American Economic Association

Long Waves and Economic Growth: A Critical Appraisal

Author(s): Nathan Rosenberg and Claudio R. Frischtak
Source: The American Economic Review, Vol. 73, No. 2, Papers and Proceedings of the
Ninety-Fifth Annual Meeting of the American Economic Association (May, 1983), pp. 146-
151
Published by: American Economic Association
Stable URL: https://www.jstor.org/stable/1816830
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 Long Waves and Economic Growth: A Critical Appraisal
By NATHAN ROSENBERG AND CLAUDIO R. FRISCHTAK*
No one who has examined the dynamics
of capitalist economies over long historical
periods can doubt that they experience sig-
nificant long-term variations in their aggre-
gate performance. The question is whether
these long-term variations are more than the
outcome of a summation of random events,
and further, whether they exhibit recurrent
temporal regularities that are sufficiently
well-behaved to call them "long waves." In
recent years there has been a strong resur-
gence of interest in such long-term move-
ments, since their existence could provide a
coherent explanation for the poor perfor-
mance of capitalist economies over the past
decade.
We do not attempt herein to examine the
historical evidence for long cycles. We have
in fact examined this evidence and find it
unconvincing. Although historical data might
conceivably lend some plausibility to the no-
tion of long cycles in prices, we remain, at
present, sceptical of the case that has so far
been made for their presence in real phe-
nomena; that is, in aggregate output or em-
ployment.
What we offer here, instead, consistent
with our present scepticism, is an attempt to
examine the economic logic of long waves.
More specifically, we ask what conditions
would need to be fulfilled in order for tech-
nological innovation to generate long cycles
of the periodicity postulated by N. D.
Kondratiev and his disciples? It is our view
that such a theory, which might account for
the presence of long cycles in some real
economic variable, would have to fulfill a set
of logically interdependent requirements. We
discuss these requirements under the four
categories of causality, timing, economywide
repercussions, and recurrence.
*Stanford University. We thank Moses Abramovitz
for his careful criticisms of an earlier version.
140
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1. Causality
The first of these requirements is a clear
specification of causality among the factors
associated with long wave phenomena.
Kondratiev was insistent that capitalism had
its own internal regulating mechanisms, and
he regarded the pace or rhythm of the long
cycle as an expression of these internal forces.
Long cycles, as Kondratiev put it, "...arise
out of causes which are inherent in the es-
sence of the capitalist economy" (1979, p.
543). The cyclical behavior of the capitalist
economy in turn shapes the conditions that
are favorable to technological innovation. In
this specific sense, therefore, technological
activities stand in the position of dependent
variables whose volume and timing are de-
termined by those deeper-rooted forces that
shape the rhythm of capitalist development.
In spite of substantial differences among
them, several present-day advocates of long
cycles-W. W. Rostow, E. Mandel, and Jay
Forrester-seem to share the Kondratiev
view that innovations are, somehow, disci-
plined and structured, and have their timing
determined by such long-term movements.
Schumpeter was, of course, the foremost
and most influential articulator of the oppo-
site view-that long cycles are caused by,
and are an incident of, the innovation pro-
cess. In Schumpeter's view, innovation is at
the center of both cyclical instability and
economic growth, with the direction of
causality moving clearly from fluctuations in
innovation to fluctuations in investment and
from that to cycles in economic growth.
Moreover, Schumpeter sees innovations as
clustering around certain points in time-
periods that he referred to as "neighbor-
hoods of equilibrium," when entrepreneurial
perception of risk and returns warranted in-
novative commitments. These clusterings, in
turn, lead to long cycles by generating peri-
ods of acceleration (and eventual decelera-
tion) in aggregate growth rates. Why cluster-
VOL. 73 NO. 2 LONG WA VES IN ECONOMICACTIVITY 147
ing should occur is obviously crucial to a
theory of long cycles, and we will therefore
return to this question shortly. But it is es-
sential to stress that an exponent of the view
that technological change is at the root of the
long cycle needs to demonstrate (a) that
changes in the rate of innovation govern
changes in the rate of new investment and
(b) that the combined impact of innovation
clusters takes the form of fluctuations in
aggregate output or employment.
1. Timing
The process of technological innovation
involves extremely complex relations among
a set of key variables-inventions, innova-
tions, diffusion paths, and investment activ-
ity. A technological theory of long cycles
needs to demonstrate that these variables
interact in a manner that is compatible with
the peculiar timing requirements of such
cycles.
It is not enough to argue that the introduc-
tion of new technologies generates cyclical
instability. It is necessary to demonstrate
why technological innovation leads to cycles
of four and a half to six decades in length,
with long periods of expansion giving way to
similarly extended periods of stagnation. We
confine ourselves here to a brief inventory of
strategic factors that may be expected to
determine the length of the time period
required for the introduction of new technol-
ogies and the realization of their full impact
upon aggregate output.
New inventions are typically very primi-
tive at the time of their birth. Their perfor-
mance is usually poor, compared to existing
(alternative) technologies as well as to their
future performance. Moreover, the cost of
production at this initial stage is likely to be
very high-indeed, in some cases a produc-
tion technology may simply not yet exist, as
is often observed in major chemical inven-
tions (nylon, rayon). Thus, the speed with
which inventions are transformed into inno-
vations, and consequently diffused, will de-
pend upon the actual and expected trajectory
of performance improvement and cost reduc-
tion.
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This process is rendered more complex,
first, by the fact that in the early stages,
when performance is still very modest and
production costs are high, improvements
leading even to significant cost reductions
may have no sizable effect upon rates of
adoption, often resulting in long gestation
periods. When, on the other hand, the new
product attains cost levels roughly equivalent
to those prevailing under the older technol-
ogy, even small further cost reductions may
lead to widespread adoption. Thus, there may
be a highly nonlinear relationship between
rates of improvement in a new product and
rates of adoption.
Second, since innovation and investment
decisions are future oriented and therefore
inevitably involve a high degree of uncer-
tainty, adoption and diffusion rates are also
powerfully shaped by expectation patterns.
In certain cases, these expectation patterns
may lead to a prolonged delay in the intro-
duction of potentially superior new technolo-
gies by adversely affecting their expected
profitability. Indeed, it has been very com-
mon for competitive pressures generated by
a new technology to lead to substantial
improvements in the old technology, so that
the new one established its superiority more
slowly than would otherwise have been the
case.
Note in this respect that major improve-
ments in productivity may be stretched out
over very long time periods, as a product
goes through innumerable minor modifica-
tions and alterations in design. (Consider the
Fourdrinier papermaking machine, which has
now dominated the paper industry for al-
most 200 years.) To the extent that major
innovations vary with respect to the relevant
time period for which they remain im-
portant, in part because substantial improve-
ments will often take place long after the
initial introduction of the innovation, it
renders highly problematical the whole ex-
ercise of inferring a Kondratiev long cycle
from a particular innovation. How does one
date the long cycle associated with the steam
engine? Beginning with Watt's seminal in-
ventions in the 1770's? What we know about
the slow pace of its adoption in the late
148 AEA PAPERS AND PROCEEDINGS MA Y 1983

