AFTERSCHOOOL MATERIAL ON MANAGEMENT, LEADERSHIP: October 2008

The purposes of this article is to delve more deeply into the processes and determinants of technological, organisational, and social innovation and to discuss the instruments and policies to stimulate the kinds of innovation necessary for the transformation of industrial societies into sustainable ones. Again, here we emphasise the attainment of ‘triple sustainability’ – improvements in competitiveness/long-term dynamic efficiency, social cohesion, and environment (including both resource productivity and environmental pollution) – which are the cornerstones of the real wealth of people

Not all innovation advances all the dimensions of sustainability -- or advances them sufficiently. The ideal set of policy instruments necessarily involve both those that work through markets and those that work through government intervention, especially through national and international law. In some cases, law is necessary to establish the framework in which the market can function in a better way. In other cases, the proscriptive features of law to create clear and unambiguous goals and targets are needed.

The challenge of achieving triple sustainability is sufficiently complex to require a complementary set of policies and instruments, without resort to ideological preconceptions , especially those that discount the potentially important role of government or adhere to the belief that all that has to be done to achieve sustainability is to “get the prices right”. What is of paramount importance is the creation of appropriate incentives that can transform industrial societies into sustainable ones. In the last analysis, one must be humbled by the fact that history shows us that there are many more ways to get policies wrong, than to get them right. But we are compelled to try, nonetheless.

Finally, while technological innovation is generally acknowledged as the historical driving force for economic growth, trade and the globalisation of the world economy are becoming increasingly important. As is the case with technological innovation, the forces of trade may not always work in concert with the achievement of triple sustainability. They may sometimes discourage the needed technological, institutional, organisational, and social innovations. Thus, trade and industrial policies need to be coordinated. While much of the discussion in this chapter is focused on developed economies, we also address the implications for the developing world.

Types of Innovation

In this work, we distinguish technological, organisational, and social innovation, although these distinctions may not always be very sharp .They are, in any event, related to one another and are necessary for transformations of the industrial state to sustainability.

Technological Innovation

Technological change is a general -- and imprecise -- term that encompasses invention, innovation, diffusion, and technology transfer. Technological innovation is the first commercially successful application of a new technical idea. It should be distinguished from invention, which is the development of a new technical idea, and from diffusion, which is the subsequent widespread adoption of an innovation beyond those who developed it 3. Sometimes the innovation is embodied in hardware, devices, inputs/materials, and process technology. Sometimes it is embodied in the skills of labour and/or the organisation of production and work, and sometimes in all these factors.

Innovation can be driven by scientific discovery (an invention) searching for application (technology push innovation) or by a market need or opportunity (market pull innovation). Both are important . However, the evolution from discovery (invention) to innovation to diffusion is not a linear process, but is a complex, dynamic, interactive, iterative one involving many factors and actors 4. In 1989, Mowery and Rosenberg wrote:

[M]any of the primary sources of innovation are located “downstream” without any initial dependence on or stimulus from frontier scientific research. These sources involve the perception of new possibilities or options for efficiency improvements that originate with working participants of all sorts at, or adjacent to, the factory level. The participants include professional staff such as engineers and those who have responsibilities for new product design or product improvement, and may include customers as well…

The process of technological innovation has to be conceived of as an ongoing search activity that is shaped and structured not only by economic forces that reflect cost considerations and resource endowments but also by the present state of technological knowledge, and by consumer demand for different categories of products and services The implications of this dynamism is that there may be a variety of instruments and policies that need to be implemented to influence technological innovation in a particular direction. In particular, more than supporting R&D or creating markets is required.

Like the term technological change, the term technology transfer is also somewhat imprecise, sometimes referring to the diffusion of technology from government to industry, or from one industry or country to another. Sometimes government transfers a technology (from national laboratories or research centers, for example) that is not much more developed than the invention stage, in which case the transfer to industry can actually result in innovation.

A technological innovation can be characterized by its type, by its significance, or by its motivating force. Technological innovation can be process-oriented or product-oriented5. It can be modest and incremental, or radical and revolutionary in nature 6. Technological innovation can be the result of an industry's main business activities or can evolve from the industry's efforts to comply with or respond to health, safety, or environmental regulations and pressures (Ashford 1979). Regulation, market signals, and anticipated worker or consumer demand can affect any of the characteristics of innovation.

Finally, distinguishing between different kinds of technological change is essential for policy design, since the determinants and consequences of each -- and the incentives for, and barriers to, the success of each are different.

Organisational Innovation

Often, the term organisational innovation is used to refer to larger organisational features of the firm, beyond the organisational features of a specific product line, and is concerned with changes in and among various organisational aspects of functions of the firm such as R&D/product development, marketing, environmental and governmental affairs, industrial relations, worker health and safety, and customer and community relations. Discussions of >innovation networks= focus on the importance of mutual learning among the members of the >production chain= and have spawned a whole new area of attention to product change management (Georg at al. 1992). It has recently been increasingly argued that organisational innovation within the firm, rather than technological innovation per se, is the area most in need of exploitation, especially in Europe (Coriat et al. 1995)7. Certainly, changes in management attitudes, capabilities, and incentives are important determinants of the ability of the firm to change, and the idea of networks -- involving actors inside and outside the company -- is important. The firm participates in perhaps several networks in which mutual learning occurs involving suppliers, consultants, trade associations, geographically-close industries, consumers, workers, government, and others (Ashford and Meima 1994). The counterpart of organisational innovation in government – what might be called institutional innovation – is also a crucial and needed factor.

Social Innovation

In this chapter we define social innovation to mean both changes in the preferences of consumers, citizens, and workers for the types of products, services, environmental quality, leisure activities, and work they want – and changes in the processes by which they influence those changes. Social innovation can alter both the demand for and the supply of what the industrial state might offer. Obviously social innovation should not be confused with the term social engineering, since the former rests on information, education, communication, and enlightened self-interest, rather than values and conditioning imposed from outside the individual. A valid interface between social and organisational/institutional innovation is the increasingly important role of both labour and public participation in both private-sector and governmental decisions.

We treat the acquisition of employment skills as a supply-side concern, and arguably within the ambit of technological innovation, since physical capital, labour, and knowledge are currently considered the most important factors in production and service. Labour skills and know-how can have a profound impact on the innovativeness of the firm and a particular industrial sector . However, while there are great promises for the so-called “knowledge based economy” and there are certain sectors and firms for which high returns might be expected for investment in worker education and training, it is not at all clear that unfocused and large programs will be any more successful than a large increase of financial or physical capital across the board. More targeted policies may be needed. Finally, note that changing the capabilities and skills of workers will also alter their demands from the market both because it changes what workers may want and because it may augment the purchasing power of workers.

Commentary

The distinction between incremental and radical innovations – be they technological, organisational, institutional, or social – is not simply line drawing along points on a continuum. Incremental innovation generally involves continuous improvements – characterised by some as ‘technological regime shifts’ brought about by ‘strategic niche management’ – while radical innovations are discontinuous , possibly involving displacement of dominant firms and institutions, rather than evolutionary transformations . This work argues that more radical, rather than incremental innovation, is needed to achieve Factor 10 (or better) improvements in both resource productivity and pollution reduction .Similarly, radical interventions in employment policy may be needed to offset increasing unemployment (e.g., in some European countries) and underemployment in the United States. This may require instruments, policies, and targets that are very different than those to foster incremental improvements.

