Page 132 - Global Political Economy_Understanding The International Economic Order

NEW ECONO MIC TH EORIE S
mine the choices available to a decision-maker and the context within
which decisions are made. Path dependence thus implies that the eco-
nomic universe—productive technologies, economic institutions, and
the geographic distribution ofeconomic activities—is largely the con-
sequence ofmany minor random developments. Whereas conven-
tional economics assumes that the magnitude ofa cause determines
the magnitude of its effect (i.e., there is a linear relationship between
the two), path dependence analysis indicates that small, and even very
small, causes can give rise to disproportionately large effects.
The important implications ofpath dependence for neoclassical
theory may be illustrated by the theory ofthe production function.
This theory, on which neoclassical growth theory is based, assumes
that an entrepreneur selects from the range of available technologies.
The rational entrepreneur will select the most efficient combination
offactors of production and technological options. The key word
here is “available.” According to the path dependence idea, many
ofthe technologies available to an entrepreneur are, like economic
institutions, the result ofrandom events and are not necessarily the
most efficient. Indeed, especially in the area of advanced technologies
or high-tech industries, some ofthe specific technologies available are
not particularly efficient. Inferior and less efficient technologies can
get locked in and be adopted rather than those that most technical
experts would judge to be equal or even superior. An example is the
complete victory ofthe Matsushita VHS standard for a VCR over
Sony’s equally good, ifnot superior, Betamax format. However, the
most frequently cited example is the layout of the keyboard on a
typewriter or a computer. The inefficient QWERTY layout was chosen
because the keys ofthe first typewriters became jammed, and there-
fore the keyboard was deliberately redesigned to slow the speed of
the typist; modern computers operating at nanosecond speeds retain
this built-in inefficiency. However, my favorite example is even closer
to my heart.
I am writing these lines on a Macintosh computer. It is well known
that Macintosh users are fiercely loyal, and I include myselfin this
number. Any objective observer would have to grant that Macintosh
hardware and software are far superior technically to their rivals in
the Wintel world (ofcomputers using the Windows operating system
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and the Intel chip). Yet in the 1980s and 1990s the Macintosh share
ofthe market deteriorated alarmingly, and the future ofthe company
was in serious doubt. The principal reason for this decline does not

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“Wintel” refers to Intel computers using the Microsoft operating system.
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