The Changing Role of the Firm

Abstract

Ever since the Industrial Revolution, capitalism has been characterized by technological change at a speed and breadth incomparable to any other period in the history of mankind. Inventions had been made in earlier periods too, but it was only in capitalist economies that inventions were actively sought and implemented by capitalists competing for markets and profits. It was the first time in history that human inventiveness was employed in a social order that allowed almost unlimited freedom for individuals to introduce new products and new methods without having to ask for permission from anyone. Therefore, the history of technological change in capitalism is not so much a story of scientists, inventors and laboratories; it is a story of firms and entrepreneurs. The firm is the place where decisions are made, initiatives are taken and inventiveness is turned into real products sold for profit. Karl Marx (1848; 1867) was one of the first to point to capitalists, the bourgeoisie, as the driving force behind the development of the forces of production, as he called it. His insights were echoed half a century later in Joseph Schumpeter’s doctoral thesis (1911) that is often quoted as the first major work on innovation in modern economics. Today, a century later, the firm is still the central actor and place of decision making in processes of innovation, but there have been important changes in the way this role is being played. Innovation, like so many other activities, has been affected by processes of differentiation and specialization. As a consequence, innovation is, more than in the past, the result of organized interactions between formally independent firms. This is more true for some sectors than for others, but as a result there is an overall increase in the complexity of innovation processes in the economy, requiring new organizational capabilities.