Christian May, Michael Schedelik | Journal of Economic Policy Reform
Innovation policy plays a decisive role for advanced economies because innovation is treated as an important way to spur economic growth and the creation of jobs. Successful innovative producers or countries enjoy first mover advantages that open up a particular source of monopoly profit (Heilbroner 1985). Innovation, in other words, enables firms to break free of full competition which eventually boils down to a cost-cutting race. By developing innovative products, services and strategies producers create possibilities for suppliers and downstream activities such as service providers and retailers, which result in new jobs. This potentially growth-enhancing effect is the reason why most governments aim to boost innovation, too. Yet, firms and states have different objectives to innovate that need to be reconciled in the end. Foreign outsourcing, for instance, can be an element in the efforts of a firm to innovate its production processes, which can lead to job losses in the home country. On the other side, states can induce innovation strategies which are not needed or wanted by indigenous firms, thereby lacking the transmission of innovation to the market. The challenge of successful innovation policy is thus to integrate and balance both perspectives on innovation processes.