Promoting innovation in the European Union

Abstract

Evaluation of the EU’s economic performance is often couched in shortterm analyses. However, innovation and knowledge are strongly linked to long-term growth. Therefore, this paper takes a broader, big-picture approach and explores knowledge creation in a long-run context. A discussion of innovation is provided that includes the basic concepts, characteristics, and dynamics of innovation, as well as a discussion of systems of innovation and several policy concerns regarding innovation. The benefits of a competition structure for innovation will be demonstrated by building on well-known economic growth theories, particularly Schumpeter’s theory of creative destruction and radical innovation, as well as Hayek’s theory of discovery. The rationale and justification of an industrial policy structure (i.e., market intervention) will also be presented. A short analysis of the EU Lisbon Strategy is provided, as well as a short discussion of the effects of a rigid industrial policy that may hinder innovative efforts. Finally, a short examination of innovation in the European automotive industry is provided.