Unified economic ideas and their hybrid policies: the case of Swedish life science innovation work

ABSTRACT

Institutional theory describes organisations as being open to external influences, including policy-making. Policy-making is in turn based on normative ideas that inform how markets and economies unfold. Policies may include wide-ranging concerns and trade-offs (as in science and industry policy) or may be detailed and specific (as in the case of, e.g. procurement policies in the medical technologies sector), but they tend to play a role in shaping markets. A study of the Swedish life science innovation field suggests that the policy shift in life sciences governance to what Berman [2008. ‘Why Did Universities Start Patenting? Institution-building and the Road to the Bayh-Dole Act.’ Social Studies of Science 38: 835–871] names a market logic. In the present case, the market logic is not sufficiently supported by favourable market conditions, leading to a ‘hybrid logic’ enforcing an enterprising ethos but otherwise remains couched within a bureaucratic innovation system not providing critical resources conducive to life science innovation – venture capital funds and commercial human resources. The outcome is arguably case of ‘over-entrepreneurialisation’.

KEYWORDS:

• Economic ideas
• science logic
• market logic
• life science innovation

Introduction

Institutional theorists argue that the line of demarcation between an organisation and its environment is porous and permeable. In order to survive over time, organisations need to adopt to change in the milieu, including, for example, new legislation, new regulatory control, and new policies. In the field of life science innovation work, series of policies have played a key role in shaping how entrepreneurial activities and innovation work unfold, including science policy (Beryler and Low 2003), industrial policy (Dobbin 1994), and labour market policy (Hacker 2004), but also more narrow and specific policies regarding, for example, public procurement policy (Edler and Georghiou 2007) and technical standards policy in specific therapeutic areas (Faulkner 2009). According to the institutional theory view, policies are informed and structured around legitimate, normative ideas that justify certain legislation and political initiatives. As normative ideas may change over time and with economic conditions, policy-making easily becomes ‘politicised’ (Best 2012) or even rest on unrealistic assumptions or even ‘fantasies’ (Fotaki 2010), which in turn further complicates policy-making.

In the field of life science innovation policy, the dominant, normative idea since the 1970s has been to ‘break down the ivory tower’ of the university (Haeussler and Colyvas 2011) and to transform academic scientists into venturing and enterprising entrepreneurs, straddling the two worlds of research and commerce (Colyvas and Powell 2007; Jain, George, and Maltarich 2009). Many commentators celebrate the commercialisation of academic research and the new ‘entrepreneurial spirit’ in academic communities, while others point at the inconsistencies in policies or the rising expectations regarding the output from such ventures or other externalities (Mirowski 2011; Hopkins et al. 2007).

Normative ideas shape policy-making and that the advocacy of normative ideas does not of necessity need to be based on robust empirical evidence but could gain its legitimacy on basis of other perceived benefits, for example, have the capacity to align heterogeneous actors with diverse interests, to support and legitimise common sense thinking or certain ideologies, or are be conducive to political action more generally. Based on this premise, this article will report an empirical study of how the economic project of transforming academic life science research from being based on a science logic model to a market logic model, have first been widely embraced and then, over time, increasingly criticised. Traditionally, academic life science research have been based on what Merton (1973) speaks of as a scientific ideology wherein the output from academic research work was treated as a communal resource. By the mid-1970s, the emerging de-regulatory policy regime that would dominate in the Western economies for the coming decades and into the new millennium (Stein 2011; Tabb 2012), academic life science research was increasingly understood as an intellectual property that should be commercialised and financially exploited. Berman (2012) describes this decisive change in institutional logic as the decline of the old regime, based on a science logic, for the benefit of the new market logic, now guiding life science research.

The empirical material reported in this article shows that life science venture capital investors and life science entrepreneurs in Sweden recognise the importance of the change in attitude towards a more ‘commercial mindset’ among academic researchers, but also point at the wider economic and institutional difficulties that complicate the implementation of a market logic policy, most notably the endemic shortage of venture capital and commercial human capital – two significant resources in life science venturing. The empirical material demonstrates that the transition from a science logic to a market logic is only partial and incomplete, and can best be described as a hybrid form (see e.g. Goodrick and Reay 2011; Pache and Santos 2013), wherein the ideological base of the present logic complies with the market logic, stressing the virtues of an enterprising and venturesome ethos including risk-taking and a commitment to an entrepreneurial life style, while the resources provided to accomplish and fulfil this scenario remain constrained and primarily provided by state-financed innovation agencies.

