Economics of Structural and Technological Change

Cristiano Antonelli, Nicola De Liso

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781134716623
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

Technology has long been seen as a path to economic growth. However there is considerable debate about the exact nature of this relationship. Economics of Structural and Technological Change employs a wide range of theoretical and applied approaches to explore the concept of technological change.
The book begins with a series of in-depth discussions of the economic analysis of technological change. The second section contains a discussion of theoretical models of technological change, focusing on issues such as time and innovation. The third section brings together a number of applied analyses of technological change and examines the effect of factors such as human resource constraints, patenting and science and technology indicators.

1
Introduction: An appraisal of the economic analysis of technological change
The path to the last decade

Gilberto Antonelli and Nicola De Lisa¹

1 TECHNOLOGICAL CHANGE AND POLICY-MAKING

1.1 The relevance of technological change: a background to policy debate

Technological change has undoubtedly been one of the most important features of the economic history of the world at least since the occurrence of the first Industrial Revolution in the last quarter of the eighteenth century in England. Since then, technical change has shaped the development of economies through the continuous occurrence of both major and minor changes.

Technical change affects many aspects of both economic and social activity. It influences production in qualitative and quantitative ways, and affects employment, international trade, investment and consumption patterns. These widespread effects of technical change are such as to warrant the examination of the interaction of technical change, market forms and overall economic structure.

Given the quantitative and qualitative importance of technological change, it is easy to understand why during the last thirty years there has been an escalation of studies concerned with it. Techniques of production now last for shorter periods; changes, however small, follow one another, and the need to capture the essence of the processes connected with technological change is felt more and more urgently. Both theoretical and empirical developments in the 1980s represented a turning point for economic analysis.

It seems to us that these comments highlight fairly well the fact that any analysis of technological change is influenced by policy implications, which, as such, induce action shaped by political interests and values. Many questions can arise here.

The first we consider, given its social relevance and capability of shedding light on the chains activated by policies, is unemployment. The early 1990s have been characterized by a general concern as structural long-term unemployment seems to persist and increase, and when signs of growth are visible we speak of jobless recovery. There thus emerges the question: what is the socially tolerable level of unemployment? Should governments intervene, and, if they should, how? The main alternatives in the policy arena are the following: (a) short-term flexibility as a cure mainly of labour market rigidities; (b) investment demand expansion combined with fiscal policy revitalization; (c) stimulation of new market opportunities and product innovation; (d) international competitiveness and strategic trade; (e) long-term flexibility based on the development of individual, social and technological capabilities. However, each of these solutions has a draw-back, taking also into account the composite nature of unemployment: from the effectiveness of the policy prescription to the need of increasing taxation, the risk of increasing inflation, and so on. These last points make it clear that whenever policy action is undertaken there occurs a series of reactions in the economic system, not all of which are desirable. And economic analysis should be engaged in increasing the degree of awareness of this, showing the likely scenarios in which complementarities and feedbacks share the same importance as clear-cut alternatives.

Other relevant questions concern the relationship between market structure and innovation, the existence and validity of economic regularities, such as the Kaldor-Verdoorn's law, the rate of adoption and diffusion and ways of influencing it, and so on. All of these topics have been characterized by theoretical, empirical and political debates, sometimes leading to opposite results according to the ‘lenses’, i.e. school of thought, used.

The aim in bringing the chapters in this volume together is to provide a timely non-sectarian picture of the main contemporary schools of thought and to provide a forum in which the concepts and theories can be compared. The focus will be on the basic elements which shape technological change; that is, rate, direction and diffusion. Such an analysis constitutes a background to policy debate in that its theoretical foundations are here laid.

Whilst the main interest of the book is the economic analysis of technological change in the last decade, in this introduction we also try to summarize some of the basic ideas concerning technical change which current economic analysis has inherited from the works of earlier periods. The analysis distinguishes schools of thought and concepts. Of course this short introduction does not have pretensions to completeness; it simply aims to introduce a set of ideas that should be clarified and developed by reading the chapters in this volume.²

Finally a ‘bias’ should be declared from the start. In this introduction, as well as in the selection of chapters collected in the volume, we are led to attach more importance to the approaches conceiving of technological innovation as ‘interacting learning’ than the ones dealing with it as mere ‘information’.

1.2 Some considerations on policy

The analytical framework recalled above and developed in the text lends itself to policy considerations that we sketch in this section. The first consideration relates to unemployment. Several studies have stressed important changes in the dynamic relationship between the volume of production and the level of employment. If there is much empirical evidence for a strong direct causal link between production and employment growth when a decrease in production occurs, the link does not appear in phases in which production increases. While the regime of economic growth for the 1950s and 1960s was characterized by sustained production growth, associated with high intensity of employment and sustained product innovation, the regime for the 1970s and 1980s seems marked by low product growth with low intensity of employment and sustained process innovation. The employment—unemployment dynamics cannot be explained only by short-run factors or analysed through traditional conceptual schemes of equilibrium, or even partial equilibrium. Similarly, short-run macroeconomic policies cannot alone be a sufficient response to the employment-unemployment problem. Low employment growth and the increase of unemployment in OECD, and in particular in European countries, are the result of long-run structural changes. The following points deserve attention.

