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Article

Technology and Economic Development: The Schumpeterian Legacy

Rinaldo Evangelista1

Abstract The main argument put forward in the paper is that the recent neo-Schumpeterian literature, while providing fundamental contributions to our understanding of innovation, has contributed to the emergence of an optimistic reading of the relationship between technology, economy, and society, with technology able to guarantee strong economic growth and social welfare. It is also argued that such an “optimistic bias” has been associated with a dominant supply-side and micro-based view of the technology–economy relationships.

JEL Classification: B52; O10; O30

Keywords technology, innovation, Schumpeter, development, crisis

1. Introduction

In this contribution, we argue that the last economic crisis, along with shaking the dominant neoliberal economic thinking and policy framework, challenges also the widespread (both within and outside orthodox economics) optimistic view of the role technology plays in our economies and societies. More specifically, the somewhat provocative argument put forward in this paper is that such an optimistic stand also permeates the neo-Schumpeterian literature, that is, that broad stream of research that originated in the 1970s and 1980s, having as its main research objective the investigation of the nature, the determinants, and the economic effects of technological change and innovation. Despite being constituted by a rather heterogeneous set of research streams (Fagerberg 2013; Winter 2014), all in all this body of literature tends to convey an opti- mistic scenario of the economic and social effects of technology, with the latter being able to guarantee strong economic growth, job creation, and (implicitly) social welfare. As is argued in the following sections, this view on the socially progressive virtues that technology plays in capi- talist economies is confirmed by the fact that in the neo-Schumpeterian literature (with only few

1University of Camerino, Piazza Cavour, Italy

Date received: October 27, 2015 Date accepted: June 6, 2016

Corresponding Author: Rinaldo Evangelista, University of Camerino, 62032 Camerino, Piazza Cavour 19, Italy. Email: [email protected]

666565 RRPXXX10.1177/0486613416666565Review of Radical Political EconomicsEvangelista research-article2017

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exceptions), technology is rarely associated with macroeconomic “market failures” such as sys- temic crises, structural unemployment, and the growth of social and economic inequalities.

The paper is structured as follows: in the next section, the flourishing of the neo-Schumpeterian literature is put into historical context and the main areas of theorizing and empirical investiga- tions of this new research field are sketched out. Section 3, along with recognizing the great merits of the neo-Schumpeterian approach, highlights two dominant methodological and concep- tual traits of this stream of literature, which, to our view, make the latter insufficiently equipped to deal with the potentially contradictory relationships between technology, economic develop- ment, and social welfare in market (capitalist) economies, with contradictions emerging espe- cially in periods of prolonged structural crisis. In particular, the focus is on the progressive shift of the bulk of the neo-Schumpeterian literature toward a micro-based and supply-side view of the relationship between technology and economy, a shift that has contributed to favoring an acritical (and optimistic) representation of the economic and social effects of technology. Section 4 argues that such a “double shift” is well reflected in the marginalization of “heterodox” topics, such as the controversial relationship between technology, employment, and, more broadly, socioeco- nomic development.

2. Main Research Avenues in the Neo-Schumpeterian Literature and Three Emerging Trends

Over the last three decades, the fundamental role played by technological change and innovation for economic growth and competitiveness has been increasingly recognized both on a theoretical and empirical ground. It does not come as a surprise that, in this context, Joseph Schumpeter has been rediscovered as a cultural reference point for a new field of research specifically dealing with the “economics of technology and innovation.” The holistic methodological approach of Schumpeter; his out-of-equilibrium, dynamic, historical, and institutional view of economic pro- cesses; his interest in the role of innovation seen as the engine of competition, structural change, and growth—all have represented strong sources of attraction and inspiration for a new genera- tion of economists and scholars, located first outside, and later on also within, mainstream eco- nomics.1 The acceleration of the rate of technological and scientific change, along with the paradigmatic change brought about by the emergence and diffusion of Information and Communications Technologies (ICT) in the 1970s and 1980s, have also significantly contributed to the emergence of a “Schumpeterian renaissance” (Freeman 2007) and to the flourishing and consolidation of a new discipline variously labeled as “Economics of technological change,” “Economics of innovation,” “Schumpeterian economics,” or “Evolutionary economics” (Dogson and Rothwell 1994; Dosi et al. 1988; Fagerberg, Mowery, and Nelson 2005; Hall and Rosenberg 2010; Stoneman 1995). For the sake of simplicity, and without any presumption of being exhaus- tive, in this paper, we label this rapidly growing research area and related literature as “neo- Schumpeterian,” focusing in particular on that branch dealing with the analysis of the nature, the determinant, and effects of technological change and innovation (Winter 2014).

The neo-Schumpeterian literature has had the fundamental merit of bringing back (after Marx and Schumpeter) technology and innovation to the center of economic theory and analysis. This stream of literature has in fact filled an important gap in economic theory, providing for the first

1Over the last two decades, starting with the contribution of Lucas and Romer, there have been various attempts at introducing Schumpeterian elements into neoclassical models of economic growth, in partic- ular, making innovation and technological change endogenous factors (Aghion and Howitt 1992, 1998; Lucas 1988; Romer 1990, 1994). However, the fundamental conceptual and methodological structure of these models has not significantly changed, remaining strongly anchored in methodological individualism and trusting the functioning of “Say’s law” and the equilibrium properties of markets (Castellacci 2007; Verspagen 2005).

