The Political Economy of Innovation and Entrepreneurship

From Theories to Practice

Ivar Jonsson

• Publisher: Routledge
• Year: 2016
• eBook ISBN: 9781317020820
• Edition: 1
• Topic: Economics
• Subtopic: Entrepreneurship
• Index: Economics

This book offers a general theoretical framework for approaching innovation and entrepreneurship, using practical and up-to-date examples to demonstrate three different levels of innovation and entrepreneurship: the macro-level, which concerns the impact of innovation activity on economic growth and production systems; the meso-level, which concerns the relations between firms, research institutes and governmental bodies and their role in innovation activity; and the micro-level, which concerns the dynamics of innovations within firms and organisations. Providing a critical overview of existing research and demonstrating the importance of a transdisciplinary framework for studies of innovation and entrepreneurship, the author advances a general concept of 'collective entrepreneurship' that emphasises the social and collaborative nature of innovation and entrepreneurship, thus shedding light on processes of innovation and entrepreneurship as active practices of social construction. As such, it will appeal to scholars of economic sociology, political science, economic geography and economists, as well as those with interests in innovation policy.

Chapter 1
Introduction

In recent years, students of social and economic development have often been preoccupied with concepts such as ‘the new economy’, ‘the learning economy’, ‘knowledge economy’ and ‘smart economy’. The idea of these various new economies is usually presented as if they were part of an inevitable development. It is presumed that new technology and globalisation unavoidably leads to a transformation of societies and politics, adapting them to the ‘new economy’. It is assumed that countries which are not quick enough to adjust to the ‘new times’ will turn out as losers in the competition to achieve new investments and new enterprises. Hence, they will fail in the race for ever increasing economic welfare.

Similar ideas to those mentioned above have appeared before. Daniel Bell’s (1960) theories of the end of ideology are an instance in point. He argued that class struggle was withering away in Western countries because economic welfare was steadfastly increasing together with the growth of the middle classes and the service sector. Thus bitter conflicts between workers and employers had been consigned to the scrap heap of history. Related ideas appeared during the late 1980s in Francis Fukuyama’s (1989) theories of the end of history. In his version, human history is reduced to the struggle between advocates of the market economy and Marxists, which culminated in the Cold War and ended in the collapse of the planned economies of Eastern-Europe. The victory of the market economy marked the end of history according to Fukuyama.

The simplified understanding of societal development that we find in the discourse on the new economy and the theory of the end of ideology and history reflects the tendency of Western scholars to view the world in the light of their own dominant ideology, philosophical tradition and history and to postulate that the social ‘laws’ of their own history are valid for the development of all other societies. This determinism has its roots in the spirit of eighteenth century enlightenment and it has driven them, in a Eurocentric way, to regard the cultures of other areas and countries as obsolete. Typically, they presume that non-Western societies are relegated to some kind of a waiting room of the health centre of human history, where they bide their time until Western scientists and technocrats are ready to give them medical treatment and quicken their maturity so that they can, as soon as possible, become comparable to Western societies. This sort of thinking is to be found in, for example, W.W. Rostow’s still appreciated book, The Stages of Economic Growth: A Non-Communist Manifesto, from 1960 in which he claims that developing countries must ‘modernise’ as Western countries have done, if they are to be able to prepare for a ‘take-off’.

There are many lapses in the simplified view of society briefly discussed above. Firstly, in addition to market forces and opposing class interests, other pressures also shape social development. Gender and ethnic relations are prevailing roots of conflict both in Western societies and other societies. Environmental issues generate political conflict and the foundation of political movements, as well as factions within established political parties.

Secondly, capitalist countries differ significantly. Social and institutional structures are diverse in different countries and affect market forces in various ways. This applies to welfare state institutions, labour market regimes, environmental laws and regulations, etc. Different countries have divergent political systems, culture and history and this affect their economies in different ways. It is more realistic to talk about ‘capitalisms’ rather than capitalism in the singular (see I. Jonsson, 1989; R.J. Holton, 1992; J. Gray, 1999; P.A. Hall and D.W. Soskice, 2001). Consequently we would claim that it is unrealistic to take economic determinism as a point of departure and adopt a monist view of capitalism.

