March 7th class notes.docx

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March 7th Lecture Notes from Professor Needham
It has become standard knowledge today that technical progress is the engine of
economic growth. Developed and developing countries differ basically in their gross
stock of capital, in the average duration and quality of workers education, in their
expenditures on research and development (R & D), and thus in their ability to produce
and assimilate technological and organizational innovations. The theory of national
systems of innovation tries to explain different growth rates in various countries on the
basis of national performances in production and adoption of innovation. National
performance depends not only on the amounts spent on R&D but also on the institutions,
competencies and learning processes through which innovation takes place.
Technological Innovation
The theory of technological innovation, which started with the concept of the
entrepreneur presented in the writing of Schumpeter (1934), has progressively
integrated larger organizations and become a systemic perspective with four
major components.
First, for technological innovation to occur actual or at least potential markets are
essential; these are usually, but not necessarily, domestic in nature.
Second, most innovations have taken place within the research departments of
established corporations and, in a few cases, within government or university
laboratories or within entrepreneurial firms.
Third, governments have to provide innovating companies with some financial
support in order to share the risks of both the research process and the market
reaction to the novelty; they also have to provide highly qualified workers
(technicians, managers, engineers, and scientist) who will create the innovation
and move it toward the market. Governments also provide the regulatory
framework (standards and protection of intellectual property through patents and
trademarks) required to stimulate innovation. As well, they create competence
(through the education system) and usually intervene in creating the networks of
innovators through which positive externalities occur among the different agents
of the innovation systems.
Finally, innovations appear not in isolation, but most frequently in clusters; for
example, new materials or new products require new processes and spur the
creation of new machines. These clusters point to the existence of underlying
flows of knowledge among innovating organizations. New products usually
appear in a number of designs to serve different markets, thus increasing the
systemic nature of the process.
Innovation is basically a geographically located phenomenon, at both national and
regional levels. Only some twenty countries possess the markets, technological
infrastructure, financial institutions and qualified personnel required to create industrial
novelty. Within these nations, a few urban regions concentrate most innovative activities,
such as Silicon Valley and route 128 in the United States, Paris in France, and the M4
Corridor in Britain. But these countries and regions differ in the way in which they
conduct innovation: in institutions, in the role of the state, in openness to foreign ideas, in
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the links among innovating regions, and in the relative weight of universities, government
laboratories, and private firms. The concept of national system of innovation (NSI),
created in the late 1980s, tends to include all these systemic aspects of the innovating
regions, and in the relative weight of universities, government laboratories, and private
So what is Technological Innovation?
Innovation is technical novelty, now or improved products and processes,
successfully taken to the market. This activity usually takes place within private
firms but not always. Government laboratories and universities often participate
in the ―upstream‖ phases of the innovative activities, such as fundamental or
applied research. Most frequently, however, private companies gather ideas from
users, from the public sector, or from their own employees in marketing,
manufacturing, or R&D and apply these ideas to develop new or improved
products or processes.
Technology is knowledge about production. It may be incorporated in blue
prints, manuals, books, articles, machines or equipment, or it may consist only of
expertise embodied in technical personnel and thus be tacit, unmodified
experience, more difficult to transfer and communicate.
Technological innovation is different from what may be called social,
institutional, or organizational innovation. The adoption of new processes, new
materials, new products, or new machines often requires changes in the way in
which workers and technicians are organized: redefinition of jobs, retraining of
employees, new hierarchies or the abolition of existing ones, and other novelties
with the firm. Organizational innovation usually accompanies technological
innovation. Sometimes the change starts with social innovation, and this sort of
change then requires new equipment; the adoption of total quality control, for
example, may necessitate new scanning machines, microscopes, or other
instrumentation. Conversely, sometimes-new technology propels organizational
novelty. Some have emphasized, technological and organizational innovations
within the firm and with larger, macro-institutions, such an s public policy and
governmental organizations, also tend to evolve with technological change. For
analytical purposes, nevertheless, it is useful to differentiate technological novelty
from organizational innovation.
The idea that countries differ in the way in which they conduct technological
innovation was first proposed by Lundvall (1988), 92) Richard Nelson 1988, 93,
Christopher Freeman 1995) Carlota Parez. These authors have produced
somewhat varying definitions. Lundvall emphasizes the knowledge dimensions
and the interactive character of the learning processes taking place between users
and producers within the nation-state. Freeman stresses the way in which private
institutions support innovation as in corporate R&D, in-house training, and
industry-university cooperation. Nelson puts more accents on the public
institutions that regulate, finance, and keep the innovative process alive. All these
writes distinguish between the narrow definition (encompassing only the
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