The state has a strong entrepreneurship role, spurs greater innovation

Despite the perception of the US as the epitome of private sector-led wealth creation, in reality it is the State that has been engaged on a massive scale in entrepreneurial risk taking to spur innovation. In this chapter four key successful examples are given: the roles of DARPA (the US government's Defense Advanced Research Project Agency), SBIR (Small Business Innovation Research), the Orphan Drug Act (the EU passed its own Orphan Drug Act in 2001, imitating the US act passed in 1983) and the National Nanotechnology Initiative. What they share is a proactive approach by the State to shape a market in order to drive innovation. The insight gained is that other than being an entrepreneurial society, a place where it is culturally natural to start and grow a business, the US is also a place where the State plays an entrepreneurial role, by making investments in radical new areas. The State has provided early-stage finance where venture capital ran away, while also commissioning high-level innovative private sector activity that would not have happened without public policy goals backing a strategy and vision.

So far I have argued that while the level of technological innovation is integral to the rate of economic growth, there is no linear relationship among R&D spending, the size of companies, the number of patents and the level of innovation in an economy. What does seem to be clear, however, is that a necessary precursor for innovation to occur is to have a highly networked economy, with continuous feedback loops established between different individuals and organizations to enable knowledge to be shared and its boundaries to be pushed back. This chapter attempts to illustrate that at the frontiers of knowledge, simply having a national system of innovation is not enough. Over time, more impressive results can be achieved when the State is a major player operating within this system. This role does not necessarily have to take place at a national level (although it can) and should not only involve long-term subsidies to certain companies ('picking winners'). Rather the State, through its various agencies and laboratories, has the potential to disseminate new ideas rapidly. It can also be nimble, using its procurement, commissioning and regulatory functions to shape markets and drive technological advance. In this way it acts as a catalyst for change, the spark that lights the fire.