The Importance of Economic Competence in Economic Growth: A Micro-To-Macro Analysis

Abstract

Economic growth is generated through the exploitation of new business opportunities which arise either through technological progress or through the identification of existing but unused business opportunities. At any given time, the opportunity (or production possibility) set is so large as to be practically infinite. The identification and successful exploitation of business opportunities is one of the primary functions of business management. Nonetheless, it is usually ignored in economics: in the theory of the firm it is assumed that the firm knows both what to produce and how to produce it, with perfect efficiency. Thus, there is no room for technological progress or business competence; both technology (knowledge about technical relationships) and business competence (defined below) are considered given. This is why the causes of economic growth remain a mystery in conventional economic theory. Finding ways to incorporate technology explicitly and endogenously and to integrate it with business competence would seem to be necessary keys to solving the mystery.