Volume 44, Number 174,
July-September 2013
Schumpeter and the Post-Schumpeterians:
Old and New Dimensions of Analysis
Gabriel Yoguel, Florencia Barletta
and Mariano Pereira
Spreading Innovation and the Role of the Market ( ...continuation )

Based on Schumpeter’s idea that in capitalism, activities cannot grow at a uniform rate, Metcalfe (1998) proposed the idea that the competition process and structural change can co-evolve. The proposal was that evolution is impossible in a world of homogenous behavior, and that competition constitutes an evolutionary process of creative destruction. For evolution to occur, there must be new behavioral patterns that give rise to differentiated processes of innovation. Similar to the ted, the driving force of the competition is innovation, not price adjustment. It is through innovation that firms acquire a decisive advantage in quality that helps them outdo other companies.

As Metcalfe writes, what matters is achievement in relative terms. Competitive advantages are measured based on the distance between each firm and the average of a relevant population (replicator dynamics mechanism). Novel creation cannot be random. It involves guided variation within a limited set of possibilities that can be identified as a specific technology regime (Malerga and Orsenigo, 1997). Innovations are never entirely new. From this analytical perspective, each firm has its own world, its own theory of business that defines its objectives and its own modus operandi. It is an adaptive and imaginary representation that can be measured based on the differential in its efficiency of producing benefits. Learning is therefore path dependent, unique and contextual. Firms differ in their behavior precisely because they have different business theories, resources and complexity of routines.

Finally, another key contribution of evolutionary authors has been to incorporate the co-evolution of the innovation process and demand into the framework of a population analysis of competition among companies (Saviotti and Pyka, 2010). Using the same circular economy scheme from the ted, Saviotti (1996) analyzes the dynamics of three populations: new goods and services, supplying firms and consumers. Unlike Schumpeter, Saviotti’s work makes explicit that the dynamic of creating new goods and services depends on the absorption capacity and the entry of new consumers as well as preference formation. On the supply side, the dynamics are as Schumpeter described in the ted: the appearance of entrepreneurs that offer new goods and services, increase in quality and efficiency of production, generation of quasi-rents, emergence of a mass of followers, increased competition, falling prices, reduction of extraordinary profit and a return to the circular flow. Productive capacity is generated by Schumpeterian business leaders that establish new companies with the expectation of obtaining extraordinary profits derived from a monopolistic position. Each innovation creates a potential market and produces the so-called “adjustment deficit.” In the sectoral life cycle, as productive capacity develops and finds demand, the deficit is reduced. On the demand side, there is an increasing population of consumers transform a niche into a market, which later reaches a saturation point with a net drop in consumers.

The role of demand in the dynamics of innovation and competition is absent in Schumpeter’s work. To that effect, Saviotti develops a theory of economic growth and structural change based on the saturation of demand of the old markets and the creation of new sectors where the increase in variety constitutes a necessary condition for long-term economic development. Creating new sectors and growth in productivity for already existing sectors constitute complementary aspects of economic development. The life cycle, created by the co-evolution of competition and demand, goes beyond the classical interpretations of dynamics brought about by the emergence of dominant designs, growing returns on r+dand radical innovation. This process of co-evolution is strongly uncertain, as the population dynamics of new goods and services and consumers do not necessarily converge. In addition, the more radical the innovation, the more unpredictable the demand.

Creative Destruction and the Emergence of Innovation

Various authors believe that Schumpeter, in studying the phenomena of creative destruction and the emergence of innovation, was unable to recognize and develop the institutional complexities of a modern market economy (Nelson, 1991; Lundvall, 1992; Freeman, 1993; Malerba and Orsenigo, 1997). In this sense, an analysis of how the tangible and intangible institutional and social structures in which companies are immersed facilitate or hinder the development of innovations is missing. The idea of innovation as a systemic concept is a post-Schumpeterian contribution and includes dimensions absent in his work, such as the connectivity among organizations, the key role of institutions, the central function of knowledge and ideas, innovation systems and technological regimes. Literature on innovation systems reclaims some of Schumpeter’s central ideas on the key role of innovation, but articulates them in a different way by also considering the role of knowledge in the generation of quasi-rents, the importance of linkages between agents to complement the endogenous competition of companies and institutions and the centrality of the institutional framework as a factor that promotes or discourages the generation of competition (Nelson, 1991, Lundvall, 1992; Freeman, 1993; Malerba and Orsenigo, 1997). As Lundvall (2011) proposed, the importance of both the scientific and technological infrastructure as well as processes such as learning by doing, using and interacting, are key for development in a micro-meso space. Other important factors include the role of labor organization and organizational learning on the job.

Another point missing from the process of creative destruction in Schumpeter is how the new ideas that the entrepreneur transforms into new combinations arise in the first place (Dopfer, 2006; Antonelli, 2011; Witt, 2002). Schumpeter’s entire explanation of the process of creative destruction rests on the figure of the entrepreneur. Although he emphasizes the endogenous cause of economic change, his theory of economic development places the focus on innovation and fails to explain the emergence of novel factors (Witt, 2002). Maintaining the endogeneity of economic change from an evolutionary perspective requires explaining how something novel was generated and transformed into an innovation. From the perspective of complex systems, Antonelli (2011) contributes to the topic, writing that although evolutionary economists recognize that the emergence of innovation is absent in Schumpeterian thought, they tend to propose a few stochastic elements in the innovation process, like Nelson and Winter did. In this sense, Antonelli takes into account the fact that attempts from evolutionary economists to identify the historical, regional and institutional determinants of how innovations are generated have been limited. In other words, more effort has been invested in exploring the features of the selection, adoption and diffusion mechanisms of the “spontaneous” flows of innovation than in including the intentional capacity of agents to change their technologies and preferences in the models. As such, evolutionary economics has created a theory of selective innovation diffusion rather than an overall theory of innovation (Antonelli, 2011).

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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