1. Co-ordination between short- and long-run policies. Often in official documents we can find discussions based on the following reasoning, more or less explicitly stated. The inadequacy of existing macroeconomic models or a conscious division of labour between macroeconomic and stabilization policies on the one hand, and sectorial analyses and structural policies, on the other, provide the rationale for a clear-cut separation between structural policies and macroeconomic stabilization policies. This division of labour is often correlated to the span of different administrative and political jurisdictions.
2. Competition policy as a crucial component of industrial policy. New authorities monitoring the existence of real competition have been established even in countries with no previous traditions. However, amazingly enough, very little empirical work has been done on the effects of competition policies on the functioning of labour markets.³ The economic profession, as well as policy-makers, should be more concerned with this topic.
3. The evaluation policy. A similar complaint applies to policies for the evaluation of R&D, on the one hand, and of environmental impact, on the other. The interactions between demand side and supply side are often overruled in both cases and the same is true with regard to the impact on the labour market, unemployment and natural and environmental resources.
4. Variety and diversity. Variety is certainly an important asset which, however, must be channelled through two polar needs, i.e. systemic coherence and regional specificities and autonomies. The economic constitution and the economic structure are containers of this polarization to be reaggregated within a specific institutional set up.
5. Solidarity. Solidarity could also assume a crucial economic role at a supranational level as a means to promote human resources skills, a primary asset, even more so, in modern economies, and to tone down the determinants of both the divergence in labour markets as well as instability in prices, labour costs and institutions. We cannot assume that compensation effects at a national level, on which the largest part of economic discussion has been concentrated, will operate with the same intensity at a supranational level with increasing variety in local systems of production.
6. Human resources and integration. If a strategy is to be found with a potential of integration similar to that implemented by the founders of the European Community in the 1950s then, related to raw materials and energy, we should focus on human resources, considered in their regional environment —and in this respect the Maastricht agreement is severely lacking.

By way of conclusion, let us say that the ‘knowledge-based economy’ needs new policy prescriptions rooted in a deep revisions of our theoretical background.

2 BASIC CLASSICAL CONCEPTS

2.1 Smith's contribution

Adam Smith published his Inquiry into the Nature and Causes of the Wealth of Nations in 1776 and in it he analysed ‘technical change’ under the heading of the division of labour.

This was the first systematic of production and methods of production. According to Smith's theory, what we today call technical change is an endogenous phenomenon with respect to the economy, and in the long run increasing returns prevail over decreasing returns. Furthermore, we might note that the division of labour is the structural means through which returns to scale can be modified.

The principles at work are: (1) the increase in dexterity of every worker; (2) the saving of the time which is commonly lost in passing from one type of work to another; (3) the invention of a great number of machines which facilitate and reduce the amount of labour, and enable one man to do the work of many.

1. Dexterity. Today we refer to this principle as learning-by-doing; however it was clearly expressed by Smith two centuries ago. The article by Arrow (1962b) can be considered a formalized improvement of the Smithian principle of dexterity. Smith wrote that:
   
   by reducing every man business to some one simple operation, and by making this operation the sole employment of his life, necessarily increases very much the dexterity of the workman.

   (Smith, [1776] 1976, p. 18)
   
   Smith was mainly concerned here with the manufacturing division of labour. However, the same principles apply when the other forms of division of labour occur (division of professions and division of production)⁴.
   The principle of learning-by-doing was stated also by Cesare Beccaria in his Elementi di Economia Pubblica (Elements of Public Economy) in 1771 where he wrote that:
   
   everybody knows by experience, that by applying one's hand and mind always to the same kind of works and products, one obtains easier, more abundant and better results than if everyone, on his own, produced all and only those things that he needs.

   (Beccaria, [1771] 1958, pp. 387–388, our translation)⁵
2. The saving of time. The development of particular professions and trades generally implies a physical concentration of those activities, which saves time. Moreover, when the separation between different operations occurs inside the work process, there occurs a further saving of time.
3. The invention of machines. Smith considered mechanization as a by-product of the division of labour. To understand this statement we must remember that Smith was writing in the 1770s, so that, given the technology of the period, only simple operations could be mechanized. However, the development of technology at first, and of scientific technology in a second stage, rendered it possible to mechanize complex operations as well as w...

Table of contents

• Cover page
• Industrial economic strategies for Europe
• Title page
• Copyright page
• List of figures
• List of tables
• List of contributors
• Foreword
• 1: Introduction: An appraisal of the economic analysis of technological change: The path to the last decade
• Part I: Research paths in the economic analysis of technological change
• 2: Economic evolution and technology
• 3: Technical change and labour displacement: Some comments on recent models of technological unemployment
• 4: Broad production factors and technological systems
• 5: Different dimensions in the analysis of technological change
• Part II: Theoretical models of technological change
• 6: On diffusion and the process of technological change
• 7: A note on the diffusion of innovation
• 8: Technological and organizational innovations as problem-solving activities
• 9: Time-saving and innovative processes
• Part III: Applied analyses of technological change
• 10: Black boxes and variety in the evolution of technologies
• 11: Human resources constraints in technological innovation processes: Theoretical considerations and empirical evidence
• 12: Firms, uncertainty and innovation policy: Some spatial considerations in an evolutionary framework
• 13: Patenting abroad and international technology transfer
• 14: Science and technology indicators: The state of the art and prospects for the future