Higher Return to R&D in U.S than in Japan and Europe


The following may be further support for Martin Neil Baily’s claim that the U.S. is more productive than Europe and Japan because the U.S. is more open to creative destruction.


<615> . . ., most reserachers conclude that the rates of return to R&D are comparable magnitudes in different countries. This is confirmed by our <616> meta-analysis. However, the elasticities are significantly lower in Europe and Japan, as compared with the USA. (pp. 615-616)


Source:  Wieser, Robert. "Research and Development Productivity and Spillovers: Empirical Evidence at the Firm Level." Journal of Economic Surveys 19, no. 4 (2005): 587-621.

Also see: Baily, Martin Neil. "Macroeconomic Implications of the New Economy." Proceedings, Federal Reserve Bank of the Kansas City (2001): 201-268. (Especially see graph on p. 220) Martin Feldstein’s Jackson Hole presentation, was also supportive of the Baily claim.


Flexibility of Labor Laws: American Asset

<284> As Harvard University economist Robert Lawrence notes, the greatest single asset <285> that the American economy has always had is the flexibility and mobility of its labor force and labor laws. That asset will become even more of an advantage in the flat world, as job creation and destruction both get speeded up. (pp. 284-285)

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.

Taiwan: “Barren Rock in a Typhoon-Laden Sea”

(p. 262) The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig deep inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people–men and women–rather than drill (p. 263) an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural resources–nothing but the energy, ambition, and talent of its own people–and today it has the third-largest financial reserves in the world.

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.
(Note: italics in original.)

Secret of Wal-Mart’s Success

In a recent book, written for business managers, MIT business school professor David Simchi-Levi and his co-authors, discuss the secret of Wal-Mart’s success. In the following discussion a "cross-docking" system is one in which ". . ., warehouses function as inventory coordination points rather than as inventory storage points." (p. 63)


The tremendous market growth of Wal-Mart over the past 15 to 20 years highlights the importance of an effective strategy that coordinates inventory replenishment and transportation policies. Over this time period, Wal-Mart developed into the largest and highest-profit retailer in the world. A number of major components in Wal-Mart’s competitive strategy were critical to its success, but perhaps the most important has been its enthusiastic use of cross-docking. Wal-Mart delivers about 85 percent of its goods using cross-docking, as opposed to about 50 percent for Kmart. To facilitate cross-docking, Wal-Mart operates a private sattelite communications system that sends point-of-sale (POS) data to all its vendors, allowing them to have a clear picture of sales at all its stores. In addition, Wall-Mart has a dedicated fleet of 2000 trucks, and on-average, stores are replenished twice a week. Cross-docking enables Wal-Mart to achieve economies of scale by purchasing full truckloads. It reduces the need for safety stocks and has cut the cost of sales by 3 percent compared with the industry average, a major factor explaining Wal-Mart’s large profit margins. (p. 64)



David Simchi-Levi, Philip Kaminsky, Edith Simchi-Levi. Managing the Supply Chain: The Definitive Guide for the Business Professional. McGraw-Hill, 2003.


Brozen and Demsetz: Modern-Day Schumpeterians

The dominant view among economists in the field of industrial organization in the 1960s was that industries with a few firms were monopolistic and that this explained why profit rates were higher in concentrated industries than in unconcentrated ones. Harold Demsetz, a former Chicago colleague who moved to UCLA in 1971, dubbed this the “market concentration doctrine.” Brozen, with Demsetz, was a modern-day Schumpeterian who saw a dynamic competitive process at work. In industries in which a few companies had a large market share, they believed, concentration didn’t cause high profits. Rather, concentration and high profits were caused by successful competition. In his 1982 book, Concentration, Mergers, and Public Policy (Macmillan), Brozen weaves together evidence from Demsetz and other economists, along with his own findings, to drive home that point.

Henderson, David R. “In Memoriam: Yale Brozen.” The Freeman 48, no. 6 (June 1998). Posted online at: http://www.libertyhaven.com/thinkers/yalebrozen/memoriam.html

Software Industry Exemplifies Creative Destruction

(p. 4)  In our view, Microsoft’s dominant share in operating systems evolved legitimately from a free-market competitive process. The PC software industry was legally open and contained many talented players (Sun, Netscape, Novell, Oracle, Apple, IBM), some larger than Microsoft, some smaller. The market process in this industry has always been characterized by intense innovation, rapid growth, sharply falling prices, and bitter rivalry (and occasional cooperation) between rivals. The industry exemplifies Austrian economist Joseph Schumpeter’s vision of competition as a process of creative destruction. Microsoft achieved its market position by aggressively innovating and promoting an open, standardized operating system platform . . . 



Armentano, Dominick T. Antitrust: The Case for Repeal. 2nd ed: Mises, 1999.