Technology and Economic Growth in the Information Age

Policy Backgrounders | Economy

No. 147
Thursday, March 12, 1998
by W. Michael Cox & Richard Alm


Factors Affecting the Speed of Technological Change

"Stepping up the pace of invention and innovation increases the speed of economic progress."

Because technology in large part drives growth, stepping up the pace of invention and innovation increases the speed of economic progress. Several factors influence this process: the breadth and depth of a society's existing endowment of technology, new discoveries or inventions with wide-ranging uses, the integration of various technologies to create new products, the time it takes for products to spread throughout society and the overall market size. In assessing future possibilities, it is useful to look at the dynamics of accelerating technological changes.

Applications For Existing Technologies.  Our inventory of technology is large and growing. Despite the rapid-fire introduction of new products in recent decades, we still have a large, relatively untapped stock of technology in the pipeline. By one estimate, more than half the store of human knowledge has been produced over the past 50 years. In the United States, the number of scientists and engineers working in research and development has doubled since the early 1970s; more than half of U.S. patents have been issued in the past 40 years; and the number of new products put on the market annually has tripled since 1980.5 With so much R & D occurring, companies are likely to keep offering innovative goods and services at a furious pace.

In the future, daily life will include applications for dozens of modern-day breakthroughs - such as magnetic resonance imaging, powerful microprocessors, artificial intelligence, voice recognition, speech synthesis, holography, virtual reality, fiber optics, high-definition TV, flat-screen displays and the Internet. New applications for all of these technologies exist, at least in prototype. For example,

  • The National Automated Highway Systems Consortium, led by General Motors Corp., is at work on a self-driving automobile.6
  • The satellite-based Global Positioning System already helps truckers, taxi drivers and farmers, and navigational systems using GPS are an option on some new car models.7
  • Scientists at New Mexico's Sandia National Laboratories already produce micromachines with gears the width of a human hair.8
  • The Human Genome Project is expected to map the location and sequence of all the genes on the 23 pairs of human chromosomes by 2003, allowing doctors in the future to detect and treat diseases through DNA analysis.9
Table I - Top 10 Modern Innovations and Discoveries

"Many of the most promising projectsinvolve tinkering with the basic elements of life and matter."

Many of the most promising projects involve tinkering with the basic elements of life and matter.10 In molecular engineering, for example, scientists are creating whole new materials forged atom by atom, including a fiber stronger than steel yet more elastic than a spider's web, and one-molecule-thick coatings that virtually eliminate friction. Biotechnology researchers are working within the cells of living organisms. This may lead to treatments for diseases and the production of synthetic organs, but it is already making possible clothing that kills germs, bugs that gobble up toxic waste, enzymes that soften blue jeans and cholesterol-eating peanuts with a shelf life measured in years, not months.

Discoveries And Inventions With Wide-ranging Uses.  From chewing gum to electricity, all inventions are an effort to raise our living standards - but some inventions are clearly more earthshaking than others. The parachute is a very useful product, especially when an airplane's engines conk out at 10,000 feet, but it hasn't had the same impact on the way we live as the internal combustion engine, the telephone or the jet airplane. Every so often, an invention comes along that really rocks the world because it has far-reaching applications and serves as a building block for further invention. The wheel, the plow, the printing press and the steam engine are examples of such technologies. Had electricity not been harnessed for use more than a century ago, the modern household would have few of the conveniences we take for granted. No televisions. No refrigerators. No phones. Simply put, some inventions carry more weight than others. [See "The Microprocessor: An Invention with Many Applications"]

"Perhaps the best way to judge an invention's significance is how it spawn other goods and services."

Perhaps the best way to judge an invention's significance is by the extent of spillovers - its connections to other goods and services that it either makes possible or makes cheaper to produce. Consider the top 10 inventions and discoveries of modern times - a list open to dispute [See Table I].11 Note that four of the top 10 are relatively recent - from the past 50 years.

Technologies Integrated To Create The Personal Computer.  Each invention makes the next one easier because spillovers kindle a fire that feeds on itself - one technology fueling development of another. If there is any alchemy in free enterprise, this is it.

"Four of the top 10 inventions and discoveries are relatively recent."

