The Choice of Innovation Policy Instruments

The purpose of this chapter is to discuss the different types of instruments of innovation policy, to examine how governments and public agencies in different countries and different times have used these instruments differently, to explore the political nature of instrument choice and design (and associated issues), and to elaborate a set of criteria for the selection and design of the instruments in relation to the formulation of holistic innovation policy. The chapter argues that innovation policy instruments must be designed and combined into mixes that address the problems of the innovation system. These mixes are often called ‘policy mixes’, though we prefer the term ‘instrument mix’. The wide combination of instruments into such mixes is what makes innovation policy ‘holistic’.

Public Financing of Early-Stage Innovations

Financing innovation processes is one of the crucial activities for developing commercially successful products and processes (innovations) and to facilitate their diffusion in the innovation system. This chapter addresses the rationales for public intervention, i.e. in which situations policy should be pursued in the field of financing. The chapter identifies a number of policy instruments for financing innovations that are available by the state, and which public agencies use for funding early-stage innovation. The chapter also describes the provision of risk capital by the Swedish state. This case describes a situation where unintended consequences of the policy pursued in Sweden led to the non-fulfilment of the additionality condition. We also describe how this mistake has begun to be resolved after discussions in the Swedish National Innovation Council. The chapter concludes with a number of important issues with regard to public financing of innovations.

Functional Procurement as Demand-Side Innovation Policy

Public procurement occurs when public agencies purchase products (goods, services, and systems). The rationale, purpose, and starting point of public procurement should always be to solve societal problems, to satisfy human needs, or to meet global challenges, such as environmental and health problems. This chapter discusses how public procurement can influence the direction and speed of innovation processes, as an instrument of innovation policy operating from the demand side. The chapter focuses on four specific kinds of procurement, namely (1) direct innovation procurement, (2) catalytic innovation procurement, (3) functional regular procurement, and (4) pre-commercial procurement. A conclusion is that functional specification is needed for all four of these different kinds of procurement. Questions addressed are: how can we achieve an increase in the use of innovation-enhancing procurement? What types of procurement initiatives have the potential to influence innovations most? And how can these be designed and implemented?

Education, Training, and Skills Formation

The main question that guides this chapter is how governments are focusing (and must focus) on competence-building (education, training, and skills formation) when designing and implementing innovation policies. After a brief literature review, this chapter suggests a typology of internal/external and individual/organizational sources of competences that are related to innovation activities. This serves to examine briefly the most common initiatives that governments are taking in this regard. The chapter identifies three common overall obstacles and barriers in innovation systems in terms of education, training, and skills formation: the insufficient levels of skills and competences in a system, the time lag between firms’ short-term needs for specific competences and the long time required to develop them, and the imbalances between internal and external sources of competences in firms. From these, the chapter elaborates a set of overall criteria for the (re)design and choice of policy instruments that address those obstacles and barriers.

Knowledge Production and R&D

Who produces scientific and technical knowledge these days? What type of knowledge is being produced, and for what purposes? This chapter studies the role of public policy in knowledge production (especially R&D activities) relevant for the innovation process from a perspective of innovation systems. It identifies four typical policy-related obstacles and barriers related to knowledge production in an innovation system. Next, it elaborates a set of overall criteria for the selection and design of relevant policy instruments addressing those unbalances. Most importantly, the chapter argues that in most countries innovation policy continues to be subsumed under research policy. An holistic and problem-oriented innovation policy requires that innovation policy and research policy are separated from each other in the design phase—but it must be ensured that they support each other when implemented (in the same way as many other policy areas have to be coordinated with each other).

Innovation Policy

This chapter develops the core of the argument regarding the specific assumptions and theoretical propositions about the role and limits of innovation policy. The theoretical basis for the holistic approach to innovation policy proposed in this book is built from a broad version of the systems of innovation approach and the identification of the concrete policy problems that afflict the innovation system, including the unintended consequences of policy. Following from that, the chapter argues that most innovation policies across countries are still partial, not holistic; that innovation policy must be separated from research policy; and that innovation policy-learning can only take place using an analytical model that helps understanding what worked, how, and why.

Building the Theoretical Foundations for an Holistic Innovation Policy

The purpose of this chapter is to provide a summary of the main arguments and conclusions in the book, and to highlight its main contributions. Taking the point of departure from the book’s analytical framework, and taking stock of the detailed considerations in its different chapters, this chapter looks into a series of issues related to the design of holistic innovation policy. With this purpose in mind, the chapter summarizes the theoretical foundations of an holistic innovation policy, how policy problems, obstacles, and barriers in innovation systems can be identified, and how policy instruments can be selected. The chapter finishes with a discussion of further avenues for innovation policy and innovation research. This summary chapter can be read independently of the rest of the book.

Innovations

This chapter comes to grips with the nature of innovation and systems of innovation. It identifies ten specific activities that define systems of innovation. The ten activities are specific elements directly related to the performance of innovation, that collectively shape the way in which innovation takes place in an innovation system. We call this a ‘systems activities approach’, and it is a broad version of the systems of innovation approach. These activities are partly performed by private organizations and partly by public organizations. The theoretical basis for innovation policy proposed in this book is built from the identification of the concrete problems (failures, bottlenecks, weaknesses, etc.) that afflict innovations and their determinants in systems of innovation, including those problems that might be the unintended consequences of policy itself.

Why We Need an Holistic Innovation Policy

This chapter introduces the main idea of the book, namely, the theoretical foundations, the problem-oriented approach, and the focus on the instrument choices of an holistic innovation policy. The chapter argues that innovation studies have left unfinished the theoretical foundations for the design of innovation policy. The chapter also argues that a starting point for developing it is the identification of the problems that tend to afflict the performance of innovation systems and the ten determinants of innovation processes. This provides the basis for the choice of innovation policy instruments. The chapter provides a road map of the contents of the book.

Interaction and Networking

Innovation systems cannot be conceptualized without understanding the interactions between different actors in the system. These interactions take many different forms. The scholarly literature has studied them with broad or narrow notions. This chapter aims at providing an encompassing view of these different phenomena, putting them directly into the theoretical context of the innovation systems approach. This is done not only for the sake of conceptual clarification, but above all for identifying the concrete obstacles and deficiencies associated with these interactions that might plague the innovation system. This serves as the basis for distinguishing and classifying the wide diversity of network-oriented innovation policy instruments that governments have deployed through time. Just as in other chapters of this book, the unintended negative consequences created by the application of these instruments are also examined. Finally, the chapter puts forward a set of criteria for the design and redesign of these instruments.