Friday, August 30, 2013

Macro-Innovation: 1. An Introduction

Earlier this year, I came to the realisation that practically all innovation policy was either promoting the production of ‘innovation’ or is concerned with the efficiency of its production in the public sector complex (labs and universities etc). A very small percentage of innovation policy focuses on the uptake of advanced technologies. None is concerned with the post-innovation event - understanding the disruptive effects on employment, industries or government programs and resulting impact on existing policy structures.

That in turn led to this thought.

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again. John Maynard Keynes, A Tract on Monetary Reform (1923) Ch.3 English economist (1883 - 1946)

Neo-Schumpeterians (innovationists) set themselves too easy a task, too useless a task,  if they say that the maximisation of the production of innovation will be good for growth and competitiveness but can give no guide to governments on transitions in periods of disruption (Brian Wixted).

We need an understanding of innovation that goes beyond just economics but which also worries about transitions – that is the destruction in Schumpeter’s creative destruction equation.

I have been increasingly struggling with conventional notions of ‘technology’, ‘macro-economics’ and ‘innovation’ in the 21st century world. With increasing disruption to industries, labour markets, together with globalisation, climate change and resource use, is it possible to begin to simply and logically analyse some of the issues. Is there a framework like macro-economics has provided for so long that we can develop to frame the issues for better analyses?

In this forthcoming series I started with the idea of trying to apply the idea of innovation systematically to macro-economics and quickly ran into some significant conceptual problems. So I began to rethink how the economics of innovations is currently developed as a discourse and came to conclusion that to get different answers we need to break with some of the fundamental assumptions.  I can promise that this series will not be a series of completed thoughts in book ready shape – far from it. But I think that by scratching away at some macro topics, perhaps I can learn something and you the reader will benefit from the journey.
Along the way I already know that I will introduce some ideas such the ‘technosphere’ which I have begun to mud map out.

Secondly, while in a business we categorise the micro-economics of innovation has extending its market (new products or new markets), reducing costs (new supplies, processes, or organisation) or re-arranging internal affairs (organisation, supplies, markets) to keep fit with changing market environment configurations applying this to nation-states is not so simple. For starters, companies can externalise their costs relative to societies. A business needs to downsize, it sacks people. Hopefully they can find new jobs but if they can’t society needs to bear the transition costs. Or as another example there is little equivalent in the economy of a firm for housing booms or busts – unless it is managers over investing in capital.

Macro-economics is simply different to micro-economics and macro-innovation is different to macro-economics.

At the 2013 DRUID conference they debated the motion that national innovation systems was no longer a fruitful line of academic research (this succeeded). Instead the future is framed as the micro-foundations of innovation. You can watch the video here. This just re-enforces the point that we need a new macro paradigm.

I am not quite sure how the series will develop except that at the moment there are 2 parts envisaged.
In Part A, I want to introduce the idea that part of the problem we face is that in the economics of innovation we are only interested in the rate of change – the rate of innovation. This leaves us unable to notice the degree to which there is significant technological change occurring simply in the way our technological society works.

In Part B, I want to analyse the main structures embedded in conventional macro-economics from an innovation perspective (GDP accounting, input-output structures, land, labour, capital, and other topics (entrepreneurship?).

So let the games begin.