Consider the inventions necessary for the development of the personal computer. In 1801, J. M. Jacquard devised a binary control system on punched cards to program a loom to weave a preset pattern. Thomas Edison's light bulb gave people a reason for installing electric wiring in their homes. Christopher Latham Sholes invented the typewriter in 1867 to produce legible letters more quickly. Ben Logee Baird produced the first working television in 1926. Ted Hoff of Intel Corp. invented the microprocessor in 1971 as the indispensable component of the hand-held calculator.12 None of these inventors envisioned the personal computer. In fact, in March 1949, Popular Mechanics predicted, "Where the ENIAC [the first electronic computer] is equipped with 18,000 vacuum tubes and weighs 30 tons, computers in the future may have only 1,000 vacuum tubes and weigh only 1.5 tons." Yet binary programming, electricity, the typewriter keyboard, the cathode-ray tube, the microprocessor and hundreds of other inventions were available for the West Coast hobbyists and entrepreneurs who contrived the first crude personal computers in the mid-1970s.

Table II - Spread of Products to a Quarter of the Population

"The computer - product of hundreds of other inventions - is now contributing to new waves of invention."

Today, the personal computer is part of our technology inventory, contributing to new waves of invention. It would be impossible, for example, to envision the Internet without the computer. The Internet and the computer, in turn, paved the way for the next wave of advances - search engines to explore the World Wide Web, high-speed modems, gadgets that access the Internet through the television set, software to design home pages and intelligent agents that automatically sift through the oceans of information available in cyberspace. The Internet may be particularly powerful in driving technological change because it reduces the cost of new discoveries by putting the latest research online at the touch of a button.

And the ripple effects from the personal computer don't stop with computer-related industries. For instance, computational biology uses computers to locate and code genes, illustrating how its increasing power puts technology and progress on an even faster track. Biologists are already identifying six to 10 new proteins a week, and with more powerful microprocessors the process is likely to be three times faster by the end of this year.

New Technologies Spread Faster.  Although feasible in the late 1800s, electric power didn't become universal until the mid-20th century. The first automobiles arrived on American roads in the late 1800s, but the country still had more horses than cars into the 1920s. The technology for television came in the 1920s, but the invention didn't reach America's living rooms in large numbers until the early 1950s. These examples illustrate a fact of technological life: the time between invention and diffusion can be decades or more.13

But as lightning-fast communications spread information faster and consumers grow more sophisticated, new products are emerging more quickly than in the past [see Table II]. It took 55 years to get the automobile to a quarter of the U.S. population. The telephone required 35 years; the television, 26. Now look at some recent innovations: a quarter of U.S. households owned a personal computer within 16 years of its introduction. For the cellular telephone, the time shrank to 13 years. The Internet is coming into commercial use even faster than the personal computer or the cell phone.

The microwave oven and VCR illustrate the speedup in diffusion with the introduction of the microchip. The VCR was invented in 1952 and the microwave in 1953. When the microchip was introduced in 1971, less than 1 percent of households had either. Riding the cost-cutting wave of the microchip, however, a quarter of American homes enjoyed both by 1986 - in just 15 years.

New products follow a pattern. At first, the latest innovations are expensive and perhaps tricky to use, so their market consists of a handful of wealthy gadget lovers. Over time, the products become cheaper and more consumer-friendly through mass production and improved design. What was once a luxury becomes an everyday necessity. The companies that make the products can then expand rapidly, chalking up sales and adding new jobs and more capital for future progress.

"It took 55 year for the automobile to get to a quarter of the population - and only seven for the Internet."

Market Size Matters.  Markets are getting larger, increasing the incentive to introduce new technology. It's simply a matter of payoff. Had Alexander Graham Bell lived on a small island with a population of 10, he'd have had little to gain from inventing the telephone. Fortunately Bell introduced his invention into a time with millions of potential customers, spread out on a continental scale. In the 1990s, of course, many new products enter a market of hundreds of millions of customers.

Said another way, Thomas R. Malthus had it exactly backward when he predicted that Earth's population would outstrip its resources, leading to ever-growing poverty. In a free enterprise system, growing population (market size) prompts more innovation, which stimulates the growth process. There is no guarantee of avoiding Malthus' dismal scenario in anything other than a market-based system.

Population is only one way markets grow. Rising incomes add to the number of people who can afford to splurge on the latest bells and whistles. Falling transportation costs and quickening information flows can enlarge markets. The dismantling of trade barriers can open whole new markets to U.S. producers. For many products yet to come, the market will be global, so the rewards for successful innovation figure to be even greater.


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