Theories of Technological Change

1. Theories of Technological Change Definitions and concepts

2. Definitions and Concepts • Technological change: improvements in the products, production processes, material and intermediate inputs and management methods in the economic system • The study of technological change analyzes: • The sources and the direction of potential improvements • The selection of actual changes from the long menu of potential changes • The process of the introduction of such changes • The impact of such introductions

3. Definitions and Concepts • The three stages in the technological change process: The Schumpeterian trilogy • The first stage → invention process: the generation of new ideas • The second stage → innovation process: the development of new ideas into marketable products and processes • The third stage → diffusion: the new products and processes spread across the potential market (that is where the impact of new technology occurs and is measured)

4. Definitions and Concepts • The trilogy is not a linear process in which invention automatically leads to innovation which automatically leads to diffusion • At each stage there is a selection process • There are extensive feedbacks that a linear process does not represent • As diffusion proceeds, expectation of profit may feedback to the invention and innovation process • The expectations of the returns to technologies represent the incentive to generate and introduce new technologies

5. Definitions and Concepts • Product innovation: the generation, introduction and diffusion of a new product • Process innovation: the generation, introduction and diffusion of a new production process • Organizational innovation: changes in management methods

6. Definitions and Concepts • Science is associated with the early stages in the trilogy, say invention, whereas technology is often associated with later stages in the trilogy • Technology: as activities generating advances close to market, which will yield private gain • Research and development (R&D) process: basic and applied • Basic research: relate closely to the invention process • Applied research: relate closely to the innovation stage

7. Definitions and Concepts • Sources of technological improvement: • R&D • Learning of various kinds, design, reverse engineering and imitation • Licensing agreements and collaboration agreements • Acquirements from the suppliers of capital goods • Technological change: dynamic, involving risk and uncertainty • Technological and commercial risk: market failure-government intervention- policy making

8. Technology and Innovation:The Neoclassical Viewpoint • Technology as a set of fully known blueprints, codified knowledge available from the “universal blueprint library” • Producing the particular level of output at a minimum cost given the knowledge of the relative prices of the factor services (technology) • The flow of new knowledge, of inventions and innovations treated as outside the framework of economic models, as exogenous variables • Link between technical opportunities and economic choices (productivity, the elasticity of substitution, factor intensity) • What determines the production set if not contained in a universal library? • Specified by the knowledge contained within the firm • How about any changes of technique that needs learning and the growth of new knowledge?

9. Technology and Innovation:The Neoclassical Viewpoint • The state of technical arts “ manna from heaven” → knowledge as a non-rival good • Knowledge could be used any number of times by any number of firms to produce any quantum of output or indeed to develop new knowledge • Knowledge is costless to transmit but not costless to absorb • Present state of accumulated knowledge matters • Fact: knowledge costly to produce, costly to absorb and absorptive capacity depends on prior acquisition of knowledge

10. Technology and Innovation:The Neoclassical Viewpoint • Differences in innovation possibility sets are the rationale of different production possibility sets • Learning depending on experience by itself diversifies between firms generating different innovation locus (locally bounded pattern of technological development) • Creativity; local and radical • Why different capabilities to innovate and to produce between firms?

11. Evolutionary Approach • How and why do firms differ in their productive capabilities? • The focus is on adaptive response that is also creative • Local rationality but variation (not uniformity) • Firm is a creative, imaginative entity and the outcome of ongoing and unfinished process of organizational design • Penrose “ the capability theory of the firm” → the competence of the firm • The central feature of the capabilities perspective lies in its link with the creation and exploitation of knowledge → continual development of capabilities and creating new ones, “routines”

12. Technical Change and Development from an Evolutionary Perspective • Why the technological change and development is an evolutionary problem? • It requires: • Variation in performance relative to international competitors • Structural change in domestic and international economies (selection) • Generation of innovation to keep pace with world developments • Three concepts of building blocks of economic evolution: variation, selection and generation

13. Technical Change and Development from an Evolutionary Perspective • Variation • Differences between firms in their economic performance traceable to the differences in their technological and organizational capabilities • Idiosyncratic dimension of firms • Development by imitation and dynamic competition • Selection • The competitive process by which the different technological capabilities acquire different levels of economic significance over time • Variation and selection → generation • Creative capacity “innovative variation” • The nature of the firm as an experimental agency embedded in market process as well as its nature as a productive agency is at the forefront of the evolutionary analyses of technological change

14. The Policy Dimension • Science and technology policy versus innovation policy • Innovation policy “much broader” • It is concerned with the economic exploitation of practical knowledge with the flow of resources to support knowledge accumulation within and between firms • Classical viewpoint → firms know opportunities but fail to exploit them effectively because of market failure induced divergence in the private and social rates of return from investments in knowledge and innovation • Role of optimizing policy maker is to correct these divergent incentives by fiscal arrangements and grants

15. The Policy Dimension • Evolutionary viewpoint → also a matter of the knowledge and skill to define a space of possibilities • Policy makers to create a rich ecology of organizational and institutional support for knowledge absorption and generation and to support the development of the associated innovative capabilities → adaptive not optimizing • Innovative capabilities depend on the links between users, suppliers and non-firm organizations • Innovation systems → modular (adaptive and evolutionary)