Creating institutional preconditions for knowledge flows in cross-border regions

The outward looking dimension of innovation policy

Modern innovation policy approaches such as smart specialization go beyond overly inward looking perspectives, which were a dominant characteristic of past policy approaches and practices. They advocate an outward looking approach to innovation policy, that is, an approach that focuses not only on mobilizing endogenous potentials and intra-regional connections to support innovation and new growth paths. Fostering external connections to tap into non-local knowledge pools and resources and combining it with endogenous potentials should also rank high on policy agendas. The need for an outward looking policy approach is well supported by academic research that has shown that the inflow of non-local knowledge through various channels (foreign direct investment, mobility of labour of entrepreneurs, trade linkages, R&D partnerships, etc.) is often vital for regional innovation (for an overview, see Trippl et al., 2017). This work challenges traditional models, which have conceptualized regional development and innovation as purely endogenous phenomena. Adopting such a complementary outward looking approach to innovation policy and establishing inter-regional collaboration as a strategic element of policy may have many positive effects. These range from an increase of critical mass of actors and innovation activities, to new combinations of related and unrelated knowledge, access to locally scarce research capacity, production expertise, finance, and so on (OECD, 2013; Uyarra et al., 2014).

Such potentials might exist between regions located in the same nation state, between neighbouring regions belonging to different nation states (cross-border areas) or between geographically distant regions. The focus of this paper is on cross-border areas, which are likely to have a higher degree of institutional proximity than regions belonging to different nation states that are not as geographically close to each other (Lundquist and Trippl, 2013). Nevertheless, many of the arguments raised below may also hold true for collaboration between regions located farther apart and to a limited extend also for interactions between regions situated in the same country.

Exploiting inter-regional opportunities for innovation in cross-border areas requires intensive knowledge flows between neighbouring regions. These may take different forms, including the buying of knowledge embodied in patents or new machinery or knowledge intensive services, collaboration for innovation through R&D and innovation partnerships, knowledge flows through labour and student mobility, informal contacts and so on (Trippl et al., 2009). Promoting various types of cross-border linkages is one of the core features of the new outward looking policy orientation proposed by new policy approaches but activities to establish such connections have been on the policy agenda in many cross-border regions for a long time.

However, so far the academic and policy discussion about outward looking approaches has mainly focused on organizational and economic configurations and governance practices of regions rather than normative and regulative strengths and weaknesses (McCann and Ortega-Argilés, 2016). Little attention has been paid to the institutional underpinnings of cross-border integration processes and the ways by which formal and informal institutions facilitate or hinder the formation of cross-border knowledge connections. Those institutional underpinnings are of crucial importance since the ambition of cross-border regions, especially in the EU context, is the creation of a region as a functional space where institutional conditions allow for labour mobility, informal interactions, education processes, and other cross-border activities (Klatt and Hermann, 2011).

Institutions and cross-border regions

In this paper, institutions are understood as rules of the game that enable and constrain the behavior of organizations and individuals (North, 1990). Institutions are structural preconditions for human interactions, not least for interactions that aim for knowledge exchange for innovation (North, 2010). Institutions can be divided into formal rules that are legally sanctioned and informal rules that are morally governed and culturally recognized and supported (North, 1990; Scott, 2008). Formal rules refer to regulations. They are codified in laws, standards and sanctions, and regulate areas such as social welfare, education, taxation and migration. Informal rules refer to norms and beliefs that are enacted via traditions, values, attitudes, and behavioral modes embodied in individuals and organizations (Scott, 2008; Zukauskaite, 2013). Formal and informal institutions are experienced in an interrelated manner. Thus, both laws and norms depend on each other when it comes to enforcement and institutional change processes (Scott, 2010).

