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

Chapter 20
TECHNOLOGICAL
CHANGE
∂
For much of the twentieth century, the United States has led the world in discovering
and applying new technologies. Alexander Graham Bell and the
telephone, the Wright brothers and the airplane, Thomas Edison and a host
of electrical devices, for example, are all familiar early success stories. This tradition
of innovation and invention continued as Americans came up with products such
as the transistor and the laser. U.S. companies such as IBM, Eastman Kodak, and
Xerox grew to become household names. More recently, Intel, Microsoft, Google,
and Genentech have experienced rapid growth and financial success based on
their innovations.
The great strength of the market economy has been its ability to increase productivity,
raise living standards, and innovate. Yet the basic competitive model on which
we focused in Part Two simply assumed the state of technology as given. In fact, the huge
changes in living standards that modern economies have experienced over the past two
hundred years and the truly amazing differences between the economy in 1900 and the
economy in 2000 are in large part due to technological change. We are not manufacturing
more of the same goods as the economy in 1900. We are making goods that the
people of 1900 never dreamed of. Instead of producing more horse-drawn carriages,
we produce cars and airplanes. Instead of producing more horseshoes, we produce
tires and jogging shoes. Key to the whole process of economic growth, then, is technological
progress—thinking up new ways to do not just old things but also entirely new
things. And for this reason, ideas are central to explaining economic growth. Indeed,
economists estimate that as much as two-thirds of all increases in productivity prior
to 1973 were attributable to technological progress.
We have become so accustomed to the current level of technological change that
it is hard to believe how different the expectations of reputable economists were in
the early 1800s. Real wages of workers were little higher than they had been more
than four hundred years earlier, when they had increased after the deaths of a large
part of the population of Europe in the bubonic plague created a scarcity of labor. After
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