Challenge-Driven Innovation Policy: Towards a New Policy Toolkit

Policy makers are increasingly embracing the idea of using industrial and innovation policy to tackle the 'grand challenges' facing modern societies. This article argues that through well-defined goals, or more specifically 'missions', that are focused on solving important societal challenges, policymakers have the opportunity to determine the direction of growth by making strategic investments across many different sectors and nurturing new industrial landscapes, which the private sector can develop further, and as a result induce cross-sectoral learning and increase macroeconomic stability. This 'mission-oriented' approach to industrial policy is not about 'top down' planning by an overbearing state; it is about providing a direction for growth and increasing business expectations about future growth areas and catalysing activity that otherwise would not happen. It is not about de-risking and levelling the playing field, nor about supporting more competitive sectors over less since the market does not always 'know best' but tilting the playing field in the direction of the desired societal goals, such as the sustainable development goals. To achieve this requires a different policy framework, what we call the 'ROAR' framework, which involves strategic thinking about the desired direction of travel (Routes), the structure and capacity of public sector Organisations, the way in which policy is Assessed and the incentive structure for both private and public sectors (Risks and Rewards). The article argues that if we want to take grand challenges such as the SDGs seriously as policy goals, market shaping should become the over-arching approach followed in various policy fields.