such a programme would require only a small part of the extra money
proposed by the SNF-CTI evaluation or the money foreseen in the ERT
Message 2004-2007, which would provide a budget 50% higher than in
2000-03. For standard projects, more funding should be made available to
allow for larger projects where required. These projects could be partly
linked to Swiss or regional cluster development.
Another requirement for CTI is related to the principle of distributed
intelligence. A strong strategic unit would help in analysis, implementation
of an international good practice approach, and programme formulation. It
would not shift policy competencies from the department level or distort the
system but would add to the overall capacity of the Swiss innovation
system. This recommendation is not specific to CTI but is relevant for most
science and innovation funding agencies.39
6.3.3 Relying on “supply side” technology transfer instruments

Technology transfer and the valorisation of science-sector know-how
are important priorities for the Swiss innovation system. Universities and
research centres are encouraged by a number of support instruments to:
i) formulate an explicit IPR policy; ii) establish transfer centres and incuba-
tors; iii) take up entrepreneurship in the curricula; and iv) support networks
of transfer centres. A large number of transfer offices with scouting, incu-
bating, negotiating and licensing tasks are already established, mainly at
universities. These offices are supported by the Swiss Transfer Association
(SwiTT), an association of transfer professionals from Swiss universities
and the UAS. Various IPR regulations have been created or modified at
universities in recent years (see also European Commission, 2005b).
38. The suggested introduction of vouchers to allow SMEs to pay for academic research
services may not completely resolve the issues that have arisen. The real challenge seems
to be to help SMEs resolve their basic in-house innovation issues. The cantons could
directly fund firms but do not do so.
39. See also the evaluation of the two major Austrian Funds FWF and FFF (Arnold et
al., 2004).

The goal of valorisation can be found in the ETH law, in the CTI and
SNF missions and in university reform initiatives. It relies on the idea that
talented, industrious and well-funded scientists have been steadily accumulating
knowledge and that better mechanisms are needed to bring this knowledge
to business enterprises everywhere. It has inspired a multitude of activities
encouraged by public policy. Within the science system, including ETHs
and research centres, cantonal universities, UAS and research institutes,
nearly 40 technology transfer institutions perform various activities. For 2001,
the results were as follows: 240 invention disclosures led to 132 patents;
157 non-disclosure agreements and 60 new confidentiality agreements were
signed. Higher education institutions negotiated 200 new licences, only a
small fraction of them linked to active patents. The overall patent portfolio
consisted of about 1 000 patents and 300 non-disclosure agreements. Every
second patent led to a licensing contract and every second licence generated
income. Revenue figures tend to be poorly reported, but appear to be rather
low (Vock, 2003, p. 196). Another source (EVD, 2003) presents other data
and talks about “several million Swiss francs” of annual revenue for the
entire public sector. A further source reports CHF 15 million of total income
for 2002 (Vock et al., 2004).
The valorisation of knowledge via patenting and licensing is only one of
the activities performed by transfer centres. Others include entrepreneurship
education, contracts with industry, university marketing, information about
research and above all helping university spin-offs to become successful
technology-based start-ups. The SWTR recommends deepening the relation-
ship between SMEs and the higher education sector (SWTR, 2002a). Uni-
versities such as EPF Lausanne have internal seed funds (“innogrants”) with
a broad portfolio of support instruments. According to EPF Lausanne, the
obstacles to innovation are bad risk management, lack of funding, focus on
technology and narrowly “disciplinary” research in academia. It provides
money and time in the following ways: “ignition” projects support new ideas
for 6-12 months, implementation projects provide “innovation fine tuning”
for up to two years, personnel can have a leave of absence to implement
their innovations, and there are internal interdisciplinary poles of excellence
and various student entrepreneurship programmes.40
Policy papers emphasise the economic expectations raised by supply-
driven valorisation and report a lack of co-ordination, mainstreaming and
common standards in the Swiss transfer landscape (EVD, 2003; Schweizer-
ischer Bundesrat, 2002). The Swiss Network for Innovation (SNI) was set
40. http://vpiv.epfl.ch/IN-projects-en.htm

up in 1999 at the federal level to improve the efficiency of higher education

institutions in technology transfer and in valorising their knowledge. It had
38 members from universities, ETHs, UAS, several other research institutions
and enterprises. However, owing to lack of support from the universities and
the UAS, SNI only partly achieved its envisaged goals and was dismantled
in 2004. Another attempt at creating an information platform (“technovation”)
in support of universities’ technology transfer centres was eventually can-
celled for the same reasons. In 2000-03 the SNI received federal support of
about CHF 8 million (Schweizerischer Bundesrat, 2002).41 The latest attempt
by the Swiss government to improve the efficiency of the transfer system
was the creation in 2005 of a limited number of transfer consortia. Using
targeted measures, the transfer consortia are to reinforce universities’
capacity to transfer knowledge and technologies to businesses (push
process). Initiatives will also be generated to encourage companies to
communicate their need for knowledge and technology more clearly to the
universities (pull process) and thereby deliberately and effectively increase
collaboration. The universities of Bern and Zurich run Unitectra as a joint
technology transfer institution, providing strategies, contracts, IPR services
and portfolios, spin-off support and educational services regarding transfer.
From 1999 this joint institution has managed more than 1 500 technology
transfer agreements and generated total licence income of CHF 50 million
for the two universities combined, i.e. on average, CHF 5 million a year per
university.42 The SWTR sees the technology transfer issue as central to the
development of science and technology in Switzerland. However, it does not
recommend new instruments or organisations but improvement and
expansion of existing initiatives (SWTR, 2002a).
All these activities are in line with international trends. Stronger institu-
tional ownership of IPR, explicit IP policies and building up of portfolios,
establishment of transfer institutes and government funding for such initiatives
in the higher education sector have become good practice in OECD countries
although strategies may differ. “There is no ‘one size fits all’ approach to
technology transfer” (OECD, 2003c, p. 13).
While the overall approach can be qualified as positive, two issues
deserve attention:
• Switzerland’s high expectations with respect to technology transfer may
be disappointed in a few years’ time. Wherever an innovation system
41. www.swiss-science.org
42. www.unitectra.ch

bottleneck is identified, “more transfer” seems to be the response.

