Towards an evolutionary theory of new path creation:
radical innovation and introduction of clean energy
technologies.
James Simmie
Professor of Innovation Studies: Oxford Brookes University
Globalisation, Climate Change and Governance
May 18 2010
Four main approaches to analysing economic
change and innovation
• Darwinian inspired biological analogy and
the notion of the co-evolution of institutions
with economic change
• Complex adaptive systems theory
• Panarchy
• Path dependence theory.
Definition of path dependence
“a probabilistic and contingent process: at
each moment in time the suite of possible
future evolutionary trajectories (paths) of a
technology, firm or industry is conditioned
by (contingent on) both the past and the
current states of the system in question.
The past thus sets the possibilities while
the present controls what possibility is to
be explored” (Martin and Sunley 2006, p.
402).
Research questions
•
•
•
How are new technological and industrial
pathways created?
Why are they created in some places
rather than others?
What can the introduction of clean
energy technologies tell us about these
questions?
Neo-Schumpeterians
• Dosi (1982) and Perez (1983)
• Processes of structural change and increasing
productivity can be understood as driven by
identifiable technical change and its subsequent
diffusion in successive technological revolutions.
• Introduction and diffusion of technical change is
not a random phenomenon but is a path
dependent process in which individual
innovations are interdependent with others and
grouped in to what Schumpeter had described
as “clusters” of innovations.
Definition of innovation
“The implementation of a new or significantly
improved product (good or service), or
process, a new marketing method, or a
new organisational method in business
practices, workplace organisation or
external relations” (OECD 2005, p. 46).
Technological lock-in
• David 1985 and Arthur 1988
• There is an inherent tendency towards
technological “lock-in”.
• David’s work on the economic history of
technology established the argument that the
economy is built on the legacy of its own past. In
this view economic history is seen as an
irreversible process in which future outcomes
are strongly dependent on past events. As a
result the state of an economy at any point in
time depends on the historical pathways taken
up until then (Martin and Sunley 2006).
Technological paradigms
• Dosi (1982), building on the Kuhnian concept of
scientific paradigms (Kuhn 1962), argued that
technologies develop and diffuse along
trajectories that are path dependent because of
the influence of the technological paradigms
within which they are developed.
• Such paradigms are the prevailing models for
the solution of techno-economic problems
(Markard and Truffer 2006).
Technological paradigms definition
“a collectively shared logic at the
convergence of technological potential,
relative costs, market acceptance and
functional coherence” (Perez 2010, p.
186).
Path dependence and gales of creative
destruction
These studies have not explained
satisfactorily how radical change and
gales of creative destruction are instigated
given these powerful forces driving the
existing directions of travel along particular
trajectories.
New path creation
• Important for this branch of evolutionary theory
to have some explanation of how such changes
are instigated and why and how new pathways
are created in the first instance in order to lead
into explanations of how their subsequent
growth and development becomes path
dependent.
• “To be truly evolutionary, path dependent
systems also need mechanisms that generate
novelty and hence new pathways of
development” (Martin and Sunley 2006, p.407).
Main arguments
• Economic and spatial niches where the dominant networked
technological paradigm of the time is weak or not present are
required for the initial incubation of radical innovations.
• Human agency and decision making are required to generate
radical innovations. Such agents are pioneers in their fields. They
may be individual entrepreneurs, large corporations, public policy
makers or users.
• A new economic pathway is created as the diffusion of radical
innovation reaches a critical mass where a tipping point is reached
between continuation with previous forms of production under
existing technological paradigms and the adoption of new ones. This
requires agency.
• Significant diffusion agents can include those concerned with the
marketing of a new product or service. They could also be public
policy makers creating niches through regulation and public policy or
driving through the co-ordinated adoption of a new technology.
Definition of radical innovation
• “An entirely new class of products or
technological devices based on a novel
set of engineering and scientific principles”
(Markard and Truffer 2006).
