...we argue that two conditions were necessary for specialised workers to form a guild: first, switching to a new technology must be profitable for a would-be adopter, and second, profits should be insufficient to cover the cost of overcoming workers' resistance. For small markets where competition is weak, firms have no desire to change their production process as profits from technology adoption are negative. Hence workers have no incentive to organise into guilds. For intermediate-sized markets with modest competition, technology adoption is profitable in the sense of covering any fixed research-and-development cost, but not sufficiently so to be able to break the resistance of workers. Hence, guilds appear and block the introduction of cost-saving technologies in their industries. For large markets with intense competition, profits from technology adoption are sufficiently large to give firms enough firepower to either defeat guilds on their own or influence government policy in their favour. Consequently, guilds disappeared and more productive technology diffuses throughout the economy.Yes, where there are profits to be had adopting a new technology, it happens. And the world is still looking for an instance of where such a technology was known to exist but the opportunity wasn't seized. As Paul Krugman once said, If there is a really crummy technology out there that we have locked into, then it will be worth it for someone to pay the cost involved in getting people to switch.
Thursday, May 23, 2013
The Third Degree
Economists Klaus Desmet and Stephen L. Parente say that's what it took to rid Europe of innovation blockers;