Why is the U.S. economy doing so well right now? Why are the Dutch so much wealthier than the Portuguese? Why is Japan so much richer than nearby China? Economists have been studying these questions for more than 200 years, and they still can’t give very good answers.
One thing they do know, however, is that putting new, more-efficient technology to work makes economies grow faster. Whether it was the spinning jenny, the mechanical reaper, interchangeable parts, hybrid seed corn or the Internet, adopting more-productive innovations has usually helped an economy to produce more goods and services to satisfy the needs of consumers.
Two new books expose us to some insights on how new technology is developed and how it’s put to productive use: Michael Lewis ’ The New New Thing: A Silicon Valley Story, and Tim Berners-Lee’s Weaving the Web: The Original Design and Ultimate Destiny of the World Wide Web.
The New New Thing focuses on Jim Clark, the entrepreneurial computer engineer who started Silicon Graphics, Netscape and Healtheon. Lewis argues that it is entrepreneurs such as Clark who drive economic growth. They develop technological innovations and bring them to fruition as goods or services that businesses and consumers buy to better their lives.
Clark came from a troubled childhood in a small Texas town, got a doctorate in computer science, started a career as a college professor, then parlayed his computer skills into a multibillion-dollar fortune in Silicon Valley. Lewis depicts him as a brilliant person with an unusual ability to take a broad view of a problem, a high tolerance for risk and a burning desire to beat his competitors. This is the Great Man theory of economic history: Jim Clark is a technological Napoleon who creates wealth through sheer brilliance and force of will.
Berners-Lee comes across as less flamboyant and less competitive than Clark, but just as driven. The son of two early computer scientists, he does not want to earn a billion dollars or build the world’s first computer-controlled sailing yacht as does Clark. He wants to bring about a social and technological revolution by making all human information available to practically anyone in a smashingly new way.
Furthermore, he wants to be sure that this new “web” will be permanently decentralized and democratic, beyond the control of any company or any government. Berners-Lee implicitly echoes Lewis: Technological change comes about when brilliant people with a new idea have the wills to carry then through to fruition.
Both Clark and Berners-Lee saw a new development, the Internet, and both identified ways to make it more useful. Eight years ago, the Internet was largely a vehicle for e-mail—a way for researchers and academics to communicate rapidly with each other and transmit data.
Berners-Lee imagined it as something much more, a vehicle for organizing information and making it available to anyone. Clark saw the potential for profit from an Internet browser, an easy to use program that would make using the Internet easy for ordinary consumers of all ages and backgrounds.
But these books leave the larger question unanswered. If great individuals bring about technological change, why were there so many in England from 1750 to 1900 and so few there today? Why are there so many in the United States today and so few in Portugal or Belgium?
This brings us to a Harvard economist, Zvi Griliches, and a field of study that he essentially founded: the economics of technological change.
Griliches, who was born in Lithuania and spent his youth dodging the Nazis and living in displaced-persons camps, died earlier this month. The lessons that he and other scholars in this field have developed add color and detail to the black-and-white sketches in the books just described.
If you have read or will read either, keep these lessons in mind:
Pure and applied research is a “public good.” It is an activity with benefits that spill over to society as a whole and thus one in which private individuals will not invest sufficiently under free market conditions. It requires government investment—hence CERN, the European government-supported physics research lab where Berners-Lee conceived of the Web, or the U.S. government-supported computer research at the University of Illinois, where the forerunner of Netscape was born.
Developing and applying new technology requires highly trained people. Government spending on education not only makes people more productive in using existing technology, but it makes them more apt to develop new technology.
Ironically, it’s hard to keep the benefits of such spending within national borders. Many of the bright programmers who fleshed out Netscape were trained at the Indian Institutes of Technology with Indian government funds. but went on to become multimillionaires in the United States.
Risk capital is necessary to move some technological innovation from the research lab to the marketplace. Jim Clark grew to hate Silicon Valley’s venture capitalists, but if he had been born equally bright in many other countries, he never would have become rich, because no one would have been willing to finance his goals. Effective risk-capital markets seem to depend on culture as much as government policy. Governments certainly have not been successful at creating them by fiat.
© 1999 Edward Lotterman
Chanarambie Consulting, Inc.