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Marina Abed

Tatiana Voinova

Valérie Chardonnens

Stefanie Derzsi

Economist: The growth machine

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Economists vs. Managements view on Innovation Creative Destruction The Free-Market Innovation Machine

Capitalism vs other economic systems Large firms and Oligopolies Protection of Innovation and Who Benefits

Innovation in Socialist and Capitalist systems

04.03.2015

Executive Summary

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Economists vs. Managements view on Innovation

Management obsession with innovation is not shared by economist

Innovation is acknowledged as being a driver of economic growth

How and why innovation happens remains ignored

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Creative Destruction

Technological innovation comes from the entrepreneurs Established companies drive innovation using its capital Innovation creates new monopolies with abnormal profits to

be succeeded by rivals(http://en.wikipedia.org/wiki/Joseph_Schumpeter)

“Creative destruction” as a process of creating new and destroying old as innovative firms drive established companies of the market

Joseph Schumpeter

(1883-1950)

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The Free Market Innovation MachineCapitalism vs Other Economic Systems

Reasons Innovative activity becomes mandatory

way of survival for firms Technology spreads much faster due to

incentives to share the knowledge that contribute to growth, not state patronage

Prof. Wiliam Baumol, an American economist

Capitalism as a “machine whose primary product is economic growth”” provides :

continuous stream of successful innovations best economic system to generate growth

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The Free Market Innovation MachineLarge Firms and Oligopolies

Large firms are unique features of capitalist economies• Resources to invest in “routinized” innovation• Incentives

Oligopoly best foresters productive innovation • No single price as in monopoly• No price wars as between many companies• Few big firms compete using innovation to differentiate

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The Free Market Innovation MachineProtection of Innovation and Who Benefits

Protection of innovation• Misleading belief: innovators protect intellectual

property rights to maximize profits they can earn• Real situation: innovators license new technology to

share as others can be more efficient at exploiting it, so it makes economic sense to license

Who benefits from innovation • Less than 20% of benefits to innovators and investors• The rest spills over to society at large• Stronger intellectually property rights would encourage

innovation and therefore increase benefit to society

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Innovation in Socialist and Capitalist systems

http://images.businessweek.com/bloomberg/pdfs/most_innovative_countries_2014_011714.pdf

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Innovation in Russia vs. USA

http://bizshifts-trends.com/2011/03/10/the-innovation-gap-u-s-vs-europe-japan-china-india-russia/

R&D outputs

• Russia has a highly educated workforce with large # of skilled researchers yet lags behind in productivity.

• America is the world leader in technological achievement and innovation yet not producing the type of workers needed in a knowledge-based economy.

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Innovation in Russia vs. USA

http://bizshifts-trends.com/2011/03/10/the-innovation-gap-u-s-vs-europe-japan-china-india-russia/

Who holds IP rights?

• Russia: it is unclear whether the inventor, the inventors employer or the state who financed the R&D owns IP. Also, registered IP is weakly protected.

• USA has clear set of patents and licensing which is protected.