The U.S. Corporation and Technical Progress
DAVID C. MOWERY RICHARD R. NELSON
In his magisterial Capitalism, Socialism, and Democracy ( Schumpeter 1950), first published over fifty years ago, Joseph Schumpeter argued that contemporary neoclassical economic models of capitalism and competition overlooked the key characteristics of these phenomena. Capitalism and competition essentially were about technical innovation and economic growth, rather than the achievement of static "economic efficiency." Large firms with considerable market power were, in Schumpeter's view, the major sources of technical innovation. One of the concomitants of the dynamic power of modern capitalism was that the system always seemed to be operating somewhat inefficiently in the static sense, at least in comparison with the economists' theoretical norm of perfect competition. But according to Schumpeter, the dynamic gains to society from the economic growth generated by this system vastly outweighed such theoretical and imaginary static inefficiencies.
In so arguing, Schumpeter rekindled an old debate about how to view the large corporations that had grown up in the United States since the turn of the century. Should they be understood largely as causes of static economic inefficiency associated with monopoly pricing and sources of politically dangerous concentrations of political power? Or should they instead be welcomed as the principal and indispensable vehicle through which the United States and other advanced industrial nations lifted their standards of living and achieved the kind of democracy that is possible only