Innovations Innovations are inventions realized on the market Miscellaneous on Philosophy, Methodology and Theories Miscellaneous on Philosophy, Methodology and Theories Schumpeter and Kondratieff Schumpeter and Kondratieff R&D System R&D System Models of R&D System Models of R&D System Geopolitics of Innovations Geopolitics of Innovations R&D Policy R&D Policy National Systems of Innovation National Systems of Innovation Research and Innovations in the EU and in its Member Countries Research and Innovations in the EU and in its Member Countries

Miscellaneous on Philosophy, Methodology and Theories Individuum and society Individuum and society Structuration Theory Structuration Theory Joseph Alois Schumpeter (1883 – 1950) Joseph Alois Schumpeter (1883 – 1950) Methodological liberalism Methodological liberalism Enterpreneur disturbs stationary equilibrium Enterpreneur disturbs stationary equilibrium Inavoadable credit will be repaid from monopoly profit Inavoadable credit will be repaid from monopoly profit Schumpeter´s real cycles theory Schumpeter´s real cycles theory Credit and interest Credit and interest Gemach Gemach Gemach Sukuk and Islamic Banking Sukuk and Islamic Banking SukukIslamic Banking SukukIslamic Banking Aristotle (384BC – 322BC): economics x chrematistics Aristotle (384BC – 322BC): economics x chrematisticschrematistics Thomas Aquinas (1225 – 1274): just price Thomas Aquinas (1225 – 1274): just price Usury (loan sharking) Usury (loan sharking)

Schumpeter and Kondratieff (repetition)

Three key elements of the development and integration of new technology Three key elements of the development and integration of new technology 1. A nation must foster human creativity Freedom and incentives to think about and experiment with new ideas Freedom and incentives to think about and experiment with new ideas Society must be open to change and willing to deal with the disruptions in the status quo that the new technology brings Society must be open to change and willing to deal with the disruptions in the status quo that the new technology brings

Schumpeter and Kondratieff (repetition) 2. A well functioning capital market 3. Competitive environment that forces firms to continually improve their products or risk being forced out of business Joseph Schumpeter in the early 1940s – The process of creative destruction Joseph Schumpeter in the early 1940s – The process of creative destruction A successful economy must be adaptively efficient A successful economy must be adaptively efficient Perfect competition is not necessarily optimal for creative destruction Perfect competition is not necessarily optimal for creative destruction Complementarity of macro and micro inventions Complementarity of macro and micro inventions Institutions themselves cannot be stagnant Institutions themselves cannot be stagnant

Schumpeter and Kondratieff Industrial Revolution followed by successive industrial revolutions (or long waves of technical change) Industrial Revolution followed by successive industrial revolutions (or long waves of technical change) Successive industrial revolutions are based on the qualitative transformation by new technologies, they are not just simple quantitative growth of individual industries. Successive industrial revolutions are based on the qualitative transformation by new technologies, they are not just simple quantitative growth of individual industries. Kondratieff 1925, Schumpeter 1939 Kondratieff 1925, Schumpeter 1939

Schumpeter and Kondratieff

R&D System Repetition: What is tied with the change to Kuznetz pattern? Repetition: What is tied with the change to Kuznetz pattern? Adam Smith – improvements in machinery come both from manufacturers and users of machines and “natural philosophers” Adam Smith – improvements in machinery come both from manufacturers and users of machines and “natural philosophers”

R&D System Professionalisation of innovative activities Professionalisation of innovative activities Barely recognized at all in the 19 th century Barely recognized at all in the 19 th century Even the young Schumpeter (1912) stresses the role of entrepreneurs, they are the source of inventions, exogenous to the economy Even the young Schumpeter (1912) stresses the role of entrepreneurs, they are the source of inventions, exogenous to the economy Schumpeter 1928 – recognizes the internalization of much scientific and inventive activity within the firm Schumpeter 1928 – recognizes the internalization of much scientific and inventive activity within the firm

R&D System R&D forms only a small proportion of “information industries”, but it is in their heart R&D forms only a small proportion of “information industries”, but it is in their heart STS – scientific and technological services – link R&D with routine production STS – scientific and technological services – link R&D with routine production

R&D System Distinctive features of the modern R&D Distinctive features of the modern R&D Scale Scale Scientific content Scientific content Professional specialization Professional specialization Growing complexity of technology Growing complexity of technology Professional specialization brings problems of communication with the “product line” and of creation of a new social group, that follows its interests and becomes a lobby Professional specialization brings problems of communication with the “product line” and of creation of a new social group, that follows its interests and becomes a lobby

Models of the R&D System 2 Sector Endogenous Growth Model (covered in detail in the Advanced Macroeconomics course)

Models of the R&D System Socio-Cognitive Network Socio-Cognitive Network Cognitive layer Cognitive layer Publications Publications Patents Patents Prototypes Prototypes Social layer = Socio-economic network Social layer = Socio-economic network Science Science Development Development Market Market

Models of the R&D System

Geopolitics of Innovation Is technological catching up or even leap frogging possible? (In other words, do emerging markets have a chance?) Is technological catching up or even leap frogging possible? (In other words, do emerging markets have a chance?)

