Entrepreneurial Activities and Innovation need a further boost in Lithuania

Darbas anglų kalba. Inovacijų skatinimo ir verslumo veiklos galimybės Lietuvoje. Abstract. Innovation as a key to economic growth. Innovation and Entrepreneurship in Lithuania. Who are the entrepreneurs in Lithuania? Developments in the Field. Labor flexibility and Availability of Capital. Presence of disincentives to innovate. Society’s attitude towards innovation. Conclusion.

The following paper argues that innovation potential in Lithuania could be increased. The author is using the framework of analysis introduced in Good Capitalism, Bad Capitalism and Economics of Growth and Prosperity by Baumol. As far as innovation is concerned, Lithuania is disadvantaged in terms of structural labor inflexibility, inability to distinguish between old and new knowledge - based economies, unavailability of financial capital for start-up businesses, large-scale disincentives to innovate and negative society’s attitude towards risk taking. However, there have been some positive developments in the field and the conclusion section includes some ideas for improving the current situation, such as easing labor laws and promoting entrepreneurial education and training.


The importance of innovation as a determinant of economic growth and prosperity has been recognized by numerous scholars. The pioneering father of such research is Schumpeter, who recognized innovation as a leading force of economic development. He called the process creative destruction: new better ideas replace the old by fueling economy to grow and prosper. However, Schumpeter concluded that capitalism is not economically viable since extreme bureaucracy will evade the innovative spirit. Although capitalism is still the most desirable form of economic resource allocation, Schumpeter is right that innovative spirit is not equally present among different countries. This paper will rely on the analytical framework of Good Capitalism, Bad Capitalism and Economics of Growth and Prosperity by Baumol, Litan and Schramm, who focus on the positive economic effects of entrepreneurship and innovation. The monolithic approach to capitalism is denied while distinguishing four different types and their effects on long-term economic growth. According to the authors, the best form of capitalism is a blend of entrepreneurial and big-firm capitalist systems since entrepreneurs innovate while big firms mass-produce. However, it is crucial to understand that real entrepreneurs are those, who introduce radical innovation.
Furthermore, four policy criteria are suggested as the attributes of a good capitalist system. They are introduced as guidelines for societies to promote and entrepreneurial activities and innovation. The first is ease to start and grow a business by lowering property registration and promoting labor flexibility. Countries benefit from newly developed businesses or through direct foreign investment (DFI), which brings the knowledge from abroad. Another factor is bankruptcy protection policies, which encourage business start–ups. Finally, access to capital is essential to finance the innovative firms avoiding the state owned banking, which favors certain industries. The second is rewarding productive entrepreneurial activities through efficient rule of law, property, and contract rights. Other factors are deregulation of certain industries, having just patents by creating "mega-prizes" to innovators, investing in R&D and commercializing university inventions. The third is decreasing disincentives, such as corruption, organized crime syndicates, political lobbying and rent- seeking behavior. Anti-trust laws should not be misused and thus revised. Finally, the innovative spirit should be kept by encouraging the Red Queen Game – the continuous competition between big players, which is also a source of innovation.. ...