Methods of Measurement

From a policy perspective, the establishment of internationally standardized measurement tools for innovation is particularly difficult as national dynamics with regard to policy impact varies greatly from nation to nation. Political logics are, by definition, geographically constrained by national borders and bound by the

responsibility of establishing and protecting the conditions for wealth generation and security among its citizens. It is the national administrative borders that serve as the basis for policy power. Political geography has traditionally been confined to national borders due to the nature of sovereign governance. The nature of policy is symbiotic in relation to a nations population. The impact of a policy on a nation will vary from nation to nation as the makeup of populations vary between nations. As a result of this variance between nations, policies within a nation must be crafted to complement the populations they are designed for. As such, the measurements of innovation with respect to policy formation must accommodate these variances.

To truly understand the underlying rational in measurement structures with respect to policy formation, it is important to understand the dynamics of interaction of innovation within populations. A considerable body of literature on systems of innovation focuses on theoretical and empirical studies on the complexity and

institutionally-embedded processes of interaction and learning at the regional, sectoral and national level (Asheim and Gertler, 2005; Edquist, 1997, 2005; Loasby, 2001;

Lundvall, 1992, 2005; Malerba, 2004; Nooteboom, 200). There is, however, a noticeable absence of comprehensive studies addressing the nature and types of strategic choices that public actors in systems of innovation are facing in the ever-changing social, economic and technological contexts (Lundvall and Borras, 1998;

Borras, Chaminade and Edquist, 2009). The rationales for public intervention in

fostering innovation from the policy level have been predominantly abstract and theoretical, based on the properties of old knowledge and the nature of knowledge production systems, and not embedded in specific social, economic and institutional contexts (Metcalfe, 1995).

A foundation for the neoclassical approach to technology and innovation policy concerns the public rights to information, viewing knowledge as a public commodity that cannot be appropriated by the innovator due to its indivisibility and quasi-public good nature (Nelson, 1959). This approach to innovative development is considerably lacking in public incentives, and it fails to address the market drivers for innovative investment. This concern is addressed in the national contexts by means of patent generation, providing limited rights for knowledge appropriation by innovators as a financial incentive through private monetary returns on the innovators‘

investment. From another, broader point of view of government responsibility in innovation policy, national obligations relate more to the market conditions in general, providing the economic and political environment most conducive to private

investment in innovation. This approach encompasses the concerns regarding knowledge appropriation as well as market dynamics for competition with regard to technological freedoms in diverse options (Borras, Chaminade and Edquist, 2009). By creating Pareto-optimal market conditions, national governments are providing the environment most likely to achieve the greatest public economic returns from private investment in innovation.

This has long been the primary approach to policy generation. Globalization and increasing digital information dissemination, however, are creating a unique challenge for knowledge appropriation. The advancement of communication systems has facilitated the copy and transfer of proprietary information across the globe on a

tremendous scale. A familiar case involving peer-to-peer file transfer of national copyrighted material is exemplified in the A&M Records v. Napster² legal dispute regarding music sharing. The shared country of origin for these two companies effectively enabled national policies to intervene to preserve the financial incentive for innovative development, but the cross-border, global nature of economic activity creates barriers of jurisdiction with regard to national policies. The international trends in innovative development indicate a dramatic increase in knowledge transfer across national borders. The increasingly borderless nature of knowledge –and particularly information– is impeding the ability of national jurisdictions to protect intellectual property rights, ultimately reducing the incentives for innovation investment. Knowledge appropriation is no longer defined in national contexts but rather in global contexts, where national policy solutions in the form of patent protection hold no authority. National governments have begun to address the global aspect of innovation incentives by signing international agreements such as the TRIPS³ (Trade-Related aspects of Intellectual Property Rights) agreement, and these initial steps towards developing effective policy in a globalized environment are a positive indication that national leaders are acknowledging the need for a better understanding of the policy dynamics of globalization. These first steps, however, are still in need of stronger legislative support, as enforcement and compliance with many of these agreements are proving to be challenging and geographically limited. The neoclassical assumptions of perfect competition with regard to innovation policies focus primarily on national solutions to problems. Traditional theoretical positions on when and how nations can effectively intervene must be revisited in the new global context.

