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The microdynamics of technological change
Technovation 22 (2002) 135–136 www.elsevier.com/locate/technovation
Book review The microdynamics of technological change Cristiano Antonelli; Routledge, London, 1999 The aim of this book is particularly ambitious, “trying to contribute a more comprehensive theory of endogenous growth which focuses on the role of firms, industrial structures, technological changes and regions”. This quotation makes explicit the intentional effort of the author to tackle, and locate in a unified framework, the key areas in the Economics of Innovation. The first part of the book investigates the determinants and the dynamics of technological change, developing an analytical framework based on the notions of localized technological change, path-dependence and on the methodology of spatial stochastic interactions. In the second part of the book such analytical framework is used for highlighting the key features of the emerging knowledge based economy. The first part of the book largely deals, directly or indirectly, with the “endogeneity issue” at different levels of aggregation (micro, meso and macro). The attempt is to provide a rigorous analytical treatment of the determinants and impact of technological change in an alternative framework to the one proposed by the “New growth theory”. The latter—as rightly argued in the book—is anchored to a very simplified view of technological knowledge and innovative behaviours of agents, who continue to operate in a context of complete rationality, Pareto-optimal allocation of resources and equilibrium conditions. Such constraints and limitations of neoclassical models of endogenous growth are overcome in this book by adopting a “Schumpeterian” perspective, that is one which fully acknowledges the out-equilibrium nature of innovation activities and the presence of indivisibilities and irreversibilities which make the innovation process both discontinuous and path-dependent. Such an approach is made clear in the introduction of the book which argues that “the convergence toward equilibrium is continuously altered by the changing structural elements of the system…” and that “the process and the path along which the system evolves become the single, relevant unit of the analysis”. A major point of originality of Antonelli’s approach consists of combining the Schumpeterian view of the competitive process fuelled by innovation with the Marshallian “partial equilibrium” analytical framework. The latter is used by Antonelli to formalize the notion of Localized technological change that he has proposed in PII: S 0 1 6 6 - 4 9 7 2 ( 0 1 ) 0 0 0 2 2 - 0
several previous works and which also lies at the very heart of the approach to innovation proposed in this book. As indicated in the title of the book the overall framework used to analyse the dynamics of technological change maintains a strong micro-based foundation. The localized nature of technological change is seen, first and foremost, as the result of the presence of indivisibilities and irreversibilities in firms’ productive and knowledge assets. The latter are the key elements which define the room of manoeuvre (in terms of localized opportunities and constraints) of firms conducts and innovative strategies. The traditional neo-classical distinction between technical change (costless movements along the isoquants) and technological change (shift of the isoquants) is thus used by Antonelli in a different perspective to stress that the latter is largely endogenous and constrained by the specific-localized competencies of firms and the former is not cost-free. The laws governing behavioural choices and firms adjustments (with or without technological advancements) to changes in the economic environment (primarily changes in prices and demand) are explored in depth in the first part of the book. The key trade-off firms have to face here is between producer switching costs (i.e. those necessary to adjust inputs and assets within a given technology) and costs associated to the generation and use of new technologies. The concept of localized technological change is also applied to the broader economic, technological and institutional context, in which firms operate. This is because knowledge assets, increasing returns and knowledge externalities, as well as indivisibilities and irreversibilities in the process of generation and diffusion of knowledge, have a systemic dimension, that is are embedded and take place in well defined “economic spaces”. In particular, innovation systems are characterized by a composite set of structural features of firms, industries and markets, competences and innovative behaviours which co-evolve in historical time and are able to explain both path-dependence and the variety of innovation and economic performances which can be observed in the real world. Rather interesting in chapter 5 is the use of network analysis, and the methodology of spatial stochastic interaction to study characteristics, dynamic properties and performances of innovation systems. The latter are in fact characterized by different levels of internal receptivity and connectivity in the process of knowledge gen-
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Book review / Technovation 22 (2002) 135–136
