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Overview
This volume mounts a full-blown attack on the standard neo-classical theory of economic growth, which Richard Nelson sees as hopelessly inadequate to explain the phenomenon of economic growth. He presents an alternative theory which highlights that economic growth driven by technological advance involves disequilibrium in a fundamental and continuing way. Nelson also argues that a theory of economic growth driven by technological advance must recognize a range of institutions, such as universities, public laboratories, and government agencies, in addition to business firms and markets. He further argues that growth theories that focus on an aggregate measure of growth, such as GNP per capita, are blind to what is going on beneath the aggregate, where differing rates of advance in different sectors, and the birth and death of industries are an essential part of the growth process. The broad theory of economic growth Nelson presents sees the process as involving the co-evolution of technologies, institutions, and industry structure.
Synopsis
This volume mounts a full-blown attack on the standard neo-classical theory of economic growth, which Richard Nelson sees as hopelessly inadequate to explain the phenomenon of economic growth. He presents an alternative theory which highlights that economic growth driven by technological advance involves disequilibrium in a fundamental and continuing way. Nelson also argues that a theory of economic growth driven by technological advance must recognize a range of institutions, such as universities, public laboratories, and government agencies, in addition to business firms and markets. He further argues that growth theories that focus on an aggregate measure of growth, such as GNP per capita, are blind to what is going on beneath the aggregate, where differing rates of advance in different sectors, and the birth and death of industries are an essential part of the growth process. The broad theory of economic growth Nelson presents sees the process as involving the co-evolution of technologies, institutions, and industry structure.
Foreign Affairs
Columbia economist Nelson provides a gentlemanly critique of modern neoclassical growth theory as it is typically taught and presented by economists. That theory emphasizes the accumulation of capital (these days, human as well as physical) and of technical change (usually abstract and disembodied) as determinants of growth in a theoretical framework that assumes a moving equilibrium at a high level of abstraction. Nelson, in contrast, would shift the emphasis to innovation, entrepreneurship, and risk-taking in a series of disjointed movements away from equilibrium. He draws mainly on evidence from the United States but also uses data from Japan and the four Asian "tigers." Institutional change must usually occur to extract full advantage from new technologies, but their evolution is typically delayed and sometimes involves costly false moves. A concluding chapter warns of the looming dangers of "privatizing" basic research in the United States and calls for open licensing of research carried out by government and by universities. The book, written in nontechnical language but aimed mainly at economists and other social scientists, harkens back to a time when economists were less committed to mathematical models and were more attentive to what we actually observe in dynamic economies and societies.