Innovation in the Service Economy

Innovation in the Service Economy

The New Wealth of Nations

Faïz Gallouj

In this book Faïz Gallouj propounds a theoretical framework which describes and evaluates the main approaches to analysing and understanding innovation in services. He provides interesting and extensive empirical material on the nature and sources of innovation in various services sectors and countries, and makes an original contribution both to theories of innovation in services and theories of innovation in general. Taking both an evolutionary and conventionalist stance, he demonstrates that services, and more importantly innovations in services, can be regarded as the new wealth of nations.

Chapter 2: An Extended Lancasterian Approach for Goods and Services

Faïz Gallouj

Subjects: economics and finance, economics of innovation, services, innovation and technology, economics of innovation


INTRODUCTION In the previous chapter, we saw that most of the studies of innovation in services focus on process technologies or innovations that produce (more or less) the same result rather than on new ‘products’ (or processes that are, in effect, the ‘product’). Such studies treat services in the same way as goods. Indeed, neoclassical theory implicitly encourages an approach to technical change that is preoccupied with quantitative variations in the product (and in production factors) but ignores qualitative changes. Apart from the well-established limitations of such an implicit approach. which reveals that ‘things are happening’ but is incapable of identifying them in anything other than negative and residual terms (‘technical change is everything which, apart from capital and labor, leads to increased output’), other problems arise or are exacerbated when it is applied to services. Firstly, it is very often the case in services that process technologies are sourced from industrial suppliers. Thus it is innovation in another sector that is generally being apprehended by this type of approach. Moreover, Solow’s paradox, according to which computers are found everywhere except in productivity statistics, becomes a very serious consideration here. Thus an explicit approach to innovation and technical change is as necessary in services as in manufacturing activities, if not more so. Some of the attempts that draw on Schumpeter’s work in order to develop such an approach were outlined in the previous chapter (functional approaches and those based on the notion of core and peripheral services). Our aim in...

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