Key messages

  • Sustainable transformations are about eliminating carbon emissions in value chains and reducing inequalities.
  • Sustainable transformations call for wide-reaching change of economic systems, with a tendency for shorter value chains and regulations penalizing low social and environmental standards
  • Sustainable transformations suggest a broader perspective on development delivering not only on economic but also on social and environmental objectives.
  • Public private innovation partnerships aim at identifying the most important challenges for societal wellbeing locally, and at finding adequate solutions in the given (potentially low resource) context.
  • Public private innovation partnerships build on the engagement of local actors who can affect or are affected by societal challenges.
  • Public private innovation partnerships require building capabilities of local actors, and a trust-based collaborative culture, but not necessarily high initial investments.


This contribution aims to provide a window into recent policy developments in the European Union and the Nordic states of Europe, and in particular the ongoing experiments to reorient innovation policy to contribute not only to economic growth but to deliver also on social and environmental objectives. The background for such a call is both the threat of climate change and extinction of species and the intolerable inequalities between regions, which pose a risk for social cohesion and democracy in Europe. Being embedded in global value chains where the European Union accounts for approximately one quarter of Cambodia’s merchandise exports according to WTO in 2019, these policies may have important consequences for Cambodia’s economy. Moreover, some insights into the changing policy rationales in Europe may also constitute an opportunity to reflect if and in what ways these novel policy rationales are of relevance in Cambodia.

In essence the new innovation policy rationales imply a shift in desired outcomes from competitiveness and economic growth to a transition towards more sustainable production and consumption patterns (Laatsit et al., 2022). Most importantly, this relates to the reduction of greenhouse gas emissions, which has a direct impact on global value chains because emission free technologies for long distant transport such as deep-sea shipping or air transport are far from ready. Consequently, new ways to organize the economy are sought after and are becoming increasingly popular such as the circular economy (Kirchherr et al., 2017). A circular economy where material and energy shall not go to waste but enter new cycles of production and consumptions typically require shorter value chains too. Moreover, the efforts to create more sustainable consumption and production patterns coincides with other challenges like decreasing the dependency on gas imports from Russia because of the Ukrainian war, to make value chains more robust and resilient in the wake of Covid-19 or increase social accountability in global value chains. Enhancing efficiency, incremental innovation and upgrading along existing economic and industrial trajectories are considered insufficient to address these challenges (Schot & Steinmueller, 2018). A system change is called for.

There are, however, many contrasting and conflicting views about how (and even if) systems need to change, and how the benefits and costs of such a system change are to be distributed. Indeed, the colossal task of system change arises against the background of striking inequalities between groups in society, between wealthy urban centers and deprived non-urban peripheries, and between the rich and poor countries of the world (Iammarino et al., 2018). This means that system change needs to address not only climate impact, but also social and economic goals (Donald & Gray, 2019). Even though it is difficult not to overlook a certain hypocrisy, system change appears to be a viable political option only if it does not imply welfare losses as evident for instance in the yellow west movement in France, which started as protest movement against high petrol prices. The recent Swedish elections are also a good example for this. Sweden has progressed more (but still insufficiently) than other countries on sustainability goals and is characterized both by relatively high innovativeness and low inequality because of the welfare state. Still, hardly any party would dare to recognize that achieving climate objectives requires besides technological innovation also behavioral change from the side of consumers. While political parties hardly dare to articulate the need for even minor changes to consumption, which are required to achieve environmental targets, Swedish consumers increasingly shame flying and meat eating, and some companies have started to invest heavily in circular business models. This illustrates that system change is highly contested in society.

As system change is needed but highly contested, the new policy experiments in Europe have two important features: first, they tend to be problem or challenge oriented and, second, they aim at the formation of new partnerships for innovation. In other words, the policy experiments try to encourage the collaboration of the actors that can affect and are affected by a particular societal challenge or need, which could range from the provision of fossil free public transport to healthcare services in peripheral regions. This implies a move away from sectoral initiatives, such as promoting innovation in the automotive industry, to such that cross sectoral boundaries. It requires a new thinking about who the relevant actors in such a change process are. Traditionally, it has been the “triple helix” of business, university, and government actors. In the new perspective, other public sector actors and civil society actors play an important role too. It constitutes a revival of public-private partnerships – however not in the traditional control and management relationships but in experimental forms of governance (Morgan, 2018) where learning about how to address problems in collaboration is foregrounded.

