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Can Innovation Solve the Economic Crisis?

Can Innovation Solve the Economic Crisis?

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Published by Loh Hu
In this paper, I examine how the theory of technological innovation waves could contribute to solving the ongoing economic crisis. Primarily, my stance remains that innovation in itself is insufficient to solve the economic crisis unless there exists a matching techno-economic paradigm where national, supranational and global efforts are coordinated for a full deployment of technological revolution.
In this paper, I examine how the theory of technological innovation waves could contribute to solving the ongoing economic crisis. Primarily, my stance remains that innovation in itself is insufficient to solve the economic crisis unless there exists a matching techno-economic paradigm where national, supranational and global efforts are coordinated for a full deployment of technological revolution.

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Categories:Types, Business/Law
Published by: Loh Hu on Apr 29, 2013
Copyright:Attribution Non-commercial

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07/14/2013

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Can innovation solve the economic crisis?
 
Loh Hu2/18/2013
In this paper, I examine how the theory of technological innovation waves could contributeto solving the ongoing economic crisis. Primarily, my stance remains that innovation in itself is insufficient to solve the economic crisis unless there exists a matching techno-economicparadigm where national, supranational and global efforts are coordinated for a fulldeployment of technological revolution.
 
Can innovation solve the economic crisis?
 
Background
There has been a wide international debate on the causes and possible solutions to the economiccrisis that emerged in 2007
 –
2008 (Ranga and Etzkowitz 2012). The economic crisis sweeps acrossthe global financial system rapidly and furiously as markets are globally integrated (Gore 2010).Hence, the responses to the global economic crisis are not only
enclosed within a nation’s or acoalition government’s approach
. Rather, a global coordinated response is warranted as well.Economic stimulus packages addressing short-term and long-term problems have been adopted inmost countries as well as the European Commission (Ranga and Etzkowitz 2012). Internationally, theUnited States of America and European Union have recently been discussing on a free-tradeagreement to remove trading barriers between the two important economic powers and boost theeconomies (BBC News Business 2013). Globally, the G-20 group of major economies have consideredproposals on international financial regulation, anti-protectionism and economic support measuresat the November 2008 summit (Ranga and Etzkowitz 2012).Although important national and international resources have been pumped into the stimuluspackages, with some countries introducing fiscal packages of unprecedented size, evidence of itssuccess today is mixed (OECD 2009). Despite reported successes, the impacts of the economic crisisare still present in the world economy. In fact, the economy of some countries in the EuropeanUnion is worsening (Ranga and Etzkowitz 2012). This inevitably begs the question on whether themeasures taken place are effective to reverse or stop the decline. In order to tackle the currenteconomic crisis, many experts have gathered valuable lessons learnt from the Great Depression in1930s (Almunia et al. 2009).While the current economic crisis is comparable to the Great Depression in 1930s in the sense thatboth crises fall within the phase of Kondratieff winter (Gore 2010), the current economic crisis is nolonger specific only to the Industrial society. Rather, it is a downturn of both the Industrial andKnowledge society (Ranga and Etzkowitz 2012). The difference in the nature of the economic crisisfrom that of the Great Depression has significant policy implications. Besides increasingemployment, new forms of job must be created to overcome the crisis (Ranga and Etzkowitz 2012).In addition, what overcame the Great Depression then was the employment boom brought about bythe destructive World War II (Romer 1992). However,
the history of world’s development tells us
that wars generate more problems than they can solve (Hu 2009).
 
Waves of Technological Innovations
On the other hand, history has shown that technological innovations infuse new vitality into theeconomy and boost productivity, overcoming economic crisis (Hu 2009). Based on the theory of 
“long waves”, the current economic crisis can be
understood from the point of view of technologicalprogress as the end of the 5
th
Kondratieff 
s wave: the informational technological revolution(Smihula 2009). This is not just a financial crisis, but also a period where the applications of existinginnovations from information and telecommunications revolution have been exhausted and a newwave of technological innovation is needed to revive the economy (Smihula 2009).Based on the growth and price cycles in the Kondratieff long wave together with the life cycle of technological revolution (Figure 1), it is suggested that a 6
th
wave could reboot the global economy(Gore 2010). The idea that Kondratieff long wave dynamics can be explained by the waves of technological revolutions was first supported by Schumpeter (Korotayev et al. 2011). Looking back athistory, the previous four waves have each introduced a few leading sectors which offer low-costinputs to a diverse extension of economic activities (Gore 2010). Innovations have been the initiatingdriver of technological revolutions which brought about a tremendous upswing of wealth-creatingpotential, making available a fresh set of related generic technologies and setting in motion a mirageof innovation possibilities and economic activities (Perez 2010). From this point of view, innovation isa solution to the economic crisis.
Figure 1 (Gore 2010)

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