1 - Innovation, the Economy, and Policy

Summary

INTRODUCTION

Innovation has been essential for economic growth in the last centuries (Mokyr 1990; Baumol 2004). In western economies, the importance of innovation for economic growth has become more pressing given ageing populations, global competition, increasing product variety, and shortening product life cycles. Innovation is also needed to solve problems in society such as those concerning climate change, health, and congestion. Innovation also has intrinsic value as a manifestation of creativity. In this volume the focus is on the economic significance of innovation, and on its conditions, in innovation systems. The aim is to provide an analytical basis for innovation policy, primarily that of governments.

While macroeconomic analyses show the importance and the effect of innovation for productivity and growth, as will be investigated in chapter 2, and show effects of macro-level factors such as labour markets, they give little insight into the underlying processes of innovation. As a result, innovation policy is still very much a matter of improvisation and trial and error. In this book we aim to improve insight into the micro level of individual agents and corporate agents (organisations) and their interactions, in the generation, utilisation, and diffusion of ideas, products, and processes. As noted by Lundvall and Borras (2005: 614): “Innovation policy calls for ‘opening the black box’ of the innovation process, understanding it as a social and complex process”. The aim of this volume is to contribute to that. Another reason for a focus on the micro level of the economy is that this volume is oriented towards the national government, and increasingly macro-economic policy has shifted to the supra-national level of the eu.

Hence the title: micro-foundations for innovation policy. This does not mean that we discount the value of macro policies (for example concerning taxes, labour, and social security): these indeed present vital conditions for innovation and economic growth. However, they have already been analysed to a large extent in other studies, are commonly recognised as important elements of economic policy, and we have little to add on that score. We take a complementary, relatively new perspective of ‘innovation systems’, that takes into account interactions between a variety of agents, various dimensions of innovation (going far beyond science and technology), and a variety of economic and institutional conditions. The analysis applies to innovation systems in general, with special attention to the Netherlands.