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

telecommunications industry, other high-tech sectors, and export sectors is substantially
higher than that in other parts of the economy. Telecommunications deregulation
in the 1990s facilitated the movement of resources into that sector. Rapid
innovation in computer technology is affecting all sectors of the economy. Increasing
globalization will open up new opportunities for export growth. These changes are
contributing to the overall increase in productivity that the United States has
experienced since the mid-1990s.
TECHNOLOGICAL CHANGE AND THE ROLE
OF IDEAS
While capital—both physical and human—is important for explaining the huge
changes in living standards over the past two hundred years, just having more
machines or better-educated workers cannot account for the truly amazing differences
between the economy in 1900 and the economy today. We are not producing
more of the same goods the economy produced in 1900; we are producing goods
that the people of 1900 never dreamed of. Instead of using more machines to produce
more horse-drawn carriages, we produce cars and airplanes. Instead of producing
more horseshoes, we produce tires and jogging shoes. Key to the whole growth
process, then, is technological progress—thinking up new ways to do old things and
new ways to do entirely new things. This means that 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 due to technological progress.
Investment increases the economy’s stock of physical capital, and education
leads to increases in human capital, but what leads to technological progress? To
understand the economics of technological progress, we need to start by considering
how ideas are different from such goods as a laptop computer or a piece of chocolate
cake. These goods are rivalrous; if I eat that piece of chocolate cake, you can’t.
But ideas are different. If both you and your roommate are taking economics, both
of you can use an idea like the law of supply and demand. If your roommate does
her homework first, the idea is still available to you when you get around to studying.
When Tim Berners-Lee, Robert Cailliau, and their colleagues at the European
particle physics center (CERN) in Geneva, Switzerland, invented the World Wide
Web and hypertext markup language, or HTML, in 1990, programmers from around
the world could use their ideas. If you use HTML to construct a Web page, the idea
is still also available to others—it is a nonrivalrous good. This is a key property of
ideas; they cannot be used up.
One of the major differences between the economy today and in 1900 is the routine
nature of the change brought about by new ideas. This technological progress
is accomplished through the activities of thousands of entrepreneurs and innovators,
particularly in the computer industry, and thousands of scientists and engineers
engaged in large-scale research projects in the business, government, and
university sectors. Much of modern research is centered in huge laboratories, employing
large numbers of people. While the government runs some of these—such as
the Brookhaven, Argonne, and Lawrence laboratories that carry out research in
basic physics—many are private, as was Bell Laboratories, where the transistor and
Modern textile manufacturing bears
little resemblance to the traditional
hand loom, which is still used in
underdeveloped areas such as
Darjeeling, India.
EXPLAINING PRODUCTIVITY ∂ 593