Meso Economics Blog Entry 3

Meso Economics

The story on Meso Economics has been explored in a three blog entry. This is the third and final entry.

This last blog explores more deeply Schumpeter's perspectives on the entrepreneur who carries out innovations, and by doing so destroys and newly creates the structure of the economy “from within”. The Schumpeterian entrepreneur introduces new knowledge, reconfigures generic rules, and enables the agents to use a new set of operations inducing a reallocation in the commodity space. These propositions, in themselves, do not yield a theory of the economy, but they do furnish the stuff from which the elementary theoretical unit can be derived.

We start with an ‘idea’ and its actualization by many agents. Ontologically speaking, we have “oneness” and “manyness”. Ideas are time- and space-less. They are potentials that can be (qua idea) actualized. Knowledge - defined as ideas ´carried´ by agents - does not degrade if used; in fact, the use of ideas is instrumental for maintaining a store of knowledge. Opportunities, in turn, are consumed. An idea is physically actualized by (possibly) many agents in time and space. A single agent is a member of a population of agents that actualize an idea. This all sounds very philosophical (and rightly so), but it is of immediate practical relevance.

Schumpeter's Meso

Schumpeter has challenged the received doctrine with his simple proposition that entrepreneurs carry out innovations that are then adopted by a population of followers. This proposition led to an elementary unit that is composed of, on the one hand, an idea, or generic rule, and, on the other hand, many physical actualizations of it. The idea can serve as structure component, the set of physical actualizations as process component. The bimodal nature of the elementary unit breaks up the traditional micro-macro dichotomy, and, introducing meso, leads to the new framework of micro-meso-macro.

While this in itself is a significant contribution to economics, the question of further interest is Schumpeter's particular contribution to the multi-facetted concept of meso.

As structure component, meso relates necessarily to the whole of structure, and we shall take up Schumpeter's contribution in the subsequent section on macro. As process component, meso deals essentially with the individual agent and a population of adopters of which (s)he is a member. An idea or generic rule is actualized along a three-phase trajectory of origination, adoption and retention.

To ease the discussion of Schumpeter's contribution, we shall sub-divide each of the three phases, specifying the trajectory on the basis of six (sub-) phases. In the initial phase of origination, the distinction is between the creation and the discovery of a new idea.

In the next phase of adoption, it is between the first and the many following adoptions, and in the terminal phase of retention, the distinction is between stabilizing and destabilizing forces determining the generic rule regime. The six phase dynamic was introduced originally as a schema for a comparative theory study which included neoclassical, Austrian and evolutionary-Schumpeterian economics (Dopfer 1993).

In the following, the discussion shall be confined to the contribution that Schumpeter made to the theoretical elucidation of six trajectory phases. These can be summarized as follows:

I Origination

Sub-phase 1: creation of novel idea, innovative potential
Sub-phase 2: search, discovery and recognition process, microscopic selection

II Adoption

Sub-phase 3: first adoption, chaotic environment, bifurcation,
uncertain outcome
Sub-phase 4: macroscopic adoption of ‘seed’, selective environment, path dependence

III Retention

Sub-phase 5: retention of adopted ‘seed’, meta-stability of actualization process
Sub-phase 6: existing regime as breeding ground for novel potential(s), link to phase I.

chumpeter's key contribution lies in the analysis of the (sub-) phases 2, as well as 3 and 4. The locus classicus of his analysis is phase II.

In phase 3 (first phase of adoption), the entrepreneur carries out a new combination, changing the environment by initiating a new meso trajectory that eventually gains momentum in phase 4 (second phase of adoption).

Primary Sources:

The Origins of Meso Economics Schumpeter's Legacy by
Kurt Dopfer :Max Planck Institute of Economics Evolutionary Economics Group Kahlaische Str. 10 Jena, Germany ftp://papers.econ.mpg.de/evo/discussionpapers/2006-10.pdf

Definition of Mesoeconomics - http://en.wikipedia.org/wiki/Mesoeconomics