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time a systematic array of analyses, theories, and evidence about a complex and multiform phe- nomenon such as technological change. This line of research was opened up in the 1970s by the pioneering contributions of Christopher Freeman, Nathan Rosenberg, Richard Nelson, and Sidney Winter, followed by other influential scholars on both sides of the Atlantic ocean and by the setting up of research institutes, such as the Science Policy Research Unit (SPRU) in the United Kingdom and the Maastricht Economic Research on Innovation and Technology (MERIT) in the Netherlands (Fagerberg, Fosaas, and Sapprasert 2012; Fagerberg and Verspagen 2009).

Over the last few decades, this research area has expanded at an exponential rate, consolidat- ing itself as a new autonomous discipline around a visible and highly interconnected college of scholars located outside, or at the very margin, of mainstream economics’ departments (Fagerberg and Verspagen 2009). The research topics investigated have also progressively broadened. In synthesis, the scholars active in this new field of research have devoted their efforts mainly to (1) exploring the “black box” of technology, investigating sources, procedures, purposes of innova- tion activities; (2) collecting data on science, technology, and innovation and identifying appro- priate indicators to be used for empirical research and policy purposes; (3) investigating the effects technology and innovation exert on the key economic performance variables at any pos- sible level of aggregation; and (4) drawing from all these theoretical empirical contributions evidences and stylized facts, hints, and lessons to guide policy action (Fagerberg 2013).

The neo-Schumpeterian literature resumes from Schumpeter the idea that technology and innovation are the distinctive and most important dimensions of the competition process and entrepreneurship; that is, they are the real fuel of economic and structural change, i.e., the process fueling the birth (death) of firms, the emergence (decline) of markets and industries, and the growth performance of economies at large. However, the Schumpeterian “process of creative destruction” has been conceptualized and analyzed in very different ways, namely, at different levels of analysis (micro, meso, macro); within different time scale frameworks (short- vs. long- term processes of technological and economic change); and putting the emphasis on different types of actors and institutions (entrepreneurs, firms, industries, national innovation systems).2

Drawing from previous surveys (Castellacci 2007; Fagerberg 2003), and with a certain degree of schematization, four major strands of neo-Schumpeterian literature can be identified, each one starting from (and further developing) the contributions and ideas contained in Schumpeter’s works.

The literature on long waves, inspired by Schumpeter’s book Business Cycles, reproposes a technological interpretation of the long-term cyclical patterns of capitalism. These studies and contributions have in fact further developed the Schumpeterian idea regarding the existence of a strong nexus between the cyclical trend of economic systems and the discontinuous nature of technological change. The underlying idea is that innovation, far from being a linear and smooth process, occurs in swarms. Capitalism evolves through upswing and downswing stages, with the length and intensity of the upswing stages of development depending on the level of radicalness and pervasiveness of technological change. Radical innovations and technological changes are able to sustain phases of long-term economic growth, which are followed by stagnation periods due to the exhaustion of the dominant technological paradigm. Issues that have been lively debated in this stream of literature have to do with the degree of endogeneity/exogeneity of tech- nological change with respect to the dynamics of the business cycle as well as with the role played by demand- or supply-side forces in explaining the dynamics of innovation (Coombs,

2This clearly emerges looking at the tables of contents of the main handbooks of technological change and innovation published over the last three decades (Dogson and Rothwell 1994; Dosi et al. 1988; Fagerberg, Mowery, and Nelson 2005; Hall and Rosenberg 2010; Hanusch and Pyka 2007; Stoneman 1995), as well as by recent reviews of the state of the art of the neo-Schumpeterian literature (Dosi 2013; Fagerberg 2013; Fagerberg, Fosaas, and Sapprasert 2012; Foster 2011; Winter 2014).

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Saviotti, and Walsh 1987; Dosi 1982; Mowery and Rosenberg 1979).3 Freeman and Perez (1988), Freeman and Louçã (2001), and Perez (2002) have tried to provide a more holistic, complex, and less deterministic interpretation of the relationship between economic cycles and technological change, associating the upswing stage of long waves not only to the emergence of a new set of pervasive technologies but also to the necessary changes in the economic, cultural, social, and institutional context. In this perspective, the historical growth phases experienced by capitalist economies in the course of the last two hundred years are interpreted as the result of the emer- gence and consolidation of different “techno-economic paradigms” (Freeman and Louçã 2001; Perez 2010).

Studies following the so-called technology-gap approach have moved from the necessity of explaining the lack of economic and technological convergence between more advanced and backward countries as well as factors facilitating catching-up and following-behind processes (Fagerberg 1994; Fagerberg et al. 2007). For the scholars following this approach, the lack of technological convergence has to do with the same nature of technology and innovation. The lat- ter, far from having a public good nature, are depicted as being partly appropriable, difficult to adopt and transfer to the economic, cultural, and institutional contexts different from those in which they were first generated and exploited. Innovation processes are, therefore, seen as char- acterized by high levels of cumulativeness and irreversibility, giving the development-growth phenomenon a path-dependent character.

Another important strand of neo-Schumpeterian literature is the one that has highlighted the sys- temic nature of technological change, the importance of the linkages and interactions between the different actors involved in the process of innovation and diffusion, and more broadly the important role played by several types of institutions. In this perspective, the innovation process is not seen as the mere sum of individual firms’ behaviors and strategies but as the outcome of the systemic interac- tions, technological interdependencies, and knowledge flows taking place within and between firms, industries, and between the latter and the other scientific and technological (public and private) institutions. This literature has highlighted the presence of different types of National Systems of Innovation (NSI), each one rooted in different—historically determined—industrial structures, and cultural and institutional contexts (Edquist 1997; Freeman 1987, 1995; Nelson 1993).

