Government has catalytic role to play in innovation

With innovation and entrepreneurship identified as the new drivers for China's economic growth, the question for the government is how it can best encourage and complement the energies of individuals and markets to achieve its vision of the nation's future.

For Paul Stein, former director of general science and technology at the defense ministry in the United Kingdom and since 2009 in charge of innovation at Rolls-Royce Holdings Plc as chief scientific officer, the role of the government in fostering innovation is a tricky one.

"When a government tries to interfere in the details of innovation it often goes horribly wrong, because the government ends up slowing things up with bureaucracy," Stein said.

This is not to say that the government does not have its unique functions, according to Stein. One key function is to reduce costs and obstacles that discourage entrepreneurial activity.

The Global Innovation Index 2014, which ranks 143 countries and is produced jointly by Cornell University, INSEAD (an international business school) and the World Intellectual Property Organization, ranked China 122nd in "ease of starting a business".

On this front, the Chinese government is aware and committed. Premier Li Keqiang said during a news conference at the closing of the annual session of the National People's Congress in March that the government will continue to provide favorable conditions such as easier registration, lower rent, seed capital and tax incentives to the nation's budding entrepreneurs.

Last year, about 800 administrative procedures were eliminated or delegated to local governments to encourage entrepreneurship, according to the State Administration of Industry and Commerce. This led to a surge of 10,500 new businesses being registered daily this year from about 7,000 in early 2014.

However, for Stein, the government's most important function is to act as a "convener" and a "catalyst" of innovation.

"To stimulate innovation and economy means bringing together innovation, academic research, capital, entrepreneurs and potential customers, and for the government to serve as the catalyst for that ... is the single biggest thing the government can do," said Stein.

The government has the capacity and reach to harness the human and financial capital necessary to spur innovation and match those assets with potential customers.

The government can also provide a legal foundation to help bring new technologies to market, said Stein.

An example is the British government's move to make innovative medicines and treatments available faster. It hopes to pass legislation that allows companies to get an earlier indication from regulators that approvals will fall into place if clinical trials are successful. At the same time, the government would keep the National Health Service in the loop with upcoming medicines.

Fast-track regulation and a greater likelihood of future customers would help draw investors to British medical research and drive the sector's innovation.

As China transitions to its new engines of growth, the government must play the crucial role of providing the necessary environment and infrastructure, and bringing those together with the protagonists of innovation. After that, it has to stand aside and let the seeds of innovation flourish.