The Economic and Political Consequences of European-Style Innovation Policy

Abstract:     
Our interest in writing this article is to create a bridge between the scholarly and academic research on technological innovation and a private sector, for-profit business model that implements the ideas on innovation and entrepreneurship, primarily in metro regional economies.

In its 2004 decision against Microsoft, the Commission of the European Communities, based its ruling on the term "interoperability." (Case COMP/C-3/37.792 Microsoft, Brussels, April 21, 2004). According to the legal analysis provided by Daniel F. Spulber, "The Commission's decision turns on the meaning of a single critical word: interoperability." (Competition Policy and the Incentive to Innovate: The Dynamic Effects of Microsoft v. Commission, Yale Journal on Regulation, Volume 25, Number 2, Summer 2008).

The economic logic under girding the decision is supportive of the European model of innovation, which is more communal, collaborative, and collectivist in its implementation than the current U. S. model of innovation. The U. S. model is more individualistic, and features rewards to innovation based upon individual appropriation of incomes and profits, especially those related to intellectual property rights.

The logic of the European Commission' decision, in the short term, makes good economic and political sense. European-style innovation tends to preserve the economic status quo economic equilibrium at low levels of economic growth. Sustaining innovation does not overturn equilibrium and the main beneficiaries of sustaining innovation in Europe are the very large global corporations who engage in most of the sustaining innovation.

The European Commission decision in the Microsoft case shows one interpretation of promoting the sovereign economic interest. The Commission intends to protect European citizens through a mandate that leads to Mueller's Ratchet of Economic Decline.

Applied world-wide, forcing disclosure of private technology in the European approach to innovation leads to global economic collapse and global political rent-seeking. This is the ultimate economic and political consequence of European-style innovation policy.

Number of Pages in PDF File: 10

Keywords: Microsoft, European Commission, radical innovation, sustaining innovation, new market emergence, Nash equilibrium, Mueller's Ratchet

JEL Classification: L16, M13, O16, O31, O32, O33, O34, O38, R58

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