Directed technological change

One of the things that has always marked out economic history as a subfield within economics is its focus on the economics of technological change. The Habbakuk thesis held that the high wage environment of the United States helps explain the nature of that country’s technological progress in the 19th century, and Bob Allen has recently argued that high wages and cheap energy are key to understanding the British Industrial Revolution.

I was pleased to see John Bruton referring to this in his recent LSE speech.

Since this is the weekend, here is another example of directed technological change (or at least, such is Roger Cohen’s interpretation), this time from Denmark.

20 thoughts on “Directed technological change”

  1. @Kevin O’Rourke

    The Triple_A-Austerity brigade, and the LeuderAmadaans in IBEC & Simplistic Roight & few on this blog & Angie/Nicky Axis who focus on simplistically cutting labour costs as a universal panacea and forget wealth and value creation in particular industrial sectors would do well to also read the following; and a little wake up re Policy on our so called great ed system, and p1ss poor technology/R&D in indigenous and parts of public sector. Rem Singapore – where Lee doubled minimum wage to force change in industrial policy up value chain …….. this is only real future option …….

    Unit Labour Costs in the EuroZone

    http://www.levyinstitute.org/publications/?docid=1352

    Study the graphs ………… I’m also a fan of Danish industrial policy and how its science, tech, engineering, & business grads are trained ….

  2. @DO’D

    Reading has, regrettably, a significant Op Cost! Not to mention the psychic cost of actually attempting a meaningful intellectual engagement with the subject matter.

    The ed system is KO. Its the teachers + curricula which are the stumbling blocs. Its the difference between making your own roux or buying a packet of freeze-dry.

    Thanks again for that ref source.

    BpW

  3. @ Kevin O’Rourke

    Can you recommend any articles on the topic please? (I can’t download that book 🙁 )

    I know Acemoglu has some articles on the topic. To be honest I think there are some large holes in the skill-biased technical change hypothesis, but I’d like something with a longer term perspective (ie, longer than the computer revolution).

  4. @Michael Hennigan

    No. Singapore does not have an ‘official’ minimum wage – and is subject to debate there at the mo … any google … a little poetic license but similar effects

    Lee Kuan Yew – maybe 30 yrs ago [can check out later] – presently opposes minimum wage – but back then as Dictator essentially, forced low wage and low value added production into Malaysia – linked Ed/Skills to Industrial Policy – and forced Singapore up-value-chain and up-wages: basically he made low-wage production unprofitable ….. and there is more to productive profit than wages, which is the point I’m trying to make …

    On your other point [noted in paper I linked to above], and noting the share of spoils between capital-labour in US – one would like to see mentions of these shares etc – Germany and Dutch follow the US path —- capital takes the lion’s share …[both roight_wing admins being most vocal at the mo]…. but the IBEC boys never mention Tech or Capital …[prob never heard of Keynes or Marx]. as for US 40% of profit precrash came from financial sector – it was ‘funny money’ ….

    … but I’m one of the lucky ones – I’m only getting into this stuff in past 3 years – and only these days figuring out why most of the stuff used to p1ss me off as ridiculous before then – especially the idiotic efficient markets hypothesis and the even more idiotic idea of rationally acting agents in a world of perfect information [maybe on Mars – I’ve never met one! 7_of_9 has been around the universe, and she has never met one either] …… and why using common sense and/or sound judgement would have got me an ‘F’ in practically all macro, and most micro economic modules had I sat them … strangely enough, some actually speak to me these days …. heterodoxy is in vogue … even kommy_kriketers may be taken in a positive tone …. reckon it might be a good time to get into publishing kommie-kommon-sense-kriketer-handbooks- in ekonomiks – Both Marx and Keynes started from somewhere similar ….

    @Brian Woods

    Rem there are NO models!

    @The Alchemist

    Fact: … a few years ago on a road trip in Northern Denmark – got a whiff – free range pigs. Stopped for a chat — each pig has a micro-chip attached, and his/her own little shack in the field – and this chip communicates with the feeder(which also has a chip) and when the feeder reads that said pig [which they can identify individually as the chips communicate) has had enough – it stops dispensing – if not, it provides more. The labourer is paid well; the farmer makes a profit.

    The rashers in Denmark are glorious …. & I hear the Ned_een in EEsst Cork was complaining that dere were too many IN-tell-ek-turals in the last cabinet (-; I could find more among the pigs in Northern Denmark …

  5. From what I could see in my time there, the Singapore government controlled the cost of export-critical labour, for example electronics HND’s by admitting qualified immigrants to keep wages at an internationally competitive level.

