Make sure that the research paper has a lot of economic content, theory, and analysis. In addition, also take a deep dive and discuss Schumpeter’s theory of innovation and the role of entrepreneurship to enhance the theoretical constructs of the topic.
Schumpeterian Innovation
The process of “creative destruction” that contributed to the structural change of the economic landscape and promoted economic growth was attributed by Schumpeter to:
“innovations do not remain isolated events, and are not evenly distributed in time, but… on the contrary they tend to cluster, to come about in bunches simply because first some, and then most firms follow in the wake of successful innovations”
These long term innovation cycles are driven by different clusters of industries. The pattern that each cycle unfolds starts with the adoption of a set of innovations that are introduced into general use and subsequently lose momentum as the technologies mature and their profitability to investors decline with the contraction of business opportunities. This decline in economic growth associated with the loss of economic potency of innovation technologies subsequently to be followed by a new wave and new clusters of innovations which repeat the process of contributing to the structural transformation of the economy and lead to an upswing of economic opportunities and an upward trend in economic growth. This cyclical process of “creative destruction” was made possible according to Schumpeter by the proactive role of the entrepreneur. In Schumpeter’s model the entrepreneur’s profit is temporary because by adopting innovative technology the entrepreneur enhances the cost-effectiveness of an existing product placing that firm at a competitive advantage over other firms in the industry. The entrepreneur makes an abnormal profit because he sells the product at the market price which reflects the higher cost structure of the old firm in the industry. This profit margin will gradually disappear as other firms adopt the state-of-the art technologies.
The evidentiary support for Schumpeter’s long term innovation cycles commenced in the late 18th century with water power, textiles and iron. It was followed by steam, rail and steel in the mid 19th century. At the turn of the 20th century innovations in electricity, chemicals and the internal combustion engine took place. The third cycle peters off in the 1950’s, with the ascendancy of electronics, aviation and petrochemicals. The decade of the 1990’s ushers in the information age of the new economy with breathtaking innovations in digitalization, software, new media, genetics and fibre optics. It is worth noting that the duration of the innovation cycle appears to be contracting over time from an initial 50 to 60 year duration to a shorter 30 to 40 year period. In part this outcome is a recognition of the Schumpeterian importance of technological innovation to the process of enhanced productivity, as a contributor to economic growth as well as promoting business profitability. This recognition by both the private and public sectors has been most influential in increasing investment in research and development which is an essential prerequisite to facilitating technological innovation.
Schumpeter also emphasized technological innovation and savings, rather than consumption. He advocated that enhanced productivity gains and economic growth was through technological innovation. Robert Solow had a similar hypotheses. He stated that increased savings now would decrease current consumption, but would contribute to economic gains in the long run. In a nutshell, more savings now, a higher standard of living in the future.
The role of government and the private sector as well as the evolution of public policy has become a centrifugal issue in the manifestation of the performance and productivity of the new economy. From facilitating entrepreneurial enterprise to the availability of venture capital, capturing the synergy of technological innovation, simplifying procedural red tape, contributing to the enhanced productivity of the work force, maintaining good governance and fiscal discipline in the public sector, expanding trade opportunities, investing in education, skills and technology, contributing to cutting edge research and development, providing on-line government services and renewing the institutions for world economic governance such as the World Trade Organization, the International Monetary Fund and the World Bank.