Gustav Horn Innovation policy in times of change The new relationship between state and market AT A GLANCE The way of doing business is currently changing on a global scale and at a rapid pace. It is neces­sary to meet the challenges posed by digitalisa­tion, climate change and globalisation. This can only be achieved by producing new public goods through massive state intervention. This requires a new innovation policy based on cooperation between the state and the market. To be success­ful, the state must be willing to take higher risks. The way of doing business is changing on a global scale and at a rapid pace. Three mutually influencing challenges are shap­ing the picture. The first is the increasingly pervasive digitali­sation of the economy and society. Although this process has been underway for a long time, it is only now that digitisa­tion, in combination with other challenges, is gaining an al­most revolutionary force that is deeply affecting the everyday lives of consumers and producers alike. In this environment, companies must face a second major challenge in addition to digitalisation: the switch to ecologi­cally sustainable production, i.e. production that is largely free of harmful emissions. The relevance of the climate crisis is evident(Deutsche Bundesbank 2022). This leads to the ne­cessity of fundamental changes within existing companies. It also enables new companies to enter the market, while others will leave. Both lead to a noticeable structural change and a changed global division of labour(Pisani-Ferry 2021). This marks the third challenge: under the pressure of tech­nological and ecological change, trade flows are shifting. The change and the uncertainties associated with this create a dy­namic towards a renationalization of economic policy in many states. This makes globalisation more fragile. The war in Ukraine has made this even more evident. The mutual intertwining of these challenges can be illus­trated by two examples. An obvious one at this time is the disposability and use of video conferencing. The technology for this had been available for some time. But it is only with the Covid19 pandemic that its benefits have become fully apparent, leading to its use in wide circles of business and society. As a result, the structure of the sector is changing massively. All providers around this technology will profit. New jobs are created there. On the other hand, all those businesses, such as airlines and conference providers, which have derived their profits from the behaviour practised up to now, suffer. Jobs will be lost there in the course of this structural change. Another example is the new concept of mobility necessitat­ed by the climate crisis. The automotive industry is focusing on e-mobility, but this will only be climate-neutral if the elec­tricity used is generated and distributed with renewable ener­gy. This not only entails the much-discussed structural change in energy production, but will also bring about a change in global trade flows for energy. In the long run, the suppliers of oil and gas will lose their global market power. They will be replaced by those who are able to satisfy the huge electricity demand of the industrialised countries with renew­able energies through efficient transport routes. The foreseea­ble loss of Russia as an energy supplier reinforces this trend. These two examples alone make it clear that the upheavals cannot be explained by just one set of factors(ICSE 2021). Rather, the entire economic system is undergoing fundamen­tal change. The world is in a state of"meta-crisis"(Azmanova 2019) with various manifestations. Innovation policy in times of change— FES impuls 1