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The most technologically progressive decade of the 20th century
Can you guess? According to economic historian Alexander Field, it is (controversially) the 1930s. Opening paragraph:
Because of the Depression’s place in both the popular and academic imagination, and the repeated and justifiable emphasis on output that was not produced, income that was not earned, and expenditure that did not take place, it will seem startling to propose the following hypothesis: the years 1929–1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history. The hypothesis entails two primary claims: that during this period businesses and government contractors implemented or adopted on a more widespread basis a wide range of new technologies and practices, resulting in the highest rate of measured peacetime peak-to-peak multifactor productivity growth in the century, and secondly, that the Depression years produced advances that replenished and expanded the larder of unexploited or only partially exploited techniques, thus providing the basis for much of the labor and multifactor productivity improvement of the 1950’s and 1960’s.
More concretely, we have this:
Within manufacturing, advance took place across a variety of fronts (Michael Bernstein, 1987, especially Ch. 4). There were, to be sure, older industries such as textiles, leather goods, and apparel, where productivity growth was slow or nonexistent. But there were also a remarkable number of dynamic sectors, generating new process and product innovations, with varying levels of commercial exploitation before the war. Petrochemicals is an obvious example. At companies such as Dupont, advances in chemical engineering generated a host of new products, including Lucite (sold as Plexiglas by a rival manufacturer), Teflon, and Nylon (Peter H. Spitz, 1988; Stephen Fenichel, 1996). Even in an older industry such as automobiles, innovation and product quality improvement during the decade proceeded at a rapid rate. Indeed, Daniel M. G. Raff and Manuel Trajtenberg (1997) view the decade as the last one in which there were truly revolutionary improvements in internal combustion engine powered vehicles. But progress was not limited to manufacturing: communications services, electric utilities, and transportation were also standouts. TFP [total factor productivity] growth in the telephone industry accelerated significantly after 1929 before falling precipitously during the war years. In electric utilities, MFP [multi factor productivity[ growth more than doubled comparing 1929–1941 with 1919–1929; in contrast to the telephone case, high rates persisted after 1941...
Labor productivity in railroads -- still one fourth of the U.S, capital stock at the time -- grew as well. Using steel with concrete also became far more productive.
I found the link to this well-known article in a very interesting post on economic recovery from the Depression.
Posted by Tyler Cowen on March 12, 2009 at 06:48 AM in History | Permalink
Comments
Long wave theory is not respectable, partly because it has
never been widely accepted that there are sufficient endogenous
mechanisms to make it operate. But those who push the idea,
and in its most widespread form tying it to large-scale
technological innovations, have long argued for such innovations
to soar during deep downturns, giving this endogenous mechanism
a way of operating. So, call yourself, Tyler Kondratieff.
Posted by: Barkley Rosser at Mar 12, 2009 10:50:41 AM
Some of the libertarian boys (and girls) have been floating the idea that a small tweak to top marginal rate will kill our innovation ... what was top rate in that best decade evar?
(Note, I'm actually leaning to a high top rate now, but only on very high incomes - 5 million a year? Something to provide a more general solution to the short term compensation and "looting" problem.)
Posted by: odograph at Mar 12, 2009 11:03:51 AM
I think I'd feel more comfortable with his conclusion if we selected an interval that didn't overlap with WWII. By 1941 the US was already benefiting from the flurry of innovation coming out of a war-torn Great Britain. That’s a fairly big lurking variable.
So does the story change if we select say, 1936, as our endpoint? He might be right, but I’d want to see the data to support it.
Posted by: In Check at Mar 12, 2009 11:17:54 AM
I am not sure how well people have measured the underground economy in these years. The number of people who worked off the books, handymen, domestics, etc.
Also Professor Zangwill used to write about lighting strategies: how organizations facing tough times can quickly streamline out wasteful methods in the face of adversity
Posted by: DanC at Mar 12, 2009 11:36:32 AM
look at what is going on now with wireles and smart tech stuff getting smaller and more interconnected. even if we have a long way to go before getting back to expansion the innovation between now and then will be tremendous.
we already have a decade of no gains in the stock market but most people had crummy dial-up internet, a pager and no i-pod at best 10 yrs ago. no flat screen monitors or tv's ect...
