The process of creative destruction builds new structures while destroying old ones, and this process is well suited to the nature of economic development which requires constant innovation. Let’s take a look at how.
Economic theories can often seem abstract and complex, but if we explain Schumpeter’s concept of “creative destruction” with examples from everyday life, we can easily understand how powerful and transformative it is. Schumpeter says that innovations bring new opportunities while destroying old structures. One of the companies that best exemplifies this theory today is undoubtedly Apple.
In 2007, when Apple launched the first iPhone, phones of that era were known for physical buttons and limited internet access. With the iPhone, however, a touchscreen and app-based system came into play. Apple not only produced a phone, but also radically changed people’s relationship with technology. Old-style phones quickly disappeared from the market and this technological revolution made Apple a world-leading technology giant.
This process, as Schumpeter said, means building a new and stronger system while destroying the old. As the old phone models disappeared into history, this innovative path opened by Apple dragged many other companies behind it. In other words, Apple’s move reshaped not only technology, but also an entire industry and even people’s habits.
At this point, however, a very important element must be mentioned: readiness. In order for an innovation eco-system to be successfully created and developed, economies need to be ready for the destruction and transformation of existing structures. Countries that can adapt quickly to this process of creative destruction can develop a successful innovation ecosystem. However, this process is characterised by uncertainties and difficulties in the short term. Therefore, innovation objectives should be long-term. In countries that are not ready for the creative destruction process or have low adaptation capacity, it may not be possible to utilise new opportunities at the same speed while old structures collapse rapidly. This may result in reduced competitiveness, increased unemployment and income inequality.
On the other hand, research and development (R&D) and innovation activities are high-risk processes that require large resources. This situation may cause firms to shy away from innovation activities or not to carry out sufficient innovation activities (Öztürk et al., 2024).
In this context, the support provided/to be provided by the state for firms to innovate is of great importance. The innovative companies (Apple, Google, etc.) or the innovation centre Silicon Valley in the USA, which are frequently talked about and exemplified today, are mostly state-supported structures. For example, the internet, microprocessor, touch screen, GPS system, internet and many other functions, which are the basic technologies used in iPhones, have been supported by the US Armed Forces, Defence Advanced Research Projects Agency (DARPA) and similar organisations.
In recent years, the European Union has also started to offer a wide range of support packages in order to compete with the speed and leadership of the USA in innovation. Similarly, the Turkish government, especially through TÜBİTAK (Scientific and Technological Research Council of Türkiye) and KOSGEB (Small and Medium Enterprises Development Organization of Türkiye), encourages innovation activities of companies and offers various financial supports to increase R&D investments. These government supports undoubtedly help to increase the number of firms engaged in innovation activities and the quality of these activities.
Types of Innovation
The definitions of the Oslo Guidelines are used worldwide when defining types of innovation. The Oslo Guidelines (OECD, 2005) define innovation as “the introduction of a new or significantly improved product (goods or services) or process, a new marketing method or a new organisational method in internal practices, workplace organisation or external relations” (OECD, 2005).
According to the Oslo Guidelines, types of innovation can be defined as follows:
- Product Innovation: This type of innovation means improving existing products or introducing completely new products. For example, the emergence of digital cameras or a hospital presenting test results over the internet are product innovations.
- Process Innovation: The application of new production or delivery methods. For example, a factory improving its production processes with automation systems is an example of process innovation. This type of innovation often creates cost advantages.
- Organisation Innovation: The application by firms of new methods in their business processes, organisational structures or external relations. This includes innovative approaches that make the firm’s business practices more effective.
- Marketing Innovation: Innovations in marketing methods. Introducing products in a new way or changing pricing strategies are among the marketing innovations.
Türkiye’s Innovation Scorecard
In recent years, Türkiye has taken important steps in the field of innovation and increased its R&D expenditures. According to TurkStat data, the share of Türkiye’s R&D expenditures in GDP exceeded 1% in 2014. In 2021, this ratio was 1.40 per cent, while in 2022 it decreased to 1.32 per cent. From 2010 to 2020, the share of R&D spending in Türkiye’s central government budget increased 3.5 times. However, when Türkiye’s R&D expenditures and innovation activities are compared with developed countries, it is seen that Türkiye is still behind and the share of R&D expenditures has decreased in recent years.
