Aleksandrs Cepilovs

Title: ‘Public Procurement for Innovation in Small States. The Case of Latvia

Supervisor: Dr. Tarmo Kalvet, Senior Research Fellow

Opponent: Dr. Veiko Lember, Senior Research Fellow

Defense: 13 December 2012


Abstract: Public procurement for innovation as a demand-side innovation policy instrument has been actively discussed from a number of perspectives, in both academic and policy-making circles. Since the re-launch of the Lisbon Strategy in 2005, public procurement has been emphasized as an important driver of innovation in different sectors of the economy, most notably , where the public sector has significant purchasing power (e.g. healthcare, public transit systems, energy). While a number of countries (e.g. Sweden, Netherland, UK) have devoted significant effort toward implementation of public procurement for innovation, as a policy instrument to drive innovation, and to improve performance of the public sector, some countries (e.g. Latvia) continue to be reluctant to deploy this policy. A review of the relevant literature suggests that limited attention has been paid to analysing public procurement for innovation in the context of a small state. This thesis, thus, aims to fill some of the gaps in the literature. The thesis draws upon several strains of literature, integrating perspectives of innovation systems theory, focusing predominantly on demand-side policy tools and particularly on public procurement for innovation, literature on small states, as well as literature on economic development and innovation in transitional economies. Considering this literature, as a vantage point, on small states and studies on the process of transition in Central and Eastern European countries provides a perspective on a range of issues peculiar to the context of small states in transition, and sets indicative preconditions for policy implementation. This thesis combines the different strains of literature into a theoretical approach for analysis of the policy context for implementation of public procurement for innovation in a particular country, Latvia. The empirical contribution on Latvia considers the developments of the National Innovation System, procurement system and public sector capabilities, analysed and discussed. The case study is complemented by analysis of data gathered through qualitative interviews with civil servants directly related to the design and implementation of public procurement for innovation at different levels of public administration. The conclusion is that the theoretical approach devised is suitable for analysis of the opportunities and constraints regarding the deployment and implementation of public procurement for innovation as a policy instrument. It can also be concluded that while PPFI has potential as an innovation policy instrument, a number of issues need to be addressed prior to attempting at implementation. The size of the state conditions constraints relevant to the successful implementation of complex innovation policy measures, including public procurement for innovation. These constraints include lack of resources (both financial and human), limited capacities in the public sector, a limited domestic market as well as limited demand power. The effects of size (smallness) in Latvia are complicated by the effects of economic transition, which affect development of domestic capabilities in the public sector as well as institutionalized practices not favourable to procurement of innovative products and services. Without addressing these issues, public procurement for innovation as a part of innovation policy mix may well fail to meet the assigned expectations.

Keywords: Innovation Systems, Innovation Policy, Public Procurement for Innovation, Latvia.