1 The needs for adaptive innovation policy under free market complexity: the Indonesian experiences *

Abstract: This paper attempts to explain how technological innovation can soften pressure and enlarge opportunity to gain the benefit of free market competition. The free market operation becomes uncertain in relation to the domestic affairs and global circumstances. The accelerated process of moving toward free market under a domestically worsening economic situation may backfire, while slowing it down becomes backward under the globally progressing free market circumstances. In dealing with the complexity of building up competitiveness under the pressure of free market competition, we propose a model; the so-called ‘adaptive innovation policy’. The model is drawn from the metaphor of living system and its environment. The adaptive innovation is continuous enrichment of technology as the nutrition of living economic system to evolve in gaining the benefit of free market competition. The simulation results from the model imply that: i) dealing with the complexity of free market competition requires understanding the behavior of multiple feedback inside the complex economic system; ii) spurring the economic growth by capital investment beyond the carrying capacity of market could bring about economic instability; iii)