How Free Markets Can Unleash Technology

By Cox, W. Michael; Alm, Richard | Consumers' Research Magazine, July 1997 | Go to article overview

How Free Markets Can Unleash Technology


Cox, W. Michael, Alm, Richard, Consumers' Research Magazine


Few Americans would deny today's technology explosion. Even in this era of supercomputers, space travel, and cloning, though, technology isn't always seen as a boon. Amid the modern world's hustle and bustle, nostalgia for the simpler ways of times past is not uncommon. Technophobes cringe at programming the VCR or installing new peripherals on the PC. Apocalyptic literature, science fiction movies, and neo-Luddite rhetoric portray technology as a dark, dehumanizing force.

That is the technology of myth. The technology of reality is a vital part of what spurs economic progress and raises living standards. Stone Age "high tech" was knowing how to strike flint on rock to produce a spark and ignite a fire. But even at that basic level, technology improved the lives of those who used it. They kept warmer at night, ate hot food, and slept more soundly, worrying less about attacks by saber-toothed tigers and marauding tribes. Fast-forward through the millennia, and it's the same story. Today's technology is much more complex, but it still makes those who use it better off. We are warmed by gas and electric furnaces, nourished by food heated in microwave ovens, and protected by locks, alarm systems, and 911 operators. Technology leads to new products and services that improve our everyday lives. It must. After all, every innovation must pass the test of the marketplace: if people don't want it, they won't buy it.

But technological know-how doesn't just happen. Ideas are sterile until an entrepreneur or a company transforms them into new goods and services or better production methods. The process involves discerning consumer tastes, researching, designing prototypes, obtaining financing, manufacturing, marketing, and, often, starting all over again. Blood, sweat, toil, and tears. Why go through it?

Profit. Capitalism gives incentives to innovate by bestowing profit on those who bring successful products to market. Just as important, it readily shifts money, people, and other resources from producing yesterday's goods and services to what consumers will buy today and tomorrow. Capitalism's ability to unleash innovation and invention lies at the very heart of the great legacy of the American experience -- economic progress.

Successive generations of transportation show how new products come along to compete with existing ones. Suppose bankers in New York and San Francisco want to enter into a merger. In California's gold-rush era, meeting might have meant a boat trip around the tip of South America. As time went by, the bankers would have found the train faster, then the airplane faster still. With the advent of teleconferencing, they can now convene in a matter of seconds, skipping the hassle and expense of transcontinental flight. Sometime beyond 2020, virtual meetings and all modes of shipping may be made obsolete by a Star Trek-like "transporter" that zaps people and products from one place to another.

In a free enterprise system, there's always competition from inventions and innovations that meet consumers' needs in a different way or make it cheaper and easier to manufacture existing products. Most of us overlook this "minor" feature of a market-based economy. When we catch a bargain on airfare, see our long-distance phone rates plummet, get a good deal on a car, and so on, we welcome the low prices that result as today's companies- compete for market share. But the existence of airplanes, telephones, automobiles, and our other amenities we owe to another kind of rivalry that capitalism promotes. It's the competition from the next generation of goods and services, made possible by the relentless impulse in human beings to make themselves better off by improving life for everyone else.

By its very nature, capitalism seeks progress. Understanding this fact helps us see what speeds it up or slows it down.

Because technology in large part drives growth, stepping up the pace of invention and innovation increases the speed of economic progress. …

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