EconomicsandPolicyofInnova1on

Academicyear2015/2016

Lecture4:March2nd,2016DrClaudioCozza

DEAMS–UniversityofTrieste

TheInnovaHveFirm[inhistory–partII]

(Chapter2)

Summaryofpreviouslecture

•  Neo-classicalvs.EvoluHonaryEconomics•  TheinnovaHvefirmsinhistory:– GreatBritain,XIXcentury(chapter2.3)– US,XXcentury(chapter2.4)

•  Readings:history(Hobsbawm)andclassicaltheory(AdamSmith)

•  Schumpeter:MarkIvs.MarkII

Readings

•  DavidRicardo:onmachineries

•  KarlMarx:capitalisHcuseofmachineries

•  Schumpeter(MarkII,from“BusinessCycles”)

Chapters2.5and2.6

TheJapanesechallenge

TheNewEconomy

TheJapanesechallenge

•  Three insHtuHons: involvement of workers(and managers); bank system; lifeHmeemployment.

•  OrganisaHonalinnovaHon(Toyota!).

•  MovingfromcopyingexisHngtechnologyfromabroad (like China over the past years) tobecoming top R&D spenders (as in theScoreboard).

Theneweconomymodel(’90s)

Everybody thinks of small new firms in theSiliconValley,butthemodelisalsobasedon:•  The large investment by the US Government(and Army) aier the Second World War(remembercoldwar?),

•  In collaboraHon with University Departmentsandlargefirms(e.g.IBM)

At the end of ’50s: first generaHon ofcomputers. Then in the ‘60s: ARPANET(INTERNET“father”).

•  The development of computers (based onsilicium chips) pushed the demand ofsemiconductors,givingorigintoawaveofnewinnovaHvefirms

•  UnHlmid’60s,suchademandwascomingfromtheUSGovernmentonly,thenalsofromanewgeneraHonofventurecapitalists

•  Newfirmsinthesectorwereborn,foundedbyengineers and university professors, mainlyaround Stanford University -> Silicon Valley,sincethe’70s

TheinnovaHvefirminhistory:conclusions

Therefore,onlyfollowingthissequence,puqnginnovaHve firms in historical perspecHve(includingsomefeaturesoftheoldeconomy)wecan understand the specificiHes of the neweconomy(kindofSchumpeterMarkIrevised):-  Informalnetworksoflearning-  Former employees founding their ownventures

-  SalariesbasedalsoonstockopHons,notonlyformanagersbutalsoforsimpleemployees

TheinnovaHvefirminhistory:conclusions(2)

However,againalsointheneweconomy:•  Manyfirmsdie,•  Toponesbecomegiants,•  PerforminghugeamountsofR&DandpatenHngtheirinvenHons,

•  With many cases of Mergers and AcquisiHons,alsoamonggiants,

•  With top managers geqng even richer, sellingtheir stocks just before the bubble started toburst,andmanyemployeesfired…

(moreinlinewithSchumpeterMarkII)

InnovaHonProcesses

(Chapter4)

3mainblocks

•  ProducHonofscienHficknowledge->

•  TranslaHonofknowledgeintoproducts->

•  Responsetothemarket

Inchapter4,manyrecallstopreviouslectures

4.2:JosephSchumpeter4.3:AdamSmith4.3.3:thelinearmodel(Input->InnovaHon->Output)4.4.2:ICTpushedbyUSGovernment

Butaddi1onalconceptsareneeded->

Theinnova1vefirmintheevolu1onarytheory

Mainconcepts:

-  Technologicallearningandrou1nes

-  Pathdependenceandtechnologicallock-in

-  AbsorpHveCapacity-  Technologicalparadigmsandtrajectories

•  Historicalevidence: insHtuHonalisaHonofR&D infirmshasbeenoneofthemostcentralchangeinthewayinwhichfirmscompeteandchangetheirtechnologies

•  Nature of the R&D acHvity of the firm: expandtechnologicalpossibiliHesandcreateowntechnology

•  But: technology is constrained by a number of factorsandtechnologicalpossibiliHesarenotaninfiniteset

•  Linksbetweentechnicalchangeandfirmbehaviour:•  Technologicalimbalances•  TechnologicalopportuniHes•  TechnologicalcapabiliHes

Introduc1on

Evolu1onaryviewIndustrial compeHHon is shaped by the rate anddirecHonsoftechnologicalchangeinasector,whichinturndependonthenatureoftechnologyThe sources and nature of knowledge influences thedecisionstoentertheindustryTechnologicallearningandmarketselecHondeterminethegrowthandsurvivalofafirm

•  CumulaHvelearningfromsourcesinsidethesector(e.g.in-house R&D) and knowledge specific to industrialapplicaHons⇒lowentryandhighconcentraHon•  New opportuniHes from sources outside the sector (e.g.academic research) and generic and non-systemicknowledge⇒highentryandlowconcentraHon

In a very “extreme” synthesis, for theEvoluHonaryapproach, thekeydrivers forR&DandInnovaHoninfirmsare:A.  The evoluHon of scienHfic and technological

opportuni1esB.  Research organisaHon and procedures ->

rou1nesC.  ThelearningprocessD.  Externallinkagesandcomplementari1es

A.TheevoluHonofscienHficandtechnologicalopportuni1es

•  Scien1fic and technological contextsoutsidethefirm(e.g.publicresearch)…

•  …but also other sources external (suppliers,clients, other firms) and internal (R&D, otherfirmdivisions,etc.):→ Be tween e x t e rna l and i n t e rna lopportuni1es there might be highcomplementari1es;

→ Opportuni1es strongly change acrosssectors.

B.WhatisaROUTINE?

IntheevoluHonaryapproach,firmacHviHescanbe represented with repeHHve behaviouralschemes,usedunderspecificcircumstances.RouHnesarerepe11vepaHernsofac1vityinanenHre organisaHon. In other words, ac,onswhichare:-  Recurrent,-  Invariable,-  Context-specific,-  Embeddedinthefirm.

C.Thelearningprocess•  AcquisiHon and accumulaHon of knowledgethrough:R&D,producHonandmarkeHng;

•  NotasimpleacquisiHonofinforma1on(asintheneo-classicaltheory);

•  AcquisiHon and accumulaHon (as rouHnes) arenot just a mauer of Hme passing by: it is anacHvityaimedatsolvingspecificproblems;

•  Itisanevolu,onaryprocesswhichis:– mul1dimensional,– cumula1ve (depends on past knowledge andgeneratesnewknowledge),

– with local and contextual characteris1cs(derivingfromdirectexperience),

– Withastrongcogni1vedimension.

Manylearningprocessesdoexist:•  Learningbydoing(neo-classicalmodel);•  Learningbyusing;•  Learningbysearching;•  Learningbylearning;•  Learningbyinterac1ng.

D.Externallinkagesandcomplementari1es

•  Research and innovaHon -> interac,ve andcollec,veprocess

•  GeneraHon of new knowledge -> chainprocess,characterisedby:–  Interdependence– Complementarity– FeedbacksAmongdifferentphases,both internaltothefirms,and between the firm and external actors(universiHes,researchcentres,suppliers,clients…)

Pathdependence:OnceafirmhaschosentofollowaninnovaHonpath,thereisacosttoabandonit!Thereforeafirmcanbedependentonthatchoice->leadingtosuccess……butalsotoitstechnologicallock-in(entrapment)forthefirmwhichhaschosenthe“wrong”path.