Posted by: oops at Mar 12, 2009 11:56:26 AM
This fits in pretty well with the ideas that such a downturn is the result of massive misallocation of resources, that reallocation can't be accomplished without pain, and that changing the allocation will ultimately improve the situation.
Posted by: bbartlog at Mar 12, 2009 11:59:24 AM
How interesting!
Oddly enough, this is in line with the implications of Gregory Clark's article from last month about the failure of modern economic theory. My conclusion was that physics, mathematics, (maybe) computing science and (if you believe Clark) economics all had their last major paradigm developments in the 1930s.
http://www.knowingandmaking.com/2009/02/reshaping-economics.html for more.
Posted by: Leigh Caldwell at Mar 12, 2009 2:18:18 PM
Since output growth is the sum of productivity and input growth the weak recovery in employment in the 1933-41 period can be due as much to the strength of productivity as to other factors.
Does this imply that using the unemployment rate as a measure of the strength of the economy from 1933 to 1941 can be very misleading?
Posted by: spencer at Mar 12, 2009 3:27:59 PM
Daniel M. G. Raff and Manuel Trajtenberg (1997) view the decade as the last one in which there were truly revolutionary improvements in internal combustion engine powered vehicles.
This is true. The Model T was last made in '27, then you've got the Model A after that. The Model A has all the basic features of a modern automobile, where the T had more in common with a horse drawn wagon.
In fact, in some ways it is shocking how much a Chevy Tahoe or other SUV has in common with, say, a 1932 Ford. Front engine, rear wheel drive, full frame, V8 engine, etc. etc. etc.
All that has happened since then is refinement.
Posted by: Buzzcut at Mar 12, 2009 4:01:09 PM
Computer science has had major advances in every decade since it was invented. This is true in basically every subfield of computer science.
In math you have the classification of finite simple groups, which was a huge achievement. Godel's theorem, the example given, isn't even very important for most mathematicians (they just ignore it). And areas like coding theory, (quantum) information theory that didn't even exist
Posted by: Andy at Mar 12, 2009 4:20:41 PM
The lesson: Necessity is the mother of invention.
Posted by: fish on a bicycle at Mar 12, 2009 4:48:57 PM
"By 1941 the US was already benefiting from the flurry of innovation coming out of a war-torn Great Britain."
What flurry of innovations were coming from Britain in 1941?
Posted by: assman at Mar 12, 2009 5:31:46 PM
How would this show up in aggregate TFP? How would it show up in the Cole and Ohanian study who argued that aggregate TFP grew quite quite quickly during the great depression---or at least returned to trend---but that the allocation of labor was not 'optimal' during the 1930s. ie, not enough hours worked given the TFP growth.
On the face of it, the evidence seems roughly consistent with their study. I am sure someone will correct me...
Posted by: unclear at Mar 12, 2009 6:07:41 PM
"What flurry of innovations were coming from Britain in 1941?"
I was thinking primarily of the works of Tommy Flowers, John Baird, Alan Turing, Robert Watson-Watt and more generally the good people at Marconi.
That's off the top of my head, and reflects my comp-sci/engineering bias. I'm sure if you spend a couple of minutes with Google you'd be able to find a pretty healthy roster of names in other disciplines.
Posted by: In Check at Mar 12, 2009 6:22:29 PM
I came to roughly the same hunch awhile ago, perhaps from reading a lot of sci-fi from the late 1930s and 1940s.
Posted by: Steve Sailer at Mar 12, 2009 8:12:22 PM
His headline's wrong, of course; his paper has NO DATA AT ALL about innovation, ONLY about productivity improvements, which may correlate, but isn't the same thing atall.
I'm pretty dubious that the right answer isn't the 90s, because we had the most researchers then, and they were the most productive then.
Mind you, computer research output couldn't even begin to be measured by one of the big standard way, patents. Patents and CS are like oil and water. Probably you'd have to go with some mixture of papercount and citation count.
Some of the libertarian boys (and girls) have been floating the idea that a small tweak to top marginal rate will kill our innovation ...
