Fluent Essays

a critical evaluation of the research paper Innovation – a New Guide By Jan Fagerberg TIK WORKING PAPERS on Innovation Studies No. 20131119 http://ideas.repec.org/s/tik/inowpp.html Senter for teknologi, innovasjon og kultur Universitetet i Oslo Centre for technology, innovation and culture P.O. BOX 1108 Blindern N-0317 OSLO Norway Eilert Sundts House, 7th floor Moltke Moesvei 31 Phone: +47 22 84 16 00 Fax: +47 22 84 16 01 http://www.sv.uio.no/tik/ [email protected] TIK Innovation – a New Guide By Jan Fagerberg* *TIK, University of Oslo; IKE, Aalborg University; CIRCLE, Lund University Email: [email protected] Web: http://www.janfagerberg.org/ Abstract There is no shortage of syntheses or overviews on specific topics within innovation studies. Much more rare are attempts to synthesize the syntheses, i.e., cover the entire area of innovation studies, emphasize the achievements that have been made, discuss the implications for policy and point to developments that require further research. The introductory chapter “Innovation: A Guide to the literature” in The Oxford Handbook of Innovation (2004) was an attempt to do just that. However, as a guide it is by now a bit out of date. This paper is an attempt to update and extend it, taking into account lessons from new research on the development of innovation studies - and the knowledge base underpinning it - as well important additions to this knowledgebase from the last decade. A more elaborate discussion of innovation policy, including its theoretical underpinnings and what it may achieve, has also been added. Acknowledgments The work on this paper started more than ten years ago. The first version benefitted from advice from the authors and editors of the Oxford Handbook of Innovation (published by Oxford University Press in 2004). For the current revision I approached a number of people and asked for advice. I especially want to thank Anna Bergek, Susana Borras, Jakob Edler, Frank Geels, Marko Hekkert, Staffan Jacobsson, Rene Kemp, Stefan Kuhlman, David Mowery and Torben Schubert for helpful suggestions. Erlend Simensen at TIK was a creative and helpful assistant during the revision process. The responsibility for remaining errors and omissions is mine alone, however. Economic support from FORFI, Norges Forskningsråd, project 221017/D00, is gratefully acknowledged. Version of November 12, 2013 mailto:[email protected] http://www.janfagerberg.org/ 2 Contents Abstract ............................................................................................................................................... 1 Acknowledgments ............................................................................................................................... 1 1. Introduction ..................................................................................................................................... 3 2. What is Innovation? ........................................................................................................................ 6 3. Innovation Research: Micro, Meso and Macro ............................................................................. 10 3.1. The making of innovations ..................................................................................................... 11 3.2. Innovation systems ................................................................................................................. 14 3.3. Innovation and social and economic change ......................................................................... 17 4. Innovation, Policy and Societal Challenges ................................................................................... 20 4.1. Rectifying “market failure” ..................................................................................................... 20 4.2. Some “stylized facts” .............................................................................................................. 22 4.3. Dynamizing national innovation systems ............................................................................... 27 4.4. Coping with societal challenges ............................................................................................. 31 5. Innovation Studies: The Core Literature ....................................................................................... 32 6. Innovation Studies: An Evolving Agenda ...................................................................................... 36 References ......................................................................................................................................... 39 3 1. Introduction Innovation is not a new phenomenon. Arguably, it is as old as mankind itself. There seems to be something inherently “human” about the tendency to think about new and better ways of doing things and to try them out in practice. Without it, the world in which we live would have looked very, very different. Try for a moment to think of a world without airplanes, automobiles, telecommunications, and refrigerators, just to mention a few of the more important innovations from the not-too-distant past. Or – from an even longer perspective – where would we be without such fundamental innovations as agriculture, the wheel, the alphabet, printing, etc.? However, in spite of its obvious importance, innovation has not always received the scholarly attention it deserves. Indeed, until the early 1960s scholarly publications on innovation were few and far between. The main exception to this rule was the work of the Austrian-American social scientist