The importance of technological progress for economic and social development is undeniable, but it is a field where understanding and analytical effort have lagged far behind other areas, such as short-term supply-demand analyses. This is due at least partly to the complexity of the process of technical change and the difficulty of obtaining precise definitions and measurements of it. Important advances have been made since the 1970s, but it remains a relatively neglected field.
Schumpeter, one of the few distinguished economists to put technological progress at the centre of his analysis, stressed the importance of new products, processes, and forms of organization or production—factors which have clearly been associated with enormous changes in the economic structures of developed economies since the Industrial Revolution. The rise of major new industries, such as railways and steel in the nineteenth century, and automobiles, synthetic materials and electronics in the twentieth, depended upon a complex interaction of inventions, innovations and entrepreneurial activity, which Freeman (1982) aptly described as ‘technological systems’. Since the onset of the post-1973 recession, the idea that developed capitalist economies are subject to long waves of alternating periods of prosperity and stagnation, each wave being of around fifty to sixty years’ duration, has been revived: some commentators argue that new technological systems are primarily responsible for the onset of an upswing, which begins to slow down as the associated technologies and industries reach maturity. Other economists, while accepting the notion of such cycles, argue that technological progress is a consequence, rather than a cause, of them. Outside the long-wave literature, there is an ongoing debate concerning the direction of causality regarding observed statistical associations between the growth of an industry and the pace of technical innovation.
At the macroeconomic level, the traditional, neoclassical growth models treat technological progress as part of a residual factor in ‘explaining’ increases in output, after accounting for the effects of changes in the volume of the factors of production (capital, labour and so on). This residual is normally large, and implicitly incorporates factors such as the education of the workforce and management expertise which contribute to improvements in efficiency, in addition to technological progress. In such approaches technological change is purely ‘disembodied’, that is, unrelated to any other economic variables. The class of so-called vintage capital models, which have become quite widely used since the early 1970s, treat technological progress as at least partly embodied in new fixed investment: plant and machinery are carriers of productivity improvements and the gains from technological progress depend on the level of investment in them. Even the latter approach, however, does not go far in capturing the processes and forces by which new techniques are absorbed into the production system; the ‘evolutionary’ models pioneered by Nelson and Winter (1982) attempt to explore the conditions under which entrepreneurs will strive to adopt improved techniques. Such approaches are, however, in their infancy.
Discussion of how new techniques are generated and adopted is typically conducted at a more microeconomic case-study level. An invention is a new or improved product, or a novel procedure for manufacturing an existing product, which may or may not become translated into an innovation, that is, the (first) commercial adoption of the new idea. In many cases, scientific discoveries pave the way for inventions which, if perceived as having potential market demand, are adopted commercially; in the nineteenth century, the inventor/innovator was frequently an independent individual, but in the nineteenth century the emphasis has moved to scientific and technological work being carried out in-house by large firms. If an innovation is successful, a period of diffusion often follows, where other firms adopt or modify the innovation and market the product or process. It is at this stage that the major economic impact frequently occurs. Freeman illustrated this process in the case of plastics, where fundamental scientific research work in Germany in the early 1920s on long-chain molecules led directly to the innovation of polystyrene and styrene rubber, and indirectly to numerous other new products in the 1930s. Further innovations and massive worldwide diffusion took place after the Second World War, facilitated by the shift from coal to oil as the feedstock for the industry. In the 1970s the industry appeared to have matured with a slow-down in demand and in the rate of technological progress.
The measurement of inventive and innovative activity is beset with difficulties. Input measures include the personnel employed and financial expenditure, although there is necessarily a degree of arbitrariness in defining the boundary of research and development activity. Output measures of invention include patent statistics, but these need to be interpreted with caution, owing to the differences in propensity to patent between firms, industries and countries with different perceptions of whether security is enhanced by patent protection or not, and differences in national patent legislation. The use of numbers of innovations as an output measure normally requires some—necessarily subjective—assessment of the relative ‘importance’ of the individual innovations. Despite their limitations, however, the use of several indicators in combination can provide a basis for comparisons between industries or between countries.
Over the post-war period, governments increasingly recognized the importance of attaining or maintaining international competitiveness in technology. The emergence of Japan as a major economic power owed much to a conscious policy of importing modern foreign technology and improving it domestically. Most countries have a wide variety of schemes to encourage firms to develop and adopt the new technologies, and policies for training or retraining the workforce in the skills needed to use new techniques. In the current context, attention is, of course, focused particularly on micro-electronics-related technologies; and—whatever their validity—fears that these technologies could exacerbate unemployment problems generally take second place to fears of the consequences of falling behind technologically, in the eyes of governments and trade unions alike.
Forecasts of the impact of new technologies are notoriously unreliable. The cost-saving potential of nuclear power was dramatically overstated in the early stages, while the potential impact of computers was first thought to be extremely limited. For good or ill, we can, however, say that technological progress shows no sign of coming to a halt.
J.A.Clark
University of Sussex
References
Freeman, C. (1982) The Economics of Industrial Innovation, 2nd edn, London.
Nelson, R.R. and Winter, S.G. (1982) An Evolutionary Theory of Economic Change, Cambridge, MA.
Further reading
Heertje, A. (1977) Economics and Technical Change, London.
