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Volume 1.2 - Human Capital- Spring
1997
Title: Knowledge and Wealth: The Role of Innovation and Human Capital
in Economic Growth
Author: Robert J. Shapiro
Abstract: The current political debate over
economic policy is largely bound by traditional terms of capital versus
labor: One side claims that faster growth depends on smaller government
and lower taxes on business investment, while the other insists that growth
policy must include income supports and broader public provision for education
and training. This article presents an alternative theory and strategy
for economic growth, organized around the value of knowledge itself. It
is well-established in economics that technological progress, broadly
conceived to include all forms of economic innovation, is the most powerful
factor affecting the pace of economic growth. The essential reason is
that in contrast to capital investments or labor effort, ideas are not
subject to the law of diminishing returns. Classical economics, depending
on a narrow theory of markets, views innovation as exogenous to the economic
process, and therefore holds that government cannot positively affect
either its pace or extent. Dr. Shapiro presents an alternative model of
market behavior based on "New Growth Theory," which understands
knowledge and innovation as endogenous to the economic process
and therefore responsive to economic incentives. The article also sketches
some basic elements of a new growth program based on endogenous growth
theory.
About the Author: Robert J. Shapiro is the Vice President of the
Progressive Policy Institute and the Director of Economic Studies of the
Progressive Foundation. He has been an economic advisor to President Clinton
and senior members of the Administration. He holds an A.B. from the University
of Chicago, an M.Sc. from the London School of Economics and an M.A. and
Ph.D. from Harvard University.
Chicago Policy Review
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