Transcript Innovation policies and strategies after the financial

THE CONTEXT
FOR INNOVATION POLICIES
AND STRATEGIES
after the financial frenzy
of the 1990s
Carlota Perez
Presentation at the Fourth European Forum
for Innovative enterprises
Stuttgart-Karlsruhe, December 2004
After the collapse of the NASDAQ
Venture capital funds are less plentiful and more cautious
$81.2
Funds Raised ($B)
$80
Commitments
to Venture Capital Funds
$60
$55.5
$49.3
$40
$25.7
$20
$12.1
$6.7 $5.7
$15.9
$12.9
$7.3
$8.7
$7.1
$0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1H04
Source: Dow Jones, Venture One
NASDAQ
collapse
WILL THE “GOOD TIMES” OF FINANCIAL FRENZY COME BACK SOON?
The answer to that question is essential
for policies and strategies dealing with innovation
Which of the two situations is “exceptional”: The 1990s or now?
WHERE CAN WE FIND
USEFUL CRITERIA
TO JUDGE
?
PERHAPS HISTORY CAN PROVIDE SOME LESSONS
RESEARCH ON TECHNOLOGICAL REVOLUTIONS
REVEALS A RECURRENT LONG-TERM DYNAMIC
REGULAR
SEQUENCES
SYSTEMIC
SPECIFICITY
• Successive revolutions
every 40-60 years
Economic success
for the whole 40-60 years
of each technological
revolution:
• A financial bubble
collapses at about
mid-diffusion
• A diffusion sequence
of 8-12 year phases
(with a marked change in
business climate)
DEPENDS ON
A UNIQUE
AND SPECIFIC
TECHNO-ECONOMIC
PARADIGM
which defines
best competitive practice
FIVE TECHNOLOGICAL REVOLUTIONS IN 200 YEARS
1771
The ‘Industrial Revolution’
1829
Age of Steam and Railways
1875
Age of Steel, Electricity and Heavy Engineering
1908
Age of Oil, the Automobile and Mass Production
1971
Age of Information and Telecommunications
20??
Age of Biotechnology, Nanotechnology and Bioelectronics?
Each brings a different world of opportunities for innovation
and has a similar pattern of propagation
DOUBLE NATURE OF EACH TECHNOLOGICAL REVOLUTION
NEW DYNAMIC
INDUSTRIES
A NEW TECHNO-ECONOMIC
PARADIGM
A powerful cluster
of new products and processes
and new infrastructural
networks
New all-purpose technologies,
new organisational principles,
different business models
and low-cost facilitating
infrastructure
NEW FIRMS
AND INDUSTRIES
BECOME ENGINES
OF WORLD
GROWTH
REJUVENATION
AND MODERNISATION
OF THE WHOLE
ECONOMY
A general leap
in productivity
A new shared common sense among engineers,
entrepreneurs, financiers (and consumers!)
In theory…
THE LIFE TRAJECTORY OF A TECHNOLOGICAL REVOLUTION
AND ITS TECHNO-ECONOMIC PARADIGM
Deployment
of potential
40-60 years
Previous revolution
exhausted and
declining
IRRUPTION
MATURITY
Next revolution
in gestation
Time
Initial radical
innovations
Techno-economic
paradigm defined
AN EPIDEMIC PATTERN OF DIFFUSION FROM IRRUPTION TO MATURITY
Source: Based on Nelson and Winter, Dosi, Wolf, Abernathy and Utterback, Arthur, etc.
In practice… because of the way society assimilates a revolution
THE DIFFUSION PROCESS IS BROKEN IN TWO
Second 20-30 years
First 20-30 years
INSTALLATION PERIOD
TURNING
POINT
TURBULENT
“CREATIVE
DESTRUCTION”
GOLDEN AGE
OF GROWTH
INSTABILITY
AND
UNCERTAINTY
Emergence of the new
Decline of the old
ESTABLISHMENT
OF THE NEW
PARADIGM
modernizing the old
Expansion of new
and “renewed”
economy
FULL FLOURISHING
OF THE TRIUMPHANT
PARADIGM
and gestation of the next
2000
1971
DEPLOYMENT PERIOD
Time
We are here
This mode of propagation
CREATES DIFFERENT FINANCIAL CONTEXTS FOR INNOVATION
First 20-30 years
TURNING
POINT
INSTALLATION PERIOD
DEPLOYMENT PERIOD
Post bubble
recession
(sometimes
depression)
FINANCE
increasingly available for:
• Risk and experimentation
with innovation
FINANCE
UNCERTAIN
• Modernization
of any activity
• “Casino” speculation
INSTITUTIONAL
RECOMPOSITION
2000
Intense innovation
ending in
BIG FINANCIAL
BUBBLE
and collapse
1971
Second 20-30 years
FINANCE
Cautious
and risk-averse,
Wanting more
guarantees
and/or more control
Level of innovation
will depend on
the efficacy of the
INSTITUTIONAL
FRAMEWORK
Time
A time to act
The special conditions
for FINANCIAL FRENZY
in the Installation Period
of a technological revolution
The amazing
SUCCESSES
of the new
entrepreneurs…
... EXCITE financial capital
and ATTRACT
all available money towards
the technological revolution
Spectacular
profits
and growing
capital gains
Excess demand
in the stock market
ends up leading to
ASSET INFLATION
The MASSIVE DELUSION
makes many unprofitable
projects appear viable…
…attracting even more funds and preparing the inevitable collapse!!!
