Research Policy (I)

Updated: Jun 6

How do we justify public intervention to promote innovation among private actors, and what justifies an innovation policy at European level?

The public authorities, on the basis of theoretical economic studies (Smith 1776, Ricardo 1819, Schumpeter 1911 and 1942) confirmed by empirical studies, have understood the economic and collective interest generated by innovation.

However, the research necessary for technological innovation creates externalities. Microeconomic analysis shows that the effects of positive spillovers from research are such as to discourage private companies from investing in R&D due to the lack of total ownership of the results of their research. Private agents underinvest in basic research and choose projects with high immediate private returns. This underinvestment by private agents is a source of economic inefficiency from the point of view of the public authorities, which justifies their intervention to achieve the objective of an optimal level of investment for society. To overcome this market inefficiency, the state invests directly in public research, encourages private agents through subsidies to invest more in R&D and clarifies and facilitates interactions between private and public actors in the transfer of skills and technologies especially with legal tools and intellectual property.

The positive results on the knowledge economy by the intervention of public authorities within a given territory have been deployed on a larger scale within the countries of the European Union which wishes to promote the circulation of innovation and therefore growth.

According to the OECD analysis, states have specific responsibilities to assume in stimulating innovation in this extremely competitive global market. It is in fact upstream of the productive processes that public expenditure in research and education creates the conditions for the emergence of innovation. Fundamental research projects, often very heavy in terms of funding and partly uncertain, can often only see the light of day with the support of States, because their short and medium-term profitability is too uncertain for them to be taken into account. Charge by the private sector alone. Likewise, investment in knowledge (development of new courses of study), through the positive effects it generates for society as a whole, also justifies the intervention of the public authorities.

The European Union, through the Lisbon Treaty, has established a strategic plan to give the public authorities of the member states maneuvers to encourage the promotion of innovation, including that of investing 3% of GDP in R&D: 2/3 in the private sector and 1/3 in the public sector.

Ouarda BOUZIANE, CEO Founder EuroBreath.IT, March 16, 2021

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