Worldwide, countries strive to promote innovations. The most important tool for guiding such developments is innovation policy. However, it is also a complex tool, with many conflicting requirements and expectations from different stakeholders. It does not work if some key facts are missed: sciences, technologies, and commercial innovations come in many forms, and proper categorisation is needed to create a tool that is neither too light for some tasks nor too heavy for others. This brief goes through the essential design decisions and explains why proper implementation is crucial.
Innovation policies are essential
Many countries aim to create and implement innovation policies that enhance economic competitiveness and drive societal transformation by fostering new knowledge, products, and services. It is hoped that this leads to the establishment of great companies, that those companies choose to remain in that country, and that the products of those companies succeed in international markets.
What does such a policy look like? It depends on how big or small the country is, its background, and how well it recognises its own strengths and weaknesses, opportunities, and threats.
Over time, we can see global trends in innovation policies. The first policies decades ago were purely technology-driven. The focus was on technology to spur growth. Concepts such as externalities and spill-over effects had been recognised in economic research, which supported the idea of investing in research and in co-operation between companies and research institutions.
Later, the focus broadened to developing networks and the entire innovation ecosystem. Today, most innovation policies have evolved further to tackle complex challenges, such as green transition goals, social inclusion and digitalisation.
In recent years, new challenges have emerged: economic security, strategic autonomy, critical minerals, and supply-chain resilience. Today, innovation policy is inseparable from these factors and strategic competition.
A good innovation policy is a structured framework which has not only been decided on but is also consistently implemented. All the key actors in the country must agree on the policy, even if not all the choices will please everyone, and act in unison.
A solid basis for an innovation policy is still to provide adequate incentives for research, development, and innovation, as well as to encourage partnerships between large and small companies, academia, and public institutions. A systemic approach is needed because innovation occurs through networks, and not only within single companies.
A good innovation policy regularly evaluates its own effectiveness. But all of this is not easy. Many choices must be made, and not everyone’s wishes can be fulfilled. An innovation policy of a country becomes the sum of its parts:
- High-level goals and choices in the policy
- Education system
- Research policies
- R&D policies
- Policies aiming to ease access to finance
- Policies supporting later stages of growth
- Taxation
- Incentives
Challenges for innovation policies
Innovation policies need to balance several factors. Balance does not mean dividing actions and funds equally in all directions, but making choices deliberately.
What is the correct balance between investing in basic research and applied research? This question is far more complicated than it might seem. One often hears the claim that basic research leads to applied research, which then leads to commercial innovations. Over the decades, there has been a lot of research on this, and, actually, that »classical innovation chain« is very rarely seen in practice anymore. It may still work in some areas, such as medicine, but in most other disciplines, the interaction is much more complex. Most often, commercial innovations take place close to markets to solve practical customer problems. The innovative company may then need bits and pieces from several research areas, which may even require initiating new basic research to address them.
The relationship between various sciences and commercial companies is not uniform. Natural sciences are often closer to commercial opportunities than, for example, the humanities or social sciences. However, the latter are needed to understand the interconnected phenomena that occur in the world.
I have worked with many labs and professors, and I became convinced that the winning formula is this. Every lab should conduct both basic and applied research, at least partially funded by commercial customers. The right balance depends on many things, such as the science in question, but the principle remains the same.
Because resources are always scarce, any innovation policy must make informed choices about investing in various sciences, basic and applied research, and commercial product development, and foster co-operation among them.
As mentioned already, innovation policies have evolved to take into account politically important goals. So much so that some public implementing bodies feel they have lost part of their independence and have become too politically controlled. It is a legitimate question whether innovation policies should in some respects return to their roots and rather be interlinked with and support other policies that are more directly involved with general and politically motivated goals.
Public financing exists to correct market failures, not to behave like a market actor. It must optimise for national impact and be countercyclical. This means that public financing must accept higher risk, but only for the right reasons. Not reckless risk, not political risk, but purposeful risk in order to »catalyse« more innovation and co-operation.
Top-down or bottom-up
Should innovation policies be technology-agnostic or should they make »top-down« choices? Again, the question is not simple and deserves elaboration. I have seen countries create top-down lists that become long, are tedious to maintain, and whose value is questionable. I believe that for most existing and relatively mature technologies, the system should be technology-agnostic and rather check the basic facts: that a genuine research and development input is present and collaboration elements are in place.
Companies often complain, and for good reason, that public R&D support mechanisms are bureaucratic and slow. Because public money is used, of course there must be mechanisms in place to verify that everything goes as it should and that the money is used as it should. However, my experience is that bureaucracy and slowness often stem from unnecessary factors, such as the public organising body trying to predetermine technologies and other details too much in advance. Controls must be in place, but transparent and quick decision-making in the majority of cases should be a goal.
In the case of emerging and immature technologies, the situation is different. Companies can be cautious about investing in those, and if a country wants to incentivise its companies to do so, those technologies must be named and funding allocated. For very broad concepts, such as artificial intelligence, while there may be many smaller, bottom-up projects, large national programmes require top-down orchestration.
The conclusion is that it is not top-down or bottom-up. Both are needed; top-down allocations can be heavier, but bottom-up responses should cover the majority of cases and be simple and quick.
Features of a successful innovation policy
As in all policy- or strategy-related work, proper implementation is crucial.
FIRST, the policy must be clear and understandable from the outset. It should cover innovation-related aspects with proven externalities, including technologies, green transition, and societal goals. However, the more different elements are added, the more difficult it gets. For example, I have seen attempts to integrate regional policies into the innovation policy. I do not recommend that. If there are regional policies, that is fine, but they should be separate from the national innovation policy.
Another example I have seen is that public organisations sometimes claim that they want to be fully commercially profitable while also promoting social goals. That is never completely true: you must choose the balance.
SECOND, it is very common to think that the solution comes from reorganising public innovation policy actors. That is usually a mistake. Organisation is never a solution; it is a means to make it possible to implement goals and chosen ways of working. Major reorganising tends to drain the organisation's energy for a year or even two, so I recommend it only when there is a palpable reason.
THIRD, as was already mentioned, all the key actors — which cover political decision makers, the main enterprise associations, and all the main public implementing bodies — must agree on the policy and want to implement it decisively. The most important performance metrics should be measured consistently, at least among the main public organisations.
FOURTH, there may be obstacles to implementing the innovation policy. They can be obsolete regulations, for example. These must be removed.
Finally, the effectiveness of the innovation policy must be constantly monitored and updated whenever needed. Every few years, it should be reviewed and evaluated by external, independent experts, sometimes quickly and sometimes more thoroughly.
The need for innovation policies stemmed from the realisation that it is highly beneficial for nations to promote R&D and innovation, and foster co-operation. While that remains, it is now augmented by the need to solve huge environmental and other global issues together. Therefore, in addition to national innovation policies, we need global networking and co-operation more than ever.
Summary and conclusions
- Keep the policy clear and not overloaded
- Interlink innovation policy with larger societal and global challenges
- But do not try to over-control innovation
- Balance basic and applied research
- Use both top-down and bottom-up approaches
- Secure agreement among key actors
- Remove obsolete obstacles
- Monitor and evaluate independently
- Increase global networking and co-operation
