Why large firms are often more inventive than small ones - Schumpeter: The Economist

SOME people say it is neither big nor clever to drink. Viz, a British comic, settled that debate with a letter from a reader who said: “I drink 15 pints a day, I’m 6 foot 3 inches tall and a professor of theoretical physics.” However, another question about size and cleverness has yet to be resolved. Are big companies the best catalysts of innovation, or are small ones better? Joseph Schumpeter, after whom this column is named, argued both sides of the case. In 1909 he said that small companies were more inventive. In 1942 he reversed himself. Big firms have more incentive to invest in new products, he decided, because they can sell them to more people and reap greater rewards more quickly. In a competitive market, inventions are quickly imitated, so a small inventor’s investment often fails to pay off. These days the second Schumpeter is out of fashion: people assume that little start-ups are creative and big firms are slow and bureaucratic. But that is a gross oversimplification, says Michael Mandel of the Progressive Policy Institute, a think-tank. In a new report on “scale and innovation”, he concludes that today’s economy favours big companies over small ones.

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Productivity, Creative Destruction and Innovation Policy - A New Paper from the Australian Business Foundation

PRODUCTIVITY, CREATIVE DESTRUCTION AND INNOVATION POLICY is the latest contribution to its series of Occasional Papers from The Australian Business Foundation. Written by John Foster, Professor of Economics, the University of Queensland and President-elect of the International J.A. Schumpeter Society the paper is thought provoking chiefly because it builds its arguments on the behaviorial aspects of economics. Having commenced brightly, it reverts to the old fashion case study methodology of hard facts and figures putting "behaviour" in its place before coming to a lame conclusion

...Although there is an important role for quantitative incentives in the form of, for example, R&D tax breaks, the essence of innovation policy has to lie in creating the best possible conditions for entrepreneurship to flourish. At the present time, Australian innovation policy, although significant progress has been made, is still lacking in this regard..

It is regrettable discussion on government innovation policy, seems to be dominated by tenured academic economists. The real challenge for innovation policy in Australia is for government and business to establish direct, trusting and meaningful dialogue moving aside academic intermediaries, who are not known for their entrepreneurial skills or practice. Only when these protagonists dance together will this debate have real intent, purpose and possibility.

Otherwise, the best that can be said is this is a nicely articulated paper to read and reflect on.