Innovation Economics, Engineering and Management Handbook 1

Main Themes

Dimitri Uzunidis, Fedoua Kasmi, Laurent Adatto, Dimitri Uzunidis, Fedoua Kasmi, Laurent Adatto

• Publisher: Wiley-ISTE
• Year: 2021
• ISBN:
  9781119832485
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

Innovation, in economic activity, in managerial concepts and in engineering design, results from creative activities, entrepreneurial strategies and the business climate. Innovation leads to technological, organizational and commercial changes, due to the relationships between enterprises, public institutions and civil society organizations. These innovation networks create new knowledge and contribute to the dissemination of new socio-economic and technological models, through new production and marketing methods.

Innovation Economics, Engineering and Management Handbook 1 is the first of the two volumes that comprise this book. The main objectives across both volumes are to study the innovation processes in todays information and knowledge society; to analyze how links between research and business have intensified; and to discuss the methods by which innovation emerges and is managed by firms, not only from a local perspective but also a global one.

The studies presented in these two volumes contribute toward an understanding of the systemic nature of innovations and enable reflection on their potential applications, in order to think about the meaning of growth and prosperity.

1
Economy – Innovation Economics and the Dynamics of Interactions

1.1. Introduction

Capitalism cannot and will never be stationary, Schumpeter once said. In a process of “creative destruction”, the technologies of the present become obsolete, while innovations emerge and feed new economic cycles. Economic history (Braudel 1979) clearly shows new combinations of production factors: products, production processes, sources of raw materials and semi-finished products, organization of work and markets. In short, innovations have fueled economic growth. Since the 18th century, a number of economists, such as A. Smith, J.B. Say, D. Ricardo, T.R. Malthus, K. Marx, etc., have provided the conceptual bases on which the economic theories of innovation have been developed.

Innovation economics was born in the wake of the industrial economy, in the aftermath of World War II. The neoclassical approach first considered technical progress as an exogenous phenomenon, a residue of the production function in models of economic growth (Solow 1956, 1957), and the economists were mainly interested in its effects on the economy, especially on employment. But the recognition of its role in economic growth and evolution, in the wake of the work of J.A. Schumpeter, led them to study in greater detail the mechanisms of its genesis, at the micro, meso and macro levels.

The evolutionary theories initiated by R. Nelson and S. Winter (1982) focus on the genesis of innovation within organizations. They see it as a systemic phenomenon, resulting from the interaction between actors within organizations (giving rise, through learning, to organizational routines, a source of change and inertia), as well as resulting from fruitful interactions between organizations and institutions (analyses in terms of innovation systems at different scales: local, regional, national, sectoral). A country, like a company, is situated, in its development, on a technological trajectory that largely conditions its capacity to assimilate new technologies.

For their part, endogenous growth theories (Romer 1994) study technical progress as the result of private and public investment in the sphere of the economy, particularly in knowledge, infrastructure and human capital. Private investments are made by individuals motivated by profit. Economic growth is then determined by the behavior of economic agents and macroeconomic factors. The field of public policy then becomes paramount, and theoretical work calls for the replacement of big scientific and technical programs that marked the post-war period by more indirect modes of intervention. They are based, on the one hand, on the framework conditions for innovation (by strengthening the components and interactions within innovation systems), and, on the other hand, on incentives to invest and innovate, particularly for firms. This results in positive externalities, which can be seen as the basis for justifying government intervention.

This contribution looks back at some of the evolutions of the major issues of innovation economics. In the first part of the chapter, we attempt to define and develop the meaning of the word innovation, with a particular interest in the work of J.A. Schumpeter. Then, in the second part, we look at the difficult issue of measuring innovation, in particular because of its multifaceted nature. The identification of the key actors of innovation (entrepreneurs, large companies, as well as universities, so-called third places) is the subject of the third part. It reveals their diversity and the need for their interaction to ensure both the production and the diffusion of innovation. The fourth part of this chapter is devoted to the question of these systemic relationships and to the evolution of policies dedicated to strengthening them.

1.2. The definition of innovation and the primacy of J.A. Schumpeter’s work

While the concept of innovation is omnipresent today and symbolizes the latest form of modernity, it is nevertheless very old and has not always been associated with progress and growth. According to B. Godin (2014), this concept dates back to Antiquity and was used by Greek philosophers in their political theories. This political meaning remained dominant until the 19th century. Until then, innovation evoked a “change in the established order” in politics and religion. Innovation was thus subject to prohibitions (e.g. by King Edward VI of England in 1548), and religious or political innovators (such as the French revolutionaries of the 18th century and the reformers of the 19th century) faced charges, imprisonment or worse. It was not until the 20th century that the meaning of the word “innovation” changed and became associated with progress, creativity and economic growth. From that century on, “there is no longer any doubt that innovation has become a virtue, not a vice” (Godin 2014, p. 33). Innovation then clearly became associated with technology.

