Evolutionary Economics and Technology Policy

In this brief paper I propose to explore the economics of technology policy from an evolutionary perspective. As with any evolutionary argument the central concern is with the mechanisms of economic change, in this case in relation to the development of new technologies and patterns of organisation, and their spread into the wider economic system. In this sense we build upon one of the major stylized facts of modern growth, structural change at all levels from the microeconomic to the macroeconomic. To any observer of the policy making process let alone a practitioner, the contrast between the theory which underpins policy and the implementation of policy will seem acute. As Nelson and Winter (I982) have rightly insisted, research into policy is shaped by policy questions not by an agenda relating to how economic theory can be developed to deal with innovation. Setting priorities, designing instruments and evaluating outcomes do not link easily with the general ideas dealt with below. Among the general points we will stress, two will be of critical importance. First that the innovation activities of firms involve a wider range of other institutions supplying the knowledge and skills which underpin the efforts of individual firms. We term this the systems perspective on innovation (Nelson, I993). Secondly, it is not helpful to treat innovation and the diffusion of innovation as separate categories, in fact they are inseparable, with feedback from diffusion being one of the critical elements shaping how a technology is developed. We begin with a brief review of the familiar market failure perspective on policy and build from this into a brief overview of the evolutionary approach. The paper concludes with an outline of the systems perspective on technology policy. It is taken as read that virtually any economic policy can have implications in principle for the process of innovation. However, we treat technology policy in a narrow sense even though it spills over into questions of education policy, science policy and competition policy.