eration and sharing which in turn explain the different degree to which technological externalities are achieved and translated into economic performances. However, a weak point with such an approach has to do with the conceptualisation of innovation systems as “communication networks”. This implies the risk of reducing the wide range of knowledge interactions taking place in an innovation system to a matter of “communication” or simply circulation of information. The crucial relationship between the micro and system-related determinants of innovation and the macroeconomic domain is addressed in Chapter 4. In Antonelli’s framework the aggregate performances of economic systems depend upon the ability and possibility of firms and economic systems to respond through technological innovation to changes in the macro-economic environment such as demand and wage pressures. This in turn depends, along with the level of “economic perturbation”, on the quantity and quality of “localized” assets and competencies accumulated by firms and on the dynamic properties of innovation systems. Once started, the dynamics of technological and structural change is further fuelled by the presence of increasing returns and learning economies operating both at firm and system level. According to the author the activation of this selfreinforcing mechanism can explain the clustering of innovations both in time and space, and represents a major explanation of business cycles. In the second part of the book the key concepts of localized technological change and path-dependence and the methodology of network analysis are applied to the emerging knowledge based economy, with the paradigmatic role played by ICTs, telecommunication networks, knowledge intensive business services (KIBS) and the growing importance of technical standards, and cooperation in innovation. The main thesis of Antonelli is that the new technological paradigm has not diminished the importance of the localized nature of technological change, both at the firm and system level. The author locates himself somewhere between those stressing the increased codified nature of knowledge and those who stress its irreducible tacit nature. According to Antonelli, the specific knowledge assets of firms remain essential as well as the contextual conditions which make possible the continuous combination and recombination of tacit and codified knowledge. KIBS becomes crucial in this scenario, acting as the interface between the tacit competences of firms and the codified knowledge available in the system. The emergence of KIBS depends in turn on the new opportunities offered by ICTs which have enhanced the transferability properties of both codified and tacit knowledge and consequently changed the overall organization of the way in which technological change is generated and diffused. Using Antonelli’s words, “ICTs
change the domain of the spatial interactions structure of innovation systems by their effect on the appropriability, divisibility and marketability of knowledge and information. They increase the opportunity for greater technological co-operation and social division of labour so that the production of knowledge is less and less embodied in manufactured products and may be produced and delivered by specialized firms”. The evidence presented in chapter 11 provides empirical support to the key role played by KIBS for explaining the aggregate performance of European countries. The structure and performance of the telecommunication sector, itself a sub-technological system of ICTs, are also shown to be of key importance (Chapter 6), representing the critical infrastructure through which inter-connectivity and network externalities are achieved. In Chapter 7, the Schumpeterian model proposed to analyse the impact of localized technological change on employment is less original than the other Chapters. The evidence presented, based on a cross-section analysis of nationally aggregated data for the major OECD countries confirms the importance of technology as a primary source of economic and employment growth. In particular, the model does not discuss the macro-economic conditions under which a Shumpeterian model of growth based on technological rivalry generate positive net effects on employment, and it is implicitly assumed that the cross sectional regularities found in the empirical analysis can be generalized and hold at a more aggregate level (i.e., for the OECD area as a whole). The book ends by drawing a comprehensive set of policy prescriptions, closely linked to the theoretical approach proposed and to the main characteristics of the new ICT paradigm. It is suggested that the R&D focus of traditional innovation policies should be re-oriented to sustain the accumulation of tacit knowledge and localized competencies, to favour diversity and entropy in innovation, and to enhance the conditions of communication, dissemination, and access of knowledge by facilitating the emergence of KIBS and effective communication networks. All in all, the book is very stimulating in its attempt of combining the Schumpeterian approach to innovation, structural change and growth, with the Marshallian partial-equilibrium analytical framework. It represents a rare (and much needed) attempt of treating with analytical rigour and theoretical depth the multidimensional nature of technological change and its micro–macro economic domains, with an effort of developing theory in order to interpret the real world. R. Evangelista Consiglio Nazionale Delle Ricerche, (Cnr-Isrds), Via Cesare de Lollis 12, 00185 Rome, Italy E-mail address: [email protected]
