Baumol 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]
We are left with the following account of the production and distribution of technology in the capitalist growth process. First, continued investment in innovation is ensured by the arms-race character of competition in the high-tech oligopoly industries that will be explored in the following chapter. Such competition also forces firms to routinize the innovation process as a means to reduce their risks. These incentives are enhanced, not undermined, by technology trading and licensing— primarily because those processes serve, via the access (license) fees, partially to internalize the externalities of innovative activity.Second, innovative activity by the firm is stimulated by the requirement for success in technology-exchange negotiations that a negotiating party have something of value to offer to the firm whose technology it hopes to acquire. Because of licensing and technology trading, innovations are now disseminated with historically unprecedented rapidity. Rather than benefiting just a severely limited subsector of the industry and the economy, leaving other producers to fend with obsolete techniques and products, the advantages of technical advances are quickly made available to all.This, too, can be expected to make a significant contribution to economic growth.
These conclusions suggest that the by some efficiency properties that do literature. Although it cannot be denied significant imperfections, that still leaves innovation process may be characterized not seem to be widely recognized in the that the activity is beset by a number of the free-market economies with a flow of innovations of unprecedented magnitude. And even the efficiency-handicapping spillovers of innovation offer a valuable tradeoff between naked productive efficiency and acceptable division of its benefits. By distributing the benefits of technical progress widely among the population, spillovers enhance the economic health of society and surely add social value to the growth accomplishments of the free-market economy.
