TechnoEconomic Paradigms: Emerging Technologies

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Techno-Economic Paradigms Emerging Technologies

• Prasada Reddy
• Lund University, Sweden

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Lecture - A definition

• The art of transferring information from
  teachers notes to students notes without it
  entering either ones mind.

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Reference

• Structural crises of adjustment, business cycles
  and investment behaviour (Freeman and Perez,
  1988)

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Business Cycles 1

• Kondratiev trade cycles (every 30 to 40 years)
  revival-boom-recession-depression
• Schumpeter (constellation of innovations in
  recession and depression points)
• Traditional view output is a function of capital
  labor
• Robert Solow (1956) role of technology in output

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Business Cycles 2

• One of the main reasons for cyclical fluctuations
  in the economy is the instability of investments.
• Such instability is mainly related to the
  investments in capital goods industries rather
  than consumer goods industries.
• High capital-intensity and indivisibility of
  investments tend to multiply investments during
  boom and diminish during recession.

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Business Cycles 3

• Concept of Equilibrium in Economics
• Cobb-web theorem
• Excessive investments upset the equilibrium

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Investments 1

• Fluctuations in investments are caused by
• External factors 1) technological innovation,
  2) dynamic growth of population, 3) fluctuations
  in business confidence and animal spirits.
• Internal factors Any initial change in
  investment gets multiplied as the employees in
  capital goods industry spend their earnings on
  consumption goods. This increases the optimism of
  investors to invest more.

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Investments 2

• Inventions or scientific discoveries may occur
  independently of the business cycle, but their
  appreciable economic introduction will depend on
  business conditions.
• The periods of stable growth depend more on a
  general climate of confidence, including belief
  in the future potential benefits from technical
  change, rather than on accurate calculations on
  the future rate of return of a wide variety of
  investments.

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Technical Change 1

• The crucial importance of technical change for
  investment behavior
• At certain times technical change appears to
  undermine confidence and stability, while at
  others it has the opposite effect.
• At the level of individual innovation investment
  in new products and processes has an element of
  true uncertainty and the outcome cannot be known.
• Source Freeman (1982)

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Technical Change 2

• However, from a business cycle perspective, the
  analysis cannot be restricted to individual
  innovation.
• Qualitative aspects and the systems of
  inter-relatedness of innovations must be taken
  into account, which under favorable conditions
  lead to an economic boom.
• Favorable conditions include, complementarities
  between innovations and the emergence of
  appropriate infrastructure and institutions that
  do not restrict diffusion of new technologies.
• On the other hand, as technologies and industries
  mature, diminishing returns and declining profits
  may diminish investments.

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Taxonomy of Innovations 1

• Incremental innovations
• Occur continuously, with varying rates in
  different industries and countries, depending on
  a combination of demand pressures, socio-cultural
  factors, technological opportunities.
• They are not a result of deliberate RD, but
  outcome of inventions and improvements suggested
  by the production people or proposals by users
  (learning-by-doing and learning-by-using.
• Although their combined effect is very important,
  no single incremental innovation has dramatic
  effects.

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Taxonomy of Innovations 2

• Radical innovations
• Discontinuous events usually as a result of
  deliberate RD in an enterprise or university
  (e.g. color TVs, electric typewriters).
• They lead to growth of new markets and
  investments, but relatively small in aggregate
  economic impact.

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Taxonomy of Innovations 3

• Changes of technology system
• Far-reaching changes in technology, affecting
  several branches of the economy, as well as
  giving rise to entirely new sectors.
• A combination of radical and incremental
  innovations, together with organizational and
  incremental innovations affecting more than one
  or few firms (e.g. synthetic materials,
  petrochemical innovations, machinery innovations
  in injection moulding and extrusion).

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Taxonomy of Innovations 4

• Changes in techno-economic paradigm
  (technological revolutions)
• A major influence on the behavior of the entire
  economy (pervasive effects).
• Creates new range of products, services, systems
  and industries, as well as affects almost all the
  other branches of the economy.
• Carries with it many clusters of radical and
  incremental innovations.
• Changes involved go beyond engineering
  trajectories for specific product or process
  technologies and affect the input cost structure,
  and conditions of production and distribution
  through out the system.

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Techno-Economic Paradigm 1

• A new techno-economic paradigm develops initially
  within the old, showing its decisive advantages
  during the down-swing phase of the previous
  Kondratiev cycle.
• A combination of inter-related product and
  process, technical, organizational and managerial
  innovations, with potential improvement in
  productivity for all or most of the economy and
  opening up a wide range of investment
  opportunities.
• The organizing principle of each successive
  paradigm is to be found not only in a new range
  of products and systems, but mainly in the
  dynamics of relative cost structure of all
  possible inputs to production.