Joseph Schumpeter. Working in the early days of social science, he combined insights from economics, sociology and history into a highly original approach to the study of long run economic and social change, focusing in particular on the crucial role played by innovation and the factors influencing it. Nevertheless, Schumpeter’s life-long advocacy for seeing innovation as the driving force behind economic and social change seemed almost a lost cause at the time of his death in 1950. Instead, the economics literature increasingly came to be dominated by highly mathematized, static, equilibrium exercises of the type that Schumpeter admired but held to carry little promise for improving our understanding of long run technological, economic and social change. “Innovation studies” may be defined as the study of how innovations emerge and diffuse, what factors influence these processes (including the role of policy) and what the social and economic consequences are. The origins of the field date back to the early post Second World War period, when researchers, mainly in the US and the UK, started to address questions concerning the roles played by innovation and diffusion for economic and social change. 1 Actors outside academia, public as well as private, were often instrumental in making this happen (see e.g. Clausen et al. 2012). An important event in the field’s development was the formation in 1966 of the Science Policy Research Unit (SPRU) at the newly founded University of Sussex in the UK, which under the leadership of its first director, Christopher Freeman, developed into a global hub for the emerging field (see Box 1). The name of the centre illustrates the tendency for innovation studies to develop under other terms, such as, for instance, “science studies” or “science policy studies”. But as we shall see in the following, one of the main lessons from the research that came to be carried out is that science is only one among several ingredients in successful innovation. As a consequence of these findings, not only the focus of research, but also the notions used to characterize the area, changed. During the decades that followed, a number of new research centres and departments were founded, focusing on the role of innovation in economic and social change and associated policy matters. As SPRU, many of these had a multi and inter-disciplinary orientation. 1 An important contribution from the early years of the field’s existence was the collective volume “The Rate and Direction of Inventive Activity” published by NBER and edited by Richard Nelson (Nelson 1962, ed.). See Fagerberg and Verspagen (2009) and Fagerberg et al. (2011) for more information on the origins of the field. 4 ------------------------------------------------------------------------------------------------------------------------------- BOX 1. SPRU, FREEMAN AND INNOVATION STUDIES SPRU – Science Policy Research Unit – at the University of Sussex, UK was founded in 1966 with Christopher Freeman (1921-2010) as its first director. Freeman had previously worked for the OECD on research and development (he was the author of the OECD’s “Frascati Manual” which set the standards for R&D statistics). An economist by training, Freeman realized that the study of science, technology and innovation in the economy required a stronger theoretical foundation, and this he increasingly found in Schumpeter’s work. Freeman was an ardent believer in multi-and interdisciplinarity, and from the very beginning SPRU had a multi-disciplinary research staff with backgrounds in subjects as diverse as economics, sociology, psychology, and engineering. SPRU developed its own interdisciplinary master’s and PhD programs and carried out externally funded research, much of which focused on the role of innovation in economic and social change. It attracted a large number of young scholars from other countries, and SPRU served as a role model for the many centres/institutes within Europe and Asia that were established, mostly from the mid 1980s onwards, combining multi- and inter-disciplinary graduate and PhD teaching with extensive externally funded research. The research initiated at SPRU led to a large number of projects, conferences, and publications. “Research Policy”, which became the central academic journal in the field of innovation studies, was established in 1972, with Freeman as the first editor (he was later succeeded by Keith Pavitt, also from SPRU). An important initiative in the early phase was the SAPPHO project, focusing on factors explaining success or failure in innovation (Rothwell et al. 1974). Freeman’s influential book “The economics of industrial innovation”, drawing to a large extent on the lessons from the SAPPHO project, was published in the same year. In 1982, after he had stepped down as director, the book “Unemployment and Technical Innovation”, written by Freeman, Clark, and Soete, appeared, introducing a systems approach to the analysis of the role of innovation in long run economic and social change. Freeman later followed this up with an analysis of the “national innovation system” in Japan (Freeman 1987), the first published work to use that term. Freeman’s last major book, focusing on how to understand and study long-run growth (Freeman and Louḉã, 2001), appeared in 2001, the year he turned 80. Further reading: Fagerberg, J., Fosaas, M., Bell, M., Martin, B.R., 2011. Christopher Freeman: Social science entrepreneur. Research Policy 40, 897-916. -------------------------------------------------------------------------------------------------------------------------------------- Figure 