A fourth, and nowadays largely dominant, neo-Schumpeterian stream is the one inspired by the seminal contribution of Nelson and Winter (1982), interpreting the innovative behaviors of firms, the dynamics of industries, and economic growth as a result of an evolutionary (continu- ous) process of variety generation (innovation) and market selection. For the sake of simplicity, we label this fourth strand of literature as evolutionary. As discussed at more length in the follow- ing section, while the first three streams of the neo-Schumpeterian literature privilege a macro and institutional perspective on the effects exerted by technology on the economy and society, the evolutionary stream is explicitly micro-founded and very much focused on looking inside the “black box” of innovation and the innovative behaviors of firms. There is no need to say that the microeconomic foundations of evolutionary economics are antithetic to the neoclassical ones. In particular, the evolutionary school rejects the ideas of equilibrium-maximizing behaviors, repre- sentative agents, full rationality of economic agents, and the public nature of technology (i.e., assimilation of technology to pure information; Dosi 1988). In this approach, a clear understand- ing and specification of the behaviors of firms, operating in competitive contexts, characterized by technological rivalry and uncertainty, is considered absolutely vital to explain the aggregate properties of industries and economic systems. Using Dosi’s (2013: 111) words, “An evolution- ary perspective attempts to understand a wide set of economic phenomena—from microeco- nomic behaviour to features of industrial structures and dynamics, and the properties of aggregate growth and development—as outcome of far-from-equilibrium interactions among

3See Archibugi and Filippetti (2011a) for a more recent review of this literature.

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heterogeneous agents, characterized by endogenous preferences, ‘bounded rational’ but capable of learning, adapting, and innovating with respect to their understanding of the world in which they operate, the technology they master, their organizational forms, and their behavioral reper- toires.” In fact, the explicit and most ambitious challenge of Nelson and Winter’s (1982: 206) model consists precisely in building an out-of-equilibrium narrative and micro-based modeling of economic growth and change— a perspective and a model able to “. . . provide an analysis that at least comes close to matching the power of neoclassical theory to predict and illuminate the macroeconomic patterns of growth.”

The heterogeneity of neo-Schumpeterian approaches and perspectives briefly sketched above is not surprising, especially taking into account the eclectic profile of Schumpeter and the wide spectrum of his theoretical interests, as reflected in his three major contributions (i.e., The Theory of Economic Development [1912] 1934; Business Cycles 1939; Capitalism, Socialism and Democracy 1942). Along with stressing the richness of the theoretical developments originated from Schumpeter’s works, an important point we want to make in this contribution has to do with the specific long-term trajectory shown by neo-Schumpeterian studies. Three broad trends can in fact be identified. The first trend consists of having progressively shifted the focus of the analysis of the technology–economy relationships from a macro- to a microeconomic level, and from a long-run to a more short-run perspective. In fact, macroeconomic or macroinstitutional themes, issues, and perspectives dealt with by at least two of the three streams of neo-Schumpeterian literature listed above (i.e., long waves and NSI) have been progressively marginalized in the most recent evolutionary contributions. The second trend consists of a progressive reinforce- ment—in line with the theoretical framework of Nelson and Winter’s approach—of a supply-side view of the relationship between the generation, diffusion, and use of technology and the main economic phenomena, with the role of demand largely neglected (a shift only weakly reversed in the last decade). The third trend (in our opinion, linked to the previous two trends) is the emer- gence of an unproblematic and optimistic view of the economic and social role technology plays in market economies. These trends are discussed and elaborated at length in the following section.

3. Toward a Supply-Side, Micro-Founded, and Optimistic View of Technology

When compared with the post-Keynesian view, the neo-Schumpeterian literature (and, in par- ticular, the evolutionary stream) looks at the relationships between technology and the economy from a somewhat different perspective. The main differences have to do with, on one hand, the relative importance given, respectively, to demand- and supply-side drivers of growth and, on the other hand, with the importance attached to the micro- and the macro-level sources of economic change. In fact, since its origin, the neo-Schumpeterian literature has shown little interest in the traditional macro-level variables and functional relationships taken into account in the post- Keynesian tradition, with the latter revolving around the dynamic interplay between investment, capital accumulation, productivity growth, income distribution, and aggregate demand (Kaldor 1961; Kalecki 1954). It is, however, in the last two decades that the emphasis has clearly shifted toward a fully supply-side view of the dynamics of macroeconomic forces, with a key role played by intangible investments (Evangelista 1999), and with technology seen as the ultimate driver of all sorts of economic performance variables. In particular, technology is seen as the factor explaining economic growth (as in the case of the 1982 Nelson and Winter model), and the observed cross-country disparities in productivity growth and international competitiveness (as in the case of the technology-gap approach). More significantly, the role of demand, and its rela- tionship with the rate and direction of technological change, has been largely neglected by virtu- ally all neo-Schumpeterian literature, and in particular by the evolutionary stream. As explicitly

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stated by Dosi, Fagiolo, and Roventini “. . . evolutionary models, as pioneered by Nelson and Winter (1982), are driven by a Schumpeterian core with endogenous innovation, but do largely neglect too any demand-related driver of macroeconomic activity” (Dosi, Fagiolo, and Roventini 2010: 1749). In fact, in most of the theoretical and empirical neo-Schumpeterian literature, eco- nomic growth (associated with the process of creative destruction) is (often implicitly) seen as automatically expanded by technology through the emergence of new markets, new industries, and products. Furthermore, in this innovation-driven perspective, the “growth issue” has been progressively reduced to a “competitiveness matter” with GDP, as well as employment growth, made dependent on the specific capabilities of economies, industries, and firms to increase their market shares within the broad (increasingly global in scale) process of creative destruction. This competition-based view of economic growth is in turn connected by neo-Schumpeterian scholars to the idiosyncratic and tacit nature of technological knowledge and the path-dependent and cumulative nature of innovation. These features of technological change are able to explain why economies, as well as regions, industries, and firms, differ from each other in their technological capabilities and economic performances. If economic growth is made dependent on competitive- ness and on the possibility of building long-lasting absolute technological advantages, it comes as no surprise that (aggregate) demand becomes a less relevant factor, and the growth process can be depicted and modeled in a fully supply-side (Schumpeterian) fashion.

