SPRU Friday (Freeman) Seminar Series
31 October 2014
Blade Runner Economics
Will Innovation lead the
Economic Recovery?
Professor Daniele Archibugi
Italian National Research Council, Rome
Birkbeck College, University of London
Information and communication
technologies
Communications
Video telephones
Audiovisual systems
Photo Scanners
Voice command systems
Visual analysis
Diffusion of electronic equipment
Kiosks with electronic cashiers
Electronic money
Space technologies
Air travel
Flying vehicles
Space travel and colonization
Colonies
Space exploration
Biotechnology
Replicants
Nexus 6
Constructed memories
Artificial human components
Eyes
Toys
J.F. Sebastian’s constructed friends
Artificial animals
Real animal almost exiting
Artificial pitons and owels
Blade Runner Economics
• In the case of biotechnology, none of what was
described has happened (although many things are
possible)
• In the case of ICTs, Blade Runner has under-estimated
the pace of technological change (no Internet, no
email)
• One core message: technological opportunities integral
component of societal development
• Integration among different technologies
(Schumpeterian clusters) is crucial to shape techoeconomic paradigms
Is the Information Intensive Techoeconomic paradigm over?
• ICTs have changed the economic profile of our
economies and guaranteed two decades of
development
• Some argue that ICTs have exhausted thier
potential. Or, more precisely, that are not any
longer the driving force of growth
• End of the speculative bubble or of technological
opportunities?
• And, above all, what next?
History is dominated by changes in
techno-economic paradigms
• Dominant technologies extensively used in society
• Associated to skills and employment distribution
• Based on social acceptance and institutions able to
foster them
• Interactions among different technical components
guarantee the success, or the failure, of the
technical system
Stone Age, Bronze Age, Iron Age
Period
Successive
TechnoEconomic
Paradigms
Industrial organisation
Typical industries
Pavitt's
category of
firms
17701830
Early
Mechanisation
Growing importance of
small manufacturing
firms
Textiles, Potteries,
Machinery
Supplier
dominated
18401880
Steam power and Separation been
railway
producers of capital
and consumption
goods
Mechanical
engineering, Steel and
Coal
Specialized
suppliers
18901930
Opportunities
associated to
scientific
discoveries
Emergence of large
firms
Chemicals, Electrical
machinery, Engineering
Science
based
19401980
Fordist and
Taylorist
revolutions
Oligopolistic
competition for mass
consumption
Automobiles, Synthetic
products, Consumer
durables
Scale
intensive
19802020
Information and
communication
Networks of firms,
strong user-produces
interactions
Microelectronics,
Telecoms, Software
Information
intensive
Is economic growth historically
contingent?
• Christopher Freeman (1984): The potential for
economic growth is associated to generation and
diffusion of knowledge to economic and society
through innovation
• Robert Gordon (2012): “the rapid progress made
over the past 250 years could well turn out to be
a unique episode in human history”
• Carlota Perez (2013): «There is the possibility of
unleashing a golden age bu tilting the playing in
field in favour of green growth»
Winners and losers
in economic crisis
• When there is a decline in the business
cycle, all companies, industries and
countries tend to be affected
• But some companies, industries and
countries are more affected than others
• Marx: capitalism need crisis
• Schumpeter: gale of creative destruction
Back to the classics
Add successively as many mail coaches as you
please, you will never get a railway thereby
Who does what?
Company typologies
Business as usual
Let wait until it stops raining
Reduce costs
Including investments
Search for new opportunities
New markets and new products which could
generate sales and profits
Looking for the
Next Techno-Economic Paradigm
• What will be the new industries and
business opportunities to generate jobs and
profits?
• If the technological opportunities are
already there, who is going to invest in
order to develop and deliver them to the
market?
Innovation
and Economic Downturn
• Structural characteristics of National Systems of Innovation,
demand (Filippetti & Archibugi, 2011)
• The effect of the financial crisis on the convergence in
innovation in the European Union (Archibugi & Filippetti,
2011)
• Archibugi & Filippetti, Innovation and Economic Crisis,
Routledge, 2011
• The impact of the economic crisis on innovation: Evidence
from Europe (Archibugi, Filippetti & Frenz)
• Economic crisis and innovation: is destruction prevailing over
accumulation? (Archibugi, Filippetti & Frenz)
Are creative destruction and technological
accumulation sensitive to the business cycle?
• During economic expansion, innovative firms lead
technological change also by increasing their
investment in innovation (supporting technological
accumulation)
• Economic crises generate turbulence and some new
entrants are willing to spend more to innovate, also
in blue sky explorations (creative destruction)
Characteristics of
Innovating Firms
Technological Accumulation
Creative Destruction
Large and dominant firms explore new
opportunities through R&D labs and
design to preserve their market shares.
These firms exploit their financial
resources and the already existing
organizational structure
Small firms anticipate and deliver to the
market significant innovations. Through
only a very few of these firms will be
successful, the winners may create the
impetus for entire new industries.
Economic turbulence may also help to
contest market shares to incumbent
firms
Schumpeter, 1942; Pavitt et al., 1989
Schumpeter, 1911; Freeman et al.,
1982; Dosi, 1982; Perez, 2002
Sources of Knowledge
Technological Accumulation
Creative Destruction
Since “firms know more than they do”
(Pavitt), they can try to explore their
competences also in other product
lines
The early identification of new markets
and new technological opportunities is
crucial.
Collaboration among different subjects
can be very important to identify and
explore knowledge.
Serendipity plays also an important role
Schumpeter, 1942; Pavitt et al., 1989;
Granstrand et al., 1997; Antonelli, 1997
Freeman et al., 1982; Christensen &
Rosenbloom, 1995
Innovation Typology
Technological Accumulation
Creative Destruction
Most innovations are generating a
A few radical innovations generating
continuous flow of incremental product new industries, often in integration
and process innovations.
with knowledge already explored for
different purposes.
