Entrenched, well-defended “legacy sectors” resist technological innovations that could stimulate growth, create employment, and benefit public health and the environment but would upset prevailing business models. Legacy sectors make up more than half of the U.S. economy and include fossil fuels, industrial agriculture, inter-state transmission of electricity, health delivery, transport, buildings, higher education and manufacturing. Manufacturing is particularly important as a source of both employment and innovation.

Vested interests in these and other legacy sectors take advantage of market imperfections and economic, political, social, legal and cultural paradigms, which together create incentives for producers that can be inconsistent with broader social goals.

More generally, the national context of innovation – for example, business climate, attitudes toward novelty, risk and failure, and the flexibility of markets for labor and capital — is at least as important in encouraging and guiding innovation as is the more familiar national innovation system of research and development laboratories, universities, innovative firms and laws for the protection of intellectual property.

Encouraging innovation in legacy sectors requires not only support to research and development, but also attention by policy makers and business planners to the entire innovation process. This means addressing policy measures that remove foreseeable obstacles to market launch. The conception and implementation of the new network of U.S. manufacturing institutes and of the Advanced Research Projects Agency-Energy (ARPA-E), illustrate this process.