The supply-side bias of modern evolutionary economics is well reflected in the evocative and provocative title given to the 2001 special issue of the Journal of Evolutionary Economics: “Economic growth—What happened on the demand side?” (Witt 2001a). Since then, the “issue of demand” has regained some space in the neo-Schumpeterian literature, although the bulk of theoretical and empirical contributions has continued to privilege a supply-side perspective.4 Furthermore, when the role of demand is taken into consideration, this is done most of the time in a microeconomic fashion, that is, taking into account the knowledge-related and psychological factors associated with consumers’ behaviors. Demand constraints are mainly seen as the result of possible mismatches between the generation of new varieties of products and the actual pace at which consumers are able to change their consumption patterns (Loasby 2001; McMeekin et al. 2011; Metcalfe 2001; Witt 2001b) or consumers’ “satiation” (Andersen 2001).

The supply-side view of the evolutionary approach is deeply micro-founded, being analyti- cally centered on a set of specific assumptions regarding the innovative behaviors of firms. As explicitly stated by Nelson and Winter (1982: 229), “The question of the nature of ‘search’ pro- cesses would appear to be among the most important for those trying to understand economic growth, and the evolutionary theory has the advantage of posing the question explicitly.” The 1982 Nelson and Winter model (a major source of inspiration for the bulk of the following evo- lutionary literature) is particularly exemplificative of this perspective.5 In this model (in particu- lar, the one presented in chapter 9), the aggregate growth properties of economic systems are conceptualized and modeled starting from the behavioral choices and organizational routines put in place by heterogeneous agents possessing different technological capabilities and dealing with innovation in a technological context characterized by bounded rationality and substantial uncer- tainty. The parameter determining the long-run growth performances of the economy are (with

4The role of demand in the process of innovation and economic growth is explicitly taken into account by (among others) the following contributions: Verspagen (2002); Dosi, Fagiolo, and Roventini (2006, 2010) try to integrate the Schumpeterian and Keynesian perspective on technology and economic change; Saviotti (2001) and Saviotti and Pyka (2013) investigate the intertwined dynamic linkages between supply and demand forces and their combined effect on economic growth using a Pasinetti-type structural approach; for an insightful long-run view of the role of demand in the process of economic development, structural, and technological change (Transformational Growth), see Gualerzi (2010). An attempt of integrating a Keynesian (demand-driven) and a Marxian (profit-driven) perspective on business cycles is contained in Dosi, Sodini, and Virgillito (2015).

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the exception of the cost of capital) fully supply side and micro-based, that is, driven by the level of “technological opportunity” (“the ease of major innovation”) and by the specific strategic choices made by firms regarding innovation (the emphasis on imitation vis-à-vis true innovation, the labor-saving bias of innovation search).6 Differently from the post-Keynesian (Kaleckian) tradition, and from Marx’s perspective, the pace and type of technological change are not sup- posed to have an influence on aggregate demand. In other words, output growth and productivity advancements are the result of a positive sum competitive process of creative destruction. Although the potential labor-saving/capital-deepening orientation of firms’ innovation activities is explicitly acknowledged in Nelson and Winter’s model, there is no analytical treatment of the macroeconomic implication of such a bias, and in particular of its potential effects on aggregate demand (via changes in income shares); in addition, there is no consideration of the macroeco- nomic effects that the lack of an ex ante coordination of investment and activities might produce, favoring the potential phenomena of overcapacity, overproduction (of final goods and capital assets), excess of savings, and, therefore, structural supply–demand mismatches (and social wel- fare losses). A set of microeconomic assumptions on firms’ behaviors reinforces this supply-side view of the 1982 Nelson and Winter model: firms are supposed to always use their production capacity and no slow-down or shut-down decision is allowed for. All net firms’ profits are sup- posed to be reinvested (above a 16 percent return to capital threshold), and the resulting increase of production capacity and the productivity gains always find a corresponding demand. It could, therefore, be argued that Nelson and Winter’s model, and most of the other evolutionary contri- butions following this tradition, are conceptually and analytically designed (starting from the micro-foundations discussed above) to explain economic growth rather than economic crisis, and tend to relegate the occurrence of structural recessions to exogenous events.7

In the supply-side and entrepreneurial view of the technology–economy relationships charac- terizing the evolutionary approach, the micro-level mechanisms governing the fabric of innovation processes (the “opening-up of the black box of technology”) have become a key area of investi- gation and theoretical concern. This explains why the analytical and empirical focus of neo- Schumpeterian studies has progressively shifted from a macro to a micro level.8 The exploration of the sources, procedures, and effects of innovation at micro and industry level has been consid- ered of crucial importance, to further qualify the specific behaviors and mechanisms governing the processes of variety generation and market selection, to enrich the microeconomic theoretical