An example for policy experiments to address system change is the recent “Partnership for Regional Innovation” initiative in Europe. The intended policy outcome is not competitiveness and growth, or industrial diversification as in previous regional development and regional innovation policies but long-term societal wellbeing. The responsibility for long-term societal wellbeing, and thus also for this type of policy, is not limited to civil servants dealing with regional development but is considered a whole of government approach. The partnerships are to define the desired policy outcomes, this is to say what is meant with long-term societal wellbeing. The partnerships are furthermore required to meaningfully include citizens, firms, universities and other knowledge institutions, as well as local and regional authorities. In collaboration, the partnerships are thought to frame the societal challenge they want to take on and experiment their way towards solutions, which address multiple and often conflictual goals of the various stakeholders involved. The design of this policy initiative also deviates from the practice to provide clear and prescriptive guidelines of how to design and implement the policy. Instead, it suggests a variety of possible approaches how such innovation partnerships could work (EC, 2022). This experimental form of governance aims to combine directionality with subsidiarity. Directionality comes in the form of non-negotiable objectives related to societal challenges such as the reduction of greenhouse gas emissions or reducing disparities between regions and groups in society. Subsidiarity is about facilitating experimentation at the local and regional level, making use of local knowledge, creativity and energy in order to find adequate solutions to the problems that matter most in the local contexts.

These new policy experiments, which encourage challenge-oriented partnerships, foreground the engagement of local actors in collaboration with global actors (Grillitsch & Sotarauta, 2020; Grillitsch, Sotarauta, et al., 2022). Local actors include citizens, companies, civil society organizations, educational and research facilities, the local and regional administration, as well as potentially locally embedded global firms. Which local actors to include depends on the challenge in focus. For instance, sustainable and healthy food as challenge might include schools, hospitals, and other public authorities creating a local demand in combination with companies in the whole food supply chain, education, training, and research organizations, as well as residents. The engagement of local actors is, however, only possible if they are sufficiently empowered. The conditions that empower or disempower local actors are many such as individual skills and organizational capabilities, local and global networks providing access to knowledge and resources, and a set of informal and formal institutions that promote such engagement, for instance an entrepreneurial culture or good governance constituted by transparency, accountability, and low corruption. As change processes typically involve many actors, not only individual capabilities matter but also the ability to act together, which is often underpinned by trust, an open and collaborative culture, and a sense of responsibility for the common good.

Empowerment of local actors stands in an ambivalent relationship to the investments of non-local/foreign actors. Even in the Nordic countries, which have a tradition of promoting regional development outside the urban cores, where the labor force is well educated and trained, and where high levels of trust encourage collaboration between citizens, government, business, and universities, we find that the dominance of single externally owned companies tends to subpress local agency and innovative entrepreneurship and tends to create dependency relationships. In resource scarce environments like Cambodia, where the preconditions for economic development and innovation are worse than in the Nordics, this tendency of external investments to create dependencies and disincentivize local agency is likely to be even more pronounced. It is often a crisis, this is a downscaling or closure of the dominant firm, which stimulates local actors to identify alternative development trajectories. However, building local agency – the ability to make a difference – takes time, which means that long structural adjustment processes are rather the norm than the exception after such a crisis (Grillitsch, Asheim, et al., 2022). This also implies that a development policy, which is oriented toward societal challenges and builds on innovation partnerships with strong local engagement, also needs to be a policy that has a long-term perspective enhancing the capabilities of locally embedded actors and widening and deepening the opportunities for locally embedded actors to engage in social and economic change processes. In short, policy experiments for sustainable transformation build on a broader understanding of development where economic, social and environmental goals are combined. Finding solutions in innovative partnerships aim at resolving underlying goal conflicts, which requires a rethinking of production processes in global value chains and consumption patterns. It tends to favor shorter supply chains and to increasingly account for environmental and social costs occurred in the whole value chain. This change in the economic landscape as well as the societal challenges of the world make strategic long-term policy action to enhance the capabilities and opportunities to partake in a greener and inclusive society necessary.

What does this mean for Cambodia? The World Bank (2021) indicates that Cambodia was relatively successful in attracting foreign capital but that this was not matched with enhanced human capital and upgrading towards higher value activities. In order to address the needs of Cambodian citizens regardless of whether they reside in the capital or more rural regions and to upgrade the economy, a focus on building capabilities and local engagement should be a valuable strategy. This needs a long-term perspective but not necessarily large initial investments. It requires place-based leadership aiming to connect local actors, to identify common interests, opportunities and challenges, to coordinate in formulating the societal challenge to tackle, and to mobilize and pool resources in the pursuit of solving the challenge. Place-based leaders may have formal positions as mayors or business leaders but can also engage informally using their social networks. Importantly, this role may also be empowered by giving an explicit mandate for it to adequate local (private public) development organizations. It often involves a change in the mindset about what development entails, that it is not only about attracting foreign direct investment but also about local collaboration and trust, building capabilities and engagement. The innovative nature of such partnership then is about finding solutions to the targeted challenges in the given context of resource scarcity. This may be local solutions, but often will also draw on non-local networks providing access to complementary knowledge or resources. Importantly, public private innovation partnerships need to be seen dynamically. Local engagement makes it possible to over time transform knowledge, networks, institutions, opportunities and challenges.

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