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The Economy Is Not Flat: The Technology Gradient In The Mass Market Economy

Author

Listed:
  • DAVID MAYER-FOULKES

    (Independent Researcher, 1416 Daly Rd, Ojai, CA 93023, USA)

  • KURT A. HAFNER

    (Faculty of International Business, University of Heilbronn, Max-Planck-Straße 39, 74081 Heilbronn, Germany)

Abstract

In an industrial market economy, the interaction between monopolistic and competitive sectors results in within-country productivity differences, inequality and inefficiency. We demonstrate this using a two-sector mass market economy model. The monopolistic sector represents large-scale, mass production and is associated with innovation and market power, while the competitive sector represents small-scale production and engages instead in technological absorption. The endogenous dynamics of technological change between the two sectors generate a steady state technology gradient, with the competitive sector lagging behind. This technology gradient is a key endogenous feature of the industrial market economy, associated with economic growth, that generates inequality and inefficiency. Inequality is generated in two ways: innovation profits are concentrated among a few owners of large-scale innovation, while economy-wide wage levels reflect the lagging small-scale technological level. The model shows there are innovative-distributive policies that can increase efficiency in production, innovation, and absorption, and restore income equality, increasing wages and reducing profits. A cointegration and weak exogeneity panel study of the US states between 1997 and 2011 corroborates that the large-scale sector drives aggregate employment, wages and inequality, while top income inequality makes the technology gradient steeper.

Suggested Citation

  • David Mayer-Foulkes & Kurt A. Hafner, 2023. "The Economy Is Not Flat: The Technology Gradient In The Mass Market Economy," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 23(01n04), pages 1-44, December.
    • Handle: RePEc:wsi:gejxxx:v:23:y:2023:i:01n04:n:s2194565923500112
    DOI: 10.1142/S2194565923500112
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    Keywords

    Mass market economy; economic growth; income inequality; inefficiency; technology gradient;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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