New growth theory -- Paul Romer

Paul Romer is just about the only economist whose ideas seem to be accepted by the "academy", and certainly can be accepted as common sense. In my view, all business/economics can be expressed as a form of New Growth Theory; you're either engaging in creative destruction, like RIM, Amazon or Wal-Mart's supply chain, or you are running a superior business that follows in the wake of creative destruction, such as Tim Hortons or Esso.

Romer doesn't write much pop science, but read this Reason interview. Some quotes:
New Growth Theory shows that economic growth doesn't arise just from adding more labor to more capital, but from new and better ideas expressed as technological progress. Along the way, it transforms economics from a "dismal science" that describes a world of scarcity and diminishing returns into a discipline that reveals a path toward constant improvement and unlimited potential. Ideas, in Romer's formulation, really do have consequences. Big ones.
And for the Marxists ...
One extremely important insight is that the process of technological discovery is supported by a unique set of institutions. Those are most productive when they're tightly coupled with the institutions of the market. The Soviet Union had very strong science in some fields, but it wasn't coupled with strong institutions in the market. The upshot was that the benefits of discovery were very limited for people living there. The wonder of the United States is that we've created institutions of science and institutions of the market. They're very different, but together they've generated fantastic benefits.


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