INNOVATION POLICY

“Rather than focus principally on markets assumed to be in equilibrium and individuals assumed to be acting rationally in response to price signals along supply and demand curves, innovation economics recognizes that innovation and productivity growth take place in the context of institutions.”

While the U.S. economy has been transformed by the forces of technology, globalization, and entrepreneurship, the doctrines guiding economic policymakers have not kept pace and continue to be informed by 20th century conceptualizations, models and theories. Without an economic theory and doctrine that matches the new realities, it will be harder for policymakers to take the steps that will most effectively foster growth.

Fortunately within the last decade a new theory and narrative of economic growth grounded in innovation has emerged. Known by a range of terms – “ institutional economics,” “new growth economics,” “evolutionary economics,” “neo-Schumpertarian economics,” or just plain “innovation economics”: – collectively, this new economics reformulates the traditional economic growth model so that knowledge, technology, entrepreneurship, and innovation and are now positioned at the center, rather than seen as forces that operate independently.

 

But up to now, innovation economics, and innovation policy, has not fully been appreciated by policymakers, in large part because the dominant economic policy models advocated by most economic advisors and implicitly held by most policymakers largely ignore innovation and technology-led growth, in favor of macroeconomic issues, such as tax cuts on individuals, budget surpluses, or social spending, which at the end of the day pale in significance to innovation in driving economic growth.