Summaries of Academic Reviews – Horizontal Business Innovation and Clean Technology

1. The Cluster approach and innovation: A review of existing evidence – David Doloreux, Ph.D

Abstract: This report summarizes and synthesizes the evidence on the relationship between clusters, business innovation and growth, paying particular attention to the advantages they offer in terms of innovation, productivity and economic development and the ways in which they do so. In conclusion, it indicates the areas in which adequate research has been done and those in which more research is required.

2. Evaluation and Benchmarking of Innovation Support – Margaret Dalziel, Ph.D

Abstract: Governments fund a wide range of programs designed to support the innovative activities of firms with a view to enabling their launch, growth, and continued viability. As innovation support is funded by taxpayers, and competes for resources with other important initiatives, it needs to be justified in terms of envisioned and demonstrated net positive contributions to social welfare. Only effective innovation support will enhance social welfare. With a view to improving the effectiveness of innovation support, I consider the purposes, methodological approaches, and data sources of innovation support program evaluation and benchmarking. Contributions to the state of the art have come from many sources, including academia, government, and the private sector. Governments that wish to operate at the frontier of this emerging body of knowledge need to take an exploratory approach and be open to a range of methodologies and data sources. No methodology or dataset is perfect, and the surest advances will be made by employing all available tools and resources.

3. Impact and Effectiveness of Public Support for Business Innovation – David Wolfe, Ph.D

Abstract: As the 21st century unfolds, there is a growing recognition that the competitive global landscape is altering the context within which government support for innovation programs should be assessed. The primary justification for this area of public policy is the widespread recognition of the link between innovation and productivity growth and its impact on future income levels. This report explores a number of conceptual and policy design issues that are relevant for the current Treasury Board Secretariat Horizontal Review of Innovation and Cleantech programs within the federal government. It reviews some of the relevant conceptual frameworks used in leading industrial economies, as well as some that have experienced more rapid innovation-based (RIB) economic development. It provides an introduction to recent thinking in the academic and policy relevant literature on the nature of these design issues and summarizes some of the insights and findings of recent reviews that have been undertaken on program impacts.

The report addresses several critical issues. First, it examines the conceptual and program models that exist for the design and implementation of government support of business innovation at different jurisdictional levels. It places this examination within the context of two broad approaches found in the literature, the traditional neoclassical approach to innovation policy and more recent evolutionary approaches. It explores the different policy approaches adopted in both leading economies, as well as several that have adopted a rapid innovation-based (RIB) approach to innovation policy and examines the relative merits of the respective approaches used by different governments.

The report goes on to examine the existing evidence on the impact of a range of policy instruments, drawing several recent reviews of both the academic and more policy oriented literature. It also draws upon concept of the “policy mix” for innovation that was introduced ten years ago in policy reviews undertaken for the European Union and OECD. It examines what value the “policy mixes” approach adds to our understanding of the design and implementation of government programs for the support of business innovation. Finally, it addresses the question of how the introduction of innovation programs within a federal system complicates the evaluation of their impact and creates a need for greater policy alignment. In this respect, it asks what value the multilevel governance perspective, developed initially in the EU, but adopted and widely applied in the scholarly literature on Canada, contributes to our understanding of how the effectiveness of policies is supported or constrained by the behaviour of other actors within the federal system.

4. Clean Technology and Business Innovation – Stewart Elgie, Ph.D

Abstract: As the world shifts to a low carbon economy, clean innovation represents a significant and growing market opportunity across Canada’s economy. It is also critical to meeting our climate and environmental goals cost effectively. Yet it is well established in the literature that clean innovation poses unique challenges; it faces market failures and barriers beyond those encountered by innovation writ large – especially the failure of markets to pay for reductions in pollution and most environmental harm (they are an “externality”). Clean innovation therefore requires both more and different types of government support, using a range of tools – including, in particular, public policies (pricing, regulations, and incentives) and targeted procurement programs that can “pull” market demand. Without these kinds of strong policies to stimulate demand, other types of government investment and support programs for clean innovation will be much less effective.

The literature also highlights that, because clean innovation is a system, boosting it requires a broad mix of programs and policies. These should: be coherent, comprehensive, consistent and credible; signal sustained, ambitious direction that permeates across the system, and; help to disrupt technological lock-in, and support a shift to cleaner technological pathways. This level of coordination requires effective institutions and processes that promote strategic alignment of programs and policies, to engage key actors and experts within, across, and beyond governments.

Since clean innovation is critical to meeting climate commitments, Canada is not indifferent to its direction and pace. Therefore the role of government in driving clean innovation should not be limited to correcting market failures (to “level the playing field”), but should instead be oriented to actively “tilt the playing field” in favour of cleaner outcomes – to overcome the existing “lock-in” favouring carbon-intensive technologies (aided in many cases by prior public support). This type of “mission-driven” approach to clean innovation implies a more active role for public investment, to share in financing the exceptional risks facing clean technologies (such as policy risk, high capital costs, and long scale-up periods), in order to catalyze private investment and direct it to higher risk, longer term opportunities. To this end, effective public support programs should facilitate experimentation, risk-taking, and failing (and learning) fast – traits that are often challenging for governments, and may require new types of public institutions, and evaluation and learning approaches.

Despite having many strengths, Canada’s share of the global clean technology market is relatively small, and falling. The evidence (though limited) shows Canada’s performance is strong in the early stages (RD&D) but falls off as innovations get closer to market. To improve our performance and seize the opportunity that accelerating clean innovation presents, government itself needs to be innovative: to take a more coordinated, nimble, risk-tolerant and proactive approach – in order to provide the support and direction needed to help Canadian businesses be among leaders in clean innovation globally.