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Lecture

Innovation


Department
Economics
Course Code
ECO100Y1
Professor
Jack Carr

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ECO 360 Notes Jan 27, 2008
1973-Airplanes, innovations
2003-bottom
-Innovation now needs backward forward investment linkages. Large investment boost is needed.
The current cycle we are in is lacking investment
Automotive Industry is example of creative destruction
Infrastructure projects have to all be important projects
Down cycle-firm tries to retain all the good workers
Lay off workers now, as recession deepens? Or the long term productivity.
Debate: To go through or not with bailout
Left wing-save the failing companies
Right wing-creative destruction, free market
Asset(housing, stock) markets are vulnerable to boom bust sessions
-Central banks monitor CPI movements, not focusing on asset price movement
No one is focusing on productivity and investment
Fed should have had a tighter monetary policy, US now has huge deficit in trade
The global breakdown is different currently, the upswing after 2003 was not led by innovation but by
credit expansion who did not test risk of stock, housing market
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Education is consumption
-need retraining programs for jobs
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Griliches
1976-did a survey of American Industry, sales levels and r&d levels categorized by 5 size of firms
48% of sales were by top 2 firms(1B-10B firms)
76.5% of total manufacturing sales were by the biggest firms
81.3% of those biggest firms did r&d, small companies also had r&d, a company giving 1% of total sales
yields a 1% in R&d
US patents peaked in 1960-71:innovative activity in states
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Patents protect windfall profits, monopoly profits
Taking out a patent discloses new technology, they have to understand the patent in order to approve
What are the relevant costs for copiers vs. innovators
The copiers will capture 65% of the cost of the original innovator
dZ[}µo]v}v}u]Z}Ç-innovation is considered to be an exogenous variable
2nd kandratieff cycle-railway
3rd kandratieff cycle-electricity, automobiles
4th kandratieff cycle-electronics, jet air craft, nuclear power, chemical innovations
Rise of synthetics
-developed in industrial countries, what it does to trade theory
-raw rubber industry in Asia suffered with synthetic rubber
-plastic as a substitute for steel
Fascination of innovation lies in the fact that the market conditions and technology is constantly
changing
Freeman talks about successful innovation project-SAPPHO
Key to successful innovation for a firm
Success means that a new market is formed or a company made profit on the product or process
Failure is the opposite
Matches 29 successes with 29 failures
-Chemical industry and scientific instruments were the industries that were studied
10 possible factors for success identified, only 5 of those 10 that were consistently important in
successful and failure
The first buyer of a new product is the other rivals, will use reverse engineering to see what is in the new
cars for example.
What were the ingredients, inputs, conditions for success:
1) The firm had a strong in-house professional r&d centre
2) The firm used patents to gain protection
3) Careful attention to the potential market, recognize a need for it
4) Strong entrepreneurial ability, one that can coordinate r&d, production, and marketing
5) Good communication with the outside scientific world
Must involve synthesis with need and possibility for innovation
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