The Contribution of Ethical Factors to Explaining the Decline in Innovation Dynamics

When analysing the declining innovation and growth dynamics of modern economies, cultural and ethical influencing factors can be identified alongside economic causes. In his theory on the innovative capacity of the market economy, Edmund Phelps emphasised the importance of non-monetary motives for entrepreneurial activity, which can also be substantiated by looking back at the history of the industrial revolution(s). From a current perspective, the introduction of shareholder value-oriented approaches to corporate management and the transition to financial market-based benchmarks at the end of the 20th century led to a radical change in the culture of motivation in the financial and real economy. As a result, the ability to innovate was impaired by reduced investment in research and development, which was exacerbated by the misallocation of capital in the financial sector.