What Works in Economic Development: Innovation?

About the Author

Jonathan Morgan

Jonathan Morgan is a School of Government faculty member.

Jonathan Morgan is a School of Government faculty member.

This is the fourth post in a series that explores the critical question of what works in economic development? Previous posts have focused on business incubation and suburban revitalization.  For one analyst, the most obvious answer to the question of what works can be summed up in one essential concept: innovation.

In a paper recently published (Feb. 2012) by the Information Technology & Innovation Foundation, Robert Atkinson calls for a new “doctrine” to guide state and regional economic development efforts.  He advocates and sets forth a policy framework based on “innovation economics” that, at its core, is about creating an environment conducive to the formation of new ideas, new firms, new products and services, new technologies, new skills, and new ways of doing nearly everything.  Atkinson supports his argument with empirical evidence that demonstrates a positive connection between various innovation indicators (e.g., patent activity, business R&D expenditures, share of knowledge-based industries, college educational attainment) and levels of economic growth (e.g., income and wage gains).

The specific policies and strategies associated with Atkinson’s model of innovation-based economic development include:

  • R&D tax credits
  • technology-focused research partnerships between universities and industries
  • cluster/sector-based skills alliances
  • upgrading worker skills
  • entrepreneurial development
  • facilitating industry networks

Atkinson does not provide any empirical evidence about how well governmental policies and direct public sector involvement in these activities have worked.  Could it be possible that innovation flourishes and drives growth in some places irrespective of what government may or may not do? Probably not, at least at the national level in the U.S., in Atkinson’s view.  As such, he points to the need for a comprehensive and robust national innovation and competitiveness policy, with the federal government leading the way.

Instead of trying to be a low cost location for low-wage industries, Atkinson urges states and regions to focus on building a knowledge infrastructure by providing high quality educational and training opportunities, spurring innovation through university research and direct assistance to firms, and promoting entrepreneurship.  He goes even further by suggesting that all of a region’s institutions—public and private—must embrace innovation in order to help a place compete in a dynamic, knowledge-based global economy:

“Success in the new economy requires a whole array of institutions—universities, school boards, firms, local governments, economic development agencies—to work in new and often uncomfortable ways. At the end of the day, this is a challenge of leadership. Places with leaders who challenge their institutions and businesses and who follow through with bold new policies focused on innovation, learning, and constant adaptation—will be the ones that succeed and prosper (p. 12).”

Atkinson makes a compelling and enticing case for innovation-based economic development.  But is this new “playbook” really the remedy for all that ails us when it comes to boosting private investment, creating jobs, and promoting prosperity?

One Response to “What Works in Economic Development: Innovation?”

  1. Jonathan, thanks for the interesting blog on my report. One point I would make to clarify, when I wrote about innovation it is not just high-tech product innovation I referring to, but business model innovation, process innovation, etc. And that can and should happen in a wide range of industries, including in government itself.

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