IREIN, Fundacion Ramon Areces, Fore de Empresas Innovadoras

THE NEW AGENDA FOR INNOVATION STUDIES AND POLIRY IMPLICATIONS, Madrid, 13-14 March 2014

Convenor: Professor José Molero

Which Innovations and which Innovators will bring us out of

the crisis?

13-14 March 2014Daniele ArchibugiItalian National Research Council, RomeBirkbeck College, University of London

Blade Runner Economics In the case of space, it has anticipated far too

much 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: business life is associated to technological opportunities

Integration among different technologies (Schumpeterian clusters) is crucial to shape techo-economic paradigms

Blade Runner Economics

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?

Is economic growth historically contingent? Robert Gordon (2012): “the rapid

progress made over the past 250 years could well turn out to be a unique episode in human history”

Christopher Freeman (1984): The potential for economic growth is associated to generation and diffusion of knowledge to economic and society through innovation

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

The hierarchy of companies, industries and countries may emerge transformed from a crisis

Is the problem adjustment? Mancur Olson’s view The Rise and Decline of Nations Nations that did not experience major shocks

(such as loosing wars or having military invasions) experience a lower rate of economic growth

Social rigidity as a major obstacle to growth Opposite cases: the UK and Japan 1945-1980 What is the link? According to Olson,

incumbents charge higher prices since new entrants are not allowed

Who does what? Company typologies

Business as usualLet wait until it stops raining

Reduce costs Including investments

Search for new opportunitiesNew markets and new products which could generate sales and profits

Looking for the Next Technological 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 KnowledgeTechnological 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 continuous flow of incremental product and process innovations.

Organizational routines dominate the generation of innovations

A few radical innovations generating new industries, often in integration with knowledge already explored for different purposes.New forms of economic organizations 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 turbolence, which in turn leads to increase competitionTechnological 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

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?”

The effect of the crisis on the innovationinvestment across the European countries

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The balances of firms investing and disinvesting in innovation before and after the crisis

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Bulgaria

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France

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Hungary

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Latvia Lithuania

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Poland

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The catching-up of the New Member States before the crisis

AustriaBelgium

Czech rep.

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France

Germany

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Hungary

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Italy

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Third State

Investment in Innovation related Activities Before, During and Following on from the Crisis

 Dependent variable: change in innovation related investment

Before the crisis During the crisis Following on from the

beginning of the crisis

(T1) (T2) (T3)

  N° % N° % N° %Increase 1,985 38 453 9 659 13Decrease 472 9 1,231 24 1,560 30Maintain 2,207 42 2,961 57 2,452 47Innovation active firms 4,664 89 4,645 90 4,671 90No innovation activities 328 6 457 9 343 7Missing observations 242 5 132 3 220 4Number of observations 5,234 100 5,234 100 5,234 100

Innovation investment during and following on from the crisis. Cross-Tabulations of dep. variables

     Following on from the crisis

(T3)  

  Increase Decrease Maintain Total

During the crisis (T2)

Increase Frequencies 192 73 159 424Column percentages 32 5 7 10

Decrease Frequencies 61 812 256 1,129Column percentages 10 57 11 26

Maintain Frequencies 350 544 1,832 2,726

 Column percentages 58 38 82 64

  Total Frequencies 603 1,429 2,247 4,279

  

Column percentages 100 100 100 100

Chi2(4)=1,400; p<0.01

Innovation expenditure of great innovators and other firms, 2006 and 2008, UK

 

n. of firms

Percent

Share of innovation exp.

2006

Share of innovation exp.

2008

Average innovation exp. 2006 in

£000s

Average

innovation exp. 2008 in

£000s

Change in

average innovatio

n exp. 2006-2008

All other firms 2,161 87 0.79 0.63 563 413 -0.27

Great innovators 324 13 0.21 0.37 981 1,599 0.63

Total 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 oppportunities (which innovations will we have in the future?)

The crisis is making the global landscape more important

A comparison of ICT and Molecular agesThe Kondratiev Waves

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

McKinsey Global Institute TOP SIX to 2025

Mobile Internet Automation of Knowledge work Internet of things Cloud technology Advanced robotics Autonomous vehiclesCombined, 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