Innovation & the World Economy

That’s the title of Robert Litan’s speech from the Foreign Policy Research Institute, and it is a crisp and interesting read.  Here’s a taste:

Entrepreneurs are vital to the economy not only because of the innovations they bring to the market, but also for the jobs they create. The Kauffman Foundation sponsored a study recently to look at the source of job growth in the United States since 1980. The conclusion is remarkable, or at least I believe it to be. Since 1980 until the recession, all net new jobs—net meaning gross jobs minus layoffs — have been created by firms under five years old. Think about that. That means all existing firms as of 1980 have not increased their employment since that year. In fact, if anything, the firms that existed in 1980, as a group, have lost employees. Using these data, we have made a rough estimate that at least 1/3 percent of our employment and a somewhat smaller fraction of our GDP since 1980 is due to young new firms that have since grown. These are amazing facts.

The piece contains some nice blurbs about the difference between state-guided capitalism, managerial capitalism, and entrepreneurial capitalism.   These concepts seem to follow the Schumpeterian notion of innovation, which is why it’s important to understand Schumpeter (!)