There has been interesting advice from the group of economic advisors (REA) to the Dutch parliament to solve the Dutch “growth dilemma”. In their analysis, they conclude that - in the past - growth and innovation have not been linked, but that regulation and anti-trust legislation apparently supported incumbent companies in the Netherlands. Therefore there is a need to support “challengers”, in REA speak small companies, foreign investors and highly qualified immigrants that should provide for innovation in industries, capital and labor markets. As the Netherlands has in the past been characterized by more imitation than innovation, this strategy is not anymore sufficient for country in close proximity to technology leaders. In other words, imitation is “out” and investment in R&D and education as well as an open climate for entrepreneurship based on diversity and challengers is “in”.
This advice has been the result of a discussion about “Backing Winners” vis-à-vis “Backing Challengers”. Starting in 2003 the begin of the discussion was marked by AWT* report on “Backing Winners” proposing that the specific strengths of the Dutch industrial structure should be fostered and companies that already have a strong (international) competitive position should be fostered. In contrast, the article “Innovation in the Netherlands: The Market Falters and the Government Fails” argued that more market competition will stimulate innovation and that breaking up of existing institutional arrangements, for example, in markets for technology or labor markets will increase innovation. The authors concluded that policy interventions to stimulate innovations in the Netherlands should not be driven by “backing winners”, but by the motivation to “back challengers”. All these arguments have been criticized on the basis on the basis that they do not take the specifics of particular industries into account. But that it is not the problem of “government failure” vis-à-vis “market failure” but a government not willing to follow European guidelines with respect to R&D investment (Lissabon strategy).
Some of this discussion can be found in the REA advice but there still in there is the idea of “Backing Challengers” which means effectively due to investing in “challengers”, innovation in the long term in “winners” will be sacrificed. This actually might open the way up for “government failure”…..
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* Advisory body for Science and Technology Policy in the Netherlands
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