IREIN, Fundacion Ramon Areces, Fore de Empresas Innovadoras

THE NEW AGENDA FOR INNOVATION STUDIES AND POLIRY IMPLICATIONS, Madrid, 13-14 March 2014
Convenor: Professor Jos Molero

Which Innovations and which Innovators will bring us out of the crisis?
13-14 March 2014 Italian National Research Council, Rome Birkbeck College, University of London

Daniele Archibugi

Blade Runner Economics

In the case of space, it has anticipated far too much In the case of biotechnology, none of what was described has happened (although many things are possible) In the case of ICTs, Blade Runner has underestimated the pace of technological change (no Internet, no email) One core message: business life is associated to technological opportunities Integration among different technologies (Schumpeterian clusters) is crucial to shape techoeconomic paradigms

Blade Runner Economics

ICTs have changed the economic profile of our economies and guaranteed two decades of development Some argue that ICTs have exhausted thier potential. Or, more precisely, that are not any longer the driving force of growth End of the speculative bubble or of technological opportunities? And, above all, what next?

Is economic growth historically contingent?

Robert Gordon (2012): the rapid progress made over the past 250 years could well turn out to be a unique episode in human history Christopher Freeman (1984): The potential for economic growth is associated to generation and diffusion of knowledge to economic and society through innovation

Winners and losers in economic crisis

When there is a decline in the business cycle, all companies, industries and countries tend to be affected But some companies, industries and countries are more affected than others The hierarchy of companies, industries and countries may emerge transformed from a crisis

Is the problem adjustment? Mancur Olsons view

The Rise and Decline of Nations Nations that did not experience major shocks (such as loosing wars or having military invasions) experience a lower rate of economic growth Social rigidity as a major obstacle to growth Opposite cases: the UK and Japan 1945-1980 What is the link? According to Olson, incumbents charge higher prices since new entrants are not allowed

Who does what? Company typologies

Business as usual
Let wait until it stops raining

Reduce costs
Including investments

Search for new opportunities

New markets and new products which could generate sales and profits

Looking for the Next Technological Paradigm

What will be the new industries and business opportunities to generate jobs and profits? If the technological opportunities are already there, who is going to invest in order to develop and deliver them to the market?

Innovation and Economic Downturn

Structural characteristics of National Systems of Innovation, demand (Filippetti & Archibugi, 2011) The effect of the financial crisis on the convergence in innovation in the European Union (Archibugi & Filippetti, 2011) Archibugi & Filippetti, Innovation and Economic Crisis, Routledge, 2011 The impact of the economic crisis on innovation: Evidence from Europe (Archibugi, Filippetti & Frenz) Economic crisis and innovation: is destruction prevailing over accumulation? (Archibugi, Filippetti & Frenz)

Are creative destruction and technological accumulation sensitive to the business cycle?

During economic expansion, innovative firms lead technological change also by increasing their investment in innovation (supporting technological accumulation)
Economic crises generate turbulence and some new entrants are willing to spend more to innovate, also in blue sky explorations (creative destruction)

Characteristics of Innovating Firms

Technological Accumulation
Large and dominant firms explore new opportunities through R&D labs and design to preserve their market shares. These firms exploit their financial resources and the already existing organizational structure

Creative Destruction
Small firms anticipate and deliver to the market significant innovations. Through only a very few of these firms will be successful, the winners may create the impetus for entire new industries. Economic turbulence may also help to contest market shares to incumbent firms

Schumpeter, 1942; Pavitt et al., Schumpeter, 1911; Freeman et 1989 al., 1982; Dosi, 1982; Perez, 2002

Sources of Knowledge
Technological Accumulation
Since firms know more than they do (Pavitt), they can try to explore their competences also in other product lines

Creative Destruction
The early identification of new markets and new technological opportunities is crucial. Collaboration among different subjects can be very important to identify and explore knowledge. Serendipity plays also an important role

Schumpeter, 1942; Pavitt et al., Freeman et al., 1982; 1989; Granstrand et al., 1997; Christensen & Rosenbloom, Antonelli, 1997 1995

Innovation Typology
Technological Accumulation
Most innovations are generating a continuous flow of incremental product and process innovations. Organizational routines dominate the generation of innovations

Creative Destruction
A few radical innovations generating new industries, often in integration with knowledge already explored for different purposes. New forms of economic organizations also help to reinforce the generation of innovations

Schumpeter, 1942; Pavitt et al., Schumpeter, 1911; Freeman et 1989; Meth et al., 1996; Cefis al., 1982; Dosi, 1982; Perez, & Orsenigo, 2001 2002

Market Structure
Technological Accumulation
High entry barriers also because imitation costs are high and intellectual property rights are well protected. Oligopolistic competition dominates

Creative Destruction
Low entry barriers in new industries. High turbolence, which in turn leads to increase competition Technological discontinuities help to create new markets and new opportunities Schumpeter, 1911; Freeman et al., 1982; Dosi, 1984; Perez, 2002

Schumpeter, 1942; Galbraith, 1952; Chandler, 1977

Forms of Capitalism
Technological Accumulation
More likely to occur in coordinated market economies (such as Japan and Germany), where the various public and private institutions are more likely to work together continuously

Creative Destruction
More likely to occur in liberal market economies (such as the United States and the United Kingdom) for their capacity to shift resources from industries with low opportunities to industries with higher opportunities

The Innobarometer Survey

Innobarometer 2009 (European Commission) firm level survey on more than 5000 firms across Europe April 2009 Question no. 1: Compared to 2006, has the amount spent by your firm on all innovation activities in 2008 increased, decreased, or stayed approximately the same? Question no. 2: In the last six months [November 2008 to April 2009] has your company taken one of the following actions [increased, decreased or maintain the innovation spending] as a direct result of the economic downturn? Question no. 3: Compared to 2008, do you expect your company to increase, decrease or maintain the total amount of its innovation expenditure in 2009?