1 reports the number of publications with innovation in the title as a share of total annual additions to the catalogue of the British Library (mostly books) and the ISI Web of Science (mostly journal articles) from 1956 onwards. As shown in the figure, in the beginning there were very few publications on the subject, at least as far as indicated by their titles. However, since that time the 5 number of publications with innovation in the title has increased steadily as a share of the annual additions, with a particularly sharp rise in recent years. Figure 1. Growth of the literature on innovation Source: Fagerberg, Fosaas and Sapprasert (2012) The growth of the community associated with research in this area also led to the creation of several new journals, conferences and professional associations. “Research Policy” was as mentioned established in 1972. More recent additions to the publication outlets in this area include for example Technovation (1981), Industrial and Corporate Change (1992) and Industry and Innovation (1993). A professional association honouring Schumpeter’s name, The International Schumpeter Society (ISS), founded in 1986, hosts an international conference every two years for scholars working in the Schumpeterian tradition. The Technology and Innovation Management Division (TIM) of the (American) Academy of Management, which meets annually, was formed in 1987. The Danish Research Unit for Industrial Dynamics (DRUID), initially a relatively local Danish affair, has since 1995 hosted an annual conference with broad international participation. A more recent initiative is the GLOBELICS network, which since 2003 has organized annual conferences on issues related to innovation and development. Hence, towards the turn of the millennium, the field of innovation studies was relatively well established, with a substantial core literature (see section 5) and a set of journals and professional associations. A few decades ago, it was still possible for a hard-working student to get a fairly good overview of the scholarly work on innovation by devoting a few years of intensive study to the subject. However, as indicated by Figure 1, since then the literature on innovation has grown much larger and it has become more difficult to get a good overview and understanding of the accumulated knowledge in this area. The demand for good syntheses and up to date overviews has from the early 1990s onwards has led to the publication of several so-called handbooks on innovation or aspects thereof, consisting of overviews of specific subfields of innovation research. Thus, there is no shortage of syntheses or overviews on specific topics within innovation studies. But attempts to “synthesize the 6 syntheses”, i.e., cover the entire area of innovation studies, emphasize the achievements that have been made, discuss the implications for policy and point to developments that require further research, are rare. The present author is only aware of a few such attempts, the most recent of which is the introductory chapter “Innovation: A Guide to the literature” in The Oxford Handbook of Innovation from 2004. However, so much has happened in this field since the paper was written that as a guide it is out of date. This paper is an attempt to update and extend that guide based on new research on the development of innovation studies as a scientific field - and the knowledge base underpinning it - as well as additions to this knowledge base during the last decade. The structure of the paper is as follows. The next section, entitled “What is innovation,” presents some basic concepts and discusses their interrelationships. This is followed, in section 3, by a discussion of three main topics in innovation research, at the micro, meso and macro level, respectively: innovation in firms; innovation systems; and consequences of innovation for social and economic change. Section 4 focuses on innovation policy, broadly defined, and the extent to which it can help in dealing with contemporary challenges. The most important contributions to innovation literature are presented in section 5. The final section considers the implications for the future agenda of the field. Finally a word of caution: As every experienced traveller should know, a guide is just a (hopefully helpful) tool when entering a new territory, not a substitute for the actual travel. The same caution applies to reading - this guide is by no means a substitute for the original works surveyed. Moreover, although a broad range of topics is covered, some issues (or contributions) that other scholars perhaps would attach great importance too, may only be dealt with very briefly if at all. The reader is therefore well advised also to consult other sources. 2 2. What is Innovation? An important distinction, attributed to the innovation-theorist Joseph Schumpeter, is between invention and innovation. Invention is the first occurrence of an idea for a new product or process, while innovation is the first attempt to carry it out in practice. To be able to turn an invention into an innovation, the innovator normally needs to combine several different types of knowledge, capabilities, skills and resources. For instance, production knowledge, skills, facilities, market knowledge, a well-functioning distribution system, sufficient financial resources, and so on may be required. It follows that the role of the innovator, i.e., the person or organizational unit responsible for combining these required factors (what Schumpeter called the “entrepreneur”), may be quite different from that of the inventor. 