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LUISS Guido Carli

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Freeing the economy from the innovation fetish

Professor Paul A. David of Stanford University was at LUISS to discuss the downsides of idealizing continuous innovation

On Thursday, November 13 the economist Paul A. David, emeritus professor at Stanford University, visited LUISS to give a lecture entitled The Innovation Fetish among the Economoi in which he presented his provocative thesis on the role of innovation in economic processes.

Paul David LUISS

A guest at the Department of Business and Management, Professor David explained the many reasons why he feels that modern economists (the Economoi, or that more or less consistent group of economists that are capable of influencing social and political behavior) attribute so much importance to seeking out what is new. "The innovation fetish grips its adherents, particularly those among the economoi who avow special concerns with technological change and its impact upon economic growth and human welfare, with an unreasonable degree of attention to commercial implementation of new processes, products, organizational practices, and business models."

He began developing his ideas on the criticality of renewal two years ago, for a conference at the National Bureau of Economic Research (NBER) in New York for the fiftieth anniversary of the publication of a famous collection of essays in 1962, entitled The Rate and Direction of Inventive Activity. "In the Seventies, American economists started to pay increasing attention to technological changes. Today, however, it is taken for granted that innovation is always a good thing, a positive contribution to society. These fixations have spread beyond the economoi to national political leaders, the heads of public and private foundations and administrators of institutions of higher education and research, who tend to disburse funding destined for education and research on the most fleeting of novelties."

Paul David Stanford

Professor David’s contribution focuses on the social and political consequences of this ideology that excludes or ignores the problems that innovation brings, "such as licenses and patents, and the management of the introduction of new products and processes." He envisons a systemic approach to determine the importance of the various phases of innovation and to realize that having continuous novelty is an impossible and paradoxical task. "Rational potential buyers are likely to avoid the capital loss that the arrival of tomorrow's improved version is expected to bring; they will defer today's acquisition of the novel equipment now available. The result of the pro-innovation policy commitment may well be the perverse slowing of adoptions, to the detriment of the innovating firm's profits and its ability to finance needed incremental technical improvements."

The American economist’s proposal is to go back to the idea of enough is enough: to remember that we can reach a point where more innovation worsens the state of things. "If there exists an optimal rate of innovation for each branch of the economic and industrial sector, this rate cannot be continuously positive. Even evolutionary processes include pauses during which new functional traits acquire stability and become fixed in the gene pool of the current population."

As for human beings, the life cycle of economies and companies sees phases in which "stabilizing and perfecting the results of routines can become more efficient than exploiting opportunities for radical renewal in light of continuously improving performance." Stopping to look at the various change processes taking place is the real formula to overcome the innovation fetish. "By the aggregation of diverse micro- and meso-level innovation processes, a diversified economy may enjoy the effects of a more or less steady average pace of innovation at the macro level. Freeing ourselves from the grip of the innovation fetish could bring about more careful political management and a wiser use of innovation based on its specific role in economic growth."