...and, yeah, because that Laffer Curve will start mattering alot to a moderately-taxed US all of a sudden after 30 years of mattering little and just producing deficits when relied on? And, I see we're a little out of touch on what researcher and new-business pay look like....
Posted by: Jon Kay at Mar 13, 2009 1:09:58 AM
"Tommy Flowers, John Baird, Alan Turing, Robert Watson-Watt and more generally the good people at Marconi. "
I wonder how many of those people would have been known outside of a very limited field, if it weren't for the war. The war provided a stage for heros-in-lab-coats like no other time, and the dramatic background may make innovations and their inventors look more important then the same innovations would have in other periods.
Posted by: Zamfir at Mar 13, 2009 4:28:20 AM
“I wonder how many of those people would have been known outside of a very limited field, if it weren't for the war.”
Agreed.
Posted by: In Check at Mar 13, 2009 9:43:32 AM
“I wonder how many of those people would have been known outside of a very limited field, if it weren't for the war.”
Agreed.
Posted by: In Check at Mar 13, 2009 9:45:06 AM
“What flurry of innovations were coming from Britain in 1941?”
AM, I had a bit more time to dig around and found the link below. It’s a lot more relevant to your question than the off-the-cuff response I gave yesterday. Hope it helps.
http://www.spartacus.schoolnet.co.uk/2WWlendlease.htm
Excerpt: Lend-Lease also involved Britain's surrender of her rights and royalties in a series of British technological achievements…the achievements of our scientists and technologists had equalled the most remarkable eras of British inventive greatness. Radar, antibiotics, jet aircraft and British advances in nuclear research had created an industrial revolution all over the developed world. Under Lend-Lease, these inventions were surrendered as part of the inter-Allied war effort, free of any royalty or other payments from the United States.
Posted by: In Check at Mar 13, 2009 9:45:45 AM
Neither Baird nor Turing needed the war to become famous. Baird invented TV. Turing, especially, did jaw-dropping work in several different ways, especially math, most notably founding computer theory, but also in math-related gadgets like a thing called the computer, which you may've heard of.
Turing did create the first real computer during the war, but I can't make myself believe he wouldn't've done it even without the war; it just would've taken longer because he would've had to scare up a grant and would've had less help.
Lest you think we can't do that sort of thing today, remember, nanotech is getting its start in these years, with no shortage of attached brainpower.
Posted by: Jon Kay at Mar 13, 2009 4:24:56 PM
BETTER LATE THAN EVER, NO?
”Long wave theory is not respectable, partly because it has never been widely accepted that there are sufficient endogenous mechanisms to make it operate. But those who push the idea, and in its most widespread form tying it to large-scale technological innovations, have long argued for such innovations to soar during deep downturns, giving this endogenous mechanisms way of operating. So, call yourself, Tyler Kondratieff.” --- Barkley Rosser
Good reference, Barkley. And though I've been under a deadline and just found this thread about an hour ago, what follows might just help a fair number of Marginal Revolution devotees understand better what you have just said --- always assuming, of course, anyone will still be reading this thread’s contents. If they do, then they might also find that in some areas of economics --- innovation studies ---the most famous use of long-wave theory is still influential.
……
1) Start Here With This Claim: The Most Influential Use of Long-Wave Cycles and the Impact of System-Changing Technological Innovation Derives from the Work of Joseph Schumpeter.
More specifically, in the fairly new field of innovation-studies --- a multi-disciplinary approach of economists, technology specialists, and a few sociologists as well --- Schumpeter has had the most influence, and by far . . . all this even though lots of updated work in the last three decades or so derives from his pioneer efforts in the 1930s and 1940s. Nor does his wide-ranging influence stop there. Of all the heterodox economists since the early 1920s, no scholar has more profoundly challenged the neo-classical orthodoxy of general equilibrium theory (GET) than Schumpeter --- at odds, please note, even mainstream Austrian economics.
…….
2) Schumpeter’s Rejection of GTE Clarified
As it happens, Schumpeter personally admired Walrus’s work, but he regarded it and all other neo-classical economics as static and hence fundamentally misguided.
