Schumpeterian Competition and Economic Growth
| Peter Klein |
Nobel Laureate Michael Spence writes about sustained high growth in today’s (gated) WSJ. Focusing on Botswana, China, Hong Kong, Indonesia, Korea, Malaysia, Malta, Oman, Singapore, Taiwan, and Thailand, Spence notes:
While each instance of sustained high growth is to some extent idiosyncratic, they share certain features. In all cases, there is a functioning market economy with its price signals, incentives, decentralization and enough definition of private property ownership to enable investment. All attempts to circumvent this necessary condition through central planning have met with major misallocations of resources and failure.
A key feature of sustained high growth, Spence adds, is resource mobility:
Contrary to the image that sometimes comes from a macroeconomic overview, productivity growth at these rates is not achieved by having everyone do what they were doing before, but a little bit more efficiently. The portfolio mix of economic activity changes very rapidly. This is what Schumpeter called “creative destruction” and Paul Romer calls “churn.” . . . This movement of people geographically and across sectors is not an ancillary side effect of the growth process, but rather the essence of it.
Incidentally, Schumpeterian competition is not always easily discernible at a microeconomic level. Paul Vaaler and Gerry McNamara find mixed evidence for increasingly “dynamic competition” in the US technology sector. (See also the essays in Paul’s book with Lee W. McKnight and Raul L. Katz.)