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  • Brendan Shaw

Innovation policy is the new black

When I was a young economist starting my career in government many years ago I wasn't part of the 'in' crowd. I believed in a clever, forward-looking innovation and industrial policy. There were many things that governments couldn’t, and shouldn’t do, and that were better left to the private sector. But I did feel that governments could make a positive contribution to direction setting, cajoling, encouraging structural and cultural change, and building a better world in partnership with business.

This point of view was often on the outer in government policy committees and at economics conferences. Mentors and supervisors in the public service would counsel us for our reckless thinking, Treasury economists would give us suspicious sideways glances, and co‑workers on taskforces would caution against grand visions or statements that contained the word ‘industry’ or ‘sector’. The work we were doing on venture capital, R&D, innovation, public-private alliances, structural reform and corporate change was often met with scepticism from flat-earth types.

The dominant view at the time was that governments shouldn’t pick and encourage particular technology sectors, shouldn’t focus so much on business and industry, and definitely shouldn’t try to develop strategies or visions to inspire and lead markets, customers or the broader economy. It just wasn’t the done thing.

It was heretical.

So imagine my shock and bewilderment when the other day I read the most recent OECD Science, Technology and Innovation Outlook 2016 to discover that today this rebellious, heretical view on innovation and industrial policy is the new norm.

Everyone is doing it.

For economic policy wonks, partnering with business on innovation policy focussed on strategy and cultural change is the new black.

At the breakfast table I couldn’t believe my eyes as I read that governments around the world are moving from generalist, environment setting policies to focus on specific technology sectors, targeting particular classes of firms, becoming more discerning customers of high technology, and generally taking a more nuanced and thoughtful approach to industrial and innovation policy.

Governments are doing more to finance and drive private sector entrepreneurship, focussing on particular sectors in national science and technology plans, developing better targeted and managed innovation programs, using public procurement standards to spur private sector innovation, putting more resources into supporting business R&D ahead of public institutions, encouraging the private sector to link up with and engage more with public sector researchers, and – yes – even focussing on building innovation cultures to integrate science, entrepreneurship and public policy.

This approach to innovation and industrial policy is being adopted around the world, such as in the US, UK, China, Europe, Africa, and India. Some of it good, some of it bad. Governments need to be more thoughtful, more strategic and more effective in building relations with the private sector and working on driving innovation to achieve new economic, social and environmental goals.

In 2015 world leaders even called for the development of new public-private sector partnerships to develop innovative proposals to achieve the UN Sustainable Development Goals agreed. Effectively this called for the public and private sectors to collaborate to achieve global strategic objectives.

When it comes to innovation and industrial policy, the view increasingly seems to be that governments can have a role in working with business to develop visions and strategies, provided it is based on good knowledge of how markets work, promotes competition and competitiveness rather than stifles them, is based on good arm’s-length dialogue with the private sector, and sets clear goals that can be implemented and tracked.

While there are risks with such an approach and it needs to be carefully managed, it can lead to better outcomes when done in partnership with business.

I just wish this realisation had happened 25 years earlier, so I didn’t have to hear the taunts from neo-classical economists wandering the corridors of power in my younger days.

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