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Innovation and the global financial crisis - systemic consequences of incompetence

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  • Karl-Erik Sveiby

Abstract

The article applies the concept of incompetence by Polanyi (1962) and the concept of unintended consequences by Merton (1936) to explore the development of a radical financial innovation, securitisation. This innovation changed the context for all actors in the financial industry to such a degree that even the highest regarded experts repeatedly made prediction errors. The negative effects of prediction errors have gradually increased since 1980 until today when even a single individual decision by a portfolio manager may risk global financial mayhem. The conclusion is that financial innovation has become a lot riskier than is commonly appreciated in economic theory and practice. Our limited ability to foresee the consequences of our actions are fundamental to innovation and product development. Unintended and undesired outcomes should be acknowledged as an untapped resource for improving the net effects of innovation. The article suggests approaches to deal with the risk.

Suggested Citation

  • Karl-Erik Sveiby, 2012. "Innovation and the global financial crisis - systemic consequences of incompetence," International Journal of Entrepreneurship and Innovation Management, Inderscience Enterprises Ltd, vol. 16(1/2), pages 30-50.
    • Handle: RePEc:ids:ijeima:v:16:y:2012:i:1/2:p:30-50
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    Citations

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    Cited by:

    1. Charis Vlados & Nikolaos Deniozos & Demosthenes Chatzinikolaou, 2018. "Global Crisis, Innovation and Change Management: Towards a New Systemic Perception of the Current Globalization Restructuring," International Business Research, Canadian Center of Science and Education, vol. 11(8), pages 9-29, August.
    2. Gabriele Faßauer, 2018. "Linking deviation with innovation: behavioral effects of management control through the lens of a theory of deviance," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(3), pages 275-293, December.
    3. Rosa Caiazza & Phillip Phan & Erik Lehmann & Henry Etzkowitz, 2021. "An absorptive capacity-based systems view of Covid-19 in the small business economy," International Entrepreneurship and Management Journal, Springer, vol. 17(3), pages 1419-1439, September.
    4. Kim Carlotta von Schönfeld & António Ferreira, 2021. "Urban Planning and European Innovation Policy: Achieving Sustainability, Social Inclusion, and Economic Growth?," Sustainability, MDPI, vol. 13(3), pages 1-35, January.
    5. Ferreira, António & Oliveira, Fernanda Paula & von Schönfeld, Kim Carlotta, 2022. "Planning cities beyond digital colonization? Insights from the periphery," Land Use Policy, Elsevier, vol. 114(C).

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