Introduction
We are faced with great new technological opportunities that are continuing to emerge in ‘the new economy’ and as we get through a period of ‘structural crisis of adjustment’ we must regain our investment confidence in order to achieve a new ideal type of productive organization (OECD, 2000). However, we must continue to emphasize on innovation in order to drive business cycles and create business opportunities.
First, the goal of this essay is discuss the concepts that lead to the emergence of the so-called new economy from the business cycle perspective based on literary work taking roots in Joseph Schumpeter’s business cycles and his notion of ‘creative destruction’ and ‘techno-economic paradigms’. And to contrast it with particular mainstream views in explaining economic cycles and business performance. Secondly, this essay aims to outline the role and nature of various types of innovation that help shape a path for a new business environment. And last, it seeks to highlight the ideal type of productive organization by comparing between our previous and approaching technological paradigm.
It is evident that we are experiencing a shift in the way business is done in our everyday lives due to the advent of technological progress. Brian Arthur best describes the recent development in his article ‘Myths and Realities of the High Tech Economy’: that “the last few years have seen the emergence of a powerful web economy that operates by different rules from the manufacturing economy” (Arthur 2000: 3). And though Arthur does not believe there is a new economy since nothing structurally has happened; there are various ways to argue that we are experiencing a new economy.
One of the ways to analyze the emergence of a ‘new economy’ is to look into the context of the business cycle behaviour and understand the with the neo classical and Keynesian economic view of internal swings in capital investment that produces booms and crises. Conversely, Freeman and Perez explain Keynes views fall short in coming to terms with the influence of technical change (Freeman, Perez, 1988: 38).
Moreover, Freeman and Perez’s “central theme is that certain types of technical change- defined as changes in ‘techno-economic paradigm’ have such widespread consequences for all sectors of the economy that their diffusion is accompanied by a major structural crisis of adjustment” (Freeman, Perez, 1988: 39); and further explains that social and institutional changes are necessary to bring together a new technology to market (Andersen 2010). It is then pointed out by Freeman, that once a new regime of regulation is in place, a new stable form of long-term investment behaviour can rise (Freeman 2001: 118).
Correspondingly, looking beyond the aggregate view of mainstream economists, Chris Freeman argues that there is a lot of investment in the knowledge based businesses as policy has moved from viewing data at macro level to more micro technology specific ways. Likewise, he explains that in a micro view we will need the labour economy to adjust to new types of technologies (Freeman 2001: 119). This brings us closer to Schumpeter’s micro-oriented evolutionary theories, which focus on the qualitative aspects of innovation and new business opportunities. And thus the crucial importance of technical change for investment behaviour is seen by the confidence that is found on the empirical studies of investment confidence and evaluation in R&D as pointed out by figures in the table 1 (Freeman 1995: 5).
The investment by country show a pattern on gross expenditure on R&D and support the view of Schackle and Schumpeter that investment in new products and processes has elements of uncertainty but yet under favourable conditions business confidence improves leading to an atmosphere of boom (Freeman 1995: 10). And especially, under these favourable circumstances the growth of new markets and the profitability of new investments provide for a fairly stable view of growth, despite the uncertainties (Freeman, Perez, 1988: 43).
Another aspect of this argument is to look at Schumpeter’s theory that booms and crises occur due to the historical specifities in changing ‘technological paradigms’ which include structural crises of adjustment throughout the economic, technological, industrial and institutional system (Andersen 2010). Schumpeter is quick to explain why lagging institutional changes to unleash an upswing in the economy are major factors in respect to structural crises of adjustment. He proposes that business cycle theory must require historical analysis that involves identifying the rise of types of technologies and the rise and demise of entire industries (Freeman 1995: 12). As well as further infra-structural investments with perhaps changes in industry location in order to unleash the paradigm. Finally, Schumpeter proposes that other structural changes must take place in education, composition of workforce and management structures of enterprises (Freeman, Perez, 1988: 49).
A taxonomy of innovation
As previously discussed, the weakness of most neo-classical and Keynesian theories of technical change is that they fail to take into account the specifics of changing technologies through time. One reason for failing in addressing the specifics of technical change is the complexity of changing technologies. Thousands of inventions and innovations are introduced every month and it is tough to bring them to a generalization in order to have analysis. So therefore Freeman and Perez suggest a taxonomy of innovation based on empirical work. And thus they are able to distinguish the various types of innovation as ‘Incremental innovation’, ‘Radical innovation’, ‘new technology systems’ and ‘Changes of techno-economic paradigms.’(Freeman, Perez 1988: 40).
Incremental innovations occur continuously in any industry but at varying rates and they may not occur as a result of research in the private or public sector but may be brought upon by discoveries at the hands of engineers (Freeman, Perez, 2000: 46). It is justifiable then to explain that this method of innovation brings about the constant improving of technology such as the use of factors of production in Hollander’s (1965) study of productivity gains in Du Pont rayon plants. It is clear to see the scaling up of plant and equipment have a direct effect in quality improvement of products and services. Though the combined effect of incremental innovations has great importance, no single incremental innovation has a major impact as is in the case of radical innovations (Andersen 2010).