Technology transfer institutions may work very well (see Box 6.3) but
they cannot solve all problems. Income from licences generally does not
live up to expectations, many firms remain unaware of the merits of
academic research, and the pool of potential start-ups is generally not
very large in smaller universities.
• The idea of networking transfer activities needs to be reassessed since
it could result in a lack of determination and an “entrepreneurship
bureaucracy” layer in the longer term. International experience (see Box
6.3) shows that a very high degree of professionalism and concentration
on core business are the two key factors of success.
There is a strong case for realism and a balanced policy portfolio,
including demand-side measures, i.e. instruments that support capacity
building within firms.
6.3.4 Science-industry co-operation

Co-operation between Swiss business enterprises and academic institu-
tions – based on the high research intensity of the former and the high
quality of the latter – appear strong, and the Swiss Innovation Survey
(Arvanitis et al., 2004) shows a degree of interlinkage far above the EU
average. On the other hand, mid-1990s Eurostat data reveal that Swedish
and Finnish firms place much stronger reliance on co-operation with
universities and research centres than their Swiss counterparts (InnoNation
Schweiz: EVD, 2003). InnoNation Schweiz states that – given the potential of
Swiss firms and universities – co-operation could be stronger. It recom-
mends concentrating on existing avenues, including more funding for SNF
and CTI, long-term projects run by CTI, more technology transfer, improved
information platforms and, finally, better co-operation within the higher
education sector.43 However, public policy already supports linkages of this
kind. As outlined above, practically the entire CTI portfolio consists of
programmes to fund scientists if they collaborate on a bilateral basis with
firms. Beyond single activities, large-scale public-private partnerships also
seem important: The most notable is Systems X, a joint venture between
ETH Zurich, the University of Basle, Novartis and Roche to build up a
systems biology campus in Basle, with ETH Zurich as the driver. Issues
related to proximity to or distance from industry and to a distinct campus or
43. The last includes the idea of transferring ETH/university basic research results to the
UAS sector, where applied research is performed. Instead, it may be preferable for UAS
to get their inspiration from firms.

integration into industrial compounds have been the subject of extensive

discussions.
Box 6.3. YEDA, the IPR arm of Israel’s Weizmann Institute

Policy makers and university leaders all over the world try to find out what works best for
transferring university research results. On the one hand, a number of good management and
human resource issues arise. On the other, there are potential tensions between the scientific
mission and open publication principles, the issue of applied research within scientific institutions
and the striving for high returns and strict IPR protection which raise difficult questions.
The Weizmann Institute in Rehovot (Israel) is an example of an effective technology transfer
policy at a scientific institution. Founded in the 1930s, the institute is a major international
scientific player in the fields of mathematics and computer sciences, biology, chemistry, physics
and interdisciplinary research. As a research centre and “graduates only” university, the main
outputs are PhDs and publications in international journals. “Remind yourselves every morning
that we are an institute of basic research. Yes, we like to make money and receive royalties; yes,
we know how to raise funds; but we are, first and foremost, an institute of basic research”
(Weizmann Institute, 2001, p. 21). About 1 200 researchers and graduate students benefit from a
sound financial base. The institute is partly block funded by the State of Israel (about 35%), part of
its overall budget of USD 170 million comes from various project-funding sources (about 30%). A
third part stems from generous donations and from a considerable endowment. The institute is also
a landowner. Finally, a huge stream of royalties from patents feeds the budget and the endowment.
The institute has a very restrictive policy regarding contract research and consultancy by the
faculty. To be a Weizmann researcher means to do basic research. At the same time patenting and
licensing are important. With YEDA, founded in 1959, the institute has a professional IPR manage-
ment company with a long-standing record of systematic screening, spin-off activities and building
of a patent portfolio. “YEDA is an active IPR commercialisation firm and not a technology transfer
office” (CEO YEDA). About 70 patents a year, most of them in life sciences and IT, are taken up
and held by YEDA. The management looks for potential industrial users and negotiates all
contracts. From modest beginnings, it built an attractive portfolio. About 30 new licensing contracts
are concluded each year. Currently, revenues come close to USD 100 million a year. This is probably
the highest “rate of return” worldwide relative to the size of the research institution or university
concerned. Each year, three contracts bring in more than USD 20 million each. Since this
extremely high level of returns cannot be expected to continue forever, parts of the royalties are
used to further build up the endowment. The returns are divided as follows: except for the YEDA
management fee, about 40% belongs to the individual researchers: “We think it is good if a few
Porsches are parked on campus” (former president of the Weizmann Institute). The rest goes to the
institute’s budget and endowment.
Management of YEDA – a 100% affiliate of the institute – reports directly to the Weizmann
top executive level, but is independent in its operative decisions. It is seen as very important to
treat all transfer activities as a top-level issue, to have highly skilled professionals working in this
area and not to rely on external public networks. “We tell our scientists: Don’t do the research for
the money. Do it for the Nobel Prize. The rest will follow.” (CEO YEDA).
The Weizmann campus is surrounded by a big industrial park, which houses local and
international biotechnology and IT companies. The number of spin-offs is large, and about
30 firms have evolved from YEDA patents.
Sources: Stampfer (2004); Weizmann Institute (2001).

