Health systems in wealthy industrialized countries vary considerably. The most visible differences are in their structure, including the size and form of government activity, and the size of their national wealth allocated to health care. More subtle, but equally important, are differences in the level of research and development (R&D) and adoption of new technology that characterize each system. How do we explain these differences in the rates of technological innovation? And if a country desires to increase the level of R&D in its health industry, what industrial policies might it use to accomplish this goal? In this paper we explore these issues by developing a new perspective for viewing the health sector - one that considers the health system as more than an enterprise that produces health, but as a collection of industries that also produces scientific breakthroughs and spillovers and attempts to capture world-wide markets for health services and products.