According to the results of the TurkStat Innovation Survey (2022), the rate of enterprises engaged in innovation activities in the period covering the years 2020-22 is 39.8%. However, it should be noted that the type of innovation is not differentiated here. When the types of innovation are analysed, we see that the most common types of innovation by firms in Türkiye are marketing and organisational innovations. Process and product innovations are lagging behind.
Government support plays a critical role in increasing innovation activities of firms. According to the 2022 Innovation Survey results, 28.7% of enterprises engaged in innovation activities received financial support, while 36.8% of enterprises engaged in innovation activities collaborated.
In particular, the Tenth Development Plan is an important strategy document aiming to increase innovation activities in Türkiye. In this plan, it was emphasised that Türkiye’s production structure should be subjected to a technology-oriented transformation and the critical role of innovation activities in this transformation was highlighted. In line with this goal, strategies such as increasing R&D expenditures, supporting innovative companies and strengthening co-operation between universities and the business world have been developed. However, it is clear that there is still a long way to go.
According to the European Union Innovation Scorecard, Türkiye is among the “moderately innovative” countries. Türkiye’s innovation index is 0.48, which is below the European average. In the Global Innovation Index announced by the United Nations, Türkiye rose 4 steps in 2022 and ranked 37th among 132 countries. This rise also brought a first: We have ranked at the top 40 in this index for the first time ever. However, in terms of human resources, Türkiye continues to rank among the lowest in Europe, limiting our progress in innovation activities. Moreover, the capacity of innovation activities in Türkiye to create jobs is not sufficient.
Conclusion
Innovation is of critical importance not only for firms but also for national economies. As Schumpeter pointed out, innovative entrepreneurs and firms are the main actors of structural transformations in economies and permanent economic growth. In this framework, for Türkiye to achieve such a transformation in its economic structure, it needs to place innovation at the centre of economic development, invest more in innovation activities and take steps to ensure the sustainability of these investments. Innovation not only increases the competitiveness of individual companies, but also has the effect of deepening the country’s competitiveness and integration with international markets at the macroeconomic level.
In this context, it is of great importance to analyse the components of R&D expenditures in detail and accurately in order to develop more effective and targeted policies.
For developing countries, innovation is one of the foundation stones of economic development and long-term growth. At this point, the form of innovation, the mechanisms of incentivisation and the results achieved are factors that directly affect the competitiveness of the country in international markets. Although Türkiye has made remarkable progress in innovation activities in recent years, we still need important steps in terms of the sustainability and depth of this development. Increasing R&D expenditures, training qualified labour force in this field, and enhancing the innovative capacities of firms are key factors that will further improve Türkiye’s competitive power.
It is clear that government supports play a central role in accelerating this process. However, for these supports to be effective, they need to be provided with strategies differentiated according to the types of innovation. Supporting social and organisational innovations as well as technology-intensive innovations will encourage innovation at all levels of the overall economic structure. Furthermore, the continuity of the support provided by the government, the strengthening of the cooperation between the private sector and universities, and the planning of these collaborations in a way to produce tangible results will ensure that Türkiye will be in a stronger position in global competition.
Bibliography
OECD, 2005. Oslo Manual: Guidelines for Collecting and Interpreting Innovation Data. OECD publishing.
Öztürk, S., Başar, D., Çakmak, İ., & Aydin, D. G. (2024). The Innovation Behaviour of Turkish Manufacturing Firms: An Analysis of Additionality. European Review, 1-25.
Schumpeter, J.A, 1934. The Theory of Economic Development, New York, Oxford University Press.
Turkish Language Association (2018). Current Turkish Dictionary. Retrieved from: http://www.tdk.gov.tr/index.php?option=com_bts
Weerawardena, J. 2003. “The role of marketing capability in innovation-based competitive strategy”, Journal of strategic marketing, 11(1), 15-35.
