The Revolutionary Socialist Network, Workers
Capitalism is key to innovation – incentivizes investment
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Capitalism is key to innovation – incentivizes investmentBaumol 4 [William J. Baumol, Professor Emeritus at Princeton University, The Free-Market Innovation Machine : Analyzing the Growth Miracle of Capitalism, The “Somewhat Optimal” Attributes of Capitalist Growth: Oligopolistic Competition and Routinization of Innovation, Princeton University Press, 40-41 , SMarx, JTong] Finally, the very profitability of licensing or technology trading is an incentive for investment in innovation. That is, the firm that participates in this market has an incentive for innovative effort that is lacking for the firm that does not. The obvious case is the firm that specializes in the creation and licensing of innovations. Such an innovation factory will clearly drive itself out of business if it runs out of innovative products to offer for rental. An extension of this argument shows that this inducement applies to all firms for which licensing is a profitable activity. Similarly, companies that participate in a technology-exchange consortium must have a supply of new products and processes that they can offer to the other members in order to induce them to reciprocate with their own new inventions. This will be demonstrated rigorously in the next chapter. Here, again, one must not overstate the claim. A group of colluding firms may conceivably agree to mutual disarmament— to simultaneous reduction in the amount they invest in innovation. In the absence of such an agreement, however, the market forces can confidently be expected to run the other way, to induce the firms that license or exchange their technology profitably to spend more on innovation than they would have otherwise. The conclusion, once more, is that the market mechanism has influences not obviously available to non-capitalist economies. These tend to make it profitable to engage simultaneously in the innovation “arms race” and licensing of any new inventions obtained in the process. Imperfect though mechanism may be, it still seems remarkably effective (see figures and that are make it in the this 6.1 6.2 again), and is yet another of the features that differentiate the free-market growth process from any other that we know of. Download 2.09 Mb. Share with your friends:
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