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This year marks the 125th anniversary of the patron economist of innovation. Joseph Schumpeter was born on 8 February 1883 — and his work on innovation and the role of the entrepreneur continues to be a beacon to economists, businessmen, management consultants and venture capitalists. Economist Lawrence Summers has said that the 21st century will be the century of Schumpeter.
It is usually believed that true innovation emerges out of the tinkering of smart people in labs, garages and university dorms. Think of Larry Page, Sergey Brin and Google. But there is also the structured innovation that comes from large companies. Think of the team of engineers at Tata Motors who designed the Nano. We usually tend to underplay the importance of the corporate innovation, especially if it is part of a slow-burn process of incremental advance.
Schumpeter often wrote later in his life that large companies, too, could be hotbeds of innovation. “By the mid-20th century", writes his biographer Thomas K. McCraw, (Schumpeter) was arguing that innovation “within the shells of existing corporations offers a much more convenient access to the entrepreneurial functions that existed in the world of owner-managed firms". In other words, it isn’t necessary to start your own firm to satisfy your entrepreneurial urges; you can do it within the innards of a large company.
Innovation has many dimensions. One of the most fascinating research programmes that I have come across in recent years is that of David Galenson, a professor of economics at the University of Chicago. In a series of papers that he has published over the past decade, Galenson has identified two types of innovators — the conceptual innovators and the experimental innovators.
Galenson says that the conceptual innovators are the finders. They make bold leaps and challenge the existing way of looking at the world and doing things. This group mostly does its best work at an early age. The experimental innovators are seekers who gradually reach their goal, taking one step at a time. Their best work usually gets done later in life.
Galenson derives his insights by studying artistic achievement. He has recently published two new papers for the National Bureau of Economic Research (NBER) in the US. Take the movies — and two directors born in 1930. Jean-Luc Godard changed the grammar of cinema when he was in his 30s, but declined later. Clint Eastwood did not pick up the director’s megaphone till he was past the age of 40; and his best directorial work has come in his 60s. Godard directed Breathless when he was 30 while Eastwood made Letters From Iwo Jima at the age of 76. Galenson says that Godard was a conceptual innovator while Eastwood is an experimental innovator.
Cinema is just one arena where Galenson has picked his insights. The same patterns of innovation can be seen in other arts such as architecture, poetry, painting and novel writing. So Pablo Picasso was a conceptual innovator. Paul Cezanne was an experimental innovator. Among poets, T.S. Eliot was in the first category while Robert Frost was in the second. Among novelists, Ernest Hemmingway produced his best work at an early age while William Faulkner gave us his classics later in his life. “The elegant and sophisticated poetry of Cummings, Eliot, Pound, and Wilbur grew primarily out of imagination and study of literary history, and was formulated conceptually, while Bishop, Frost, Lowell, Moore, Stevens, and Williams produced poetry rooted in real speech and experience, drawing on the observed reality of their daily lives to innovate experimentally," wrote Galenson in a 2003 article.
Galenson’s insights can be adapted to the world of business and innovation. Some businessmen strike like lightning at a young age. Others gradually come into their own later in their life. It is fair to say that Bill Gates was at his best in the early years of Microsoft. Sam Walton changed the retailing industry only much after he had moved into middle age. His innovations took place at a glacial pace, and were not the result of one inspired idea but gradual learning born out of experience. Steve Jobs seems to have magically transcended the divide.
Other economists too have tried to understand the interplay between drastic and incremental innovation. One group, for instance, believes that upstream firms usually produce drastic innovations while downstream firms tend to use these drastic innovations to produce their own incremental innovation.
Coming back to Galenson’s two categories of innovators, perhaps the distinction between the seekers and finders extends to national innovation systems as well. Would it be correct to say that the US is a nation of seekers while Japan is a nation of finders? And what about India? And Indian industry? Are we more finders or seekers? I invite readers to write in with their answers to these questions.
Your comments are welcome at cafeeconomics@livemint.com
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