Innovation and Dynamism. Interaction between Systems and Technical Progress

Literature on post-socialist transformation usually deals with the political, economic and social sides of it. But the relative advantages of capitalist and socialist systems in terms of the incentives for entrepreneurship and innovation process attracted less attention. It is well known that every revolutionary new product (for civilian use) has been brought about by the capitalist system and that the socialist system was capable at most of developing new military products. Innovation has deeply transformed our daily lives but many people, while deeming all these changes favorable, seldom discern the causal relation between the capitalist system and rapid technical progress. The usual syllabus of microeconomics does not enlighten students on this important virtue of capitalism, neither is it adequately emphasized in the statements of leading politicians. The article analyzes how far the radical difference between socialist and capitalist innovation can be explained by the innate tendencies and basic attributes of the two systems and provides strong arguments in favor of capitalism.