Technological change as an evolutionary process Technology and Economic Development: A comparative perspective by S. Metcalfe, CRIC WP, 2001

Introduction The aim of the article is to analyze the claim that The connection between technology and development can not solely be understood as a macroeconomic phenomenon The accumulation of capital, human, intellectual or material are also important creative destruction and structural change

Introduction Development an adaptive evolutionary process: as a process of the cumulative unfolding of phenomena as the selective maintenance of superior variants in a population of competing alternatives Economy as an evolving system and an adaptive, experimental system The interaction between the growth of knowledge and market process is the key to understanding development and innovation is the manifestation of this process

Introduction The relation between firms, markets and public policies in terms of the use and acquisition of technological knowledge Why emphasis on the firm? Due to its uniqueness in the role of Articulating technologies on the productive effect Combining knowledge of technology with the knowledge of organization and market As problem generators and locations for technological and economic learning A comparison between two views of the firm, “neoclassical”, “evolutionary” Passive versus creative & learning firm Resource allocation, given knowledge opportunities versus created ones

Introduction Evolutionary theory Firm being the principal agency in the economy for the creative development and application of technology Development of a firm as a productive unit versus the development of the wider economy Economic development: adaptation within and between firms Creative development process with process of market adjustment Key words in evolutionary economics: variation, selection and the development of new forms The problem of development is a problem of the differential access to practical and productive knowledge

The production function and the theory of the firm The production function and the theory of the firm “technology” Three concepts: activity, transformation, organization Human dimension in relation to transformation process (that is a technological recipe for production): technologies of management and organization, labor, knowledge Technology: codifiable and tacit Polanyi (1962) “we know more than we can say, we can say more than we can write”

Technology and Innovation: The neoclassical viewpoint Technology as a set of fully known blueprints, codified knowledge available from the “universal blueprint library” Producing the particular level of output at a minimum cost given the knowledge of the relative prices of the factor services (technology) Link between technical opportunities and economic choices (productivity, the elasticity of substitution, factor intensity) What determines the production set if not contained in a universal library? Specified by the knowledge contained within the firm How about any changes of technique that needs learning and the growth of new knowledge

Technology and Innovation: The neoclassical viewpoint The state of technical arts “ manna from heaven” → knowledge as a non-rival good Knowledge could be used any number of times by any number of firms to produce any quantum of output or indeed to develop new knowledge Knowledge costless to transmit but not costless to absorb Present state of accumulated knowledge matters Fact: knowledge costly to produce, costly to absorb and absorptive capacity depends on prior acquisition of knowledge

Technology and Innovation: The neoclassical viewpoint Differences in innovation possibility sets are the rationale of different production possibility sets Learning depending on experience by itself diversifies between firms generating different innovation locus (locally bounded pattern of technological development) Creativity; local and radical Why different capabilities to innovate and to produce between firms?

Evolutionary approach How and why do firms differ in their productive capabilities? The focus on adaptive response that is also creative Local rationality but variation (not uniformity) Firm creative, imaginative entity and the outcome of ongoing and unfinished process of organizational design Penrose “ the capability theory of the firm” → the competence of the firm The central feature of the capabilities perspective lies in its link with the creation and exploitation of knowledge → continual development of capabilities and creating new ones, “routines”

Technical change and development from an evolutionary perspective Why the technological change and development is an evolutionary problem? It requires: Variation in performance relative to international competitors Structural change in domestic and international economies (selection) Generation of innovation to keep pace with world developments Three concepts of building blocks of economic evolution: variation, selection and generation

Technical change and development from an evolutionary perspective Variation Differences between firms in their economic performance traceable to the differences in their technological and organizational capabilities Idiosyncratic dimension of firms Development by imitation and dynamic competition Selection The competitive process by which the different technological capabilities acquire different levels of economic significance over time Variation and selection → generation Creative capacity “innovative variation” The nature of the firm as an experimental agency embedded in market process as well as its nature as a productive agency is at the forefront of the evolutionary analyses of technological change

The policy dimension Science and technology policy versus innovation policy Innovation policy “much broader” It is concerned with the economic exploitation of practical knowledge with the flow of resources to support knowledge accumulation within and between firms Classical viewpoint → firms know opportunities but fail to exploit them effectively because of market failure induced divergence in the private and social rates of return from investments in knowledge and innovation Role of optimizing policy maker is to correct these divergent incentives by fiscal arrangements and grants

The policy dimension Evolutionary viewpoint → also a matter of the knowledge and skill to define a space of possibilities Policy makers to create a rich ecology of organizational and institutional support for knowledge absorption and generation and to support the development of the associated innovative capabilities → adaptive not optimizing Innovative capabilities depend on the links between users, suppliers and non-firm organizations Innovation systems → modular (adaptive and evolutionary)

Conclusion The link between economic development and technological knowledge is difficult to solve The acquisition of technological mastery depends on The nature of supporting national innovation infrastructure The capabilities of individual firms Firms are unique and crucial in their role of adapting and combining different kinds of knowledge These distinct capabilities are accumulated and combined and the adaptive evolutionary process in which they are exploited and translated into development makes the process a matter of collaborative learning