The dynamics of economic and technological leadership

One of the most intriguing challenges for social scientists is to explain the ebb and flow of national fortunes. Why do some societies grow rich and powerful, while others remain deadlocked at the margins of the international economy? And perhaps even more puzzling: Why do some nations achieve economic success and enjoy significant periods of technological dominance, only to see their power and fortunes usurped by the next generation of rising powers? In other words, why is technological and economic supremacy so short-lived?

Nobel-prize winner Douglass North attributes the vast disparity in national fortunes to the underlying social and political institutions that govern the economy in any given society. The long-run success of Europe and North America, he argues, is due to the evolution of institutions that provide a secure environment in which to launch business enterprises, while at the same time promoting freedom, competition, and experimentation in the way those enterprises are run.

Stable legal systems, democratic government, and a market-based approach to organizing the economy are, in North’s analysis, all part of the recipe that continues to encourage entrepreneurs in Europe and North America to invest resources in new knowledge, skills, and technologies. Countries where property rights are weak or unenforced, or where government planners exert too much control over the economy, stagnate precisely because they fail to ignite and nurture entrepreneurial energies.

North’s analysis (which is much more complex and nuanced than I have suggested here) sheds a great deal of light on some of the disparities that exist in today’s world, but I’m not convinced that his theory can account for why once great powers such as China and the Muslim world faded into relative obscurity after long spells of technological superiority, or why countries in Europe and even the United States may soon find themselves eclipsed by newly empowered nations such as India, China, and Brazil.

Having recently read a great book by economic historian Joel Mokyr (The Gifts of Athena), I was inspired to do some writing on the topic. In examining the dynamics of technological progress, I think Mokyr has hit on some important pieces of the puzzle, which are complementary to the work of Douglass North. To explain the recent success of Western societies, for example, Mokyr focuses on the role of the Enlightenment in encouraging scientific freedom and openness, and furthermore, on the close relationship that has evolved between the scientists who push the boundaries of knowledge and the entrepreneurs who put this knowledge into practice.

Mokyr also considers a number of different theories that seek to explain why technological leadership seems to shift from one nation to another rather than remaining locked in one particular location. Click here for a longer discussion.