Innovation Policy Governance and Dynamic Capabilities in the Public Sector: Challenges for Estonia and Other CEE Countries in the Context of Industry 4.0

The components of any national innovationsystem (NSI) – institutions and organisations –need appropriate alignment to enhance innovationand the dynamic development of any country.Many authors have claimed that the countries ofCentral and Eastern Europe (CEE) have recentlyslowed down in their development. The reasonsinclude weak reforms and deficiencies of theirNSI, pointing to NSI rigidity, misalignment ofinstitutions, overly strong FDI-dependence,and poor governance quality. This articlecombines the concepts of NSI and the dynamiccapabilities of governments as coordinators ofthe knowledge economy conditions in the NSI.By using selected empirical examples from CEEon micro-level stimuli for knowledge productionand diffusion (which both are the core processesof the NSI), the article outlines the challengesfor CEE countries’ governments, including,(among others) operating through demand aswell as supply-side factors on the NSI, enhancinginteractivity (in ‘real time’), aligning incentivesfor different types of NSI actors, aligning micro,meso, and macro levels (local, regional, national,and global systems of innovation), and acquiringpolicy capabilities to make connections throughpolicy learning.