Analyzing Policies for Encouraging Growth-Inducing Technological Change

In a series of articles, starting with "A Structuralist View of Innovation Policy,  R. G. Lipsey and K. Carlaw), in The Implications of Knowledge Based Growth, Peter Howitt. (ed.), (Calgary: University of Calgary Press) 1996) I have argued, often with my co-author Kenneth Carlaw, and following in the footsteps of John Rae and Joseph Schumpeter among others, that the existence of endogenous technological change operating at the micro economic level under conditions of genuine uncertainty makes irrelevant the concept of a non-distorting policy intervention. There are no optimal policies established by pure economic theory.

Instead all economic policy must depend on a mix of theory, empirical knowledge of specific cases and a large dose of judgment.This view has been challenged by Ng whose 'Theory of Third Best' purports to establish some general non-context specific rules for policy. I have met, and I hope refuted Ng's challenge in a recent symposium on Second & Thirds Best Theroy in The Pacific Economic Review, May 2017.

From the tariff policies of the now-developed nations in their early stages of development to the experience of the Asian Tigers, empirical evidence shows that judicious governmental intervention can create major new pockets of comparative advantage. Thus the often heard adage that governments cannot pick winners is refuted by countless examples where they have done just that. But the empirical evidence of the many failures in such attempts show that success is not easy to come by. This varied experience shows that the relevant issue is not to argue in the abstract about the possibility of government success but to try to isolate the conditions that will increase the chances of success and reduce the chances of failure of specific programs.

To this end Kenneth Carlaw (as principal investigator and myself as consultant) are conducting a major study of some of the most important technological innovations over the last 150 years. We are studying public sector assistance to those innovations asking questions such as:

  • At what stage of development did the public sector assistance occur?
  • What type of public assistance was it?
  • How successful (or unsuccessful) was the assistance?
  • What might have happened without the assistance?


In a series of publications of which those listed below are illustrations, my co-authors and I have documented some of the many successes as well as the many failures of government policies directed at encouraging technological advance and attempted to generalize from these case studies the conditions tending to favor success or failure.

  • "Globalization and National Government Policies: An Economists View", in Governments, Globalization, and International Business, John Dunning (ed.), (Oxford: Oxford University Press) 1997.
  • "Technology Policies in Neoclassical and Structuralist-Evolutionary Models", (with Ken Carlaw), OECD Science, Technology and Industry Review, Special Issue, 1998.
  • “New Growth Theories and Economic Policy for the Knowledge Economy”, in Transition to the Knowledge Society: Policies and Strategies for Individual Participation and Learning, Kjell Rubenson and Hans G. Schuetze (eds), (Vancouver BC: University of British Columbia Press), 2000.
  • “Some Implications of Endogenous Technological Change for Technology Policies in Developing Countries”, in the Economics of Innovation and New Technology (EINT), 2002.
  • "Science and Technology Policies in Asia Pacific Countries: Challenges and Opportunities for Canada", (with Russel M. Wills) in The Asia-Pacific Region in the Global Economy: A Canadian Perspective, Richard Harris (ed.), (Calgary:University of Calgary Press) 1996.
  • Structural Assessment of Technology Policies: Taking Schumpeter Seriously on Policy, (with Ken Carlaw), (Ottawa: Industry Canada) October, 1998.
  • Economic Transformations: General Purpose Technologies and Long-Term Economic Growth, (with Kenneth Carlaw and Clifford Bekar) (Oxford: Oxford University Press) 2005, Chapters 16 and 17.