The study thus contributes to the literature on life science innovation policy and implementation, and how normative ideas inform policy-making and organisational practices by pointing at the difficulties involved in thinking about institutional logics in binary terms, veiling the practical difficulties encountering entrepreneurs, venture capital investors, and innovation agency officials. Following the work of Kogut and Macpherson (2011), stressing the role of ideology in policy-making, the article concludes that the economic idea of the ‘market logic’ and its underlying ideology, today dominating the Swedish life science innovation policy, is poorly supported by the critical resources and relevant know-how needed to accomplish ambitiously stated goals and objectives regarding life science innovation output, ultimately making the present life science innovation policy a matter of being little more than distant cheering and a advocacy of entrepreneurial activities in principle.

The normative idea of the market logic of life science innovation

In an institutional theory perspective, organisations are not just competing over various resources in the market place, but also seek to acquire political power and ‘institutional legitimacy’, that is, organisations strive to be both socially and economically fit (DiMaggio and Powell 1983, 150). Organisations are therefore fundamentally open to external influences, but also actively influence its environment to improve its social and economic fitness and its ability to compete in the market and, ultimately, to ensure their long-term survival. In this perspective, national, regional, and international policy-making is a key political process wherein the ‘rules of the market’ are established. Studies of policy-making indicate that policies shape markets (e.g. Dobbin and Dowd 2000), but market actors also shape policies, primarily through lobbyism and related activities, and mostly in a pro-active manner (Drutman 2015). The relationship between market actors and policy-makers is thus non-linear and complex, with much empirical evidence indicating how for instance policy-making is strongly influenced by economic interests (e.g. Mian, Sufi, and Trebbi 2010). In most cases, for example, industrial policy (Dobbin 1994), labour market policy (Hacker 2004), and science policy (Beryler and Low 2003) do matter for how markets and industries develop over time. The literature on policy-making still indicates that as being a political process, policy-making is not protected against normative ideas regarding, for example, the ‘virtues of competition’, the ‘efficacy of market pricing’, and similar ideas are strongly informing economic policy over the last four decades.

The life science innovation policy in Sweden and in many other, comparable, advanced, liberal, and industrialised economies has embraced a market logic wherein the principal role of life science innovation agencies is to create firms on the basis of life science research work and to prepare them for the venture capital investment market. While this policy drift from a science logic (wherein, e.g. academic scientists are primarily concerned with generating and publishing scientific results) to a market logic (combining such research work with enterprising activities, supported and essentially funded by the state or regional agencies) can be understood and justified within a free market advocacy being prominent since at least the mid-1980s, the new market logic policy easily underrate the externalities of the new policy. That is, wins in the market place do not always come without a comparable loss in the laboratory. In addition, a pressing concern and a hard data end-point testifying to the efficacy of the market logic policy is whether venture capital investors are willing to commit their funds to the firms being generated within the life science innovation policy. The empirical data indicate that only a limited share of the stock of life science companies are capable of raising money outside of the innovation agencies. Such empirical evidence casts doubt on a one-sided market logic life science innovation policy.

Encouraging venturing in the life science: from the science logic to the market logic

