Enhancing an economy's innovative strength – a crusade on several fronts

The possibilities of strengthening an industrial location through technological policy are by no means slight. However, the state should not overestimate its influence. The widespread notion that technological policy is a justification in itself because it unleashes positive growth effects has not been unequivocally corroborated by facts. Adequate background conditions for the innovation process must also exist. This is where the state's crucial tasks lie.                 

The greatest weakness of the German innovation system is the education system which, measured on an international scale, does not produce enough highly-qualified labor. Even if education policy should be given top priority in the area of state promotion of innovation, a strategy which does not merely focus on the weak still appears to be of significance. A glance at countries that are strong on innovation reveals that fuelling an economy's innovative strength is comparable to a "multi-disciplined event". For this reason, efforts are required on all "fronts" to bring Germany up to the top of the international league. The following measures play a central role here:

·Countering the shortage of skilled labor. A danger exists that the shortage of skilled labor could curb economic growth in Germany. To limit the threat of growth losses, the state must begin by stimulating investment in human capital through a broad-based education offensive. An active migration policy is also necessary in order to attract the immigration of skilled labor. Attracting more women to take up gainful employment and making greater use of older manpower could additionally temper the shortage of qualified personnel. 

·Intensifying research and development via tax subsidies. Tax subsidization of company R&D expenses creates strong stimulus for more intensive R&D activities. 

·Improving the funding of innovations. As small and fledgling companies from the hightech area contribute considerably to technological change, innovation policy should specially center on this group of companies. They are at a disadvantage compared to large-scale companies when they need to raise venture capital. For this reason the state's future task should also be to lessen these disadvantages through suitable instruments.

·Accelerating the spread of new technologies. Innovation is not the only force powering technological progress. Productivity gains are also achieved by spreading new technologies. For this reason, government technology policy should endeavor to accelerate the spread of new technologies.

·Strengthening the ties between the innovation players. In line with the concept of the innovation system, the better an economy is networked, the more innovative it is. One means of intensifying the networking between the players in the innovation system could be by the state gearing its subsidy policy more closely to promoting cooperation between science and the economy (research premium). However, concentrating promotion on clusters rather than on a widespread area signals greater success prospects. The state should therefore further the creation of innovation-strong centers by introducing appropriate measures.

·Structuring economic policy so that it is innovation-friendly. Innovation policy is more than just research and technology policy. Other political areas, such as education and competition policy, the institutional conditions prevailing on labor and product markets and the background conditions for company foundations also have a key influence on an economy's technological efficiency. The ability of regulative background conditions to foster competition and innovation is therefore of major importance. 

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