Schumpeter observed creative destruction is at the core of the market economy to offer us an increasingly better-quality life. Waves of technological innovation are emerging one after another, offering us progressively better-quality products, often decreasing costs. Emerging products are also destroying mature products. For example, the tungsten filament bulb wave emerged to offer us better alternatives to Edison’s carbon filament lamps. Subsequently, fluorescent lamps emerged by unfolding a destructive effect on filament lamps. The journey continued with the revealing of LED light bulbs, which caused destructive effects on light bulbs offered by two previous-generation technologies. We call This effect Schumpeter’s creative destruction. To tap into this opportunity, the market economy provides freedom of competition to profit from ideas—entrepreneurship. But where to get ideas? Creative sparks in the minds of genii are not enough. We need a flow of ideas, which makes science and technology policy crucial for idea economy.
Underlying thoughts of the market economy—planting the seed for science and technology policy for the idea economy
Adam Smith Observed, “rational self-interest in a free-market economy leads to economic well-being.” Consumers are after the self-interest of maximizing utility by deploying products or consuming their services in getting jobs done. For that reason, they are on the hunt for getting better products at less cost. So that they can keep extracting increasing utility from deploying a growing number of higher quality products.
Moreover, they would like to have new products to get latent jobs done. By the way, latent jobs are those which have not surfaced as demand yet, primarily due to lack of products to get them done. For example, human beings had a desire to experience visual observation from a distance. But in the absence of suitable products, that desire did not translate into the demand. The invention of the TV supplied the products to get this job done. Subsequently, it created the market of TV production and consumption offering greater prosperity.
Adam Smith observed that the main cause of prosperity was the increasing division of labor, resulting in job division and specialization. It only focused on the production process, as if the design of the product was static, and there was no substitute to labor. It relied on harnessing the innate capability of human beings. Subsequently, the journey reaches the limit. Moreover, his observation did not focus on the innovation of product features and the products themselves. But history tells that progress of product innovation has been making significant contributions to prosperity. In addition to intuition-based tinkering centric ideas, contemporary Science and Technology (S&T) based ideas are playing vital in offering us better quality products at decreasing cost.
Getting progressively better-quality products at decreasing cost—a conflicting agenda
Offering better quality products at less price for getting our jobs done better has been at the core of providing us prosperity. But how can we get better products increasingly at decreasing cost? Producers are in the business of supplying them to make a profit. In fact, producers need to pay more for inputs like labor, energy, and natural resources. Hence, how can they succeed in offering better quality products at a lower cost? Ideas play a vital role in addressing this conflicting situation. Ideas are used to add new features and improve existing ones while consuming fewer resources like material, energy, and labor. Moreover, ideas are also used to improve processes so that inputs could be used more effectively and efficiently to produce and assemble features of the products.
Objects and ideas—increase the supply of ideas to overcome the limitation of objects
Prof. Paul Romer has articulated production function as a combination of two input factors: ideas and objects. Objects are traditional production factors like labor, raw materials, energy, land, and buildings. The cost of the objects has been increasing. Moreover, quality is falling in some instances. Therefore, producers get help from ideas of mixing inputs to address this conflicting agenda. Inadvertently, they are looking for better as well as more ideas for offering increasingly better products at fewer costs. But how to get those ideas? Creative sparks in the minds of genii are not enough. The supply of ideas depends on our knowledge stock and the creative process of producing ideas out of the knowledge. Well, the creative process is human’s innate ability. Thus, human beings keep producing ideas, which was even observed in ancient philosophical writings as praxis.
Although there is some scope to sharpen this innate ability, the most scalable option is to increase the supply of knowledge. In the absence of additional flow of knowledge, human beings’ ability to create ideas for adding new features and enhancing existing features of incumbent products, improving production processes, and innovating new products as well as processes faces the ceiling. Hence, we should focus on science and technology policy for creating the flow of knowledge leading to idea generation for technology invention and innovation.
Freedom to profit from ideas—Science and technology policy for creative destruction surfaces
Both Carl Max and Schumpeter found the strength of the market economy in entrepreneurship. But how does entrepreneurship create economic value? Yes, the free-market offers the freedom to pursue ideas to offer a better alternative. But where do they get ideas? Entrepreneurship needs to have access to the advancement of knowledge for generating ideas. Hence, Science and Technology Policy pursued by the government plays a vital role. If the R & D in a country is conducted only by the existing corporations, the likely outcome of R&D will lead to monopolization. Outside entrepreneurs would not have access to corporate-funded R&D outputs to generate ideas.
Therefore, the public policy of science and technology is critical. Public-funded research, particularly with graduate students’ engagement in advancing knowledge having relevance to practical problems, is highly important. In the absence of it, entrepreneurs will not have access to ideas to pursue the journey the next wave of innovation for offering better alternatives to existing products to get our jobs done better at less cost.
This role of entrepreneurship is also vital for disrupting existing firms having a monopolistic position around existing or matured technology core. In the absence of flow new knowledge and ideas, the freedom of competition alone will fail to keep improving the quality of living standards. On the other hand, due to monopolization, corporations will slow down the race of sustaining or incremental innovations bringing the economy on a very slow lane.
Vannevar Bush’s arguments for Science Policy for the US
In his landmark report “Science—the Endless Frontier”, Prof. Bush argued that America could not look for increasing prosperity by producing the same products and expecting to sell them at the same or higher price. He shared that invariably products, whether light bulb or TV, show up in the primitive form. They need to go through a relentless path of continued progression.
To exploit the underlying full potential, incremental innovation around the same technology core is not even sufficient. Often, there is a need to change the technology core. Although many great innovations start the journey with the tinkering act of creative minds, that approach is not sufficient for continued progression. Subsequently, tinkering outcomes should be theorized to scale up progression. Such reality demands us to pay attention to the scientific approach for discovering knowledge for empowering creative minds to keep generating ideas. In fact, a flow of ideas is needed for continued progression.
He also argued that public funds should flow to universities to advance Science and Technology to support the continued advancement of existing products. He also argued that publicly funded science and technology R&D will lead to an entrepreneurial journey for offering better substations to exiting technologies and innovations. Subsequentially, his argument led to the formation of public-funded university centric strong Science and Technology policy. Hence, the National Science Foundation came into existence. The creation of defense research agencies followed it. More importantly, the US Government coupled S&T policies with economic, industrial, commercial, and defense strategies. Consequentially, it has led to the formation of several technology innovation clusters. Among them, Silicon Valley is a notable one. In retrospect, science and technology policy for idea economy is the underpinning of the US’s continued prosperity.
Increasing prosperity distills from technology policy for the idea economy
As Professor Schumpeter observed as creative destruction, prosperity in the market economy distills from profit-making competition from ideas. However, the entrepreneurial journey needs a flow of ideas to fuel creative waves of destruction. Unfortunately, sparks in creative minds are not enough. Hence, there is a role of Science and Technology policy for creating the flow of ideas to drive our prosperity. In fact, in the absence of the flow of knowledge and ideas created by the Science and Technology Policy, the market economy does not get the much-needed fuel to keep progressing with the entrepreneurial freedom.