Innovation
Global Investor Focus, 02/2007 Credit Suisse
Global Investor Focus, 02/2007
Credit Suisse
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GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 11<br />
The revolution<br />
is just starting<br />
Growing computer power, nanotechnology, gene science: it is easy to see the early 21st century<br />
as one of the globe’s most innovative periods. But it can be argued that what we have seen<br />
so far of this information-based, technoeconomic revolution has yet to cause shifts as profound<br />
as those triggered by, say, the Industrial Revolution or the invention of the internal combustion<br />
engine. Changes in the way we foster innovation are needed if we are to gain full benefits of the<br />
new revolution.<br />
Giovanni Dosi, Professor of Economics at the Sant’Anna School of Advanced Studies, Pisa<br />
Is technological innovation the most important driving force behind<br />
economic growth, or do other factors have equal weight? Since the<br />
Industrial Revolution, innovation has been a fundamental engine of<br />
growth. History, however, is more complex than might appear at<br />
first sight. It is too simplistic to look solely at technological innovation.<br />
This must be accompanied by the evolution of organizational<br />
institutions if growth is to be sustained. From the invention of modern<br />
factories at the end of the 18th century right up to “Toyotism”<br />
— the market-driven production techniques developed by Toyota —<br />
in the late 20th century, one can see how organizational and technological<br />
innovation are essentially two sides of the same coin.<br />
Technological innovation will not create sustainable growth without<br />
the evolution of formal organizational institutions. Paul David,<br />
Professor of Economics and Economic History at the University of<br />
Oxford, says the absence of such organizational development holds<br />
back change in major new technological paradigms.<br />
Another factor at play is the rate at which innovation is modulated<br />
by the size and dynamic of the market. In the 1960s, a view<br />
developed that much innovation was driven by demand, so one<br />
would expect that high demand in one area of activity would focus<br />
innovation research in that area. But, while some examples back<br />
up this hypothesis, others indicate the activity of innovation is governed<br />
more by supply than demand. In other words, opportunities<br />
arising from developments in advanced applied sciences and engineering<br />
can also push innovation. So the idea that bigger markets<br />
trigger more innovation is sometimes true and sometimes not.<br />
It is often said that the era of information and communication<br />
technology (ICT) is producing one of the greatest ever periods of<br />
innovation. Is this the case? Clearly, ICT encompasses a set of<br />
broadly applicable technologies that influence the rate of innovation<br />
in almost all industrial sectors – and increasingly in the service<br />
sector too. In that sense ICT, as a new technoeconomic paradigm,<br />
is comparable to electricity or the internal combustion engine, even<br />
if the effects are not necessarily as dramatic. For example, changes<br />
heralded by the introduction of electricity in terms of speeding up<br />
the transmission of information can be seen as much greater than<br />
those of the ICT era – the leap between the pre-electricity era of<br />
carrier pigeons and horse-back mail and the innovation of the telegraph<br />
and telephone was arguably much greater than that from<br />
phone to Internet.