Recall that two ways to assess how "big" the information technology revolution might be, is to think of it as a) a new "leading sector" of the economy, or b) a new Great Transformation. Last week's readings focused on the idea of a Great Transformation.
This week we focus more on the notion of "leading sectors" and the effects of information technologies on the economy and economic performance. A second theme running through this set of readings concerns the institutional foundation of market economies, and how institutions shape economic strategies and development.
Schumpeter:
During the dot.com boom, Schumpeter (an Austrian-born economist who wrote in the 1940s) became something of an "economic philosophy cult figure" in Silicon Valley and beyond. The reason is of course that to Schumpeter, entrepreneurial spirit and continuous innovation are the very essence of capitalism. To Schumpeter, entrepreneurs like Venderbilt, Carnegie, and Rockefeller are the heroes of capitalism. When reading the selection, make sure to understand exactly what he means by "creative destruction" (ch. 7) and what he thinks the function of entrepreneurs is, particularly with respect to creative destruction and the rise of leading sectors (top of p. 132).
Yet dot.comers' love for Schumpeter is curious, given that he predicts the inevitable, self-inflicted demise of capitalism. Socialism will inevitably follow. While this view is similar to Marx', Schumpeter advocates a very different mechanisms through which capitalism will crumble. What is it? How does capitalism "oust the entrepreneur" (p. 134) and self-destruct? What is the effect of rationalization on innovation? What happens to vision, to entrepreneurial heroism?
How should we evaluate the dot.com boom in light of Schumpeter's theory?
Fogel (last week's reading) evaluates the railroads as a "leading sector" in the 19th century and its contribution to American economic development. He casts doubt on the significance of the railroads, arguing many changes attributed to this technology would have happened regardless. Could one make a similar argument about information technologies? Why or why not? How do you know a "leading sector" when you see one?
David (also from last week) reminds us that technologies alone don't automatically improve productivity. People have to figure out how to use them - and that can take time, as it did, for example, with dynamos. Again, how does this relate to the current technological revolution?
Zysman:
In this piece, Zysman analyzes how advanced industrial market economies differ in their institutional composition, and how these differences shape economic performance. What "types of capitalism" does he differentiate? What are the implications of these different types for technological innovation? How do institutional differences translate into comparative advantage?
Turner:
Turner reviews the E-conomy in the broader context of economic adjustment in several advanced industrial economies in the post-war years. What does he make of claims of a fundamentally "New Economy"? What are some of the processes that have given rise to service economies over the last three decades or so? How does he explain the divergent performance of advanced economies - across time and vis-a-vis one another? Is there a model of capitalism that is best?
DeLong and Froomkin:
This is a very provocative piece that brings us back to the question whether the information technology revolution may in fact be more than another leading sector. The market system itself may be on the line. How are digital technologies undermining the foundation of the market system? What are some of the implications? Is it useful to think of policy debates in the E-conomy as driven largely by efforts to maintain rivalry, excludability, and transparency.