Patterns of Technological Progress and Corporate Innovation

Abstract

The bulk of the global innovative effort takes place in 5 countries: USA, Japan and China as leaders, with France and United Kingdom as immediate followers, which all display, on the long run, a negative marginal value added on innovation. The present paper attempts to answer the following question: why does most of innovative activity takes place in markets apparently hostile to innovation, i.e. giving back negative marginal value added on innovation ? A model is introduced in which any market may be represented as a Selten’s extensive game, subgames of which are played as Harsanyi’s games with imperfect information, by a temporarily finite and changing set of players. The firms’ innovative activity is a Nash’s dynamic equilibrium in which innovating is rational though suboptimal, without premium on innovation being a real economic profit. The model is the theoretical framework for the study of six cases: Ford Motor, General Motors, Honda, Chevron, Akzo Nobel and IBM, which allow to conclude that firms do innovation either because they have to or because this is their comparative advantage and they can do it in an exceptionally efficient way. As economic growth is grounded in efficient business patterns and in some countries those business patterns shape themselves in the context of a strong exogenous pressure on innovation. This leads to the development of economies which, regardless its pace of economic growth and balance of payments, come to a point when marginal value added on innovation is negative. At this point, however, incentives to innovate do not disappear and firms continue to apply the same business patterns and thus do create scientific input which gives back negative marginal real output. This pattern of global technological progress seem to be quite durable, with financial markets that allow to compensate, by successful financial placements, the downturns of innovative projects.