One of the specific problems socialist economies had was keeping up with capitalist countries technologically.

a. Can you think of any reason inherent in a centrally planned economy that would make innovation difficult?

b. Can you think of any reason inherent in a capitalist economy that would foster innovation?

c. Joseph Schumpeter, a famous Harvard economist of the 1930s, predicted that as firms in capitalist societies grew in size, they would innovate less. Can you suggest what his argument might have been?

d. Schumpeter’s prediction did not come true. Modern capitalist economies have had enormous innovations. Can you provide explanations as to why?