In its place he insisted on the need for a “dynamic economics” that postulated ongoing, high-powered change as the core of a capitalist economy . . . the pace of change sometimes fairly steady and maybe even incremental for a certain period, but at other pivotal times rapid and full of dislocating flux and turbulence that bursts into life every few decades with a systemic transforming impact. On this dynamic view, there hasn’t been just one industrial revolution. By the end of the 1930s there had been three more. And those of us now alive can add the revolutionary changes that started in the 1970s, with the eruptive growth of the computer chip, the personal computer, and ICT technologies..
……
You get a good concrete idea of Schumpeter’s view of Walras’s general equilibrium theory from this quote of his outlook early in his career. Source: an articeby Jan Faltenberg
“Walras ( . . . ) would have said ---and, as a matter of fact, he did say it to me the only time that I had the opportunity to converse with him --- that of course economic life is essentially passive and merely adapts itself to the natural and social influences which may be acting on it, so that the theory of a stationary process constitutes really the whole of theoretical economics and that as economic theorists we cannot say much about the factors that account for historical change, but must simply register them. ( . . . )
I felt very strongly that this was wrong, and that there was a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained. If this is so, then there must be a purely economic theory of economic change which does not merely rely on external factors propelling the economic system from one equilibrium to another.
It is such a theory that I have tried to build ( . . . )
It was not clear to me at the outset what to the reader will perhaps be obvious at once, namely, that this idea and this aim are exactly the same as the idea and the aim which underly the economic teaching of Karl Marx. In fact, what distinguishes him from the economists of his own time and those who preceded him, was precisely a vision of economic evolution as a distinct process generated by the economic systemitself.” (Schumpeter, 1937/1989, p. 166) FAGENBERG PP 128-29
……
3) Schumpeter’s Dynamic Approach Clarified
Consider now briefly Schumpeter’s efforts to work out an economic-dynamics and evolutionary growth theory --- at any rate some of its key concepts and assumptions.
In particular, consider his use of long-wave theory and how it’s explained by eruptive clusters of radically transforming technologies and organizational ideas that impact industrialized economies where, over time --- in the previous long-wave --- the once revolutionary technologies have been diffused, standardized, diffused globally in some other countries, and gradually, as the decades unfold, lost their ability to sustain anything but a declining rate of growth in productivity and per capita income. Sooner or later, Schumpeter claimed from his study of economic history and business cycles, inventors and ambitious, hard-driving business firms --- whether risk-taking entrepreneurs at the start, and later on, in the diffusion stages, new corporate giants using systematic R&D for added innovative improvements --- will challenge the status-quo and bring totally new products, totally new firms, new energy systems, and new and rapidly expanding whole industries.
Think, if it helps, of the revolutionary impact of the automobile industry and related industries --- all using Ford-like production techniques in the 1920s and 1930s . . . or, since the early 1970s, like the PC, the Internet, and other ITC fall-outs. All these radical and recurring innovations --- going back to the first industrial revolution of the 1780s --- come grouped in clusters, even if the fall-out takes decades; and when they burst into existence generate a jarring, system-wide impact. First on the economies of the lead innovators. Then, as they diffuse within those countries, eventually on other, fairly advanced follower-countries; And sooner or later, on on the entire global economy.
……
Nor is that all.
In particular, Schumpeter did not emphasize the diplomatic and military fall-out of these turbulent economic and technological changes, political science specialists like myself find a no less jarring revolutionary impact on the global distribution of economic, financial, and military power --- along with the diplomatic influence on others that ensue. In terse, down-to-earth terms, the divergent impact of these clustered revolutionary waves of new technologies on the world’s countries --- at any rate, with big populations and big economies --- explains the rise and fall of great powers in the modern era.
Only fair to note that Schumpeter did develop separately from his theory of capitalist dynamics a non-Marxist theory of imperialism, marked by the persistence of outmoded “atavistic” outlooks with roots in pre-modern capitalist aristocratic militarism and mercantilist empire-building.
…………..
