Page 118 - Global Political Economy_Understanding The International Economic Order

NEW ECONO MIC TH EORIE S
nomic activities is oflittle consequence as long as every economy is
behaving according to the law ofcomparative advantage, the ques-
tion ofwhich countries produce what—potato chips or computer
chips—is ofthe utmost importance to groups, nations, and regions
around the world. The geographic distribution ofthe international
division oflabor and the ways in which the spatial organization of
economic activities change over time are among the most contentious
issues in the world economy.
The failure of mainstream economists to give sufficient attention
to technological innovation is an especially glaring limitation. In the
traditional approach ofneoclassical theory, there are several weak-
nesses: (1) Because technological advance is considered exogenous to
the economic system, economists have developed no comprehensive
explanation for it; (2) because economists consider technology to be
a public good to which everyone has equal access, they do not ade-
quately recognize the importance ofmonopolies oftechnology; and
(3) because the theory ofthe production function assumes that eco-
nomic actors have complete or certain knowledge ofand access to
available technology, economists frequently fail to integrate uncer-
3
tainty into their writings. Rather than technology being a public
good equally available to all economic actors, in reality national dif-
ferences in innovation and utilization of technology have become vital
determinants ofvariations in national rates of economic growth, na-
tional competitiveness, and international trade patterns. Although
there is some effort being made to incorporate a more realistic view
of technology into neoclassical economics, such efforts have not gone
far enough.
Many economists acknowledge that institutions (social, political,
economic) do play a role in the outcome ofeconomic activities; how-
ever, their emphasis on the market leads many, and maybe most, to
ignore the significance ofinstitutions. Even those who do take institu-
tions seriously give little attention to their origins and functions. Ex-
plaining institutions as resulting from the attempts of rational individ-
uals to maximize their interests, neoclassical institutionalists, for
example, generally overlook the role ofchance events and ideology
in the origins ofeconomic and other institutions. New insights pro-
vided by the concepts ofpath dependence and cumulative processes
explain how historical accidents and nonrational events can have a

3
Maurice Fitzgerald Scott, A New View of Economic Growth (Oxford: Clarendon
Press, 1989), 72–74, 94.
105