Network Failure and the Evolution of the US Innovation System

Abstract

>The concept of network failure has great value in making sense of the role that government officials now play in the process of developing and commercializing new technologies. Network failure was rarely an issue in the era that was dominated by giant, multi-divisional firms that controlled all stages of the production process. Today, however, the innovation process as well as the development and production of new products typically require collaborations among multiple entities. Automobile production, for example, now involves complex chains of specialized subcontracting firms. This creates the risk that firms will not be able to find the competent and trustworthy network partners that they need. US policy makers are aware of this issue, and they have been self-conscious about the process of creating new institutions that replicate the strength of the kinds of industrial districts described by Alfred Marshall. Their most recent initiative—the creation of advanced manufacturing institutes—has been structured to help firms find the competent and trustworthy partners that they need.