Australian Innovation Research Centre

Innovation in Governance

Commencement Date 01 January 2007
Project Status Past

This project compares two approaches to governance and economic strategy, neo-liberalism with innovation. Neo-liberalism, the dominant political paradigm followed in Australia and many other countries, follows a ‘top-down’ approach, with its’ focus on market forces.  Innovation, on the other hand, follows a ‘bottom up’ approach. In the innovation space, the focus is on opportunity and problem-solving to underpin governance and economic strategy.


Innovation in the arena of governance is something Professor Ian Marsh thinks is necessary in Australia, if we are to move beyond the impasse of reform the country currently faces.  He suggests that the infrastructure that once linked the formal political system to its publics (and gave the broader political system its reach and effectiveness) has eroded – and no functionally equivalent infrastructure has been introduced.

“The formal system we have was designed for a world in which social class was the primary way people identified with politics. That has long since gone. The social movements of the 60’s blew all that away and then neo-liberalism meant the two parties coincided, so now we have in many ways, a dysfunctional system. The question then arises, what other infrastructure might we create to manage a richer public conversation?” he asks.

Innovation approaches to governance and economic strategy may well provide an alternative framing for the role of the state in the economy and provide a means to enrich the dialogue between governments and its publics. Although he admits it’s a big challenge, Professor Marsh suggests this will provide an alternative from the currently dominant, neo-classical political paradigm followed in Australia and many other countries. Innovation framing has an opportunity focus while the neo- classical approach is to step away and let the markets focus on opportunity. He suggests an example of a more innovative governance approach is what has been attempted in the Tasmanian forest industry. “However this is a complicated sector that is in decline. If this same innovative strategy was attempted for a thriving sector of the economy who knows what could be achieved?” says Professor Marsh.

Like neo-classical approaches, innovation theories also aim to enhance productivity. However the innovation approach requires a different way of doing things. A critical dimension of innovation strategy is its framing, that is, the way problems get identified, problems get solved and solutions are disseminated in any particular sector of the economy. This is quite different from the neo-classical framing, where the government focuses on what its role is in the economy overall, rather than focussing on particular sectors and on knowledge systems. Professor Marsh says “Governments adopt the neo-classical, conventional wisdom of how you run an economy. That is, if you get prices right, everything else will work itself out. But once you move into the innovation space, you’re operating with different concepts or variables, or have a different focus on how the economy works and how it can be changed.”

He identifies three key fundamental differences between innovation and neo-classical theory.

  1. Firstly, neo-classical theory treats knowledge as a homogenous category that arises exogenously and diffuses seamlessly – a linear model, from scientist to entrepreneurs, from product to market. However innovation theory approaches knowledge as something differentiated, ‘lumpy’ and contingent, with problematic diffusion. Knowledge systems are multi-directional, context specific and no less important than market structures.
  2. Secondly, neo-classical theory does not distinguish between risk and uncertainty. Innovation theory however, considers uncertainty as a special impediment that may require deliberate action to counteract its impacts. An example may be a potentially successful idea that requires finance and investment to materialise into a productive, prosperous contributor to the economy.
  3. Thirdly, unlike neo-classical theory, innovation theory explicitly recognises the importance of entrepreneurship and its effect on market competition, which involves a continuous and never resolved pursuit of advantages.

“Innovation theory is really about systems or regimes. What we need to do is look at a system in an integrated way. What a government department can currently do is enormously constrained by its political masters – it faces pressures from community on one side and the government on the other.”

Neo-classical theory presents one paradigm of economic and governmental activity and innovation theory another. However, whether innovation enters the political agenda depends on a number of contingent factors. These include recognition of the need for an augmented economic strategy and for a new ‘bottom up’ political strategy. The scale of change we as a country face is very large, but we are still at early stages and the steps that are required are still being digested. There are still many political obstacles.
Professor Marsh says “The theory of innovation is about systems and processes rather than markets and organisations. The key is to build a strategy that gets an explicit consensus about the direction we are heading in.”

Research Output

Journal Articles:

  • Marsh, MI, 2010, ‘CEDA at fifty - the EPO at thirty’, Economic and Political Overview 2010 pp. 62-67.
  • Marsh, MI, 2009, ‘The Blair Governments, Public Sector Reform and State Strategic Capacity’, The Political Quarterly, 80 (1) pp. 33-41.
  • Marsh, MI and Edwards, L, 2009, ‘Dilemmas of Policy Innovation in the Public Sector: A Case Study of the National Innovation Summit’, Australian Journal of Public Administration, 68 (4) pp. 399-413.
  • Marsh, MI and Spies-Butcher, B, 2009, ‘Pragmatist and Neo-Classical Policy Paradigms in Public Services: Which is the Better Template for Program Design?’, Australian Journal of Public Administration, 68 (3) pp. 239-255.


  • Marsh, MI and Edwards, L, 2008, The Development of Australia's Innovation Strategy: Can the Public Sector System Assess New Policy Frameworks?, Australian Business Foundation, Sydney, pp. 43.

Book Chapters:

  • Marsh, MI, 2008, ‘Re-imagining the Australian state: political structures and policy strategies’, Australia Under Construction nation-building - past, present and future, ANU E Press, Butcher J (ed), Canberra, pp. 147-171.


  • Marsh, MI, 2009, ‘The big Political picture: a history of modern Britain draws parallels with Australia’, Sydney Ideas Quarterly, (May-July) pp. 34-35,

Conference Publications:

  • Spies-Butcher, B and Vromen, A and Marsh, MI, 2008, ‘Suburban Affairs: Political Communities across Sydney’, Australasian Political Science Association Abstracts and Refereed papers 2008, July 2008, Brisbane, pp. 5.

Other Publications:

  • Sheikh, S, Marsh, MI, Belgiorno-Nettis, L, Coghill, K, Costar, B, Jones, K, Lyons, M, Mack, T, McAuley, I, Orr, G, Rozzoli, K, Sawer, M, Williams, G and Yencken, D, 2010, A Blueprint for Australian Democracy: This Moment and the Renewal of Parliament, Government and Elections, GetUp Australia.
  • Marsh, MI, 2010, ‘Australia's two-party system has past its use by date’, ON LINE opinion,, Australia.
  • Marsh, MI, 2010, ‘Innovation and Public Policy’, AIRC Working Paper Series WP/0710, Australian Innovation Research Centre, Hobart.
  • Marsh, MI, 2010, ‘Is there a pox on our houses?’, The Canberra Times, Canberra, September 30.