This document discusses inclusive innovation and the challenges of current innovation policy. It argues that innovation and productivity vary widely between industries, firm sizes, and localities, and these disparities seem to be growing. Current centralised innovation policy may be exacerbating these disparities by primarily supporting the most innovative firms. The document proposes introducing distribution sensitive innovation policies to promote innovation among less productive firms and sectors through measures like supporting R&D in traditional industries, innovation in peripheral areas, STEM training for disadvantaged groups, and technologies to promote inclusion. It also stresses the importance of knowledge diffusion and absorptive capacity.

1. Inclusive innovation – policy
challenges and potentials
Prof Stephen Roper
Stephen.roper@wbs.ac.uk

2. ERC – the background
• Established Jan 2013 with a mission to deepen our understanding
of ‘what drives SME innovation, productivity and growth’.
• ERC is a UK hub for SME Research with a strong team of c. 20
researchers (pt/ft) drawn from 6 University business schools
(Warwick, Aston, Imperial, Birmingham, Queen’s Belfast and
Strathclyde) and led by Stephen Roper, Mark Hart and Vicki Belt.
• Funding is from ESRC, BEIS, Innovate UK and the British Business
Bank. ESRC backing is key for independence and academic quality.
Government funders ensure ERC research is strongly policy/practice
focussed. Impact and engagement agenda is paramount
• ERC operates as a ‘virtual centre’ with researchers concentrated in
Aston and Warwick and a ‘flying faculty’ model .
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3. Inclusive Innovation
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4. Two interpretations of ‘Inclusive
innovation’ can be…
• 1. Inclusive innovation is ‘innovation to promote social and economic inclusivity’
– Key focus here is on innovation which promotes social and economic inclusion for
disadvantaged groups or marginalised communities
– This can have both social and productivity benefits
– In development economics this is the most common interpretation of ‘inclusive
innovation’
• 2. Inclusive innovation is ‘innovation to promote broadly-based productivity
improvement’
– Here the focus is on innovation to promote performance improvements among less
productive firms or sectors
– This involves adoption or diffusion of innovations (not new to the market
innovations)
• ‘… the principal force for convergence – the diffusion of knowledge – is only
partly natural and spontaneous. It also depends in large part on educational
policies, access to training and to the acquisition of appropriate skills, and
associated institutions’ (Piketty, 2014, p. 22).
• I will deal with both aspects here
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5. So my agenda …
• Start by noting that productivity and innovation vary
widely by industry, firm size and locality. And, these
disparities seem to be growing
• Current innovation policy may be increasing these
disparities. And, recent changes in policy may have
exaggerated this effect. Is this what we want? (It may
be!)
• Is there another approach? Introducing distribution
sensitive innovation policies
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6. The challenge…. significant and growing
disparities
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7. Internationalisation can drive
innovation in frontier firms…..
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Source: ‘The Future of Productivity’, OECD, 2015, Figure 2.2 analysis based
on Orbis data

8. And micro-firms are losing
ground in productivity terms…
All sectors Manufacturing
8
Source: Author’s calculations from OECD Structural Business Statistics, 20 OECD
countries, forthcoming OECD.

9. • The proportion of firms
introducing new or improved
products or services (can be
new to the firm)
• In this data (UK Innovation
Survey 2013) our analysis
suggests 27% of innovating
firms in Oxford LEP, 12% in
Y&H
• Implications for future
productivity and growth?
27%
12%
And spatially we have issues too …

10. The influence of current policy …
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11. We all know about the long tail
of productivity…..
Productivity
Proportion
of firms
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12. And I guess we might agree that
innovation intensity and export intensity
are higher where productivity is higher…
Innovation intensity
Export intensity
Low
Low
High
High
Productivity
Proportion
of firms
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13. So where does Innovate UK support
impact?
Innovation intensity
Export intensity
Low
Low
High
High
Productivity
Proportion
of firms
Innovate UK grants
5 % of firms
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14. And R&D tax credits….
Innovation intensity
Export intensity
Low
Low
High
High
Productivity
Proportion
of firms
R&D tax credits
15-20% of firms
Innovate UK grants
5 % of firms
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15. Both measures may ‘stretch’ the
productivity distribution to the right
increasing disparities …
Innovation intensity
Export intensity
Low
Low
High
High
Productivity
Proportion
of firms
R&D tax credits
15-20% of firms
Innovate UK grants
5 % of firms
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16. And, centralised rather than local
policy may make this worse….
• To illustrate:
– Imagine 50 per cent of firms are in the ‘North’ and 50 per cent are in the
‘South’
– But also imagine that the 10 per cent of strongest firms are all in the ‘South’
• National challenges/competitions mean all of the support going to the
best companies in the ‘South’ boosting their innovation and productivity
and increasing N-S disparities
• Regional allocation (based on a 50/50 split) -> supports the best
companies in the ‘North’ and ‘South’ with the potential to offset N-S
disparities
• Is this what has happened since the RDAs were removed? Does localised
innovation policy have the potential to address this issue?
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17. What does more inclusive
innovation policy look like?
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18. Introducing DSIPs or Distribution
Sensitive Innovation Policies
(Zehavi and Breznitz, 2017)
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Supporting R&D in traditional (low-tech)
industries
• Measures to raise awareness of the benefits of
R&D, advisory support to develop proposals,
grant supports
• Additionality might be greater than in high-
tech sectors where R&D is a necessity
• Distributional and spatial equality benefits
Supporting innovation in peripheral
areas
• Incubation and inward investment can
(perhaps) be incentivised to locate in more
peripheral areas
• Public support may help to counter-act
agglomeration advantages
• Israel has found both expensive and hard to
sustain, however.
S&T policy targeted at disadvantaged
groups
• Targeted STEM training grants or recruitment
subsidies may help boost labour market
inclusion
• Locating incubators/accelerators in
marginalised communities may also promote
local entrepreneurship
Innovation for inclusion
• Public support may be offered for innovations
which create ‘enabling technologies’ for the
disabled or similar groups
• Markets may be small and public
procurement may stimulate innovation to
enable inclusion

19. And then there is the diffusion
challenge…..
• As the IS Green Paper (p. 15) makes clear:
‘we have often been slower than competitors to take up and deploy
existing technologies: for example, the UK makes less use of robotics and
automation than most other countries in Western Europe’.
• Promoting broader deployment of technologies such as robotics
would help to counter inequalities in competitiveness by raising
productivity levels among less productive UK firms.
• This comes back to absorptive capacity. Increasing ACAP probably
requires a suite of measures across a range of types of different
intervention and policy actions ….
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20. But there are some good examples
across the OECD…
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Source: OECD (forthcoming) ‘Increasing productivity in traditional small
enterprises: evidence and policy experience’, 2017.

21. Final remarks
• Innovation – and innovation policy – have the potential
to drive growth and productivity but also can also fuel
inequality.
• If we are serious about ‘growth for all’, embracing
DISPs may be one answer. Thinking seriously about
absorptive capacity and knowledge diffusion may also
be important.
• At the very least, we need to think about the potential
for unanticipated and unwelcome consequences which
may follow from any new innovation initiatives.
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22. Contact us:
• If you would like any more information about the ERC and any of its
activities please contact us: Stephen Roper (stephen.roper@wbs.ac.uk),
Mark Hart (mark.hart@aston.ac.uk) or Vicki Belt (vicki.belt@wbs.ac.uk).
More details about the activities of the ERC and our latest events can be
found at:
www.enterpriseresearch.ac.uk