Generating a productivity return from innovation investment is not always about more money – it can be a matter of who you know and what you know about what they know.

When he is not working on ways block chains will reduce regulatory impositions RMIT economist Jason Potts is explaining why innovation can be a productivity placebo. In a new paper Professor Potts, with Spanish colleagues Isabel Almudi, Francisco Fatas-Villafranca, Carlos Fernandez and Francisco Vazquez, considers why innovation does not necessarily generate productivity. Potts and colleagues, including Stuart Thomas from RMIT, also addressed this last year in a study of Australian windsurfing in the ‘80s, which found the technology innovated until it exceeded consumers’ capacity.

The new paper models this problem, of “unbalanced inter-sectoral knowledge,” where new technologies are not picked up because the market is invested in existing methods to find; “it’s not necessarily best to have the smart people and innovative capabilities all working upstream. This will tend to cause overshooting, which will then backpropagate to collapse the upstream sector.”

Ways to help industry sectors talk to each other sounds like a lot of work for policy makers, but it would make change from just spraying cash through programmes like the Research and Development Tax Incentive. In essence, there is a role for innovation policy to align innovation and absorptive capacity across different sectors of the economy.

This sounds like bad news for the innovation lobby that says Australia cannot compete without tax breaks for innovators – but there is not much point in transformative technologies if the workforce can’t use them. On the other hand, it is great for the training sector, be it in higher education or VET. Whizbang technology is not much use without people to build the products and apply the services innovators invent.