Further, a preoccupation with product and process innovation, to the neglect of organisational and social innovation, may short-change the potential for advancing triple sustainability. The benefits of organisational innovation seem to be underappreciated (Andreasen et al. 1995) and organisational changes that ignore the potential benefits of anthropogenic or human-centered production may not achieve their intended results. For example, a focus on limited organisational change -- for example in the concept of ‘lean production’ emphasising the organisation and selective automation of tasks – maximises the technological and minimises the human aspects of production, especially the extent to which problem-solving is actually a significant part of the worker’s involvement 10, and repetitive, stressful work and burnout continues to prevail (Jürgens 1995).

Finally, a simplistic call for more worker training to upgrade skills, without corresponding changes in both technological and organisation innovation, may not be particularly helpful (Reich 1991). Not all firms and sectors are in a position to utilise these skills.

It should be obvious that all three kinds of innovation need to receive attention in a coordinated fashion in the design of policies to promote triple sustainability. Moreover, there is an increasing belief that “new growth theory”, asserting that it is the combination of technological, organisational and social factors, more adequately explains growth (and the Solow residual), rather than R&D, capital, or human investment alone,11 because greater investment in both physical and human capital may create positive externalities and aggregate economies-of-scale effects, rather than simply augment the productivity of labour. Further, it is alleged to lead to more rapid diffusion and adoption of new production methods and techniques.

In 1992, the OECD was cautious about the conclusiveness of the evidence for new growth theory . By 1996, the OECD was enthusiastic about on the importance and revolutionary promise of the “knowledge-based economy”, arguing that, unlike capital investment, the rates of return to investment in education and training seem to increase over time and further, that industrial networks facilitate the ability of firms to share and combine elements of know-how to even greater advantage (OECD 1996). Thus, through the lens of the “knowledge-based” work, the importance of ‘networks’ took on new significance and seemed to provide support for new growth theory. These networks promote inter-firm interactive learning and are regarded as important components of ‘national innovation systems’ (also see the discussion below). Whether ‘knowledge networks’ are important across the board, or are useful in a narrower context is an important question to be answered.

The Importance Of Technology, Past and Future, for Sustainability
Technological Innovation and Technology Clusters

As mentioned above, technological innovation creating “winds of creative destruction” is widely accepted as the driving force of economic growth in industrialised societies (Schumpeter 1939), historically leading to impressive increases in the standard of living for all citizens of those nations. It is credited as the factor that moves nations from static economic efficiency to dynamic efficiency -- and is necessary for nations to continue to change. It helps explain the transformation of societies from agrarian to early manufacturing, to chemicals and materials processing, and on to post-industrial or service economies through a variety of ‘technology clusters’ (Grubler 1994). Technological Innovation is also alleged to explain the different degrees of economic growth among industrialised countries through the ‘Solow residual’. According to the standard interpretation, this residual may account for as much as half of the observed output growth and represents disembodied technological progress, usually referred to as total factor productivity (OECD 1992, Chapter 8).

Historically, advances in technology (1) were often concentrated in specific sectors, for example the use of fertilizers and pesticides in agriculture, or mass production in manufacturing, and (2) were sometimes deployed in many sectors, such as the harnessing of steam power, or the development of new materials such as plastics and ceramics. In the post-war years, there seemed no end to technological advancements, along with the jobs that they created. However in the 1970's, the overall rate of growth began to slow down and continued to slow down in the subsequent two decades. In the 90’s, industries associated with the so-called knowledge-based economy began to grow and were responsible for an increasingly large share of employment growth 12.

It is argued that knowledge-based, information and communication technologies (ICT) have the potential to transform virtually every facet of production and consumption (OECD 1996). The microchip has doubled its information-processing capacity every 18 months (Mazurek 1998) and other dramatic changes occur with unprecedented speed. Beyond ICT technologies per se, it is argued that a Aknowledge-based@ economy allows smarter production, products, and ways of working and doing -- and further, allows new ways of integrating heretofore segregated human activities. According to this view, knowledge-driven innovation will be the next engine of economic growth (Castells 1996; OECD 1996).

A somewhat contrarian view has recently been expressed by Drucker (1999). He argues that new technologies will indeed emerge, but they will have little to do with the “knowledge-based economy”. He muses that e-commerce (electronic commerce), which will change the mental geography of commerce, will have the more profound effect by eliminating distance; there will be “only one economy and only one market.” Competition will know no boundaries, but the products and sectors that are affected will be eclectic and unexpected. “New distribution channels [will] change not only how customers behave, but also what they buy.” And more to the point:

The one thing…that is highly probable, if not nearly certain, is that the next twenty years will see the emergence of a number of new industries. At the same time, it is nearly certain that few of them will come out of information technology, the computer, data processing, or the Internet.”

Drucker draws on both historical precedent for his predictions and on the observation that biotechnology and fish farming are already here. He opines that probably about a dozen technologies are now at the stage that biotechnology was 25 years ago. He reminds us that “the new industries that emerged after the railroad owed little technologically to the steam engine or to the Industrial Revolution in general,” and that they were the product of a mindset that eagerly welcomed invention and innovation. Finally, he observes that

“software is the reorganization of traditional work, based on centuries of experience, through the application of knowledge and especially of systematic , logical analysis. The key is not electronics; it is cognitive science. This means that the key to maintaining leadership in the economy and the technology that are about to emerge is likely to be the social position of knowledge professionals and social acceptance of their values.”(page 57)

Drucker also argues that this may require a radical change in the position of knowledge workers vis-à-vis their rewards and autonomy – and in industrial relations and labour policies.

Like ICT, biotechnology -- which, of course, is not a single technology -- has the potential for transforming agriculture, chemicals, pharmaceuticals, heath care, environmental cleanup, energy production, and even human reproduction itself (Krimsky 1982). New production methods and sources of food, chemicals, pharmaceuticals, and health care products are under development. Repair of undesirable genetic characteristics related to disease, the slowing of aging processes, the restoration of sight and hearing, and human reproduction are already the focus of research activity. The transformation of unwanted byproducts of industrial production and waste, and creation of new sources of energy are already under development. Although many developments in biotechnologies have not advanced to the same extent as ICT, a revolution is in the making. In a way, biotechnology, too, should be seen as an important part of the expansion of a knowledge-based society -- since it is based on molecular biology rather than traditional chemistry -- although this is not what is traditionally meant by the term. In addition, initiatives such as the mapping of the human genome would not be possible without the prior revolution in information technologies.

New materials and ‘nanotechnologies’ are also already the focus of new research, and the interface between materials research and the life sciences has taken on renewed attention. These are some of the new technologies meeting the expectations of Drucker.

As industrial societies mature, the nature and patterns of innovation changes (Abernathy and Clark 1985, Utterback 1987). New technologies become old technologies. Many product lines (e.g., washing machines or lead batteries) become increasingly rigid, and innovation, if there is any, becomes more difficult and incremental rather than radical. In these product lines/sectors, changes are focused on cost-reducing production methods -- including increasing the scale of production, displacing labour with technology, and exercising more control over workers -- rather than on significant changes in products. Gradually, process innovation also declines. A useful concept related to individual product lines is that of ‘technological regimes’, which are defined by certain boundaries for technological progress and by directions or trajectories in which progress is possible and worth doing (Nelson and Winter 1977).

Sometimes, the dominant technologies (such as the vacuum tube and mechanical calculator) are challenged and rather abruptly displaced by significant radical innovations (such as the transistor and electronic calculator), but this is relatively rare (Christensen 1997, Kemp 1994). As industrial economies mature, innovation in many sectors may become more and more difficult and incremental, regulatory and governmental policies are increasingly influenced, if not captured, by the purveyors of the dominant technology [regime] which becomes more resistant to change. However, occasionally, traditional sectors can revitalise themselves, such as in the case of cotton textiles.