Institutions are often embedded in space (Boschma and Frenken, 2006; Martin, 2000). National regulations such as laws regarding labour markets, social security, educational systems, and intellectual property rights are good examples of how geographical boundaries delineate institutions. Many studies of the relation between institutions and innovation activities focus on these macro-institutional frameworks (Hage, 2006; Whitley, 2002; Wood, 2001). Informal institutions are also often place-specific. They refer to shared norms, values, attitudes among individuals and/or among organizations located in the same region or country (Gertler, 2010; Storper, 1997), but they can also, under certain circumstances, evolve through interaction in spatially distributed communities. The frameworks consisting of formal and informal institutions play a crucial role in national and regional development in general and organization of innovation activities in particular (Gertler, 2004; Rodriguez-Pose and Cataldo, 2015; Storper, 1997). In addition to geographical boundaries, institutions might be delineated by organizational fields such as formal and informal rules, guiding behavior of actors in the fields of academia, health-care, the private sector and others (Cartaxo and Godinho, 2017; Scott, 2008). To summarize, actors in a cross-border region are embedded in a complex institutional matrix of nation- and region-specific regulations and norms as well as formal and informal rules of organizational fields that might cross national boundaries.

Institutions should not be conflated with organizations. ¹ Organisations such as firms, universities, and governmental bodies generate, change and/or follow (or disobey) rules and should thus not be confused with the rules themselves. However, organizations and individuals are not only influenced by institutions but may also change institutions (North, 2010). Institutions change when actors are involved in collective sense making and problem-solving (Scott, 2008). In other words, by getting involved in collective activities, organizations and individuals generate certain beliefs of what is appropriate and develop joint norms, attitudes and values around the phenomenon. In this line of thinking, institutional change is a side-effect of a collective action. However, institutions might also change via deliberate efforts of actors to control and adapt their environment. They may identify a need for change and try to mobilize other stakeholders in order to make change happen (North, 2010). According to Scott (2008), informal institutions are more likely to change via collective sense making and joint problem solving, while formal institutions always call for purposeful action. However, even informal institutions can be a target of purposeful change, e.g. by creating explicit codes of conduct. Finally, institutional change implies not only the emergence of new or revised laws, rules and norms, but also a new enforcement and interpretation of an existing institutional framework (North, 2010).

Previous work on cross-border regions revealed some insights into institutional conditions that are of relevance for our study. It has been shown that differences in national regulatory frameworks create both barriers and opportunities for cross-border relations. Easily accessible information about these regulatory differences is an important precondition for cross-border cooperation to take place (Broek and Smulders, 2015; Klatt and Herrmann, 2011, Terlouw, 2012). Cultural differences (that is, informal institutions) are perceived mainly as barriers for successful interaction across borders (Klatt and Herrmann, 2011). Furthermore, most of these studies suggest that regional actors exploit existing institutional structures to their advantage or adapt to them without actively engaging in institutional change processes. That is, institutional change taking place mainly as change in interpretation rather than dismantling and redesigning old institution or creating new ones (Hansen and Serin, 2010).

In line with previous studies, we argue that ‘difference in attractiveness’ (such as possibilities for better access to labour, better career opportunities or better housing prospects across the border due to a more flexible labour market and housing regulations) might facilitate knowledge flows (Klatt and Herrman, 2011). Without such differences, interaction can emerge only through third party incentives such as funding. However, without complementarities (differences in attractiveness), the cooperation is likely to terminate as soon as funding expires. On the other hand, although some differences might serve as incentive for collaboration, others will only constitute a barrier (e.g. differences in educational systems or labour market regulations constraining student and worker mobility). Arguably, one must not only identify institutional differences on a regional scale but also consider if these differences are facilitating or hampering knowledge exchange.

Another important aspect when analysing institutional barriers and enablers for cross-border integration relates to issues of multiscalarity. In a European context, multiscalarity has become increasingly visible during the past decades as a result of accentuated regionalization processes and cross-national harmonization of laws and regulations with the aim to facilitate free movement of capital and labour. These processes of institutional change feed into regions while at the same time being largely out of reach for influence from actors at the regional level. From a methodological point of view, this calls for attention both to the regional level and to the national and international levels of governance. In this paper, we primarily address multiscalarity by analysing how cross-border policy network organizations target institutions set at regional, national and EU levels. The role of organizations at national and EU levels is taken into account only to the extent that they are mobilized by or related to efforts undertaken by cross-border policy networks (Figure 1). OPEN IN VIEWER

To sum up, in this paper, we are interested in purposeful actions of cross-border policy networks organizations to improve institutional conditions for knowledge exchange in cross-border regions. Most types of knowledge exchange (labour and student mobility, collaboration for innovation, consulting) require direct human interaction and are thus dependent on a highly interrelated set of institutions. For example, labour and student mobility is influenced by social welfare systems, migration laws and education system related regulations, as well as informal institutions.