2 The handbooks mentioned above would be a good start. For a list see http://www.innoresource.org/handbooks/. http://www.innoresource.org/handbooks/ 7 -------------------------------------------------------------------------------------------------------------------------------- BOX 2 THE INNOVATION THEORIST JOSEPH SCHUMPETER Joseph Schumpeter (1883-1950) was one of the most original social scientists of the 20th century. He grew up in Vienna around the turn of the century, where he studied law and economics. For most of his life he worked as an academic, but he also tried his luck as a politician, serving briefly as finance minister in the first post-First-World-War (socialist) government of Austria, and as a banker (without much success). He became professor at the University of Bonn in 1925 and later at Harvard University in the USA (1932), where he remained until his death. Very early in his scholarly writings, he developed an original approach, focusing in particular on the crucial role of innovation for economic and social change. In so doing he distanced himself from the (then) emerging neoclassical strand of economics, because it in Schumpeter’s own words assumed that “economic life is essentially passive … so that the theory of a stationary process constitutes really the whole of theoretical economics … I felt very strongly that this was wrong, and that there was a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained” (Schumpeter 1937/1989, p. 166). It was this ‘source of energy’, innovation, that he wanted to explain. In Schumpeter’s early writings, what is sometimes called “Schumpeter Mark I”, he focused mostly at individual entrepreneurs as the driving force for innovation, while in later works he also emphasized the importance of innovation in large firms (so-called “Schumpeter Mark II”). He published several books and papers in German early on, among these the “Theory of Economic Development”, published in 1912 and in a revised edition in English in 1934, which presents the main aspects of his theory. Among his most well-known later works are “Business Cycles” in two volumes (from 1939), focusing on the tendency for innovations to “cluster” in certain industries and time periods (and the derived effects on growth, e.g., so-called “long waves” in the world economy), and “Capitalism, Socialism and Democracy” (1942) which among other things discusses the extent to which the capitalist system and its institutions can survive in the longer run. The way we analyse innovation today, including its causes and impacts, and the terms that are used in such analyses, are significantly influenced by Schumpeter’s works. Further reading: There is a large literature on Schumpeter. The first of the two references below focuses on Schumpeter’s life and the second on his works: McCraw, T.K., 2007. Prophet of Innovation: Joseph Schumpeter and Creative Destruction. Belknap Press of Harvard University Press, Cambridge, Mass. Andersen, E.S. 2011. Joseph A. Schumpeter: A Theory of Social and Economic Evolution, Palgrave Macmillan, Basingstoke and New York For a short introduction to Schumpeter’s works (and those of his followers) see Fagerberg (2003). ---------------------------------------------------------------------------------------------------------------------------------- 8 History is replete with cases in which the inventor of major technological advances fails to reap the profits from his or her breakthroughs. Although invention and innovation occasionally are closely linked, to the extent that it is hard to distinguish one from another (biotechnology for instance), in many cases there is a considerable time lag between the two. In fact, a lag of several decades or more is not uncommon. Such lags reflect the different requirements for working out ideas and implementing them. Long lags between invention and innovation may also have to do with the fact that some or all of the conditions for commercialization may be lacking. There may not be a sufficient demand (yet!) or it may be impossible to produce and/or market because some vital inputs or complementary factors are not (yet!) available. For instance, although Leonardo da Vinci is reported to have had some quite advanced ideas for a flying machine, these were impossible to carry out in practice due to a lack of adequate materials, production skills and – above all – a suitable power source. In fact, the realization of these ideas had to wait for the invention and subsequent commercialization (and improvement) of the internal combustion engine. As this example shows, many inventions require complementary inventions and innovations to succeed at the innovation stage. Thus, what we think of as a single innovation is often the result of a lengthy process involving many interrelated innovations. For instance, the car, as we know it today, is radically improved compared to the first commercial models, due to the incorporation of a very large number of different inventions/innovations. In fact, the first versions of virtually all significant innovations, from the steam engine to the airplane, were crude, unreliable versions of the devices that eventually diffused widely. Kline and Rosenberg (1986), in an influential paper, point out: “it is a serious mistake to treat an innovation as if it were a well-defined, homogenous thing that could be identified as entering the economy at a precise date – or becoming available at a precise point in time. (…) The fact is that most important innovations go through drastic changes in their lifetimes – changes that may, and often do, totally transform