Thirdly, social scientists are increasingly aware of the varieties of economic systems and have developed models and theories that take into account other factors than those of short term supply, demand and general equilibrium. Business transactions are usually in the form of continuous dealings of inputs and outputs and are based on imperfect information. This makes it difficult to explain economic behaviour in terms of the fundamental idea of economics, namely the idea of the rational ‘homo economicus’. The rational man, it is assumed, always attempts to optimise her/his pleasure or utility and minimise pain or cost and conducts her/his business in an absolutely rational and impersonal way. This simplified picture of the maximising, rational man and of impersonal markets emerged, and was possibly more realistic, in the eighteenth century when markets were predominantly relatively foreseeable small village markets (see R.J. Holton, 1992; J. Gray, 1999). The idea of homo economicus is rather misleading, however, in view of contemporary market transactions in which long term collaboration between buyers and sellers of inputs and outputs in an atmosphere of mutual trust is crucial for business success. There are more points to mention. Collaboration between corporations, various research institutions and universities is of vital importance for high-tech companies. Effective knowledge infrastructures of different economies also play an important role with regard to corporate innovation activities. This does not only refer to communication infrastructures such as the internet and satellite technology, but to various institutionalised forums for formal and informal knowledge exchange.

Finally, ready access by corporations and institutions to a highly educated workforce and accumulated local know-how is important for corporate growth. The same goes for governmental bodies which support business life in contemporary societies.

In short, the view that businesses and markets are the only factors engaged in corporate transactions and corporate competition is obsolete. The same applies to the assumption that social development allows only two alternatives i.e., a choice between private or public enterprises. Real world economics is different; it is characterised by various forms of collaboration between corporations, public institutions and non-profit organisations.

This book concentrates on the driving forces of innovation and entrepreneurship. Research into this field of study is basically twofold. Firstly, we come across the ‘empiricist’ tradition which builds on research into economic history and actual innovation processes of public and private enterprises. Theories of long waves in economic life, the so called ‘Kondratieffs’, as well as theories of innovation as learning processes belong to this tradition. Secondly, we come across theories based on deductions which generate hypotheses of innovation activity on the basis of a priori theoretical assumptions. These theories presume that the driving force of innovation is managers’ rational decision-making concerning productivity, as well as marginal use of factors of production or technology and workforce. We may call this tradition ‘rationalist’. That is the ground on which Western orthodox economics is built and the sort of economics that most Western universities teach. However, the orthodox tradition has proved unable to explain the driving forces of innovation activity today. Research shows it is misleading to presume that knowledge necessary for innovation activity can be treated as market goods, bought and sold on impersonal markets. Knowledge is a phenomenon firms and individuals acquire, mediate and actively transform in their interaction with one another. The development and communication of knowledge is based on long term trust between collaborating actors within and outside firms rather than on opportunistic and impersonal short term business transactions.

The preconditions for innovation and entrepreneurship have also changed to some extent in recent decades. International trade has increased, especially within geographically large areas such as Europe, Asia and North and South America. International trade is also largely limited to particular branches of industries such as the financial sector, electronics and automobile industries (L. Weiss, 1998). The role of the nation state in economic and social development has changed as the state has gradually become more active in developing domestic and cross-border infrastructures and laws and regulations which enhance corporate innovation activity and competitiveness. At the same time, ‘national’ firms participate more than before in research and development activity (R&D) and in the production of transnational corporations, often as subcontractors of such corporations. Internationalisation in this form and a different view on the role of the nation state has generated new conditions for businesses, municipalities and regional governments. These actors increasingly collaborate in order to strengthen the competitiveness of firms, improve their innovation activity and intercorporate cooperation. In many cases, collaboration appears in ‘innovation clusters’, involving partnerships between competing firms in particular industrial branches. Collaboration can also appear in ‘Triple Helix’ ‘partnerships’ of corporations, universities, and governmental bodies. However, we must keep in mind that a discussion on internationalisation and ‘globalisation’ exaggerates the actual development and one tends to forget that the bulk of world production, or over 85 per cent, is domestic for national use, but not global markets (see N. Fligstein, 2002, pp. 189–90 and 196–98; L. Sklair, 2003; R. Saul, 2005, pp. 18–22).