A rise in science-industry co-operation, both bilateral and multilateral,

can be observed in many OECD countries. A multitude of funding initiatives
aim to stimulate and support this type of collaboration (OECD, 2001b;
OECD, 2002a; MAP-TN, 2004; OECD, 2004, p. 87 ff). The main rationales
for funding programmes like science-industry competence centres include:
• Spurring interdisciplinarity with a user perspective. Problem-oriented
research should be more determined by industrial or societal needs. In
competence centre programmes a number of industrial and academic
partners agree on a common topic, goals and research programmes for
co-operative centres. This automatically leads to a bottom-up design
process and interdisciplinary, user-oriented research agendas. In Switzer-
land the situation seems instead to be that public support is given to
disciplinary, one-to-one co-operation which tends to be defined by
academics.
• Acting against the decline in long-term industrial in-house R&D. In
most countries small and large firms are reducing their R&D portfolios
and tend to concentrate on short-term research with a fast track to
application. This tendency towards a hollowing out of the industrial
knowledge base is compensated by centres for longer-term collaborative
research, co-defined by industry. In addition, measures are taken to
strengthen inter-firm co-operation. Again – with the notable exception
of big ventures such as Systems X – Switzerland relies only on one-to-
one instruments. The Swiss Innovation Survey (Arvanitis et al., 2004)
observes a concentration on core activities and more short-term innova-
tion projects in many industrial sectors. Some support activities with
network characteristics are being set up between universities, UAS and,
to a lesser degree, business firms.
• Helping the development of new careers and new management styles.
Demand for PhDs who graduate in an industry-relevant field and
already have an idea of relevant problems is increasing, not least owing
to the greater complexity of industrial R&D. A second issue involves
management of collaborative R&D which is becoming a key qualifi-
cation for innovation systems. Competence centres can provide both. As
Chapters 4 and 5 indicate, the three strands of the “triple helix” could be
more strongly linked in Switzerland.
Over the last two decades some 15 countries have introduced “collabo-
rative research centre” or “competence centre” funding programmes with
strong university and industry involvement (see Box 6.4). Impact analysis
conducted in some countries shows considerable additionality effects,
specifically with respect to changing the long-term behaviour of the actors
involved (Arnold et al., 2004a).

Box 6.4. Competence centres for long term science-industry co-operation: the Swedish example
In Swiss S&T policy the term “competence centre” is used for large-scale network-oriented
funding of scientific excellence. The National Competence Centre for Research (NCCR, see Section
5.5.2) programme links university researchers and includes firms as observers. This kind of compe-
tence centre programme is very different from what the term suggests in common international usage.
Since the 1980s a number of countries have established competence centres within their innovation
systems, less to explore new scientific frontiers than to strengthen the linkages between science and
industry. This is accomplished within large programmes structured and managed as public/private
partnerships (P/PP). They are characterised by the creation of temporary centres to run a multi-annual
research programme, drawn up and co-funded by one or a few universities or research institutes and a
number of firms. A public funding authority provides the structure, a competitive selection procedure
and a considerable share of the funding. Most of the programmes do not pre-select fields or topics,
but make priority setting a bottom-up process. Whether business firms can be seen as directly
benefiting from public subsidies depends on how the programme is organised. Competence centres
typically run for seven to ten years, have their own management, include five to 20 long-term
industry partners and have an overall annual budget of USD 2-7 million.
The US Engineering Research Centre (ERC) initiative of the National Science Foundation (NSF)
was the first to appear, followed by the large Australian Cooperative Research Centre (CRC) pro-
gramme and the Networks of Centres of Excellence funding scheme in Canada. In Europe, countries
such as Austria (K plus competence centres), Hungary (KKK programme) and Estonia followed suit.
In Germany, competence networks (e.g. in nanotechnology) do not have a great deal of funding at
their disposal, while in the Netherlands a few large Top Technology Institutes (TTI) have been
created. One of the best developed competence centre initiatives is the Swedish programme run by
VINNOVA. All these initiatives are well documented (MAP, 2004).
In the Swedish innovation system a few large firms with very large R&D budgets dominate the
scene together with a handful of universities (see OECD, 2005b). Swedish actors are responsible for
most research expenditure and have the highest R&D intensity of all OECD countries. Challenges at
the beginning of the 1990s included a stronger innovation orientation among SMEs, a broadening of
the universities’ research agenda, and the beginning of merger and internationalisation processes
involving large Swedish firms. One of the key goals of a systems-oriented R&D policy was to link
science to industry more strongly in order to change collaborative behaviour and to facilitate the
mutual influence of academic and industrial research agendas.
The programme was launched in 1993, with a promise to fund competence centres for up to ten
years with about 30% of the overall budget. Universities provide another 30% and industry (a number
of firms per centre) the remaining 40%. In a two-stage process based on foreign peer review, 28
centres were selected out of hundreds of proposals. The centres started in 1995. It is important to see
that the broad thematic range was largely the result of a bottom-up process. The programme became
the flagship of NUTEK, the precursor of VINNOVA, the present technology funding agency. (A few
centres are sponsored by STEM, the Swedish energy agency.) The centres are all housed at a
university, with renowned institutions like KTH or Chalmers hosting a large number. About a third of
the 230 participating firms are SMEs. A typical Swedish competence centre has about ten partner
firms, an annual total budget of about EUR 2 million and 20-30 staff (full-time equivalent). There is a
strong focus on: i) the model of the “industrial PhD” who learns from both worlds; ii) defining pre-
competitive, long-term and multi-firm projects with shared and open IPR; iii) negotiation of a multi-
party agreement before starting the centre; and iv) clear programme management, supported by
leadership programmes. All these elements help the firms to strengthen their long-term research
capacities and the universities to provide relevant research and a management style compatible with
industry needs. Quality control is rigorous: each centre is evaluated by international experts every
three to four years. After ten years, public agency funding is terminated.