We derive theory-led expectations regarding what kind of actions could be performed by policy network organizations (Figure 1 and Table 1). These organizations do not have the power to change formal institutions, but they can identify the need for change as well as mobilize (e.g. via lobbying) actors that have the power to alter existing or introduce new regulations as well as suggest an alternative enforcement/interpretation strategy. Those actors refer to legislative bodies and governmental agencies at the national level. In addition, in the case of the EU countries, EU organizations oversee compliance of national laws with the EU legislation and can put pressure on the national governments to change formal institutions. Furthermore, policy network organizations could also change the ways by which regional actors such as firms, universities and individuals interpret regulatory differences by providing easily accessible information (Broek and Smulders, 2015; Terlouw, 2012). Informal institutions are more likely to be changed via collective sense making and joint activities (Scott, 2008). Policy network organizations can promote joint activities – knowledge exchange – by creating third-party incentives (i.e. attracting and distributing funding) as well as provide information about institutional differences and complementarities in order to reduce uncertainty (Klatt and Herrmann, 2011). Finally, policy network organizations can aim at directly changing informal institutions by explicitly promoting the value of cross-border areas and cross-border identity (Hansen and Serin, 2010; Stöber, 2011).

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Table 1.

Organizational activities and institutional outcomes.

Organization	Activity	Institutional outcome
Cross-border policy network organizations	Provision of information	Changes in perceptions of regulatory and cultural burdens (formal and informal institutions)
	Lobbying	Persuasion to change formal institutions
	Attraction and distribution of funds	Incentives for collective sense making (changes in informal institutions)
	Promotion of cross-border area	Changes in informal institutions
Organizations at the EU level	Provision of funds	Incentives for collective sense making (changes in informal institutions)
	Overseeing compliance with the EU law	Pressure to make changes in formal institutions
National governmental agencies and legislative bodies	Alteration/creation of new laws, changing enforcement of law	Changes in formal institutions

In the next section, we examine these theory-led expectations. Focusing on the Öresund region, we analyze the activities undertaken by policy network organizations to improve the institutional preconditions for knowledge exchange across borders.

Activities targeting formal institutions

It is important to note that neither regional governmental bodies in Sweden or Denmark nor any of the four policy network organizations addressed in this study have a mandate to introduce regulatory changes. This power lies with the national governments. It leaves cross-border policy network organizations with a limited set of activities for enhancing the institutional preconditions for knowledge exchange.

ÖC has had as one of its main objectives to tackle cross-border barriers. These barriers have been identified by the committee together with a number of other stakeholders from different spatial scales. In total, 42 cross-border barriers have been identified, the vast majority of which are directly related to regulatory barriers originating from differences in legislation in Denmark and Sweden, i.e. differences in formal institutions. The identified barriers are related to various aspects of tax systems and social welfare regulations such as sick leave and parental leave, which are argued to influence knowledge flows related to labour mobility, buying of knowledge intensive services and collaboration in innovation projects, as well as differences in education systems such as accreditations and grading standards, argued to influence student mobility. Since they were identified as barriers, they were considered, at least by the ÖC, as being detrimental to integration rather than providing incentives to engage in cross-border activities.

In order to remove regulatory barriers, ÖC has made deliberate efforts to mobilize stakeholders at other spatial scales, through lobbying activities targeting politicians, government officials and public authorities at the national level in Sweden and Denmark. A lobbying process, aiming for a change in regulations, is very slow, taking several years and is sometimes interrupted due to election cycles. In addition, lobbying can take different forms and include different stakeholders at different spatial scales, reflecting the multi-scalar nature of institutional structures.