The concerns brought about by globalization focus primarily on the nature of national borders. It is often argued that the importance of national borders is

decreasing as global economies are converging. This line of thinking, however, is flawed as it fails to consider the underlying logic of global economic development.

Although globalization has considerably altered the structure of value systems,

business models and technological development, the importance of national borders is not decreasing but rather shifting away from corporate industry and towards national policy. Businesses are increasingly operating on an international level, spanning the national and political borders of multiple nations in the pursuit of capitalism. Business operations continue to expand past the jurisdictional limits of national borders,

spreading technology and acquired knowledge internationally. As such, national borders are no longer a limiting factor in operational activities for business and knowledge development. The importance of national borders, however, is increasingly focused on national policy.

National methods of government intervention through innovation policy extend further than theoretical concepts of knowledge appropriation, and active examples of national intervention should similarly be revisited in a global context.

These policy instruments include a wide variety of approaches, exemplifying how current government actions impact innovative development within national boundaries. A prime example of active government intervention with regard to innovation is the public financing of research, allocating resources across various fields of study in support of research and development. The critical decisions in complex national economies center on determining which specific fields of study should receive public funding. These decisions attempt to weigh the potential returns in particular R&D fields from additional national resources by developing complex

stakeholder measurements, with the understanding that national investment should serve to foster innovative development in the economy in areas where private

investment is insufficient. A similar active governmental intervention method within the confines of national borders has traditionally been tax incentives for R&D expenditures. The complex variables involved in targeting specific government intervention are dramatically affected as globalization introduces additional

dimensions. With increasing globalization, the choices of public actors are strongly limited by processes they do not fully control (Archibugi and Iammarino 1999, p.326).

The added complexities in these decisions stem from ambiguities regarding national benefactors in cross-national innovational investment. Industry is increasingly global, and national decisions regarding allocation of resources must now consider options of investing in foreign firms, with the intent of encouraging foreign firms to establish domestic operations within that nation.

The impact of globalization on the rationales for government intervention creates growing complexities in policy options for national leaders. Globalization is challenging the underlying assumptions of traditional approaches to innovation policy based on national conditions. The changing industry conditions at the global level are severely affected by operations in international markets with under-developed

institutional frameworks. This uncertainty in the changing landscape of the innovation process could possibly deter private investment in unproven innovative fields, and this volatile environment is leading to a significant rise in the need for innovation policy across the globe. Public action needs to focus on adaptability in the innovation process, exploring the means for generating national frameworks that are open to adaptability and creating national environments for firms to take advantage of the opportunities from globalization. The challenges for national policy vary greatly

throughout the world, and public action should focus on specific weaknesses to identify the aspects of various national structures that are deficient in addressing the capabilities of private industry to operate in a global environment.

The current shifts in the international environment are creating new struggles for policy shapers in adapting to a globalized world. The limited national scope of traditional policy tools is proving itself to be increasingly insufficient, and the

relevance of current national policies with regard to wealth creation is becoming more and more ineffective. In an increasingly borderless world where the exchange of knowledge and information is growing rapidly, traditional national investment

strategies in knowledge appropriation and innovation are resulting in the swift dilution of knowledge assets through globally-related processes. In a knowledge-based

economy, the gains of competitive advantage through national investment are decreasing as globalization progressively disseminates the new ideas of innovators, almost from the moment these ideas takes shape.

