Literature/202311281015 innovation led policies

• Source: [[literature/@mazzucato2018The entrepreneurial state: debunking public vs. private sector myths|@mazzucato2018The entrepreneurial state: debunking public vs. private sector myths]]
• Tags: #entrepreneurial-state #innovation

Solow modelled growth as a production function, where the output ($Y$) depends on the physical capital ($K$) and human labor ($L$):

$$Y = f(K, L)$$ However, it leave behind any changes in technologies, or technical changes. They can be introduced to the equation as follows:

$$ Y = A(t)\times f(K, L)$$ Therefore, keeping capital and labor constant, it is possible to increase output by improving the technologies available. This is what, eventually, lead to innovation-led growth policies.

Interesting, one of the most impactful activities the state can have to ensure innovation is the creation of knowledge networks to ensure its diffusion throughout the economy (state sponsored or not).

Both Germany and the US became power centers not just because of their R&D expenditures, but because they developed systems of innovation. The same is true for Japan, and is highly contrasting to the Soviet Union: although the latter was spending more of their GDP in research (4% versus 2.5%), it was highly focused to some areas, while Japan was using innovation transversely in their economy.

The role of the state is, therefore, not just to finance the basic research, but to mobilize resources that allow the diffusion of knowledge across sectors of the economy.