5More recent evolutionary contributions that have started to conceptualize and model economic growth as the outcome of (micro-based) self-organization and competitive processes include Metcalfe, Foster, and Ramlogan (2006); Saviotti and Pyka (2004, 2008); Cantner and Krüger (2008); and Silverberg and Verspagen (2005). 6Evolutionary models propose a micro-foundation of the dynamics of economic systems that departs from the one (implicitly) envisaged in other heterodox schools, and in particular in the Marxian and post- Keynesian approaches. More specifically, evolutionary scholars tend to downplay the importance of the specific social relationships characterizing the “capitalist mode of production,” and the implications that such specificity has on the microeconomic rationale driving firms’ (investment and innovation) behaviors. In Marx’s view, for instance, technological rivalry generates not only micro-level variety but also (and more importantly) historical trends such as the increasing organic composition, and concentration and centraliza- tion of capital. These trends and forces have a clear technological connotation but are not seen as primarily driven by technology. On the contrary, in the evolutionary approach, technology is depicted as (so to speak) a “socially neutral force” with firms’ innovation activities becoming the absolute deus ex machina of eco- nomic change. 7This is somewhat confirmed by the way in which Nelson and Winter qualify their own (1982) model. In commenting on the capability of the model to replicate via simulation the growth pattern of the US economy during the period 1909–1949, Nelson and Winter (1982: 220) explicitly state that “... The real period in question involved episodes of economic depression and war, and while these episodes might be considered as historical random events, the simulation model is not prepared to deal with them realistically.”

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foundations (and empirical support) of the evolutionary models of competition, economic growth, and industrial dynamics (Dosi 1988; Dosi and Nelson 2010). The heterogeneous nature of innovation and its role in fueling economic change has consequently become the main core of neo-Schumpeterian studies (Evangelista and Mastrostefano 2006).

The areas explored by this literature are very large and the contributions provided by this new research stream to our understanding of innovation, firms’ behaviors, and industrial dynamics can hardly be underestimated (Dosi 2013; Winter 2014). However, an argument can definitely be made on the fact that the dominant supply-side perspective and the microeconomic focus adopted by the bulk of these studies have also contributed to the emergence of an optimistic vision of the role that technology plays in the economy and society, with innovation playing a sort of thauma- turgic role, being able to explain almost everything: the performance of firms, industries, regions, and countries as well as the destiny of individuals and workers.9 Somehow synthesizing the argu- ments developed throughout this section, it is possible to argue that the (unconditional) positive and socially progressive role played by technology in our economies and societies portrayed in the neo-Schumpeterian literature is in turn based on two basic assumptions:

1. The first one is the existence of a strong (Schumpeterian) nexus between technology, growth, and employment, with the positive economic effect of technology being insepa- rably linked to the capacity of firms, industries, and economies in winning the competi- tive race relying upon their superior technological capabilities.

2. The second (often implicit) one is that technological competition always consists of a positive economic and social sum game; furthermore, it is assumed that this was true in the past, holds in the present, and will continue to be true also in the future, independently from the macroeconomic conditions in which the process of creative destruction takes place, the specific techno-economic regime, and the broad social and institutional context in which technological activities are carried out.

An important point we want to make is that the combination of these two assumptions has contributed to conveying a rather simplified picture of the social and economic perspectives linked to the advancements of technologies and their socioeconomic use and impact in the con- text of market (capitalist) economies. More specifically, while assumption 1 above is based on reasonable theoretical bases and sound empirical evidences, as far as assumption 2 is concerned, one finds very few theoretical arguments and limited empirical support.10 The opinion of the author of this contribution is that assumption 2 is often the result of an implicit transposition at a macroeconomic level of relationships and mechanisms operating at a microeconomic level. In fact, while at a microeconomic level, the existence of a positive association between innovation, economic, and employment growth can be assumed on logical grounds, the existence of a mac- roeconomic “positive sum game” outcome of the innovation-driven competitive process cannot be taken for granted. One could argue that most of the neo-Schumpeterian literature somehow

8The microeconomic shift of innovation studies is clearly visible looking at the index of the main hand- books of technological change and innovation published over the last two decades where the macroeco- nomic analyses of the determinants and effects of technological change, especially in a long-run perspective, find only a limited space (Dogson and Rothwell 1994; Fagerberg et al. 2005; Hall and Rosenberg 2010; Stoneman 1995). 9This has also favored a sort of techno-centrism and an auto-referential character of this discipline. As indicated by Bart Verspagen “... evolutionary economics so far by and large lacks a clear theory of other economic phenomena than technological change, e.g., the interaction between trade and growth, or the theory of labour or financial markets” (Verspagen 2002: 3). 10The existence of a positive association between innovation and economic performance—at firm and industry levels, is supported by a large amount of empirical research (see Cohen 2010 for a review of this literature).

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conveys the idea that “technological change creates its own demand” with positive net effects on employment and social welfare. This could be (by and large) accepted at the microeconomic level, and in particular assuming either a highly elastic demand (faced by each individual firm) or that successful innovative firms (and most dynamic industries) are not likely to suffer from demand constraints, growing at the expense of competitors (i.e., through market stealing). However, at a more aggregate level (at an industry and, even more, at a macroeconomic level), the net outcome of the process of creative destruction is more uncertain. It depends on the rele- vance of the destructive part of the competition process (at industry level) and (at a macro level) on the rate and direction of technological change, on the specific social and institutional context in which the new technologies are used, on the impact they have on interrelated aspects, such as the amount and quality of jobs, on how productivity gains are distributed, and eventually on aggregate demand. Most of the neo-Schumpeterian literature (with the only—partial—exception of studies on long waves) does not take into account the relevance and complexity of these link- ages. In particular, the macroeconomic demand (and income distribution) conditions necessary to absorb the increased levels of output (process innovations) or the new commodities (product innovations) are usually not considered or incorporated in the analysis (relevant exceptions are reported in footnote 1). Crucial macroeconomic issues and relationships addressed in the hetero- dox field of economics (especially in Marx’s writings and in the post-Keynesian tradition), and concerning the possible mismatch between interrelated phenomena such as the dynamics of investment and technology, the corresponding changes in supply forces (productivity), changes in income distribution, and demand conditions (Courvisanos 2012), are not addressed.11 These mismatches are at the basis of possible or potential phenomena of overcapacity, underconsump- tion, misallocation and waste of resources (human, tangible, and intangible), and static and dynamic efficiency losses—all aspects largely neglected by the neo-Schumpeterian literature, which are discussed at more length in the next section.

