On the promises and perils of Smithian growth – from pin factory to AI

Seminario de Investigación del IIEP

On the promises and perils of Smithian growth – from pin factory to AI

Presenta | Marcus Miller | University of Warwick and CEPR

Professor of Economics at Warwick University. He is Research Fellow at CEPR, London, and Research Associate at the Centre for Competitive Advantage in the global Economy (CAGE), Warwick University. Educated at Oxford University (PPE) and Yale University (Ph.D), previous academic career includes posts at the London School of Economics and Manchester University, with visiting teaching positions at Chicago University Business School and Princeton University.

Abstract
For his path-breaking insights on the role prices can play in the efficient allocation of resources and on how industrial innovation and investment can spur economic growth, Adam Smith is justly renowned. In both cases, however, he was aware of problems posed by market dominance. He was famously critical of monopoly power – especially in banking where he perceived it to be associated with excessive risk-taking. For manufacturing and commerce, too, he saw the tension between getting to the scale that delivers increasing returns and checking the monopolistic behaviour that can follow.

To see how things worked out in practice, we draw on a recent study by Acemoglu and Johnson which examines how widely the benefits of innovation were spread across society – first during the Industrial Revolution in Britain; then for the United States post WW II. While these benefits got more widely spread as the Industrial Revolution proceeded, the reverse appears to have happened in recent US experience. Thus the era of free-market fundamentalism under President Reagan saw growing concentration in banking together with labour-saving automation and disempowerment of labour in the wider economy.

To understand why free market enthusiasts like Milton Friedman should have supported the growing dominance of corporate power, we look at these issues in the context of the geo-political conflict between market economies of the West and the state-managed economies of Russia and China. To end with, however, we note that current exploitation of AI poses afresh problems manifested in earlier rounds of industrial innovation.