The Frontier View of ChangeThere are two ways of looking at what the frontier 'curve' is:
- New products; and
- Product frontier.
Where does innovation fit? Take note for example of the capitalisation of R&D expenditures. Is R&D really capital in the same way a factory is or an office block for a KIBS or purchasing computer equipment - I'm not sure.
At present there is a debate going on about slowing innovation.
Slowing Technological Change: The Bernanke view
Back in May this year (2013) Ben Bernanke chairman of the Fed Reserve made an interesting speech on economics, growth and technology
The speech reads in part
Fifty years ago, in 1963, I was a nine-year-old growing up in a middle-class home in a small town in South Carolina. As a way of getting a handle on the recent pace of economic change, it's interesting to ask how my family's everyday life back then differed from that of a typical family today. Well, if I think about it, I could quickly come up with the Internet, cellphones, and microwave ovens as important conveniences that most of your families have today that my family lacked 50 years ago. Health care has improved some since I was young; indeed, life expectancy at birth in the United States has risen from 70 years in 1963 to 78 years today, although some of this improvement is probably due to better nutrition and generally higher levels of income rather than advances in medicine alone. Nevertheless, though my memory may be selective, it doesn't seem to me that the differences in daily life between then and now are all that large. Heating, air conditioning, cooking, and sanitation in my childhood were not all that different from today. We had a dishwasher, a washing machine, and a dryer. My family owned a comfortable car with air conditioning and a radio, and the experience of commercial flight was much like today but without the long security lines. For entertainment, we did not have the Internet or video games, as I mentioned, but we had plenty of books, radio, musical recordings, and a color TV (although, I must acknowledge, the colors were garish and there were many fewer channels to choose from).
The comparison of the world of 1963 with that of today suggests quite substantial but perhaps not transformative economic change since then. But now let's run this thought experiment back another 50 years, to 1913 (the year the Federal Reserve was created by the Congress, by the way), and compare how my grandparents and your great-grandparents lived with how my family lived in 1963. Life in 1913 was simply much harder for most Americans than it would be later in the century. ....
Firstly; lets deal with the purely ridiculous understanding of the past and present.
- "Commercial flight was much like today"
- Look at ANY cost estimates and air travel is massively cheaper now than in the 1960s. Australia due to its isolated island but reasonably wealthy status seems to be a good test case for the Bernake view. For example, in 2012 there were 8.1Million overseas trips by Australians. That is the equivalent of more than 1/3 of the population making one international trip in the year (pop in 2010 =22.3m . The Australian Bureau of Statistics reported that for 2010 there were 13.4m outbound passenger movements in total [equivalent to 60% of the pop] (YearBook 2012).
- In 1962-63 (a decade before the 747) there were 247,827 passengers that left Australia for overseas by aircraft - that is 2.36% of the population for that year (Year Book 1967).
- The change in commercial flight is simply massive. The planes may look somewhat similar but the change is beyond transformational - Aust air traffic as % of pop has got up close to not 10X but close to 30X.
- "For entertainment, we did not have the Internet or video games"
- - spoken like a retiree - the internet is primarily not about entertainment, and in the immediate future with the 'internet of things' a substantial proportion of it will not be websites, which is true even now. Modern international supply chains or international finance would simply be impossible without existing digital infrastructure.
An argument for the TechnosphereTo examine the idea of change behind the curve let's take a closer look at Bernanke's perspective.
It can be difficult to comprehend just how far life really has changed. So I offer this. It was filmed in 1964 (close to Bernanke's date) but in Brisbane Australia and close enough to the time I was born in the town I was born in, so this video brings back a number of memories. Obviously, it is a government propaganda piece for advertising outside of Australia but it does give a feeling for life in the sixties for the middle class.
So you tell me, does this video support the Bernanke view? Okay, there is a tv and cars but; has there been little innovation? The point that captures my imagination about this film is not the state of the technology not the cars, trams, telephone etc but the disconnectedness of it all. Every piece of technology is a separate individual entity.
The blokes sanding timber have no computer controlled cutting equipment. and the stevedores are working with their hands. Everywhere you look there is something that is hard to put your finger on.
What we are fast moving to a grid of technologies where the internet of things has everything wired together.
Change behind the curveThe technological productivity frontier is not enough to explain how changes in the very wiring of the economy is changing. The problem is that we tend to take a business / industry focus to innovation not an economy wide perspective. Much of the academic literature will focus on the patenting in x product classification in a particular country or increasing globally.
But take one just one example from the little film above, the loading of a ship. Notice that it was being done by hand. No containers. Containerisation has facilitated not just a change in the volume of trade, but also the nature of the products that could be traded (delicate products), but also the port city configuration of the global economy has grown stronger.
Why have companies been able to improve the efficiency of aircraft so much; two answers; computing power in design and electronics controls in the planes.
In academic circles, the big movement in the 1990s was to move from the heroic innovator to the innovation systems idea. Innovation is not developed by businesses in isolation. We need a similar transformation in the 21st century. It matters less how an individual technology moves forward than how those technological changes will facilitate changes throughout the economy.