In a national context, the primary challenge for policy shapers is to increase the standards of living in a progressively competitive world. In nations where

economic development and structural adaptation are slow, economic competitiveness will gradually decline. For policy shapers to be effective, national structures must be flexible to accommodate the changing dynamics of international competition. A key aspect in adapting to this new environment is shaping national policy that attracts business innovation regardless of geographical boundaries. Competitive nations are recognizing the new dynamics of industry borders and crafting national policy that attracts both domestic and international business development. International

organizations like the European Union, OECD and the United Nations are placing a major focus on national policy formation with respect to improving innovation

competitiveness. This increased focus on policy competition among nations and regions has resulted in the development of a wide variety of political strategies for attracting innovation investments and innovation-based businesses. Yet, despite the recognized critical importance of innovation in wealth generation, most national governments do not consider ―innovation policy‖ as a unique and specific policy field.

The focus placed on innovation in the policy field is primarily applied through various established fields, including defense and economic policy. Public policy is

predominantly embedded in economic and social activities, and the resulting incentive structures and opportunities for innovation developed through policy are often

conditioned by obsolete perceptions of national governance. Policies affecting innovation conditions and business competitiveness within national development are found throughout public policy and in all policy fields, without being explicitly addressed in overall policy development or relevant policy fields. This unfocused approach to innovation in policy, along with unstructured discussions on national competitiveness, results in an unguided and inefficient process within the policy arena.

Consequently, challenges and opportunities related to innovation competitiveness, and the options and alternatives for policy development, are often ambiguous in most policy debates.

In recent decades, technology development, research and innovation activities have increasingly developed in a global context. The economic miracles produced by nations like Taiwan have prompted studies of these national development and

innovation examples (Lin, 2008). While new powers have emerged in global innovative competition, notably Asian countries, the underlying nature of

globalization is shifting away from international exploitation of nationally-produced goods to the global generation of innovation (Archibugi and Michie, 1995).

Ultimately, the geographical dynamics of innovation activity are distorting the boundaries between local, national and global innovation systems. The new global environment is introducing distinctive complexities in the national realms of policy development. When and how to intervene from a national context in the system of global innovation is becoming increasingly important, presenting the need for a comprehensive understanding of rationales for public intervention through policy (Borras, Chaminade and Edquist, 2009). This global imperative for innovation presents an absolute obligation for the national policy shapers across the globe to develop their understanding of the complex and changing variables related to innovation policy. As global environments and systems of government grow and evolve, so too must leaders grow, adapting to changes to remain effective in their public service.

The strategic choices for national policy shapers must examine specific areas of policy reform within their respective nations. Policy researchers need to examine the allocation of R&D resources, policies on intellectual property rights relating to the balance of individual and social returns, regional development policies relating to institutional frameworks for facilitating local interactions, and policies focused on transforming low-technology industries into higher added-value sectors of the economy. The revelations obtained by examining these rationales for innovation policy will begin to address weak areas in traditional theoretical policy guidelines, providing a clear direction for policy makers to identify specific policy solutions with far-reaching oversight of the causal mechanisms of industry failures, possible

responses to them and the ultimate innovative output. These clear guidelines will enable policy shapers to determine when, why and how governments should intervene in innovative development. These rationales need to be embedded in specific social,

economic and institutional contexts for each country, bridging the gap between political practice and theoretical discussions of governmental intervention in the innovative system. To achieve this detailed country-specific analysis for policy guidelines, further empirical research is needed to develop national directives for policy shapers, identifying clear, country-specific objectives and tools for strategic decisions in innovation policy.

The opportunities in policy development brought about by globalization are great as well. The prospects of wealth generation through globalization are steadily increasing. As global competition increases, the need for continuous business renewal similarly accelerates. Innovation serves as the main determinant in economic

productivity, business renewal and wealth creation, and for this reason it is becoming an increasingly critical aspect of national public policy.

New policy statutes require a new understanding of the international dynamics between legislation and innovation. Innovation continues to be the driving force in wealth creation. In the United States, innovative efforts by once-small companies have contributed greatly to the economic success of the nation. Microsoft, a once-small company begun by Bill Gates and Paul Allen, now has an annual revenue of over $60 billion US, and provides jobs to almost 90 thousand people (MSFT, 2009).

