Arnold Kling

It's the Application, Stupid

Arnold Kling, Great Questions of Economics
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In Technology Review, my second-favorite magazine (Atlantic Monthly is my favorite), Michael Schrage talked with Robert Solow about a productivity study (see post number 59).

"By far the most important factor in [productivity growth from 1995-2000] is Wal-Mart," reports Robert Solow, the MIT Nobel Prize-winning economics professor emeritus who chaired the reportís advisory committee. "That was not expected. The technology that went into what Wal-Mart did was not brand new and not especially at the technological frontiers, but when it was combined with the firmís managerial and organizational innovations, the impact was huge."

...If you appreciate clever innovations, spend more time with inventors, entrepreneurs and venture capitalists. If you want to know which innovations will rewrite the productivity statistics, ignore early adopters and identify the Wal-Marts in key vertical markets.

What economists are finding is that new technologies only affect productivity when they are applied intelligently. While new technologies can come from research and the high-tech sector, the productivity improvements come from market competition in the low-tech sector.

Discussion Question. I once argued that state governments that want to stimulate innovation should not subsidize high-tech centers. Instead, they should open up the education system by allowing vouchers. The idea is that education could benefit like the retail sector from the pressure of competition. Should we allow someone to become the Wal-Mart of education?

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