ÖC did not engage only in one-way communication activities with relevant national bodies, but included a wide variety of both regional and national actors in collective sense-making processes, through discussions centred around certain issues. This was, according to our interviews, a way to overcome differences in how politicians and policy makers were used to working on different spatial scales. In other words, ÖC did also considered differences in informal institutions as an important target for action in order to change formal institutions. As one interviewee expressed it:

… to learn both how we do things, and where is actually the problem in this system, and the old tradition that the state talk to state, region to a region, and a town to a town. How do we change this, this doesn’t work with our border. Sometimes a state need to talk to a region, a town to… And that has been a journey because that is very, very set. It took several years for a minister on the Danish side to understand that you have to talk to the region when you talk about the trains over the bridge, you cannot talk to a Swedish minister.

However, in most cases where regulatory barriers have been solved, ÖC has lobbied public servants in different agencies (e.g. the Tax Agency, the Social Insurance Agency, and the Unemployment Agency) rather than politicians at the national level. These agencies have public servants assigned to work with cross-border issues. ÖC has brought issues to the attention of these public servants and started discussions with them about possible solutions. As an outcome of these discussions, public servants have offered alternative interpretations of existing laws or have signed special agreements benefiting cross-border activities while still being in line with current regulations. Put differently, ÖC has mobilized actors at other spatial scales to suggest new interpretations of regulations identified as being barriers to cross-border integration.

In addition, ÖC has been providing information to increase awareness about differences in formal institutions and how to deal with them. The activities have thus been focused on overcoming differences in regulations and reducing uncertainty for actors interested in cross-border knowledge exchange. A good example is differences in the tax systems of Sweden and Denmark. ÖC introduced an online tool which provided easy comparison of taxes between the two countries. The barrier (differences in tax regulations) is unsolved but for individuals and companies pursuing cross-border activities, the tool provided a way of assessing the impact of these differences and thus changed the perception of the regulatory burden of cross-border collaboration.

Some barriers have been solved by drawing on EU regulations. Both private individuals and ÖC can bring violations of the EU law to the attention of the EU organizations. The outcomes of the rulings by the EU were disseminated via ÖC’s communication channels regardless of who took the case to the EU. In that sense, even though the formal institutions identified by ÖC are set at the national level, relating to EU institutions and provoking actions by EU organizations was a way to overcome barriers.

Finally, ÖC has been successful in attracting and coordinating EU funds in the region and gained the possibility to foster cross-border activities by creating third-party incentives. For example, ÖC represented the political dimension in a committee deciding on funding of individual projects through the EU Interreg program. They were also involved as an active partner in several projects, for example related to labour market integration. Funding activities as such were not directly addressing regulatory institutions, but rather created incentives for knowledge exchange despite the existence of challenges residing in formal institutional structures.

ÖU dealt with regulatory barriers affecting knowledge flows in a quite different way. Student mobility across the border was prevented by regulations such as the length of semesters, course credit systems and the recognition of course credits from foreign universities. Here, similarities in norms and attitudes in the organizational field of academia have led to a high degree of trust between university teachers, facilitating student mobility despite the existence of formal barriers. As one interviewee put it:

We trust each other. So, it’s open for the students. If he or she is Dane and takes the module [course] here [in Sweden], the professor or lecturer just has to call his [collegaue] in Copenhagen and say ‘he’s passed’ and they trust each other … It functioned wonderfully. It wasn’t quite legal, since the student got Danish points, credits, so to speak, but he or she had done them here [in Sweden], but the result was the same.

MVA and ÖFN were less engaged in solving regulatory barriers since they perceived it as ÖC’s field of expertise. However, they could contribute to raising awareness about institutional barriers by explicitly mentioning those in project reports or by bringing it to the attention of ÖC.

