Cohesion and Excellence from a Schumpeterian Perspective
Edited by Slavo Radosevic and Anna Kaderabkova
Chapter 5: EU Innovation Policy: One Size Doesn’t Fit All!
Alasdair Reid 5.1 INTRODUCTION The rationale for public policy intervention to support science, technology and innovation (STI) has been traditionally based on the concept of market failures.1 Such failures occur when market mechanisms (assumed in the ‘neoclassical’ economics to equate with perfect competition and rational expectations) are unable to secure long-term investments in innovation due to uncertainty, indivisibility and non-appropriability of the innovation process (Arrow, 1962). Typically, a market failure manifests itself in an insufficient allocation of funding by enterprises for risky and innovative investments and, hence, the market failure approach leads to instruments that allocate resources to firms (R&D grants or tax incentives). Since the early 1990s, STI policy-makers have increasingly begun to adopt the language of national systems of innovation (NSI) (OECD, 1997) theory, which stresses that the flows of technology and information among people, enterprises and institutions are at the core of the innovation process. Innovation and technology development are the result of a complex set of relationships among the actors in the system, which includes enterprises, universities and government research institutes. For policy-makers, an understanding of the NSI can help to identify leverage points for enhancing innovative performance and overall competitiveness. Moreover, innovation systems theory implies that policy measures that only aim to correct market failures will not result in optimal innovation performance. Rather the primary role of the state in terms of innovation policy is to facilitate the emergence of well-functioning innovation systems (Metcalfe, 2005). As systems are defined by components interacting within boundaries,...
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