• Index
  • Introduction
  • Discovery and Invention
  • Bounded Rational Innovation
  • Why the rate of invention exceeds the rate of innovation
  • Recommendations to increase the rate of discovery, invention, and innovation
  • References

1. Introduction
The magnitude of the changes in the political economy in the transition from industrial to informational society will be as great as that of the previous changes which took place in the transition from mercantilist to industrial societies. In the transition to industrial society the central concern in the study of political economy shifted from trade regulated by mercantilism to production of goods and services regulated by laissez faire. For example, Adam Smith in his Wealth of Nations¹ proposed first, the elimination of the trade and other economic restrictions proposed by the earlier mercantilists, and second, the promotion of a competitive political economy as the ideal social arrangement to prosper in an industrial society. In the shift from industrial to informational society, the central concern in the study of political economy will shift from production to discovery, invention and innovation.

In the post World War II world, nations must achieve a rapid rate of discovery of new knowledge and a rapid development of the associated inventions and innovations to compete politically and economically². For example, prior to the current slowdown in the arms race, military competition between the superpowers has been a race to apply science to gain a technological advantage such as first strike capability or Star Wars defense³. Economic competition has also been directed toward technological supremacy by applying science in product function and production efficiency⁴.

For a firm to prosper in the current world political economy, it must constantly develop new lines of products for the marketplace. In the 20th century economic competition has increasingly become a technology race to get new products to the marketplace. The firm that makes a new reliable product at a reasonable price generally captures the world market share. Starting in the late 19th century, a series of institutional innovations has accelerated the rate of invention and discoveries leading to invention. This aspect of business competition is reasonably well understood.

But what is just as important for a firm to prosper is that a firm must also constantly innovate to make the business more efficient. These innovations include using advances in information technology to make the office operations more efficient, using the advances in automation to make material processes more efficient, developing of more efficient forms of organization, and creating better internal incentive systems and strategies. Innovation is not nearly as well understood as invention.

In the past century, society has made much greater advances in increasing the rate of invention than increasing the rate of innovation. Advances in science leading to inventions have been much greater than advances in industrial engineering and social science leading to innovations. Also, firms have developed much more efficient strategies to develop inventions than to develop innovations.

However, attention solely to business innovation in the transition to informational society is far too narrow to make the US more competitive. This is because a national political economy which wishes to maintain an internationally competitive position must also generate a correspondingly rapid rate of governmental and individual innovation to advantageously cope with the rapid rate of private invention and innovation. Government must innovate to cope with a rapid rate of technological change which embodies both new opportunities for increased governmental efficiency and new problems which frequently will require new regulation. For example, federal, state, and local governments must innovate to apply advances in office automation technology to reduce administrative costs. Also, new technologies frequently create new hazards with which government must innovate a socially efficient regulatory mechanism.

This book proposes major changes in the United States' government. Because these changes would require a long gestation period to gain public acceptance, they are proposed for a forecast of the United States' political economy in the middle of the 21st century. During this period, the United States and other advanced societies will complete the transition from industrial to informational societies. Consequently, the goal of the new governmental design will be to promote the political economy of informational society.

The reason for considering government central to the promotion of discovery, invention and innovation is that government through such factors as decentralization, intellectual property law, regulation, research funding and tax incentives creates the institutional framework for discovery, invention and innovation. We shall argue that the 18th century governmental design for a primitive agricultural country is now hopelessly inadequate to cope with the problems of the 21st century discovery, invention and innovation. Major governmental changes will be proposed. But in as much as these changes would require voter approval they would require a long gestation period to be adopted even in modified form. Thus the governmental design is based on a forecast of informational society, the political economy in the mid next century.

In addition, the successful incorporation of new technology into society requires innovation by individuals and groups. Individuals will not use new technology unless it can perform some social function better than older technology. And the development of successful applications of new technology by individuals and groups is a form of innovation. Consequently, innovations are required in all aspects of daily life from business decisions to personal lifestyles. For example, currently individual experiments with telecommuting lifestyles will determine the conditions under which telecommuting is desirable to the individual and simultaneously improves economic efficiency⁶.

A requirement to achieve a good governmental design for informational society is a theory of discovery, invention, and innovation. Unfortunately, mainstream economics is not focused on these activities. Microeconomics⁷ for example, considers the impact of price changes on supply and demand for fixed, given technology. And in standard microeconomics the problems of discovery, invention, and innovation are considered external to price theory. Moreover, while numerous investigators have individually proposed discovery, invention, and innovation theories, none of these are widely accepted. To provide a theoretical basis for a revised political economic design, the first step is to present a theory for the design. From this theory it will be apparent that improving the rate of innovation, broadly defined, is an extremely difficult problem.