Transcript Theory of Induced Innovation

Constraints. Induced Innovation.
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Miscellaneous on Philosophy, Methodology and Theories
Constraints
 Natural Resources
 Resource Constraint
 Ricardo
 Marx
 Breaking the Resource Constraint for Industrializing Countries –
Science-Based Agriculture
 Development through Natural Resources
 Environmental Constraint
Theory of Induced Innovation
Marx and New Institutionalism
Miscellaneous on Philosophy,
Methodology and Theories
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Problem of normative judgements
System Theory and System Method
Thomas Kuhn and Revolutions in Science
 Example: Marginalist Revolution in Economics
Methodological Wholism x Methodological
Reductionism
 Example: Model for optimal number of children
 Models as simplifications of reality
Resource Constraint
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Malthus (1798) was the first who pointed out the possibility
of the growing relative scarcity of natural resources as a
binding constraint on economic growth
The Club of Rome (1972) presented a report “The Limits to
Growth”
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Population –food crisis
Natural resource exhaustion
Environmental degradation due to overexploitation and waste of
natural resources resulting from the exponential growth in economic
activities
Prediction for the first two decades of the twenty-first century:
industrialization would stop and death rate increases
Now - What is your opinion?
Resource Constraint
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Ricardo (1817)
 Mechanism Behind Malthusian
 Ricardian Trap
 Solution: Trade
Liberalization
(Source: Hayami: Development
Economics)
Resource Constraint
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Marx
 For Stylized
Explanation –
Ricardo Model
Can Be Used
 Mechanism
Behind:
Industrial
Reserve Army
(Source: Hayami:
Development Economics)
Breaking the Resource Constraint for Industrializing
Countries - Science-Based Agriculture
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Why did real grain prices not
rise when closure of open land
frontiers in the USA coincided
with the acceleration in
population growth (around
1920)?
Green revolution in
developing countries in the
60ies and 70ies
(Source: Hayami: Development
Economics)
Development through Natural
Resources
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The staple theory
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staple means a major primary commodity
which plays a leading role in expansion of
exports from empty lands
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The “Dutch disease”
Environmental Constraint
(Source: Hayami: Development
Economics)
Theory of Induced Innovation Principles
Theory of Induced Innovation – basic force is the
scarcity of resources and the will to have success
 Example 1: Transition from the hunting and gathering
economy to the agricultural and pastoral economy
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Basic force – scarcity of resources =scarcity of food
 Accumulation of knowledge – in tangible (physical) and
intangible (human) capital
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Change of institutions – property rights
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Cattles and seeds and the knowledge how to take care of them
First to livestock and standing crops, later extended to land
Success is survival
Theory of Induced Innovation Principles
Theory of Induced Innovation – basic force is the
scarcity of resources and the will to have success
 Example 2: Transition from the „small firms
capitalism“ to „capitalism of corporations“
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Basic force – scarcity of resources =scarcity of financial
capital
 Accumulation of knowledge – in tangible (physical) and
intangible (human) capital
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Change of institutions – property rights
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Usually succesful firms with „know-how“ go public
Protection of small shareholders
Success is economic power (market share, rate of
profit etc)
Theory of Induced Innnovation –
Institutional Innovations
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Institutions are public goods. Public goods have two basic
properties: non-excludability and non-rivalness – problems of
free-riders
The supply of public goods in response to social needs is
determined through political process.
Various interest groups take part in this process
For the supply of public goods, someone must organize collective
action
Collective action is usually much less organized than a society
optimum level is, public goods are usually undersupplied
Theory of Induced Innovation Import of Innovations
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A wide gap exists in technology and institutions
between developing and developed economies
This gap could be – through transfers – a
potential source of rapid economic development
for developing economies
Basic problem is to incorporate informal
institutions (e.g. cultural traditions) appropriately
Theory of Induced Innnovation –
Institutional Innovations
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Marginal analysis of politicians´ decision making
Marginal revenue: marginal increase in his utility from
the strengthening of his power base
Marginal cost: marginal disutility of his time and
effort (increase because of the free-riders’ problem
increases with the quantity)
Marx and New Institutionalism
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Marx
economic infrastructure and social superstructure
 major time lag between increases in production capacity and
changes in superstructure (institutions)
 core institution is the property right assignment of a key
production factor at each stage of economic development
 gap between the institution and the production potential is
ultimately closed through a violent political revolution
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Marx and New Institutionalism
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New Institutionalism
Emphasis on changes in relative resource endowments and
prices due to population growth and other factors
 Institutions are not so inflexible to make a violent
revolution inevitable
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But, if the cumulative adjustment of institutions by
such means as informal agreements and
reinterpretation of laws and codes is not sufficient, a
violent revolution may occur