Other sectors, notably those based on emerging technologies, may experience increased innovation. The overall economic health and employment potential of a nation as a whole is the sum of these diverging trends, and is increasingly a function of international trade (See the discussion below). Whether nations seek to increase revenues based on competition in technological performance or alternatively on cost-driven strategies can have an enormous impact on employment (Charles and Lehner 1998).

As will be discussed below, health, safety, and environmental regulation, structured appropriately, as well as new societal demands can also stimulate significant technological changes that might not otherwise have occurred at the time (Ashford 1985). Within countries, we speak of ‘national innovation systems’ to denote the institutions, actors, and practices which influence innovation in general (Nelson and Rosenberg 1993, Nelson 1996). These include not only support for R&D; the training and education of scientists, engineers, entrepreneurs, and managers of technology; tax treatment of investment; regulations; and support of exports, but also networks involving trade associations, suppliers and other firms, customers, and workers. In the context of new growth theory, these networks are said to effectively compound accumulated knowledge and provide new energy for both growth and employment. To the extent that innovation in the firm involves the increased participation of workers, and those responsible for innovation see workers as more than factors of production, worker know-how and creativity may yield unexpected benefits 14.

In addition to forces acting directly on the capacity to of a localised firm to innovate, an increasingly important additional driving force for growth is the globalisation of production and finance 15, which creates pressures, changes, and opportunities different from, and sometimes in contrary directions to, those created by technological innovation (Charles and Lehner 1998, Costanza and Daly 1991, Gordon 1995, OECD 1997). In 1989, Mowery and Rosenberg argued that research and development, or more broadly, the accumulations of knowledge underlying technological innovation, appear increasingly to issue from global networks of enterprises and associated institutions. This observation, echoing an increasing globalisation of commerce coincides with, but is not identical with the beginnings of the ICT explosion. Gordon, building on the optimism of Castells (1996), argues that globalisation 16 enhanced by ICT “provides a basis for new forms of world-wide interaction and control, and liberates organizational structure from spatial constraints.” His view of modern innovation is that it:

tends to be neither radical exogenous invention (as in the linear model) not narrowly path-dependent incremental change (as in the evolutionary model). Far more frequently, innovation tends to occur in the unilluminated space between these options: that is, while proceeding substantially within existing frameworks of knowledge and practice rather than initiating or requiring breakthroughs in science and technology, innovation nonetheless commonly tends to push at the margins of established organizational, technical, and economic practice as opposed cooperating within a more restricted field of “normal problem-solving routines.” (Gordon 1995, pp. 180-181.)

Globalisation of production inevitably leads to a globalisation of the labour market, which in combination with a shift to a knowledge-based economy, raises concerns for wage fluctuations and employment (Freeman and Soete 1994, OECD 1996 and 1998).

Effects on Environmental Sustainability

Along with increases in the standards of living in developed countries, the unprecedented use of natural resources and energy, transformation of raw materials into products, and new agriculture, manufacturing, and production technologies are now known to both increasingly deplete the stock of resources and energy sources and to degrade the environment to the point that current industrial, agricultural, and transport systems are becoming unsustainable (Schmidt-Bleek 1998; Meadows et al. 1992). We speak of undesirable Anegative externalties@ in terms of the depletion of natural capital and compromises to environmental quality, harm to public health, and worker injury and disease.

The traditional ways of addressing pollution problems in terms of pollution control or so-called end-of-pipe approaches -- after technological systems are designed and implemented -- are no longer seen as adequate. Similarly, small advances in the efficiency of energy and resource use can no longer compensate for increased world demand and consumption of resource and energy-intensive technology. Even if we could somehow prevent traditional pollution and chemical accidents by the transformation to cleaner and inherently safer technologies, we would still be facing an increasingly unsustainable depletion of resources and the creation of greenhouse gases.

Energy, extraction, production, transportation and agricultural systems need to be inherently cleaner, safer, and resource conserving -- i.e., sustainable – in order to avoid or minimise depletion of resources and pollution. These systems need to be designed with the consideration of costs to the environment and consumer and worker health & safety in mind from the beginning17, across every industrial sector, and in every function of the firm. Thus, rather than environmental technology, environmentally-sound and resource-conserving technology is needed, and this presents a challenge and opportunity for major technological innovation. But, as discussed earlier, more than incremental technological innovation is needed.

Radical and significant new approaches require that inputs and materials, final products, and processes be changed, but even more is needed. A shift to product-services with net significant dematerialisation is also needed, for example, through the leasing of carpets, washing machines, or automobiles with guaranteed maintenance or remanufacturing. Beyond product-services, entire systems may need to change, for example substituting transportation systems for individually operated automobiles or changing agricultural growing and distribution systems.

Technological development takes its cues from the market, and both societal/consumer demand and the regulatory environment shape the signals to which technology developers respond. This suggests that policies should be focused to influence consumers and technology providers to adopt sustainable practices. Dematerialisation, and shifts to product-services and beyond, requires technological, organisational, and social innovation to bring about the necessary physical and material changes, changes in infrastructure, and changes in social demands -- and to maintain flexible and learning institutions for continuous improvement.

Effects on Employment and Social Cohesion

A cleaner and less resource intensive environment is only one of several constituents of a sustainable society. Secure and meaningful employment, providing workers with adequate purchasing power, is an essential ingredient of a sustainable and socially cohesive economy. A growing economic system, one that increasingly satisfies human needs and wants (i.e., increases wealth), needs an adequate supply and quality of human capital. ICT and biotechnology are two technological newcomers that both challenge our conventional views of labour, production, and products -- and provide unanticipated opportunity for change. Whether these technologies as they are likely to develop will result in changes in the right direction remains to be seen.

The assertion that possible decreases in employment and/or wages brought about by labour-saving, productivity-enhancing technological change would be adequately compensated by lower prices, subsequent increased demand, and increased production volume is seriously being called into question (EC 1994, Freeman and Soete 1994, Head 1996, OECD 1996 and 1998). Incremental labour-saving innovation which dominates the majority of changes occurring in mature industrial economies is said to be at the root of creeping unemployment and underemployment involving the deskilling of at least some labour. While new higher-skilled or newer-skilled challenging and rewarding work is being created in some firms or sectors, employment is being destroyed in others. It can not be said that the winners can compensate the losers in either the nature or the amount of employment. Thus, in this scenario, net job creation is not an adequate metric of satisfaction with technological change. But further, the dichotomy itself may be far too simple. Gordon (1995) argues that both deskilling and reskilling can occur with similar technologies, task structures, and occupations, and that far from determining a unique outcome, information technologies simply expand the work organisation options.

The nature and rewards, both monetary and psycho-social, of work are undergoing structural change and revolution. But these changes are being brought about by new production, transportation, energy, and agricultural technologies that are undergoing innovation without concern or planning for their impact on the nature and level of employment. While compensatory policies, related to education, retraining, and the reorganisation of work exist or are being planned, they are reactive to technological changes. Here we need to take a lesson from the environmental problems created by rapid and extensive technological change. It is not sufficient to consider the effects on the environment as an afterthought. Environment quality needs to be built in. Similarly, it is suggested that thinking about work after technologies are planned and disseminated may be far too late to address their possible adverse consequences effectively.

We argue that production, consumption, environment, and employment ought to be co-optimized and considered simultaneously. This means technological, organisational, and social innovations need to be proactive and anticipatory, rather than reactive. A knowledge-based economy potentially allows for more flexibility and new definitions of work, leisure, production, and consumption. The context established for innovations in all dimensions needs to reflect the realisation that the real wealth of the people lies in economic, environmental, and social sustainability.