4. Heterodox Themes Marginalized in the Neo-Schumpeterian Research Agenda

The methodological and theoretical traits of the neo-Schumpeterian literature highlighted in the previous section have led to the marginalization of broad macroeconomic and socially relevant themes concerning the role and socioeconomic impact of technological change. In what follows, we discuss, in a rather sketched and unsystematic fashion, four of such neglected themes, as they are exemplificative of the change of perspective of this stream of literature when compared with the other major heterodox schools, both in the classical tradition and in the post-Keynesian one.

4.1. Technology and employment

This is a topic and a social issue placed at the center of theorizing since the beginning of the political economy discipline. Surprisingly enough, after the pioneering contributions of early neo-Schumpeterian scholars such as Freeman, Clark, and Soete (Freeman, Clark, and Soete 1982; Freeman and Soete 1994), this theme has been progressively marginalized by the follow- ing neo-Schumpeterian literature.12 Putting the matter in a crude way, one could argue that the main reason for this disinterest is the (implicit) belief that technology is potentially able to foster economic growth at a pace sufficient enough to secure full employment. Of course, the existence of labor displacing effects of innovation is not ruled out, but for most of the existing literature

11On the similarities and differences between a Schumpeterian, a classical, and a Marxian approach to the role of innovation in the process of economic change, see Kurz (2008).

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(both mainstream and neo-Schumpeterian), this phenomenon affects mainly low-skilled jobs while the overall employment impact of technological change is deemed to be positive. However, given the difficulty of modeling and estimating the net long-term aggregate effect of technological change on employment, there is no empirical evidence supporting this optimistic view (Vivarelli 2013). The functioning and strength of the so-called compensation mechanisms (in charge of off- setting the direct displacing effects of technological change) crucially rely upon rather axiomatic assumptions such as the existence of perfect competitive markets, a perfect substitutability of production inputs, and the validity of Say’s law, which guarantees that changes in supply condi- tions (i.e., productivity growth and the supply of new products) always generate concomitant (market clearing) changes in demand (Vivarelli 1995; Vivarelli and Pianta 2000). The net aggre- gate employment impact of technological change becomes even more difficult to assess in the case of ICT. This is because of the pervasiveness of these technologies and their widespread use in a large variety of economic and social domains (Evangelista, Guerrieri, and Meliciani 2014). In the light of all this, the still dominant—within the neo-Schumpeterian literature—optimistic view on the relationship between technological change and employment, as well as the little attention given to this crucial and socially relevant theme, is somehow surprising.

4.2. Technology and socioeconomic progress

The intertwined relationships between technological change and the long-term transformation of economic and social conditions is another broad theme present in the early neo-Schumpeterian agenda (especially in the literature on long waves), and one marginalized by the most recent neo- Schumpeterian research. The effects of technology on the economy and society have in fact been investigated more and more in an acritical way, shifting the focus from the technology-development issue, to a mere quantification of the effects of technology on GDP and productivity growth, or on international competitiveness. This technology-based perspective of economic growth reveals all its limits in interpreting what might be regarded as one of the major macroeconomic para- doxes materialized over the last decades: the mismatch between, on one hand, the strong oppor- tunities offered by the technological achievements reached in the last few decades and, on the other hand, the parallel increase of economic and social inequalities, the permanence of a large amount of unsatisfied social and human needs, the unsustainable pressure that our economic model puts on natural resources and on the natural environment (Pagano and Rossi 2011). The remarkable technological achievements obtained in the last few decades have been paralleled by relatively poor macroeconomic and (more broadly) social outcomes (Gordon 2012; Gualerzi 2010). In fact, in the last three decades, the world economy has grown at a pace that is substan- tially lower than (roughly half) the one experienced during the first two second postwar decades, and this despite the fact that we have witnessed what has been labeled as the third (ICT-related) industrial and technological revolution (Dosi and Galambos 2013). An interpretation of this para- dox proposed by neo-Schumpeterian scholars such as Freeman and Perez (Freeman and Louçã 2001; Freeman and Perez 1988) has consisted in highlighting the inertia and the limited capacity of the broad socio-institutional system (skill endowments, educational system, labor practices and organizations, consumption patterns, political and social institutions at large) to keep up with the paradigmatic nature of the ICT revolution (the so-called mismatch hypothesis). The same type of argument has been put forward by Paul David in connection with the “general purpose” nature of ICT (GPT; Bresnahan 2010; David 1991; David and Wright 1999). Using David and Wright’s (1999: 16) words “... an extended phase of transition may be required to fully accom- modate and hence elaborate a technological and organizational regime built around a general

12The works of Vivarelli and Pianta represent in this respect relevant exceptions (Pianta 2005; Vivarelli 1995; Vivarelli and Pianta 2000).

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purpose digital computing engine.” There is no doubt that these are rather powerful arguments highlighting the presence of socioeconomic and institutional inertial factors characterizing tran- sition phases between different techno-economic paradigms and GPT. However, this line of argu- ment has been losing its explicative power when we consider the amount of time that has passed since ICT first appeared, and taking into account the pervasive role these technologies nowadays play in our economies and societies.

