In previous posts I have pointed at the unsustainable paradigm in which our economy resides and mentioned why public policy is a necessity as well as mentioned why entrepreneurship is a force for change. As the concepts of sustainability and entrepreneurship have been connected we can move on to the importance and impact of public policy as an institution.
Wijkman & Rockström (2012; 123) refer to the Nobel Laureate on Global Sustainability when stating that “Markets and entrepreneurship will be prime drivers of decision making and economic change, but must be complemented by policy frameworks that promote a new industrial metabolism and resource use.”
In the context of the diffusion of renewable energy technology, Jacobsson & Bergek (2004) argue that public policy has been the main driver for diffusion. Through actions such as R&D funding, investment subsidies and legislative changes there has been a creation of a renewable energy technology market. The formation of a market has further re-enforced the creation of new knowledge through the market entry of firms which in turn leads to the development of market segments and new knowledge (Jacobsson & Bergek, 2004).
Historically institutions such as the state have had large impact on the development of countries. In Sweden the state ordered technology for the development of the telephone and electricity networks and even drove the development of the railway system (Sjögren, 2008). These actions were co-created with private actors and thus created incentives for entrepreneurs to drive development in certain directions. Thus it can be concluded that public policy, as part of the business system of a nation (Fellman et al., 2008), can support sustainable innovation and consequently stimulate major transformations. Again this can be done through incentivizing the creation of new knowledge, guide the search direction in terms of technical and non-technical innovation through legislation and subsidies as well as create markets for sustainable innovations (Jacobsson & Bergek, 2004).
Striking a balance
Market forces need guiding through public policies however since the latter are not inherently a force for sustainability. Public policy needs to strike a balance where they do not become too intrusive and thus create unintended effects. Desrochers (2010) highlights some examples where well intended regulations do not lead to sustainability. In Hungary an ambitious program for the reuse of industrial waste was created and waste was also an issue where the population was intended to innovate. The program failed however due to several reasons but notably the program created incentives for companies to produce more waste due to the waste quotas.
Another example of non sustainable public policy can be found in American regulations which allowed rivers to be used as dumps for industrial waste thus turning them into “industrial streams” (Desrochers, 2010). Further if regulations become too specific in terms of focusing on the use of a specific technology they become restrictive to the possibilities of better alternatives and thus impede innovation. Jacobsson & Bergek (2004) contrast the Swedish and the German approach to fostering knowledge creation within wind turbines. In Sweden, governmental money was channeled into mainly large wind turbines whereas in Germany the government created incentives for a broad knowledge creation within the field. Subsequently Germany managed to create an internal market with a variety of actors and technology where Sweden failed in doing so.
Desrochers, P., 2010. The environmental responsibility of business is to increase its profits (by creating value within the bounds of private
property rights). Industrial and Corporate Change 19, 161–204.
Fellman, S., Sjögren, H., 2008. Conclusion. In Fellman, S. et al. (eds.). Creating Nordic Capitalism: The Business History of a Competitive
Jacobsson, S., Bergek, A., 2004. Transforming the energy sector: the evolution of technological systems in renewable energy technology.
Industrial and Corporate Change 13, 815–849.
Sjögren, H., 2008. Welfare Capitalism. Swedish Economy 1850‐2005. In Fellman, S. et al. (eds.). Creating Nordic Capitalism:
Wijkman, A. & Rockström, J. (2012). Bankrupting nature: denying our planetary boundaries. (Revised edition.) London: Routledge.