Distinctions Between Sustaining and Disrupting Innovation 18

We have already discussed the need for a paradigm shift from the linear model of the innovation process (invention to innovation to diffusion) – to an iterative, network-influenced model to explain the back-and-forth of scientific and engineering advances -- and the influences on innovation upstream and downstream in the supply chain. A further paradigm shift is needed to explain why product-oriented firms that listen closely to their customers can in some cases succeed impressively, and in other cases fail when a new entrant introduces a product that literally destroys their market. This is important to understand if we are to have any hopes of influencing private sector activities in the direction of sustainability.

For this purpose, a distinction needs to be made between the description of product innovations as incremental or radical, and product innovations as sustaining versus disrupting. Sustaining innovations occur by established firms pushing the envelope to continue to satisfy existing consumers with improved products. Those improvements may be incremental or radical, and come in successive waves by established firms in that product market 19. Disrupting innovations cater to different, perhaps not yet well-defined, customers with product attributes different from those in the established producer-consumer networks 20. Ultimately, they may displace the established technology and market.

Christensen’s (1997) concept of a ‘value network” is “the context within a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit”. In principle, product attributes related to triple sustainability could be important to some customers, for example, resource intensiveness or the way the products are made. An emerging case in point is environmentally friendly packaging that appeal to a defined customer base.

Product attributes are valued differently by different value networks. Existing mainstream customers may demand different things than ‘special customers’ who are presently small in number, but who could eventually reflect future mainstream demand. Sometimes networks emerge that reject a product previously accepted. Producers of genetically-engineered foods were reinforced by their traditional consumer network that these foods would be acceptable, and they therefore ignored a small, but vocal and different group of consumers who ultimately became a serious force to contend with. The industry was lulled into complacency because they surveyed and listened to their main customers and did not entertain the possibility that things would change.

Disrupting innovations are technologically straightforward, often consisting of off-the shelf components put together in a [new] product architecture that is often simpler than prior approaches. They could, but need not be, heavily R&D driven. They offer less of what customers in established markets want and hence can rarely be employed there.

The firm’s organizational structure and the way its groups learn to work together can then affect the way the firm can -- and cannot -- design new products. Managerial decisions that make sense for companies outside a value network make little sense for those within it, and vice versa.

In addition to shifting consumer demands, regulation can ‘make a market’ by providing directions for technological change and product attributes. Of course, regulatory requirements that are viewed as disruptive by the firm and its managers often require disrupting technological changes -- and that is why managers of established firms that pursue sustaining innovation resist regulation and will try to influence regulation that can be satisfied by sustaining innovations -- if not by diffusion of their existing technologies.

Christensen (1997) discusses what could characterize the [rare] successful management of disruptive innovation by the dominant technology firms, rather than give way to their displacement by new entrant firms.

- managers align the disruptive innovation with the ‘right’ customers.

- the development of those disrupting technologies are placed in an organizational context that is small enough to get excited about small opportunities and small wins, e.g., through ‘spin-offs’ or ‘spin-outs’.

- managers plan to fail early, inexpensively, and perhaps often, in the search for the market for a disruptive technology.

- managers find new markets that value the [new] attributes of the disrupting technologies.

Since, this is rarely done in the commercial context of product competition, it is unlikely to occur for many sustainability goals without either strong social demand or as a result of regulation 21. This reinforces our view that disrupting innovations are necessary and the policy instruments chosen to promote triple sustainability need to reflect these expectations .

Requisites for Technological and Organisational Innovation

In industrial economies, the firm is the most important locus of technological innovation, although, as mentioned above, the construct of >innovation networks= involving suppliers, consumers, workers, trade associations, others firms, and government more accurately captures the dynamics of the innovation process. In addition, government itself historically has also had an important role to play as a direct source of innovation, especially in the area of Abig science@ such as in the cases of the early development of computers, air transport, and cancer therapies. The term ‘innovation systems’ has be described as “a set of institutions whose interactions determine the innovative performance…of national firms” (Nelson and Rosenberg 1993). Sometimes science and understanding precedes application (engineering), as in the case of modern chemical technologies. Sometimes applications precede and understanding follows, as in the case of electrical equipment industries. As discussed earlier, a better description of the innovation process might be an iterative process where understanding and application provide dynamic feedback to one another, giving rise to stages of advancement.

In order for innovation to occur, the firm (or government itself) must have the willingness, opportunity, and capability or capacity to innovate (Ashford, 1994). These three factors affect each other, of course, but each is determined by more fundamental factors.

Willingness is determined by both (1) attitudes towards changes in production in general and by (2) knowledge about what changes are possible. Improving the latter involves aspects of capacity building, while changing the former may be more idiosyncratic to a particular manager or alternatively a function of organizational structures and reward systems. The syndrome Anot in my term of office@ describes the lack of enthusiasm of a particular manager (in the firm or government agency) to make changes whose benefit may accrue long after he has retired or moved on, and which may require expenditures in the short or near term.

In the context of disrupting innovation by firms representing the dominant technology, willingness is also shaped by the [rare] commitment of management to nurture new approaches that are at odds with its traditional value network. In instances where firms pursue a dual strategy, the new initiatives are often short-changed in terms of the allocation of resources and top-flight researchers (

Opportunity involves both supply-side and demand-side factors. On the supply side, technological gaps can exist (1) between the technology used in a particular firm and the already-available technology that could be adopted or adapted (known as diffusion or incremental innovation, respectively), and (2) the technology used in a particular firm and technology that could be developed (i.e., major or radical innovation). On the demand side, four factors could push firms towards technological change -- whether diffusion, incremental innovation, or major innovation -- (1) regulatory requirements, (2) possible cost savings or expansion of profits, (3) public demand for more environmentally-sound, eco-efficient, and safer industry, and (4) worker demands and pressures arising from industrial relations concerns. These latter two factors could bring about changes in the value networks, and could stimulate change too late in the dominant technology firms, if new entrants have already seized the opportunity to engage in developing disrupting innovations.

Capacity or capability can be enhanced by (1) increases in knowledge or information about more sustainable opportunities, partly through deliberately undertaken Technology Options/Opportunity Analyses, and partly through deliberate or serendipitous transfer of knowledge from suppliers, customers, trade associations, unions, workers, and other firms, as well from available literature, (2) improving the skill base of the firm through educating and training its operators, workers, and managers, on both a formal and informal basis, and (3) by deliberate creation of networks and strategic alliances not necessarily confined to a geographical area or nation or technological regime. Capacity to change may also be influenced by the inherent innovativeness (or lack thereof) of the firm as determined by the maturity and technological rigidity of particular product or production lines (Ashford et al. 1985; Ashford 1994). The heavy, basic industries, which are also sometimes the most polluting, unsafe, and resource intensive industries, change with great difficulty, especially when it comes to core processes. However, new industries, such as computer manufacturing, can also be polluting, unsafe (for workers), and resource and energy intensive, although conceivably they may find it easier to meet environmental demands.

It deserves re-emphasizing that it is not only hardware, materials, process, and product technologies that are rigid and resistant to change. Personal and organisational flexibility are also important. Technology, organization, and people combine together to influence change. The willingness, opportunity, and capability/capacity to change all three must be addressed in order to encourage sustainable development. Finally, it is important to realise that Factor 10 (or greater) improvements require radical shifts in production, use , and consumption patterns and are not tied to any particular technological fix. Shifts to product-services which shift the focus from the production of products to the delivery of functions and utility (services) are central to dematerialisation, energy de-intensification, and the creation of new employment.

