Wednesday, April 16, 2014

Macro-Innov 9: Dimension 3 - Economies

In this the third section of my blogs on macro-innovation I want to explore the connections between innovation studies and conceptions of the macro-economy in a more dissecting way than I have to present.

  • what are 'industries' and how do we define them;
  • how does innovation change the character of labour markets
  • market formation and definition
  • money flows versus substance flows
  • the technospehere and macroeconomics
  • economic growth, structural change and technology
  • etc.

I want to highlight where innovation studies has succeeded in helping us developing a better understanding of the economy, where it still has blind spots as well as where it has tried to fold itself ill fittingly into an economics agenda that has all the same primary compass points even if the actually modelling can look very different.

What do I mean by this last comment. Well for years the complaint of those that studied the economics of technology is that technology was part of an unexplained residual in economic growth analysis. So technology and then innovation studies took as its compass points the agreed agenda of traditional economic growth. But problematically, perhaps the measures of growth and change are inadequate for measuring the changes.

As a part of this series I want to dig away at this paradox, the attempts at constructing something new within an old pre-existing outdated framework. Not surprisingly then, innovation studies is rapidly retreating away from the macro to the micro. More and more academic work deals with innovation at the firm strategy level. Much of this innovation does not alter economies it merely shifts economic activity between actors (see Baumol 1996).

In investigating the the macro I want, as a radical suggestion, to leave the question of economic growth to one side as we explore the notions of configurations of economies.

The Heart of Innovation:  Economic Growth or Deep Structural Change

The following is extracted from Knudsen, T. and Swedberg, R. (2009) "Capitalist Entrepreneurship: Making Profit through the Unmaking of Economic Orders," Capitalism and Society: Vol. 4: Iss. 2, Article 3.
DOI: 10.2202/1932-0213.1057-pp3-4.

The central concept in Schumpeter’s theory of entrepreneurship is that of combination, both for the work it does in his own theory and for its general potential for theorizing and explaining entrepreneurship (Swedberg, 2007). Why does Schumpeter use the concept of combination in his theory of entrepreneurship and where does it come from? Schumpeter refers to the work of 19th century economist Jean-Baptiste Say on this point:

His contribution [to the theory of entrepreneurship] can be summed up in the pithy statement that the entrepreneur’s function is to combine the factors of production into a producing organism. Such a statement may indeed mean much or little. He certainly failed to make full use of it and presumably did not see all its analytical possibilities. He did realize, to some extent, that a greatly improved theory of the economic process might be derived by making the entrepreneur in the analytic schema what he is in capitalist reality, the pivot on which everything hinges. (Schumpeter, 1954:555).

Schumpeter distinguishes between the following two cases: there exist new combinations as well as already existing combinations. New combinations are defined as innovations by Schumpeter. And there are five main types of innovations: “a new good”, “a new method of production”, “a new market”, “a new source of supply of raw materials”, and “the carrying out of a new organization of any industry” (Schumpeter, 1934:66).

If innovations are new combinations, according to Schumpeter, what does he have in mind when he refers to combinations that already exist? The answer can be found in Schumpeter’s discussion of “economic combinations” versus “technological combinations”. The central argument is as follows:

Technologically as well as economically considered, to produce means to combine the things and forces within our reach. Every method of production signifies some such combination. This concept may be extended even to transportation and so forth, in short to everything that is production in the widest sense. An
enterprise as such and even the productive conditions of the whole economic system we shall regard as ‘combinations’. (Schumpeter,1934:14)

Combination, then, is a term that Schumpeter also uses to capture the process of production – what Say called a “producing organism”. While it is often said today that the economic process consists of “production, distribution and consumption”, Schumpeter can – with a little stretch – be said to suggest a different way of conceptualizing it: as a combination.

Why does Schumpeter make a distinction between technological and economic combinations? The answer has to do with the fact that the economic process can be organized according to different criteria. If technological criteria are prevalent, the technologically most efficient solution will be chosen. But in a capitalist society, “economic logic prevails over the technological” (Schumpeter, 1934:14-5). He adds: “in consequence we see all around us in real life faulty ropes instead of steel hawsers, defective draught animals instead of show breeds,the most primitive hand labor instead of perfect machines, a clumsy money economy instead of cheque circulation, and so on” (Schumpeter, 1934:15).

Therefore, going back to Schumpeter and with the aid of Knudsen and Swedberg we can see that there is an explored domain of questions - combinatorial configuration of economies, and how these change across time. We could also call this the structural change beyond industrial structure change.

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