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Can Innovation Solve The Economic Crisis?

2477 words - 10 pages

Can innovation solve the economic crisis?

Loh Hu 2/18/2013

In this paper, I examine how the theory of technological innovation waves could contribute to solving the ongoing economic crisis. Primarily, my stance remains that innovation in itself is insufficient to solve the economic crisis unless there exists a matching techno-economic paradigm where national, supranational and global efforts are coordinated for a full deployment of technological revolution.

Can innovation solve the economic crisis?
Background
There has been a wide international debate on the causes and possible solutions to the economic crisis that emerged in 2007 – 2008 (Ranga and Etzkowitz 2012). The economic ...view middle of the document...

In fact, the economy of some countries in the European Union is worsening (Ranga and Etzkowitz 2012). This inevitably begs the question on whether the measures taken place are effective to reverse or stop the decline. In order to tackle the current economic crisis, many experts have gathered valuable lessons learnt from the Great Depression in 1930s (Almunia et al. 2009). While the current economic crisis is comparable to the Great Depression in 1930s in the sense that both crises fall within the phase of Kondratieff winter (Gore 2010), the current economic crisis is no longer specific only to the Industrial society. Rather, it is a downturn of both the Industrial and Knowledge society (Ranga and Etzkowitz 2012). The difference in the nature of the economic crisis from that of the Great Depression has significant policy implications. Besides increasing employment, new forms of job must be created to overcome the crisis (Ranga and Etzkowitz 2012). In addition, what overcame the Great Depression then was the employment boom brought about by the destructive World War II (Romer 1992). However, the history of world’s development tells us that wars generate more problems than they can solve (Hu 2009).

Waves of Technological Innovations
On the other hand, history has shown that technological innovations infuse new vitality into the economy and boost productivity, overcoming economic crisis (Hu 2009). Based on the theory of “long waves”, the current economic crisis can be understood from the point of view of technological progress as the end of the 5th Kondratieff’s wave: the informational technological revolution (Smihula 2009). This is not just a financial crisis, but also a period where the applications of existing innovations from information and telecommunications revolution have been exhausted and a new wave of technological innovation is needed to revive the economy (Smihula 2009). Based on the growth and price cycles in the Kondratieff long wave together with the life cycle of technological revolution (Figure 1), it is suggested that a 6th wave could reboot the global economy (Gore 2010). The idea that Kondratieff long wave dynamics can be explained by the waves of technological revolutions was first supported by Schumpeter (Korotayev et al. 2011). Looking back at history, the previous four waves have each introduced a few leading sectors which offer low-cost inputs to a diverse extension of economic activities (Gore 2010). Innovations have been the initiating driver of technological revolutions which brought about a tremendous upswing of wealth-creating potential, making available a fresh set of related generic technologies and setting in motion a mirage of innovation possibilities and economic activities (Perez 2010). From this point of view, innovation is a solution to the economic crisis.

Figure 1 (Gore 2010)

Techno-economic paradigm
However, one should note that the contours of economic growth do not correspond to a single...

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