Capitalism: applied discovery

Eight years ago, Paul Romer was quoted:

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 [emphasis mine]. They're very different, but together they've generated fantastic benefits.

The Centre for Innovation Studies is an economic think tank in Western Canada that appears to operate in the gap between operational business issues and Romer's theories.

As a teenager and an economics undergraduate, I always had an uneasy feeling about the right-wing nature of economics and business. We would study how the growth of a cookie company could create jobs and make the GDP larger, but it seemed so pointless to me; can't people just bake cookies, or buy dates? If, instead of a cookie company, we were analyzing a company that threw computers off a cliff because there was a paying audience for such an activity, would this be an example of economic growth?

I think it's simplistic to equate all profitable business activity with economic growth; or to equate non-business activity with the opposite (economic cost). Health care is a good example; in Canada, depending on your ideology, you could view health care as a cost to society, and cookies as an example of society's productive output. But this framing is illusory; healthcare is a major fraction of Canada's GDP (10% -- retrieved today).

But much more valuable than either the cost frame or the GDP frame is to analyze the innovation within the healthcare system. How much science takes place? How much learning-by-doing? How much of this is distributed across the system, making the entire system more efficient? This is quite apart from both the utility of healthcare -- that of maintaining an able workforce -- and even further removed from the moral essence of a healthcare system.

But consider a GDP-specific examination of the computer sector that ignores any change in transistor speeds: factories are built to make computers; engineers are employed to design computers; logistics and marketing/merchandising professionals are engaged to bring the computers to market, etc. Clearly, all of this misses the point that a single, $200 computer today is more productive by a factor of millions than its 1980s counterpart; that virtually all other economic activity on Earth can exploit this improvement to become itself more productive.

Look at the centre for innovation studies; they link Moore's Law, so-named by the technology sector, with "creep capacity", so named by the chemical sector. Are the underlying mechanics of these phenomena the same or similar? Consider their "Sailing Ship" anecdote; after the invention of steam-powered ships, sailing innovation radically accelerated.

Studying innovation is kind of meta-meta. But I remember that Arthur Lydiard didn't actually earn much of a living from turning kids from his block in New Zealand into Olympic champions; he earned a living by teaching coaches.