4.3. Technology and income distribution

This is another central theme among classical economists and in Marx’s writings, an issue dealt with (often implicitly) by post-Keynesian scholars, but a topic surprisingly expelled by the neo- Schumpeterian research agenda. In the perspective of classical economists as well as in the views of Kalecki, the rate and direction of technological change are heavily influenced by the social and economic relationships shaping the structure and functioning of capitalism (Courvisanos 2009, 2012). In particular for Marx and Kalecki, technological change in capitalist economies has an ultimate (overall and long-term) capital-deepening and labor-saving nature, and this has obvious effects on income distribution, and consequently on the composition and volume of aggregate demand. Overproduction, high unemployment, underconsumption, skewed income distribution, and insufficient demand are strictly interconnected phenomena rooted in the contradictory and cyclical nature of capital accumulation. In this perspective, technological change simply ampli- fies the contradictory nature of this process, fueling the contradiction between the incessant development of production forces (labor productivity) and the socially constrained nature of “distribution relationships.” Both Marx and Kalecki make this point clear by stressing the struc- tural asymmetry between capital accumulation and demand, with the latter constrained by an insufficient dynamics of wages (Sebastiani 1989). For both Marx and Kalecki, this asymmetry is at the core of the contradictory and cyclical nature of capitalist development. According to Marx (1981: 353), “. . . the more productivity develops, the more it comes into conflict with the narrow basis on which the relations of consumption rests.” Kalecki ([1935] 1971: 32) expresses a similar point, stating that the most remarkable paradox of the capitalist system has to do with the fact that “. . . the expansion of the capital equipment, i.e. the increase in the national wealth, contains the seed of depression in the course of which the additional wealth proves to be only potential in character.” Despite the fact that some of these views have been criticized as encompassing a certain degree of socioeconomic determinism, there is no doubt that they highlight an important issue and, namely, the one concerning the role that capitalist social relationships play in shaping the rate and direction of technological change as well as its economic and social impact.

In the neo-Schumpeterian literature (as well as in Schumpeter’s works) the role that technol- ogy and innovation play within a socioeconomic context characterized by potentially conflictual capital-labor relationships is clearly underplayed, and there is little concern on the specific influ- ence that such an institutional setting can exert on the “distribution outcome” of technological change (T. Smith 2010). In fact, in the neo-Schumpeterian literature (as well as in Schumpeter’s perspective), technological change ceases to have a dominant labor-saving nature. The process of creative destruction is in fact conceived as associated first of all with the introduction of new products and the rise of new industries. Underlying this view, there is the idea that productivity gains obtained via technological change are so large and widespread that “income distribution” becomes a marginal issue, or a matter that has little to do with the rate and direction of techno- logical change. As already pointed out, the distributional effects of technological change have been mainly connected to the skill-biased nature of new technologies (in particular ICT), with the latter leading to an increasing income polarization between skilled and unskilled workers. A key issue that has not been investigated both by the economic mainstream and by the neo-Schumpeterian literature is the extent to which the long-term changes in (functional) income distribution—in

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favor of capital—observed in most industrialized countries are related to the nature of the new technological regime or the way ICT is used in both manufacturing and service industries. This could be an interesting area of investigation, taking into account that there are studies and statisti- cal evidence showing that the capital/labor ratio has continued to increase over the last two decades, both in manufacturing and service industries (Basu and Vasudevan 2013), and that most innovative industries are capital intensive (Evangelista 1999).

4.4. Technology and the dynamic efficiency of markets

A common trait of most of the heterodox economic schools consists of acknowledging the intrin- sic instability of capitalism and recognizing that the unconstrained functioning of markets does not guarantee full employment and a socially acceptable allocation of resources. Although the “market failure” concept has been first introduced and theoretically treated by neoclassical economists— also with reference to the public good nature of knowledge and innovation (Arrow 1962)—its relevance has been clearly downplayed by mainstream economics. The neo-Schumpeterian approach has corrected the public good view of technology and innovation, emphasizing the tacit component and the sticky nature of most technological knowledge developed and used by firms (Metcalfe 1995). The analysis of the factors enhancing or hampering innovation processes has also been broadened, shifting the focus from traditional market failures to “systemic failures,” namely, those referring to the structure and functioning of innovation systems, that is, to the mechanisms facilitating or hampering the complex and cumulative nature of innovation and learning processes, the circulation and sharing of knowledge, and the connectivity between firms and institutions (Lundvall and Borras 2005). This has represented a substantial theoretical advancement that has opened up new perspectives on the role and scope of science and technol- ogy policies (Chaminade and Edquist 2006; K. Smith 2000). However, in the current neo-Schum- peterian literature, the extent to which the modus operandi of market economies is able to assure long-term dynamic efficiency and a socially desirable (labor and environment friendly) path of development remains a neglected issue (Frigato and Santos-Arteaga 2012).13 Addressing this type of issue would require enlarging even further the concept of “systemic failure,” adopting a historical and macroinstitutional view, a perspective raising both old and new questions regard- ing the modus operandi and “social performance” of current capitalist economies, and the role that technological change plays in this institutional context.14 This is the perspective one can find once again in both Marxian and Kalecki writings, in Schumpeter’s late work Capitalism, Socialism and Democracy, as well as in the works of heterodox institutional scholars following the Veblen–Kapp tradition (Kapp 1950, 1969; Ramazzotti, Frigato, and Elsner 2012). Most of the current debate within and outside neo-Schumpeterian economics tends, on the contrary, to uncrit- ically assume an optimistic view of the economic and socially progressive role that technology plays in our economies and societies (Soete 2013), based on the belief that an economic system driven by profit-seeking private incentives and free worldwide competition represents the best institutional context in which technologies can be developed and used for social purposes. More specifically, there seems to be little concern about the “net world-wide effect” of the current process of creative destruction, and about the fact that, especially in periods of prolonged eco- nomic crises and stagnant demand, the “destruction part” of the competition process could

