Getting the Netherlands on a different growth path: a plea for more effective innovation

If you look at the economic growth chart of the Netherlands, you will see an almost continuous upward trend since the ending of World War II. This growth in prosperity has also significantly increased the level of well-being. But, that is just one part of the story. It is evident that our country is currently reaching its limits of growth. The unprecedented economic growth was accompanied by an increasingly intensive use of natural resources and available space. In addition, many economic activities led to higher CO2 emissions and problems with the quality of air, water, and soil. All this causes a great deal of pressure on general well-being.

Time for change

“We cannot go on like this. Considering the societal challenges we are dealing with, we cannot avoid changing our current way of producing, consuming, and innovating. It is time to break the trend line with a government thoughtfully driving transitions and transformations, implementing the necessary system changes to lead the Netherlands to a different growth path,” emphasizes Amber Geurts, a researcher and consultant at TNO Vector specialized in innovation and transition sciences. Recently, she co-authored a whitepaper focusing on what innovation policy will actually take the Netherlands forward. Spoiler alert: the current mission-based innovation policy will make it difficult to get on a different growth path that leads to a sustainable and future-proof society and economy. Geurts states, “Transformative innovation policy: that is what we need now.”

Focus on broad prosperity and intervene in transition failure

“Change is always difficult, especially when it involves things that many people have nearly come to take for granted,” she continues. “But, in order to steer our country onto a different growth path, we must sail a different direction. This requires profound socio-technical system changes ensuring new, sustainable products, processes, and services that will contribute to broad prosperity. The major challenge is to secure our future earning capacity and additionally, apart from the more familiar economic aspects, focus on social and sustainable aspects. To reach the different growth path, innovation policies must revolve around these three axes. It helps if the government explicitly focuses on developments that contribute to broad prosperity and intervenes in case transitioning fails.”

How is it, though, that many transitions and transformations do not seem to get up to speed? “When addressing complex societal challenges, you will often find elements within the existing system that maintain an unfavourable situation or even make it worse,” explains Geurts. “Therefore, going forward with transitions and transformations, you need to focus on what you will no longer do. However, stopping activities that block the preferred development may have far-reaching consequences that not everyone will be happy with. Consequently, their resistance may further frustrate the transition progress or transformation. Thus, in those kind of situations it is important to intervene and to prevent transition failure. There are many more causes of transition failures, but people’s tendency to cling to the familiar remains the biggest challenge in driving transitions and transformations. We should not just focus on the new, but also dare to let go of the old and established: this is one of the most important conclusions we have drawn during the past years based on our experience with innovation policies for societal challenges.”

Appropriate course of action

The government can play a significant role in driving transitions and transformations by making the right policy choices in science, technology, and innovation at the right time. However, transitions and transformations are complex and usually proceed irregularly. So, when is a government intervention justified? To provide more clarity on this, Geurts and her colleagues created an overview showing several forms of transition failures, the impasse they cause and what transition tasks may help to get things moving again. This is precisely the information needed to come to an appropriate course of action in the event of transition failures.

Joint actions

Every phase of transitions and transformations requires a different approach, which means the role of the government must be well-aligned. However, this certainly does not mean that only the government should step up. Many parties are involved and they should all contribute. Ideally, the government should only need to steer minimally. But when a transition actually fails, the government must take appropriate action to break the impasse.

So much for the theory. But how does this align with daily practice? “You often see that the government wants to achieve a maximum possible effect with as few resources as possible,” says Marcel de Heide, an economist at TNO Vector who researches innovation policy. “This is fine if you have enough time, but the current transitions are rather urgent. The government should therefore focus much more on the effectiveness of certain measures. Yes, driving transitions costs a lot of money, but if you make the wrong decisions based on financial efficiency, you may lose precious time. And time is running out. Instead of endlessly discussing budgets, they should focus on ways to drive necessary transitions as effective as possible. Therefore, TNO would love to see the government drastically change their approach to transition.

Beware of short-term solutions

Many societal challenges have become so pressing that there is an increasing call for solutions. Consequently, the government feels the urge to act quickly. However, in some cases this might be misleading. Geurts explains, “It is tempting to opt for quick fixes, focusing on the short term without delving deeply into the underlying causes of a problem. But this will often postpone the issue. It is important, even in crisis situations, to think about the long term and to come to well-considered structural solutions.”

A breather is not enough

“Look at the plan for energy poverty,” Geurts cites as an example. “The government introduced a short-term solution in the form of energy compensation, but this only created a temporary relief. If nothing else changes, the problem is likely to return over time. In this regard, the government often remains too much in the classic role of market regulator. But transitions are not about market failure; they are about transition failure. And as mentioned before, this requires a completely different approach, in which the government can play multiple roles.”

What role fits best at which moment? “That entirely depends on the transition phase,” Geurts explains. “For instance, the government can create policies that encourage companies to offer certain products or services, or policies that help stimulate demand for certain products or services. This is already happening in some areas. The National Plan for Biobased Building is a good example. This incentive program focuses not only on farmers on the supply side but also on constructors on the demand side. It is an experiment, but TNO thinks it as quite a positive development, and we are curious about the results it will yield. More initiatives like this would be very welcome.”

Transformative government

In short, it is time to thoroughly examine old thought patterns, habits, and investments to see if things can be done differently. And not just once, but continuously. This is much to ask from the government. It requires a transformative government. “You cannot stop innovation,” De Heide concludes. “But by means of legislation and incentive policies, the government is able to ensure that innovations better align with a different growth path that will truly advance the Netherlands both economically and socially.”