Strategic Competition, Dynamics, and the Role of the State

Strategic Competition, Dynamics, and the Role of the State

A New Perspective

New Directions in Modern Economics series

Jamee K. Moudud

Jamee Moudud provides a new microfoundational explanation for the Harrodian long-run or warranted growth rate. The author, emphasizing the role of Keynesian uncertainty, shows that the growth model is anchored in a new interpretation of the Oxford Economists’ Research Group’s microeconomic analysis and a variant of the stock-flow consistent framework. In a distinctly Kaldorian vein, Jamee Moudud discusses the relationship between capital budgeting, public investment, and taxation policy as it relates to the warranted growth rate and its impact on long-term involuntary unemployment.

Chapter 2: The Microfoundations of Long-run Growth: Controversies on Capacity Utilization and Competition

Jamee K. Moudud

Subjects: economics and finance, institutional economics


INTRODUCTION 1. In the analysis of economic growth a central controversy deals with the nature of the economy’s long-run growth path and the characteristics of the forces that either make output and capacity converge or keep them persistently apart. In this chapter it will be shown how the analysis of longrun capacity utilization is shaped by theoretical controversies regarding the nature of competition. For example, in neoclassical theory perfectly competitive markets, characterized by passive price-taking firms, ensure the attainment of minimum average total costs and the elimination of excess capacity. On the other hand, in neoclassical theory price-setting behavior is considered to be a defining feature of what it calls imperfect competition, in which firms maintain persistent excess capacity. This second view of the competitive process underpins both Kaleckian growth models and neo-Schumpeterian neoclassical endogenous growth models (P. Romer, 1994). This chapter will discuss how the nexus between competition and capacity utilization is analyzed in four broad traditions: the Oxford Economists’ Research Group (OERG), classical/Marxian, Kaleckian and neoclassical. It will be demonstrated that there are significant areas of overlap between the analysis of competition in the classical/Marxian tradition and the contributions of Sir Roy Harrod, P.W.S. Andrews and Elizabeth Brunner, and others of the OERG tradition. This approach to competition, which we will call the theory of strategic competition, will be shown to be quite different from models of perfect and imperfect competition. 2. EX ANTE VERSUS EX POST IDLE CAPACITY The conventional view is that if perfect competition is...

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