Stimulating innovation through demand side policies : a case study of Malta's innovative public sector procurement policy

Abstract

Innovation is very important for economic growth and competitiveness. Government policy can stimulate innovation that assists the economy to grow and compete internationally. Innovation policy can either provide resources to private initiatives in the form of supply side policy, or influence outputs as demand side policy. In practice a policy mix is tailored to the characteristics of the country and its markets. Large customers play a critical role in the success of innovative products by providing an early customer base. Public procurement is one of the most direct forms of demand side innovation policy. Such a demand side policy is increasingly being adopted as a way to stimulate innovation by developed countries including the United States, Japan and South Korea. In pursuance of the Lisbon Agenda, the European Union has been very active in pushing public procurement for innovations as a demand side policy. However, in a small state like Malta it is questionable whether public procurement for innovations can succeed. This study looks at the Maltese public procurement for innovations initiative as a case study cognisant of its particular context: conservative public procurement by an unadventurous public sector within an industry populated by small operators and where critical mass is a challenge. The research looks at the Island's public sector procurement for innovations initiative, assesses its progress, strengths and weaknesses so as to provide a learning platform for the future. A conceptual model of the factors influencing public procurement for innovations was constructed from the literature review, and together with an evaluation of the Maltese context in terms of innovation, was used as the basis for the flexible qualitative research design. The one on one semi-structured interview was adopted as the data collection tool. Data collected was analysed using the template technique. The study concludes that public procurement in Malta has the potential to stimulate innovation but will not happen by itself particularly in view of the difficulties that characterise a small market, served by small operators, where legislation and its application are conservative, and where the public sector is cautious of change and risk. The main recommendations of the study relate to increased decentralisation of public procurement towards the contracting authorities and the adoption of motivating factors to stimulate the public sector to be more open to public procurement for innovations.