Beginning in 1968, American universities were given the legal right to patent its research findings to protect economic interest (Mirowski 2011, 117). Historically, life science research has been based on the scientific ideology examined by Merton (1973) in his seminal work, including not only research methods and theoretical frameworks deduced from and guiding further data collection (see, e.g. Rheinberger 1997), but also a ‘set of cultural values and mores governing the activities termed scientific’ (Merton 1973, 268). Two of the principal ideas in this scientific ideology were that (1) ‘the substantive findings of science’ is a product of ‘social collaboration’ (Merton 1973, 273), and (2) that the output from scientific research work is a ‘common good’. As mainstream neoclassical economic theory, rooted in a liberal political ideology, is sceptical regarding the virtues and relevance of common good as an analytical economic category (Campbell and Lindberg 1990; Hart and Moore 1990) – economic value ultimately derives from enterprising activities and such activities rests on ownership rights (per se a dominant economic idea in regime of competitive capitalism) – universities have been encouraged to gradually depart from the communal cultural values. Throughout the 1970s, universities embarked on a new policy and from the mid-1960s to the mid-1970s, the number of patents filed by universities ‘roughly tripled’ (Berman 2012, 95). This more broad-ranging policy-change aimed at promoting academic entrepreneurship (Colyvas and Powell 2007; Bercovitz and Feldman 2008; Haeussler and Colyvas 2011) on basis of intellectual property rights benefitting the individual researcher was complemented by more game-changing events such as Stanford University’s patenting of the recombinant DNA in the mid-1970s (Smith Hughes 2001) or Harvard University’s patenting of the so-called onco-mouse, the world’s first patented living organism (Murray 2010). The case received much media attention and in many ways represented, as Sunder Rajan (2012, 6) proposed, the decisive moment where the ‘value systems in the sciences’ were once and for all separated from previous regime of ‘Mertonian disinterestedness or communism’. When the Bayh-Dole Act was eventually enacted in 1980, very much as a response to a fait accompli, the American university system was already tuned to what Slaughter and Leslie (1997, 2001) refer to as the new regime of ‘academic capitalism’, now ready to capitalise on its research competencies (Berman 2008; Rafferty 2008; Mowery 2009; Grimaldi et al. 2011; Mirowski 2011).

The economic idea that life science research should comply with a market logic was not recognised overnight, but was advanced through various channels and activities. In the late 1970s, industry funding surpassed federal funding of University R&D in the US (Mirowski 2011, 121. Figure 3.1), a condition that influenced the cultural value base of academic scientists. In addition, research foundations, very much managed like corporations and prone to use performance metrics to monitor academic output, served to carry business-like methods and ‘managerial values’ (promoting, e.g. short-term efficiency gains) into academic science (Mirowski 2011, 102). The fortification of the market logic was also supported by changes in the federal government’s R&D spending, reducing defense-related R&D funds for the benefit of the life sciences (Mowery 2009), thus lowering the threshold for venture capital investors: by the end of the first decade of the new millennium, the life sciences accounted for more than 60% of all academic R&D expenditure in the US. (Cockburn and Stern 2010, 3).

In addition, studies show that a growing proportion of innovations are produced in network of organisations, including major research universities, life science start-up firms, venture capital firms, and pharmaceutical companies (Block and Keller 2009, 475; Mowery 2009, 15). In this new innovation landscape, academic researchers are, some evidence suggests, perhaps not serving the overall innovative capacity of the network best when being yet another category of entrepreneurs competing over limited venture capital funds. The concern regarding ‘over-entrepreneurialisation’ (to be seen as a complementary term to what Pagano and Rossi [2009, 666] call ‘over-propertisation’. See also Boldrin and Levine 2008; Bonaccorsi, Jane, and Joly 2011; Zeller 2008; Sell 2003) today leads to a shortage of venture capital.

Methodology of the studies

The study of Swedish life science innovation field reported in this article draws from two separate research projects. The first project was aimed at exploring how venture capital investors and innovation system agency officers treated the perceived shortage of venture capital in the sector. The second project examines novel ways for organising life science innovation an economy with limited risk appetite. The two projects were temporally separated (the first was conducted in the 2012–2014 period, the second in the 2014–2015) but were part of the same research programme to examine life science innovation work in investor capitalism. The sample of interviewees in the first study included 10 professional venture capital investors, representing all active Swedish venture capital investment companies and funds. These investors represented two private venture capital firms, one state-owned venture capital fund, one university-based venture capital fund, two state-owned pension funds investing indirectly in life science ventures, and one insurance company. In addition, the study included interviews with life sciences companies’ representatives (four interviews) and innovation system officers such as incubator directors, business counsellors, and investment managers (four interviews). The second study included 47 life science professionals, the bulk of whom were employed by small-sized life science companies.

All interviews were conducted by one or two senior researchers and were tape-recorded (after the interviewees consented) and lasted for around one hour. The interviews were transcribed either by a professional writing bureau or by a senior researcher. The interviews were coded by one senior researcher, starting with categories derived from the interview data. In the second round of coding, interview excerpts were co-located into joint categories across the interview material. In the third round of coding, second-order concepts (Van Maanen 1979), that is, theoretical concepts derived from the research literature, were used to structure the empirical data into a coherent narrative.

