Technology, Innovation and Systems of Production Flashcards
Important Data
- Kuznets (1967): Total Factor Productivity aka technical change/progress
- Schumpeter (1942): creative destruction
- Solow (1956): Solow Growth Model
- Romer (1986): Endogenous growth theory
- Crafts (2004): Steam as GPT
- Bonciu (2017): Ford’s assembly line impact on economy
//What is technology?
The invention of a product or discovery of organising and managing endogenous processes intended to improve lives
//Examples of technology
Inventions: Gadgets, automotive, smartphones, hardware and software
Systems: Ford’s assembly line, paint pressing machine
How does economic theory perceive technology?
(1) An empirically immeasurable ‘black box’ that cannot be explained in terms of technological change, but is the key variable in the economic growth process
(2) As a factor of productivity growth that goes through exogenous improvements, affecting income per capita growth in the long-term
(3) recognised as a critical driver of economic growth and development that lead to cost savings and innovation of new products and industries
What role does technology play in economic growth?
- Shapes the trajectories of economies
- Kuznets (1967): technical progress innovates industries & products created and allows greater output (quality/quantity) using the same input
- Schumpeter (1942): innovation disrupts established industries because it creates entirely new products and industries
//Schumpeter (1942) Creative destruction theory
Technology being a destructive force that destroys obsolete industries (with unskilled labour) to make room for innovation, enhancement and improvement of new and/or previously existing products (replace with either high tech machines or professionals)
//Examples of industries that died due to innovation in technology
From floppy disks to USBs for data storage,
from film cameras to digital cameras for photography,
from having to do forms in person to filling out forms online for documents,
from horses to cars for transportation,
from petrol cars to electric cars
//Solow’s Growth Model
Y = A x K^α x L^β
Where
Y: output
K, L: capital and labour input (production function line)
α β: shares of the contribution of K and L respectively
A: total factor productivity (TFP)
The production function exhibits constant returns to scale but diminishing returns to capital per worker
TFP: reflects changes in productivity, is calculated as a residual.
Paul Romer’s Endogenous growth theory
Romer (1986):
Where economic growth is generated directly from its internal processes, through:
1. human capital (improving education quality),
2. innovation (trial and error, tinkering) and
3. knowledge which reduces diminishing returns on capital investment
What are General Purpose Technologies (GPTs)?
Technologies (product, process or organisational system) that are
1) Prevalent,
2) Have many complements (GPT applied to other technologies improves them as well)
3) Has wide-ranging productivity effects (i.e. any technology that has a general purpose)
//What are the criterias to be considered a GPT?
- A single, recognisable generic technology
- Initially there’s scope for potential improvement but becomes widely adopted in the economy over time
- Acts as the foundation to products
- Creates a lot of spillover effects (when an event in a country affects the economy of another country)
//Examples of GPTs
- Steam engine initially made for pumping water from mines, further down the line it was used for railways and ships
- Introduction of information and communications technology (ICT) through computer which was very expensive to purchase back then
- Transistor for assembly line which eventually was used for engine, rod and shaft
//GPT process
- Technology invented, but may have to be embodied in other machines first before the realisation of GPT’s potential
- May require implementation of new working practices in an inudustry for widespread adoption
- Once the processes have been unfolded, economic productivity will rise
How has steam shaped economic development?
Crafts (2004):
-using the Solow residual (TFP), steam contributed little growth before 1830 (competing with water as power source) despite being patented in 1769
-steam potential realised in 1850 due to high-pressure steam (lower coal consumption) -> applied for mining, textiles and transportation
-table 3 by 1870, overtook water by 88.84% (2.06m steam vs 230k water used)
-table 8: steam’s total contribution via stationary steam engines, railways and steamships to British labour productivity growth peaked at 1850-70 at 0.41% per year and was overall felt more in 2nd half of 19th century rather than 1st half
-table 1: TFP growth in Britain in 1780-1830 averaged 0.3% per year, explained by latency of realising steam’s potential as GPT
How has Ford’s assembly line shaped economic development?
Bonciu (2017):
Corporations in US adopting Ford’s assembly line (continous-flow system where interchangeable parts go to the worker) benefitted by:
-lowering costs of output
-enhancing quality of output
-ultimately generating higher profit and increased wages for company’s workers
Technology manufacturing
-created shift work (workers are allocated in certain timings) -> longer hours but higher wages -> higher consumption levels and demand for goods
-decreased physical labour
-dramatically increasing output productivity per worker
