Systems failure, market failure, or something else? The case of skills development in Australian innovation policy

Many innovation theorists assume innovation policy-making is driven by the theoretical apparatus of market failure and argue the superiority of the systems failure approach. We look at the inclusion of skills development in Australian innovation policy to assess what drives innovation policy. This is done by examining the inclusion of vocational education and training (VET) in major analyses and reports on Australia's innovation system and membership of the boards of innovation councils. We found that both of the major Australian political parties and the major reports on Australia's National Innovation System (NIS) present skills development as a principal driver of the NIS -- indicating a clear market/system failure concern. Notwithstanding this, we found the VET system is excluded in both government studies of Australia's NIS and innovation councils. This indicates the drivers of innovation policy may not be market failure or system failure. Contrary to the presumption of innovation academics, policy may well be extremely path dependent and subject to what is in the department's purview in each policy domain. There is a clear caution to developing countries in following the innovation policies of developed nations such as Australia that ignoring vocational skills development is risky without a fully developed VET system. In fact, it is possible that vocational skills lie at the core of development in less developed countries and so following Australia's approach could be counterproductive.