Economic ideas and the Swedish innovation system policy: the view of venture capital investors and life science entrepreneurs

Venture capital investors’ view of the market logic innovation policy

Several of the venture capital investors had somewhat mixed emotions about the extensive innovation system that have been developed both in the region and around the universities in Sweden since the mid-1990s. On the one hand, they thought it was helpful that life science researchers aspiring to become entrepreneurs were given adequate support during the start-up phase. On the other hand, the innovation system control had too small financial resources and therefore could neither afford to recruit co-workers with relevant experience and know-how, nor supply sufficient amounts of capital funds to the start-up companies. By and large, one interviewee argued, ‘there is an enormous over-supply of facilities [in science parks and incubators] … There are more lab space than companies to operate them’ (CFO, University Life Science Fund). Embedded in the economic policy where competition over limited resources leads to a ‘natural selection’ of vital and competitive companies, the innovation system was designed to increase the steady supply of life science entrepreneurs, arguably for the benefit of venture capital investors. The CFO was not fully convinced that such ‘supply-side economics’ was an adequate model for the design of the innovation system as it rested on a few fallacies. For instance, he insisted, the sheer supply of numerous candidates seeking venture capital investment per se did not warrant that either of these candidates held resources with a therapeutic and commercial value. Moreover, this fallacy led to inadequate performance measures when regional innovation agencies compared their performance, one of the representatives of a major venture capital investment fund, with extensive experience from collaborating with the innovation system agencies, confirmed that key performance indicators in use in fact said very little about underlying actual activities and accomplishments:

What occurred to me after that week [visiting local incubators] was that everybody was anxious to declare their own excellence. They showed key performance indicators that were totally irrelevant from a commercial perspective. Listening to all of that only made me very tired. (Business Area Manager, Life Science Venture Fund)

Other venture capital investors pointed at the shortage of venture capital in the innovation system, thus spreading its resources too thin: ‘[Incubators and small funds] are able to make life science investment of perhaps five million [Swedish crowns] per investment object. That is a totally, totally unrealistically small amounts of money for this type of development activities’, one Business Area Manager (in a Life Science Venture Fund) argued. Moreover, venture capital investors thought the innovation system was too unstructured and almost impenetrable, including a variety of funds, agencies, incubators, and business counsellors uncoordinatedly working to support and advice the start-up firms:

The government’s structure [in the front-end phases] is quite messy, no doubt about it, with all these funds and incubators, etc. … The government is unstructured in the way it support enterprising activities … They would need to consolidate and make things much more simple and more clear. (CFO, Venture Capital Firm).

In other words, in addition to a receding venture capital market, increasingly unwilling to carry all the risks involved in life science innovation, entrepreneurs have to navigate in a domain characterised by many small and at times even competing innovation agencies that were still not able to secure sufficient funds for the companies. The solution to the shortage of capital and the lack of adequate financial and advisory support in the innovation system was quite simply to not incorporate the business at a premature stage (as had been done previously); contrary to the economic idea and the market logic model that the degree of newly registered companies is indicative of the vitality of an economic system, venture capital investors claimed that promising research projects should stay in the academy for a longer period of time to be able to compete over a limited supply of venture capital funds at a later and more mature stage. This is essentially a deviation from the market logic model’s conventional wisdom that prescribes a corporatisation of life science innovation at the earliest possible stage.

For the venture capital investors, the innovation agency officer’s advice to build a company structure around interesting academic research findings was perhaps relevant from an innovation textbook perspective, but it was nonetheless ineffective inasmuch as the milieu wherein such a company is expected to compete over venture capital investment is ignored. Venture capital investors argued that too frequently, promising academic research work left the academy at a too early stage, based on the underrating of the difficulties involved in attracting venture capital, while maintaining too high expectations on research findings’ short-term clinical relevance and commercial prospects.