Technological paradigms and radical
innovation
• First major problem confronting the introduction
of radical innovations and the creation of new
economic pathways is how to overcome the
prevailing techno-economic paradigm and its
established network externalities, technologies,
products and services (Markard and Truffer
2006).
• Some scholars of the sociology of technology
and evolutionary economics argue that “niches”
are required within or outside of existing
knowledge structures and networks as the
location of radical innovations (Geels 2004).
Definition of niche
• A niche may be defined as an application context in
which the new product or technology is temporarily
protected from the standards and selection rules of the
prevailing paradigm (Kemp et al 1998, Hoogma et al
2002, Markard and Truffer 2006).
• A niche may be:
• A distinctive set of economic circumstances in which
innovations do not have to compete initially on equal
terms with the dominant technological paradigm.
• A geographic place where the barriers to innovation are
less than elsewhere.
Functions of niches
• Niches provide space for radical novelties to incubate
without being subjected to prevailing competitive market
pressures or the normal selection criteria that
accompany the dominant technological paradigm.
• The informal rules of niche environments are less
articulated and subject to higher degrees of uncertainty
than those of the established paradigms (Geels 2004).
• In niche conditions it is also possible to draw on new
local or international knowledge in order to develop new
business networks, value chains and user-producer
relationships.
Radical innovations and historical niches
•
•
•
•
•
The domestic putting out system, that was the prevailing production
paradigm when the first factory was built in Derby, England, was
concentrated elsewhere in the West Country, the West Riding of Yorkshire
and East Anglia.
The railways first developed in small unconnected coalfield niches in the
North East and West of England and so did not compete immediately with
the predominant networked canal based system of heavy transport.
Steel was originally produced, particularly in Sheffield, England, by adding
carbon to carbon free wrought iron. The first commercially successful
Bessemer steel rolling mill was established in a new area, Wyandotte,
Michigan in the United States.
Flow line production was introduced in a new factory in Detroit which, until
that point, had not been a significant node in the emerging automobile
industry in the United States.
The commercial production of transistors commenced in California while the
predominant valve based electronics paradigm was still dominant on the
East coast.
Technological revolution
Radical innovation
Associated city/region
Hard network
landscape
Industrial revolution
Factory driven by water
power
John Lombe
Derby
1717
Canals & waterways
Turnpike roads
Age of steam & railways
Steam engine George
Stephenson
Stockton to Darlington
1825
Railways
Universal postal service
Telegraph (mainly national)
Ports
Sailing ships
Age of steel, electricity &
heavy engineering
Bessemer converter
Henry Bessemer
Wyandotte, Michigan
1855
Steel ships
Transcontinental railways
Worldwide telegraph
Telephone (mainly national)
Electricity networks
Age of oil, automobile& mass
production
Flow line production system
Henry Ford
Detroit, Michigan
1908-1915
Networks of roads, highways,
ports & airports
Networks of oil ducts
Universal electricity
Worldwide
telecommunications
Age of information &
telecommunications
Transistor production
William Shockley
Mountain View, California
1955
World digital
telecommunications
Internet& electronic mail
Multiple source, flexible use
electricity networks
High-speed multi-modal
physical transport links
Economic and spatial niches
In all these cases the economic niches that
gave birth to iconic radical innovations that
sparked technological revolutions were
also spatial niches where the existing
technological paradigms were either weak
or not represented.
Agency and mindful deviation in niches
• Niche environments provide opportunities for
radical innovations to be introduced. They do not
themselves create innovations. Those are
introduced as a result of interactions between
economic actors, policy makers and the users of
innovations or their results.
• It is therefore necessary to have theory of
agency that explains how specific actors create
and introduce radical innovations in niche
environments.
Human agency in new path creation
• Garud and Karnøe (2001) Argue that any theory
of new path creation should attach a significant
role to the importance of strategic agency and
the considered “mindful deviation” of
entrepreneurs from established paths.
• Puffert (2000) goes further in arguing that the
very existence of established pathways may
make actors more eager and motivated to
attempt to make their new technologies and
ways of doing things the basis of new pathways.
