ABSTRACT
It is Innovation that makes it possible to produce more products and services from less material and at less cost, and thus holds the key for economic development (excerpts of this chapter have been drawn from the author’s work, “Green Energy: Technology, Economics and Policy’’, 2010, chap. 17). Technology development goes hand in hand with the innovation process. The
framework conditions necessary for the successful prosecution of the innovation are macroeconomic stability, education and skills development, favourable business climate, protection of Intellectual Property (IP) rights, etc. Innovation process is not necessarily linear, and may not proceed smoothly – there can be many impediments enroute. RD&D is only part of the Innovation scheme – it needs to be adapted depending upon the feedback from the markets and technology users. Innovation Chain has five phases: Basic Research→Research and Development→
Demonstration→Deployment→Commercialisation (diffusion). The schematic working of the Innovation System is depicted in Fig. 1.5.1. Governments and private sector have roles to play in all the five phases of the
Innovation Chain (Figs. 1.5.2 and 1.5.3). Generally, governments are expected to play a greater role in the early part of the chain (such as, basic science), though some large industrial houses (such as, SONY, GE) have extensive basic research programmes. Down the line, private sector alone would be involved in the last phase, i.e. commercialization. Roles overlap in the case of Applied R&D, Demonstration and Deployment. Sometimes there may be difficult technical problems that markets fail to address. Through specifying technology standards and participation in full-scale “in the field’’ demonstration projects, governments may induce private companies to achieve higher technological performance. Governments could play an effective role in the progress of the innovation chain in
three ways: (i) direct funding of basic research in universities and national laboratories,
(ii) granting protection under IP rights, to enable the innovators to make money from their findings, and (iii) market measures that can indirectly stimulate private sector investment. While it is generally agreed that the present level of RD&D funding is inadequate,
estimates of what constitutes the “right level’’ of funding, varies widely, from two
to ten times the present level. Stern et al. (2006) recommended the doubling of the present level of funding. Anderson (2006) suggests that the necessary investment may be estimated as the difference between the average incremental costs of investment in new technologies and that of mature technologies. Innovation becomes progressively more expensive, as wemove along the chain, from
basic research to demonstration. RD&D costs are much lower than deployment costs. Also, synergies need to be explored whereby publicly funded RD&D can stimulate privately funded RD&D. By its very nature, innovation is a risky business. There is no guarantee that greater
level of RD&D spending will automatically lead to higher success rates in the commercialization of technologies. Some RD&D projects may yield “above-cost’’ returns, while some may not give any returns. Under the circumstances, a practical approach will be to develop a portfolio of projects in order to hedge risks. Basic research and applied R & D should proceed in tandem, feeding each other. Many projects do not survive the transition from the publicly-funded demonstration
to commercial viability. Murphy and Edwards (2003) call it a “Valley of Death’’. At this point, the investment costs and risks are very high. Neither the public sector nor the private sector considers it their duty to fund this phase. Neither “technologypush’’ nor the “market-pull’’ may be sufficiently powerful to smoothen the transition.
Many technologies need long lead times to come to fruition, and may require extensive applied research and testing, before an invention gets commercialized. There are a number of ways in which governments could help in navigating
the “Valley of Death’’: Economic incentives like tax credits, production subsidies, and guaranteed procurement, and knowledge incentives, such as, codification and diffusion of generated technical knowledge. Public-private research consortia can play a valuable role in technology transfer and commercialization. In some countries, technology parks are established to facilitate technology transfer. In these parks, governments give support to individuals or groups of scientists and technologists to perform basic research and applied R&D. When something viable emerges from this effort, the same group is helped to commercialize the invention. Governments can also create demand to new technologies through the promulgation of regulatory requirements. This would induce the supply side to respond to new regulations. Sometimes, the same RD&D activities are performed simultaneously in different
countries. This redundancy can be avoided by the countries pooling their RD&D budgets to perform pre-competitive research that will benefit all. Individual industry players can then draw on this common pool of R&D knowledge to build their own enterprises. Such a process strengthens technology development – for instance, the technology strengths of an industrialized country can be combined with the lower manufacturing costs in a developing country. A private sector investment in RD&D is constrained by the followingmarket realities
(Stiglitz and Wallsten, 1999):