We claim that research and theories of innovation and entrepreneurship are associated with three levels of innovation activity. Firstly, they focus on the macro-level; that is the impact of innovation activity on long economic waves, business cycles, economic growth and the development of societies and economies as production systems. Secondly, they concentrate on the impact on innovation activity of relationships between firms, research institutes and governmental bodies. Here the focus is on the meso-level. Thirdly, there is research and theories on the micro-level of innovation activity, concerned with the dynamics of innovations within firms and institutions, as well as on personal characteristics of the entrepreneurs themselves. The structure of this book reflects these different levels of innovation and entrepreneurship.

In Chapter 2, we define the main concepts and briefly discuss the principal objects of research into innovation and entrepreneurship in order to clarify the ‘territory’ or field of study of the political economy of innovation and entrepreneurship. Furthermore, we observe different branches of science which influence research of innovation and technological development, ranging from different disciplines of social sciences to feminist studies. It appears that the basic ideas and methodologies of many of these sciences are diverse and limited to ‘intra-disciplinary’ approaches rather than ‘inter-disciplinary’ approaches. We claim that research in the field of innovation and entrepreneurial activity originally developed from classical economics. This adhered to positivism and dealt with the objects from the point of view of macro-economic interests. More recently, different approaches developed that adhered to organisational studies and institutionalist methods which emphasise the interaction between internal, cultural aspects of organisations and external social, political and cultural factors in their environment.

Chapter 3 discusses the main theories of, and research into, the interaction between innovation activity and economic development in order to provide an overview of research engaged with macro-level socio-economic impacts of innovation and entrepreneurship. The discussion starts with theories of long waves in economic life i.e., the so-called ‘Kondratieff-waves’. This discussion is followed by a presentation of neoclassical theories of innovation which reduces technical change to the idea of production functions. Finally, we present theories of innovation that take theories of learning processes as their point of departure and discuss the contribution of evolutionary theories and neo-Schumpeterianism.

Chapters 4 and 5 yield insights into meso-level research and theories of innovation and entrepreneurship. The focus of Chapter 4 is on various forms of corporate collaboration. Companies often engage in various types of cooperation and utilise more than one form. It would appear from the discussion that emphasis has changed in this regard. In recent years, companies have begun to intensify their utilisation of forms such as joint ventures and collaborative networks. Furthermore, corporations have increasingly emphasised external sources of knowledge and implemented new principles in organising their innovation activity. They have become more user oriented and introduced a new model of innovation; that is, the open innovation model which requires new organisational principles concerning innovation activity, particularly in terms of intellectual property rights and reciprocal exchange of internal and external knowledge with a number of innovation collaborators.

In Chapter 5, we focus on the contribution of economic geography to research on innovation and entrepreneurship in order to incorporate the regional dimension into our discussion of studies of innovation and entrepreneurship. The discussion suggests that ideas and theoretical approaches have changed greatly through time. We claim that theories of economic geography have developed from building on the plain ideas of neo-classical economics, concerning minimising production cost in relation to location of production, to institutionalist theories which emphasise the role of collaboration between firms and institutions in advancing competitiveness. Moreover, we highlight the regionally bounded social and cultural conditions of such cooperation. Finally, the discussion turns to the role of social capital, regional innovation clusters and Triple Helix partnerships of corporations, universities, and governmental bodies.

In Chapter 6, we move to the ‘micro-level’ of innovation and entrepreneurship and its dynamics within organisations. We observe two approaches to innovation management; that is, one which represents ‘top-down’ management strategy and another emphasising a ‘bottom-up’ approach. We highlight the influential theories of P.F. Drucker who approaches innovation from the point of view of top-down management. It appears that Drucker’s main object of study is the nature of systematic innovation activity based on well-defined goals. Moreover, it is rooted in seven sources of innovation opportunities which Drucker refers to as the unexpected; incongruities; process need; industry and market structures; demographics (population changes);changes in perception, mood, and meaning and; new knowledge. We also discuss a more recent bottom-up approach which emphasises the role of ‘active employee participation’ in innovation processes. In this context, we present John Bessant’s ‘high-involvement’ approach of active employee participation which is an example of management techniques belonging to the category of ‘techniques and methods of innovation’. The main conclusion of the discussion in this chapter is that innovation and entrepreneurship is by a nature group or team activity. Innovation and entrepreneurship is, therefore, a no less ‘collective’ endeavour on the micro-level than on the meso- and macro-level.