13For a discussion—in a Schumpeterian perspective—on the issue regarding the environmental sustainabil- ity of the current patterns of energy consumption, see Dosi and Grazzi (2009). 14This issue is partly addressed by a series of contributions speculating on the “welfare implications” of a Schumpeterian evolutionary model of competition and economic change (Schubert 2012, 2013; Witt 2013). These studies indicate, on one hand, that traditional (neoclassical) welfare economics is unsuited to assess- ing the welfare properties of dynamic, out-of-equilibrium, innovation-driven economic systems and, on the other hand, that also evolutionary economics has still rather weak, or not straightforward, normative bases.

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prevail upon the “creative accumulation” one (Archibugi and Filippetti 2011a, 2011b; Komlos 2014).15 Similarly, there seems to be little theoretical concern regarding the long-term effects produced by the changes taking place in most advanced countries in the funding and orientation of science and technology systems, and in particular in the overwhelming share of total research and development (R&D) activities carried out by private corporations, in the privatization and liberalization of sectors characterized by dynamic efficiency and strong externalities, the pro- market orientation of public research, and the short-term rationale dominating financial markets, managerial strategies, and investment activities (Mazzucato 2013).

5. Final Remarks

In this contribution, we have highlighted the dominant optimistic view of the relationship between technology, economy, and society that permeates not only mainstream economics but also a good deal of the neo-Schumpeterian literature. This positive view clashes with one of the main para- doxes of our times, that is, the sharp contrast between the acceleration of the rate of scientific and technological change experienced over the last few decades and the limited capabilities of our socioeconomic systems to exploit these technological achievements to answer human needs and secure a path of sustainable development. This paradox emerges even more sharply, taking into account the prophecy contained in John Maynard Keynes famous 1930 essay titled “Economic Possibilities for our Grandchildren.” In that essay, Keynes explicitly forecasted that—thanks to the opportunities offered by technological change—within around one hundred years’ time, “. . . for the first time since his creation man will be faced with his real, his permanent problem: how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well” (Keynes 1931: 367). As poignantly stated by Giorgio Lunghini, eighty years after Keynes’s speech, humankind has not significantly moved in that direction, as the combination of high rates of unemployment and the presence of a large amount of unsatisfied needs demonstrates, and this despite the fact that the technological premises to answer these needs do exist (Lunghini 2012).

Explaining this paradox and understanding its deep economic, social, and institutional roots would require, first and foremost, an acknowledgment of the complex, nonlinear, and potentially contradictory nature of the relationships between technological progress, economic growth, and human-social development, especially in the context of market-based economies, and more specifi- cally in current global, unregulated financial capitalism. The main argument put forward in this paper is that the recent neo-Schumpeterian literature has not addressed, both on theoretical and empirical grounds, this broad macroinstitutional issue. It has contributed to reinforcing an uncritical and optimistic reading of the relationship between technology, economy, and society, with technol- ogy being able to guarantee strong economic (GDP) growth and (implicitly) social welfare.

This approach has become dominant also in the policy debate. The latter is often characterized by the reiteration of repetitive refrains on the need to enhance the technological capacities of firms, industries, countries, as well as on the urgency of orientating public research toward the requests and needs of the business sector. Technology is also seen as the main recipe to tackling the current economic crisis, the lack of growth, and the high unemployment rates most European countries are experiencing today. Underlying this optimistic view on the role technology plays in the economy, there is an unlimited faith in the economic and socially progressive nature of the Schumpeterian process of creative destruction driven by market forces, as well as the idea that the economic problems of any country, region, or industry can be solved through a “technological jump ahead,” or by getting closer to the technological frontier.

15Regarding the need of taking into due account both sides of the effects of the innovation process (destruc- tion along with creation), see also Buenstorf et al. (2013).

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The dominating optimistic and simplified view of the economic and social effects of technol- ogy finds a parallel in the expulsion from the current neo-Schumpeterian research agenda of broad and socially relevant themes on which old heterodox schools used to debate and confront each other, such as the complex relationship between technological change, employment, income distribution and labor conditions, and, more broadly, social welfare. This has contributed to impoverishing the theoretical debate, determining a diminished capacity of exploring the com- plex and nonlinear relationships between technological progress, economic change, and societal development. The final message of this paper is that it would be nowadays very important and useful to go back to these themes and approaches, reinterpreting and actualizing them, taking into account the new economic, societal, and environmental challenges that the structure and modus operandi of contemporary capitalism raises. This would require reopening the ground for an open-minded cultural debate on the long-term options regarding the social and institutional mechanisms governing the pace and direction of technological change, going much beyond the boundaries of the traditional literature on market failures or the “systemic failure” concept taken into account by the neo-Schumpeterian literature. On a more operational ground, there is the urgency of reframing the analysis of the technology–economy relationship in a proper macroeco- nomic and institutional framework in which the dynamic interaction between changes in technol- ogy, income distribution, employment, and demand is put at the center of the theoretical and empirical agenda.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship, and/or publi- cation of this article.

Funding

The author received no financial support for the research, authorship, and/or publication of this article.

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Author Biography

Rinaldo Evangelista, PhD, is Associate Professor of Applied Economics at the University of Camerino (IT). His main research activities are focused on the areas of economics of technological change, and on the analysis of the nature and impact of innovation in manufacturing and service industries.