samlet årgang - Økonomisk Institut - Københavns Universitet

24
NATIONALØKONOMISK TIDSSKRIFT 2003. NR. 1
to pin down analytically. The most used argument is that the technology innovations
have lead to increasing labour productivity, and growth therein, and hence earnings, as
discussed above.
What are the effects on earnings of the ‘New Economy’? Some firms lose out because
of creative destruction, in the sense that their products are made obsolete by the
innovations. However, it is most likely that profits per unit of capital increase on an aggregate
level as a result of a growing trend in innovations. Furthermore, the increasing
patenting initiated by the increasing innovative activity may lead to increasing monopoly
profit but it need not do so, Kitch, (1986). A patent is the exclusive right to control
the use of the subject matter of the patent claim and is therefore not an exclusive
right to sell in a market with a downward-sloped demand curve, as is the case for the
monopolist. Whether increasing patenting leads to increasing monopoly profits is not
entirely clear, but it is likely that the monopoly profits are initially boosted by a surge
in innovative activity. Overall, it is therefore likely that increasing innovative activity
will increase earnings on a macroeconomic level.
The increase in profits per unit of capital leads to higher share prices. But this is not
the end result because two endogenous forces drive the profit rate down to its initial
level. First, the higher share prices lead to an increase in Tobin’s q in excess of its long
run equilibrium and therefore boost investment. Due to diminishing returns to capital,
the increasing capital stock will lower the marginal productivity of capital until
earnings per unit of capital are back to their long run equilibrium. Second, the extra -
ordinary monopoly profits are driven down to their initial level by entrance of new
firms as shown by Datta and Dixon (2002).
Allowing for intangibles complicates the analysis without altering the conclusion.
As shown by Madsen and Davis (2003), technology innovations can only permanently
increase earnings if there is increasing or constant returns to investment in R&D capital
or knowledge. A technology innovation increases the marginal productivity of
R&D capital and earnings per unit of capital, which consequently results in higher
share prices. The higher share prices increase Tobin’s q and hence the investment in
R&D capital. The increasing investment in R&D capital brings earnings per unit of
capital down to their initial level.
Madsen and Davis (2003) show that the ‘New Economy’ can only lead to permanently
higher earnings under the assumption of increasing returns to R&D capital.
This, in turn, implies increasing GDP growth. The historical evidence suggests that
GDP growth did not increase in the wake of the industrial revolutions in the past, even
though the innovations were more significant than the innovations of the ‘New Economy’.
Furthermore the profit effects of the ‘New Economy’ are dwarfed by the large innovations
of the past such as electrification, innovations in the chemical industry and