Some [projects] leave the academy a little bit too early. That is a fine ambition to start a company and to have ideas, get them patented and to get support from local incubators, that’s good! But too many rush things! They would have benefitted from being more mature, that is, been subject to more applied scientific research than today,

one of the CFO (Venture Capital Firm II) argued. He continued:

In quite a few cases, we say no because we think, ‘This is too early! All these things you should have checked while you were still in the academy!’ In quite a few cases, they just run off too early and try to create a company on basis of things that would benefit from staying in the academy longer … There is a need for state funding or focused research grants. It is not that venture capitalists are not willing to take risks, but the risks are almost always too high. (CFO, Venture Capital Firm II)

The principal concern for venture capital investors was that business counsellors advising academic researchers to register companies lacked an understanding of the venture capital market and therefore unwarrantedly assumed that venture capital investors were willing to carry substantial risks. Building companies around academically intriguing research findings, academic researchers were credited by innovation system agencies and, to some extent, also within the academy, but these activities unfortunately did not of necessity secure any clinical or commercial value, the venture capital investors argued:

It is unrealistic to give researchers and professors credit point for commercializing their research and filing for patents, and then they receive 800,000 [Swedish crowns]. Two years later there is not enough money left to even defend the patents. There is too low development projection in the projects and the patent time goes and the costs increases. (Business Area Manager, Life Science Venture Fund)

The business area manager claimed that this strong pressure to build companies derived from the market logic’s enterprising ideology that was not of necessity flawed but nevertheless ignorant of actual life science innovation work: ‘There is a certain beauty in the idea that everyone should be given the chance of testing their idea in competitive situation.’ The enterprising ideology and its strong normative pressure on academic researchers to bring their research to the market have been thoroughly institutionalised in the Swedish innovation system since the mid-1990s. On the other hand, as the business area manager implied, in addition to the idea regarding the virtues of competition, many of the interviewees argued that the innovation systems are based on an egalitarian ‘procedural justice’ preference, wherein all entrepreneurs are given an equal and fair chance to ‘test their ideas’. The direct consequence of this preference, written into policies and decision-making, was that ‘the resources have been spread out too thinly’ (Business Area Manager, Life Science Venture Fund). That in turn led to the funds allocated to life science venturing being far from sufficient to exhaust the demand:

There is certainly lot of support for biotech in Sweden but [the funding] runs out too early. If it lasted longer, benefitting to fewer people, then you would have more successes, and longer-term success and those jobs would be much more secure,

the CFO of the University Life Science Fund argued. In contrast, when venture capital investors make a decision, the investment proposals with the highest potential for return on investment were selected.

What we can do better, that is to consolidate the resources. At least we should try that; it doesn’t need to be ‘all or nothing,’ ‘black or white,’ but we can take a few projects and test them and then we give them a little bit more attention and a little more resources,

the investment manager in a State Innovation Agency suggested.

The presence of companies reaching a mature stage where clinical data have been collected but have still not managed to register any product, yet fails to attract new venture capital investments is indicative of unintended consequences of the premature registering of companies on basis of academically intriguing research findings. Companies ending up in this stalemate needed to, one interviewee argued, ‘Return to the academy, back to the world of research work. They are too far from [clinical applications and markets] to make it!’ (CFO, Venture Capital Firm II). The solution to this situation was generally claimed by the interviewees to grant the universities a more prominent role in hosting and further refining promising research findings to the stage where they are capable of attracting venture capital investment: ‘The universities should be given more money … prior to that phase before they become companies’, the CFO, Venture Capital Firm II, argued. However, Sweden is one of the very few countries in Europe (Italy being another case) that follows the so-called Teacher’s Exemption Rule, granting the individual researcher ownership rights rather than the university hosting the research work. Given the difficulties involved in separating various innovation policies and guidelines, enacted individually as responses to perceived problems at different points in time, a university-based life science innovation model seemed unlikely to be implemented, the venture capital investors contended.

Life science entrepreneurs’ view of the market logic-based innovation policy

The life science entrepreneurs, the foremost benefactors of an efficient and qualified innovation system, tended to share the venture capital investors concern regarding how the government allocated the money aimed to support life science venturing. Similar to the venture capital investors’ view, there was a scepticism regarding both the priorities made by the innovation system agencies and the qualifications and financial resources they controlled, made use of, and allocated. A CEO of a small-sized life science company expressed his concerns regarding the efficacy of the present innovation system, indicating that the bulk of the money invested by the government were committed to serving the agencies themselves:

The innovation system cost a certain amount of money to run, and I suggest that roughly half of the money is spent on keeping the system rolling, to support itself. So it is a nice way to keep many persons employed. Sure, they can make some contributions, but they are not doing so much good for those they are supposed to support. (CEO, Life Science Company)

The CEO continued by emphasising that what life science ventures need above all is venture capital and not so much the various business coaching and entrepreneurship seminars that the innovation system agencies provided:

The companies need money. They don’t need advice – money is what they need! Well, some business counseling and so forth is needed to a certain extent, but it is grossly overrated with all these coaches and consultants and business counselors. Give a company more money that is what it needs … Unfortunately, a larger share of the money are fed into the innovation system so it can function. (CEO, Life Science Company)

The concern is then that innovation agencies employ a considerable number of people who are providing certain services and expertise to companies that are still not of critical importance for the long-term viability of these companies and their ability to ultimately produce life science innovations.

