Policy Case For Responsible Innovation

As innovation policy covers a wide range of objectives, both economic (productivity growth, employment and competitiveness) and non-economic ones (cultural, social, environmental and military), governments often intervene in the innovation process to ensure that public policy objectives will be achieved. Before a government intervenes there needs to be a clear rationale for the intervention and an understanding that the intervention will resolve the issue. To date, the primary reason why governments intervene in the economy is market failure. Market failures can occur due to the existence of externalities, spill-overs, imperfect and asymmetric information, network failures and market power. In terms of responsible innovation, one of the most pressing market failures is the existence of externalities, both positive and negative. These externalities are effects of production and consumption that are not properly reflected in market signals. In terms of responsible innovation, a negative externality can be the costs for mitigating pollution that are not incurred by the polluter or reflected in the price of the product in the market. A positive externality can be through the public good benefits of an innovation, e.g. flu vaccinations. System failures are linked to structural, institutional and regulatory deficiencies, which effect innovation activities. The system failures argument justifies interventions that address structural and institutional deficiencies. Although they can be seen as complementary, economists differentiate between market failures and system failures. The systems perspectives emphasize the importance of interaction and interactive learning among all actors in the system. In the case of systems failure, the processes of intervention are similar in the case of market failure although the process is not focused on recreating market conditions or optimum economic efficiency. Some of the key characteristics of systems failure interventions include increased collaboration and interactivity, a focus on learning and tacit knowledge, innovation capacity building, flexible and responsive policy frameworks and increased policy coherence…