Public Management, Policy Capacity and Innovation

In this paper we discuss the question of what factors in development policy create specific forms of policy capacityand under what circumstances development-oriented complementarities or mismatches between the public and private sectors emerge. We develop the notion of policy capacity into a concept that reflects the variety of modes of making policy that originate from co-evolutionary processes between political and policy ideas, public management and private-sector dynamism. We argue that the interactions between these factors are reflected in three interlinked policy choices, each fundamentally evolutionary in nature: policy choices on understanding the nature and sources of technical change and innovation; policy choices on the ways of financing economic growth, in particular technical change; and third, policy choices on the nature of public management to deliver and implement both previous sets of policy choices. Using the historical case studies of the East Asian developmental state of the 1960s-1980s and Eastern European development polices of the 1990s-2010s, we show how and why these economies developed almost opposite institutional systems for financing, building and managing techno-economic systems and how this led, through co-evolutionary processes, to different forms of policy capacity.