Box 6.4. Competence centres for long term science-industry co-operation: the Swedish example
(continued)
As the programme has now operated for nearly ten years, with a total budget of about
EUR 550 million, VINNOVA commissioned an impact study (Arnold et al., 2004a, 2004b). The very
positive conclusions reveal not only an increase in long-term industry participation but also the
building of interdisciplinary research environments at the universities, which has affected traditional,
discipline-oriented academic research and put the issue of relevance higher on the agenda. Many peer
evaluations indicate the emergence of internationally highly visible research groups. The impact study
lists a large number of new inter-firm collaborations with relevant results and notes changing intra-
firm innovation behaviour. In some cases, firms like VOLVO or ABB44 which became parts of inter-
national conglomerates, were able to defend or modify Swedish in-house research capacities owing to
successful innovation networks within the competence centres. Output of PhDs, patents, publications
or spin-offs (over 20) is generally high, and “knowledge”, “people”, “mindsets” and “infrastructures”
are key words.
The first impact study on the Austrian K plus competence centre programme, which includes an
assessment (Edler et al., 2004) and measures additionality effects in participating firms compared to a
CIS3 sample, leads to similar results.
A new wave of “VINN excellence centres” (VINNOVA, 2004) is about to be launched, building
on Sweden’s success. They will be strongly oriented towards public sector missions and problem-
oriented research.
Sources: Arnold et al. (2004a, 2004b); VINNOVA (2004); MAP-TN (2004); www.vinnova.se. See also OECD
(forthcoming).
Given international experience as well as the current Swiss situation, a

specific initiative concerning industry-science relationships might consist of:
• A programme aimed at long-term and strategic R&D co-operation
between a number of firms and research groups. Such a programme,
similar to the science-driven NCCRs regarding networks and similar to
CTI funding regarding the applied character of research, would include
the active financial involvement of firms and could be developed as a
joint activity of SNF and CTI. There is a wealth of experience with
applied R&D competence centres available in several OECD countries
which can be used to devise an initiative geared to Switzerland’s
specific needs.
44. VOLVO headquarters are now in the United States, while Swedish ABB units report to
Switzerland.

6.4 The services sector
6.4.1 Innovation in the services sector

Compared to the manufacturing sector, the services sector of most
OECD countries is characterised by a moderate level of R&D activity. This
is strongly related to differences in innovation processes in services and
manufacturing. According to the European Community Innovation Survey
(CIS3) the services sector is more likely to introduce new products on the
market than the manufacturing sector, which concentrates much more on
improving production processes, as well as delivery and design of products.
Service firms innovate in marketing but not very much in product or process
innovation.45 Thus, while manufacturing firms foster and draw on internal
R&D activities, service firms are more likely to rely on R&D provided by
external sources and make use of other sources of knowledge and tech-
nology via patents, licences or training. As innovation in services mostly
results from external R&D activities, firms often face the problem of gaining
sufficient access to the knowledge needed to innovate and to make proper
use of the knowledge provided, which may require investment in training
and organisational change. There is often a rather weak relationship between
service firms and knowledge providers in the public sector (governments,
universities, public research institutes, etc.). Further, owing to their small
size, service firms often lack the financial base that would allow them to
engage in cost-intensive and risky R&D activities to develop innovations. In
addition, the services sector is largely regional or national in nature,
although the internationalisation of markets is fostering innovative practices.
The services sector also makes several indirect contributions to
innovation. On the one hand, service firms demand knowledge and
knowledge-intensive products from the manufacturing sector and thus
induce R&D activities in the manufacturing sector. On the other hand,
service firms provide knowledge that complements the goods and services
provided by manufacturing and thus enrich the economy’s knowledge base.
Since the services sector is labour-intensive, service firms need to emphasise
human resource development and ensure the upgrading of the skills and
human capital that are important drivers of innovation in knowledge-based
economies. Entrepreneurship also drives innovation and productivity growth
45. The process of innovation in services has thus been described as a “reverse product cycle”
(Barras, 1986; OECD, 2001a, cited in OECD, 2005b). Firms first adopt new technologies
(e.g. ICT). By using them they can offer improved services, and eventually the new
technology provides the basis for an entirely new service.

in services. New firms entering the market adopt new technologies and
subsequently bundle resources in units with higher productivity (Tamura
et al., 2005; Wölfl, 2005).
Policy makers need to redesign the measures for fostering innovation,
taking account of the services sector’s potential to contribute to aggregate
productivity growth. Although service firms are generally less innovative
than manufacturing firms according to commonly used measures, services
such as financial intermediation and business services already show above-
average levels of innovation (OECD, 2005b).
6.4.2 Some evidence for Switzerland

