The ecology of innovation by William H. Janeway

Since Joseph Schumpeter developed his theory of economic development, economists have updated and filled in the gaps in his growth model. More than just powerful insight, “creative destruction” has been an invitation for researchers to think both broadly and in depth about how innovation works.

CAMBRIDGE – The two books under review are further justification for Isaiah Berlin’s famous contrast between the fox, “who knows many things” and the hedgehog, “who knows a great thing”. Dan Breznitz is an empirical fox who has studied regions that have achieved increasing prosperity by exploiting various innovation opportunities in different ways. Philippe Aghion is a hedgehog who for 30 years has played a leading role in the formalization of the growth model developed by Joseph Schumpeter and its use to understand today’s economy. Together, the two books provide a broad but rigorous training in economics of innovation.

Methodologically, however, the two approaches could hardly be more different. Breznitz, professor at the Munk School of Global Affairs and Public Policy at the University of Toronto, tackles the topic through fieldwork, building rich case studies from different regions and strategies. In contrast, Aghion, professor at the Collège de France, INSEAD and the London School of Economics, mobilizes a wide range of empirical economic research to demonstrate the power and scope of his model.

Models of economic growth

Aghion and his co-authors, Céline Antonin of Sciences Po and Simon Bunel of the French National Institute for Statistics and Economic Studies, rely on the model of economic growth originally developed by Robert Solow of MIT (for which Solow received the Nobel Prize for Economics in 1987). Solow elegantly showed how increasing the application of the two factors of production, labor and capital, would increase production. But the math behind his original model was too simple. Applied to measured increases in output, it explained far too little: higher amounts of labor and capital accounted for less than half of observed economic growth. The remaining portion is known as the “Solow residual”.

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