Innovation is that immeasurable political economic concept responsible for logarithmic benefits to the global economy. It is a very hot topic right now. Politicians maintain innovation increases economic competitiveness. Economists since Schumpeter applaud companies that build innovative products (iphone), or develop manufacturing innovations (Japanese Just-in-time inventory). Industrialists have always sought out ways to increase efficiency through incorporating modern technologies. But what exactly is Innovation? And how are we to measure economic gains through technological breakthroughs?
The innovation concept, as it plays out in the early 21st century, rests on three pillars. These are Multinational Corporations (MNCs), transparent institutions, and global knowledge flows. Each are contingent upon the other if one piece is inhibited, the others equally suffer, subsequently stifling innovation. Multinational Corporations, in their financial strength, global expansiveness, and formative political maneuvering, are inexorably linked to the innovation ecosystem .
This is especially evident if we consider radical innovations, as opposed to the more ubiquitous but no less important incremental innovations. The former makes headlines (think of each and every iphone launch celebrating Job’s genius), while the latter makes possible and provides the supporting infrastructure for radical innovations (think about how many people and small inventions went into building the original iphone, or how many innovations including new apps stemmed from
this one innovation).
In the past the innovation concept was married to radical yet marketable inventions including consumer autos, modern electricity networks, and gas lawn mowers. The technology industry, buttressed by “general purpose technologies” (GPTs), flipped this concept integrating vast amounts incremental innovations amassed over time. The effect of such innovations permeated throughout every industry, in every corner of the globe. A certain company or country attained more success if it could, in an evolutionary way, build upon incremental innovations.
This explains why economists struggle so much with the innovation concept. Conventional economic thinking reasons corporations will seek out the lowest per unit cost, oftentimes building new factories abroad to take advantage of lower per unit wage costs, for example. Yet, the techno-economic innovation concept reveals that despite higher costs, MNCs continue to invest heavily in countries with location specific competencies, skills, and institutions.
This makes sense because companies are set up to do exactly that: look for inventions,
incorporate these into their products or manufacturing processes, and build upon this existing “know-how” through entering different markets with different capital endowments (land, labor, local knowledge, geographic advantages).
MNCs constantly seek out innovation hotspots, the most well known being Silicon Valley but also now Singapore and Seoul. In these innovation centers knowledge flows freely between and among variegated industries. This MNC tendency is known as “institutional coupling”, or the interdependence of strong institutional apparatuses . MNCs have been able to position themselves strategically within innovation centers of excellence throughout the world, and thus are able to take advantage of different access points within different national systems of innovation. Therefore the institutional web indirectly and directly supporting innovation systems are prerequisites for attracting MNCs, therefore increasing local Foreign Direct Investment and eventually increasing local productivity hence economic gains through innovativeness so often proclaimed by policymakers.
These gains cannot be realized without strong institutions, able to support MNCs while also providing MNCs with knowledgeable workers. A supportive innovation infrastructure needs properly functioning banks, access to credit, strong educational institutions, fair and timely judicial systems, and a proper connection with the global trade regime. Furthermore,
connections in and among these institutions must be fostered in order to increase the
preponderance of knowledge flows.
With the advent of new technologies in computing and communications over the past decade, accessing and obtaining knowledge flows has become fundamental to building a lean and dynamic economy through innovativeness. General Purpose technologies support our internet, wifi, in short all computing power. Japan was able to rapidly scale up its many competent industries over the past four decades by providing the world with many GPTs. Their innovation system was so successful because the Japanese government established strong institutional linkages. Furthermore, Japanese MNCs
were able to capture global knowledge flows. The knock on effect, if the Asian financial crisis and the recent global depression are taken out of the picture, was a robust economy powered by innovativeness in products and processes, largely through the work of MNCs supported by strong institutions.
One major policy failure in many industrialized nations has been over-reliance
on government funding for “radical innovations”. Opponents lambaste such gross handouts such as Solyndra, while proponents point towards the government’s success in funding fracking, internet, and GPS. Yet both opposing viewpoints are off the mark. Innovativeness in technology, the foremost element in our current innovative evolution, is contingent upon not simply research and development funding but rather the overall institutional apparatus supporting measurable outputs such as GPTs.
If we can better understand how GPTs are supported by institutional systems, and likewise how the development of more GPTs enhances a nation’s ability to innovate (for example countrywide highs peed internet in Korea supports rapid knowledge flows via homegrown innovation), a more robust definition for the innovation evolution takes shape.
An evolutionary and incremental approach must be taken to properly understand innovation and competitiveness in the 21st century. Increased knowledge flows increases chances and chance of success for innovations. Techno-economic capital is the new capital of the 21st century.