Group items tagged

Complementing the role of speculation, activist states have played several roles in encouraging innovation.

Occasionally, the object of speculation has been one of those fundamental technologies – canals, railroads, electrification, radio, automobiles, microelectronics, computing, the Internet – for which financial speculators have mobilized capital on a scale far beyond what “rational” investors would provide. From the wreckage that has inevitably followed, a succession of new economies has emerged.

In the United States, the government constructed transformational networks (the interstate highway system), massively subsidized their construction (the transcontinental railroads), or played the foundational role in their design and early development (the Internet).

For countries following an innovative leader, the path is clear. Mercantilist policies of protection and subsidy have been effective instruments of an economically active state.

List noted how Britain’s emergence as “the first industrial nation” at the end of the eighteenth century depended on prior state policies to promote British industry. “Had the English left everything to itself,” he wrote, “the Belgians would be still manufacturing cloth for the English, [and] England would still have been the sheepyard for the [Hanseatic League].”

To begin, the “national champions” of the catch-up phase must be rendered accessible to competitive assault. More generally, the state’s role must shift from executing well-defined programs to supporting trial-and-error experimentation and tolerating entrepreneurial failure. And the debilitating “corruption tax” that seems inevitably to accompany economic revolutions must be curbed, as it was in Britain during the nineteenth century and America during the twentieth.

Countries with a lot of small companies are often stagnant

Who are the Schumpeterian entrepreneurs who dominate the modern economy? And how do you create more of them?

The bulk of American entrepreneurs come from just three clusters: Boston, New York and Silicon Valley.

Schumpeterian entrepreneurship is all about innovation and ambition to turn small businesses into big ones.