…and that’s how bubbles grow and crash every time!
From the CANAL MANIA
Acts for canal(*) building
Great Britain
of the Industrial
Revolution
To the INTERNET MANIA
of the Information Technology Revolution
1750-1815
5.000,0
60
4.500,0
50
4.000,0
NASDAQ INDEX
3.500,0
Number of Acts
40
30
20
3.000,0
2.500,0
2.000,0
1.500,0
1.000,0
10
500,0
Source: Ward (1974) p.164
(*) includes 22 riv er nav igation improv ements
Acts for Joint-Stock Companies
Britain 1760–1804
The NASDAQ Bubble
USA 1987–2001
Mar2001
Mar2000
Mar1999
Mar1998
Mar1997
Mar1996
Mar1995
Mar1994
Mar1993
Mar1992
Mar1991
Mar1990
Mar1989
Mar1988
1800-4
1795-9
1790-4
1785-9
1780-4
1775-9
1770-4
1765-9
1760-4
Mar1987
0,0
0
But history also shows that
Bubble
INSTABILITY
RECESSION
RECOMPOSITION
EACH MAJOR TECHNOLOGY BUBBLE IS FOLLOWED BY A GOLDEN AGE
1
Canal mania
1793–97
The great
British leap
2
Railway mania
1848–50
The Victorian Boom
3
New frontier
bubbles
1893–95
The Belle Époque (Europe)
The Progressive Era (USA)
The Roaring
Twenties
1929–43
The post-war
Golden Age
Internet mania
2001–??
?
the five revolutions in parallel
INSTALLATION PERIOD
4
5
Irruption
Frenzy
DEPLOYMENT PERIOD
Golden Age
Synergy
COLLAPSE
Maturity
This means that, as in previous cases,
the VC plethora of the 1990s
is NOT likely to come back soon, but…
…as in previous cases, the next 20 to 30 years
can be a Golden Age
It will all depend
on the adequacy of the institutional framework
established at this Turning Point
?
WHAT DETERMINES THE ADEQUACY?
EACH TECHNOLOGICAL REVOLUTION
IS UNIQUE:
Different conditions for competitiveness
Different guidelines
in its innovative logic
A different
common sense
A SPECIFIC TECHNO-ECONOMIC PARADIGM
with different enabling requirements
How was technical change facilitated in
THE MASS PRODUCTION PARADIGM?
The Main characteristics
The basic arrangements
Major long-term research
Self funded
corporate R&D departments
Deep distinction between
custom and mass production
Spaced innovation
Big and lumpy investment
DIFFERENT CRITERIA
FOR R&D AND BUSINESS INVESTMENT
State funding of research in
• government
• university and
• private laboratories
(often driven by military
requirements)
Special treatment of SMEs
Those institutions fuelled innovation adequately
in the Post-WWII “Golden Age”
THE NEXT “GOLDEN AGE”
in the European Union
will be the competitive Knowledge Society
set out in the
LISBON AGENDA
But… innovation funding will not rush in “by itself”
IT WILL HAVE TO BE
ACTIVELY AND CONSCIOUSLY
PURSUED
with adequate policies
and strategies
What is specific about innovation in the
FLEXIBLE PRODUCTION ICT PARADIGM
of the Globalized Knowledge Society?
• Importance of intangible capital and value added
• Major role of innovating SMEs
• Interlinked research and innovation
• Capacity for custom-made high-tech products
• Continuous improvement
• Global network innovation and adaptation
• Technical and product change as the competitive routines
INVESTMENT IS NOW INSEPARABLE FROM INNOVATION
Venture capital must become part of the “normal” cycle
NEED FOR BOLD INSTITUTIONAL INNOVATION
Private, public and mixed
• What role for banks and the financial sector?
• What stage(s) will venture capital firms cover?
• What role for global firms
(innovating inside the network and with suppliers or clients)?
• What role for State funding?
• How to handle both quick-return (ICT) projects
and long-term, high-risk ones (biotech)
• How to deal with intangible value and “collateral”?
• How to acknowledge the value of “human capital”?
A dynamic Knowledge Society will require
AN ADEQUATE LEGAL FRAMEWORK
AND EFFECTIVE MECHANISMS
for reducing risk and enabling technical change
The better all the actors
understand the circumstances
the more adequate will be the response
NOW IS
THE TIME
TO ACT
The public policies and private strategies
adopted at this Turning Point
WILL DEFINE THE CONDITIONS
FOR INNOVATION, GROWTH AND COMPETITIVENESS
FOR THE NEXT TWO OR THREE DECADES