The Free Innovation and Producer Innovation Paradigms

Free innovation differs so fundamentally from producer innovation that the two cannot be incorporated in a single paradigm. In this section I therefore propose and describe a new free innovation paradigm and contrast it with the traditional Schumpeterian producer innovation paradigm. Figure 1.1 schematically depicts these two paradigms and the interactions between them. Each describes a portion of the innovation activity in national economies.

Generally, development activity in the free innovation paradigm is devoted to types of innovative products and services consumed by

Figure 1.1

The free innovation paradigm and the producer innovation paradigm.

householders, not businesses. These represent a large fraction of Gross Domestic Product (GDP): In the United States and many other OECD countries, 60-70 percent of GDP is devoted to products and services intended for final consumption in the household sector (BEA 2016; OECD 2015). In contrast, innovation development activity in the producer innovation paradigm is devoted to addressing both consumer and industrial product and service needs.

As we will see, outputs from the two paradigms are complementary in some ways and competitive in others (Baldwin, Hienerth, and von Hippel 2006; Baldwin and von Hippel 2011; Gambardella, Raasch, and von Hippel 2016).

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