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The last decades of the 20th century, especially in the 90s, finally established scientific and technological progress as the most important factor for economic development, the basis for the competitiveness of organizations, industries, national economies.

In the future development and survival in the global economy, a central role is given to innovations that increase labor productivity and/or invested capital. At the beginning of the 21st century, the world economy is actively trying to form a new paradigm of scientific and technological development. Its structural elements include: increasing the relationship between capital markets and new technologies, the rapid development of the “knowledge economy” or “new economy”, strengthening the social orientation of new technologies, the global nature of the creation and use of knowledge, technologies, products, and services.

The entrepreneurial sector

The entrepreneurial sector has been the main generator of innovation activity throughout the 20th century, despite the creation of powerful state and public institutions purposefully engaged in the creation of new knowledge and new technologies.

Numerous studies show that the business sector is the main generator of cost-effective innovation. Overcoming the constraints offered by labor and capital, overcoming the various environmental, spatial, raw material and other constraints are achieved through investment in new knowledge and technologies. Innovations make it possible to create new markets if, in the process of their realization, they are given to satisfy new, previously unknown needs, for the realization of which there are economic, social, and political preconditions.

Innovation in developed economies

In developed economies, innovation is the focus of institutional, technological, and organizational factors. The optimal combination of these various factors creates conditions for effective supply and use of innovations. Conversely, imbalances, one-sided development distort innovation incentives and ultimately block productivity growth and, consequently, well-being and living standards. Awareness that science is one of the two (along with societal needs) main sources of innovation is not a closed, isolated system with universities and research centers, but organically embedded in economic processes arising within national governments, in industries, in the economy, in large organizations and small companies.

Intellectualization of production

In the last 10-15 years, the developed countries of the West have completed the technological revolution related to the intellectualization of production and have begun to create a society of a new type – information or knowledge society. Filling the knowledge gap is not an end in itself. World forecasts for 2015 show that the foreign market for science-intensive products alone will reach the level of 6 trillion. USD per year, of which 2 trillion. USD will fall on information services. Therefore, it is necessary to actively develop innovation in the whole spectrum of areas. In this regard, the formation of a mechanism aimed at stimulating and effective management of innovation processes at the macro and micro levels, ie. the mechanism of innovation management.

What is innovation anyway?

Innovation is a field of science that studies the genesis, nature, structure, functions, and dissemination of innovation. The new field of scientific knowledge – innovation – originated in the early twentieth century, when they began to study the laws of technical innovation. In innovation (the science of innovation) a central place is given to innovation management as a system for managing economic development.

The subject of modern innovation is the creation, assimilation, and distribution of various intellectual products. Reference: “What is Product Innovation“, https://mpmu.org/what-is-product-innovation/

Innovation has an interdisciplinary character and focus. It uses the tools and methods of economics, statistics, philosophy, sociology, cybernetics, and other sciences. The following components related to the research of innovation can be distinguished: creating innovations and searching for innovative solutions; technological forecasting; receptivity and resistance to innovation; diffusion (dissemination of innovations); forms for organizing the innovation activity; innovation market; innovation strategies; competitive advantages and stages of development; government regulation of innovation. In general, the emergence of innovation dates back to the time when scientific knowledge began to be more or less used in practice.

One of the first impulses in the study of innovations and their role in economic development was made by N. Kondratiev. According to the theory of waves, each economic system in its development is characterized by alternating periods of ups and downs. The cycle of conjunctural waves, discovered by N. Kondratiev, lasts about 50 years and these are the so-called long waves.

According to N. Kondratiev, the business cycles have an international character and are considered as a consistent violation and restoration of the economic balance. He did not deal directly with innovation issues, but the major business cycles he examined provoked research into the causes of these cycles and their duration. In the 1920s, N. Kondratiev discovered that the so-called great cycles are formed by every basic innovation and the many secondary, improved innovations created on their basis. He refers to innovation as the elements that determine the dynamics of development.

N. Kondratiev’s ideas were largely used by the Austrian economist J. Schumpeter. He is also the progenitor of the theory of innovation processes in its modern interpretation. In his 1939 work, Economic Cycles, he explored the basic concepts of the theory of innovation processes. J. Schumpeter sees innovation as changes in technology and management, as new combinations for the use of resources. J. Schumpeter devotes considerable space to the role of the entrepreneur in the innovation process. According to his views, the entrepreneur is a link between invention and innovation.

By Robert Brown

Robert Brown is a longtime manager of a technology organization and author of a management book. In his spare time, Mr. Brown helps students get a better education by helping to publish free study materials.

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