As for radical innovations, they are revolutionary changes in technology and show clear departures from existing practice as is described by Dewar and Dutton in their study “The adoption of radical and incremental innovations: An empirical analysis” (Dewar, Dutton 1986: 1423). In particular radical innovations are do to discontinued events and as a result of deliberate R&D within enterprises and/or university and government laboratories. Some examples of such are the radical inventions of the mobile telephone, digital television, the new textile technologies, and semi-conductors. Their single effect has stimulated productivity growth and has partly given ground for the expansion of the ‘technology system’ (or technological trajectories, as explained by Dosi). Dosi defines it as a combination of incremental and radical innovations affecting more than one firm (Andersen 2010). An example is nuclear energy that has changed certain sectors such as the way electricity is delivered. As such, technology systems have far reaching grasps in technology affecting various parts of the economy as well as giving rise to entirely new sectors (Freeman Perez, 2000: 46).
Turning to the last of the four, ‘techno-economic paradigms’ are at the heart of Schumpeter's long wave theory for one and on the other called ‘technological revolutions by Freeman, Perez and Louca. Techno-economic paradigms are changes in technology systems that go beyond and permeate variables in the entire economy (Freeman, Perez 2000: 41). Freeman mentions a main characteristic of this fourth type of technical change in that it has an overall effect throughout the economy as it leads to the emergence of a new range of products, services, systems and industries. Freeman further distinguishes “The expression " techno-economic " rather than " technological paradigm " emphasising that the changes are interactive, involving organisational as well as technical changes which go beyond specific product or process technologies” (Freeman 1991: 223). The introduction of electric power or steam power are examples as well as new ways of production and consumption patterns. What is more, changes in techno-economic paradigms involve the combination of product innovations, process innovations, organizational innovations, managerial innovations and formal institutional innovations such as IPR systems (Andersen 2010). In addition techno-economic paradigms affect the input cost structure and conditions of production and distribution throughout the system (Freeman 1991: 223).
It appears as the organizing principle of each successive paradigm that the new technology becomes a dominant technology only after a long period of competition, and yet its full success occurs only after a crisis of structural adjustment with the help of social and institutional changes. Some of the key factors for the paradigm to rise beyond this period are falling costs, the rapidly increasing supply of technology and pervasive applications or (the use of new set of inputs throughout the economy) (Freeman 1991: 229). For example microelectronics and telecommunications have set new standard of applicability. Oil was clearly held up until recently due to the post-war boom as described in the" fourth Kondratieff" upswing (Andersen 2010). Furthermore, one can argue that the burst of the dotcom bubble was an indication of structure adjustment in the sectors of on-line technologies. In addition, a new set of socio-economic rules or inputs are being formulated with the emergence of social networks on the web that are brought upon us via the diffusion of a new techno-economic paradigm.
The ideal type of productive organization
In order to identify the ideal type of productive organization in the new economy, it is essential to distinguish between our previous and our forthcoming paradigm. Our previous paradigm being the Fordist mass production categorized by Kondratieff in comparison to the information age paradigm that we are experiencing. The Fordist mass production growth was led by the automobile industry along with the synthetic and chemical industries where as the information and communication technology (ICT) is led by knowledge based systems, telecommunications, software and more recently with media and entertainment services (Andersen 2010).
Beyond the ICT industry itself new technologies have a profound impact on ‘user industries’ and in “the E-economy most companies do not push technology frontiers themselves. Rather they use technology to innovate and deliver improved or novel goods and services” (Vittet-Philippe, 2002: 25). Such statement depicts not just an economic benefit of the new economy but a further transcending impact on other parts of the socio-economic landscape. Another example of the changing effects in the new economy that takes place in public services is the digitization of medical records within the NHS where 75% of value added jobs go towards the GDP (Andersen 2010).
As far as the organization scheme between the Fordist mass production and ICT, the prior had a separate and complex hierarchical managerial and administrative structure. Where in ICT there is more autocracy in the organization and structures are formed around the innovation. As such there is more flexibility at all levels. There are also benefits in transaction costs with coordinated systems in the supply chain (Andersen 2010).
Concerning investment, there is a new pattern in the location of investment and technological leaders. In the prior economy, the United States, Germany and Japan led the way where nowadays you have the BRIC countries paving a path to growing economies due to technological advance and demands in financial services and an entertainment craze such as in computer gaming (Louca 2003: 779). Below is a chart that compares the growth in GDP over a 40-year period, and it is interesting to notice the upswing in GDP for countries during strong periods of innovation. (Louca 2003: 788).
With regards to the social and institutional adjustments that need to be designed to provide appropriate externalities, the Fordist mass production era ran on supporting the consumer demand via trade unions and a minimum wage; where the ICT design has an independent framework as is in the case of consumer watchdogs online or a forum for sellers and buyers to interact via online rating reviews. And last, the ICT economy has created rapidly expanding branches in the economy via its innovator entrepreneur firms which contribute to new sectors of production (Andersen 2010).
Conclusion
Despite these various distinctive but closely related literary views, there are clear empirical examples of the shaping of a ‘New Economy.’ And thus, the shift into a new ‘technological’ paradigm in relation to previous set of standards shows that the defining characteristic of the new economy is not technology but innovation (Miller, Wilsdon 2001: 276). Whether the theoretical views of technology diffusion point out to a major structural crisis of adjustment through business cycles, or the stance on the behaviour of innovation, investment or labour force; the conclusion is that the new economy is dynamic as we look through history. And yet we are faced again in the new economy with the need of regaining confidence for the next ideal type of productive organization.
No comments:
Post a Comment