The problem isn't encouraging innovation in an economic downturn, it's producing true innovation, period. Economic downturns often help, rather than hurt, innovation. Just as forest fires burn away the underbrush that stifles forest growth, so companies are forced to focus on products and services that really matter. The survivors in each product segment become clear, and the people who work for the losers either take their ideas to the winners or go start their own companies. A new wave of start-ups is born, and some of them do really interesting things, rather than merely cloning what someone else is doing with a minor twist.
I say let the big companies batten down the hatches, and let the start-ups without business models die off. The big guys will do what they've been doing for a long time, which is buying their best ideas from others. So long as there's venture capital and engineers & scientists driven to build the next big thing, innovation will take care of itself.