R ULES F OR G ROWTH 8
T HE P URPOSE OF THIS B OOK Our main purpose here is to try to change legal conversations yet again, hopefully in an even more useful direction. We have both positive and normative objectives in mind. Continuing in the law and economics tradition, it is thus critical to pin down the connection—both the direction (positive or neg- ative) and the magnitude or importance—between certain legal rules and institutions and innovation and growth. But it is also equally important to identify changes in those rules—whether they are set by judges, legislators, or regulators—that might plau- sibly enhance growth on a sustained basis. As Harvard economist Benjamin Friedman has powerfully argued, growth has a critical moral and political dimension as well. 12 In particular, growth acts as a “social lubricant” that eases potential demographic and eth- nic tensions within and across societies. Conversely, as history reminds us all too often, the absence of growth can trigger horri- ble outbreaks of conflict. The clearest example is the global dev- astation of World War II and the Depression that preceded it. More pertinent to the matters at hand, growth vastly trumps stat- ic efficiency in importance, assuming the two to be in conflict, which they can be in some cases. Take the case of proposals to extend patent lives: These will increase monopoly power of the patent holder and thus distort prices during the extended life of the patent, but in the long run may enhance incentives for inven- tion and thus growth. It is probably more generally true, howev- er, that policies that enhance growth also improve static efficien- cy, such as when antitrust law (properly applied) enhances com- petition. In any event, even a highly inefficient economy in the static sense cannot generate the kinds of gains from becoming vastly more efficient that are possible from the gains in wealth generated by sustained growth highlighted at the outset of this chapter. As Cooter and Edlin have put it, sustained growth is 1:T HE I MPORTANCE OF L AW IN P ROMOTING I NNOVATION AND G ROWTH 9 12 Benjamin Friedman, The Moral Consequences of Economic Growth (New York: Knopf, 2005).
exponential; improvements in static efficiency, at best, have only multiplicative effects. 13 This is not to say that growth should be pursued for its own sake without regard to anything else. Economic progress has not been achieved without such “externalities” as air and water pollution, whose ill effects are not well accounted for in the prices of goods and services whose output gets counted in measures of output. There is a deep and growing literature on how best to “internal- ize” these externalities, whether through well-enforced property rights (as Ronald Coase and his intellectual descendants would argue) or through well-designed taxes and regulation (as many other economists have argued).
You've reached the end of your free preview.
Want to read all 513 pages?