Programmes and Instruments for Stimulating Technological and Organisational Innovation

Having addressed the importance of willingness, opportunity, and capability/capacity to undergo technological and organisational change, this section discusses the possible role of support for national innovation systems, regulatory intervention, and other instruments for stimulating and directing innovation through their influences on willingness, opportunity, and capability/capacity to innovate.

National Innovation Systems

Nelson and Rosenberg (1993) define an innovation system as “a set of institutions whose interactions determine the innovative performance…of national firms.” All industrial countries use government policies and programmes to stimulate technological innovation (Allen et al. 1978, Nelson and Rosenberg 1993, Nelson 1996). These government initiatives have historically focused either on enhancing infrastructure and the viability of the economic system, or in some cases have been focused on specific sectors. For example, in the case of addressing disease, initiatives have involved support for the development of pharmaceuticals, especially for widespread difficult diseases such as cancer and for so-called ‘orphan diseases’ where the potential market is small because a small number of people are affected. While today government policies do not directly intervene in the development of ICT technologies, it should be remembered these technologies benefited from targeted developments associated with national defense concerns in the United States.

The standard activities undertaken by nation states in furtherance of industrial development consist of direct (or indirect) support of R&D in industry, universities, and through government research institutions and laboratories -- and the training of scientists and engineers. Inasmuch as successful innovation requires much more than R&D, national innovation systems also include support for institutions that educate, train, and retrain workers; provide a system of industrial relations and dispute resolution; finance investment and development; oversee the regulation of health, safety, and environment, and provide the general infrastructure for an industrial economy to function effectively in both national and international markets.

From out earlier discussion of the nature of the innovation process, it is worth remembering that science (discovery) and engineering (application) are intertwined and that a linear model of R&D leading straightforwardly to development and application does not capture the iterative, back and forth dynamics of innovation. In many cases new scientific understanding follows, rather than leads application. Furthermore, the classic Schumpeterian innovator – the first to bring a new product to the market -- is frequently not the firm that benefits mostly from the innovation (Nelson and Rosenberg 1993). The role of outsiders in a traditional technological regime can be particularly important (van de Poel 1999). Thus, institutional factors which promote feedback, learning, and dynamic interaction among scientists, inventors, innovators, engineers, suppliers, customers, regulators, and other actors are all a crucial part of the innovation system 22.

Some countries, like Japan, have specific targeted industrial policies. Contradicting the conventional wisdom that liberalised markets are the most important determinants of development, Amsden (1994) argues that it is precisely targeted governmental policies that underlie the successes of the ‘Asian Miracle’. Yet, many economies, like the United States, focus more on creating an economic and regulatory environment conducive for innovation. Of special importance is the realisation that as markets and firms have become more globalised, the appropriateness of an innovation system to be described as ‘national’ has been questioned (Nelson and Rosenberg 1993)23 and along with this realisation that national policies can continue to matter as much as they did historically.

Studies of various national systems yield mixed results for the effectiveness of government policies (Amsden 1994; Ashford 1976; Freeman 1988; Hill and Utterback 1979; Nelson and Rosenberg 1993). For so-called ’big science projects’, like the early development of computers and aircraft, government did indeed make a positive difference. For more usual innovation carried out by industrial firms, the story was mixed. A study of innovation in Europe and Japan in the late 1970’s (Allen et al. 1978; Ashford 1976) conducted by the Massachusetts Institute of Technology (MIT) found that the only significant (and positive) effect of government policies came from health, safety, and environmental regulation -- a result that was counter-intuitive at the time (see the discussion in the next section below). The MIT researchers did not attribute the absence of findings of government effectiveness so much to the failure of governments to pick winners, but rather to perverse incentives faced by national government bureaucrats managing new technology programs to prove success to their superiors by supporting ‘sure-thing’ projects that turned out to be of little technological importance (Ashford 1976).

A recent survey of 716 companies in 17 countries in Europe regarding government policies for innovation, including R&D grants, educational programmes, or tax breaks, found that success in product innovation could not be linked to the overall environment for innovation in the country (Marsh 1999). The Financial Times reports that “[T]he study suggests that while broadly based government measures to alter the economic climate for innovation may not work, there is a place for more targeted schemes to encourage companies at a ’micro’ level in areas linked to the innovative process” (Marsh 1999).

The concern in this work is not to settle whether or not support for national innovation systems can stimulate innovation as a general matter, but rather to enquire into possible governmental roles in stimulating technological innovation (and diffusion) to achieve triple sustainability. Relevant to this question is what effects government intervention might have on innovation that affects environment and employment.

The Effects of Environmental, Safety, and Health Regulation on Technological and Organisational Innovation

The early MIT research mentioned above (Ashford 1976) stimulated more focused research into the effects of government regulation in the United States (Ashford et al. 1984) which found in a number of MIT studies beginning in 1979 that regulation could stimulate significant fundamental changes in product and process technology which benefited the industrial innovator, as well as improving health, safety, and environment, provided the regulations were stringent, focused, and properly structured. This empirical work was conducted fifteen years earlier than the emergence of the so-called Porter Hypothesis which argued that firms on the cutting edge of developing and implementing technology to reduce pollution would benefit economically by being first-movers to comply with regulation (Porter 1990, Porter and van den Linden 1995).

One could describe the Porter Hypothesis as having a weak and a strong form. Porter himself actually discusses only the weak form. The weak form is essentially that regulation, properly designed, can cause the [regulated] firm to undertake innovations that not only reduce pollution -- which is a hallmark of production inefficiency -- but also save on materials, water, and energy costs, conferring what Porter calls ‘innovation offsets’ to the innovating firm. This can occur because the firm, at any point in time, is suboptimal. If the firm is first to move by complying in a clever way, other firms will later have to rush to comply -- and do so in a less thoughtful and more expensive way. Thus, there are “learning curve” advantages to being first and early. Porter argues that in the international context, first-mover firms benefit by being subjected to a national regulatory system slightly ahead of that found in other countries.

What is missing from Porter’s analysis are details about the process of innovation, how change actually occurs in industrial firms, what kinds of firms are likely to come up with what kinds of technical responses, and how very stringent regulation can confer competitive advantage beyond what he calls ‘innovation offsets’. While Porter stresses the importance of going beyond the ‘static model’ of compliance responses, he is in fact talking about modest or incremental innovation in pollution control, and to a lesser extent significant pollution prevention.

The strong form of the Porter Hypothesis was not put forth by Porter at all. It (and the weak form as well) was first proposed by Ashford and his colleagues at MIT after years of cross-country and US-based studies that showed that stringent regulation could cause dramatic changes in technology, often by new firms or entrants displacing the dominant technologies. The replacement of dominant technologies by new entrants, rather than incremental change by existing technology providers, has been the source of the most important radical innovations over this century. It stands to reason that any strong change in market conditions -- be it sudden factor cost changes, new opportunities from new consumer or societal demands, an energy crisis, or demanding regulation -- could stimulate significant innovation.

With regard to regulation, what seems to matter is not only the stringency, mode (specification versus performance), timing, uncertainty, focus (inputs versus product versus process) of the regulation, and the existence of complementary economic incentives -- but also the inherent innovativeness or lack of it by new entrants or regulated firms (Ashford and Heaton 1983, Ashford at al. 1985). There is a rich literature providing examples of more and less stringent regulation with predictably more or less innovative responses (Strasser 1997). A consistent behavioral theory emerged after nearly twenty years of work at MIT and it is useful for policy design (Ashford et al. 1985, Ashford 1993,1994, and 1999). This theory requires an understanding of both the importance of getting the various components of the regulatory signal just right, and the different innovative potential of both existing firms and new entrants for product and process innovation. The importance of new entrants is missing in the analysis offered by Porter.

