[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

e-Insight
THE UNITED STATES’ COMPARATIVE ADVANTAGE IN THE
INTERNET AGE
The United States holds a comparative advantage in information
technology and Internet-based commerce. Large U.S. firms
such as Microsoft, Intel, and Sun Microsystems have led the
surge in information technology over the past two decades,
and Internet-based businesses such as Amazon, Google, and
eBay have come to define the so-called new economy. How has
the United States established itself as a leader in this field?
Let’s consider this question from the standpoint of the sources
of comparative advantage described in this chapter.
The key to the United States’ success in the information
revolution has been its ability to innovate. U.S. firms have developed
new types of computers and software, as well as new applications
of these resources across various industries. This
prowess in innovation derives from acquired endowments,
superior knowledge, and specialization.
The human skills needed for innovation represent acquired
endowments that have led to superior knowledge, some of
which was gained as a by-product of America’s massive expenditures
on defense-related research. Another aspect of acquired
endowments that has played a major role is the distinctive set
of institutions in the United States that are particularly well
suited for promoting research. These institutions include a
special set of financial institutions (venture capital firms) that
are better able to supply capital to new and small enterprises,
which have played a pivotal role in the new economy, and strong
research universities, which often have close ties to firms that
can translate basic research into market applications. More
broadly, both American labor and capital seem more able and
willing to bear the high risks associated with new innovative
enterprises, many of which may fold after a relatively brief
existence. Americans’ willingness to bear these risks may be
connected to the generally high levels of employment that have
characterized the U.S. economy for the past two decades.
Partly as a result of these acquired advantages and of superior
knowledge, the United States has developed a relative
specialization in high-tech industries; it has become, to a large
extent, the world’s research center.
Intel’s strength in computer chip
production exemplifies the U.S.
comparative advantage in information
technology.
At the same time, the division of labor often leads to invention. As someone
learns a particular job extremely well, she might figure out ways of doing it better—
including devising a machine to do it. Specialization and invention reinforce each
other. A slight initial advantage in the production of some good leads to greater
production of that good, thence to more invention, and thence to even greater production
and further specialization.
COMPARATIVE ADVANTAGE ∂ 429