The tale on innovation and growth

Abstract

Whenever we see the word innovation, we instantly recall Joseph Schumpeter who popularized the word in economics through his business cycle theory. Joseph Schumpeter explained the fluctuations of economic output through the concept of innovation which was a pet word in those days and also today as an important instrument to spur growth. Economic activities over time actually trace like a serpent; the amplitude is neither even or nor symmetric. A constant linear growth is a rare occurrence though we have a glimpse when we observe the growth pattern of China from 1978 to 2012. Schumpeter’s four-phase cycle; prosperity, recession, depression and recovery manifests that innovations are discontinuous over time. An innovation embodies the discovery of a new process, product or services by the technocrats when the existing one is at the stage of obsolescence or dysfunctional. The entrepreneurs with business acumen who take risks are at the forefront to initiate innovation that yields extraordinary profit. These extraordinary profits attract a swarm of imitators and thus “display a flood of investment.” The expansion phase sets in. However, the boom ends at the climax because of the “lopsided, discontinuous by nature… the disharmony is inherent in the very modus operandi of the factors of progress.” The upswing starts when the more courageous entrepreneurs once again start to innovate. Download the PDF to read more