Theory and Evidence
Industrial Dynamics, Entrepreneurship and Innovation series
Edited by David B. Audretsch, Robert E. Litan and Robert Strom
David B. Audretsch, Robert E. Litan and Robert J. Strom The single most important measure of an economy’s success over the long run is its record on growth, for it is only through the production of more goods and services with a given labor force that residents will be able to enjoy continued improvements in their standard of living. Rapid growth, in turn, requires not only high rates of saving and investment, but most importantly, continued innovation: new products and services, and new ways and methods of producing and delivering them. But inventions alone do not generate innovation. Only when inventions are commercialized – bought by willing buyers – are they diffused throughout an entire economy, thereby raising output. Entrepreneurs, those who launch new enterprises, have proven to be vital to this commercialization process, at least in the United States. Whereas existing firms with well-established products and customer bases may concentrate on incremental improvements of what they already offer, entrepreneurs who have no stake in the status quo may be willing to take bigger risks with untested, or even ‘radical’ ideas. It should not be surprising, therefore, that some of the more important ‘radical’ inventions of the past two centuries have been brought to the marketplace by one or more entrepreneurs rather than by existing firms. Prominent examples include the telegraph, telephone, radio and television; railroads, airplanes and automobiles; computers and the software that runs on them; and air conditioning (Baumol, 2002). Entrepreneurial activity can thrive, however, only in ‘open’ settings in...