Introduction to the Innovation Ecology

The economic future of the US is tied directly to its capacity to innovate. As formerly lagging countries continue to accelerate, and globalization continues to build global markets for products and services long tied geographically, future jobs and wealth will depend on our ability to innovate.

IEI is focused on understand and analyzing the complex relationships that drive innovation in the emerging global economy.

The new Innovation Forum, sponsored jointly by the National Academy and Innovation Ecologies Inc., attempts to open a new conversation about policies that can address this imperative. We see this conversation, over the course of the next year, as addressing the need for a National Innovation Strategy – not one that can only be designed and implemented by the federal government, but one that aligns the various pieces of the innovation ecosystem, and provides coordinated support for all of them.

The first part of this conversation will focus on ways to think about innovation. Historically, innovation has been conceptualized in varied ways:

1. Firms. At the firm level, there is a large literature on the process of economic innovation, exemplified perhaps by  Rosenberg,[1] Christensen,[2] and many others. The focus here is on what allows firms to innovate successfully.

2. Regions. At the local and regional level, there is growing literature aimed at explaining the emergence of regional innovation hot spots, most notably Silicon Valley and Route 128,[3] but also others.[4]

3. Nations. At the national level, much of the literature focuses on the related question of competitiveness, exemplified by Porter and many others. This work is now expanding into international analysis.

4. Factor analysis. Additional analysis can be found in what might be called “factors of production” approaches, which while grounded in classical economics, focus on the extent to which the quality and quantity of labor and capital in particular can be molded to enhance the likelihood of innovation. Some of this is tied to federal funding for R&D. Other aspects include immigration, training, and education.

5. Infrastructure. Other work addresses the infrastructure of innovation. Into this group might be placed work on the role of universities, incubators, and other possible supports for innovation-related activities.[5]

6. Regulation. Innovation also takes place within a framework of law and regulation, so another approach emphasizes regulatory aspects. This area has become increasingly important with the rise of intangible assets, and the growing role of IP.[6]

7. Technology. Some approaches have focused on technology – specifically, “facilitating” or “core” technologies with applications in many sectors – e.g. nanotech, biotech, IT.

8. Sectors. Finally, it is also possible to approach innovation sectorally. This approach stresses sectoral differences, noting that the process and speed of innovation in autos is driven by factors that are fundamentally different from those in IT or aerospace. In particular, innovation in the largest sectors of the economy – services and government – have been dramatically underserved in the literature. Conversely, sectors may have declining overall relevance, e.g. the defense industry which fueled Silicon valley.[7]

9. Tracking, metrics, measurement. Any strategy needs a process of constant reassessment. Given long the lags in innovation, how can progress be measured?

From a policy perspective, it is obvious both that these approaches are not mutually exclusive, on the contrary, they overlap in numerous and sometimes unpredictable ways. In fact, the key issues for policy are as follows:

1. Which of these approaches is likely to be most effective, and most cost-effective?

2. Are there specific policies in each area that attract broad support? Which of these are likely to have the largest impact? Which are likely to be most cost effective?

3. Are there policies that are in conflict with each other – and can this conflict be addressed or resolved, or must choices be made?

4. Out of this analysis, is it possible to develop a national innovation strategy in which the role of the Federal government is viewed as only one component, and the actions of other players are also specified?

5. Can an organizational structure and mandate be envisaged that will allow the federal government to manage its part of the innovation strategy despite the current agency-based budgeting and authority lines?

2. Reviewing Approaches to economic innovation

1. Firms

Area of potential interest:

2. Regions

Areas of potential interest:

3. Nations

4. Factors

i.      Capital           

ii.      Labor

5. Entrepreneurs

6. Infrastructure

 i.      Physical infrastructure

ii.      Business infrastructure

iii.      Broadband and IT infrastructure

7. Regulation

Regulation in many forms clearly affects the pace of innovation. Some of the more important aspects include:

8. Technology

A persistent strand of innovation policy has focused on “critical technologies” – technologies which are apparently so obviously critical to the economic future of the nation that they can be identified and hence targeted with limited controversy. At various times favored industries in the US and abroad have included semiconductors, autos, aircraft, energy, pharmaceuticals. Core questions in this area include:

9. Sectoral approaches

It may make sense to think about sectoral innovation in terms of two areas:

 i.      The largest sectors, notably health care, education, and government services

ii.      The sectors with the greatest technological spillovers

T no longer makes much sense, in a “flat” world,[31] to consider sectoral policy from a “facilitating technology” perspective: technologies developed in one country will quickly spread to others if they are sufficiently useful and priced appropriately. Hence the objective of sectoral policy should be to develop or adapt technologies to address inefficiency and improve outcomes.

10. Tracking and metrics

Any policies aimed at improving innovation must have both input and output metrics if they are to be assessed and evaluated – without which the policy is no more than tipping dollars over the side of the boat in the hope of lightning the overall load. Comparative metrics will be especially important given the absence of double blind trials for most policy initiatives.

The Institutional aspects of innovation

From the perspective of government (and policy), any or all of the approaches sketched out above must be translated into concrete policies to be implemented by specified agencies if they are to have any practical impact on policy.

No National Innovation Strategy current exists at least in part because so many government agencies – federal and state – have some stake in issues related to innovation. So one immediate task is to cross-reference areas of potential policy importance against agency missions and interests.

The following matrix makes a first approximation of such an alignment between issue areas and agency Yet another way of thinking about innovation is to address change from an institutional perspective, focusing on the existing institutions with policy levers acting in various domains.

We distinguished between agencies in two ways: by their general function (some can be cast as innovation agencies, directly supporting scient6ific, technical, and applied innovation, while others may have an important regulatory interest. Where feasible, we also distinguish between lead agencies whose primary mission lies close to an area of innovation, and supporting agencies whose interests are less tightly connected.

Institutional approaches tend to operate within the existing silos of political authority, notably the key “innovation agencies”:

Because of their substantial innovation budgets and clear innovation-related missions, these agencies must all be at least a part of any effective national innovation strategy. Understand what each of them is doing, and their approach to the needs of the new innovation-driven economy, is a high priority.

In addition to the innovation agencies, a number of agencies with primarily regulatory responsibilities also impact innovation, often in particular sectors. These include:

In addition, there are important non-Federal institutions which can have significant effects on the innovation ecology, particularly in areas that Federal policy is weak or non-existent. These include:

Any effective national innovation strategy must find a way to integrate or at least take account of the missions and objectives, and the available tools, for each of these entities.

This is a formidable task. The attached matrix is the first preliminary beginnings of an effort to map the various components of the innovation ecology.  The next step will be to understand the policies, tools, and objectives of each and their relationship to the whole.