Does Technical Knowledge by Itself Drive Economic Growth?

Commentary

To address this issue, experts propose the implementation of policies like subsidies for research and development, emphasizing the critical role of government policies in fostering technological innovation.

In contrast, many significant technological advancements have historically originated from private sector initiatives without government support. Examples include innovations in computer technology, electricity, radio, television, automobile, and airline industries.

Moreover, relying on government subsidies can impede the efficient allocation of resources and hinder economic growth by bypassing market mechanisms.

Technological Ideas and the Availability of Savings

Regardless of the abundance of ideas, their implementation hinges on the availability of savings to invest in capital goods, enhancing production and efficiency. Increased production of consumer goods leads to a rise in savings, facilitating further capital infrastructure expansion.

Expanded savings allow for the introduction of new production stages, resulting in a greater variety of consumer goods and services. This progression enables individuals to improve their well-being by accessing entertainment, medical care, and other services.

The core issue lies in the fact that an increase in capital goods necessitates prior real savings. A finite pool of consumer goods and capital exists at any given time, and supporting more activities requires an increase in consumer goods, facilitated by improvements in the productive structure.

The level of savings determines the quality and quantity of tools and machinery. Without sufficient savings, no growth can occur even with advanced technical knowledge.

The limiting factor for economic growth isn’t technological knowledge but the scarcity of capital goods and savings. Without prior savings, the mere idea of a tool is insufficient for its production, highlighting the importance of a robust savings pool.