The Handbook of Technology and Innovation Management

16.1. Coherent Systems of Institutions

Understanding differences in economic performance and growth has been a motivating question, starting with the publication of Adam Smith's Wealth of Nations in 1776. As a result, a large body of literature explores differences in the performance of national economies – why is it that some nations thrive while others languish or decline (Mankiw, Phelps, and Romer, 1995; Temple, 1999). At the time when firms were small and underdeveloped, national economies were seen as the fundamental unit of analysis.

Well in advance of Adam Smith's publication, public entities were actively trying to influence innovation and economic growth. Notably, Jean-Baptiste Colbert, the French minister of finance for King Louis XIV (1665–1683), actively worked to improve French manufacturing by hiring skilled labor from Italy and England, constructing infrastructure beneficial to industry, and instituting what we would now describe as a friendly business climate (Sargent, 1899). Colbert is notable for his quotations: 'The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing' (Sargent, 1899). He summed up his motivation for industrial policy as, 'It is simply, and solely, the abundance of money within a state [which] makes the difference in its grandeur and power' (Sargent, 1899). Unfortunately, the King was harder for Colbert to control than the economy and these gains were ...