Samenvatting
Summary IP theory & lectures - Exam
- Instelling
- Universiteit Utrecht (UU)
Summary of all the lectures, covering all the theory in preparation for the exam
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Lecture notes – Innovation PolicyLecture 1 – Introduction & innovation policy landscape/innovation system
How can we make society a richer and better place to live? → innovation policy
Innovation drives economic growth and aims to address societal challenges
➔ Urgency around innovation policy:
To protect the environment, to improve health standards at lower costs, to enhance
productivity and make it possible for a greater number of individuals, firms and countries to
take part in the knowledge-based economy
▪ Health, demographic change and wellbeing
▪ Food security, sustainable agriculture
▪ Secure, clean and efficient energy
▪ Smart, green and integrated transport
▪ Climate action, environment, resource efficiency and raw materials
▪ Europe in a changing world - inclusive, innovative and reflective societies
▪ Secure societies - protecting freedom and security of Europe
European paradox → the European phenomenon of having good higher education systems, good
research infrastructure and results but failing to translate this into marketable innovations.
Complexities around innovation policy → uncertainty and unpredictability of innovation, innovations
emerge in innovation systems with many diverse types of actors with different expectations,
interests and organizations; new knowledge and innovations can create new disruptions and
challenges → innovations cause new divisions of labor and a different distribution of wealth and risk
Innovation policy basics
- What is innovation policy:
• Government interventions that encourage and facilitate the generation, application,
and diffusion of new ideas.
• In a local, regional, national, supranational (e.g. EU) economy
- Policy instruments: “a government measure or programme that aims to change the
behaviour and actions of the actors involved in the whole process from generating new ideas
into innovative market introductions and solutions”
- Taxonomy of policy instruments → policy instruments can have many different goals with
different incentives (important to the amount of money involved)
- Why innovation policies?
• Public policies to increase the productivity and competitiveness of companies
(private sector), in the future, in a world of innovation based competition, and to
tackle societal challenges that are not led by the market not by society (mission
oriented innovation policies)
- Different approaches to innovation and to innovation policy
• There is a narrow perspective, considering invention only, and there is a broader,
more holistic perspective, which emphasizes the importance of looking at the entire
innovation cycle from the creation of novel ideas to their implementation and
diffusion.
• Moreover, there is the question of whether one should limit the analysis to policies
designed with the explicit intent of influencing innovation, or also take into account
policies primarily created for other purposes, but which may have a significant
impact on innovation activity.
1
,Three main approaches in innovation policy:
- Invention-oriented policies have a narrow focus, in the sense that they concentrate on the
R&D/invention phase, and leave the possible exploitation and diffusion of the invention to
the market.
- System-oriented policies are of more recent origin and focus on system-level features, such
as the degree of interaction between different parts of the system; the extent to which
some vital component of the system is in need of improvement; or the capabilities of the
actors that take part
- Mission-oriented policies are aimed at providing new solutions, which work in practice, to
specific challenges that are on the political agenda
The market failure (underinvestment of R&D) traditional approach to innovation policy → a
contested approach
- Theoretical background: ‘mainstream’ economics
• Reasons why firms underinvest in R&D:
▪ Uncertainty
▪ Spill overs
• Remedies
▪ Public R&D
▪ R&D subsidies
▪ Patents
The innovation-system approach to innovation policy
- Theoretical background: innovation studies
• Innovation depends on many factors: the state of knowledge, individual creativity,
public policy, economic institutions, and social norms
• Innovation is inherently multi-actor
• Government should facilitate interactions in the “innovation system”
Introduction of new solutions by creating new combinations → Schumpeter’s idea of innovation
- Carrying out of new combinations:
1. Introduction of a (for consumers) new good
2. Introduction of a (for the industry) new method of production
3. Opening of a (for the industry) new market
4. Conquest of a new source of supply of inputs
5. New organisation of any industry
Invention → innovation Discontinuous innovation: “Creative Destruction”
Welfare economics → markets as a starting point for innovation policies
First fundamental theorem (Arrow, 1951) of markets as efficient resource allocators:
1. There is a complete set of markets, so that all supplied/demanded goods and services are
traded at publicly known prices
2. all consumers and producers behave competitively
3. an equilibrium exists
➔ Only violation of these assumptions (due to ‘market failures’ – when markets do not
function properly) warrants intervention, but with the risk of ‘government failure’
• Society is characterised by a state of affairs in which the relevant information exists “solely
as the dispersed bits of incomplete and frequently contradictory knowledge which all the
separate individuals possess” (Hayek 1945: 519).
• Planning is obviously done by very many individuals in a decentralised manner (Hayek 1945:
521).
➔ Dispersed knowledge distribution in markets leads to the dominance of the IS-approach
2
,“Uncertainty for Hayek means that each individual decision maker only has a small piece of the
puzzle.
However, as a whole, the aggregated set of all decision makers have a complete set of all relevant
knowledge.
Market prices organize and synthesize the aggregate amount of knowledge so that market price
signals, understood only by savvy, knowledgeable entrepreneurs, [eliminate] … any uncertainty.”
(Brady 2011: 14).
Knightian uncertainty → there is not always a market for innovation
• The world brings new opportunities for businesses to make profits, but we have imperfect
knowledge of future events.
• Therefore, according to Knight, risk applies to situations where we do not know the outcome
of a given situation, but can accurately measure the odds.
• Uncertainty, on the other hand, applies to situations where we cannot know all the
information we need in order to set accurate odds in the first place.
Knightian uncertainty in the innovation process:
• Can we invent it? (discovery uncertainty: how much R&D to invest for a solution)
• Can we make it? (technical uncertainty: from invention to innovation, R&D)
• Can we sell it? (market uncertainty: from innovation to diffusion)
3
, Lecture 2 – Rationales
Why do we have government policy?
- Government is a means by which policies are enforced, as well as a mechanism for
determining policy. Each government has a rationale, a statement of its governing principles
and philosophy.
- Governments concentrate power and allow the community to deploy that power to enforce
laws, keep the peace, defend itself against outside enemies, and provide necessary public
goods.
Why should we not have government policy?
- A libertarian (more often than not an American) will say that the problem here is one of
government itself:
- All governments are hopelessly bureaucratic, incompetent, rigid, and counterproductive,
and the solution is not to try to make government better but to get rid of it altogether in
favor of private or market-based solutions.
Public vs. private
- There are indeed reasons why government agencies are intrinsically less efficient than their
private-sector counterparts.
- Accountability, transparency, predictability, consistency, etc.
- It is also the case that governments have often taken on tasks better left to the private
sector, such as operating factories and businesses, or else have interfered with private
decision making in destructive ways.
- Governments are ‘slow’ and bureaucratic; firms are less so
- The boundary between public and private will always be a matter up for renegotiation in
every society.
Conditions of legitimation of policy
1. Societal interest; a problem that needs to be addressed
2. No one else (private markets/firms) will or can do it
3. Government is able to do it
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