Book Reviews

Learn to Grow

Joseph E. Stiglitz and Bruce C. Greenwald

Creating a Learning Society

Columbia University Press, New York, 2014, 680 pp., $34.95 (cloth).

This landmark book, initially conceived as a set of lectures in honor of Kenneth Arrow (and implicitly of Bob Solow), combines Arrow’s classic learning-by-doing paper with Solow’s growth model. It proposes that technical change is a process of learning and that firms grow and countries develop as they learn in three ways—invention, innovation (adapting inventions to production processes), and “learning how to learn.” What differentiates successful from less successful economies, the authors say, is a process of learning that permits firms, sectors, and eventually the whole economy to achieve its true potential.

The idea that learning determines economic success ties together various strands of the literature and calls others into question. The vaguely defined “dynamic comparative advantage” is fleshed out by questioning whether the standard notion of comparative advantage, based on the factors of production, still has meaning (in a world of capital mobility). The authors propose that most firms are stuck inside a production possibility frontier; learning allows them to approach the frontier and push it out, even though some might argue that such a frontier may itself be ill defined in a world in which firms and economies grow by learning. Perhaps most fundamentally, the book provides a fresh perspective on the role of government in stimulating growth and welfare. Knowledge is a public good and absent government intervention will be undersupplied in a competitive market economy. Yet how much government intervention yields the most learning is not clear-cut. Joseph Stiglitz and Bruce Greenwald argue that Joseph Schumpeter’s view that monopolies generate innovation does not always hold, but acknowledge that the opposing view—that competition offers greater incentives for innovation—may not always be true either. Firms under competition are smaller and hence less able to bear the fixed costs of innovation. The book makes a strong case for industrial policy that spurs domestic firms to innovate and learn, and retain that learning at home. But the type of industrial policy it proposes is quite different from the recently revived practice of “picking winners,” especially winners based on comparative advantage.

These and other somewhat complex ideas are presented in an intuitive and...