‘Modern Capitalism’ in the 1970s and 1980s

Abstract

The past decade has witnessed important changes in how economic growth is conceived by the economic profession. The traditional neoclassical model (Solow, 1956), based on the ideas of perfect competition, decreasing returns and exogenous technology (a global public good), has had to give way to more realistic approaches emphasizing among other things innovation (through R&D investments or learning in private firms), scale economics and market power.¹ This change of perspective was clearly anticipated by John Cornwall in his path-breaking study, Modern Capitalism (1977). Here he suggests a model of economic growth in which technological progress is endogenized, that is, an ‘endogenous growth model’ to use a more recent term. Manufacturing, Cornwall argues, plays an important role in this context, because it is the locus of technological progress, whether in the form of learning by doing (scale economics) or as the result of search activities by entrepreneurs. Hence his main focus is on what shapes growth in manufacturing (since this is considered to be the main source of overall growth).