The UK in a Global World - Vox

38 The UK in a Global Worldinclude, but is not restricted to, market connections. System connections includea wide variety of non-market relationships including collaborative and formaland informal interpersonal and inter-organisational networking connections.A significant feature of variations across sectors, technological trajectoriesand national systems of innovation is seen to lie in their strength, nature andvariety and their interplay with institutional differences. These may be used tocharacterise differences between systems of innovation. 3Adopting an innovation systems approach means extending the rationale forpolicy intervention beyond market failure. In market-failure based approachesintervention is based on problems arising from the public good nature ofknowledge, spillovers, and capital market failures arising from the riskiness ofinnovation and asymmetric information. This leads to standard arguments insupport of public expenditure on basic research as opposed to more appliedresearch and for the development of patent protection and subsidisation of R&D.(Dasgupta and David, 1994). These arguments provide important rationales forpublic sector intervention, but rarely provide sufficient guidance for the degreeof intervention in particular instances; nor do they address the many otherpotential institutional and connection failures which may arise in an innovationsystem. (See for example Metcalfe, 2005; Dodgson et al., 2011; BIS, 2011).System failures can arise from various sources. Transition and lock-in problems,for example, arise from inertia due to substantial sunk investment by private andpublic sectors in existing or dominant technologies and are linked to transitionfailures in moving to new technological structures which pose major problems ofinvestment and business reorganisation (e.g. in the switch to low carbon vehicles(HMG, 2008; King, 2008). Then there are institutional system failures arising froma lack of congruence between formal and informal rules and incentives affectingdifferent parts of the organisation of the system. A particularly prominent caseis the alleged difference in norms and incentives between scientists conductingresearch emphasising open publication and disclosure, and the private sectorin its pursuit of research connected to private exploitation, secrecy and patentprotection. This has engendered a major debate in the UK over the extent to whichthe allocation of public funds should be directed according to the motivationsand the incentives of the former as compared to the latter, the nature of UKuniversity-industry links, and the design of intermediary organisations on theboundaries of universities and industry. (See for example the references anddiscussions in Royal Society, 2011; Hughes, 2011; Hauser, 2011; Mina et al., 2010;Deiaco et al., 2012; Hughes and Kitson, 2012). 4One of the most important implications arising from the development of moresystemic views has been the emphasis placed upon the development of demandside as well as supply side policies in addressing lock in and transition problemsand uncertainties. This is based around the potential role of the public sector3 See for example Edquist (2005) and Lundvall (2007).4 For a comparison of systems and market failures see for example Chaminade and Edquist (2010).