Activities targeting informal institutions

Informal institutions are not under official mandate of any policy network organization. Such organizations can initiate activities to promote mutual understanding, joint world views and respect for each other’s values. However, the enforcement of informal institutions depends on voluntary acceptance. All four organizations under study have provided information about opportunities and potential benefits of cross-border collaboration with the intention of harmonizing informal institutions. ÖU, for example, created a database containing information about researchers, projects and courses in the field of material science. The rationale behind this activity was that if information is easier to access, it is more likely that willingness to share knowledge will increase. ÖC, on the other hand, provided information about cultural differences and its implications for the development of Öresund region. For example, ÖC put pressure on the national governments to facilitate access to public TV across the border in order to increase language comprehension and to provide an overview of what it is considered to be important for the people across the border (via news coverage), which in turn might facilitate knowledge exchange through an increase of mutual understanding.

Networking activities can be also used for providing information about cultural differences, possibilities and benefits of collaboration and they may contribute to the emergence of joint norms, attitudes and values, facilitating trust between actors. Such activities were a prominent feature of both ÖFN and MVA. ÖU was by itself a platform for the large universities to meet and interact in ways not done before.

Trust was of course number one, two and three. If you have trust, you can organize anything. And also, academics and universities are so similar to each other. There are very few differences when it comes to thinking, culture etcetera, between, say, professors around the world in business administration or radiology for that matter, I mean, it is the same crowd altogether. This means that it is very easy.

Cultural differences are often seen as informal institutions that hinder knowledge flows across the border. Cultural differences with regard to leadership and organizational practices between Denmark and Sweden could lead to uncertainty and misunderstandings. However, opposite to the regulatory barriers, it has also been acknowledged by all our interviewees that these differences can have positive effects if actors are able to exploit the potentials offered by combining the consensus-based decision making culture in Sweden with operational and faster processes in Denmark. Targeting these differences was considered by ÖC to be a task of, for example, industry organizations and consequently ÖC’s activities were mainly focused on arranging seminars to offer possibilities for exploiting complementarities.

Branding activities targeted informal institutions by developing a joint identity and were explicitly intended to increase knowledge flows. ÖFN identified cultural differences between Denmark and Sweden as one particular challenge to be addressed via joint identity building. One concrete example of such activities is the involvement in Food Innovation Network Europe, with the intention to market ÖFN internationally. International visibility was an important task also in MVA, especially during the period from 2007 up until the recent re-structuring process begun. For example, MVA initiated the “Medicon Valley Beacons” and “MVA Ambassador” programs, both intended to strengthen the MVA brand on the international arena.

ÖC’s attempts to brand the Öresund region have encompassed a variety of activities, including amongst others the organisation of cultural events such as the Öresund festival. The overall aim has been to create a joint ‘Öresund identity’ among individuals living on both sides of the border. This joint identity would provide a common ground, increase trust and possibly enhance knowledge exchange and collaboration.

Policy network organizations made many efforts to address informal institutions. Due to the voluntary enforcement, it has not been an easy task and the outcomes of such activities have not always had the intended effects. For example, the efforts to create a strong Öresund brand has been perceived as threatening the identities and brands of individual organizations and cities, and has been one of the reasons why ÖC and ÖU have been dismantled.

Discussion: The role of policy network organizations and other actors in creating institutional conditions for cross-border knowledge flows

Enhancing the institutional conditions in a cross-border region is a complex process including public and private actors with different power and roles at different geographical scales (see Table 2).

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Table 2.

Institutional conditions in the cross-border region: Actors, roles and activities.