4) More Specifically, Schumpeter’s Innovative Work Was Marked by These Provocative, Noticeably Heterodox Theoretical Insights into a Dynamic Evolutionary Economics.
i. Neo-classical economics, recall, was not just static in his view. Worse, because of its assumptions of GE and incremental and random changes, it lacked a theory of economic growth and how such relates to the relentless dynamics of capitalist change. At bottom, its failure here derived from its preoccupation with explaining the efficient allocation of resources, marginal analysis, and price-competition among business firms . . . compounded by the postulate that if there were recurring shocks to a fully employed economy, then Say’s law would hold, and any dislocated economy would soon return in a self-regulating way to equilibrium.
---- For Schumpeter, as with Marx earlier, the essence of capitalist competition between business firms didn’t revolve around the market-prices of their products. Rather, around intense competition to exploit new technological inventions --- which included not just new machines, but new energy-resources and new, more promising ideas for organizing a business firm --- and the innovative opportunities to exploit these breakthroughs. In effect, on this Schumpeterian view, business firms were locked in a kind of Darwinian struggle to survive and dominate the constant competitive clashes between themselves and new entrepreneurial start-ups.
ii. Back to the reasons why --- after these recurring and disruptive large-scale technological changes --- there could be no return of an economy to its pre-existing equilibrium path. Under the impact of radical technological and organization changes, to put it tersely, the basic institutional structures of the economy --- and not just of the economy, but also social and political structures --- would be altered too . . . and sometimes drastically so, including the changes in social classes, cultural outlooks, and even at times the political regime. Think here of the shift from monarchical and imperial rule to liberal democracy, anti-liberal and anti-democratic ideologies --- including extremist ones like fascism and communism --- and the spread of modern nation-states in the wake of the breakdown of empires
--- On this Schumpeterian view, to repeat a point made earlier, there hasn’t been just one industrial revolution, which started in the 1770s and 1780s in Britain, and transformed it from an aristocratic, agrarian, and monarchical country into a modern urban and democratic middle class national. .
--- Instead, there have been a series of other thoroughly transforming industrial revolutions, maybe 3, maybe 6 --- all depending on how specific neo-Schumpeterian scholars classify the time-periods of these radically breakthrough innovation and their subsequent diffusion. In the process, what mainstream neo- (and new-) classical economists measure mainly --- the growth rates of productivity and per capita income in the innovative countries --- rise markedly at first, then taper off, then tend to stagnate until a new wave of clustered technological breakthroughs burst again into existence and shock the existing economic status-quo from top-to-bottom.
iii. These disruptive, economy-wide transformations aren’t random --- just the opposite.
In effect, contrary to neo-classical economics --- including the original Solow Neo-Classical Growth Theory of the 1950s --- only countries with the right technological know-how and institutional flexibility and political willingness to exploit and adapt to these radical innovative opportunities --- however disruptive their social, economic, and political dislocations --- can exploit the potential benefits of these radically transforming changes.
iv. And the other countries? Enter the concept of “creative destruction.” Those countries that defend the existing economic status quo tenaciously --- or lack the know-how and institutional adaptability to change effectively --- will likely stagnate. In the process, some derelict empires --- think of the Czarist, Austro-Hungarian, and Ottoman empires early in the last century, and in the Soviet Union at the end of it --- will disintegrate. Elsewhere, where economies stagnate --- and where, even in certain once advanced countries, rife ideological conflicts crackle and flare over change --- some countries will undergo either left-wing or right-wing revolutions . . . with sooner or later their fate decided by great-power warfare.
Note that the likelihood of social disruption and even revolution in rigidly institutionalized countries is all the greater if, as Schumpeter argued, steep recessions and depressions might be required to overcome the resistance of the status-quo’s vested interests.
v. Enter the key role of the driven, risk-taking entrepreneur.
Whatever the outcome of creative destruction, even in the most flexible and adaptive of innovative countries --- the US, for instance --- the defenders of the economic status-quo under pressure of threatening changes will likely be numerous and influential. These resistors could, of course, not be limited to powerful business and financial firms, and instead include trade-unions, certain political parties and political leaders, influential pressure groups, entrenched bureaucracies, and even mass movements. The mass media can’t be ignored either. Then, too, as in Islam today --- and earlier in numerous Catholic countries --- religious leaders and adherents might strenuously oppose the social and cultural changes that capitalist dynamism will likely cause . . . what with its unique built-in social-changing propellant, a point that Marx himself fully appreciated in his eulogy of the revolutionary character of the capitalist bourgeoisie (see the Communist Manifesto).