There is significant evidence of services sector innovation in
Switzerland. While the average growth rate of R&D intensity across all
services is among the lowest in international comparison – only the United
Kingdom (aside from the Czech Republic and the Slovak Republic) has
lower growth – the growth rate in telecommunications is the second highest
among the countries compared (Tamura et al., p. 146). Hollenstein (2002)
used a data set of 880 firms from nine service industries for a cluster
analysis designed to group firms into homogeneous categories with respect
to 17 indicators of innovation. The indicators cover the input as well as the
output side of the innovation process, and the introduction of new products
to the market or new processes in the firm. Using this technique, 475 of the
firms analysed were classified as innovators and five different modes of
innovation were identified:
• Mode 1: Science-based high-technology firms with full network integra-
tion (21 firms). Characteristics: i) highly qualified staff; ii) intensively
engaged in R&D; iii) a highly favourable environment in terms of
innovation opportunities; and iv) good market perspectives. Structure:
above-average proportion of export-oriented, medium-sized firms. In
addition some very large firms heavily concentrated in IT/R&D services
and business services (about 70% of the firms in this cluster belong to
these industries). In this cluster, 15% of the firms are in banking,
insurance and other financial services.
• Mode 2: IT-oriented network-integrated developers (19 firms). Charac-
teristics: i) a highly qualified labour force; ii) favourable market per-
spectives; iii) product and process innovations of high technical standard
(mostly new). Structure: IT/R&D services and business services are once
more over-represented in this group along with banking, insurance and
other financial services.

• Mode 3: Market-oriented incremental innovators with weak external

links (99 firms). Characteristics: i) favourable market prospects; ii) supply-
side conditions for generating novelties are average; iii) rather low level
of innovation input; iv) product and process innovations primarily incre-
mental in nature; v) innovation output of high economic value and
marketable; vi) rather weak networks; vii) use of easily accessible
knowledge resources. Structure: high share of (very) small firms;
industries quite equally represented in this group, with a slight over-
representation of business services and wholesale trade and a few firms
in transport/telecommunications.
• Mode 4: Cost-oriented process innovators with strong external links
along the value chain (229 firms). Characteristics: i) strong price
competition; ii) (incremental) process innovation aimed at cost
reduction; iii) innovation strongly benefits from a wide (primarily
informal) network from suppliers to users. Structure: large firms
slightly over-represented, very small ones distinctly under-represented,
industry structure close to the sector average.
• Mode 5: Low-profile innovators with hardly any external links (107
firms). Characteristics: i) rather marginal innovations; ii) most important
form of innovation is adoption of novelties from others. Structure:
above average share of small firms producing mainly for the domestic
market.
As a general trend, the boundaries between manufacturing and services
are blurring. One example is ABB Turbochargers, a manufacturer of
sophisticated machinery whose business depends largely on well-designed,
long-term service contracts based on individualised just-in-time production.
The challenge lies in the strong diversification of the products, mainly for
shipbuilding (nearly any of tens of thousands of individual parts can be
made available within 48 hours worldwide). The worldwide service network
is run by the division, which is a profit centre within ABB. The service also
operates as a source of inspiration for product and process innovations.
Reliable IT services are seen as crucial in such arrangements. Large IT firms
and their research nodes seem to take an even more radical approach. In the
case, of the IBM research centre Rüschlikon (and IBM in general), for
example, the rule is that “if a service is the result, it is kept, if a product
results, it is spun out”. Better portfolio management, in particular in public
research institutions, could help to spur services sector innovations.

International comparisons remain difficult, however, as Switzerland

does not provide all the data necessary for a complete OECD-wide com-
parison of individual service sub-sectors. Overall, R&D growth in the Swiss
services sector tends to be nil; this differs from many small European
economies such as Ireland, Sweden, Finland or Austria, which report con-
siderable growth in this area (OECD, 2004, p. 130).
As regards public support (the principle of not funding firms directly
does not seem to be strictly followed in the services sector), Tamura et al.
(2005) mention the following Swiss initiatives as good examples of
innovation policies focusing on services:
• Federal programme to foster innovation and co-operation in tourism
(CHF 35 million for 2004-07) with the following main objectives:
i) new products and distribution channels; ii) improvement of existing
services; iii) creation of new organisational structures; iv) education and
training; v) R&D activities.
• Softnet programme (CHF 30 million) to build a software industry of
international standards through co-operation between public research
institutes and industry and to foster networks of competence and
training of ICT professionals (see also OECD, 2004, p. 138).
• New Swiss legislation for digital signatures, domain names, copyright
of online services providing legal security for online services.
• New degree programmes and new types of diplomas for professional
training in information technologies.
6.4.3 The financial sector

