6 - Barriers to Innovation

Summary

INTRODUCTION

In all industrial countries governments embrace innovation as a source of future wealth. The European Union sees innovation as a key factor in its aim to become the most dynamic and competitive region in the world by 2010, as stated in its ‘Lisbon agenda’. In the Netherlands an ‘Innovation Platform’ has been established by the government, under the direct guidance of Prime Minister Balkenende, in 2003 to promote innovation in Dutch society.

This is not surprising. Countless studies have led to the conclusion that innovation is the main source of productivity rise and wealth creation, not only nowadays, but throughout the centuries (Baumol 2002). However, history also shows that innovative developments often provoke strong economic and political resistance. Acemoglu and Robinson describe how the political establishment in the Russian and Austro-Hungarian Empires tried to hold back the industrial revolution, because they perceived it as a threat to their political power (Acemoglu and Robinson 2000). In Islamic lands, religious leaders forbade the printing press as a source of blasphemy and heresy; according to Landes this is the main reason why the Islamic world started to lag behind the West in economic development (Landes 1998). And even today, access to the Internet is restricted in China and other countries to secure political stability and protect those in power.

In modern Western economies too, technological change does not emerge without provoking resistance. Innovation changes established economic and political relations, so there are winners and losers. The mainstream view among economists is that the ‘losers’ oppose technological change in order to protect their economic interests. For instance, a monopolist may try to stop the introduction of a new, superior technology by a competitor, in order to protect his market share. Societies that want technological and economic progress, must arm themselves against this, for instance with effective regulation of competition.

According to Acemoglu and Robinson, however, the ‘political-loser’ hypothesis is not completely satisfactory and certainly not complete (Acemoglu and Robinson 2000). It fails to explain why the economic losers do not use their power to capture the gains of innovation for themselves. This means that the power distribution must be accounted for as well. Groups or individuals without political power, disadvantaged by economic and technological change, cannot stop it. Those with economic and political power can.