Organizational routines dominate the
New forms of economic organizations
generation of innovations
also help to reinforce the generation of
innovations
Schumpeter, 1942; Pavitt et al., 1989;
Methé et al., 1996; Cefis & Orsenigo,
2001
Schumpeter, 1911; Freeman et al.,
1982; Dosi, 1982; Perez, 2002
Market Structure
Technological Accumulation
Creative Destruction
High entry barriers also because
imitation costs are high and intellectual
property rights are well protected.
Oligopolistic competition dominates
Low entry barriers in new industries.
High turbulence, which in turn leads to
increase competition
Technological discontinuities help to
create new markets and new
opportunities
Schumpeter, 1942; Galbraith, 1952;
Chandler, 1977
Schumpeter, 1911; Freeman et al.,
1982; Dosi, 1984; Perez, 2002
Forms of Capitalism
Technological Accumulation Creative Destruction
More likely to occur in coordinated
market economies (such as Japan and
Germany), where the various public
and private institutions are more likely
to work together continuously
More likely to occur in liberal market
economies (such as the United States
and the United Kingdom) for their
capacity to shift resources from
industries with low opportunities to
industries with higher opportunities
Hall and Soskice (2001)
Hall and Soskice (2001)
The Innobarometer Survey
Innobarometer 2009 (European Commission) – firm level survey
on more than 5000 firms across Europe – April 2009
Question no. 1: “Compared to 2006, has the amount spent by your
firm on all innovation activities in 2008 increased, decreased,
or stayed approximately the same?”
Question no. 2: “In the last six months [November 2008 to April
2009] has your company taken one of the following actions
[increased, decreased or maintain the innovation spending]
as a direct result of the economic downturn?”
Question no. 3: “Compared to 2008, do you expect your company
to increase, decrease or maintain the total amount of its
innovation expenditure in 2009?”
Percentages of firms which are reported to have increased,
decreased or maintained their innovation expenditures
The effect of the crisis on the innovation
investment across the European countries
2006 compared to 2009
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Increassed
%
Firms' innovation expenditures 2006-2008
Decreased
%
Stayed the
same %
Firms' innovation expenditures 2009
The balances of firms investing and disinvesting
in innovation before and after the crisis
The catching-up of the New Member States
before the crisis
0.7
Declining Nobility
Switzerland
0.7
InnoStruct performance
Denmark
0.6
United Kingdom
Austria
Luxemburg
Belgium
0.5 France
Netherlands
Ireland
Estonia
0.1
0.2
0.3
Spain
Hungary
Latvia
Sweden
Finland
Germany
0.6
0.0
Aristocracy
0.5
0.4
0.5
Slovenia
0.6
Czech
rep.
0.4
Norway
Portugal
Greece
Italy
0.4
0.3
0.7
Poland
0.3
Third State
0.2
InnoInv 06-08 performance
0.8
0.9
1.0
Slovakia
Lithuania
Romania
Bulgaria
Parvenu
Innovation investment during and following on
from the crisis
Cross-Tabulations of dep. variables
Increase
During
Decrease
the
crisis
(T2)
Maintain
Total
Frequencies
Column
percentages
Frequencies
Column
percentages
Frequencies
Column
percentages
Frequencies
Column
percentages
Following on from the crisis
(T3)
Decreas Maintai
Increase
e
n
192
73
159
Total
424
32
61
5
812
7
256
10
1,129
10
350
57
544
11
1,832
26
2,726
58
603
38
1,429
82
2,247
64
4,279
100
100
100
100
Innovation expenditure of great innovators and
other firms, 2006 and 2008, UK
All other
firms
Great
innovators
Total
n. of
firms
% Share of Share of Average Averag
Change
innovati innovati innovati
e
in
on exp. on exp. on exp. innovat
average
2006
2008 2006 in ion exp. innovatio
£000s 2008 in
n exp.
£000s
20062008
2,161
87
0.79
0.63
563
413
-0.27
324
13
0.21
0.37
981
1,599
0.63
2,485
100
1.00
1.00
618
568
-0.08
Who is winning?
Who is increasing innovation investment
in spite of the crisis?
Firms that compete with innovation (before, during and
after the crisis). If these firms do not innovate they are
out of the market.
New firms (created after 2001) after, but not during the
crisis
Firms with internal R&D Departments (before, but also after
the crisis)
Technological opportunities are coupled by market
opportunities (which innovations will we have in the
future?)
The crisis is making the global landscape more important
The Next Wave?
A comparison of ICT and Molecular
ages
A contrasting view:
Disruptive Technologies
McKinsey Global Institute
Four criteria:
•
•
•
•
Technology is rapidly advancing or experiencing
breakthroughs
The potential scope of impact is broad
Significant economic value could be affected
Economic impact is potentially disruptive
Criteria to assess societal impact of
innovation (based on Freeman)
• Large variety of connected products and
services with substantial cost reduction
• Create a new industry, but also change the
operations of most other industries
• Social and Political acceptability
• Environmental sustainability
McKinsey Global Institute
TOP SIX to 2025
• Mobile Internet
• Automation of Knowledge work
• Internet of things
• Cloud technology
• Advanced robotics
• Autonomous vehicles
Combined, they account for about 90% of future
business opportunities
McKinsey Global Institute
Seventh to Twelfth 2025
•
•
•
•
•
•
Next generation genomics
Energy storage
3D printing
Advanced materials
Advanced oil and gas exploration
Renewable energy
What will be the dominant
innovations of the XXI Century?
Transcendence