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Technology, the State and growth prospects

Published:Friday | May 23, 2014 | 12:00 AM

By Wilberne Persaud, Financial Gleaner Columnist

Economics 101
describes a particular set of relationships as 'perfect competition'.

Actually this is complete fiction, a model or a device meant to avoid complexity and identify the significant benefits society would derive if perfect markets did, in fact, exist.

What are these conditions defining a perfectly competitive market? There are many, actually. All firms sell an identical product; none can affect or control the market price of the product they sell - all are price takers; each firm has a small share of the market; buyers possess total information about the product and the prices each firm charges; finally, there is freedom of entry and exit for any individual or firm.

Textbooks sometimes refer to this market type as 'pure competition'. It requires no flash of genius to know these conditions don't exist. If they did, however, analysis establishes that economic production would be efficient and optimised. There would be no undue rent or excess profits, consumer satisfaction would be guaranteed, indeed, it would be all roses.

Much ideology surrounding the 'free market' is rooted in this notion of the immense benefits pure competition would provide. The idea undergirds the Thatcher-Reagan view that the best government is small government. At its extreme, we get the bizarre thought of right-wing American political activist Grover Norquist who says: "I'm not in favour of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub."

Belief in the power of a mythical free market is enhanced by a narrative - 'leave innovators and job-creators alone and all shall be well'. There's a long story behind this; and it's a narrative that captivates. It is, however, for the most part, lacking historical truth.

World's most valuable firm

We need consider only one extreme case: Apple. The company took life as Apple Computer. In 2007, it dropped 'computer' from its name. It was about to become an electronics giant launching its iPod touch and iPhone. The rest is history.

We all know of its market capitalisation once being the most valuable company in the world. We know, too, Steve Jobs' famous Stanford University commencement address in which he told students never to settle, to do the job they love and love the job they do, and finally, "stay hungry, stay foolish".

Jobs was actually telling stories of himself. The fact is he was able to "stay hungry, stay foolish", insisting upon beauty and perfection in Apple's creations because government had provided the basic technologies on which his artful design concepts rested.

Apple's iPod displaced Sony's Walkman. At its core lay a small, very small memory device. This device was made possible by the work of two European Nobel prize winners who developed giant magnetoresistance or GMR.

GMR sits at the core of HDD magnetic field sensors used in hard drives. Jobs and Apple did not create this. It came neither from Apple's vision nor R&D investment.

Let's move to the iPhone and iPad. Apple embedded a host of technologies in these devices - all of them created with significant government-funded research and development. We can skip great detail, we need merely list some of the technologies involved: LCD screens with software activated by touch command; HTML - hypertext markup language; HTTP - hypertext transfer protocol; GPS - global positioning system; TCP/IP - communications protocol. We may go on and on.

Here's the thing: Steve Jobs was able to concentrate on feel, function, beauty - coolness - because government had provided research funding, military-grade research and development, trade and tariff barriers and other forms of support, some entirely unknown. This was certainly not government the size of which allows it to be drowned in a bathtub.

But let's get to the other part of pure competition. What's the first thing Apple does when it brings together technologies used for doing old things in new ways? We've had telephones more than a hundred years.

Today, new technologies allow us to do the old thing - phone conversation - in an entirely new way.

Voice jumps from cell tower to cell tower; signals move through fibre optics, no copper.

So what's the first thing Apple does? It creates a patent, it differentiates its product, it seeks to keep new entrants out of its market. If it feels proprietary systems are copied, the matter goes to court - to wit, its ongoing battles with rival Samsung Electronics. Even if pure competition did exist we want it demolished!

If we understand the State and its role in the way it truly works, recognising that the ideological view which claims the market is perfect and the State should be minimised is really mythical, what can Jamaica do?

We're poor. Yes. We've learnt that the bauxite levy has been dissipated. We know ministers drool at the thought of mountainous NHT contributions. We know the IMF programme

mandates reducing the debt-to-GDP ratio. We're in a tight box.

Recent news covering turmoil at the University of Technology has led to discussion of the role of science and technology in development efforts.

The time for a conversation on these issues is now. Immediate short-run policy implementation, absolutely necessary as it is, should not, must not, drown efforts aimed at long-term sustained growth.

Wilberne Persaud is an