The government’s role in innovation


Innovation is a critical tool for any entity if it wants to effectively compete in this era. Innovation can boost entities through improvements in productivity and efficiency. Since change in the world is moving at a fast pace, governments around the world are working to align their services to the changes.

Innovation is beneficial not only for governments, but it also brings positive changes in social, economic and political aspects. Technological changes have proved to be a catalyst in economic growth. Innovation is the reason for improvement of productivity and reduction in inflation. Ultimately it makes the country’s products capable of competing in the international market.

Figure 1

Every year Bloomberg releases its innovation index which ranks the 60 most innovative economies in the world. The 2020 results are shown in figure 1 above 

“It’s clear that many countries are continuously pushing the envelope in order to maintain their competitiveness within the global economy—and constant innovation can provide a better life for their present and future populations.“ – Visual capitalistVisual capitalist 

Why should the government intervene directly to influence innovation?

The public nature of knowledge

Small firms hesitate from investing in development of technology, as they can’t capture all the benefits resulting from such investments because other firms tend get more benefit from the knowledge that results from the investment in technical development as compared to the original developer. This problem arises due to the advancement of output in technological knowledge which can be used in research and commercial development of various firms. In such kind of situations, it is important for the government to intervene for the support of R&D to minimize the underinvestment. Such kind of support from governments will produce some positive externalities for other firms on addition to the first firm.

Structural characteristics of Industry

Sometimes it is the small size of firm which restricts the firm from investing in research and product development. Also, the large oligopolistic firms prefer to focus on the improvement of their existing products rather taking a risk in market-disrupting long-term innovations. Some individual consumers find it difficult to make wise purchases due to the lack of information. These situations lead to inefficiency in the economy. To tackle this issue, governments must intervene to enable various types of R&D.

Social and political need

There are certain public goods which must be provided to citizens, even though they might not want them. The most common example of this kind of public good is national defense. Only the political system can decide the allocation of such kinds of public goods, on the other hand allocation of normal goods is decided by the market. It is obvious that support for R&D of such kinds of goods must be done by the federal government. 

There exist negative externalities with the development in technology, most of these externalities affect environment. So, it is important for government to regulate technological advancement through R&D

How governments can help business and citizens to innovate

Tech trainings

Governments can arrange trainings for businesses and citizens where they can learn from experts who have been successful in turning their companies into successful digital companies. Such training should not have any cost for the citizens or the businesses, because their success will ultimately boost the country’s economy. The target of these trainings should be the businesses who want to expand their market. It’s those business that want to be efficient while hiring more staff and building their customer base or market share. In 2016 United Kingdom launched a program that offers free courses in basic digital skills for adults in the UK lacking relevant qualifications. The goal was to upskill Britain’s workforce. 

Turning Scientific Discoveries into Businesses

To achieve this goal, governments can help businesses and citizens in two ways. There should be a financial support for technologists and researchers for collaborative research. This would be helpful in commercializing the products resulting from research under the government’s coaching and mentoring programs.

Another area of focus should be the start-ups, small and medium-sized enterprises (SMEs) and entrepreneurs. Support for entrepreneurs and SMEs by government would help them to launch innovative businesses. European Innovation Council has started working on turning scientific discoveries into businesses, this program has reached in pilot phase and will be practical in 2021. The budget proposed by the EIC is $10 billion to support this initiative. The European Innovation Council has started working on supporting the most promising SMEs and startups. This program has reached in pilot phase and will be practical in 2021. The budget proposed by the EIC is $10 billion to support this initiative.

Innovation accelerator

For technological improvements, it is necessary for governments to focus on building smart cities, other important aspects for technological innovation are artificial intelligence, internet connectivity, blockchain, urban automation and mobility and open city data. Support to these aspects by government can easily bring technological innovation in businesses. This kind of program has been launched by Dubai named Dubai’s innovation accelerator.Dubai’s innovation accelerator. It includes three months training to companies under the guidance of 100 company experts.

Promoting competitive and innovative industries

Encouraging and developing innovative industries enables governments to compete in the international market. This can be done by providing adequate infrastructure and a business friendly environment in the country. Government has to engage industries and professional groups to help the companies and citizens in research, acquiring education, trainings and other sources of knowledge to level up the technology in the country.

Building Innovative Sites

Governments can build technological parks, smart cities and industrial zones to gather the talents and entrepreneurs of the country in one place to work efficiently. To take these steps, governments need to have high-class knowledge institutions, infrastructure and an attractive environment.

Usually, policy makers support science and technology parks, because these sites make highly visible efforts for innovation. The development of special economic measures for low- and medium-income countries. Zones, or industrial export zones attracted by international subsidiaries, As China has shown in recent decades, it makes sense to have unique incentives, well-developed infrastructure, and a pleasant business environment to the degree that it is part of larger national experimentation and learning processes. These zones include structures explicitly designed to facilitate shift of competencies in technology and management to local businesses.

Today, creative companies appear to develop in what are called “industrial clusters;’ that is, concentrations of companies operating through networks in closely defined geographic areas, with complementary rather than competitive assets. They seem to be spontaneous innovations that originate from company initiatives. However, by setting frameworks for dialogue and cooperation and developing incubating and training instruments, governments can play a decisive role as “brokers”.

Cities are becoming vital hubs in the global economy for innovative activities and competitive centres. A strong identity and a straightforward plan for leveraging a comparative approach are important to their success. By attracting a critical mass of talent, thus minimizing the variables that negatively affect their attractiveness as centers of creativity, advantage or to build it.

Stimulating Pro-Poor innovations

In poor communities, innovation can be promoted in two ways: first, through the organization of structured links with the science, education, or business sectors surrounding them; and second, exploration of entrepreneurial drive and specific knowledge that exists in the society.

Initiatives by corporations, academic institutions or non-governmental institutions Organizations around the world exist to develop innovations in response to the needs of poorer groups. Such programs entail the establishment of strong and enduring relations with these societies and their creative individuals and organizations. With well-designed and -implemented assistance, the international community can be a great aid. A variety of nongovernmental organizations, for instance, assisting artisans in design, trade, and exports and helping with funding and company management, social entrepreneurs. These initiatives have had a very strong social impact when well planned. In their traditional, indigenous interpretation, poor communities have significant wealth. Except in a few places, such as pharmacology, this ability remains unexploited, typically to the benefit of multinationals. However, as has been shown in Africa, India and elsewhere, systematic search, growth, promotion and security (patent rights) of this potential is not only feasible, but also fruitful.

Poor rural communities need support to ensure their survival and avoid major urban exodus, even though urban concentration can pay off by increasing gross domestic product per capita in the long term. The maintenance of rural communities calls for a combination of technical support; the provision of machinery, seeds and fertilizers to increase agricultural productivity; the distribution of health care, education and fertilizer practices; Training efforts; and some improvements in infrastructure.