Another line of criticism stressed how innovation system agencies tended to regard laboratory facilities and office space – quite often quite lavish in their outline and equipping – as what of necessity is conducive to innovative capacities and output. Echoing some of the venture capitalists’ criticism regarding the excessive build-up of laboratory space, the CEO of a biochemistry analysis company located in a bioscience incubator argued that the facilities being built were ‘very nice’ but were only offered at ‘a too high cost’: for most life science companies. ‘You also need to think about how to fill [the laboratory and office spaces] with activities’ (CEO, Biochemistry Analysis Company). While the expansion of laboratory and office space may be propelled by the political interests to create jobs in the construction industry – politician’s favourite industry lever for regulating unemployment motivated by the industry’s relative labour-intensity (Hillebrandt, 2000: 187) – the expansion of material offerings (e.g. office space) was not accompanied by investment in human capital, some of the life science entrepreneurs argued. Several interviewees claimed that it is very complicated for someone not actively working in the life sciences or with limited experience from the industry to provide accurate recommendations and advice. The CEO of the biochemistry analysis company was concerned about the opaqueness of life science innovation work:

There are many [in the innovation system agencies] who pick up a few concepts that sounds convincing, but it is complicated to fully understand what the life science industry is and what it needs unless you work in the industry. It is a fairly abstract field.

A regulatory affairs consultant with extensive experience from the pharmaceutical industry addressed the same issue, that of the shortage of adequate and state-of-the-art know-how in the innovation system agencies, also relying on recruitment directly from the various entrepreneurship master programmes being developed within the Swedish university system since the late 1990s:

There are many companies in need for direction at the early stages. That is one of the critiques of the Swedish [innovation] system with all the ‘science parks’ and so forth, and that is that are many being recruited directly from the universities … now supposed to serve as entrepreneurs and become CEOs straight away. They get fancy titles and so forth, but that can actually harm their future careers because they have acquired such a title too early [and without being able to fully live up to expectations]. (Regulatory affairs consultant, Consulting Company)

Also when innovation system agencies were taking on the role to supply directors to the boards in the life science companies they advise and counsel, they tended to mistake experience from major pharmaceutical companies as being of relevance for start-up firms, the regulatory affairs consultant argued:

In many cases, [innovation system agencies] hire the board in these companies, including some hot-shot from some of the major Swedish pharmaceutical companies, or have been a CEO someplace. But these people have rarely worked hands-on in this kind of [small-scale, start-up] companies … They are used to have all this service staff who take care of everything, so [these directors] cannot help these companies. They can possibly make sure that there is financing on basis of their contacts. But it does not help to have money unless you do the right things, if you have a long-term view. (Regulatory affairs consultant, Consulting Company)

The concern is, the regulatory affairs consultant argued, that her own domain of expertise is in an ongoing process of change, modifying to emerging scientific evidence and political objectives negotiated on both national and international levels and responsive to ethics and sustainability discussions, a variety of entangled activities that taken together leads to expertise in regulatory affair being highly situated and contingent and not the least ageing quite quickly:

At times, [innovation system agencies] recruit someone who knew the regulatory framework quite well 20 years ago, but that is constantly changing. So that they need in these early stage companies is an entirely different board of directors, who are, more up-to-date with the field,

the regulatory affairs consultant claimed.

The director of a bioscience incubator located at a major multinational pharmaceutical company argued that he had served on many committees in various innovation system agencies, and his verdict was that the process for allocating venture capital funds and assessing life science innovation work could be ‘greatly improved’ (Bioscience Incubator Director). The Swedish innovation system agencies ‘do have high ambitions’, the director added, and continued: ‘I am sure they want to improve things, but all this [developing innovations, e.g. pharmaceuticals] is complicated enough even if you do know what you’re doing [Laughter].’

