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Innovation and the State

From the collection Economics of Innovation

Dan Breznitz, is a Professor and Munk Chair of Innovation Studies, with a cross-appointment to the Department of Political Science. In addition, he is also Co-Director of the Innovation Policy Lab at the Munk School and the Director of Academic Research. Professor Breznitz is known worldwide as an expert on rapid-innovation-based industries and their globalization, as well as for his pioneering research on the distributional impact of innovation policies. Unlike many, he doesn’t embrace a fully market-centric approach, acknowledging a major role for the State, not just in terms of encouraging and diffusing innovation on a national scale, but also in terms of coping with the inevitable questions of economic inequality, which is an unwelcome byproduct of the very innovation the state champions.

People confuse invention with innovation. But, as Breznitz notes in the interview, innovation is more than just inventing something. Invention is not necessarily the stage that actually translates to jobs and economic growth. After you invent something, you have to take it to market. Inventing the internal combustion engine didn’t create economic growth; it was the continuous improvement of that that created new industries, jobs and growth; for example, the automotive industry. And the State plays a major role here, not just passively via tax incentives, but also through smart strategic innovation policies, including direct investments in key technologies and firms. Countries such as Israel, Finland and Taiwan all successfully spurred high-tech growth miracles through targeted strategic investments. Equally important, argues Breznitz, unless we develop a new understanding of how innovation and entrepreneurship can bring about sustained economic growth in different ways in different places, we will be doomed to one of two options: horrifying levels of inequality or depressing economic stagnation. There is not a “one size fits all” policy for global innovation.

It also bears repeating that innovation per se does not lead inexorably to superior standards of living. Airbnb and Uber, may create wealth for some, but they do not create a lot of new jobs – at most they’re redistributing existing jobs and wealth from hotel owners to real-estate owners, from taxi company owners to the owners and investors of Uber. Celestica, on the other hand, is a good example of a successful innovation company. It doesn’t invent new products, but it innovates through its supply chain and the services and products it offers, providing both increased jobs and wealth to the Canadian economy (where Breznitz is now based). The key takeaway from Breznitz is that economic growth and rising prosperity does not happen at the moment of invention. Only an innovation policy aiming to maximise activities throughout the innovation cycle will succeed in capturing economic growth that enhance the welfare of all citizens. This and much more is discussed in the interview below.

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