Book review The microdynamics of technological change Cristiano Antonelli; Routledge, London, 1999 The aim of this book is particularly ambitious, “trying to contribute a more comprehensive theory of endogenous growth which focuses on the role of firms, industrial structures, technological changes and regions”. This quotation makes explicit the intentional effort of the author to tackle, and locate in a unified framework, the key areas in the Economics of Innovation. The first part of the book investigates the determinants and the dynamics of technological change, developing an analytical framework based on the notions of localized technological change, path-dependence and on the methodology of spatial stochastic interactions. In the second part of the book such analytical framework is used for highlighting the key features of the emerging knowledge based economy. The first part of the book largely deals, directly or indirectly, with the “endogeneity issue” at different levels of aggregation (micro, meso and macro). The attempt is to provide a rigorous analytical treatment of the determinants and impact of technological change in an alternative framework to the one proposed by the “New growth theory”. The latter—as rightly argued in the book—is anchored to a very simplified view of technological knowledge and innovative behaviours of agents, who continue to operate in a context of complete rationality, Pareto-optimal allocation of resources and equilibrium conditions. Such constraints and limitations of neoclassical models of endogenous growth are overcome in this book by adopting a “Schumpeterian” perspective, that is one which fully acknowledges the out-equilibrium nature of innovation activities and the presence of indivisibilities and irreversibilities which make the innovation process both discontinuous and path-dependent. Such an approach is made clear in the introduction of the book which argues that “the convergence toward equilibrium is continuously altered by the changing structural elements of the system…” and that “the process and the path along which the system evolves become the single, relevant unit of the analysis”. A major point of originality of Antonelli’s approach consists of combining the Schumpeterian view of the competitive process fuelled by innovation with the Marshallian “partial equilibrium” analytical framework. The latter is used by Antonelli to formalize the notion of Localized technological change that he has proposed in PII: S 0 1 6 6 - 4 9 7 2 ( 0 1 ) 0 0 0 2 2 - 0
several previous works and which also lies at the very heart of the approach to innovation proposed in this book. As indicated in the title of the book the overall framework used to analyse the dynamics of technological change maintains a strong micro-based foundation. The localized nature of technological change is seen, first and foremost, as the result of the presence of indivisibilities and irreversibilities in firms’ productive and knowledge assets. The latter are the key elements which define the room of manoeuvre (in terms of localized opportunities and constraints) of firms conducts and innovative strategies. The traditional neo-classical distinction between technical change (costless movements along the isoquants) and technological change (shift of the isoquants) is thus used by Antonelli in a different perspective to stress that the latter is largely endogenous and constrained by the specific-localized competencies of firms and the former is not cost-free. The laws governing behavioural choices and firms adjustments (with or without technological advancements) to changes in the economic environment (primarily changes in prices and demand) are explored in depth in the first part of the book. The key trade-off firms have to face here is between producer switching costs (i.e. those necessary to adjust inputs and assets within a given technology) and costs associated to the generation and use of new technologies. The concept of localized technological change is also applied to the broader economic, technological and institutional context, in which firms operate. This is because knowledge assets, increasing returns and knowledge externalities, as well as indivisibilities and irreversibilities in the process of generation and diffusion of knowledge, have a systemic dimension, that is are embedded and take place in well defined “economic spaces”. In particular, innovation systems are characterized by a composite set of structural features of firms, industries and markets, competences and innovative behaviours which co-evolve in historical time and are able to explain both path-dependence and the variety of innovation and economic performances which can be observed in the real world. Rather interesting in chapter 5 is the use of network analysis, and the methodology of spatial stochastic interaction to study characteristics, dynamic properties and performances of innovation systems. The latter are in fact characterized by different levels of internal receptivity and connectivity in the process of knowledge gen-
136
Book review / Technovation 22 (2002) 135–136
