chapter  4
Innovation, institutions and the role of policy
Pages 28

Effecting innovation requires a concerted effort involving several agents within the economic and non-economic system. On the supply side, it involves the provision of physical infrastructure (roads, communication and electricity), scientific infrastructure (technological equipment and laboratories), human skills (universities, public research institutes and other tertiary education institutions) and financing (venture capital, loans, tax cuts or subsidies), among others. On the demand side, the requirement of each one of the agents involved in innovation differs from one another. A firm seeking to innovate has the demand for access to knowledge both from sources within the economy and outside such as universities, public sector institutes in areas relevant to its expertise, to have access to competent human skills, to get information on consumer needs and preferences, and to gain efficient access to finance sources. The university departments and public research institutes that perform basic and applied

research have a demand for adequate financing and collaboration possibilities with firms in the same fields of technology so that their research results can feed into product development. Universities require adequate information on the state-of-the-art developments in each discipline, so that courses and research programmes can be structured/updated accordingly, to meet industry needs. The sheer complexity of dealing with the processes involved explains why the results of neoclassical economics and information economics on the one hand, and evolutionary economics on the other, fall short of a comprehensive theory that explains innovation and institutions that promote it.