Entrepreneurs and mindful deviation
• Entrepreneurs of various kinds create new
pathways as they navigate the current flow of
events in “real time” and seek to set new
processes in motion by “mindful deviation”
• The two ideas “real time influence” and “mindful
deviation” distinguish the explanation of new
path creation from those of subsequent path
dependency (Garud and Karnøe 2001)
Agency and structure
• The idea of real time influence locates the agents of new
path creation in the ongoing structural conditions along
with the contextual influences, such as technological
paradigms (Dosi 1982), institutional settings and macroeconomic conditions of the past, in which they find
themselves.
• A key characteristic of (at least some) entrepreneurs is
that they are not just passive observers of these streams
of events but knowledgeable agents with capacities to
understand them and to act in ways that are not
prescribed by the existing social rules and technological
paradigms and trajectories (Garud and Karnøe 2001, p.
2).
Agents and mindful deviation
• The first water powered factory was constructed by John Lombe in
an area that was not subject to the domestic putting out production
paradigm.
• The first public railway was built by George Stephenson but did not
challenge initially the prevailing canal based heavy transport
network .
• Henry Bessemer invented the steel converter named after him but
then licensed the IPR to steel makers outside the traditional iron
smelting paradigm.
• Henry Ford introduced flow line production to the manufacture of
automobiles in order to establish a new type of mass market for the
product in an area that was not originally at the heart of US car
manufacturing.
• William Shockley started the commercial production of solid state
transistors in market conditions and in a locality increasingly driven
by military requirements where cost was not a key issue.
Critical mass and diffusion
• One innovation, however radical, does not make a new
economic pathway. Changes occur slowly at first while
producers, designers, distributors and consumers
engage in feedback and learning processes (Perez
2010). This is usually a cumulative process and critical
mass builds up over time as clusters of innovations
emerge in new economic sectors.
• This process is preceded by sometimes quite lengthy
periods of individual inventions. After the accumulation of
relevant inventions entrepreneurs begin to take up these
new ideas and commercialise them as innovations
Definition of critical mass
• Critical mass is a well known phenomenon
in non-linear dynamic systems (Lorenz
1993).
• It may be defined as a point of
discontinuity that induces a dramatic
turnaway from an existing system (Witt
1997).
Significance of critical mass
Existing technological paradigms and
network externalities always favour the
existing and widely used product variants.
For this reason success in the creation of
new economic pathways comes down to
the prerequisite to pass a critical mass
(Witt 1997).
Logistic curve for invention and innovation in
computing
Basic inventions & innovations in computing 1850-1960
45
40
Accumulated frequencies
35
30
25
Inventions
Innovations
20
15
10
5
0
1850
1860
1870
1880
1890
1900
1910
Years
1920
1930
1940
1950
1960
1970
Innovation diffusion and new path creation
The diffusion of radical innovations is the
key process that spreads their use from
the original niche environments to the
point at which critical mass is achieved
and a new economic pathway is created
that represents a significant discontinuity
with the existing paradigm or system. In
contemporary economies, as with the
introduction of an innovation, diffusion also
requires agents.
Diffusion agents
At the level of individual companies diffusion
agents need to overcome existing network
externalities in order to instigate a widening
adoption of their companies’ new product or
service. One way of achieving this is to try to coordinate the adoption decisions of potential
users in order to overcome the network
diseconomies that early adopters would
otherwise have to bear. Such co-ordination is
one way of reaching the critical mass point of
economic transition to a new economic pathway.
Transition and collective action
• The transition from one economic pathway to another
may well need to be organised by collective action. This
is because setting the diffusion process in motion is like
providing a public good.
• Without collective action, the early adopters would have
to bear the initial network diseconomies while later
adopters would profit from the investments of the early
adopters (Witt 1997).
• A current example of this problem is the barriers to the
diffusion of renewable energy technologies in the face of
the prevailing carbon based and networked paradigm.