Technological transformations and long waves. Part I

Although empirical evidence of ‘long waves’ in economic activity has existed since the beginning of the Industrial Revolution, perhaps even earlier, it is not known whether such waves are essentially accidental or consequences of the inner dynamics of economic growth. The answer, however, is of considerable interest not only to economists but also to policy-makers. One of the most attractive causal hypotheses has been Schumpeter’s notion that temporal clusters of major innovations create new opportunities, thereby accelerating economic growth. To this may be added Mensch’s idea that major innovations tend to occur during recessions-when fewer low-risk investment opportunities are available-then during periods of prosperity. This paper addresses these two hypotheses from a technological and historical point of view. For this purpose, it is convenient to identify five major technological ‘transformations.’ The first (1770-1800) was the shift from charcoal to coal for purposes of iron-making, fueling the first steam engines, building the first canals and mechanizing cotton spinning. The second transformation (1830-1850) applied steam power to the textile industry and to transportation (the railway and the steam boat). The third transformation (1860-1900) was complex: It centered on steel-making and the mechanization of manufacturing, on illumination, telephones, electrification and the internal combustion engine. The fourth transformation (1930-1950) centered on synthetic materials and electronics. The fifth, beginning around 1980, centers on the convergence of computers and telecommunications. It is argued that while major innovations have occurred in clusters, the clustering can probably be explained best in terms of technological opportunity per se. Opportunity is created both by ‘breakthroughs,’ which push back the limits of existing technology, and by the ‘convergence’ or ‘fusion’ of developments in different fields. Either way, the timing in most cases appears to be technologically determined. Moreover, the historical evidence suggests that in many cases the economic impact of an important innovation contributed little to the ‘next’ upswing but may have contributed significantly to subsequent ones. Indeed, the weakest link in the Schumpeter-Mensch theory is that it does not offer a good explanation for the downswing at the end of a period of prosperity. [See next abstract.]