It is useful to trace the intellectual thinking on the regulation-innovation interaction. MIT research, which began in the 1970s as a cross-country investigation of the effects of government policies on innovation in France, Germany, Holland, the UK, and Japan, found paradoxically that the only government policy that affected innovation was in fact health, safety and environmental regulation, not strategies government devised as a part of its industrial policy (Allen et al. 1978). Moreover, the effects of regulation on innovation turned out to be positive, not negative as expected by the conventional wisdom at that time. This unexpected observation prompted a more detailed examination of regulation in the chemical, pharmaceutical, and automobile industries from which the MIT behavioral model emerged (Ashford et al. 1979, Ashford and Heaton 1983).

In 1979, the MIT researchers argued that “ancillary benefits” (what Porter called “innovation offsets” more than a decade later) could yield costs savings to the regulated firm. MIT researchers argued that “a study of the innovation process in five foreign countries found that innovations for ordinary business purposes (not necessarily for compliance) were much more likely to be commercially successful when environmental, health, and safety regulations were present as an element in the planning process than when they were absent”. They further argued that “regulation, by adding new dimensions to older problems, increases the problem space of the engineer”. Distinctions were made between innovative technology for compliance purposes and main business innovation. Regulation could confer ancillary benefits, but more significantly it could rechannel creativity, bring new skills, and cause beneficial reorganization in the firm. This was the precursor to the soft version of the Porter Hypothesis.

Later in 1983, as a result of intensive study in the chemical producing and using industries, MIT argued that stringent regulation could stimulate entirely new products and processes into the market by new entrants with the displacement of dominant technologies rather than the transformation of technologies by existing firms 24. One of several vivid examples is the displacement of Monsanto’s PCBs in transformers and capacitors by an entirely different dielectric material pioneered by Dow Silicone.

In regulatory systems where health or safety concerns are sufficiently serious to counteract industry pressure, there is plenty of technology innovation forcing (OTA 1995). Often this regulation involves dramatic reductions to workplace exposure, consumer product bans, or the significant reduction of industrial emissions or effluents or the banning of industrial products. The point is that regulation can be designed to stimulate radical innovation if there is both sufficient social concern and political will 25. This is especially true where regulatory goals are clear and demanding, but the means of complying are flexible. Nor is true that negotiation, rather than regulation yields superior technology and more protection (Gouldson and Murphy 1998, Caldart and Ashford 1999).

Supplementing the earlier US evidence that regulation can stimulate technological changes that both benefit the innovators and improve safety, health, and environment is a recent report from the Stockholm Institute comparing pre- and post regulatory environmental compliance costs of industry, and documenting the stimulation of technology by regulation in both Europe and the United States. The report complements other empirical data in the United States showing regulatory stimulation of cheaper and innovative technological responses both in the environmental area (Strasser 1997) and in the area of worker health and safety (OTA 1995).

Regulation can thus encourage disrupting innovations by giving more influence to new ‘value networks’ in which demands for improvements in both environmental quality and social cohesion are more sharply defined and articulated 26. Of course, industries that would fear disrupting new entrants would not be expected to welcome this regulation. This explains in part their resistance to regulation and their propensity to try to capture regulatory regimes, surreptitiously or through direct negotiation (Caldart and Ashford 1999).

Technology and Employment

The OECD has been particularly active in researching the connections between policies that focus on innovations in the post-industrial knowledge-based economy and employment (OECD 1996 and 1998), again emphasising the importance of networks which can efficiently distribute knowledge and information. It argues that the knowledge-intensive or high-technology parts of the economy tend to be the most dynamic in terms of output and growth. Not surprisingly, the OECD (1996) identifies the priorities to be: (1) enhancing knowledge diffusion, especially by broadening support of innovation from “mission-oriented” science and technology project to “[knowledge and technology] diffusion-oriented” programmes, (2) upgrading human capital, and (3) promoting organisational change. In its 1998 job strategies report, OECD (1998) goes into considerable details on specific policies (see Table 1). Most are focused on liberalising markets, forging stronger or new partnerships, and involving key stakeholders. None directly address anthropocentric production or the design of meaningful, remunerative employment. Employment is derivative of the creation of industrial technology.

It is hard to argue with most of these recommendations, with the exception of liberalising labour markets. Allowing wages to fall is a solution rejected by the European Union in its white paper on Growth, Competitiveness, and Employment (EC 1994). Kleinknecht (1998) offers a powerful argument in defense of not reducing wages to accommodate unemployment. Drawing on evidence from European labour markets, he maintains that while advantageous in the short run, from a Schumpeterian perspective, allowing wages to fall to accommodate the less innovative firms who do not use labour or capital effectively will result in less product and process innovation in the long run. The author argues that the process of ‘creative destruction’ advocated by Schumpeter should be allowed to occur, lest we encourage suboptimality 27. Essentially, this argues for forgoing immediate gains from achieving static efficiency in order to realise a better dynamically-efficient outcome. Charles and Lehner (1995) similarly argue that labour market liberalisation can remove the pressure on firms to pursue productivity growth [most importantly, by using labour more effectively].

Kleinknecht argues that although there has been a slower growth in labour productivity in the Netherlands due to a slower adoption of new process technology, there is likely to be a greater focus on product innovation which is expected to create more jobs and jobs of better quality if wage flexibility measures are not adopted. Furthermore, the process of innovation will stimulate more firm-specific [tacit] knowledge which will have a cumulative, multiplier effect on future innovativeness. In Kleinknecht’s view, the longer-term contribution to the economy will more than offset the disadvantages of a longer [old] product life brought about by keeping capital stock around for a longer time. Furthermore, if allowed to operate, the winds of creative destruction will remove the less innovative firms from the market. In contrast, lowering wages for less innovative firms will enable those firms to remain and benefit from their short-term economic advantage. In discussing the recent economic situation in the Netherlands, Kleinknecht sees problems ahead because of recent lower wage increases that will manifest in contributing to a lowering of growth in labour productivity, in the quality of entrepreneurship, and in lower purchasing power and [consumer] demand. Also problematic are attempts to lower labour protection policies. Greater latitude in firing workers would give a competitive advantage primarily to non-innovators and at the same time lower the commitment of workers to the enterprise.

Instruments to Encourage Technological Innovation for Triple Sustainability

The policy maker faces a dilemma. Since the evidence for success of targeted governmental policies to direct technological change is mixed – and in the face of evidence that technological innovation is a complex and changing phenomenon, especially, in the context of both globalised trade and the knowledge-based society, it might be suggested that the proper role for government vis-à-vis innovation is to establish a conducive environment, but to avoid targeted policies. Against this line of reasoning is the realisation that technological change has brought and continues to bring adverse effects to the environment in terms of resource depletion, energy use, and pollution -- and adverse effects to employment in terms of level, nature, skill content, rewards, and dislocation. Further there is a kind of cognitive dissonance between policies that seek to move the economic from suboptimality to static efficiency – and those that seek new dynamic equilibria, including incentives for continuous improvement.

This suggests that government ought to have a strong presence, not only to “internalise the social costs of production and commerce (where there are market failures), but also to transcend markets (where even perfectly working markets are inadequate). Although, the ideology of laissez faire suggests that government regulation is mostly unhelpful or is inefficient, there is increasingly persuasive evidence that regulation – properly designed – is not only necessary to achieve sustainable economies – but that it can actually stimulate innovation leading to improved competitiveness, an improved environment, and employment. The challenge, then, is how to engineer a coherent and comprehensive strategy. Echoing a previous observation that there are many more ways to get it wrong than to get it right, one place to start is to remove the perverse incentives in the system. These perverse incentives include the failure to account for resource depletion in the cost of materials and energy, taxing the “goods” like labour instead of the “bads” like pollution, subsidising the continued existence of old firms and technologies, rewarding firms that underutilise human capital by allowing wage flexibility and easing labour protection laws, and a host of other policies.

