Innovation – original macroeconomic understanding of “disorder”
The word innovation comes from the Latin word innovatio and means ‘renewal’ in English. The word was reintroduced in modern language in the late 1800s as a concept of economics. It became widespread when the Austrian-American economist Joseph A. Schumpeter published the book ‘The Theory of Economics Development’ in 1912. He used the term in connection with economic equilibrium theories of competitive relations. There was no equilibrium situation in economics and competition as the theory predicted. There was always ‘something’ that intervened, disrupted and changed the competitive environment. He called that disruption innovation – a “process of industrial mutation that incessantly revolutionizes the economic structure from within, persistently destroying the old, persistently creating new”. The disruption was initiated by what he called entrepreneurs, but it could also come from existing companies.
He observed that innovation was typically based on one of these five categories:
- Launch of a new product or a new species of already known product;
- Application of new methods of production or sales of a product (not yet proven in the industry);
- Opening of a new market (the market for which a branch of the industry was not yet represented);
- Acquiring of new sources of supply of raw material or semi-finished goods;
- New industry structure such as the creation or destruction of a monopoly position
Schumpeter pointed out that it was not the “invention” he called innovation. It was the actions surrounding the invention which led to changes in the competitive picture, he called innovation.
