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innovation process, or one sector or set of activities. And
we should be wary of imposing perspectives or policies that
may skew innovation priorities in undesirable ways.
Yet, there are data to be studied, rich lessons to be
learned, and more benefits to realize. Nevertheless, policy
has to be made and the evidence we have tried to assemble
is, we would argue, helpful and valuable. This chapter has
sought to capture some of the most important evidence
from economics and other social sciences. Understanding
what has made innovation work or fail can play a valuable
role in influencing what can make it work in the future.
Drawing together the conclusions of this chapter, we
identify four pillars or foundations of a first-class ‘innovation
infrastructure’:
1. The first pillar is a high-quality, merit-based system
of education and training. Its importance is difficult to
overstate. The UK possesses some advantages in toptier
institutions, but there is increasing competitiveness
in universities worldwide, and these advantages require
constant investment to be maintained. Further, the UK
faces a serious risk of falling behind rising stars like South
Korea in crucial population-wide competencies. Too many
children experience low-quality schooling, which presents
large economic costs for the long-term. On the national
budget, education should be viewed not as an expenditure
but as one of the highest-return investments available.
2. The second pillar is substantial investment in basic
research. Governments are able to manage levels of
risk and time horizons on investment, which the private
sector may find more difficult. This gives governments a
special and indispensable role in supporting basic research.
The UK government should take great care to ensure
that its comparative advantage in basic research is not
overwhelmed or weakened by understandable enthusiasm
for commercialization in universities. By increasing its
support for basic research, the UK government can
expand the horizon of future growth.
3. The third pillar is the system of governmentmanaged
incentives that promote innovation via
markets and entrepreneurship. First is an efficient
and effective, and appropriately constrained, system of
intellectual property rights. The system is due for an
evaluation, with sensitivity to industry-specific needs.
Secondary institutions include: systems and incentives
for technology transfer that promote the diffusion of
knowledge; policies to assist small firms to access licensing
patents; regimes of taxes, subsidies and regulations that do
not arbitrarily discriminate in fostering new firms and new
ideas; and state development banks to provide patient,
long-term capital to innovators. The details matter, and we
have tried to indicate how they should be examined.
4. The fourth pillar is the setting of, and investing
in, national innovation priorities. One clear priority
is resource management: increasing the productivity of
energy, land and other natural resources, and minimising
greenhouse gas emissions. The design of cities, as drivers
of resource consumption as well as creativity and
economic growth, is especially important. These are areas
where markets and prices alone are unlikely to capture
the interdependence and public nature of many of the key
services and outcomes. They are also areas where benefits
are likely to be fairly long-term. Other priorities should be
determined through assessment of strategic advantages,
engagement with leading innovators, and the generation of
aspirational technology roadmaps.
Finally, we identify four guidelines for the process of
innovation policymaking:
1. Take a long-term, systems view of innovation.
This means avoiding narrow, compartmentalist views of
policymaking that focus on just one sector and/or a short
time horizon. An effective policy mix will take account of
each part of the innovation system; will take advantage of,
and be wary of, feedback between system components;
and will appreciate that actions today have critical longterm
implications. This type of approach will help lessen
the scope for government failure that can arise from
bureaucrats and politicians fiddling with processes they fail
to understand. On the other hand, the potential market
failures are so important, and the subject so vital for
growth, competition and living standards, that government
disengagement is not a sensible approach.
2. Consult widely. Innovators’ needs vary widely
across industries and institutions, and across parts of
the innovation chain. Innovators may also recognize
the potential for unwanted impacts, or detect them
in practice, before policymakers are able. Ensure that
important voices which may not be sufficiently prominent,
such as those of small firms, teachers and of research
scientists, are given weight.
3. Adopt a learning approach to policy design and
evaluation. This means trialling different approaches, and
improving the collection of data on inputs, processes and
outcomes as well as feedback from key actors. A range
of innovation policy problems could benefit from this
approach, including the design of grant application rules
for basic research, of the school system, and of institutions
for fostering university-industry linkages. Accompanying
this should be a sustained investment in research on
innovation itself. Such research is not easy given that the
subject is about learning, covers many disciplines, and the
outcomes may be uncertain and long term: but it is very
important.
4. Ensure that innovation policies are transparent,
consistent and stable over time and investment.
Innovation will be more likely to proceed where actors
are more confident rather than more confused, and
where evaluations of sovereign and policy risk favour
commitment rather than withdrawal. Where future
flexibility may be required, as is often the case for
experimental policy, ensure that processes are specified
in advance. Certainty is not on offer, but unnecessary
uncertainty can be reduced. A fundamental lesson is that
government-induced policy risk can be a major deterrent
to both innovation and investment.