Winter 1997

FOSTERING NEW TECHNOLOGIES

John Campbell's "Perpetual Uncertainty: The Emergence of Technologies" (Fall 1996) gives readers a nice sense of the complexities in technological change, and its connections to a society's social, economic, and scientific structures.

Thus Thomas Edison, the quintessential innovator, combined extraordinary capabilities as both inventor and entrepreneur. In the best-known example, electric lighting and power, Edison invented everything from the high-resistance lamps to the meters needed to make the system work technologically and economically, and established companies to make the equipment and utilities to generate and distribute power.

As Mr. Campbell asserted, J.P. Morgan financed his operations. (Although Morgan came late, putting Edison's companies together with those of competitors to form General Electric in 1892.) There is an irony here, for Edison's type had no place in such a corporation; and the research labs of large institutions (for which he was partly responsible) came to dominate technical innovation for much of the twentieth century.

But as Mr. Campbell points out, times have changed. A wave of "creative destruction" has brought opportunity for new forms of organization and new technologies. Invention and innovation have migrated back into entrepreneurial start-ups -- firms that Edison would recognize quite well. Deregulation, globalization, and reengineering have upset the entrenched industrial structure. We need only take care that they don't destroy the very social institutions that gave them life.

Professor Leonard S. Reich
Science, Technology, and Society Program
Colby College, Waterville, Maine

NOW FOR THE DEMAND SIDE

Jane Katz's article, "To Market, To Market" (Fall 1996) did a marvelous job of describing the perspective of the high-tech firm -- perhaps we should label this the 'supply-side' view. She describes a world filled with uncertainty, risk, and the thrill and agony of rapid learning. It is driven by inventors and innovation, and an 'if we build it, they will come' attitude. But she ignored the viewpoint of buyers and users of new technologies -- the 'demand-side' perspective. They also face uncertainty, risk, and rapid learning, all of which impact on their willingness to purchase.

In adopting a new technology, businesses face change on a number of potentially costly fronts. There will be change in either manufacturing or business process systems, so the payoff must be adequate, especially given the short life-cycle for many new technologies. Those who work with changed systems must overcome their natural resistance to doing things a new way. This human cost is typically unmeasured, but very real. Finally, there are performance risks. If the process or product is not broken, the fixer needs confidence that the fix really is a better solution.

Buyers adopt new technology only when they anticipate that costs of change will be less than the value the new technology delivers in the marketplace. Successful high-tech firms will keep this in mind when formulating strategy.

Professor Valerie Kijweski
Department of Marketing
University of Massachusetts, Lowell

TECHNOLOGY IS EMBODIED

F.M. Scherer, in "Raising Productivity on the Technological Frontier" (Fall 1996), drew attention to the fact that many technological innovations are embodied directly in new equipment and cannot be realized without new capital investment. This makes it difficult to disentangle the effects of new technology and new investment on productivity growth.

One way to assess the importance of embodied technological change is to measure the "vintage effect." If new capital brings better technology, then productivity should rise with the pace of capital investment, and as the age of the capital stock declines. We would see a correlation between change in the average age of capital and the rate of productivity gain.

The chart derived from my article, "The Productivity Slowdown: The Culprit at Last?" (American Economic Review, December 1996), highlights this relationship. It shows productivity growth very strong in the '50s and '60s when investment was brisk and the age of capital falling. A rising vintage of capital -- and its embodied technology -- then explains about half the post-1973 slowdown in U.S. productivity growth.

Professor Edward N. Wolff
Department of Economics
New York University

We welcome your letters. Send them to:
The Federal Reserve Bank of Boston,
Regional Review,
P.O. Box 2076,
Boston, MA 02210