Servizio Comunitario di Informazione in materia di Ricerca e Sviluppo - CORDIS

Systems theories of innovation: Policy implications

The two reports in this sub-project.

”Systems Approaches to Innovation: Overview and Policy Issues” and
”Public Policy and Industrial Dynamics: an Evolutionary Perspective” have closely related approaches to exploring the scope, foundations, and objectives of public policy. Within ‘orthodox’ theory, policy is based on problems in achieving an optimal (static) allocation of resources. These papers adopt a more dynamic approach based on the problems involved in a more detailed and realistic approach to learning in firms and industries; they therefore seek to identify problems or failures which might arise in the dynamics of learning, especially where such learning is interactive in character and where path dependence produces problems in adaptation and flexibility. Here, we outline the basic approaches of the two reports in turn.

”Systems Approaches to Innovation: Overview and Policy Issues”

This paper addresses two broad policy questions, namely:
- The rationale for policy action: What is the underlying justification for policy intervention, and do these justifications throw any light on the general scope, objectives, and methods of policy?

- Policy capabilities: In a systems context, what competences, skills, and resources do policy-makers need, and to what extent do these differ from current views?

Rationales for policy action:
The report argues that four types of failure can emerge in systems contexts.

These are:
- Failures in infrastructural provision and investment.
Two types of interaction between firms and infrastructures are important within innovation systems: first, with physical infrastructures usually related to energy and communications; second, with science-technology infrastructures such as universities and publicly-supported technical institutes. The paper argues that infrastructural support is an important but neglected issue at the present time.

- ‘Transition failures’ and ‘lock-in’ failures.
Dynamic learning processes imply that from time to time there are more or less major discontinuous changes in relevant scientific and technical knowledge bases. The phenomenon of ‘lock-in’ implies major adaptational problems for firms, industries or even whole economies. The paper argues that an important role for policy lies in identifying such shifts and facilitating adaptation by firms and industries when they occur; this is particularly important at the present time when major shifts in ‘generic’ knowledge bases are occurring.

- Institutional failures.
System approaches place considerable emphasis on institutional and regulatory frameworks as promoters or obstacles to innovation. For example, the operation of the market for corporate control changes the time horizons of firms, with important implications for their abilities to invest in the intangible assets, which are central to innovation capabilities. The report argues that such frameworks ought to play a more central role in general innovation policy.

- Policy capabilities
The report argues that adopting an approach to policy based on systems concepts and more nuanced understanding of the diversity of learning places considerable new demands on the knowledge that is required for policy itself, both in terms of policy formation and policy implementation.

The relevant knowledge affects at least the following areas:
- The assessment of system specificities, where policy-makers require a more detailed grasp have scientific, technological, and organizational specialisations.

- The understanding of relevant knowledge bases, where policy-makers need a closer understanding of the direct and indirect knowledge inputs to industries.

- The assessment of system dynamics, particularly those related to discontinuous changes or shifts in technological paradigms.

- System co-ordination within the policy field itself, particularly between policy arenas that are at present rather uncoordinated (such as links between macro-economic or financial policy, and the dynamics of the innovation system).

“Public Policy and Industrial Dynamics: an Evolutionary Perspective”
The report focuses on the main “evolutionary traps”, “trade-offs”, and “failures”.

From the evolutionary literature, the following principal problems are identified:
- Learning failures. Firms may not be able to learn rapidly and effectively.

- Lock-in traps. Industries may be locked into existing technologies and may be unable to jump to the new technologies.

- Exploration-exploitation trade-offs. Some industries may be characterised by much exploration and experimentation and too little exploitation of what has been discovered. Others may be characterised by much exploitation, modifications, and incremental innovations and too little exploration and experimentation.

- Variety-selection trade-offs. Industries may be characterised by much variety generation with weak selection processes or by tough selection with little variety generation. Tough selection may rapidly kill off variety, experimentation, and competition and lead the system into a “one-view” situation. Weak selection processes, on the other hand, may allow the persistency of too much experimentation and too many inefficient firms, thus blocking the exploitation of technologies.

- Appropriability traps. Too stringent appropriability may greatly limit the diffusion of advanced technological knowledge and eventually block the development of differentiated technological capabilities within an industry.

- Complementarities failures. The appropriate dynamic complementarities required for successful and sustained innovative activities may not be present within an industry or an innovation system. If they are present, they may not be connected, so that the positive effects from complementarities may not take place.

In addition, the report emphasises that public intervention also may face problems. The government may not have the capability to carry on its tasks; it may misrepresent the specificity of the environment; and it may not have the long-term vision needed in the development of technologies or industries: it may lack the co-ordination abilities needed to organise and connect complementarities within a system of innovation.


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Evaluation - Policies