In This Review

Technology, Institutions, and Economic Growth
Technology, Institutions, and Economic Growth
By Richard R. Nelson
Harvard University Press, 2005, 312 pp

Columbia economist Nelson provides a gentlemanly critique of modern neoclassical growth theory as it is typically taught and presented by economists. That theory emphasizes the accumulation of capital (these days, human as well as physical) and of technical change (usually abstract and disembodied) as determinants of growth in a theoretical framework that assumes a moving equilibrium at a high level of abstraction. Nelson, in contrast, would shift the emphasis to innovation, entrepreneurship, and risk-taking in a series of disjointed movements away from equilibrium. He draws mainly on evidence from the United States but also uses data from Japan and the four Asian "tigers." Institutional change must usually occur to extract full advantage from new technologies, but their evolution is typically delayed and sometimes involves costly false moves. A concluding chapter warns of the looming dangers of "privatizing" basic research in the United States and calls for open licensing of research carried out by government and by universities. The book, written in nontechnical language but aimed mainly at economists and other social scientists, harkens back to a time when economists were less committed to mathematical models and were more attentive to what we actually observe in dynamic economies and societies.