Innovative developments such as the mobile phone, invented by Martin Cooper at Bell Labs, have created new markets that once never existed. There are now over four million mobile phone subscriptions in the world (ITU, 2009). Despite great historical success in the field of science and technology, growing international competition will require that national investment in innovation must adapt to changing trends in order to remain effective. As a nation, the need to influence innovation as a wealth-building process remains constant. The objectives of innovation-related policy are politically

determined and can be economic, military, environmental or social in nature (Borras, Chaminade and Edquist, 2009). In practice, innovation policy initiatives are attempts to solve or mitigate ―problems‖ in the innovation system. Such problems exist when actions of private industry do not automatically lead to the fulfillment of their objectives. This implies that public action should not replace or duplicate private action, but should supplement it and address specific problems associated with the incentives for innovation. But to design effective innovation policy initiatives, the policy shaper must first understand the source behind the problems affecting economic growth and the innovation process.

The challenges and opportunities presented in developing effective innovation policy for the future require extensive analysis to develop a clear understanding of the options and implications for government action. Most economic research on

innovation policy rationale focuses on two distinct deductive approaches to the methods and manners for government action regarding when and how to intervene in innovative development. Based on traditional economic posturing, influential works by economists such as Arrow (1962), Nelson (1959) and Machlup (1980) address the economic virtues of achieving optimal Pareto equilibrium with respect to the

allocation of resources to innovation (Metcalfe, 1995). This philosophy considers the level at which a change in resource allocation can improve one individual without harming other individuals. This rationale considers the primary objective of public intervention to be the national recognition of market failures which prevent Pareto optimality.

Economists are currently developing tools to harness the opportunities these changes have brought about, and while revolutionary solutions have been

unprecedented, the underlying source of change is grounded in fundamental economic

theory. This global change in the technological environment for innovation is not the result of economic growth but rather an integral component in the process. For nations to progress, technological change is inevitable (Nelson and Winter, 1982; Dosi and Orsenigo, 1988). But although this global dynamic is understandable in economic theory, the developing solutions differ dramatically. Increasingly, economic theory regarding innovation policy is diverging into two schools of thought. Equilibrium economists focus on Pareto optimization, considering the role of policy in limited contexts, with the primary responsibility of addressing market failure by securing sufficient investment for technology investment in private industry. For evolutionary economists, technological development and the innovative process is a natural result of a progressive societal structure as a whole. The innovative process is the fruit of corporate behavior in an ever-changing context characterized by a high level of complexity and institutionally-embedded processes of interaction and learning (Metcalfe, 1995). The evolutionary policy-maker is not concerned with achieving Pareto-equilibria of societal investment in technology, but rather with the innovation system‘s ability to adapt to changing conditions in order to maintain and enhance the knowledge and technological capabilities accumulated by firms and industries through time (Borras, Chaminade and Edquist, 2009). Therefore, rather than focusing on market failure, the evolutionary policy-maker focuses on a series of systemic failures or problems such as infrastructure provision, technological lock-ins, network

problems and transformational problems (Smith, 200; Woolthius and Lankhuizen, 2005). This all-encompassing theory addresses all aspects of national development focusing on the adaptability of the actual innovation system. Realizing the

opportunities from globalization will require a comprehensive analysis of national systems, developing new resources for private industry where competitive advantages

are being redefined. Realizing these opportunities depends on industry‘s ability to adapt to changing circumstances, and innovation policy must address the institutional roadblocks that restrain adaptability. Unfortunately, the gap between economic theory and policy action is great. Setting priorities, designing instruments, developing new institutional arrangements, and monitoring and evaluating current policies are

connected only in a general way to the literature on policy rationales (Metcalfe, 1995, p. 410). Current policy makers are grappling with the challenges presented in adapting to new economic and political environments.

The tools policy makers are using rely greatly on developing measurement

The tools policy makers are using rely greatly on developing measurement