The Innovation Systems Approach: An Austrian and Ostromian Perspective

Paul Andrew Lewis

doi:10.2139/ssrn.3566943

Abstract

The innovation systems (IS) approach — developed by Richard Nelson, Christopher Freeman and Bengt-Ake Lundvall, amongst others — has become perhaps the dominant approach in the academic literature for the study of innovation. It has also exerted considerable influence on policy. This paper examines both the theory underpinning the IS approach, which bears considerable affinities with Austrian economics, and also its policy implications. It is argued that the work of Friedrich Hayek and Elinor Ostrom in particular can be used draws attention to some potential difficulties with the way in which the IS approach is often used to guide policy. Ideas drawn from Austrian economics, as well as the work of Elinor Ostrom, are used to help develop and improve the IS approach, both theoretically and in terms of its approach to policy.

Highlights

One of the most interesting and influential approaches to innovation, and innovation policy, over the past thirty years had been the innovation systems (IS) approach
It is epistemic problems such as those identified by Hayek and Ostrom that arguably lie behind at least some of the difficulties highlighted in the passages from Smith, from Weber and Truffler, and from Edler and Fagerberg quoted at the start of this section. Those authors all allude to the way that policy-makers require detailed knowledge about how the various parts of an innovation system interact, something which—as Smith concedes—imposes significant informational demands upon policy-makers. Both Austrians such as Hayek and members of the Bloomington School such as Elinor Ostrom would argue that policy-makers ought seriously consider a change of emphasis, away from having experts undertake ever more elaborate empirical studies designed to provide that knowledge towards an approach that allows more scope for the relevant organisations within the innovation system to experiment with devising their own rule-based solutions to so-called system failures
Nelles 2019: 10–14; see Edler and Fagerberg 2017) and with the literature on ‘experimentalist governance’, which emphasises the importance of adopting trial-anderror strategies for devising policy goals and rules within a multi-level governance architecture as a means of dealing with uncertainty in policy-making (Sanderson 2009; Sabel and Zeitlin 2012)

Summary

Introduction

One of the most interesting and influential approaches to innovation, and innovation policy, over the past thirty years had been the innovation systems (IS) approach. Innovation involves the generation and widespread diffusion of knowledge about new products and methods of production This is said to occur via a complex, non-linear process involving interactions between firms and other organisations (including universities, banks, technical standard institutes, and government). Where the rules in question impede rather than facilitate interactions of the relevant kind, ‘system failures’ are said to occur, in the sense that reliance on a different set of rules might make it possible for the economy to perform better when it comes to generating and disseminating knowledge of new goods and technologies This is said to give rise to a rationale for government policy that is arguably quite distinct from neoclassical accounts for intervention based on the notion of market failure, being based on shaping the institutional environment within which innovation occurs rather than intervening directly in the innovation process

Innovation and the innovation systems approach

A non-linear view of innovation

The importance of institutions

Also see: Freeman 1987

The ‘system theoretic’ rationale for government intervention

The economy of an evolutionary process

Comparison with Austrian economics

The innovation systems approach to policy

Conclusions