103Fig. 2 Structures and processes in the Umeå innovation support system

proﬁtability, and survival rate, are important. Yet such simple quantitative indicators generally indicate that most incubators may fall short of the goals they aim to achieve (Ejemo, 2019). Thus, alternative policy choices must be considered. It is important to ask how the system impacts attitudes and values toward utilization, and to what extent the system is an essential part of the Umeå region’s economic ecosystem.

4 Conceptual Rationales Behind Public Support Systems

for Innovation

In general there are few explicit theoretical arguments for the provision of economic interventions such as innovation policy. See SOU (1993:70) Strategy for Small Business Development, (SOU, 2000:93) Governmental Organization for Industrial Policy, and also OECD (2013). No explicit references to theoretical notions are made in the governmental inquiry (SOU, 2020:59).

The innovation support system—directly or through the mediation of consulting services—provides expert advice and ready-made solutions. This assumes that there are rational solutions to problems faced by entrepreneurs and that a generic knowledge is equally attainable for all startup companies. The reasoning is that it is possible to provide support to tackle intellectual property issues, labor-law problems, and other more strategic problems that constitute the everyday reality in startup processes and incumbent small businesses. This idea has been expressed by several government investigations besides the aforementioned governmental investigation D. Hjalmarsson

104Level of Complexity

Coaching along the whole NVC-process

Networking, bridgebuilding, and ”creative arenas”

Direct support and problem solving

Level of Change

Fig. 3 Complexity and change in the incubation process

(SOU, 2020:5959). In these reports, investigators see no obstacles to offering operative or strategic support directly to startups.

However, two fundamental sets of questions always arise. First, what kind of resources can—efﬁciently—be provided through public interventions, and are there limitations? Second, if the intervention is, by necessity, limited to concrete and tradable services, how will that impact the market? Is there a risk that public interventions distort the functioning of the market?

Figure 3 schematically illustrates situations in which the complexity is so vast, and the level of change is so high that it is not realistic to ﬁnd grounds to offer concrete and direct advice. Accordingly, in these circumstances there will be no viable advisory services to purchase on the private market. The solution is to organize a creative arena in which the project team is exposed to the resources they need for entrepreneurial judgment. It is simply too difﬁcult to determine a market price and make a reasonable business contract. In these strategic circumstances, the startup team has to lean upon its own entrepreneurial judgments, within its own organizational hierarchy. Coase (1937) distinguishes between “initiative or enterprise” on the one hand and “management” on the other. Put simply, management can be purchased on the market or, as in this case, be offered by public support agencies, while initiative and enterprise remain basically entrepreneurial. This limit, where the complexity becomes too great, must be handled with entrepreneurial judgment—here labeled the Coase/Williamson line—and it is, of course, not static. Nor is it possible to determine in advance or in general. This boundary has also, not least in recent times, changed radically and has been moved further away from the origin point in Fig. 3.

105Building Local Innovation Support Systems: Theory and Practice

Direct Interventions May Run the Risk of Causing Market

Distortions

The interviews indicate that in practice, the innovation ofﬁce and incubators rarely give direct advice on strategic issues, thus limiting their activity to organizing strategic arenas focusing on mediation of support and avoiding direct support measures. What is seen as effective in the individual case and to beneﬁt certain individuals may be seen as counterproductive at the market level (see Growth Analysis, 2015; OECD, 2013). Do selective industrial policy cause growth?

The most common drawbacks associated with direct support are the so-called pick-the-winner problems. When the support is selective, this means by deﬁnition that not everyone can receive support. Thus, the question arises, how should the support provider—in this case the incubator—select the right companies or projects to help? From a broader perspective, should the support provider impose positive change at the local market level? And how can the policymaker avoid supporting wrong companies that lack potential and thus in the worst-case scenario launch support that slows down or impedes a desirable process of creative destruction?

Another difﬁculty has to do with so-called displacement problems. In the previously mentioned Umeå study, Hjalmarsson (2017) shows that a signiﬁcant proportion of the new companies in the region are active as consultants and businessto-business service providers. In the adverse case, incubators offering similar services to private actors could make it difﬁcult for new companies to operate in local markets. Other problems associated with providing direct support to startups can emerge. One may be that entrepreneurs use public support as their business idea: They simply see different types of grants and beneﬁts as sources of income, something referred to as rent-seeking or subsidy entrepreneurship, that is, ﬁrms systematically apply for and obtain a collection of government subsidies. Research on such subsidy entrepreneurship has shown that ﬁrms that receive more government support tend to have lower productivity and pay higher wages (Gustafsson et al., 2020).

Public support systems for innovation—contrary to what has sometimes been assumed in government documents—do not provide a clear basis for program theories validating direct strategic support and extensive coaching. When incubators and other supporting agencies operate in large worlds, the theoretical basis for this kind of far-reaching direct support is missing. In these cases—as will be discussed in the concluding section—only the entrepreneurs themselves can make legitimate decisions (Foss & Klein, 2012). The service provider has in most cases limited their advisory services more concrete, tradable services to avoid direct intervening in entrepreneurial decisions. See also Hjalmarsson and Johansson (2003). As discussed above, the innovation support system should avoid causing market distortions. First and foremost, it should handle the so-called pick-the-winner problem. Additionally, there is always a risk of displacement and rent-seeking such as subsidy entrepreneurship. All these caveats are explicitly discussed and dealt with by the Umeå innovation support system.