Macro-economics of Innovation II

1. Macro-economics of Innovation II Nelson and Rosenberg (1993) Archibugi et al. (1999)

2. National Innovation System 1 • Institutions and mechanism supporting technical innovation. • Actor network: • Enterprises, Universities/research institutes, Government (policies and regulations), Suppliers, Customers and Competitors.

3. National Innovation System 2 • The slow down in the growth of advanced countries since the 1970s. • The rise of Japan, South Korea and Taiwan as competitors. • Techno-nationalism: belief that the technological capabilities of a nation’s firms are a key source of their competitive strength and that these capabilities are in a sense national, and can be built by national action. • Source: Nelson and Rosenberg (1993)

4. NIS 3 • Freeman, Lundvall and Nelson early users of the concept NIS. • Now applied at the regional and technological levels also. • “Technological systems” of Carlsson: systems can be specific to particular technology fields or sectors. Sectors and technologies have their own dynamic.

5. NIS 4 • ‘Nationhood matters and has a pervasive influence’ (Nelson). • Sectors and technological systems within a nation have a powerful shaping of influence on the structure and dynamic of NIS, while national contexts have important influences on sectoral conditioning and performance. • Prior institutional endowments of a NIS may help of hinder innovation activity and performance within particular sectors of a national economy (Archibugi et al, 1999).

6. NIS Concepts 1 • NIS as ‘the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies’ (Freeman). • Lundvall: NIS includes ‘organizational and institutions involved in searching and exploring - such as R&D departments, technological institutions and universities’ (narrow definition).

7. NIS Concepts 2 • Lundvall: Includes ‘all parts and aspects of economic structure and the institutional set-up affecting learning as well as searching and exploring - the production system, the marketing system and the system of finance present themselves as sub-systems in which learning takes place (broad definition). • Innovation: Some focus on technological innovations (Carlsson & Stankiewicz) and some others include institutional, social and educational innovations (Lunvall, Freeman).

8. NIS Concepts 3 • Nelson and Rosenberg: Innovation encompasses ‘the processes by which firms master and get into practice product designs and manufacturing processes that are new to them, if not to the universe or even to the nation’. • Being a leader vs. Follower is blurred. • The first in the market need not derive the largest returns on innovation. • Innovation is linked to economic performance and so broader.

9. NIS Concepts 4 • System: Boulding’s definition of a system is ‘anything not in chaos’. A system is constituted by a number of elements and by the relationship between these elements. In NIS no references to systems theory. • National: Two dimensions (national - cultural and Étatist - political). The two controlled by a central authority is an utopian concept. • Systems of innovation that sectoral as well as different geographical levels (Archibugi et al).

10. NIS Commonalities • Core characteristics: • Innovation and learning, Holistic and inter-disciplinary nature, • Inclusion of historical perspective, Differences between systems and non-optimality, • Inter-dependence and non-linearity, Inclusion of product and organizational innovations, • Central role of institutions, Conceptually diffuse nature, • Conceptual constructs, but not theory (Edquist).

11. SI and Learning • Learning a key element in connectivity. • Learning at all levels: from the individual through to the firm and organization, on to inter-firm and inter-organizational learning, institutional learning, cross-institutional learning and on through to the whole system - the learning economy. • However, the notion that what is learnt will be exactly the same for each individual, firm, organization and institution is not correct (Archibugi et al.)

12. SI - Weaknesses 1 • Learning and interaction is vital, but little discussion on the nature of flows and linkages between different actors. • Growth can result from within the individual actor/element or from increased flows between them. Similarly all the growth in a system may stay inside it or flow out depending on the openness of the system. Alteration of these two dimensions can change the growth characteristics and dynamics radically (Archibugi et al.)

13. SI - Weaknesses 2 • SI is a ‘top-down’ view of firms’ innovation activity. • SI tend to consider individual firms as simply reacting to changes that are occurring within the wider system - or within the more specific network or institutional level. • SI does not account for individual firms/actor influencing the system • (Archibugi et al.)

14. SI and Globalization 1 • Key Questions: • If the globalization of technological innovation is occurring, will it lead to the eventual dissolution of NIS? • Will national systems of innovation converge towards more similar structures due to the forces of globalization? • Is globalization eroding importance of innovation policies at the national level? • Source: Archibugi et al (1999)

15. SI and Globalization 2 • Globalization facilitates transmission of best-practice techniques across countries. But, it is not an automatic process. • Increased flow of goods and services enable firms to acquire complementary inputs required for converting basic knowledge into products. However, firms should have ‘absorptive capacity’. At the national/regional level a critical mass or institutional or technological infrastructure is necessary to harness external knowledge.

16. SI and Globalization 3 • Location-specific advantages continue to be important as is evidenced by the firms’ decisions relating to foreign direct investment. • International distribution of production and of technological capabilities is becoming more sectorally differentiated. International division of labour shows that each is country is focusing on a smaller number of selected industries and relying on trade for others. • (Archibugi et al, 1999)

17. Technical advance: processes and institutions 1 • In the modern era most technologies are associated with various fields of science that illustrate them and provide invaluable understanding and techniques to advance technology. However, innovation remains a trial and error. • New science gives rise to new technologies (a view). But, the link between science and technology is more complex. (Nelson and Rosenberg)

18. Technical advance: processes and institutions 2 • Electrical equipment industry is a result of development of theoretical and experimental physics in the 19th century. The emergence of electricity as a new source of power resulted in a wide range of new products such as incandescent light, telephone, gramophone, which have their origin in scientific research that began with Faraday’s demonstration of electromagnetic induction in 1831. • On the other hand, the industries producing chemical products or using chemical reactions in manufacturing other products (tanning & dying) existed long before the rise of modern science. (Nelson and Rosenberg)

19. Technical advance: processes and institutions 3 • A systemic body of scientific knowledge about chemistry grew in the mid 19th century. In 1860s, Kekule managed to break the modular structure of benzene, a major significance for thousands of aromatics, including dyes and drugs, for all of organic chemistry. • The rise of scientific understanding supporting aircraft design reflects a similar story. • Therefore, new technologies have given rise to new sciences is equally true. • Limits of science and learning-by-doing (design and incremental innovations (Nelson and Rosenberg)

20. Technical advance: processes and institutions 4 • Institutions: • Firms and industrial research laboratories since the beginning of World War I. • Modern university research (basic research) and national research institutions (applied research). Max Planck Institutes (basic research) and Fraunhofer Laboratories (applied research) in Germany. • Inter-industry differences in technological advancement. • Technological communities and NIS. (Nelson and Rosenberg)