we must recognize one important insight about technology, social evolution, and economic growth. It is common for people to attribute the western world’s stunning economic growth over the last 200 years to technology. True, technology does contribute to growth in important ways, although it’s also true that economic growth helps create new technologies by generating capital to fund research. Technology, however, does not create wealth by itself, as decades of technology transfers to the third world demonstrate. For technology to lead to wealth, the right institutions are required. I like to call this the Three I’s approach: Innovation = Invention + (good) Institutions. More specifically, the market must be free enough that technology can be turned from simply an invention into an innovation. Rising wealth requires innovation, and innovation happens when inventions meet the market.
This is from Professor Steve Horwitz at the Freeman on the critical role of markets in fostering technological innovations.
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