The effect of the crisis on the innovation investment across the European countries

Percentages of firms which are reported to have increased, decreased or maintained their innovation expenditures

70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Increassed % Firms' innovation expenditures 2006-2008 Decreased % Stayed the same % Firms' innovation expenditures 2009

Difference between the firms investments balance in the medium and short-term Lithuania Greece Romania Poland Bulgaria Slovakia France Latvia Sweden Slovenia EU27 Norway Czech rep. Hungary Germany Italy Estonia Ireland Portugal United Kin. Belgium Spain Luxemburg Austria Finland Netherlands Denmark Switzerland

Invest in innovation across European countries after the crisis

-90

-80

-70

-60

-50

-40

-30

-20

-10

The balances of firms investing and disinvesting in innovation before and after the crisis
10
Firms innovation investments balance 2009 (% firms increasing - % firms decreasing)

Switzerland Sweden Austria Finland Germany

Innovation investments balance = 0 in 2009

0 Netherlands Denmark Belgium

10

15

United Kingdom Portugal Spain Italy Czech rep. 20 25 -20 30 Estonia France Ireland

Luxemburg -10 NorwayEU27 35 Poland

Slovakia 40

Bulgaria 45 Romania 50

Hungary -30

Latvia

-40 Lithuania Greece -50

Firms innovation investments balance 2006-2008 (% firms increasing - % firms decreasing)

The catching-up of the New Member States before the crisis

0.7

Declining Nobility
0.7 0.6

Switzerland Finland Germany

Aristocracy
Sweden

InnoStruct performance

Ireland

Denmark 0.6 United Kingdom Austria Luxemburg Belgium 0.5 France Netherlands
0.5 0.4 0.5

Estonia
0.0 0.1 0.2 0.3

Slovenia
0.6 0.7 0.8 0.9 1.0

Spain Hungary

Czech rep. 0.4 Norway Portugal Greece Italy 0.4

0.3 0.3

Poland

Slovakia Lithuania Romania Bulgaria

Latvia

Third State
0.2

Parvenu

InnoInv 06-08 performance

Investment in Innovation related Activities Before, During and Following on from the Crisis
Dependent variable: change in innovation related investment Before the crisis During the crisis

(T1)

(T2)

Following on from the beginning of the crisis (T3)

Increase Decrease Maintain Innovation active firms No innovation activities Missing observations Number of observations

N 1,985 472 2,207 4,664 328 242 5,234

% 38 9 42 89 6 5 100

N 453 1,231 2,961 4,645 457 132 5,234

% 9 24 57 90 9 3 100

N 659 1,560 2,452 4,671 343 220 5,234

% 13 30 47 90 7 4 100

Chi2(4)=1,400; p<0.01

Innovation investment during and following on from the crisis. Cross-Tabulations of dep. variables
Following on from the crisis (T3)
Increase 192 32 61 10 350 58 603 100 Decrease 73 5 812 57 544 38 1,429 100 Maintain 159 7 256 11 1,832 82 2,247 100 Total 424 10 1,129 26 2,726 64 4,279 100

Increase During the crisis (T2)

Decrease

Maintain

Total

Frequencies Column percentages Frequencies Column percentages Frequencies Column percentages Frequencies Column percentages

Innovation expenditure of great innovators and other firms, 2006 and 2008, UK
n. of Perce Share of Share of Average Averag Change firms nt innovati innovati innovati e in on exp. on exp. on exp. innovat average 2006 2008 2006 in ion exp. innovatio 000s 2008 in n exp. 000s 20062008 All other firms Great innovators Total 2,161 87 0.79 0.63 563 413 -0.27

324 2,485

13 100

0.21 1.00

0.37 1.00

981 618

1,599 568

0.63 -0.08

Who is winning? Who is increasing innovation investment in spite of the crisis?

Firms that compete with innovation (before, during and after the crisis). If these firms do not innovate they are out of the market. New firms (created after 2001) after, but not during the crisis Firms with internal R&D Departments (before, but also after the crisis) Technological opportunities are coupled by market oppportunities (which innovations will we have in the future?)

The crisis is making the global landscape more important

A comparison of ICT and Molecular ages

The Kondratiev Waves

A contrasting view: Disruptive Technologies McKinsey Global Institute

Four criteria:
Technology is rapidly advancing or experiencing breakthroughs The potential scope of impact is broad Significant economic value could be affected Economic impact is potentially disruptive

McKinsey Global Institute TOP SIX to 2025

Mobile Internet Automation of Knowledge work Internet of things Cloud technology Advanced robotics Autonomous vehicles Combined, they account for about 90% of future business opportunities

McKinsey Global Institute Seventh to Twelfth 2025

Next generation genomics Energy storage 3D printing Advanced materials Advanced oil and gas exploration Renewable energy