Innovation & growth, the French Case

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Index

Index        1

1.        Intro        2

2.        Correlation between innovation and growth.        2

2.1        Analysis according to Schumpeter        2

2.2        théories of endogenous growth.        4

3.        innovations in France        6

3.1        Bloomberg innonvation index and european ranking        7

3.2        Incentives and intelectual patent laws        11

4.        Conclusion        12

5.        Biblio        13

1. Intro

The economy is not a linear process but fluctuates according to the elements that come to impact it. Economic growth is defined by the business dictionary as an “Increase in a country's productive capacity, as measured by comparing gross national product (GNP) in a year with the GNP in the previous year. Increase in the capital stock, advances in technology, and improvement in the quality and level of literacy are considered to be the principal causes of economic growth.” So, as we can see, the economic growth depends on different factors, one of them being the technology we can ask ourselves how every innovation or modification of already established standards can alter drastically the performance of an economy. Economic crises have certainly a disastrous impact on the economy, nonetheless they remain a phenomenon of adjustment of economies. Crises are part of a cyclical processes where phases of expansions and recessions are following. According to the Schumpeter analysis, innovations explain the economic cycle. Innovations are modifying existent economic structures. Innovation processes lead to differentiation and increased competition between companies, by creating comparative advantages that can challenge established situations. France has now become competitive in terms of innovation, in this duty I will study the reasons why this territory remains fertile for innovation.

1. Correlation between innovation and growth.

1. Analysis according to Schumpeter

Economic activity is not a linear process, but a cyclical process. For Schumpeter, economic equilibrium is only a theoretical standard that the economic process seeks to achieve. The equilibrium situation is only one step of the economic cycle, especially because of external factors that cause economic activity fluctuation. Although it is a situation of permanent general equilibrium, this equilibrium tends to evolve constantly according to the different factors that influence economic activity. Schumpeter explains cycles in economics by the appearance of major innovations that impact the factors of production and methods of manufacturing goods. Innovations and technical progress therefore play a role in the formation of cycles by the productivity gains they generate.

Unlike classical authors who saw the process of growth limited by the "law" of decreasing returns, Schumpeter substitutes an optimistic view that is based on the positive contributions of technical progress. Process innovations improve the efficiency of the productive combination, thereby lowering prices. Product innovations make it possible to offer the population diversified and efficient products. Thanks to them the population is enriched which benefits the majority and especially the most deprived.

Schumpeter will attribute the existence of cycles to the specific dynamics of innovation that can only be implemented by a single economic agent: the entrepreneur. In this process of economic evolution, it can take five forms which are:

• Product innovation, it corresponds to the production of a new good unfamiliar to the consumer circle, more qualitative.
• Process innovation, it involves the introduction of new production methods.
• The existence of a new market a new way of supply.
• The discovery of a new source of raw materials.
• The emergence of a new organization.

He distinguished two phases in economic cycles, the first one corresponds to the assimilation and the diffusion and; in fact, the innovation leads to new way to product and to the augmentation of benefits. This announces the start of the second phase, the amortization of new business conditions the new product or the new way to produce have been used by all companies the benefits tends to fade. These five types of innovation are sources of creative destruction. Some activities become obsolete, products disappear, and entire branches are destroyed, leading to unemployment and deskilling. Lifestyles are disrupted: for example, the progress of agriculture is causing rural exodus, urbanization is growing, and so on... But on the other hand, these innovations create new jobs and new opportunities. Process innovations increase productivity which reduces prices, increases demand and supply and therefore employment. They create new activities and job creations. These innovations are then imitated by other entrepreneurs attracted by profit opportunities. Depression makes society receptive to the innovations that are behind a new phase of prosperity. Creative destruction explains cycles. Capitalism is never stationary, crises are inevitable.

In my opinion, this analysis can explain the correlation between economic growth and innovation. But I think that his vision can be idealistic, not true to reality. Radical innovations are few and rarely spontaneous. Innovation is much more often a "micro change", a punctual improvement unlikely to be at the origin of a cycle. They result more from a methodical research, planned than a stroke of genius. The entrepreneur of Schumpeter is rare, it corresponds to a particular case, where an audacious move can change the conditions of a market.

Śledzik K., (2013), Schumpeter’s view on innovation and entrepreneurship(in:) Management Trends in Theory and Practice, (ed.)Stefan Hittmar, Faculty of Management Science and In-formatics, University of Zilina & Institute of Management by University of Zilina

Schumpeter, J. A. (1999). Theory of economic evolution: research on profit, credit, interest and the cycle of the economy. Paris: Dalloz. (Original work published in 1911).

1. théories of endogenous growth.

Romer, Lucas and Barro are the creators of the theory of endogenous growth. Romer just won the Nobel Prize for Economics 2018 thanks to this theory. Theories of endogenous were developed in the 1980s, according to them, we can’t only explain economic growth by the increasing of the quantity of productions factors (work and capital); the theory of endogenous growth permit to explain the increment of the GDP more specifically. The growth comes from the behavior of economics agents. Technological progress and innovation are source of economic growth, it is from the behavior of the agents in terms of investments among others that we come to approach this theme according to the theorists of endogenous growth. Four principal capitals are influencing the endogenous growth:

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