Francis Bacon, John Rae, and the Economics of Competitiveness: Capital Theory and Trade Policy

Article excerpt

I

The Question

Francis Bacon was an early seventeenth-century exponent of empirical science. John Rae was an early nineteenth-century economist whose work on the nature of economic growth, development and trade was founded on Baconian science (James, 1965). Because Rae's method was deeply rooted in Baconian science, Rae approached economics from a position different from that of the Classical economists, who presented the dominant economics paradigm of his time.

The Classical economists, generally speaking, considered themselves to be positive scientists. Although they made value judgments in their policy recommendations, they understood political economy to be empirical and value-free (Schumpeter, 1954, pp. 534-41): "The science is neutral, as between social schemes, in this important sense. It pronounces no judgment on the worthiness or desirableness of the ends aimed at in such systems" (Cairnes, 1875, pp. 37-8). Their aspirations, in terms of understanding economic behavior, were similar to Rae's, but their method was different. They were deductive. Rae was empirical.

Rae was a radical empiricist, and his radicalism led him to consider distinctive aspects of economic behavior, and to draw distinctive conclusions. The Classical economists "armed with little more than simple common sense . . . assembled facts whenever they thought it useful to do so" (Schumpeter, 1954, p. 536). They abstracted the main economic lines in human behavior and corroborated emerging uniformities with common observations. Using this method they attributed economic development to a "mere increase in physical producers' goods" and to saving (Schumpeter, 1954, p. 572); they also perceived that, in the end, these factors would fail to overcome "the fateful law of decreasing returns" (Schumpeter, 1954, p. 571). Addressing the same subject from an independent and radically empirical point of view, Rae was drawn to what Marshall (Marshall, 1964, pp. 307-315) was to call very long-run factors in economic behavior - institutional and technological change - and Rae perceived how these had frustrated the law of decreasing returns.

The conclusion that technological and institutional change hold diminishing returns in abeyance has been at the center of the new economics of competitiveness in our own time. As a result, the following question arises: To what extent is the economics of competitiveness a return to, or a rediscovery of, the economics of John Rae? Does it merely reassert a conclusion Rae drew, or does it again take up the methodological stance and the kind of economics that led Rae to this conclusion?

II

The Economics of Competitiveness

The U.S. President's Commission on Competitiveness defined competitiveness as "the ability to sell goods and services under free and fair market conditions while maintaining and increasing living standards over the long run" (Lipsey, 1991, p. 188). There is no authoritative definition of the term, however, and there would seem to be a logical inconsistency in applying the term to one country. Comparative advantage always involves at least two countries. Furthermore, there is no necessary connection between a positive balance on current account and any particular growth rate of gross domestic product (GDP). Perhaps for this reason a number of obscure definitions have appeared in the literature. The economics of competitiveness has been defined as the economics of "continuous, very long run progressive change in product and production process: new technologies and new production structures in a policy framework that encourages restructuring" (Best, 1990, p. 251). It has been said to bind advancing technology with a relatively nonhierarchical management organization and a multiskilled workforce (Best, 1990, p. 257). From the (questionable) point of view of the economics of one country, it has been described as the speed at which some other country exports a newly developed product into its markets. …