Innovation Economics

An interesting post from Florida caught my attention. This was picked up on my daily "Digital Economy" Google Alert.

The post refers to an ITIF report that outlined four competing economic development doctrines.

Conventional Economic Development Doctrine: Developed largely after World War II focussing on competition between states for increasingly mobile economic assets , this doctrine (CED) is based on the idea that the best way to grow the economy is to attract (or retain) capital (usually establishments of big, multi-state firms) by making specific deals that include tax breaks, loans, and grants. The idea is that these mobile establishments are seeking the lowest costs, and the job of a state is to put forth the best package to attract them.

The Neo-Classical Business Climate Doctrine: Both conservative and moderate neo-classical economists are skeptical of the government's ability to pick winners and believe that the best way to grow a state's economy is by a tax code with low rates and few distortions and a regulatory code with as few burdens on industry as possible. Like holders of the CED, they see competitive advantage as largely based on costs, but they generally look at traditional economic development efforts and, instead, favor eliminating firm specific subsidies and using the savings to cut taxes for all firms.

Neo-Keynesian Populism: Ultimately, the goal of economic development is not to help business, it is to help state residents, including workers. Helping business is the means by which to accomplish this goal. However, for holders of the neo-Keynesian populist doctrine, helping workers directly is not only the goal, it's the means. Holders of this doctrine worry less about business climate or competitiveness, and focus more on making sure that the wealth generated in a state goes to the people that need it most. They see most economic development issues as boiling down to a question of who gets the benefits: working people, or rich people and corporations.

Innovation Economics: Holders of the innovation economics doctrine believe that, ultimately, what determines a state's economic success is the ability of all institutions (private, nonprofit, and government) to innovate and change. Because of this, innovation economics (IE) focuses less on issues such as taxes and regulation or the number of firm-specific deals, and more on policies that can spur firm learning and innovation through more generally positive business environments.

(These are very well laid out in table 1 of the ITIF report)

These matters all have correlates in the formalities of macro-economic theory in particular growth theory. The latter seems to me to be the logical correlate of "endogenous growth theory."

This poses the question of what are the appropriate economic policies for innovation economics. The title is perhaps misleading because it is not just about creating an innovation climate or sponsoring research. It includes actively evolving institutions (and in this I would include the classis institution of the firm).