Better Ways of Doing Things: Organization versus Technology

Arguments about the importance of technological change in economic growth focus on the increase in total factor productivity. They often attribute the improvement of total factor productivity to technological change. This tends to make me think of the productivity increases in terms of technological innovation and diffusion. However, there is another important aspect of the increase in total factor productivity -- the improvement in organization.

We see important investments in reengineering organizations, building market institutions, and restructuring economic sectors. All of these are investments designed to improve productivity by improving the organization of productive activities.

We could of course see these processes as social innovations and their diffusion, but we seldom do.

Still, I hope that nothing that I have posted would lead the reader to think I don't value social innovation as a tool for economic (and social) development.

Think about telecenters, microfinance and venture capital firms as examples of relatively recent social innovations or of philanthropic foundations, industrial research laboratories and research intensive universities as earlier social innovations. All have been important contributions to modern economies.