Technology and Economic Growth – Optimism and Pessimism

1. Technology and Economic Growth – Optimism and Pessimism Gabriel Söderberg, Ekonomisk-historiska institutionen gabriel.soderberg@ekhist.uu.se

2. Pleaseinterrupt for questions and comments! Economic thinkingrelating to technology Dominant theme: optimism versus pessimism

3. World Income/Capita 0-2000 AD

4. Enlightenment Optimism Marquis de Condorcet 1743-1794 William Godwin 1756-1836

5. Application of reason on the production process: ”A smaller portion of ground will then be made to produce a proportion of provisions of higher value or greater utility; a greater quantity of enjoyment will be produced with smaller expense of consumption; the same manufactured or artificial commodity will be produced at a smaller expense of raw materials, or will be stronger and more durable.” Mankind heading for “a paradise that her reason has created for her” – Condorcet, 1794

6. ”The Dismal Science” Thomas Malthus 1766-1834 David Ricardo 1772-1823

7. Malthus Humans must havefood + foodsupplyincreasesslowly + humans cannotcontroltheirreproduction = Population willgrow faster thanfoodsupply Increasedfoodsupplyincreasedpopulationreturn of misery optimists are wrong Constrainingfactor: agricultural technology

8. Ricardo Growth not possible in the longrun – stationarystate Diminishingreturn of the soilmoreexpensivefoodhigherwages less profits less investmentsend of growth Twoways to counter this: technology and freetrade - technology not to be trusted freetrade as ideal partlyexplained by technology pessimism!!

9. Socialism as Technology Optimism Karl Marx, 1818-1883

10. History is driven by the contradiction of technology and property rights Technology is developed in a given social structure technology advancesbeyond the constraints of society’sstructure, the structurebecomes obsolete and a hindrance for furtherdevelopment  society changes The capitalist system is history’smostefficient driver of technologicaldevelopment  recurringcrises  Socialism occurs after technology has madeCapitalism obsolete

11. The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization of rivers, whole populations conjured out of the ground – what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour? .” – The Communist Manifesto1848 ”The productioncapacity that is at mankind’sdisposal is unmeasurable, something infinite. The fertility of the Earth canthrough the application of capital, labor and science be extendedintoinfinity.” – Engels attacking Malthus.

12. The Construction of an AnalyticFramework The ”Neo-Classical Revolution”, analysisinspired by the mechanics of physics Equilibrium central concept, advancedmathematicalnomenclatureshift of focus from grand patterns of development to equilibrium on a given market Manyengineersinvolved

13. Technologicaldevelopmentshifts the supplycurve

14. Critique from theorists of innovation Joseph Schumpeter 1883-1950

15. Technologicaldevelopment the driving force in economicgrowth: ”CreativeDestruction” ”the fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forces of industrialorganization that capitalist enterprisecreates” – Schumpeter 1942 Carriedout by entrepreneurs Critiqueagainst the Neoclassics: equilibrium analys fails to grasp the mostimportantthingabouteconomics

16. ”The Golden Age” 1945-1970 Separation of micro and macroeconomics, growth falls under macro Time of great optimism, reduction of inequality, increase in general welfare for the masses, large and stableeconomicgrowth Technology and science widelyaccepted as the driving force

17. Post-War Technology Optimism Simon Kuznets 1901-1985 Robert Solow 1924-

18. Technology and science important… The reason for economicgrowthis:”…thevastincrease in the stock of usefulknowledge…the underlying capacity of the knowledge transmitted to control production processes, the emergence of experimental science and the empirical outlook which, building upon past attainments of mankind, provided the indispensible basis for modern economic growth” – Kuznets 1965

19. …but taken for granted. The Solowmodel (1956): Y=A+K+L  A=Y-K-L  technologicaldevelopment is the thingleft! The mostimportantfactor, but is leftunexplained in the model! Technologicaldevelopment is taken for granted, ”a gift” from public funding of science

20. Swedish Social Democrats as Optimisists The Rigoletti Conference 1955: politicians, representatives of business and science – the stateimportant to support science and new technology ” The transformation of society is still far from completed. Actually the greatest and mostinspiring tasks in the strivings to ensure the social and culturalliberation of mankindremains...At the same time we approach a new technological transformation, that eventuallywillchangetotally the conditions of mankind. This transformation cangiveunimaginableopportunities for the building of a constructive society. The perspectivesopened up by this are stimulating and suggestive to ourimagination.” – Olof Palme 1956

21. Worsetimes… 1970s: oilcrisis, stagnantgrowth, ideological and theoreticalshift Crisis of values: growthquestioned, environmentalmovementskepticalabouteternalgrowth

22. Club of Romefounded 1968 ”Limits to Growth” (1972) – population growth and consumptionneeds to be reduced; sells in 12 million copies, in 30 languages Solow’sCriticism: ” "The authors load their case by letting some things grow exponentially and others not. Population, capital and pollution grow exponentially in all models, but technologies for expanding resources and controlling pollution are permitted to grow, if at all, only in discrete increments."

23. Theoreticalshifts Increasedinterest in the roots of growth – how is ”the right” technology, ”the right” knowledgecreated? Endogenousgrowththeories The innovation schoolbecomesstronger, embraced by national governments and OECD

24. ”VINNOVA, Verket för innovationssystem, is a governmentorganization with the purpose to increasegrowth and wealth in the entire nation.” 2 billion kr in budget, 200 employees ”Our special area of responsibility is innovations connectd to research and development – that is original, successfulproducts, services or processes with a scientific basis.” ”Entrepreneurship is a dynamic and social process, whereindividuals…identifiespossibilities and dosomething with them in order to reshapeideas to practical and goal-orientedactivities in social, cultural or economicalcontexts. "- Vinnova ”…dosomething with them…”????