1. THEORIES OF TECHNOLOGICAL CHANGE Definitions and Concepts

2. 2 Technological change: improvements in the products, production processes, material and intermediate inputs and management methods in the economic system The study of technological change analyzes:  The sources and the direction of potential improvements  The selection of actual changes from the long menu of potential changes  The process of the introduction of such changes  The impact of such introductions

3. 3 Definitions and Concepts The three stages in the technological change process: The Schumpeterian trilogy The first stage → invention process: the generation of new ideas The second stage → innovation process: the development of new ideas into marketable products and processes The third stage → diffusion: the new products and processes spread across the potential market (that is where the impact of new technology occurs and is measured)

4. 4 Definitions and Concepts The trilogy is not a linear process in which invention automatically leads to innovation which automatically leads to diffusion At each stage there is a selection process There are extensive feedbacks that a linear process does not represent  As diffusion proceeds, expectation of profit may feedback to the invention and innovation process  The expectations of the returns to technologies represent the incentive to generate and introduce new technologies

5. 5 Definitions and Concepts Product innovation: the generation, introduction and diffusion of a new product Process innovation: the generation, introduction and diffusion of a new production process Organizational innovation: changes in management methods

6. 6 Definitions and Concepts Science is associated with the early stages in the trilogy, say invention, whereas technology is often associated with later stages in the trilogy Technology: as activities generating advances close to market, which will yield private gain Research and development (R&D) process: basic and applied  Basic research: relate closely to the invention process  Applied research: relate closely to the innovation stage

7. 7 Definitions and Concepts Sources of technological improvement:  R&D  Learning of various kinds, design, reverse engineering and imitation  Licensing agreements and collaboration agreements  Acquirements from the suppliers of capital goods Technological change: dynamic, involving risk and uncertainty Technological and commercial risk: market failure- government intervention- policy making

8. 8 Technology and Innovation: The Neoclassical Viewpoint Technology as a set of fully known blueprints, codified knowledge available from the “universal blueprint library” Producing the particular level of output at a minimum cost given the knowledge of the relative prices of the factor services (technology) The flow of new knowledge, of inventions and innovations treated as outside the framework of economic models, as exogenous variables Link between technical opportunities and economic choices (productivity, the elasticity of substitution, factor intensity) What determines the production set if not contained in a universal library?  Specified by the knowledge contained within the firm  How about any changes of technique that needs learning and the growth of new knowledge?

9. 9 Technology and Innovation: The Neoclassical Viewpoint The state of technical arts ‘manna from heaven’ → knowledge as a non-rival good Knowledge could be used any number of times by any number of firms to produce any quantum of output or indeed to develop new knowledge Knowledge is costless to transmit but not costless to absorb Present state of accumulated knowledge matters Fact: knowledge costly to produce, costly to absorb and absorptive capacity depends on prior acquisition of knowledge

10. 10 Technology and Innovation: The Neoclassical Viewpoint Differences in innovation possibility sets are the rationale of different production possibility sets Learning depending on experience by itself diversifies between firms generating different innovation locus (locally bounded pattern of technological development) Creativity; local and radical Why different capabilities to innovate and to produce between firms?

11. 11 Evolutionary Approach How and why do firms differ in their productive capabilities? The focus is on adaptive response that is also creative Local rationality but variation (not uniformity) Firm is a creative, imaginative entity and the outcome of ongoing and unfinished process of organizational design Penrose “the capability theory of the firm” → the competence of the firm The central feature of the capabilities perspective lies in its link with the creation and exploitation of knowledge → continual development of capabilities and creating new ones, “routines”

12. 12 Technical Change and Development from an Evolutionary Perspective Why the technological change and development is an evolutionary problem? It requires:  Variation in performance relative to international competitors  Structural change in domestic and international economies (selection)  Generation of innovation to keep pace with world developments Three concepts of building blocks of economic evolution: variation, selection and generation

13. 13 Technical Change and Development from an Evolutionary Perspective Variation  Differences between firms in their economic performance traceable to the differences in their technological and organizational capabilities  Idiosyncratic dimension of firms  Development by imitation and dynamic competition Selection  The competitive process by which the different technological capabilities acquire different levels of economic significance over time Variation and selection → generation  Creative capacity “innovative variation” The nature of the firm as an experimental agency embedded in market process as well as its nature as a productive agency is at the forefront of the evolutionary analyses of technological change

14. 14 The Policy Dimension Science and technology policy versus innovation policy  Innovation policy ‘much broader’ It is concerned with the economic exploitation of practical knowledge with the flow of resources to support knowledge accumulation within and between firms Classical viewpoint → firms know opportunities but fail to exploit them effectively because of market failure induced divergence in the private and social rates of return from investments in knowledge and innovation Role of optimizing policy maker is to correct these divergent incentives by fiscal arrangements and grants

15. 15 The Policy Dimension Evolutionary viewpoint → also a matter of the knowledge and skill to define a space of possibilities Policy makers to create a rich ecology of organizational and institutional support for knowledge absorption and generation and to support the development of the associated innovative capabilities → adaptive not optimizing Innovative capabilities depend on the links between users, suppliers and non-firm organizations Innovation systems → modular (adaptive and evolutionary)