Banking is certainly among the best-known of Swiss service industries,
and one of the country’s core economic activities. It is very large and has
two global players, UBS and Crédit Suisse, a number of other large
commercial banks, and a large group of private banks. The sector’s history,
legal framework, including taxes, image and discretion offer good frame-
work conditions. The banking sector is complemented by the insurance
industry, with international actors such as Swiss Re as leading houses.
Together, the financial sector accounts for more than 10% of Switzerland’s
GDP and about 6% of the workforce. Zurich is one of the world’s main
financial centres, and its regional economy relies strongly on the industry’s
prosperity. However, this strong position has been deteriorating slowly but
steadily. New York and London dominate world financial markets, Frankfurt
is becoming more important, and the emergence of new locations such as
Dublin or Singapore and the rise of more traditional ones such as Luxem-
bourg have put competitive pressure on Zurich. Important new products and

markets seem to emerge elsewhere, outsourcing takes its toll and the active
globalisation of the two largest Swiss banks is also leading to a reallocation
of decision power, competence centres and resources. While Zurich still
places sixth in a global financial ranking, concerns are mounting (AWA,
First Tuesday Zurich and ETH Zurich, 2003; First Tuesday Zurich, 2004).
These sources indicate that other global financial marketplaces are stronger
than Zurich or Switzerland in general.
To counter these developments, experts have made recommendations
that are well-established in innovation policy: clustering, human resource
development, excellent basic research, intra- and inter-firm innovation, use
of ICT. On the surface, there is no difference with fields like biotechnology,
the machinery or automotive industry, and it is remarkable how well the
three following statements apply. i) In this industry, innovation takes place
at high speed. New products and processes dominate the market and it is
demanding to fully understand, let alone develop them (examples are futures
and options). ii) For this reason, excellent research institutions in finance,
mathematics and related fields are required, preferably on the spot and
specifically at universities, not only to produce first-class graduates but also
to provide top (basic) research results (examples are mathematics and risk
analysis). iii) There seem to be economies of scale and agglomeration
effects.
Studies compare for example the size of the securities markets, of
capitalisation, air transport as a gateway indicator, and general scientific
output as a knowledge intensity indicator. In a European comparison, London
leads in all four respects, followed by Paris and Frankfurt (the former with
higher capitalisation and the latter with more science). According to one
study, Zurich ranks fourth, with a strong performance but not in quantitative
science. Followers include Amsterdam, Milan and Stockholm (Lakshmanan
et al., 2000, p. 68).
The following recommendations are made for the financial industry:
• Clustering: Workshops involving key persons in the Zurich financial
industry have shown a common understanding of an existing cluster of
banks, insurance companies, public institutions (such as regulators or
the central bank), business service providers (from accountants and
lawyers to management and IT consultancy) and higher education/
research institutions. Actors want some public support, but innovation-
friendly framework conditions and excellent universities seem to be the
two key factors (AWA, First Tuesday Zurich and ETHZ, 2003; First
Tuesday Zurich, 2004).

• Human resource development: Domestic supply is reported to be far

from sufficient. This is not necessarily a big problem in an open,
advanced economy that can support high wage levels. There is a strong
drive to hire people with top qualifications, while medium qualifications
are becoming less and less important. This is due in part to an accelera-
tion of the offshoring and internationalisation strategies of large actors.
It is reported that some banks have to send their hedge fund managers to
Frankfurt or elsewhere to update their knowledge. At least one of the
large banks has its own internal business school.
• Excellent basic research, academic infrastructure: Large actors increasingly
tend to choose Anglo-Saxon universities as partners, owing to the
superior quality of their specific education. ETH Zurich and the
University of Zurich are seen as strong but not sufficiently advanced in
all necessary respects. Policy papers regarding the financial sector map
a large number of research groups in Switzerland and emphasise the
importance of larger groups and networks such as the NCCR FINRISK,
the Geneva-Lausanne-Neufchatel cluster or the common Risklab of the
two Zurich universities. At the same time, they rate London, New York
and Frankfurt more highly, because the level of research is not in line
with the importance of the financial sector. The conclusion is clear: the
financial industry crucially needs a much stronger research infrastructure.
The public sector should provide more public funding in the budget
period 2008-11.
• Local growth opportunities based on an environment of innovative
business firms. While the availability of financial instruments is critical
for the creation and growth of firms, an environment of innovative
businesses also provides growth opportunities for financial markets. A
study on global gateways states: “Before industrialisation, financial
centres were also centres of interregional and international trade. Today
and increasingly in the future, there will be a similar synergy between
science, high-technology innovations and financial activities. The supply
of risk capital will be crucial to the innovation and growth of high-
technology production and the reduction of epistemic risks will be the
central factor determining the size and growth of regional financial
markets. Financial markets like Zurich, Amsterdam, Stockholm or
Helsinki depend on the quality and potential applicability of research in
medicine and the other pharmaceutical sciences, biotechnology, chemistry,
electrical engineering and computer sciences. Small financial markets
with their own stock exchange do have a future, but only if surrounded
by research-and-development-dependent and innovation-prone industries.”
(Andersson, 2000, pp. 38 ff)

