Economics of low-tech innovation

Article By:

Hirsch-Kreinsen, Hartmut Department of Economic and Industrial Sociology, University of Dortmund, Dortmund, Germany.

Last reviewed:2009

As the European Union and the United States are evolving into knowledge societies, the ability to generate, use, diffuse, and absorb new knowledge is increasingly being viewed as critical for economic success. Consequently, conventional wisdom regards high-tech, research-intensive, and science-based industries as the key drivers of future economic prosperity. The policy conclusion is that high-cost industrialized countries should concentrate their efforts on promoting these industries. In this scenario, low- and medium-tech (LMT) industries are deemed to offer very limited prospects for future growth in comparison to high-tech ones and, as a result, receive less explicit policy attention and support. The statistical basis of this perspective is the internationally accepted research and development (R&D) intensity indicator [developed by the Organization for Economic Co-operation and Development (OECD) in the 1960s], which measures the ratio of the R&D expenditure to the turnover of a company or to the output value of a whole sector. Sectors with an R&D intensity of more than 3% are characterized as high-tech or medium-high-tech. Sectors with a R&D intensity below 3% are classified as low- or medium-tech. Mainly “mature” industries, such as the manufacture of household appliances; the food industry; the paper, publishing, and print industry; the wood and furniture industry; and the manufacturing of metal and plastic products, are regarded as low- or medium-tech. In contrast, pharmaceuticals, the electronics industry, medical engineering, vehicle construction, the aerospace industry, large parts of mechanical engineering, and the electrical industries are categorized as high-tech or medium-high-tech.

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