I have often found the concept of social innovation to be ‘fuzzy’ and confusing, largely because of the different ways in which it is used by different people. A couple of weeks ago I participated in a panel discussion on this issue as part of Deusto University’s UNESCO programme, which provided an interesting opportunity to reflect further on what innovation means for socioeconomic competitiveness.
Innovation itself is no stranger as a concept. It is central to analysis of territorial competitiveness, being a key driver of firm-level productivity. As such, orthodox analysis highlights innovation as critical for territorial competitiveness because the firms located in a given territory compete with the firms in other territories essentially in three ways:
- Finding cheaper inputs with which to produce their goods and services
- Finding better techniques that enable cheaper production of their goods and services
- Finding new goods and services to produce that better meet an existing market need or develop new markets
The first of these is increasingly difficult, particularly in economies where wage levels are relatively high and/or where there is widespread concern for (and regulations protecting) the natural environment. That leaves options two and three, which require firms to innovate in what they do and/or how they do it.
Put like this, the relevance of business innovation for territorial competitiveness is relatively straightforward, but there is something important missing. While a market-centred concept of innovation is highly relevant for economic conceptions of competitiveness, it does not meet all of our needs as a society, and is therefore flawed if we are interested in a broader concept of socioeconomic competitiveness. Indeed, there are many areas of life where innovation has great potential to bring benefits in wellbeing, but where markets do not work well in providing the right incentives. We can think, for example, of the development of breakthrough drugs for diseases prevalent in parts of the world where incomes are not high enough to provide an attractive market reward (e.g. malaria), or of environmental problems that are ‘shared’ so that the ability to ‘free-ride’ undermines potential market rewards from innovative solutions.
As a response, social innovation has become an important concept. However, not only is it used to refer to innovation that responds to societal challenges (the aim of innovation), but also to innovation in relationships and social processes (the means of innovation). In fact, these different conceptions of social innovation overlap with one another and also with the more standard market-focused concept of innovation. For example, innovations in social relationships are frequently important drivers of both innovations that respond to societal challenges and innovations that respond to market opportunities. Moreover, market-driven innovation at firm level can clearly contribute to key parts of solving societal challenges.
So we have two distinct concepts of social innovation (the blue and green circles) that are overlapping, and both of these also overlap with more orthodox market conceptions of innovation (the red circle). It seems that we may therefore be causing confusion, both by giving the label social innovation to two different things (aims and means) and by treating them both as separate to standard concepts of economic innovation.
I would argue, rather, that when it comes to understanding territorial competitiveness and the policies that support it, it is difficult and undesirable to separate out these concepts. The social and the economic aspects of life are intrinsically intertwined such that any action or policy desgned to have economic impacts will also inevitably have social impacts, and vice versa. Thus just as it makes sense to talk of socioeconomic competitiveness as one holistic process, it makes sense too to talk of socioeconomic innovation. We might define it simply as innovation that meets the intertwined social and economic needs of society.
There are corresponding policy implications from this analysis. Orthodox policy towards innovation seeks to support firm-level innovation in search of market opportunities, with the danger of neglecting societally-important innovations that are not well captured by (imperfect) market processes. A standard response in many places has been to ‘add’ policies to support social innovation so as to bridge this gap. Yet this misses the synergies that exist between social and economic processes.
What is needed are ‘joined-up’ policies that promote innovation processes that are both social and economic, and that underpin a competitiveness that responds to the socioeconomic needs of society. To understand what these policies might look like in practice we need to be more open-minded in our understanding of the firm and its goals, and to move towards forms of corporate governance that integrate a broader range of societal interests in decision-making around innovation.