• Intra- and inter-firm innovation: Rapid innovation and sophistication in

product markets serve as a starting point. Constantly finding new
products and interlinking innovative platforms and customers are
reported to be crucial. Anglo-Saxon competitors are seen as early
movers for new products. The research portfolio is broad: the large
banks employ not only economists but also mathematicians, physicists
and other science graduates. In a large bank, hundreds of employees
perform research in the strict sense. Hedge funds with their specific
morphology and rapid changes in the underlying models are an example
of an innovation driver. Open know-how architectures have an
important function. It is not possible to develop everything in house.
There is much intra-industry co-operation, e.g. in process innovation.
Offshore software development, e.g. to India, seems to play a note-
worthy role, with outsourcing partners changing often. For obvious
reasons, co-operation by firms in the financial industry is quite rare.
High costs, the difficulty of building platforms and the speed of
innovation put pressure on smaller market participants.
• Information and communication technologies: ICTs are one of banks’
major cost factors. Large banks use the best software firms as bench-
marks and pursue an early follower policy. Banks such as UBS and
Crédit Suisse could well be labelled the “two top Swiss ICT firms”, as
they provide employment for several thousand IT engineers in Switzer-
land and worldwide. Rationalisation is a key driver of IT development
and use. Typically, a large bank has “megasoftware” mostly developed
in house and a large portfolio of active projects at all times (close to
headquarters and worldwide). The core business is carried out within
the firm, and various (and changing) offshore IT partners in locations
such as India or Singapore provide the rest. Nevertheless, stakeholders
from the IT sector still see market niches for Swiss ICT firms in the
financial sector.
In summary, innovation in the financial sector seems to very important,
rapid, comprehensive and – at first glance – not too different from other
industries. Swiss experts (AWA, First Tuesday Zurich and ETHZ, 2003;
First Tuesday Zurich, 2004) plead for a strengthening of basic research and
higher education capabilities. Basic research is seen as central, since this is
where innovations are created (First Tuesday Zurich, 2004).

6.4.4 The tourism sector

Tourism is another strong sector of the Swiss economy. As in some
other fields, there is stagnation at a traditionally high level or some erosion.
In 2004 about CHF 22.6 billion were earned in tourism, more than half of it
accounted for by to foreign visitors. The overall share of tourism in GDP in
that year was in the range of 5%, and about 3% for foreigner tourists.
Tourism represents about 9% (CHF 12.9 billion) of overall exports and is
the third largest source of export income following the metal/machinery and
the chemical industries. The tourism balance of payment 2003 was positive
(about CHF 2 billion). With about 216 000 employees, tourism is one of the
largest employers in Switzerland. In addition, it creates employment indirectly
by absorbing other services. With about one tourism enterprise per 250
inhabitants density is very high and competition severe (BFS, 2005d; BFS et
al., 2005). Further, the rise of many attractive tourism regions worldwide,
changes in customer preferences and behaviour, and relatively high price
levels led to a decline in terms of nights spent (CHF 78 million in 1991;
CHF 65 million today). Some peripheral Swiss regions depend almost
entirely on tourism. Regions and communities receive support from the
Confederation, albeit at a decreasing scale.
Challenges include quality assurance, the relation of cost to quality,
better advertising and, in general, attracting more tourists. Switzerland’s
early success in high-end tourism led to a high share of what are now
perceived as old-fashioned four- or five-star hotels with their specific
problems. The federal and the cantonal level interact in supporting Swiss
tourism, and interest groups are reportedly strong.
Innovation in the tourism industry involves new and better quality
services, new attractions, new forms of co-operation, and of, course,
intensive use of new ICT applications for booking, travel and “info-
tainment”. The concept of innovation has a different meaning than in other
industries. The sector is supported, as mentioned, by a dedicated innovation
funding scheme: InnoTour is a federal programme designed to foster
innovation and co-operation in tourism which makes state aid available to
SMEs directly. It has a strong infrastructure component and includes
funding of R&D activities. Co-operation is seen as crucial in this pro-
gramme. In the period 1997-2002, CHF 25 million was available for the
programme, and CHF 35 million was earmarked for 2004-07 (compared to
more than CHF 50 million annually for federal tourism promotion). Part of
the project costs must be covered by participants. The projects are reported
by stakeholders to be often of a “low-tech” character, centred on “new
markets”, “new products” and “new distribution channels”. They range from

new alpine cycling roads to ICT booking systems, quality assurance or

distribution channels.
6.4.5 The construction industry

The image of Switzerland includes good, solid buildings, the Glacier
Express, the Alpine Transversal and perfectly designed mountain roads.
Owing to rigorous standards and a demanding topography, the quality of
Swiss construction is high. At the same time, competition in the Swiss
construction sector seems to be restricted, placing the industry in the partly
protected part of the economy. New and foreign entrants encounter a number
of obstacles. Stakeholders describe investment behaviour as conservative
and the bias towards long-proven solutions as stronger than in other sectors.
Public transport authorities are reported to be hesitant to use new solutions
in construction and “not invented here” appears to be a dominant attitude
towards such solutions. On the other hand, the Swiss method of building
tunnels has won international acclaim. There are indications, however, that
innovation could be spurred in the industry. This would require new forms
of financing large construction ventures, including contractual models in
public-private partnerships.
6.4.6 The creative industries

Like the financial sector, creative industries seem to be mostly an issue
for regional policy making in urban areas such as Greater Zurich. Cluster
structures in creative industries provide opportunities for metropolitan areas
to gain specific location advantages. Authors like Richard Florida (2002)
have spurred the debate and linked the degree of creativity to technological
innovation, social tolerance, well-being and change. Cities like London and
Vienna46 actively promote their creative industry sector, which includes
music, fashion, architecture, design, multimedia, print, film and others. In
many cities this is a growing area. Lifestyle, image, small firms, fluctuating
jobs, links to tourism and culture are associated catchwords.
In a study by Held et al. (2005) the creative industries of the City and
Canton of Zurich was recently mapped. The study found 8 000 firms with
more than 30 000 employees (full-time equivalent47) for the canton with a
46. For the Vienna Creative Industries, see www.creativeindustries.at; www.departure.at;

www.wwtf.at for a rich set of data and public funding activities.
47. This is roughly equivalent to three-quarters of the Zurich banking sector. For comparison,
Vienna, which is larger than Zurich, has more than 100 000 employees in this sector.

