Sun Sep 22, 2002

Innovation Machine

I picked up William Baumol’s The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism this weekend. From the first chapter or two, it looks like a good book. Baumol wants to explain why capitalism is so much more productive than alternative systems. His answer is not the standard micro-economic one (intense price-competition in the market makes products cheaper and more widely available), but rather focuses on the way innovation gets institutionalized and significantly routinized by firms.

Baumol begins by noting that the only two people to highlight this issue were Marx and Schumpeter, which is more or less right if you’re jsut looking at the main current of economic theory. I think Weber’s economic sociology has a lot to say about rationalized technology and routinized innovation, though, as do a number of economic historians. First impressions also suggest that Baumol might be drawing too strong a line between free-market capitalism and “all other systems.” Capitalism comes in a wide range of varieties, varying in particular in (1) how firms organize themselves internally and in relation to one another, and (2) in how much labor is insulated from market shocks by things like institutionalized wage bargaining mechanisms. But the book’s central focus on the phenomenal productivity of capitalism is a good one, and it’s interesting to see an economist of Baumol’s background (and stature) write about it so vigorously.

My only problem is that I half-remember a quote on this topic from an economist, and I can’t figure out where the hell I read it. The gist of it was that some questions about the economy are dealt with very well by neoclassical economics—- issues of prices, the logic of choice, efficiency and maximization, equlibrium, and so on. But if you want answers to another class of questions—- having to do with technological change, innovation, crises, cycles of boom and bust, etc—- then you’d have to look elsewhere, and specifically to the Marxian approach. I can’t remember where I read this, and I know my paraphrase doesn’t do the original justice. If it rings a bell, post a comment, because at the moment I feel like Edward Gorey’s Mr Earbrass, up in his library at three in the morning, frantically looking for the perfect epigraph for his novel: “His mind’s eye sees them quoted on the bottom third of a right-hand page in a (possibly) olive-bound book he read at least five years ago.”