Innovation Policy in the Knowledge‐based Economy—Can Theory Guide Policy Making?

Jens Nyholm, Lars Normann, Claus Frelle‐Petersen, Mark Riis and Peter Torstensen

in The Globalizing Learning Economy

Published in print October 2002 | ISBN: 9780199258178
Published online November 2003 | e-ISBN: 9780191595868 | DOI:
 Innovation Policy in the Knowledge‐based Economy—Can Theory Guide Policy Making?

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This chapter discusses features of the evolving knowledge‐based economy as perceived from a European policy maker's perspective, and confronts these features with two different economic research traditions: mainstream economic theory (including neoclassical and new growth theories) and evolutionary economics (in particular, the ‘national innovation system’ approach). The discussion shows that mainstream economic theory is more concerned with issues of allocation and market clearing than with the complexity of innovation processes and business dynamics. As a consequence, the resulting ‘market failure’ approach to business and innovation policy has led to policies that seem to be misguided in the light of features that characterize the knowledge‐based economy. Evolutionary theory is more successful in capturing the characteristics of the innovation process, and of the factors leading to failures and successes in the current complex competitive environment, although the policy recommendations remain somewhat too abstract and general to provide policy makers with a clear sense of direction. The authors see the solution in the expansion into new areas of research and in new cooperative patterns of interaction between social scientists and policy makers; the Danish LOK (Management, Organization, and Competencies) initiative is presented as an example of such a new type of interaction.

Keywords: economic policy; evolutionary economics; innovation; innovation policy; knowledge; knowledge‐based economy; mainstream economic theory

Chapter.  7500 words.  Illustrated.

Subjects: Economic Development and Growth

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