In defense of Schumpeter

Factories of Ideas? Big Business and the Golden Age of American Innovation (Job Market Paper) [PDF]

This paper studies the Great Merger Wave (GMW) of 1895-1904—the largest consolidation event in U.S. history—to identify how Big Business affected American innovation. Between 1880 and 1940, the U.S. experienced a golden age of breakthrough discoveries in chemistry, electronics, and telecommunications that established its technological leadership. Using newly constructed data linking firms, patents, and inventors, I show that consolidation substantially increased innovation. Among firms already innovating before the GMW, consolidation led to an increase of 6 patents and 0.6 breakthroughs per year—roughly four-fold and six-fold increases, respectively. Firms with no prior patents were more likely to begin innovating. The establishment of corporate R\&D laboratories served as a key mechanism driving these gains. Building a matched inventor–firm panel, I show that lab-owning firms enjoyed a productivity premium not due to inventor sorting, robust within size and technology classes. To assess whether firm-level effects translated into broader technological progress, I examine total patenting within technological domains. Overall, the GMW increased breakthroughs by 13% between 1905 and 1940, with the largest gains in science-based fields (30% increase).

That is the job market paper of Pier Paolo Creanza, who is on the market this year from Princeton.