|| Marina Abed Tatiana Voinova Valérie Chardonnens Stefanie Derzsi Economist: The growth machine

||  Economists vs. Managements view on Innovation  Creative Destruction  The Free-Market Innovation Machine  Capitalism vs other economic systems  Large firms and Oligopolies  Protection of Innovation and Who Benefits  Innovation in Socialist and Capitalist systems Executive Summary The growth machine

|| Economists vs. Managements view on Innovation The growth machine  Management obsession with innovation is not shared by economist  Innovation is acknowledged as being a driver of economic growth  How and why innovation happens remains ignored

|| Creative Destruction The growth machine  Technological innovation comes from the entrepreneurs  Established companies drive innovation using its capital  Innovation creates new monopolies with abnormal profits to be succeeded by rivals (  “Creative destruction” as a process of creating new and destroying old as innovative firms drive established companies of the market Joseph Schumpeter ( )

|| The Free Market Innovation Machine Capitalism vs Other Economic Systems The growth machine  Reasons Innovative activity becomes mandatory way of survival for firms Technology spreads much faster due to incentives to share the knowledge that contribute to growth, not state patronage Prof. Wiliam Baumol, an American economist Capitalism as a “machine whose primary product is economic growth”” provides :  continuous stream of successful innovations  best economic system to generate growth

|| The Free Market Innovation Machine Large Firms and Oligopolies The growth machine  Large firms are unique features of capitalist economies Resources to invest in “routinized” innovation Incentives  Oligopoly best foresters productive innovation No single price as in monopoly No price wars as between many companies Few big firms compete using innovation to differentiate

|| The Free Market Innovation Machine Protection of Innovation and Who Benefits The growth machine  Protection of innovation Misleading belief: innovators protect intellectual property rights to maximize profits they can earn Real situation: innovators license new technology to share as others can be more efficient at exploiting it, so it makes economic sense to license  Who benefits from innovation Less than 20% of benefits to innovators and investors The rest spills over to society at large Stronger intellectually property rights would encourage innovation and therefore increase benefit to society

|| Innovation in Socialist and Capitalist systems The growth machine

|| Innovation in Russia vs. USA The growth machine  R&D outputs Russia has a highly educated workforce with large # of skilled researchers yet lags behind in productivity. America is the world leader in technological achievement and innovation yet not producing the type of workers needed in a knowledge-based economy.

|| Innovation in Russia vs. USA The growth machine  Who holds IP rights? Russia: it is unclear whether the inventor, the inventors employer or the state who financed the R&D owns IP. Also, registered IP is weakly protected. USA has clear set of patents and licensing which is protected.