Technological Innovation and Capitalism

This week in INTL 5400, you discussed the differences between comparative and competitive advantage. Briefly, comparative advantage belongs to the liberalism school of thought. It promotes free trade, product specialization and cheap prices. Competitive advantage belongs to the realist school of thought, which promotes protectionism and government intervention that increases national security. As some of you noted, Japan’s economy reflects aspects of both theories. Most countries tend to blend aspects of both theories.

Both theories operate within the paradigm of capitalism, which promotes the private acquisition of capital, mass production and consumption, and intense use of technology. This is the modernist approach.

By now, you’ve understood that ‘political economy’ is the study of the political distribution of power as expressed through the economy. This has raised philosophical issues about who controls what resource, and who benefits from that control. In fact, there is a bachelor’s degree in the UK called Politics, Philosophy and Economics (PPE).

The question has become, in this day and age of protests against food prices and unemployment, is capitalism the most efficacious way of a) distributing resources, and b) promoting advancements in technology that improve our quality of life?

In Week 7, you will be studying these protests and how they are linked to economies that rely on food imports. In Week 8, we will look at the issue of global water.

Technological innovations are usually believed to be an outcome of capitalism. The idea is to produce advanced machines that lower labor costs, make cheaper widgets which then sell on a massive scale.

Historically we know that other economic models spur innovation. For example:the Romans focused on engineering, the Islamic Renaissance from 900 to 1200 CE, gave us much of our modern medicine and mathematics. The European Middle Ages spurred advancements in building construction.

Technological innovations also arise from:
1) Creativity combined with altruism. For example, the alternative energy industry in the US has been innovating for decades, but with very little promise of profit. It has to contend with the power of the oil lobbies, and lack of US government support. We will learn in Wk 5 that China’s government is financing research and development in this field.
2) Necessity is the Mother of Invention. Here we can look at prehistory: the success of agriculture is largely due to inventions by what have been mis-named ‘primitive’ societies.
3) Military Matters. Here is where you see protectionism at work. Most governments pour money into military research and development, which have benefits for civilian society. For example: the Internet. Marilyn Waring, as you know, critiques the ‘benefits’of weapons.