>Technical change in one sector or a few sectors could definitely lead to
>increased competitiveness for two reasons: (1) within that sector the firms
>with older technology will find hard to maintain their profitability; (2)
>the sector with latest technical change would have higher rate of profit
>compared to the rest of the economy, thus capital will have a tendency to
>move from the rest of the sectors to the technically innovated sector,
>making the rest of the economy feel the squeeze, i.e. the pressure of
>competition. I think Anthony has got it right.
Ajit, I can understand why depressed conditions would leave insufficient
market room for all competitors, but I am not certain why technical change
itself would threaten "backward" firms. Since the creditors of those firms
presumably wouldn't want them to go under, won't they make sure that they
can turn the money being presently realized upon sale of products to
purchase immediately the new cheaper, ever improving means of production by
which unit costs reduced and profit margins increased, making possible the
eventual retirement of debt and restoration of profitability? Won't the
debt just be rolled over in times of rapid technological change; and if
retained earnings still aren't enough, perhaps even more credit will be
made available to backward firms in anticipation of the future
profitability made possible by the assimilation of even more improved
techniques (right boddhisatva, old chum)? It would seem that technological
change will not lead to more "competition" (in the non-economist's sense of
the word) but to greater future profitability for all.
Or is it that by the time the backward firms assimilate the new technology,
the innovating firms having already amortized their investment are in a
strong position through severe price competition "to render the gains of
his rivals quite inferior to his own" as Charles Babbage explained the
advantages of the lead innovating firm. Is it through such a price war that
even modernized firms can go bankrupt, while the stronger pick up the
valuable assets for cheap? But then maybe if there is very rapid
technological change, very few firms will make big investments in the new
tech, fearing that they will soon be "morally depreciated." Perhaps a real
thorough technological upgrading only happens once technological change has
become more predictable, if not subsided, and there is little chance of
the destruction of capital value through moral depreciation, as Nathan
Rosenberg has suggested in Inside the Black Box? This would decrease the
chance of being stuck with older technology and the threat to profitability
associated therewith.
Best,
Rakesh
