ABSTRACT
Investment in the creation of knowledge-based assets through innovation and a high level of R&D spending generates both academic and political support because it is viewed as a significant element in maintaining relative corporate and national competitiveness, often summarized as closing the ‘innovation gap’. Government policy documents and the academic literature identify the potential of the creative and innovative sectors to transform economic growth and national competitiveness (Barney, 1991; DCMS, 1998, 2001; Lazonick and O’Sullivan, 2000; Lazonick, 2008; Mazzucato and Dosi, 2006; Prahalad and Hamel, 1990). The general argument is that investment in innovation can strengthen corporate financial performance and transform industry and national economic competitiveness. Investment in knowledge development and commitment to high levels of R&D spending is key to maintaining competitiveness and closing the ‘innovation gap’.
In terms of private R&D, pharmaceutical companies in the United States also invest more resources than EU companies. Proportionally, companies based in the United States invest almost twice as much in R&D as their European counterparts. As a result, these high-technology enterprises can benefit both from their own higher R&D investments and the higher public R&D investments that generate a broader knowledge base from which they can capitalise and develop new innovative products and processes.
(European Commission, 2011: 422) In the USA an International Trade Commission report issued in 1999 observed that:As we enter the twenty-first century, the US pharmaceutical industry appears to be in a strong competitive position. Over half of the top 10 pharmaceutical companies of 1997 … are headquartered in the United States, which indicates that US firms are highly competitive with foreign companies. Additionally, NCE [new chemical entities] approvals are on the rise in the United States … pointing to a regulatory environment that is particularly conducive to innovation.
(US International Trade Commission, 1999) A more critically reflective literature is concerned with how the demands of the capital market are modifying strategic priorities and corporate governance in an era of shareholder value where management and shareholder interests align (Froud et al., 2002; Andersson et al., 2007b; Lazonick, 2008). This literature exposes tensions and contradictions between the ‘expectation’ that innovation can transform corporate, industry and national economic performance and ‘outcomes’ that tend to be more disappointing. Lazonick (2008) argues that in a financialized economy the priorities of the capital market hold sway over the productive, because firms are encouraged to maximize their returns to shareholders rather than reinvest in innovative new product for the future financial health of their firms and the US corporate sector. Froud et al. (2006) are concerned with how, in a financialized economy, the role of management becomes that of structuring narratives that flatter the outcomes of research and development and corporate performance to maintain the confidence of analysts who, in turn, influence market valuations of firms on the stock market.