by Steven Globerman, Kristina M. Lybecker
Fraser Institute
June 24, 2014
Policymakers in Canada have long sought to promote innovation through policies like tax incentives and intellectual property legislation. Many of these same policymakers have criticized private-sector organizations for focusing on incremental innovation at the expense of so-called breakthrough innovation. Incremental innovation consists of modest improvements to products and processes, whereas breakthroughs are remarkable for their novelty and their greater financial risk. Critics of incremental innovation claim that its social benefits are dwarfed by breakthrough innovation. This perception is most pronounced in the pharmaceutical industry. Yet incremental innovations undertaken by drug companies provide physicians with flexibility to treat the individual needs of diverse patients, while improving patient compliance by eliminating adverse reactions and side effects. Incremental innovation also promotes increased price competition among drug manufacturers, generating savings in healthcare. The criticism of incremental innovation is largely unfounded, and policymakers should support it rather than discouraging it.

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