Disruptive innovation and R&D ownership structures
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Disruptive innovation and R&D ownership structures Di Guo1 · Haizhou Huang2 · Kun Jiang3 · Chenggang Xu4 Received: 18 March 2020 / Accepted: 14 September 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract This paper provides a theoretical explanation as to why breakthrough innovations seem to be possible only within capitalist economies (Kornai in Dynamism, rivalry, and the surplus economy: Two essays on the nature of capitalism, Oxford University Press, Oxford, 2013). Specifically, our theory explains why disruptive innovations are discovered and financed by large numbers of independently owned small firms in capitalist economies rather than in socialist economies where state ownership is the only option. The key is that the ownership structure of the firm affects the ex-post selection of worthwhile discoveries, which determines the fate of disruptive innovation. Our paper also contributes to empirical work on disruptive innovation, which is missing in the literature. We use new molecular entities (NMEs) in the pharmaceutical industry as a proxy for disruptive innovation. Although pharmaceutical companies are often very large, their R&D projects greatly depend on forming alliances with much smaller independent firms. We find that the number of NMEs discovered by pharmaceutical companies is positively and significantly associated with the number of R&D alliances in which they participate. Our theory is supported by the empirical findings. Keywords Disruptive innovation · Ownership · Soft budget constraint · Capitalism · Socialism JEL Classification G30 · L2 · O31 · P51
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1112 7-020-00850-1) contains supplementary material, which is available to authorized users. * Chenggang Xu [email protected] Extended author information available on the last page of the article
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Public Choice
1 Introduction In his most recent book, Dynamism, Rivalry, and the Surplus Economy, Janos Kornai (2013) investigates the fundamental differences between capitalism and socialism1 in innovativeness in general and Schumpeterian creative destruction in particular. By providing 87 examples of breakthrough, revolutionary innovations in the century beginning with the Soviet Union’s birth, he finds that all of them were invented in capitalist economies. The Soviet socialist economy was not responsible for any. He concludes that not being able to foster revolutionary innovation distinguishes socialism from capitalism. Why are socialist economies unable to generate revolutionary innovations while capitalist economies are able to do so? The present paper extends Kornai’s discussion of innovation under different economic systems, focusing on the ownership of R&D projects. We ask why disruptive innovations are mainly created in capitalist economies in general and by outsourced R&D alliances among large numbers of small, independent private startups in particular and why the internal R&D departmen
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