  6. @David O’Donnell

    I met a trade unionist rep from Singapore who was skeptical of the value of a min wage. This is very unusual. The only other country where trade unionists are skeptical of a national minimum wage tend to be the Nordic countries, but they have a very different situation of course.

  7. @ DO’D

    Thanks for the update. Mindsets? Reference Frames?

    Has to be something surely? Irrational rationals?

    BpW

  8. I remember circa 1988 in UCD learning that Irish business invested more in technology because the effect of access of labour to the UK market meant that wages were artificially high – that and employment protection legislation.

    It was seen as a negative in that it reduced employment in Ireland. But was it perhaps a positive ? In that it increased productivity. And since the implicatin is that what employment was on offer inIreland was for higher skilled, did it help to spur skills development in the labour force? thus helping create the environment that was attractive to MNCs?

  9. @ David O’Donnell

    Avg monthly earnings in mfg in Singapore are at €2,700 versus v €3,600 in Ireland.

    European hourly mfg compensation is ahead of US and Irish social security fringe is much lower than in other European countries.

    In Ireland, this comes at a cost for individuals who experience pensioner poverty later in life.

    US and int labor comparisons here:

    http://www.finfacts.ie/irishfinancenews/article_1019769.shtml

    @ All

    The industrial revolution information is interesting but today, there are compelling reasons to use technology besides the labour issue.

    In Ireland less than 4% of the workforce are paid the minimum wage but at a slightly lower pay rate than Ireland, over 17% of the French workforce were on the minimum wage in 2005.

    The Irish non-labour costs for manufacturing are high; big MNCs can do a deal for cheap electricity but the typical SME has no such clout.

    For a while there was a dream in the West that manufacturing would be done cheaply in places like China while high-paid ‘knowledge workers’ would have what Micheál Martin used to term ‘high calibre’ jobs (high paying jobs which could also be mind numbingly boring).

    That is now bunk as R&D is chasing the mfg jobs to Asia and the Indian Tata group is Britain’s biggest manufacturing employer.

    Applied Materials, one of the world’s biggest supplier of machines that make solar panels and computer chips, whose headquarters is in Santa Clara, in Silicon Valley, along with Intel’s, has transferred its chief technology officer to China. It has opened a research facility in Xi’an – – a city about 600 miles southwest of Beijing, known for the discovery nearby of 2,200-year-old terra cotta warriors – – which has 47 universities and other institutions of higher learning, churning out engineers with master’s degrees who can be hired for $730 a month, according to the New York Times.

    Intel co-founder Andy Grove says it is foolish to believe that R&D can be maintained separately from mfg; in Ireland it’s foolish to believe that university research can be the genesis of a jobs engine – – a missing item from the jigsaw is the market.

    High pay can be fine but there is a problem when costs get out of line with those of advanced countries.

    Don’t be fooled by positive unit labour cost data – – when a big sector such as pharma/medical devices’ output jumps without any additional labour, voilà unit labour costs fall!

  10. @Michael Hennigan

    China is still subject to technology sanctions by the USA and others, and the sanctions are effectively applied extra-territorially as firms violating them could not do business in the USA. Certainly China is educating its workforce and acquiring technology where it can, e.g. £2Bn for the shell of Rover just for its engine technology, but, whatever the image, it’s still a long way behind India let alone western countries.

    The best parts of its military, always the canary in the technological coal mine, are kitted out with Russian gear of a quality China cannot match and China has struggled with even basic technologies like turbofan engines — 60s tech in the USA etc.

    While I’m sure it has scientific brains to burn when it needs an all-out effort on some specific item, the image of China as a technological superpower is an illusion. Just as is the case here, being a technological annex of the USA is a lot simpler than replicating difficult developments independently. Generally, you cannot reverse-engineer design principles from production plant and even though the fundamentals are printed in the academic literature, western firms still have layers of proprietary technologies.

  11. @ AK:

    China is a mercantilist state. What they cannot purchase (actual production facilities), they will steal (proprietary property, patents, etc.). That’s fact.

    The military issue is a plausible distraction. Who, what, where are they going to challenge? invade? attack?, and not get a nasty response for their trouble? A proxy war – sure, but modern warfare is extremely destructive. China is land and sea-locked. They tried invasions in the past and got into a lot of bother from disgruntled folk.

    China is poor – relatively speaking, in three essential economic ingredients: arable land, fresh water and liquid fossil fuel. They are dependent upon ‘the kindness of strangers’ and will behave accordingly.
    And they are.

    Someone (outside of China) has to puchase their excess stuff. They could of course incomize (sic) their own citizens, but selling to yourself is not much fun. Bubbilization. And we know where that got us!

