Innovation as Creative Destruction

[caption id="attachment_49729" align="alignright" width="300" caption="Ilustrasi-admin (shutterstock)"][/caption] In previous articles focusing on the values and logics of technology and economics (Nalar Eknomi dan Nalar Teknologi, http://www.kompasiana.com/kusmayantokadiman) innovation is seen being the key-word and the common factor of economics and technology. A closer view into the relation between technology and economic development is offered by the so-called Schumpeterian Perspective. From this perspective, innovation is conceived as a creative destruction process. Competition among agents generates variety through innovation, but also reduces this variety through selection mechanisms, which depend on market institutions. Thus, innovation is the result of a process of creative destruction which transforms the routines of individuals, firms and institutions through formal and informal learning, and integration of tacit and codified knowledge. The creative destruction process determines, among other things, the level of development of an economy. While the selection mechanisms tend to diminish the micro-diversity, the creative component of creative destruction process helps to increase it. In this sense, they are opposing forces and so interdependent that they can have an impact both on competition and development. The initial differences in the skills of actors and selection mechanisms are key factors in the process of creative destruction. The creative destruction synthesizes the two pillars of economic growth:

1. The corporation that generates the innovation process which is therefore responsible for the "creative" component of creative destruction process, and
2. The market which leads the selection mechanism and thus explains component destruction.

Thus, from Schumpeterian economics, competition is understood as a space of generating variety and selecting conduct, rather than as an abstract construction of intersection between the functions of supply and demand. Innovation agents—through differentiation of their routines—try appropriating knowledge and profits derived from competitive process. Two types of capacities are relevant to the notion of creative destruction process: absorptive capacity and connectivity capacity.  The absorptive capacity of the system can be regarded as the ability to recognize new external knowledge, to assimilate and apply it. This capacity is not related only to the possibility of accessing the existing knowledge in the environment, but also implies the ability to identify useful knowledge and generate new one. Absorptive capacity can be explained in terms of the organization of work and learning processes, the quality management and the extent of innovation activities, among other variables. The capacity of connectivity is associated with the potential of the system to establish relationships and generate interactions with other systems with the objective of increasing their knowledge base. Therefore, different levels of development of this capacity determine options for access to knowledge, resources and opportunities. The importance of relationships among academicians, businessmen/women, government agents (Academics-Business-Government relationships) is elaborated in a variety of contexts in various articles available in http://www.kompasiana.com/kusmayantokadiman with the triple helix (THC) and ABG as the keywords. In developing countries, in Asia, Africa and Latin-America, the low levels of capacities could act as a limit to knowledge appropriation and creative destruction processes. In these countries market competition tends to be based only on prices and struggles, and not on the generation of innovations aimed at increasing variety and improving selection mechanism. Is Innovation Relevant? Is technology and innovation important for development? And if so, how from such understanding could we develop a model for Asian innovations? The answers to these questions depend on what is meant by the term innovation. One popular perception of innovation (that can be seen in printed and electronic media every day) has to do with developing brand new, advanced solutions for sophisticated, well-off customers, through exploitation of advance technologies. Such innovation is normally seen as carried out by highly educated labour in R&D intensive companies, with strong ties to excellent research centers. Mobile-phones, home appliances (TV, radio, kitchen utensils), sound-systems, computers are some specific examples of innovative products. Hence innovation in the above sense is a typical “first class” activity, and is directly relevant to wealthy nations in the West. To those at the “third class”, the developing countries, that notion of innovation is only indirectly relevant. However, there is another way to conceive technology and innovation that goes beyond the above ‘high-tech phobia’.  In this broader perspective, innovation – the attempt to try out new or improved products, processes or ways to do things – is an aspect of most, if not all, economic activities. In this alternative view of innovation, the outcomes are not necessarily as fantastic and luxury as that in the wealthy nations of the West. Nevertheless, the cumulative social and economic impact of such ‘moderate class’ innovation could be no less-significant. Even in the so called ‘low-tech’ activities, there may be a lot of innovation going on, and the economic effects may be very large and sustainable. What we emphasize here is that technology and innovation policy, especially in less advanced economies, needs to have a broad focus. The question should not be how to attract so-called high-tech activities from abroad, but how to unleash the creative potential of innovation actors (firms, bureaucracies, research organizations, financial institutions and the rests) that are already there, in a broad range of sectors and activities. This naturally leads to a focus on the quality of the environment in which the various innovation actors operate. A number of questions arise:

1. How knowledgeable is the environment?
2. How easy is it for a potential innovator to mobilize the necessary skills, assets and external sources of knowledge that will be required when moving from the idea to the innovation stage?
3. And how innovation-friendly is the system of governance, and the social environment more generally?
4. It is necessary to consider the connectivity of all these factors, because the strength of a network of relations is determined by weakest links. In other words, strong interdependence between technological capabilities, innovation-friendly governance, and deeper social and cultural factors are crucial for innovation and economic development.

We must seek answers to all those questions, if Indonesia’s economy is to be innovative, and to compensate the potential threats induced by the current global crisis. Those questions need also be addressed by China and ASEAN leaders and China and ASEAN innovation actors, if a common China and Asian (CAFTA) economy is sought to establish and sustainable.