We´ll not offer an academic analysis of economic theories here. Furthermore, it could not be said that the “new” growth theory was developed from the emergence of the new economy. In any case, it precedes it several decades and explains it.
What both have in common is the central role assign to innovation and technical change in promoting economic growth.
The concern to determine the engines of growth has been present among practitioners since the very emergence of economics as a science.
Adam Smith raised it in the title of his founding book. A century later, Alfred Marshal places the search for growth at the center of economist´s concerns.
This search intensified at the end of the Second World War, triggered by the decolonization process, which increased the number of member countries of the international community from six dozen to the current two hundred.
In this note we will not analyze outstanding contributions to economic development thought made by great professionals such as Raul Prebish and Hans Singer, Chandra Mahalanobis or Paul Rosenstein Rodan. We will just review three ideas in order to highlight the role of innovation and technical change.
The Harrod-Domar model (1946) provides the first powerful insight for postwar economists, basically stating that the level of investment in a given period determines economic growth in the next.
Although its authors ruled out this approach as a growth theory, even today these ideas informs the analyzes and decisions of multilateral credit organizations.
A decade later Robert Solow (1957) makes a decisive contribution. The Nobel laureate stated that countries` long-term growth could only be explained by the rate of technological change in a given economy, due to the law of diminishing marginal returns.
According to this law, the use of additional units of a productive factor (capital or labor) generates less than proportional increases in the final product. Therefore, it is not possible to grow in the long term by only increasing the factors of production.
It is necessary to change technology, use new materials or different production techniques to maintain constant growth.
Solow believed that the process of technological change could not be easily influenced. For him it depended on extra-economic factors, such as the development of basic science.
Three decades later, Robert Lucas and Paul Romer (1986/1987) argue that the law of diminishing returns does not hold in the presence of technological change. And that such change is not only due to non-economic factors but can be influenced by public policies.
A simple conclusion from this brief analysis tells us that accumulating capital is key to economic growth. No doubt. Our understanding of the ways to attract and accumulate it, however, have been enriched over time, giving a central role to innovation and technical change.
From the simple formula of domestic savings supplemented by external resources (private investment) to the more elaborate proposals of Solow, Lucas and Romer where the accumulation of capital must be articulated with the technological change of the economy to sustain long-term growth, the role of knowledge and innovation will only continue to grow through the years.
Productivity growth, innovation and technological development are, in themselves, decisive sources of attraction and accumulation of capital.
These are factors that complement each other in an essential way with the building of peoples´ social capabilities in the field of education, health, science and the technological system.
