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Localised and Biased Technologies: Atkinson and Stiglitz's New View, Induced Innovations, and Directed Technological Change
Article first published online: 29 MAR 2015
DOI: 10.1111/ecoj.12227
© 2015 The Authors. The Economic Journal published by John Wiley & Sons Ltd on behalf of Royal Economic Society.
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The Economic Journal
Special Issue: 125TH ANNIVERSARY ISSUE
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- I am grateful to Anthony Atkinson and Andrea Galeotti for useful suggestions.
Abstract
This
study revisits the important ideas proposed by Atkinson and Stiglitz's
seminal 1969 paper on technological change. After linking these ideas to
the induced innovation literature of the 1960s and the more recent
directed technological change literature, it explains how these three
complementary but different approaches are useful in the study of a
range of current research areas – though they may also yield different
answers to important questions. It concludes by highlighting several
important areas where these ideas can be fruitfully applied in future
work.
Atkinson and Stiglitz's seminal paper in the Economic Journal
1969, ‘A New View of Technological Change’, took an important departure
from the orthodoxy of its time, which assumed that technological
improvements could be viewed as increasing productivity at all factor
proportions (in particular, at all combinations of capital and labour).
In the language of modern growth theory, technological progress was
neutral – in the simplest form, Hicks neutral, creating the same
proportional gain in output regardless of factor proportions, though the
Harrod neutral version that became more central to growth theory is
also broadly similar (Acemoglu, 2009).
Atkinson and Stiglitz, instead, noted that it would be much more
plausible to assume that technological progress is localised and
improves the productivity of the techniques (or ‘activities’) currently
being used and perhaps some similar techniques with neighbouring
capital–labour ratios, rather than all techniques regardless of whether
or not they are being used and how far they are from the current
practice. This situation is illustrated in Figures 1 and 2, adapted from Atkinson and Stiglitz (1969). Figure 1 represents a stylised version of the orthodoxy, while Figure 2 shows the improvement at the technique currently in use – corresponding to the current capital–labour ratio, – together with an improvement in ‘neighbouring’ techniques (as well as a further improvement at which we will discuss later).
Atkinson and Stiglitz (1969,
p. 575) emphasised how their new view would be natural in the context
of ‘learning-by-doing’ but did not neglect the case where technological
progress results from research and development activity, writing:
But where technical progress is localised to one technique, there is a second important question [in addition to the optimal amount of research and development] that we must answer – which technique should we improve? Research activity can be directed towards the improvement of any process but once it has been carried out, the resulting knowledge is specific to one particular process.
Though
they did not emphasise it, another important implication of this new
view – again using a term that has since become more widely used – is
that technological change is biased. This can readily be observed from
Figure 2,
where the slope of the production function, corresponding to the
marginal product of capital in this case, changes very differently at
different ratios of capital to labour. Moreover, as the above quotation
indicates, Atkinson and Stiglitz did anticipate that technological
change has to be modelled as directed – towards specific capital–labour
ratios or the specific techniques.
Atkinson
and Stiglitz were not the first to make these observations. As they
note in passing, an earlier literature on ‘induced innovations’, which
can be more directly viewed as the harbinger of the endogenous growth
literature of the 1980s and 1990s, also concerned itself with the same
questions. Just like Atkinson and Stiglitz's new view, the induced
innovation literature was ahead of endogenous growth in one sense. It
went beyond studying the process of growth at the aggregate and also
strove to understand what type of innovations the economy would generate
and what the implications of these innovations were for factor prices
and the factor distribution of income (but differently from Atkinson and
Stiglitz's approach, it did not attempt to unpack the production
function by working with technological progress at the level of
techniques or ‘activities’ ). It seems to have been Hicks (1932, p. 124) who first discussed these issues in The Theory of Wages, in particular when he wrote:
A change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind – directed to economizing the use of a factor which has become relatively expensive
This was followed up with the significant progress by, inter alia, Kennedy (1964), Drandakis and Phelps (1965), Samuelson (1965) and Ahmad (1966) – interestingly, all except Samuelson's article were also published in the Economic Journal in the 1960s.
Despite
these important contributions, the orthodoxy that Atkinson and Stiglitz
were criticising is still fairly influential. But important advances
that are closer in spirit to Atkinson and Stiglitz's vision have also
been made, in large part because several central questions, including
the role of appropriate and inappropriate technology in economic
development, skill-biased technological change and wage inequality, the
relationship between new technologies and tasks and the impact of trade
on technological change, necessitate a clear departure from the
conception of neutral technological change towards localised, biased and
directed technological change.
In the
rest of this short article, I first explain the logic of both the
induced innovation literature and Atkinson and Stiglitz's seminal paper.
In Section 'Directed Technological Change', I contrast them to the more recent directed technological change literature. In Section 'Applications',
I discuss how Atkinson and Stiglitz's insights have been part of
certain modern analyses – even though in many cases these analyses
themselves did not directly build on their work.