The Economics of Frugal Innovation Technological Change for Inclusion and Sustainability

By Christian Le Bas, Professor of Economics, ESDES Lyon Business School, Lyon Catholic University, France

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Frugal innovation (FI thereafter) has been garnering great research interest in the last two decades. The literature tells us a new frugal product is associated with a substantial reduction in costs compared to a standard product due to the limited number of basic functionalities while having a minimum level of technological and ecological performance. Because its manufacturing cost is also reduced, its price is lower compared to those of more standard products, as a consequence, it can be purchased by consumers with low incomes. Such a new type of innovation provides valuable products for low-income communities contributing to economic inclusion in the process of consumption. FI is therefore, inclusive. This type of new product is more durable, simple, efficient, less technologically sophisticated and costly. In the past, located in emerging countries it is today more “global”, gaining followers in developed economies. In this context, FI shows strong potential to foster inclusion and sustainability effectively.

We show in the book, FI is part of a new technological paradigm. The size of the product is smaller, and the number of functionalities/components is reduced (product therefore easier to recycle). As a consequence, the product is more reliable (it has a longer lifespan) and less technological complex (easier to repair). The core of this new paradigm is therefore design simplification. As a result, there is less pressures on natural resources. It can be manufactured more easily/quickly and therefore saves energy. Consequently, FI is a green (or environmental) innovation. In the current period the frugal product seems to interest consumers who are ecologically virtuous by choice.

FI is without a doubt an innovation of transformative change (Schot and Steinmueller) aligning social and environmental concerns with innovation (for profit) objectives. FI can be considered as a part of the solution to the main problems of the planet (global economic inequalities and climate change).

Technological frugality shares a number of characteristics with the low-tech approach: simplicity in the architecture of the product, the search for (much) less technological complexity, the use of limited resources (including economic resources or R&D), ecological properties (“resources-saving”). But deviates from a low-tech paradigm in what the goal of frugality is not technological, it is to provide affordable goods in terms of price. Technology is just one way to do that. The frugality approach does not refuse (by principle) the use of high-tech technologies in design activities (such as the use of design methods as artificial intelligence) or in the manufacturing of frugal products (like robotics).
Until now, most of the literature addressing FI has been qualitative empirical and the analytical frameworks have come from Management Science. Little attention has been given to understanding the technological core of FI and, more importantly, to the underlying economic mechanisms that are affected by technological frugality. This book aims to fill this gap. For achieving this we rely on a mix of theories linked to the Schumpeterian approach to innovation (Economics of innovation) combining methods from Evolutionary Theory, Microeconomics, and Industrial Organization.

My book The Economics of Frugal Innovation. Technological Change for Inclusion and Sustainability aims to fill this gap. Chapter 1 of the book discusses the various definitions of FI found in the literature and pictures some striking cases of frugal product. In chapter 2 I articulate the notion of technological frugality (the frugal direction of technological change) and the concept of technological paradigm at the core of the innovation studies as an evolutionary research programme. The idea of design simplification resumes this new paradigm. Chapter 3 explores economic topics in relation with the frugal direction of technological change: the resource constraints schemes, a new model of induced innovations and the structure of innovation demand-side approaches. Chapter 4 proposes an analysis showing the positive consequences of the frugal direction of technological change for the environment. Chapter 5 addresses an issue much dealt with in the literature: the relation between technological frugality and sustainability. Because we assume FI is in general sustainable, we explore the relevance of a new taxonomy that sticks more the empirical evidence : weakly sustainable frugal versus fully sustainable frugal. In chapter 6 we fill a gap by delineating en econometric exercise aiming to understand what type of innovators implement FI. Our estimations enable us to retain complex innovator (achieving product and process innovation) are more prone to innovate frugally. Chapter 7 in the literature, we find the idea FI is considered as a disruptive innovation concept due to Christensen. New frugal product staying in the low-end segment of the market cannot be considered as competing standard product and therefore cannot feed a process of disruption. Our starting point in chapter 8 is : can FI a possible determinant of economic growth in LDC. Our pessimistic conclusion is : we do not find any evidence in favour of this assumption.

The novelty of the book lies in presenting the economic mechanisms ruling the design, the implementation, and the diffusion of FI innovation. As such, the book is likely to be of interest to people (academics, experts, various kinds of practitioners) wanting to study new types of technological innovation in relation to sustainability.

The Economics of Frugal Innovation by Christian Le Bas, Professor of Economics, ESDES Lyon Business School, Lyon Catholic University, France is out now.

Read the introduction and other free chapters on Elgaronline



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