Technological Innovation And Endogenous Economic Change

In the view of General Equilibrium Theory, the job of economics is confined to study the problem of resource allocation and economic performance in a given economic structure, since the change of the individual preferences, technology and institutional conditions which constitute the economic structure is considered by General Equilibrium Theory not to be induced by the inner factors of the economic system, and consequently can not be explained within economic system. Nevertheless, Schumpeter thought that the factors and mechanism of economic system can cause the change of economic structure, and for Schumpeter, the question of economics is therefore not how the equilibrium emerges in a given structure but how the economic structure is created and destroyed. Schumpeter thought that the basic force causing the change of economic structure is innovation carried out by the entrepreneurs characterized by the special temperament. Innovation leads to the emergence of monopoly and the big firms and consequently brings about the process of "creative destruction". The 'creative destruction' of industrial level results in the process of 'creative destruction' of social level, namely, the collapse of capitalism and the victory of socialism. We call the Schumpeter's theory endogenous economic change.Little attention was attached to the thought of endogenous economic change of Schumpeter after it was presented until 1960s, especially in 1980s, when there is a Schumpeterian renaissance, and it is heavily influencing contemporary economics. The major event in this renaissance is the development of Evolutionary New Schumpeterian Economic Theory and Neoclassical Schumpeterian Growth Theory. Evolutionary New Schumpeterian Economic Theory carries on the Schumpeter's thought of endogenous economic change, and, through evolutionary perspective, it studied the process in which selection mechanism based on the heterogeneity leads to the structural change and drive the economic growth further. It also did a lot of research on the problems such as generation and diffusion of innovation, the systematic character of innovation, business cycle caused by the match of technology systems, and unemployment in the process of innovation. Neoclassical Schumpeterian Growth Theory, which emerged from the inside of mainstream economics, modeled Schumpeter's insight of endogenous economic change though vertical innovation assumption, and discussed a series structural problems such as the relations between innovation-based economic growth and market structure, business cycle, unemployment, institution and so forth.Although Evolutionary New Schumpeterian Economic Theory and Neoclassical Schumpeterian Growth Theory both represent the development of endogenous economic change theory, and they are, to some extent, consistent with each other on their subjects, their understandings on the mechanism of economic change and endogenous drive force are quite different. Neoclassical Schumpeterian Growth Theory considers the economic change as a process of the growth of quantity; whereas, Evolutionary New Schumpeterian Economic Theory considers the economic change as the process of structural change. The basic models of Neoclassical Schumpeterian Growth Theory don't discuss the innovation activities of the organization and the generation mechanism of the new knowledge, and this theory considers that the knowledge can be codified. However, Evolutionary New Schumpeterian Economic Theory researched the characters the innovation implemented by firms and the generation process of the new knowledge, and it emphasizes the tacit aspect of knowledge. These differences of the two branches of theories are rooted from the deep methodological divergence between the evolutionary approach and the neoclassical method. Whether the neoclassical method and Schumpeter's insight can be combined appropriately, and whether Evolutionary New Schumpeterian Economic Theory and Neoclassical Schumpeterian Growth Theory can converge in the future are valuable questions for the future research.