In addition to the concerns regarding the access to venture capital funds and adequate human capital, some of the life science entrepreneurs argued that the innovation system agencies in a way was designed to handle firms that lived off either research grants or grants provided by state agencies, and as soon as the life science ventures approached a stage where they generated a cash-flow on basis of market transactions, the companies entered a grey zone where private money and tax-money were mixed in ways that caused much confusion among the innovation system officers. As the innovation system agencies were essentially funded by tax-money, and yet they were assigned the objective to transform start-up firms into regular market-based companies, any situation where the innovation system agencies could be criticised for channelling tax-money into privately held firms caused political commotion. One of the CEOs of a life science company accounted in detail for how his company had been assigned the role by a major research university to run a laboratory on the university’s behalf and permitting the company to use the advanced laboratory resources at a certain cost in its own research work as part of the deal. The present contract was a very rewarding win–win agreement for both parties, providing the university with a qualified partner managing and maintaining the laboratory while giving the company access to state-of-the-art technology the company itself could not afford to own. Unfortunately, the university board of directors got cold feet regarding the contract and certain directors argued that the company was illegitimately benefitting too handsomely from the state-governed university’s investments:

On a grass-root level, everyone agree this model works, but it is the decision makers who does not have the nerves to take a stand … What they indicate, is that companies mustn’t collaborate with the university, because in the university system, there is no knowledge at all about how to handle these issues. (CEO, Company LSI 2)

For the CEO, this was a textbook case of how difficulties amass as soon as tax-money mingle with private capital when there are no clear guidelines or policies of how, for example, universities and innovation systems should handle the transformation of life science companies from being financed by grants to become market-based actors: ‘I can understand they are concerned about corruption and such issues in these kind of [state-governed] systems, but that makes everything incredibly much more expensive’, the CEO said.

Taken together, the life science entrepreneurs shared much of the venture capital investor’s concerns regarding the role of innovation system agencies, on the one hand designed to encourage and support academic researchers to create business ventures on basis of their research findings, and thus operating in accordance with a market logic; on the other hand, the innovation system agencies lacked the finance capital funds needed to support life science ventures entering, for example, a clinical trial phase – an obligatory passage point in most life science innovation processes – nor did they offer adequate human capital resources needed to guide the life science ventures on the pathway towards an innovations. In fact, some of the interviewees claimed that agency officers from time to time misguided the entrepreneurs as they provided inadequate information and gave advice that would do little to shortcut the innovation process. For venture capital investors and life science entrepreneurs, the present innovation system had embraced certain features of the market logic such as the acclaim of entrepreneurship, the encouragement of risk-taking, and the need to prepare oneself for an unforgiving venture capital market characterised by a razor-sharp competition over limited funds. At the same time, the expertise and experience – scientific, legal, regulatory, and managerial – needed to actually produce life science innovations, an essential and irreducible component of the market logic model, was treated as being of less important and what could be effectively counteracted by carefully designed bureaucratic routines, including, for example, business counselling and joint seminars. For venture capital investors and life science entrepreneurs, these efforts were promising early reforms but were ultimately far from sufficient to fulfil the potentiality of a full-scale market logic innovation policy.

Discussion

The shift in institutional logic in the mid-1990s and until the dot-com bust was accompanied by a burgeoning venture capital market that was ready to supply venture capital to further develop academic research findings (Lerner and Tåg 2013). In the case of Sweden, both Social Democratic and center-right governments have financed and fortified an innovation system, modelled on an American system and blending public and private funding. In many ways, this new emphasis on academic entrepreneurship has been successful in changing the culture and the attitude among academic researchers, now being more positive regarding the commercialisation of research findings and recognising the expertise needed to bring health-care innovations to the market. Unfortunately, the imbalances in the supply of start-ups and the size venture capital funds suggest that the one-sided policy, emphasising the increase in supply of academic entrepreneurs and life science ventures in the Swedish innovation system’s idiosyncratic market logic model, has failed to accommodate the demands of the venture capital market and the life science entrepreneurs. The outcome can perhaps be best described as a form of ‘over-entrepreneurialisation’, characterised by an early-stage incorporation of a business venture as a vehicle to secure intellectual property rights, allegedly the resources that attract venture capital investment.

