Academic journal article The Lahore Journal of Economics

Public Policy, Innovation and Economic Growth: An Economic and Technological Perspective on Pakistan's Telecom Industry

Academic journal article The Lahore Journal of Economics

Public Policy, Innovation and Economic Growth: An Economic and Technological Perspective on Pakistan's Telecom Industry

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1.Introduction

Schumpeter (1942) introduced the idea of 'innovation economics' in Capitalism, Socialism and Democracy, a seminal work contending that evolving institutions, entrepreneurs and technological change were at the heart of economic growth and not independent forces that were largely unaffected by public policy. Innovation economics is a growing area of economic theory that emphasizes entrepreneurship and innovation. It is based on two fundamental propositions: (i) the central goal of economic or public policy should be to stimulate higher productivity through greater innovation and (ii) markets relying on input resources and price signals alone will not always be as effective in generating higher productivity and thereby economic growth. This is in contrast to the conventional economic doctrine of neoclassical economics.

It is only in the last 15 years that a theory of economic growth focusing on innovation, grounded in Schumpeter's ideas, has emerged. Innovation economics attempts to resolve the fundamental puzzle of total factor productivity growth. The continual growth of output can no longer be explained only in terms of an increase in production inputs as understood in conventional industrialization. Hence, innovation economics focuses on a theory of economic creativity that affects the theory of the firm and organizational decision-making. Innovation economists believe that, in today's knowledge-based economy, economic growth is driven primarily by innovative capacity, spurred by the appropriate knowledge and technological externalities, rather than by capital accumulation as claimed by neoclassical theory.

This theory and narrative of economic growth is known by a range of terms: 'institutional economics', 'new growth economics', 'evolutionary economics', 'neo-Schumpeterian economics' or simply 'innovation economics'. This new economics reformulates the traditional economic growth model such that knowledge, technology, entrepreneurship and innovation are now positioned at the center, rather than being seen as forces that operate independently.

While the US economy has been transformed by the forces of technology, globalization and entrepreneurship, the doctrines guiding economic policymakers have not kept pace and continue to be informed by 20th century concepts, models and theories. This is in large part because the dominant economic policy models advocated by most policymakers ignore innovation and technology-led growth in favor of macroeconomic tools such as tax cuts for individuals, budget surpluses or social spending, which pale in significance to innovation as a driver of economic growth.

In this sense, innovation economics is based on the notion that it is only through the actions of workers, companies, entrepreneurs, research institutions and governments that an economy's productive and innovative power can be enhanced, in support of the building blocks of private sector growth and innovation. As a result, when examining how the economy creates wealth, innovation economics looks at a different set of questions such as:

* Are entrepreneurs taking risks to start new ventures?

* Are companies investing in technological breakthroughs and is the government supporting the country's technology base (by funding research and training scientists and engineers)?

* Are regional clusters of firms and supporting institutions fostering innovation?

* Are research institutions transferring knowledge to companies?

* Are trade policies working to ensure a level playing field for domestic companies?

* Are workers becoming more skilled and are companies organizing their production in ways that utilize these skills?

* Are policymakers avoiding barriers or protection for companies against more innovative competitors?

One of the most difficult challenges faced by governments today is to enable and channel this transformation and for individuals and companies to benefit from the self-empowering forces of technological innovation. …

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