Enterprise and Small Business Principles
Chapter summary
Within a generation, scholarship has produced theories, evidence and new insights that have dramatically changed the prevalent view about the role of entrepreneurship in innovation and technological change. The conventional wisdom held that small firms inherently have a deficit of knowledge assets, burdening them with a clear and distinct disadvantage in generating innovative output. This view was certainly consistent with the early interpretation of the knowledge production function that to compete globally you have to be big.
More recent scholarship has produced a revised view that identifies entrepreneurial small firms as making a crucial contribution to innovative activity and technological change. There are two hypotheses why scholarship about the role of small firms has evolved so drastically within such a short period. First is that, as explained in this chapter, the measurement of innovative output and technological change has greatly improved. As long as the main instruments to measuring innovative activity were restricted to inputs into the innovative process, such as expenditures on formal R&D, many or even most of the innovative activities by smaller enterprises simply remained hidden from the radar screen of researchers. With the development of measures focusing on measures of innovative output, the vital contribution of small firms became prominent, resulting in the emergence of not just the recognition that small firms provide an engine of innovative activity, at least in some industry contexts, but also of new theories to explain and understand how and why small firms access knowledge and new ideas. This first hypothesis would suggest that, in fact, small firms have always made these types of innovative contributions, but they remained hidden and mostly unobserved by scholars and policy makers.
The alternative hypothesis is that, in fact, the new view towards the innovative capacity of small firms emerged not because of measurement improvements, but because the economic and social environment actually changed in such a way as to shift the innovative advantage more towards smaller enterprises. This hypothesis would say that the conventional wisdom about the relative inability of small firms to innovate was essentially correct - at least for a historical period of time. Rather, the new view of small firms as engines of innovative activity reflects changes in technology, globalisation and other factors that have fundamentally altered the importance and process of innovation and technological change. As Jovanovic (2001, pp. 54-55) concludes: ‘The new economy is one in which technologies and products become obsolete at a much faster rate than a few decades ago. . . It is clear that we are entering the era of the young firm. The small firm will thus resume a role that, in its importance, is greater than it has been at any time in the last 70 years or so.’ Future research may sort out which of these two hypotheses carries more weight. However, one important conclusion will remain. Scholarship has clearly changed in its assessment of the role of small firms in the process of innovation and technological change from being mostly unimportant to carrying a central role.
Future economic growth is closely tied to the growth of small, new technology - based firms. The federal government has instituted a number of policies in support of these NTBFs, including the Small Business Innovation Research, Small Business Technology Transfer and Advanced Technology programmes, the Manufacturing Extension Partnership and several US Small Business Administration financing programmes for high-technology companies. While these programmes represent only a small fraction of America’s total investment in research and development, they have a significant impact. They represent a national commitment to encourage small technology-based businesses to address federal research needs and to create and commercialise new products and processes.