turnover of more than CHF 8 billion. The predominance of small firms is

typical of creative industries in nearly every city. The study identified the
following success factors: proximity and co-operation, cheap and flexible
office space, hot spots for identification, better links between public, private
and intermediary actors. There are some ideas for better networking, but a
major conclusion of the study is: “Actors are already co-operating, but
common platforms and interests and goals are still missing widely. On the
other hand the Zurich creative industries are still part of the sheltered
economy, and therefore weakly developed, undercapitalised, and not enough
internationally linked” (Held et al., 2005, p. 6). A strong cluster manage-
ment is proposed (p. 24).
The regional authorities acknowledge these developments and support
raising awareness and coalitions. The strong role of government as a large
content provider should be used more actively, but direct support for the
creative industries would be difficult and is not a priority.

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ACRONYMS - 145
Acronyms
ARE Federal Office for Spatial Development

BAG Federal Office for Public Health
BBT/OPET Federal Office for Professional Education and Technology
BERD Business enterprise expenditure on research and development
BFE Federal Office for Energy
BFS Swiss Federal Statistical Office
BLW Federal Office for Agriculture
BSV Federal Social Insurance Office
BUWAL Agency for Environment, Forests and Landscape
CASS Council of the Swiss Scientific Academies
CERN European Organization for Nuclear Research
CEST Centre for Science and Technology Studies
CHF Swiss franc
CIM Computer-integrated manufacturing
CRUS Rectors’ conference of the universities
CTI Commission for Technology and Innovation (Innovation
Promotion Agency)
DSP Directorate for Security Policy
EAWAG Swiss Federal Institute for Environmental Science and
Technology
EDA Federal Department of Foreign Affairs
EDI Federal Department of Home Affairs
EDK Swiss Conference of Cantonal Ministers of Education
EMPA Swiss Federal Laboratories for Materials Testing and Research
EPFL École Polytechnique Fédérale de Lausanne

146 – ACRONYMS
ERT Message Message concerning the Promotion of Education, Research and

Technology issued by the Federal Council and transmitted to
Parliament for discussion and decision
ESA European Space Agency
ETH Swiss Federal Institute of Technology
ETHZ Swiss Federal Institute of Technology Zurich
EuroHORCs European Heads of Research Councils
EVD Federal Department of Economic Affairs
FP (European Union) Framework Programme (for Research and
Technological Development)
GDP Gross domestic product
GERD Gross expenditure on research and development
ILL Institute Laue-Langevin
IMS Intelligent Manufacturing Systems
IPR Intellectual property rights
KOF Swiss Institute of Business Cycle Research at the ETH Zurich
NCCR National Centres of Competence in Research
NRP National Research Programmes
OAQ Centre for Accreditation and Quality Assurance of the Swiss
Universities
OFS Swiss Federal Statistical Office
PSI Paul Scherrer Institute
R&D Research and development
RDT Research and technological development
S&T Science and technology
SBF State Secretariat for Education and Research
SECO State Secretariat for Economic Affairs
SMEs Small and medium-sized enterprises
SNF Swiss National Science Foundation
SUK Swiss University Conference

ACRONYMS - 147
SWTR Swiss Science and Technology Council

UAS Universities of applied sciences
UVEK Federal Department of Environment, Transport, Energy and
Communications
VBS Federal Department of Defence, Civil Protection and Sports
WSL Swiss Federal Institute for Forest, Snow, and Landscape Research

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OECD Reviews of Innovation Policy

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

This work is published on the responsibility of the Secretary-General of

Also available in French under the title:

This review of Switzerland’s innovation policy is the first in a new

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Overall Assessment and Recommendations............................................... 7

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Chapter 5. The Science System ................................................................. 79

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

OVERALL ASSESSMENT AND RECOMMENDATIONS

Switzerland enjoys one of the highest levels of gross domestic product

Framework conditions for innovation

• Many framework conditions for research and innovation are good,

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Achievements and challenges

Switzerland performs very well in terms of nearly all available indicators

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

• Insufficient innovation capabilities in parts of the economy. Although

Assessment of current policy settings and instruments

Coping effectively with these new challenges may require addressing

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

The consequences of these features are amplified by the current practice

To improve innovation performance, the government should both meet

Improving framework conditions for innovation

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Improving the governance of the innovation system

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Improving support to university-based research

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Promoting innovation within firms

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Switzerland is a very prosperous country. However, growth of per capita

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Switzerland is endowed with valuable assets which allow the country to

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

MAPPING SWITZERLAND’S INNOVATION SYSTEM

Switzerland is in many respects a most successful country. Building on

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

1. Based on total hours worked per capita.

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

2.2 Macroeconomic performance

Switzerland is very prosperous: it ranks third among OECD countries in

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Source: OECD (2006b).

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Source: OECD (2006b).

Source: OECD (2006b).

2.3 Public institutions and actors

The institutional setting appears broadly similar to that of many other

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

Interior.2 Lean government also means rather small ministries with

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

regional policy and tourism, fields in which innovation is important. BBT

3. Therefore the legal framework was called Krisenbekämpfungsgesetz (literally translated,

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

address certain technology fields, such as nanotechnologies or medical

OECD REVIEWS OF INNOVATION POLICY: SWITZERLAND – ISBN-92-64-02974-5 – © OECD 2006

2.4 Innovation inputs