Actors	Roles	Activities	Institutions
Policy network organizations	Raising awareness about institutional conditions	Lobbying; Providing information; Bringing barriers to the attention of the EC/ Communicating EU decisions	Mainly formal institutions
	Facilitating adaptation to the existing institutional framework	Providing information; Lobbying	Mainly formal institutions
	Building of trust among actors	Networking; Providing information	Informal institutions
	Building of a joint identity	Branding	Informal institutions
	Providing incentives to overcome institutional barriers	Attracting and distributing funds	Formal and informal institutions
EU bodies	Providing incentives to overcome institutional barriers	Providing possibilities for funding of cross-border activities	Formal and informal institutions
	Overseeing compliance with EU laws	Use of legislative power at the EU level	Formal institutions at the national level
National governments	Changing institutions	Use of the legislative power at the national level	Formal institutions at the national level
Public authorities (Tax Office; Social Insurance Agency)	Facilitating adaptation to the existing institutional framework	Offering alternative interpretation of existing regulations	Formal institutions at the national level
Other regional actors: universities	Facilitating adaptation to the existing institutional framework	Overcoming formal institutions by relying on informal ones	Formal institutions at the organizational level

Differences in formal institutional structures in the Öresund region have mainly been seen and treated as barriers for cross-border activities, while differences in informal institutions have in some cases also been acknowledged as providing opportunities for knowledge exchange across the border. In line with the conceptual arguments outlined in section ‘Literature review and conceptual framework’, policy network organizations have been engaging in activities such as lobbying, providing information, attracting and distributing funds and promoting network activities, in order to change institutional preconditions for knowledge flows. Our core findings are summarized in Table 2 and can be synthesized as follows.

First, these organizations performed many different roles in the process of creating institutional conditions in the cross-border area. Lobbying, for example, was done both to raise the awareness about institutional barriers in the region and to facilitate adaptation to the existing institutional framework. In addition, through networking and branding, they contributed to the building of trust and a joint identity among regional actors. In other words, change in informal institutions was not merely a side effect of collective action but as intentional and deliberate as efforts targeting formal institutions. We find that policy network organizations combined different types of activities targeting different institutions, reflecting the complexity of institutional change in a cross-border context, and the intertwined nature of formal and informal institutions. For example, targeting informal institutions by learning how to navigate in the different national political landscapes, changing the perception of regulatory burdens and creating incentives for cross-border collaboration were all included as part of activities intended to overcome formal barriers. Thus, in order to understand how cross-border policy network organizations change institutional conditions, it is necessary to conceptualize the roles played by these organizations as combinations of several activities, targeting different institutions.

Second, the interplay between cross-border policy network organizations and actors at other spatial scales, in particular the national level, turned out to be more nuanced than expected. The power of changing national regulations lies with national governments but policy network organizations also engaged in lobbying activities targeting public authorities, who have supported adaptation to the existing institutional framework by offering alternative interpretations of existing regulations. Thus, it was not only regulatory power held by legislative bodies at the national level but also interpretative power held by public authorities that mattered, facilitating a change in interpretation of existing regulatory frameworks.

Furthermore, policy network organizations worked in an interesting symbiosis with EU organizations. The European Commission can rule against national governments and make them change national regulations if those violate the EU law. Policy network organizations can bring such violations to the European Commission’s attention and communicate the decisions taken by the EU. In addition, the EU provides funds for cross-border regional development that can be attracted and distributed by the policy network organizations. In this way, incentives for overcoming institutional challenges were created. The relationship between different spatial scales is thus complex in the sense that institutions are set at one spatial scale and enacted at another, but some actors at, e.g., the EU level are explicitly working towards an increase of inter-regional collaboration. This was exploited by policy network organizations, extending the scope of activities from lobbying in order to change regulations, to mobilizing actors and available resources in order to target a wider set of institutions set at different spatial scales.

Third, universities and other public and private actors play a more implicit role. They could change formal rules that are under control of their organizational units as well as facilitate adaptation to the existing institutional framework by overcoming formal requirements by relying on informal institutions. This was done by the individual universities as they were part of ÖU. Put differently, these actors were part of processes of collective sense-making and joint identity building, which spurred pragmatism concerning the interpretation of formal regulations.

Such pragmatism, but also how cross-border policy network organizations combine activities and scales, as discussed above, calls for a greater appreciation of strategies taking advantage of the intertwined nature of formal and informal institutions. In addition, it accentuates the need for an inclusive definition of institutions, in which formal and informal institutions are considered in combination and not as separate categories, when analysing efforts to change institutional conditions in cross-border regions.