Overcoming transformational failures through policy mixes in the dynamics of technological innovation systems

Abstract

The need for challenge-led innovation policies to address grand societal challenges is increasingly recognised at various policy levels. This raises questions how to overcome a variety of ‘failures’ prohibiting innovations to flourish. A key-line of thought in theory and policy emerged since the late 1990s on the role of system failures, next to more conventional market-failure thinking. More recently, scholarly work introduced the notion of ‘transformational failures’, which implies an even broader perspective on innovation failures as resting in challenges related to transforming entire systems of production and consumption. This paper combines the literature on Technological Innovation Systems (TIS) with literature on multi-level approaches to sustainability transitions to make a contribution to this debate. In particular, this paper argues that the current literature, so far, has failed to explore how different kinds of policies, or policy mixes, can overcome transformational failures. The paper uses a simulation model (i.e. a system dynamics model) and illustrative examples on electric vehicles to explore relations between transformational failures and (mixes of) policy interventions. A key conclusion is that, in particular in the case where an emerging TIS is in a competitive relation with an incumbent system, overcoming transformational failures can be realised either by directly addressing the incumbent system, for instance by taking away its resources (which may be political challenging). Alternatively, the model results show that a clever mix of policy interventions elsewhere in the system may lead to sufficient performance improvements of the emerging TIS so that it can challenge the incumbent system on its own – albeit with a need for substantial additional resources.