Innovation and the State: How Should Government Finance and Implement Innovation Policy?

In a typical modern economy, government not only finances a significant part of research and development spending and runs some sort of public venture capital funds, but it also procures massive amounts of goods and services and does so increasingly with innovation in mind. Together these outlays can amount to as much as 20% of GDP, annually. Adding to the increasing attempts to use innovation in public sector activities, governments also have come to play a very important role in funding innovation. In contrast to previous academic research, this project rests on the assumption, first, that the question of what works in public financing of innovation is mostly a question about how public organizations function, what kind of capacity they possess, and how this capacity evolves; and second, that the public sector’s capacity and effectiveness in funding innovations is a key determinant in innovation dynamics evolving in private enterprises. The question of what kind of organizational set-up and framework governments use to fund and implement innovation policy has received sporadic attention in academic research. This project fills this research gap by illustrating the historical variety and complexity of funding, managing, and implementing innovation policies. Further, it will offer evidence of what, how, and why processes and policies work in funding innovation by the public sector and thus enable better policy design and implementation processes to be built.