Innovation and Growth
Technology, preferences, and resource availability are changing all the
time, in all economies. Forty years ago there was no such thing as a hand-
held GPS or a digital camera. Hybrid cars did not exist. Manuscripts
existed only as hardcopy, not as electronic files on a laptop computer or
in the cloud. The Internet did not exist—nor did smartphones, tablets,
electronic airline tickets, cost-effective solar panels and wind turbines,
income-tax software packages, computer-assisted design (CAD)
programs, regional jets, standardized containers for transoceanic
shipping, and a whole host of other goods and services that we now take
for granted.
Tablets, social-networking sites, electric cars, and regional jets are all
products that were invented or developed by individuals or firms in
pursuit of profits. An entrepreneur who correctly “reads” the market and
perceives that a demand for some product may exist or be created has a
profit incentive to develop it.
In a market economy, individuals risk their time and money in the hope
of earning profits. Though many fail, some succeed. New products and
processes appear and disappear. Some are fads or have little impact;
others become items of major significance. The market system works by
trial and error to sort them out and allocates resources to what prove to
be successful innovations.