A targeted approach using both carrots and sticks requires a better understanding of what is required for firms to innovate – that is, the willingness, the opportunity, and the capacity/capability to innovate.

In addressing strategic design options for innovation that addresses a particular problem area or exploit an curative opportunity, we need to ask four key questions:

$ What are the characteristics of needed innovation 28 that are desirable (environmental aspects; resource and energy intensiveness; whether process, product, process, service aspects or whole systems need to be changed; associated worker hazards; embodiment of knowledge; associated job skills; employment aspects, etc.)?

$ For whose benefit is the innovation 29 (manufacturers, service providers, industrial users, consumers, workers, others)?

$ Who/what sector is likely to innovate (existing firms, new entrants, government, universities, research institutes, etc.)?

$ How can this innovation be brought about?

Instruments for stimulating technological and organisational innovation affect one or more of the necessary characteristics -- willingness, opportunity, and capability -- and include those that influence nationally-focused supply and demand-side factors and more general features of a nation=s infrastructure.

In the context of increasingly globalised economies, instruments which establish a level playing field and minimize the ‘tragedy of the commons’ and the free rider problem 30 are needed (Costanza and Daly 1991, Krugman 1986). These include multilateral environmental agreements, labour protection conventions (such as those of the International Labour Organisation), and the rules of international trading regimes such as the World Trade Organisation (WTO) implementing the General Agreement on Tariffs and Trade (Folsom et al. 1996).

It must be realised that there are four different kinds of barriers to the emergence of sustainable economies. The first is traditional market imperfections, which include mostly unintended environmental and human consequences (externalities) of the industrial production and consumption system. The second arises because even perfectly working markets are inherently imperfect where (1) distributional impacts within and between nations are of central concern, (3) the value of achieving sustainability benefits occurs far into the future and does not have a sufficiently large present economic value, disadvantaging the avoidance of future harm and/or generations, and (3) achieving dynamic efficiency requires sacrifice of static efficiency in the near-term. Getting the prices right will not overcome these problems. Longer time horizons needed for action.

A third barrier is the absence of a well-defined, visible, and influential [value] network that represents the preferences for a sustainable society. A fourth barrier is that political leadership and institutions do not necessarily maximize net welfare even in the short-term, but instead cater to special interests not particularly interested in promoting triple sustainability. Paradoxically, even where there are economically efficient markets, they can ignore distribution of wealth and purchasing power, which can result in socially unsustainable societies. We argue that government can have a major role in making a market for the appropriate kind and level of innovation (Ashford 1985), for example by correcting market imperfections, and can transcend markets altogether in other instances, for example where distributional or equity concerns within and between generations or between nations are of primary interest and markets are incapable of addressing these concerns.

Instruments applied at the national level (see also OECD 1994 and 1999) which can help circumvent these barriers to long term sustainability include those which focus on:

$ Getting the prices right by appropriate financial treatment of natural capital (Costanza and Daly 1991), by internalising social costs in the costs of pollution (Baumol and Oates 1988), for example through pollution taxes, and by removing taxes on labour.

$ Reforming the health, safety, environmental, and energy regulatory system so that regulations can stimulate sustainable innovative technological and organisational changes through the creation of stringent, clear, and certain targets (Ashford 1994 and 1999).

This is preferable to freezing technological advance resulting from regulatory capture and timid government leadership through lax, unclear, or uncertain standards and market signals encouraging the diffusion of inadequate existing technologies and approaches 31.

$ Changing the tax treatment of investment [for example, by preferentially promoting technologies/approaches which reduce resource/energy use (thereby increasing resource/energy productivity)]

$ Increasing the rewards to firms for creating meaningful and remunerative work, through both favourable tax treatment of investment for the creation and adoption of job creation and job content-enhancing technology, as well as through decreasing the taxes on labour.

$ Preventing wages from falling to accommodate unemployment.

$ Implementing programmes for the education and training of labour for a knowledge-based economy.

$ Implementing programmes for the education of technical and professional designers and managers for the knowledge-based economy (the universities have a particularly important to play here), and

$ Building partnerships with proactive, technology-leading companies, but taking care to avoid “capture” 32.

$ Encouraging or requiring management to bargain with workers before technological changes are planned and implemented (Ashford and Ayers 1987) 33.

These measures include both carrots and sticks, and include both regulatory and economic instruments, and long-term as well as shorter-term instruments. (For an excellent discussion of detailed progammatic elements and policy instruments, see OECD 1994 and 1995). They are some of the measures that comprise what we would call an industrial policy for triple sustainability – one that guides both the technology providers on the supply side and influences the kinds of processes, products, services and work demanded by consumers, society, and workers. This policy has to be both short and longer range and has to represent the interests of both existing firms, workers, consumers, and citizens – and those of future stakeholders. Value networks that give rise to disrupting innovations do represent near-term future interests, but more is needed, especially in mature industrial systems. The government should act as a trustee for the health of its future citizens and workers, the future environment, and the technology of the future. As helpful and as necessary as the existing or emerging firms are, they can not be the sole trustee of future interests. Only government can do that. As already discussed, in some cases, government needs to make a market for innovation; in others, government must transcend markets altogether.

Instruments for Stimulating Social Innovation

More than technological and organisational innovations are needed. Innovations in social attitudes, communication networks, and lifestyle which affect both demand and supply are also crucial. If there are limits to growth 34, then there are also practical limits to social choices. (See Sagoff 1998, Ehrlich 1998, and Hamond et al. 1998 for a revealing exchange of views on whether the industrialised nations consume too much).

We are not arguing that government should limit social choices per se, but rather that government should expand choices into more sustainable options through technological, organisational, and social innovations to encourage socially responsible, informed choices. The instruments available for encouraging social innovation are educational, economic, and legal or regulatory in nature.

Already mentioned are Ainnovation systems/networks@ which can change what and how industrial users and consumers express their demands and concerns to product and service providers. It was argued earlier that consumers and producers must come together at a very early stage of the innovation process (possibly through the creation of innovation teams). Innovations, in order to be successful, as a rule increasingly start with organizational and social innovations.

Education and the provision of information about the need for sustainable production and service systems, and about the options that could and need to be developed 35, can influence industrial use, consumer, and worker demand for the satisfaction of basic needs, wants, and the use of leisure or saved time.

Public participation in both private-sector decisions (Irwin et al. 1995), usually though networks involving technology providers and suppliers, and in governmental decisions (Sclove 1995), through informal networks or more formal involvement through advisory panels and science shops, may have more direct and influential effects than through the purchasing power of consumers – especially where the problems relate to material, product, and energy transfers among industrial sectors (See the earlier discussion on value networks).

In addition, unlike the relationship between producers and consumers which is subject to change as consumers change allegiances and preferences for a particular product or service provider, industrialists and labour have an intricate relationship involving an explicit or implied employment contract, job health and safety, other worker safeguard legislation, and frequent, if not daily contact. Their relationship is influenced by both a complex web of laws and by industrial custom (Ashford and Caldart 1996). Through ”technology bargaining” between management and labour (discussed more fully in the previous section) workers could make some of their needs and wants known to management and possibly influence innovation that affects working conditions, the products or services that the firm offers to consumers and industrial customers, and the resource and environmental consequences of its activities. In practice, management usually holds quite tenuously to its prerogatives to make unilateral decisions concerning changes in the technology or technical trajectory of the firm. Labour and industrial relations law protects this management prerogative to various degrees, depending on the country. To the extent that decisions affecting technology are shared, what the firm produces and how the firm functions could very well change. This social innovation would require both legal/institutional and cultural changes. The co-dependence of workers and owners of industrial enterprises for evolving into firms that are both competitive and sustainable could become even more important with increased globalisation of industrial economies 36.

