Innovation policy in a global economy
| Date | 07 November 2016 |
| DOI | https://doi.org/10.1108/JEPP-02-2016-0003 |
| Pages | 308-324 |
| Published date | 07 November 2016 |
| Author | Jason Potts |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Innovation policy in a
global economy
Jason Potts
School of Economics, Finance and Marketing,
RMIT University, Melbourne, Australia
Abstract
Purpose –The purpose of this paper is to examine how national innovation policies strategically
interact to form emergent de facto global entrepreneurship and innovation policies.
Design/methodology/approach –Reviews the innovation economics theory and policy literature,
synthesizing the existing work into three models (autarky, cooperation and competition), then adds
four new models of strategic interaction (asymmetric information, duopolistic competition, competitive
factor mobility and complementary assets).
Findings –The different models predict very different outcomes. Therefore, it matters which model is
true. Entrepreneurship and innovation policy needs to start with an improved science of strategic
global interaction of national innovation policy.
Research limitations/implications –Conceptual approach only, without empirical analysis, calls
for empirical analysis to test the different models.
Practical implications –Points to the problem of absence of global coordination in innovation policy
arising from strategic interactions between national innovation policies. Recognizes that entrepreneurship
public policy is caught in this strategic game, and that there are missing global institutions here.
Social implications –Improved innovation policy should enable more effective entrepreneurial
environments.
Originality/value –Proposesseven models for understandingglobal strategic interaction of innovation
policy, out of which four are new.These new ones are highly relevant to entrepreneurship policy.
Keywords Global public goods, Globalization, Collective action problems, Global entrepreneurship,
Strategic innovation policy
Paper type Research paper
1. Introduction
Ever since Schumpeter (1912, 1942), entrepreneurship and innovation have run together
in the economic theory of the dynamics of market capitalist economies. Modern policy
settings barely see light between these two, routinely gathering entrepreneurship and
innovation under integrated public policy frameworks. Yet the reality in modern
government is that innovation policy is everywhere by far the dominant partner in that
relationship (Mannand Shideler, 2015). This is because innovation–understood broadly
as the origin of new ideas in research, science and technology, subsequently
commercialized –presents as a textbook market failure argument that can be addressed
through government actions, largely based around spending, that constitute innovation
policy (Nelson, 1959; Arrow, 1962; Martin and Scott, 2000).
Any attempt to understand entrepreneurship and public policy will therefore benefit
from a deeper understanding of innovation and public policy. A substantial goal of this
paper is to outline such a literature review as a complement to the survey on
entrepreneurialperspectives by Campbelland Mitchell (2012) that appearedearlier in this
journal. However, we seek to go beyond just a review of innovation theory and policy,
and to specifically place thisin the larger strategic context of national innovation policy
Journal of Entrepreneurship and
Public Policy
Vol. 5 No. 3, 2016
pp. 308-324
©Emerald Group Publishing Limited
2045-2101
DOI 10.1108/JEPP-02-2016-0003
Received 9 February 2016
Revised 22 April 2016
Accepted 22 April 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
JEL Classification —D0, D7, F02, F6, H41, L26, L1, L5, O, R1
308
JEPP
5,3
in a global market economy. The reason for this particular focus on innovation policy
from the strategic global perspective (as compared to the non-strategic national
perspective) is that entrepreneurship and innovation –conjoined by Schumpeter –have
different focal lengths with respect to public policy. It can be argued that
entrepreneurship is inherently global in orientation. It does not naturally stop at the
boundaries of a nation state. Which is why effective entrepreneurship policy –and of
course policy is always a nation state prerogative –is largely focused on its global
dimension,i.e. comparative tax treatment,regulations, support, etc., allcompared to other
jurisdictions. But it can also be argued fromthe same perspective that innovation policy
is inherently national in orientation. It involveslarge public expenditures within a nation
state to create national research infrastructures, tax incentives, higher educational
investments, and so on, all of which take place in a strategic context of other nations
doing the same. Innovation policy is naturally an outgrowth of national economic
planning (List, 1856;Bush, 1945) extended to the production of new knowledge. But this
nationally framed approach is antithetical to entrepreneurship policy, which by most
accounts originates with Adam Smith and follows a line of exchange and discovery
(Baumol, 1990; Kirzner, 1997). The problem is that entrepreneurship and innovation only
run together neatly within an autarkic nation state, which was the context in which
Schumpeter wrote. However, they separate from the perspective of a global
entrepreneurship and innovation policy, which is more or less the world today.
So the issue is this: any attempt to deal with entrepreneurship policy, whether from a
national or even global perspective, requires a theory of how innovation policy works from
a national and emergent global perspective. Now because there is no global government,
there is no such thing as global innovation policy. There is only the emergent consequence
of the strategic interactions of national innovation policies, including various unilateral,
bilateral and multilateral treaties and agreements. The purpose of this paper, then, is to
outline what that space looks like, which, curiously, is a largely unexplored domain.
Innovation policy is relevant at the national or at best supra-national level (Freeman, 2002).
This paper seeks to review and examine the economics of how national innovation policies
strategically interact to form emergent de facto global innovation policies.
We proceed as follows. Section 2 contextualizes innovation policies in economic theory.
Section 3 reviews three standard models of how national innovation policy translates to
global innovation policy: autarky, cooperation (innovation systems) and competition
(specialization and externalities). Section 4 then adds four new economic models that
illustrate some further strategic complexities. These are costly signaling and asymmetric
information (the Spence model), spatial competition (Hotelling’s model), factor sorting over
institutions (the Tiebout model) and complementary assets (Teece’s model). Section 5
concludes with the finding that the pathway to effective entrepreneurship public policies
hinges on a better understanding of how national innovation policies strategically interact.
2. What is innovation policy?
Innovation policy has emerged in the past few decades as the overarching successor to the
line that traces through the variously labeled research policy, technology policy and
science policy, all ostensibly products of the post-Second World War periodwhen nati onal
governments came to realize not only the military advantage, but also the massive
benefits to the civilian economy of large-scale public support and investment in
knowledge creation (Bush, 1945; Price, 1963; Lundvall and Borras, 2004; Bonvillian, 2014).
The theoretical core of innovation policy largely derives from a mix of information
economics (Arrow,1962) and Schumpeterianeconomics (Nelson, 1993), thelatter being an
309
Innovation
policy in a
global
economy
To continue reading
Request your trial