their economic significance. The subsequent improvements in an invention after its first introduction may be vastly more important, economically, than the initial availability of the invention in its original form” (Kline and Rosenberg 1986, p.283) Innovations are commonly classified according to “type”. Schumpeter distinguished between five different types: new products, new methods of production, new sources of supply, the exploitation of new markets, and new ways to organize business. In economics, most of the focus has been on the two first of these. The terms “product innovation” and “process innovation” have been used to characterize the occurrence of new or improved goods and services, and improvements in the ways to produce these good and services, respectively. However, the focus on product and process innovations, while useful for the analysis of some issues, should not lead us ignore other important aspects of innovation. For instance, many of the innovations that, during the first half of the twentieth century, made it possible to for the United States to “forge ahead” of other capitalist economies, were of the organizational kind (Bruland and Mowery 2004). Many of these affected the distribution of manufactured products, with great consequences for a whole range of industries. Another approach, also based on Schumpeter’s work, has been to classify innovations according to how radical they are (see Freeman and Soete 1997). From this perspective, continuous 9 improvements are often characterized as “incremental” or “marginal” innovations, as opposed to “radical” innovations (such as the introduction of a totally new type of machinery in a specific industry) or “technological revolutions” (consisting of a cluster of innovations that together may have a very far-reaching impact in a whole range of industries or the economy as a whole). In recent writings on the subject the latter type is often called “general purpose technologies” (GPTs, see e.g., Lipsey et al. 2005). Schumpeter focused in particular on the latter two categories, e.g., radical innovation and technological revolutions, which he believed to be of greater importance. It is a widely held view, however, that the cumulative impact of incremental or marginal innovations may be just as great (if not greater), and that to ignore these would lead to a flawed understanding of long run economic and social change. In fact, the realization of the economic benefits from “radical” innovations in many if not most cases (including those of the airplane and the automobile) required a series of incremental improvements. Innovation may strengthen - or threaten - existing business models or markets for existing products. Schumpeter used the notion “creative destruction” to characterize the process through which innovation, especially when of the market creating and/or organizational type, “revolutionizes the structure from within, incessantly destroying the old one, incessantly creating the new one.” (Schumpeter 1942, p. 83). More recently, Christensen (1997, 2003) has suggested the term “disruptive innovation” for innovations that through the exploitation of new markets or market niches gradually undermine the position of existing business models. The fate of firms such as Eastman Kodak, Nokia, or Digital Equipment suggests that innovation retains considerable potential to upend existing industries or markets. A further distinction is between innovation and imitation. The latter is the replication of an innovation and is of great social and economic significance. Without imitation the social and economic impact of innovation would matter much less (if at all). However, the distinction between innovation and imitation, although clear enough in theory, is often difficult to draw in practice. This partly has to do with the fact that something that is well known in one context may be new in another context. For example, if A for the first time introduces a particular innovation in one context, while B later does exactly the same in another, would we characterize both as innovators? A common practice, to some extent based on Schumpeter’s work, is to reserve the term innovator for A and characterize B as an imitator. But one might also argue that it would be correct to call B an innovator as well, since B is introducing the innovation for the first time in a new context. This is, for instance, the definition adopted by the European Union’s Community Innovation Survey (CIS, see Smith 2004). Moreover, introducing something in a new context often implies considerable adaptation (and, hence, marginal innovation) and, as history has shown, organizational changes (or innovations) that may significantly increase productivity and competitiveness. Therefore, innovation studies focus not only on how innovations occur, but also on how innovations spread (or diffuse), through imitation or by other means, and the feedback from this process on innovation activity. 10 ---------------------------------------------------------------------------------------------------------------------------- BOX 3. ZVI GRILICHES: A PIONEER IN THE STUDY OF DIFFUSION OF INNOVATIONS Zvi Griliches (1930-1999) was born in Lithuania, sent to the Dachau concentration camp during the 2nd World War and afterwards lived briefly in Palestine before coming to the USA as a graduate student in agricultural economics. He finished his education with a PhD in economics at the University of Chicago in 1957 which was the basis for his most famous work, “Hybrid Corn: an Exploration in the Economics of Technological Change”, published as …