Chapter 7 focuses on social innovations in terms of being processes of defining social problems, as well as representing an active search for solutions and ways of implementing social improvements. We argue that social innovations concern social improvements realised by agents who actively influence the contexts in which social innovation takes place. We highlight common features of processes of social innovation in rather dissimilar contexts and at different levels of social transformation i.e., micro, meso and macro levels. It would appear that processes of social innovation are non-teleological, but at the same time moulded by the particular societal contexts in which social innovators structure and actively transform social relations in a social constructivist way. Finally, we observe the cases of Lord Horatio Nelson, Benjamin Franklin and Margaret Thatcher in order to illustrate processes at these different levels of social innovations.

The final Chapter, 8, gives an account of the various theories and modes of research into innovation and entrepreneurship. A common feature of most of these theories is that they are ‘monistic’ rather than general and plural i.e., they envisage that one or only a few factors adequately explain the dynamics of innovation and entrepreneurship. They do not emphasise the importance of interaction between diverse explanatory factors. These theories name factors such as inventions in science and technology, market demand, egoism, profit maximisation of firms, etc. We argue in this book that innovation activity is too complicated to be reduced to a single factor or explained within the narrow theoretical framework of a single discipline. A general theory is needed to explain innovation and entrepreneurship; that is, a theory which can illustrate why particular explanatory factors of innovation and entrepreneurship are important during specific historical periods or in particular countries within the different fields of innovation and entrepreneurship. In this concluding chapter, we sketch a framework which includes the main factors such a general theory should incorporate. The main emphasis is on the societal and collective nature of innovation activity. This view proposes that the main precondition for innovation activity is a culture which breeds willingness to collaborate, creativity and tolerance concerning new ways of thinking and generating knowledge. Market mechanisms alone do not create these preconditions and therefore other actors than competing corporations play an important role.

Chapter 2
Innovation and Entrepreneurship as an Interdisciplinary Field of Study

2.1 Introduction

In this chapter, we will observe the field of research into innovation and entrepreneurship in terms of the main sciences that contribute to this field of study. First, we will define its objects of study and subsequently we will discuss the contributions of the various sciences in this field. We will observe contributions from economics, political economy, sociology, psychology, organisation theory and feminism.

2.2 The Main Concepts of Innovation and Entrepreneurship

Research into innovation and entrepreneurship focuses on analysing the impact of technological development on goods and services in terms of design of products, production processes and marketing. Furthermore, the research in this field concentrates on the social and economic conditions as well as consequences of innovation and entrepreneurial activity. This discipline attempts to analyse the dynamics of technological development, a concept referring to machines and tools as well as techniques and organisational forms of work. Consequently technique is to be approached as both a social and engineering phenomenon. The concept of ‘technological development’ refers to processes that include both inventions and innovations in production and services. Furthermore, the concept of ‘innovation’ refers to implementation of new technology in corporations, nonprofit organisations and public institutions.

‘Entrepreneurial activity’ comprises realising innovations; that is, implementing a new technology, process of production or service and organisation of work. An ‘entrepreneur’ is an individual who carries out activities of this kind. Individuals that establish firms are therefore, not to be defined as ‘entrepreneurs’ unless their work realises innovation. Spin-off companies are cases at hand which illustrate our point. Companies like these are established in order to develop particular goods or services that are new on the market. Such companies are innovative in this sense, although the concept of innovation is wider than this presumes, since innovation refers to the implementation of new technologies and production processes and the organisation of businesses. The concept also covers the improved skills of workers and their work conditio...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Abbreviations
• Preface
• 1 Introduction
• 2 Innovation and Entrepreneurship as an Interdisciplinary Field of Study
• 3 The Dynamics of Innovation and Entrepreneurship
• 4 Corporate Alliances and Open Innovation
• 5 Endogenous Conditions of Economic Growth
• 6 Entrepreneurs and Innovation Management
• 7 Social Innovation and Entrepreneurship
• 8 General Theory of Collective Entrepreneurship
• References
• Index