Introduction Suhas Tambe

Overview What are innovations and what is their impact? • •

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Technological changes or innovations are crucial processes underlying dynamic changes in advanced market economies Lead to changes in productivity and to economic growth for national economies e.g., the development and diffusion of agricultural machinery has replaced many manual jobs in agriculture but has also created new jobs in the design and production of machinery In the long term, economic growth and increased social welfare usually involve major upheavals, including changing patterns of productivity and job creation in different parts of the economy Technological innovation processes are important because they introduce dynamics into economic growth and impact the wider society

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Innovations are novelties which add economic value and may be technological, market and /or organizational in orientation. It may take the form of a new machine, a new way of doing things or may involve redesigning an existing product for a niche market or changing how work is carried out in an organization Technological innovations can thus add economic value as some combination of changes in goods and services, including production processes and organization. By adding novelty to the economy, innovations thereby change the conditions of competition for firms and open up room for further technical improvements and profits Thus firms in sectors with rapidly changing technologies and dynamic competition have to make continuous improvements and learn

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Resulting technical changes may lead to dramatic changes in the economy, and eventually in individual’s daily lives or to relatively insignificant changes The car and surrounding road system has radically changed how modern societies are organized and the structure of production, but there are also insignificant changes such as yearly improvements in existing car models In other words innovation process can result in changes which are somewhere in between radical and incremental Few technologies like genetic engineering and information technology are more radical than others because they can affect different aspects of the economy and society .

Technological innovation process Study of • • • •

How technical novelties of economic value are created Complex process where firms do not simply imitate what scientists have done How innovating agents change their vision of a radical innovation into a form useful in the economic sphere How these agents deal with the challenges of developing new science and technology which are in a very fluid phase of change.

Focus is on innovations which combine economic and technical dimensions in novelty. Market pull vs. technological push

Market pull – economic dimension • •

Innovators make technical improvements in response to perceived market demand Identify an innovation which is likely to sell and then design a technology to fit what the market will demand

Technological push - innovators think in technical terms and see obvious opportunities for technical improvements Important to note • •

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Economic and technical dimensions are intertwined in technological innovation process A technical improvement will change the structure and size of market demand and the development of an idea based on market demand relies on a series of technical improvements. Economic and technical dimension directly and irreversibly influence each other in innovations.

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Thus an innovation process generates novelty with the help of knowledge seeking activities by agents These agents conceptualize economic and technical dimensions They identify the opportunities and challenges necessary for succeeding with the innovation and try to direct the knowledge seeking activities to meet them

For radical technological changes, many individual and many organization contribute. They respond to and act in anticipation of a changing environment. Their decisions about where to search for novelty are influenced by market forces, technical opportunities and technical dead ends and social institutions among others Technological change thus depends the action of individual agents as well as social interaction among different agents in a socio economic context. Example of a radical change - pharmaceutical firms using genetic engineering for the production of pharmaceuticals

Relationship between innovations and economies can be summarized as follows •

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Innovations, in particular technological innovations, give capitalist economies their dynamic character through the process of creative destruction. Economic structure is not static but is in flux. E.g. old firms and technologies being replaced by newer ones. Technological progress in business is one of the most important factors explaining gains in real income per capita. In this process large firms play a particularly important role. Possibility of capturing a temporarily monopoly position stimulates agents to develop technological innovations.