J. A. Schumpeter is considered the first economist to use and construct an economic theory of innovation. Yet, before him, classical economists were largely interested in the changes brought about by technical progress, a term found in the writings of A. Smith, D. Ricardo, J.B. Say and K. Marx, to name but a few. At the beginning of the 19th century, Saint-Simonism (H. de Saint-Simon, 1760–1825) widely popularized the idea that technical progress (via “industrialism”) was the necessary condition for improving the well-being of humanity. Moreover, as pointed out by B. Godin (2014), the sociologist G. Tarde (1843–1904) is often mentioned as the first to have devoted theoretical writings to innovation at the end of the 19th century. In The Theory of Economic Development (1981), Schumpeter considers that evolution results from the implementation of new combinations of means of production: the manufacture of a new good, the introduction of a new production method, the opening of a new outlet, the conquest of a new source of raw materials or of semi-finished products, the realization of a new organization, such as the creation of a monopoly situation. The importance of this definition and, more generally, of the Schumpeterian analysis of innovation can be explained by several arguments, which we present below:

First of all, this definition is important because, for the first time, it distinguished the various forms that innovation can take, without reducing it to technology. This variety is central to the contemporary definition proposed by the OECD in the Oslo Manual (OECD 2005), which distinguishes the product, process, new business method and new organizational method (OECD 2005). The most recent definition (OECD 2018) focuses on the enterprise and simplifies this definition by distinguishing product and business process innovation (OECD 2019). The notion of “business” processes refers to the traditional functions of the enterprise. It brings together process, and the organizational and marketing innovations defined in previous versions of the manual.

However, in the Schumpeterian analysis of long-term economic cycles (business cycles), the so-called Kondratieff cycles or waves, technology plays a major role. In Business Cycles (1939), Schumpeter in fact links the three Kondratieff movements from 1750 to 1940 and the three waves of fundamental innovations, which essentially concern technology: textiles, iron and steel, steam at the end of the 18th century, railways in the mid-19th century; and electricity, automobiles, chemicals at the beginning of the 20th century. The role of technological innovation was then crucial in explaining economic cycles (Uzunidis 1996). These innovations lead to an increase in supply capacity (increased demand for production goods, lower production costs, increased quantities of new products on offer) and a revival of demand (new consumption needs, credit). We also find this primacy of technology in the analysis in terms of the techno-economic paradigm proposed by C. Freeman and C. Perez (Freeman 2008; Perez 2010). This is defined as the set of most successful or profitable practices, in terms of the choice of inputs, methods and technologies, and organizational structures, business models and strategy. The paradigm forms a kind of common sense that facilitates technology diffusion.

In Schumpeter’s analysis, innovation is therefore associated with evolution and change. This is the second essential point. It is new combinations that cause the hurricane of “creative destruction” (2008), continuously destroying old elements and creating new ones. Thus, the changes brought about by innovation also have negative consequences. Going back to the analysis of long waves, over-investment in the growth phase is punished by losses, layoffs and bankruptcies, creating a “vacuum cleaning” effect that can unleash the entrepreneurial spirit again.

This central role of technology, and therefore the potential for change it offers, is still a subject of debate today. For R. Gordon (2016), for example, information and communication technologies affect a smaller number of activities compared to the key technologies of the second industrial revolution (electricity, automobiles and aviation), which hampers the recovery of activity. Other authors, however, believe that current technologies bring many opportunities, jobs and growth, but that the economic and social system does not sufficiently promote their exploitation and diffusion. According to D. Archibugi (2016), for example, massive public investments, in science and technology, as well as in infrastructure, should be made to help companies develop marketable products and services. The current context of the strong financialization of the economy, which makes stock market investments more remunerative and more risky than productive ones, also plays a key role in the absence of the long-awaited recovery of a new long-term cycle (Uzunidis 2003). The orientation of science and technical progress towards short-term profitability objectives and the insufficient consideration of major challenges (such as climate change, population aging, pandemics) are also obstacles to the emergence of a new cycle.

Admittedly, and this is the third argument justifying the importance of Schumpeter’s contribution, not all innovations have the same effects. New combinations may result from continuous and small-scale transformations – minor or incremental innovations – and their effect on economic structure is therefore limited. New combinations that appear discontinuously are similar to radical innovation. These are innovations that have a significant impact on the market and the activity of firms. This impact may concern the modification of market structure, the creation of new markets or the rendering of existing products obsolete. In reality, however, in Schumpeter’s analysis of cycles, new combinations appear in clusters, thus combining major and minor innovations. Radical innovations initiated by entrepreneurs begin the cycle. The creation of profit opportunities attracts mimicking entrepreneurs who propose minor innovations and thus extend the growth trajectory at a slower pace until the cycle turns around. Researchers today refer to a third category, “disruptive” innovation (Christensen 1997, 2003). Its characteristic is to introduce new performance criteria by targeting different users. It is opposed to continuous innovation and favors new entrants who adopt a different business model. Thus, the notions of disruptive and radical innovation are close, but radical innovation is more associated with new technologies, stemming from scientific and technical progress, while disruptive innovation can also be associated with non-technological changes. Products may b...