Supporting innovation in an age of disruption

Why governments need to focus on entrepreneurs, not industry

Simon White

Government and governance, Trade and industry, Science and technology | Australia

12 October 2016

Effective innovation means looking beyond conventional industries and instead identifying new opportunities and supporting entrepreneurs. Simon White asks why that isn’t happening at a state level.

The most innovative companies in the world transform the way we live, work and play. Innovation – especially but not solely in the technology sector – disrupts markets and upends the traditional ways of doing things. Winning economies are those that know how to foster creativity and encourage innovation. Why then, do so many state governments remain focused on supporting conventional industries?

The Federal Government of Australia, for its part, is attempting to respond to the need for innovation in a manner that reflects the changing dynamics of the global market. The Commonwealth’s National Innovation and Science Agenda plays an important role in setting the framework conditions for innovation. It uses the tools available within the Australia Federal system to address a number of the barriers to innovation. Through taxation it promises to create financial incentives for research and development; through immigration reforms it changes the visa system to attract more entrepreneurial and research talent from overseas; and through direct funding it encourages the commercialisation of research, increased collaboration between universities and the private sector, and increased support for STEM education.

The Commonwealth Agenda highlights the role of government in investing in enablers such as education, science, research, and infrastructure, while incentivising business investment and removing regulatory obstacles. As such, the government’s efforts seek to improve the market conditions for innovation.

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State governments are following suit with a range of programs designed to stimulate innovation and support entrepreneurship. The Advance Queensland initiative, for example, positions “Queensland as an attractive investment destination with a strong innovation and entrepreneurial culture”. Similarly, the Innovate NSW program, now known as the Jobs for NSW program, supports and expands the start-up ecosystem across the state through grants for high-potential new businesses and partnerships with incubators and accelerators. And in Western Australia, a minister for innovation has been appointed and a range of new initiatives is planned.

The WA Parliament recently released a report on Growing WA through Innovation. This report presents the findings of an inquiry into the ways in which technological and service innovation can be fostered to expand and diversify the state economy. It aims to “demonstrate to the Western Australian Government the absolute necessity for it to be much more proactive in how it goes about helping to diversify the state’s economy through innovation” (my emphasis). The State Government is presently preparing its response to this report.

The national innovation agenda and state-based innovation initiatives highlight the way governments support innovation. In most cases, these initiatives can be described as improving the conditions for innovation: they remove barriers, enable increased investment and help the market for innovation work better.

However, this does not go far enough. If we are to reap the benefits innovation can offer, especially in terms economic diversification, we require a bolder, more ambitious approach.

As Professor Mariana Mazzucato from the University of Sussex argues, governments should do more than simply fix failing markets. Instead, she calls for “an entrepreneurial state”, that transforms markets and sets directions for the disruption of old markets and the emergence of new ones.

More on this: Could Australia’s 'ideas boom' agenda stifle real innovation?

The report of the WA Parliament provides an excellent example of the ways in which too many states fail to go far enough. They focus on one aspect of innovation––disrupting the old––but often do not look towards creating new ones. Growing WA through Innovation places innovation within the state’s industrial framework, claiming that innovation should support WA’s “areas of economic and strategic strength” – mining and energy, agriculture and food, and advanced manufacturing sectors––sectors in which WA is already considered strong. These sectors align, in part, with those sectors identified by the state’s Science Statement and the Federal Government’s Industry Growth Centre Initiative.

Sector-based innovation strategies are important. They allow for strategic interventions to be customised to the specific sector needs, opportunities and dynamics. However, focusing only on those sectors in which the state is seen as currently strong ignores the potential of disruption and the possibility of emerging new markets and sectors in which WA may also have advantages.

Going beyond Western Australia’s traditional sectors does not equate to making all sectors equal. Such an approach risks becoming too scattered and diffusing scarce policy and economic resources. Instead, the most strategic approach requires considering the range of emerging global sectors in which the state may have an advantage. There is a need to look at existing markets differently and open up to the possibility of new markets.

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I am not convinced the three sectors identified in the report accurately reflect the range of innovation opportunities in the state now or in the future. For example, the Committee’s decision not to recommend support for innovation in the renewable energy sector is a major oversight. Surely this is a sector where innovation is in high demand? In addition, the 2015 WA Science Statement identified medicine and health, biodiversity and marine science, and radio astronomy as areas in which the state has a real potential to grow. Each of these represent areas of real future growth in terms of demographic shifts and technological investments.

While there are benefits to identifying sectors for support and to improving the markets in which these sectors operate, the disruptive and transformative potential of innovation can be inhibited by focusing on traditional industries alone.

A key challenge for federal, state and local governments is how to foster collaboration with other actors: industry, investors and the research community in particular. Productive disruption requires the cross-pollination of ideas and the creation of environments in which out-of-the-box thinking is encouraged where new ideas and new entrants are welcomed. Yet, even as most actors involved in the innovation landscape agree with the importance of collaboration, there are few good examples of how governments are doing this effectively. The WA Parliamentary Committee’s report on this matter provides little encouragement, suggesting the State Government “explore collaborative frameworks across the economy”. It represents a significant missed opportunity to layout a framework for industry and cross-sectoral collaboration and invest in fostering the climate for disruption and innovation.

The greatest challenge for policymakers, at all levels of government, is to look beyond the idealised flow charts and lifecycle of innovation and to focus on the entrepreneur.

Either on their own or in groups, partnerships or medium to large firms, entrepreneurs invest their time, money and other resources into bringing new ideas to market. The innovation policy arena must respond first and foremost to their current and future needs. While the WA Committee’s report and the Commonwealth innovation agenda correctly highlight the importance of an innovative culture, governments must do more to support innovators and encourage the kinds of collaborative responses that have driven disruption and innovation in the smartest economies in the world.

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Citation

White, Simon. 2016. "Supporting Innovation In An Age Of Disruption - Policy Forum". Policy Forum. http://www.policyforum.net/supporting-innovation-age-disruption/.

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