2.7.2 Technological change

Changes in technology do not arise autonomously – they arise through the actions of human beings, and different social and economic systems have different proclivities to induce technological change. The range of actors participating in the process of technological change spans the full range of those that use technology, design and manufacture technology, and create new knowledge.

The process of technological change has several defining characteristics. First, the process is highly uncertain and unpredictable. Firms planning research toward a well-defined technical goal must plan without full knowledge regarding the potential cost, time frame, and even the ultimate success. Further, the history of technological development is rife with small and large examples of serendipitous discoveries, (e.g. Teflon) whose application is far beyond, or different, than their intended use.

A second defining characteristic of technological change is the transferable, public-good nature of knowledge. Once created, the value of technological knowledge is difficult to fully appropriate; some or all eventually spills over to others, and in doing so the knowledge is not depleted. This characteristic of knowledge has both benefits and drawbacks. On the one hand, an important discovery by a single individual, such as penicillin, can be utilized worldwide. Knowledge of penicillin is a public good and therefore one person’s use of this knowledge does not preclude another person from using this same knowledge – unlike for capital or labour, where use in one task precludes use in an alternative task. On the other hand, the understanding by potential innovators that any new knowledge might eventually spill over to others limits expected profits and therefore dampens private-sector innovative activity. Thus intellectual property rights can serve both as a barrier and an aid in technology change. A final, third feature of technological change is its cumulativeness, which is also frequently related to spillover effects.

There are numerous paradigms used to separate the process of technological change into distinct phases. One approach is to consider technological change as roughly a two-part process, which includes:

(1) The process of conceiving, creating, and developing new technologies or enhancing existing technologies – the process of advancing the ‘technological frontier’.

(2) The process of diffusing or deploying these technologies.

These two processes are inextricably tied. The set of available technology defines what might be deployed, and the use of technology affords learning that can guide R&D programmes or directly improve technology through learning-by-doing. The two processes are also linked temporally. The set of technologies that find their way into use necessarily lags the technological frontier. The useful life of technologies – their natural turnover rate – helps to drive the time relationship. Car lifespans can be in the order of 15 years, but the associated infrastructure – roads, filling stations, vehicle manufacturing facilities – have significantly longer lifespans, and electric power plants may be used for a half-century or more; hence, the average car is substantially younger than the average coal-fired power plant and much of its associated infrastructure. The nature of the capital stock (e.g. flexifuel cars that can use both conventional petrol and ethanol) is also important in determining diffusion speed.