Unfortunately, there is, also in the US an endemic shortage of venture capital. As this is a decisive factual condition for the realisation of the potential of the market logic model, a pressing concern is whether innovation policies, based on the economic idea that the science logic is less conducive to innovative output than the market logic model, should singlehandedly promote and reward academic entrepreneurship and venturing. The two central professional groups, venture capital investors and life science entrepreneurs, share the concern regarding the efficacy of the predominant innovation policy and the extant national innovation system. Highly specialised academic researchers, fully committed to contribute to the international research community, have been actively encouraged to embark on entrepreneurial projects, in many cases, venture capital investors claim, on basis of the faulty premises made by innovation agency officers that their research findings have a commercial and a clinical value also at a very early stage. Once being enticed to create startup firms, these academic researchers and their collaborators have been involved in innovation system activities that are not of necessity leading to innovations or attracting commercial interest. That is, a singlehanded rejection of the science logic model and the embrace of the market logic model may not represent a viable innovation policy. The present innovation policy, informants claim, fails to distinguish between the many objectives and outcomes of the innovation system including, for example, job creation and the return on basic life science investment in the form of new therapies or market-based life science companies.

Policy-making is based on normative ideas, and such ideas may in fact trump scientific evidence because they are more easily communicated and narrated in political quarters (Best 2012). Moreover, policies make markets and industries (Dobbin 1994), and market actors and corporations in turn actively influence the policy-making, either directly through lobbyism (Drutman 2015) or indirectly through, for example, campaign contributions and donations (Mian, Sufi, and Trebbi 2010). By the end of the day, policies on different levels and with various degrees of detail and precision are strong political instruments in the domain of economic affairs (Guillén and Capron 2015). ‘[T]he bureaucratic apparatus of the state is an administrative machine for identifying, assessing, and selecting new models, policies, or templates in response to new needs or past policy failures’, Guillén and Capron (2015, 126) write optimistically. By implication, policies being enacted and instituted into, for example, life science innovation agencies need to be accompanied by credible and legitimate hard data end-point measures to determine the efficacy and relevance of extant policies. If relying on and being justified by normative ideas alone, the long-term consequences of policy-making are complicated to monitor and fully oversee. One such measure is to what extent life science companies are capable of attracting private venture capital to finance their development work as the entire life science innovation agency framework is designed to ‘prepare the firms for the venture capital market’. Unfortunately, empirical data indicate that this situation is yet to materialise.

Policy-making oftentimes leads to unintended and unanticipated consequences, at times referred to as policy drift. This hybridity the present Swedish innovation policy leads to inconsistencies that venture capital investors and life science entrepreneurs tend to regard as an inefficient use of resources, not of necessity conducive to innovation, but possibly leading to job growth in the life science sector. In this hybrid system, academic-scientists-turned-life-science-entrepreneurs becomes what Slaughter and Leslie (2001, 154) call ‘state-subsidised entrepreneurs’, animated by an entrepreneurial spirit and yet wholly dependent on state-controlled research grants and subsidies.

Conclusion

Life science innovation is a major activity and political concern in today’s advanced, liberal, industrialised economies. In the ancien régime, that of the science logic, academic researchers were limitedly concerned with the commercialisation of their scientific output, but in the new market logic, the enterprising academic entrepreneur is the favoured and ideal model for an admirable academic career. The market logic is appealing for policy-makers and other social actors such as life science innovation agency directors as its stresses the practical use of scientific research work, especially in the life sciences where new therapies hold the promise to cure illnesses, prolong human lives, and reduce suffering. At the same time, to commit more funds and resource to market logic-based activities when there are not yet sufficient private venture capital funds to finance the development work easily leads to disappointment or even cynicism. That is, when the science logic is abandoned and the market logic is fully embraced, the risk of ‘over-entrepreneurialisation’ surfaces.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Alexander Styhre , Ph.D. is chair of organisation theory and management, Dept. of Business Administration, School of Business, Economics and Law, University of Gothenburg. Styhre earned his Ph.D. from the School of Economics and Management, Lund University, in 1998. Styhre has published widely in the field of organization and his work has appeared in for example, Journal of Management Studies, Organization Studies, and Academy of Management Review. The most recent books published are Institutionalizing Assisted Reproductive Technologies: The Role of Science, Professionalism, and Regulatory Control (Co-authored with Rebecka Arman, Routledge, 2016) and The financialization of the firm (Edward Elgar, 2015).