eration and sharing which in turn explain the different degree to which technological externalities are achieved and translated into economic performances. However, a weak point with such an approach has to do with the conceptualisation of innovation systems as “communication networks”. This implies the risk of reducing the wide range of knowledge interactions taking place in an innovation system to a matter of “communication” or simply circulation of information. The crucial relationship between the micro and system-related determinants of innovation and the macroeconomic domain is addressed in Chapter 4. In Antonelli’s framework the aggregate performances of economic systems depend upon the ability and possibility of firms and economic systems to respond through technological innovation to changes in the macro-economic environment such as demand and wage pressures. This in turn depends, along with the level of “economic perturbation”, on the quantity and quality of “localized” assets and competencies accumulated by firms and on the dynamic properties of innovation systems. Once started, the dynamics of technological and structural change is further fuelled by the presence of increasing returns and learning economies operating both at firm and system level. According to the author the activation of this selfreinforcing mechanism can explain the clustering of innovations both in time and space, and represents a major explanation of business cycles. In the second part of the book the key concepts of localized technological change and path-dependence and the methodology of network analysis are applied to the emerging knowledge based economy, with the paradigmatic role played by ICTs, telecommunication networks, knowledge intensive business services (KIBS) and the growing importance of technical standards, and cooperation in innovation. The main thesis of Antonelli is that the new technological paradigm has not diminished the importance of the localized nature of technological change, both at the firm and system level. The author locates himself somewhere between those stressing the increased codified nature of knowledge and those who stress its irreducible tacit nature. According to Antonelli, the specific knowledge assets of firms remain essential as well as the contextual conditions which make possible the continuous combination and recombination of tacit and codified knowledge. KIBS becomes crucial in this scenario, acting as the interface between the tacit competences of firms and the codified knowledge available in the system. The emergence of KIBS depends in turn on the new opportunities offered by ICTs which have enhanced the transferability properties of both codified and tacit knowledge and consequently changed the overall organization of the way in which technological change is generated and diffused. Using Antonelli’s words, “ICTs
change the domain of the spatial interactions structure of innovation systems by their effect on the appropriability, divisibility and marketability of knowledge and information. They increase the opportunity for greater technological co-operation and social division of labour so that the production of knowledge is less and less embodied in manufactured products and may be produced and delivered by specialized firms”. The evidence presented in chapter 11 provides empirical support to the key role played by KIBS for explaining the aggregate performance of European countries. The structure and performance of the telecommunication sector, itself a sub-technological system of ICTs, are also shown to be of key importance (Chapter 6), representing the critical infrastructure through which inter-connectivity and network externalities are achieved. In Chapter 7, the Schumpeterian model proposed to analyse the impact of localized technological change on employment is less original than the other Chapters. The evidence presented, based on a cross-section analysis of nationally aggregated data for the major OECD countries confirms the importance of technology as a primary source of economic and employment growth. In particular, the model does not discuss the macro-economic conditions under which a Shumpeterian model of growth based on technological rivalry generate positive net effects on employment, and it is implicitly assumed that the cross sectional regularities found in the empirical analysis can be generalized and hold at a more aggregate level (i.e., for the OECD area as a whole). The book ends by drawing a comprehensive set of policy prescriptions, closely linked to the theoretical approach proposed and to the main characteristics of the new ICT paradigm. It is suggested that the R&D focus of traditional innovation policies should be re-oriented to sustain the accumulation of tacit knowledge and localized competencies, to favour diversity and entropy in innovation, and to enhance the conditions of communication, dissemination, and access of knowledge by facilitating the emergence of KIBS and effective communication networks. All in all, the book is very stimulating in its attempt of combining the Schumpeterian approach to innovation, structural change and growth, with the Marshallian partial-equilibrium analytical framework. It represents a rare (and much needed) attempt of treating with analytical rigour and theoretical depth the multidimensional nature of technological change and its micro–macro economic domains, with an effort of developing theory in order to interpret the real world. R. Evangelista Consiglio Nazionale Delle Ricerche, (Cnr-Isrds), Via Cesare de Lollis 12, 00185 Rome, Italy E-mail address: [email protected]