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Systems thinking, market failure, and the development of innovation policy- The case of Australia

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Innovation policy is increasingly informed from the perspective of a national innovation system (NIS), but, despite the fact that research findings emphasize the importance of national differences in the framing conditions for innovation, policy prescriptions tend to be uniform. Justifications for innovation policy by organizations such as the OECD generally relate to notions of market failure, and the USA, with its focus on the commercialization of public sector research and entrepreneurship, is commonly portrayed as the best model for international emulation. In this paper we develop a broad framework for NIS analysis, involving free market, coordination and complex-evolutionary system approaches. We argue that empirical evidence supporting the hypothesis that the �free market� can be relied upon to promote innovation is limited, even in the USA, and the global financial crisis provides us with new opportunities to consider alternatives. The case of Australia is particularly interesting: a successful economy, but one that faces continuing productivity and innovation challenges. Drawing on information and analysis collected for a major review of Australia�s NIS, and the government�s 10-year plan in response to it, we show how the free market trajectory of policy-making of past decades is being extended, complemented and refocused by new approaches to coordination and complex-evolutionary system thinking. These approaches are shown to emphasize the importance of systemic connectivity, evolving institutions and organizational capabilities. Nonetheless, despite the fact that there has been much progress in this direction in the Australian debate, the predominant logic behind policy choices still remains one of addressing market failure, and the primary focus of policy attention continues to be science and research rather than demand-led approaches. We discuss how the development and elaboration of notions of systems failure, rather than just market failure, can further improve policy-making in the future.

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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 403.

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Date of creation: 2010
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Handle: RePEc:qld:uq2004:403

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  1. John Foster, 2000. "Competitive selection, self-organisation and Joseph A. Schumpeter," Journal of Evolutionary Economics, Springer, Springer, vol. 10(3), pages 311-328.
  2. Metcalfe, Stan & Ramlogan, Ronnie, 2005. "Innovation Systems and the Competitive Progress in Developing Economies," Centre on Regulation and Competition (CRC) Working papers, University of Manchester, Institute for Development Policy and Management (IDPM) 30672, University of Manchester, Institute for Development Policy and Management (IDPM).
  3. Soete, Luc & Freeman, Chris, 2007. "Developing science, technology and innovation indicators: what we can learn from the past," MERIT Working Papers, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) 001, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  4. Markus Balzat & Horst Hanusch, 2004. "Recent trends in the research on national innovation systems," Journal of Evolutionary Economics, Springer, Springer, vol. 14(2), pages 197-210, 06.
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  6. Bergek, Anna & Jacobsson, Staffan & Carlsson, Bo & Lindmark, Sven & Rickne, Annika, 2008. "Analyzing the functional dynamics of technological innovation systems: A scheme of analysis," Research Policy, Elsevier, Elsevier, vol. 37(3), pages 407-429, April.
  7. Nill, Jan & Kemp, Ren, 2009. "Evolutionary approaches for sustainable innovation policies: From niche to paradigm?," Research Policy, Elsevier, Elsevier, vol. 38(4), pages 668-680, May.
  8. Prof John Foster, 2004. "From Simplistic to Complex Systems in Economics," Discussion Papers Series, School of Economics, University of Queensland, Australia 335, School of Economics, University of Queensland, Australia.
  9. Hart, David M., 2009. "Accounting for change in national systems of innovation: A friendly critique based on the U.S. case," Research Policy, Elsevier, Elsevier, vol. 38(4), pages 647-654, May.
  10. Dodgson, Mark & Mathews, John & Kastelle, Tim & Hu, Mei-Chih, 2008. "The evolving nature of Taiwan's national innovation system: The case of biotechnology innovation networks," Research Policy, Elsevier, Elsevier, vol. 37(3), pages 430-445, April.
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  12. Bengt-�ke Lundvall, 2007. "National Innovation Systems—Analytical Concept and Development Tool," Industry and Innovation, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(1), pages 95-119.
  13. Dore, Ronald, 2000. "Stock Market Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199240616, October.
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  15. Akkermans, Dirk & Castaldi, Carolina & Los, Bart, 2009. "Do 'liberal market economies' really innovate more radically than 'coordinated market economies'?: Hall and Soskice reconsidered," Research Policy, Elsevier, Elsevier, vol. 38(1), pages 181-191, February.
  16. Florence Jaumotte & Nigel Pain, 2005. "An Overview of Public Policies to Support Innovation," OECD Economics Department Working Papers 456, OECD Publishing.
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Cited by:
  1. Nam C. Nguyen & Ockie J. H. Bosch, 2014. "The Art of Interconnected Thinking: Starting with the Young," Challenges, MDPI, Open Access Journal, MDPI, Open Access Journal, vol. 5(2), pages 239-259, August.
  2. Lee, Keun & Juma, Calestous & Mathews, John, 2014. "Innovation capabilities for sustainable development in Africa," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Mark Dodgson & Jonathan Staggs, 2012. "Government policy, university strategy and the academic entrepreneur: the case of Queensland's Smart State Institutes," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 36(3), pages 567-585.
  4. John Foster, 2014. "The Australian growth miracle: An evolutionary macroeconomic explanation," Discussion Papers Series, School of Economics, University of Queensland, Australia 521, School of Economics, University of Queensland, Australia.
  5. Enrico Deiaco & Alan Hughes & Maureen McKelvey, 2012. "Universities as strategic actors in the knowledge economy," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 36(3), pages 525-541.
  6. Valeria Costantini & Francesco Crespi & Alessandro Palma, 2014. "Policy Inducement Effects in Energy Efficiency Technologies. An Empirical Analysis on the Residential Sector," SEEDS Working Papers, SEEDS, Sustainability Environmental Economics and Dynamics Studies 1914, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Aug 2014.
  7. Crafts, Nicholas & Hughes, Alan, 2014. "Industrial Policy for the Medium to Long-term," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 179, Competitive Advantage in the Global Economy (CAGE).
  8. John Foster, 2014. "The Australian multi-factor productivity growth illusion," Discussion Papers Series, School of Economics, University of Queensland, Australia 520, School of Economics, University of Queensland, Australia.
  9. Bleda, Mercedes & del Río, Pablo, 2013. "The market failure and the systemic failure rationales in technological innovation systems," Research Policy, Elsevier, Elsevier, vol. 42(5), pages 1039-1052.

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