Geopolitics of Innovation Emerging markets are no more a good label, it would be better to call them upgrading markets. „The Economist“ stopped to use that label, all are just markets. Emerging markets are no more a good label, it would be better to call them upgrading markets. „The Economist“ stopped to use that label, all are just markets. The phenomenon of BRICs (Brasil, Russia, India, China) The phenomenon of BRICs (Brasil, Russia, India, China)

Geopolitics of Innovation For understanding the dynamics, we need to know what Product Life Cycle is and what is the need of resources in different phases of the Product Life Cycle: For understanding the dynamics, we need to know what Product Life Cycle is and what is the need of resources in different phases of the Product Life Cycle: Phase I – first introduction, definition of the new product and its test on the market Phase I – first introduction, definition of the new product and its test on the market Phase II – market growth, focus shifts to the process of production Phase II – market growth, focus shifts to the process of production

Geopolitics of Innovation Phase III – market size and growth are clearly established, focus is now on managing the growth of the firm and capturing of market share, no time for new entrants Phase III – market size and growth are clearly established, focus is now on managing the growth of the firm and capturing of market share, no time for new entrants Phase IV – maturity stage, both product and its process of production are standardized, firms reallocate their activities to “cheaper” places or sell licences Phase IV – maturity stage, both product and its process of production are standardized, firms reallocate their activities to “cheaper” places or sell licences

Economics of Innovation

Geopolitics of Innovation The easiest entry is in phases I and IV The easiest entry is in phases I and IV Phase I – little capital and experiences, high scientific and technical knowledge, locational advantage or compensatory help, high innovation and imitation, entry does not guarantee survival in the race Phase I – little capital and experiences, high scientific and technical knowledge, locational advantage or compensatory help, high innovation and imitation, entry does not guarantee survival in the race Phase IV – entry depends on traditional comparative advantages and needs investments + technology purchase funds Phase IV – entry depends on traditional comparative advantages and needs investments + technology purchase funds

Geopolitics of Innovation „The world turned upside down“ Special report of „The Economist“ on innovations in emerging markets „The world turned upside down“ Special report of „The Economist“ on innovations in emerging markets Do developed economies have a chance? Do developed economies have a chance?

R&D Policy „Laissez Innover“ or an R&D policy (national goals and strategies)? „Laissez Innover“ or an R&D policy (national goals and strategies)? Public Spending x Specifying Targets for Private Research Public Spending x Specifying Targets for Private Research Basic (Fundamental) Research x Applied R&D Basic (Fundamental) Research x Applied R&D

R&D Policy Involvement of the public sector ought to be tied to the industrial structure (if agriculture is organized in family farms, government must finance and organize agricultural research) Involvement of the public sector ought to be tied to the industrial structure (if agriculture is organized in family farms, government must finance and organize agricultural research) Empirically, there is a couple of research intensive industries with heavy government involvement (aircraft, nuclear weapons..). Importance changes in time, but lobbies make it path dependent. Empirically, there is a couple of research intensive industries with heavy government involvement (aircraft, nuclear weapons..). Importance changes in time, but lobbies make it path dependent.

R&D Policy The problem of path-dependency does not come from interest groups only – there is a possibility of “lock-in” development in locations selected earlier The problem of path-dependency does not come from interest groups only – there is a possibility of “lock-in” development in locations selected earlier “Lock-in” can be explained by feedbacks among different actors in the socio-economic network. “Lock-in” can be explained by feedbacks among different actors in the socio-economic network.

National Systems of Innovation Historically, there have been major differences between countries in the ways in which they have organized and sustained the development, introduction, improvement and diffusion of new products and processes within their national economies Historically, there have been major differences between countries in the ways in which they have organized and sustained the development, introduction, improvement and diffusion of new products and processes within their national economies

National Systems of Innovation A country’s success can be attributed to a unique combination of interacting social, economic and technical changes within the national economic space – and this is called the National System of Innovation A country’s success can be attributed to a unique combination of interacting social, economic and technical changes within the national economic space – and this is called the National System of Innovation

National Systems of Innovation Differences in economic performance are due to varying types of institutional and technical change, which may be the subject of qualitative description even though difficult to quantify Differences in economic performance are due to varying types of institutional and technical change, which may be the subject of qualitative description even though difficult to quantify

Research and Innovations in the EU and in its MCs (Policy Areas => Research and Innovation)

Research and Innovations in the EU and in its MCs Some Questions What is the impact of globalization on the EU system of innovation and the MCs systems of innovation? How is policy to react? What is the impact of globalization on the EU system of innovation and the MCs systems of innovation? How is policy to react? What is the role played by the multinational corporations? How is policy to react? What is the role played by the multinational corporations? How is policy to react? What is the role of regions? What is the role of regions?

Research and Innovations in the EU and in its MCs How can the flow of innovations be improved? How can the flow of innovations be improved? Could the people in the R&D sector be employed elsewhere more effectively? Could the people in the R&D sector be employed elsewhere more effectively? Could the information required be obtained free or at a lower cost from abroad? Could the information required be obtained free or at a lower cost from abroad?

Research and Innovations in the EU and in its MCs Are part time or amateur inventors sometimes more productive than professionals? Are part time or amateur inventors sometimes more productive than professionals? What kind of economies of scale are there in the R&D? What kind of economies of scale are there in the R&D? Can the gestation period for innovations be shortened? Can the gestation period for innovations be shortened? What kind of firms are the most likely to innovate and under what market conditions? What kind of firms are the most likely to innovate and under what market conditions?

Research and Innovations in the EU and in its MCs What type of incentives stimulate innovation most effectively? What type of incentives stimulate innovation most effectively? How are innovations diffused through the economy? How are innovations diffused through the economy? What is the contribution of universities and how can it be improved? What is the contribution of universities and how can it be improved?+ More fundamental questions about the relations of innovations to more fundamental human values More fundamental questions about the relations of innovations to more fundamental human values