    BpW

  12. @ KO’R,

    I watched Sergio Leone’s film, Once Upon a Time in the West, on Friday evening. It is an interesting and critical look at the nature of ‘development’ as it spread across into the untamed wilderness of the American West. The railroad towns, the fortunes to be made, the fortunes to be lost. The clash between base methods, and those of the more sophisticated establishment. It’s a movie that can be understood on many different levels, and each time I return to the movie, I find several more, which always focus my imagination on some new aspect.

    One of the themes in the movie, and one I had missed before, was summarised in one of the lines from Harmonica, to his adversary, Frank. Frank had been hired on the east coast by the wealthy railroad empire builder, to remove small obstacles along the track. As they neared the Pacific side of the continent, Harmonica says to Frank, So you have discovered you are not a business man, after all. BOH.

  13. @Michael Hennigan

    Ta for the facts: Singapore is doin OK … based on policy decisions. Is Raffles still there? Have one on me .. er.. credit .. tab (-;

  14. @Adrian Kelleher

    I think your view of the technological gap and rate of closure between China/India and the technology leaders (US/EU) is a bit simplistic.
    85% of all the worlds tech knowledge resides in patent databases which are free for anyone to read and learn from, and include ‘design principles’.
    Technologists learn pragmatic skills as against academic ones through the medium of the project, i.e. localising and establishing processes for making stuff, not just designing and theorising about it which is what many Western firms (including my own) presently do. China in particular is the preferred factory of much of the West and the West has less to teach Chinese technologists every year and more to learn.
    The US FAR regulations you refer to always lag actual research fronts and are a bit facile in an internet enabled world where research is competitively published and globally available.
    Japan went from a postwar devastated industrial economy with uncompetitive goods to global leadership in innovation and manufacturing in many engineering fields in 30 years. Korea repeated this, commencing in the 70’s in 20 years, while some of its firms such as Samsung and LG will displace Japanese equivalents such as Sony for innovation capacity. Western firms cannot compete with companies such as these.
    How long will it take China’s leading consumer goods and engineering companies to bulldoze their way to innovation leadership then? Firms like Hauwei are nearly there.
    The rise of the FIRE economy and global sourcing in Anglo-America and its satellite states (including Ireland) has partially destroyed engineering and innovation capability as the lure of quick bucks sidelined the slow acquisition of knowledge and wealth over a lifetime. Fortunately for A-A there are some remaining sectors which are still dominated by A-A-based firms such as medical devices, automotive and aerospace. I predict that this will not last however.

  15. @Tony Owens

    I think some confusion arises partly from the rather over-used phrase ‘high technology’. Mobile phones and PCs include high technology within them but are not high-technology themselves. Likewise, much of the software often described as ‘high-tech’ is fairly simple to engineer in reality. Likewise, Japanese production methods proved fairly easy to emulate abroad despite their real novelty. This isn’t always the case however, and it’s the stuff that’s hard to replicate that I’d tend to consider ‘high technology’.

    While I agree about the importance of experience including production experience in commercial technology, this cuts both ways. Firms like Boeing or Intel have literally generations of experience in their lines of business. Intel essentially refines a single production process further and further, which maybe means it needs to keep racing to stay ahead.

    On the other hand, Boeing’s line of business involves complex products and minor but novel challenges crop up frequently in each design. Practical experience is of immense benefit in this.

    The Rover example shows how expensive it can be in practice to develop applications that most people wouldn’t associate with the word ‘high technology’ — £2Bn is a lot for a diesel engine. Previously, Chinese auto manufacturers had simply purchased last-generation plants whole and moved their equipment.

    The point about published literature is interesting and intersects with my casual interest in military technology. All the operating principles of modern sensors are published, and the techniques of signal processing needed to make them useful and resistant to jamming are well known. The USA is nonetheless completely confident of its technological lead which tells its own story.

    China has yet to roll out a single system that matches even early-80s US capability, and this can be determined without any access to secret information simply because key techniques have been absent from the Chinese repertoire. Systems actually in service are even more basic. India has had more success up to now, engaging on occasions as a technology partner with Russia rather than as a customer.

    I’m not so sure Japan was the backwater you describe it as being in 1945. While I don’t know about their production efficiency, they kept pace with all technological developments in the inter-war period. Hideki Yukawa did his Nobel-winning work there in the 1930s and some critical technologies of the era such as the Yagi antenna were even invented in Japan.

  16. @ TO: “The rise of the FIRE economy . . .”

    Funny how little mention the FIRE gets on this site. Its not like its exactly hidden from view. Perhaps its the specs folks are wearing!

    BpW

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