Finally, changing the nature and rewards of employment through a responsive industrial relations system could, in turn, indirectly affect the level and character of consumption that workers desire or need in their capacity as consumers.

Trade as a Driving Force Affecting Sustainability

While technological innovation has been described as the traditional engine of economic growth, trade and globalisation are increasingly being pursued by firms and nations as a means to increase revenues, offering global consumers lower prices as a result of lowering factor costs and taking advantage of economies of scale.

Neoclassical trade theory (Krugman 1986) extends to the international arena the theory of comparative advantage -- whereby mutually advantageous bargains could be struck in self-contained economic systems (Riccardo 1817). This, and the influence of competition among producers to provide a variety of goods and services at reasonable prices for the society, are the bases for the enthusiasm for market economies, for commerce both within and among nation states.

Of course, when production occurs by creating human and environmental externalities -- such as damage to health and ecosystems -- regulation or some other mechanism such as taxes is seen as a way to internalise the uninternalised social costs. However, not all nations do this, or do this to the same extent. All developed countries have instituted programs to address these problems. However, with the advent of an expanded globalisation of trade in inputs, resources, materials, products and services – especially involving developing countries-- new problems have arisen. These problems relate to both differences in what different nations trade and in the increasing tendencies to externalise the social costs of production by offering little effective environmental and labour protection in order to keep costs low.

Trade between nations with different material, resource, skill, and cultural endowments at very different levels of economic development, of course, encourage trading on the bases of the comparative advantages of the trading partners (Krugman 1986). However, the value of, and hence price and revenues associated with, what each country produces or sells depends on many factors. Recent history reveals that the developing countries which sell basic materials, food, and other commodities experience continuing falling demand and hence revenues, while developing countries selling primarily manufactured goods and knowhow experience continually increasing demand and revenues for their traded goods. This has lead to an increasingly widening gap in the trade surpluses/deficits between developing and developed countries (Daly 1991 and 1993). The problem had become so serious that third world countries can not even finance their external debt. In contrast, the so-called Asian tigers learned early to invest in knowhow and technology -- with the help of deliberate government industrial policies -- and became heavy competitors with the developed countries in finished products and manufactured goods. The changing economic positions of both developed and developing countries have different, but adverse consequences for environment and employment. In the wealthy countries, more consumption is encouraged and unless the nature of consumption changes, this means an increased load or rucksack on the environment. In the poorer countries, financial resources become increasingly unavailable to address environmental problems and to create employment with adequate purchasing power.

But these problems have an additional wrinkle. To the extent that nations trade on uninternalised externalities (i.e., they do not internalise the human, social, and environmental costs of production), the amount of resources, energy, pollution, and waste produced is both economically and ecologically inefficient. This means that too much is produced, used, and disposed of. To the extent that producers increasingly compete on the basis of cost -- or cost reduction -- the more the social and human costs are likely to be externalised.

Trade based on performance advantages, for which continual innovation is required, can be replaced with trade based on cost, and cost reduction, where in addition to becoming less sustainable, trade relies on using existing plant and technologies rather than on technological innovation. Thus, in some cases, trade can be the enemy of innovation -- and it is innovation that is required to achieve sustainabilty.

To the extent that multilateral environmental agreements and international labour conventions are signed by trading partners so that similar environmental and labour standards are adopted, implemented and enforced, trade advantages will not hinge on differences in these standards (Ashford 1997). However, many international accords, though signed, have not been ratified or implemented. And if implemented, they have often not been enforced, nor is compliance widespread.

Some advocates of free trade (Bhagwati, 1993 and 1997) argue that nations ought to be encouraged to trade on these differences in environmental protection and labour standards. Where countries have not signed, ratified, or implemented environmental, product safety, or labour standards, the rules of trade are governed mainly by the trade regime in which they participate, such as the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA), or the Association of Southeast Asian Nations (ASEAN).

Unfortunately, In the context of the GATT, in the absence of a situation where the trading partners are otherwise bound to international environmental and labour accords, the only exception allowing the prohibition of trade (through import bans or taxes) for environmental and health reasons in Article 20 of the GATT is that the importation will hurt the health or environment of the importing nation (Ashford 1997, Folsom et al. 1996).

Under the GATT, if the exporting country spoils its own environment or exploits its own workers= health and safety, the importing country can not retaliate. So-called PPM=s – ‘process and production methods’ – are considered the exporter’s own business. While it is plain to see that production which is cheaper because an exporting firm does not care for the environment or worker health and safety is in fact a subsidy to production on the back of its nation’s environment and workers, this is not the kind of subsidy -- like is financial support from the government -- that the GATT prohibits.

Obviously, there is a need for strengthening participation in, and for coordinating, multilateral environmental, labour, and financial capital agreements (Ehrenberg 1996). In addition, there needs to be an appropriate incorporation of environment 37, labour 38 and social concerns in world trading regimes. But this remains a difficult goal to achieve. There is resistance to ‘greening the GATT’ from both developed and developing countries. While both Europe and the United States want to include labour issues in trading regimes, developing countries and Japan are adamant about keeping labour issues out. The side agreements of NAFTA on environment and labour are an exception in trading regimes (Folsom et al. 1996).

In the meanwhile, at the national level economic, environmental, employment, and trade policies also need to be coordinated. Fortunately, within some trading blocs like the European Union, uniformity is a more of goal and minimum standards are almost always higher than the lowest standards of its members.

Globalised trade outside the European Union creates special pressures on competition and employment too, and increased national revenues of one trading partner usually arise from either superior quality of goods and services, or from comparative advantages in factor prices through cheaper labour and exploitation of the environment and resources. To the extent that all nations do not equally internalise the social costs of production, cost advantages can dominate over product performance. Thus, in some circumstances, trade can compromise the incentives for environmentally-sound, job-enhancing technological change. Thus, the market and social opportunities for technological innovation need to be clearly defined and understood. Here, too, incremental innovation may not suffice. A bolder vision is necessary.

Finally, the distribution, as well as levels of wealth -- broadly defined -- needs particular attention in the shaping of policies. This requires strategic choices that reflect a concern for intergenerational equity, equity within nations, and equity among nations (Sen 1992). While this volume focuses on changes that can be made first within the industrialised nations, it must be realised that both technological innovation and trade will affect both industrialised and developing nations, although in different ways. Thus, economic, environmental, employment, social and trade policies should work in tandem to move all societies in a more sustainable direction.

Conclusion

In this chapter, we have argued that technological, organisational, institutional, and social innovations are important factors and drivers for achieving triple sustainability. The different types of innovation are not only inter-related, but also co-determinative of a sustainability future. We have discussed the instruments and policies to stimulate the kinds of innovation necessary for the transformation of industrial societies into sustainable ones through their influence on the willingness, opportunity, and capability/capacity of firms and governments to change.

Globalised trade creates a set of different forces and trajectories which must be coordinated with innovation policies, if it is not to reinforce existing global inequalities, unsustainably exploit resources and energy, and add to contamination of the biosphere. The wealth of the people depends on it.

AFTERSCHOOOL MATERIAL ON MANAGEMENT, LEADERSHIP

Friday, October 24, 2008

Networking with other universities and institutions for spreading management and leaderhsip education - the AFTERSCHOOOL way

Wednesday, October 22, 2008

an article on innovations in organisations

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