On the narrower plane of economic innovation, Schumpeter saw, initially, the role of the entrepreneur as indispensable. The existing large firms simply had too much vested interest in the status quo to implement the initial and maybe even follow-up stages of the eruptive burst upon the scene of the clustered revolutionary technologies. Later on, in the late 1930s and 1940s, he became more absorbed in the role of the giant corporation and systematic R&D
…………………..
5) Note, just in passing, some controversies in innovation studies related to these insights.
• First, disputes exist over what explains the interrelated grouping of the radical technological bursts
Put briefly, some innovative specialists see a new energy system as the key: water-power initially in the first industrial revolution, later systematic steam-power and coal, later in the early 20th century oil, then after 1945 nuclear energy (with political resistance to it), and at present the search for breakthroughs in alternative non-carbon based fuels.
Other specialists emphasize a key general-purpose new technology, such as railways in the 19th century, or electrification in the late 19th and early 20th century, or the automobile industry in the interwar and early post-war periods (including eventually rapid suburbanization), or the computer chip more recently. Think too, in the latter respect, of how ICT diffusion has accelerated the pace of globalizing influences in economics and finance over the last three decades. Yet others emphasize organizational breakthroughs, such as the emergence of the factory system, then later giant corporations, or later still mass production and Taylorism.
• There’s controversy over how to date and define the long-waves of recurring industrial revolutions.
Essentially, to save space, simply note in passing that some neo-Schumpeterians see essentially three revolutionary long-waves since the 1760s. Others, like Schumpeter himself, see more --- most likely four by the end of WWII, and a fifth that started with the information-age in the 1970s. Note too that the long-wave bursts of radically creative innovation are likely to have shortened in duration in the last 70 years or so. And quite likely, starting some time in the current global economic crisis --- the most serious since the 1930s --- we’re seeing the emergence of a 6th long-wave, marked by systematic breakthroughs in non-carbon based energies, further big advances in ICT technologies, the eruptive growth of radically transforming nano-technology, and a no less likely explosive growth in bio-tech.
• Ongoing controversy also surrounds the once clear distinction between new-product innovation and process-innovation.
The internal combustion engine, to illustrate the problems of clarity here, was invented in different countries in the latter part of the 19th century and into the start of the 20th century. That was the invention-stage. The radical innovative stage --- the ability of a determined and driven entrepreneurial start-up firm, Ford Motor --- unfolded with the Model-T production in the 1920s, followed by the Model-A of the early 1930s. That created the modern automobile industry and its sprawling spin-offs in all directions. A good 40-50 years later, Toyota markedly upgraded the production process with its “lean-production system” and effective global production and distribution system.
The latter doesn’t equal the impact of the Ford assembly line production, economies of scale, and massive reduction in price of autos and trucks, but its continued impact is seen in the failure of GM to keep pace with Toyota-driven quality and price-reduction . . . GM once the biggest corporation in the world, only to have a capitalization right now (minus government hand-outs) lower than Martel Toys. Among whose products are found toy cars.
• And finally, to bring this surprisingly long banged-out post to an end, there’s the closely related question and debate about the different roles of entrepreneurship and giant corporations in innovation.
Basically, it seems --- to judge what has happened in the US since the 1970s, where 75% of the Fortune 500 firms in the late 1990s hadn’t existed in the early 1970s --- start-up companies are needed to bring promising inventions to the market-place successfully. As IBM’s failure to match Microsoft and Intel as start-ups showed, a giant firm has to many vested-interests in the status quo to be a fully successful innovator of a radical sort. Over time, though, the successful start-ups become giant firms, engage in systematic improvements of their innovations, develop their own vested-interests, and so an almost costless innovative breakthrough by Google now challenges Microsoft and others. Meanwhile Apple, still fairly new, was able to emerge as a restructured innovator in non-pc products. As for IBM, it too restructured --- it became an information-oriented consultant to businesses world-wide, and still flourishing as a result.
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Michael Gordon, AKA the buggy professor
Posted by: michael gordon at Mar 17, 2009 11:45:09 AM
