Productivity, creative destruction and innovation policy: Some implications from the Australian experience

Abstract

It is argued that a Schumpeterian evolutionary economic perspective offers a better understanding of the determinants of economic growth and its tendency to fluctuate. Consistent with Schumpeter’s view, entrepreneurship is identified as the key driver of economic growth. But in complex, ever changing economic systems, entrepreneurs cannot optimise in manner presumed in conventional economics because of the uncertainty that they face. Thus, they are, necessarily, involved in a process of ‘creative destruction’ where failing entrepreneurs are just as important as successful ones. The recent global crisis is viewed within the ‘long wave’ perspective that Schumpeter adopted in relation to entrepreneurially-driven growth. Six key elements are viewed as necessary for an economy to escape from a long wave recession and a range of policy priorities are identified that can promote the necessary entrepreneurship and innovation. This discussion is set in the context of developments in Australian innovation policy since 2007.