Demand-side innovation policies

Readers of this blog will note that one of the re-occurring themes is the role of demand-side policies in promoting innovation. Such policy especially include regulations and government procurement. As I have noted before, government as a demanding customer can create the “thin opening wedge” — new products and services that have a specialized use. Once that specialized use is established, the product or service can be refined and adopted to a broader customer base. The demanding customer in fact becomes a co-creator. Likewise, as described in earlier postings, regulations can be a driver of innovation by creating demanding customers.

Back in 2006, the European Union started something called the Lead Market Initiative (LMI). The LMI identified 6 target markets (eHealth, Protective textiles, Sustainable construction, Recycling, Bio-based products and Renewable energies) where a combination of public policy instruments (regulation, public procurement, standardization and supporting activities) would be focused. Last year the evaluation of the program was published with a number of conclusions and recommendations. Three conclusions in particular stood out for me:

• A co-ordinated approach to the demand-side stimulation of innovation ought to continue to have an important place in innovation policy, while the links with supply-side measures should continue to be strengthened.
• The effective engagement with industry has been one of the successes of the LMI. There are many lessons to learn from the methods adopted, but perhaps the most important to develop would be the structured interaction between purchasers and suppliers, both within and beyond the public procurement framework.
• The promotion of end-user interaction with research – from the shaping of objectives to the detail of the work undertaken and its subsequent application – is a major advantage of the lead market approach, providing positive links between the demand-side and supply-side. This should be exploited further.

The initiative has been somewhat incorporated into the EU’s Innovation Union 2020 Initiative, especially using public procurement as a tool of innovation policy.

U.S. policy makers should take note of this work. I would especially refer to the link between supply-side (R&D) and demand-side (procurement) noted above. We need to have all our innovation policy tools engaged.