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Key Factor

• In each new techno-economic paradigm, a
  particular input or set of inputs become the key
  factor of that paradigm and fulfills the
  following conditions
• 1) Clearly perceived low and rapidly falling
  relative cost only major and persistent changes
  have the power to transform the decision rules
  and procedures for engineers and managers.
• 2) Almost unlimited availability of supply over
  long periods temporary shortages may occur, but
  no major barriers to long-term increase in
  supply. Essential for major investment decisions.
• 3) Clear potential for the use or incorporation
  of the new key factor in many products and
  processes throughout the economic system, either
  directly or through related innovations, which
  reduce the cost, change the quality of capital
  equipment, labor inputs and other inputs to the
  system (e.g. oil, microelectronics).

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Kondratiev Cycles 1

• 1770s to 1830s (industrial revolution to hard
  times).
• Main industries textiles, Iron-working.
• Key factors cotton and pig iron.
• Emerging sectors steam engines, machinery
• Limitations scale, process control and
  mechanization, limitations of hand tools.
• Technological leaders Britain, France, Belgium.
• Emerging countries German States and the
  Netherlands.

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Kondratiev Cycles 2

• 1830s to 1880s (Victorian prosperity to Great
  depression).
• Main industries steam power. shipping and
  railways.
• Key factors coal and transport.
• Emerging sectors steel, electricity, synthetic
  dye stuffs.
• Limitations inflexibility of location in the
  case of water power, scale, reliability and range
  of applications.
• Technological leaders Britain, France, Belgium,
  Germany, USA.
• Emerging countries Italy, The Netherlands,
  Switzerland, Austria-Hungary.

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Kondratiev Cycles 3

• 1880s to 1930s (Belle epoque to Great
  depression).
• Main industries Electrical and heavy
  engineering.
• Key factors Steel
• Emerging sectors automobile, telecommunications,
  oil.
• Limitations steel as an engineering material in
  terms of strength, durability and precision.
• Technological leaders Germany, USA, Britain,
  France, Belgium, Switzerland and the Netherlands.
• Emerging countries Italy, Austria-Hungary,
  Canada, Sweden, Denmark, Japan, Russia.

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Kondratiev Cycles 4

• 1930s to 1980s (Golden age of growth to crisis of
  structural adjustment).
• Main industries automobiles, aircraft,
  petrochemicals.
• Key factors Energy (particularly oil)
• Emerging sectors computers, NC machines,
  pharmaceuticals.
• Limitations Fordist mass production, limitations
  of scale of batch productions.
• Technological leaders USA, Germany, Sweden,
  Switzerland.
• Emerging countries East Europe, Korea, Brazil,
  India, China.

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Kondratiev Cycles 5

• 1980s to now (Golden age of growth to crisis of
  structural adjustment).
• Main industries ICT, software.
• Key factors electronic chips
• Emerging sectors biotechnology, fine chemicals.
• Limitations energy-intensity and
  material-intensity.
• Technological leaders Japan, USA, Germany,
  Sweden, Taiwan, Korea.
• Emerging countries Brazil, Mexico, China, India.

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Features of New Techno-economic Paradigm

• A new best-practice form of organization
• New skill profile in the labor force
• A product mix with intensive use of low-cost key
  factor
• New radical and incremental innovations
  substituting the new key factor
• A new pattern in the location of investment
• A wave of infrastructural investment
• Emergence of new innovator-entrepreneur-type
  small firms
• Concentration of the large firms in the branches
  producing the key factor
• A new pattern of consumption of goods and
  services and new types of distribution and
  consumer behavior

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Next Kondratiev Cycle?

• Emerging Competing Technologies
• Biotechnology
• New materials
• Superconductivity
• Nanotechnology

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Biotechnology 1

• Biotechnology is defined as the application of
  biological organisms, systems and processes to
  manufacture products or provide services (OTA,
  1991).
• Biotechnology is as old as the origins of human
  beings.
• Modern biotechnology - the application of genetic
  engineering and monoclonal antibodies (e.g.
  Recombinant production of proteins in culture
  (e.g. Insulin) and generation of monoclonal
  antibodies from mammalian cell hybridomas (e.g.
  Rituxan for treating lymphona).

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Biotechnology 2

• Pervasive effects (plant-based)
• Industrial enzymes, pharmaceutical products,
  beauty and healthcare products from plants.
• Genetically modified, disease-, pest- and
  climate-resistant agricultural products.
• Genetically modified vitamin rich rice and wheat.

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Biotechnology 3

• Pervasive effects (microorganism-based)
• New-generation vaccines, diagnostic kits.
• Use of microorganisms for environmental
  applications (e.g. Chakravarthy vs. Diamond
  case).
• Use of microorganisms in mining activities
  (bacterial leaching).
• Biological warfare?

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Biotechnology 4

• Pervasive effects (human-based)
• Human genome - DNA sequencing and ability to
  identify target at protein/enzyme level.
• More effective drugs.
• Stem cells - potential to replicate human organs.
• Application of nanotechnology in biotechnology?

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Biotechnology 5

• Can biotechnology become next Kondratiev cycle?
• What are the key inputs?
• Can these inputs be supplied at sustainable
  levels?
• Can biotechnology be applied across the economy?
• Does it require new organizations, practices and
  skills?