The Western growth systems: the role of innovations

Résumé du document

Joseph Alois Schumpeter (1883 – 1950) is one of the most well known economists of the XXth century, namely thanks to its work on innovations. One of the theories he develops is the one called creative destruction. So, in our study of the Western growth systems and the role of innovations in this system, we will start with a historical and theoretical analysis, and then develop the importance of Innovation in today's Western economy. Usually, an innovation may be defined as the process of making improvements by introducing something new, or also the successful exploitation of new ideas. In addition, innovations can be innovations of products, services or processes. Also, to differentiate the innovation, from the invention, today's theories tend to consider that the innovation must add value. So, an invention can become an innovation only if someone implements it with success for example to improve efficiency, or productivity in a process, or simply by selling this innovative product or service.

Extraits

[...] On the contrary, it will be more profitable in the long run to spend money creating new value, with innovations. As explained Schumpeter with the Kondratiev cycles, to get out of the phase we need a new wave of innovations. Nevertheless, it's not the state who is responsible for innovations, but it should be entrepreneurs. So, spending in R&D are important, but it's also necessary to create incentives for entrepreneurs, to attract them, rather than encouraging them to go somewhere else. [...]

[...] This was true at the beginning of the Industrial Revolution, where the role of innovations cannot be minimised, and it's also true today. Nevertheless, the economy doesn't simply rely on innovations, and if these are important and seem to be a key element for the future of western economies, the present situation shows that factors such as the level of education, the domestic demand, the fiscality, or the development of infrastructures, are as many elements which are necessary and should not be undervalued by governments. [...]

[...] So, he namely explains the Kondratiev cycles. These, are economic cycles, which last for approximately for 40 to 60 years and are characterized by an ascending phase (phase and a descending phase (phase B). These cycles have first been observed by Nikolaï Kondratiev in 1926. For Schumpeter, these cycles would be the result of major innovations, which will lead to apparition of other innovation, and so innovations appear in grapes. These innovations are the declutching factor for the growth phase. [...]

[...] The only way to overcome this phase will be a new wave of innovations. This is what Schumpeter calls the system of “creative destruction”. In his book “Capitalism, Socialism and Democracy” he described it as a process where opening up of new markets, foreign or domestic, and the organizational development [ ] illustrate the same process of industrial mutation, that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. He called this process “creative destruction”. [...]

[...] Thanks to this evolution, it was possible to diminish costs, increase efficiency in the consumption of energy, and also to reorganise factories. It's also on this ground that Taylor organisation of work was made possible, and we already know very well what this system brought to the American economy, namely with Ford. So, apparently, Innovation is predominant in the roots for the Industrial Revolution, and thus for growth, and the Theory on innovation, mainly developed by Schumpeter, wouldn't say the opposite. The theory Schumpeter insists on the role of innovations in the impulsion of the economy under the action of entrepreneurs. [...]