eighteenth century renders this extremely a production cost differential that may still
doubtful. But, in addition, the improvements persist between the old and new technolo-
associated with the compound engine brought gies; certain expectational patterns held in
huge productivity improvements sufficient to common by entrepreneurs regarding im-
introduce the steam engine to important new provements in both technologies; and the
uses, and this came a full century after Watt's cost associated with scrapping and replacing
major contribution. the infrastructure committed to the old one.
Third, the adoption of a new technology is An additional possibility is that major in-
often critically dependent upon the availabil- novations may establish certain trajectories
ity of complementary inputs or, in some of readily available performance improve-
cases, upon an entire supporting infrastruc- ments and cost reduction (more circuits on a
ture. Automobiles required extensive net- chip, fewer pounds of coal per kilowatt hour
works of roads, gasoline stations, and repair of electricity). Engineers and technically
facilities. The electric lamp required an ex- trained personnel often work with such im-
tensive system for the generation and distri- plicit notions. Thus, the awareness of these
bution of electric power. Seldom do new trajectories may serve as focusing devices
products fit into the existing social system that fix the attention of engineers upon teas-
without some intervening period of accom- ing out the further improvements that are
modation during which these complementary understood to be available from the existing
considerations are arranged. Not only does technological framework, rather than search-
this signify a heavy commitment to an estab- ing for entirely new technologies. In addi-
lished technology, and a further reason for a tion, these trajectories may be expected to
slow initial shift to a best practice frontier, shape the educational system and the train-
but, moreover, the time period required for ing of engineers and other technical person-
such accommodations may vary greatly from nel. The inertial forces here may strengthen
one innovation to another. the commitment to an existing technology
Even if major innovations experience ap- and render more difficult the exploration of
propriately long and logistically shaped dif- new realms of technical possibilities.
fusion paths, with technologies going through The reasons so far invoked for lengthy
phases of accelerated growth and eventually delays in the adoption of new technologies,
petering out, it does not necessarily imply of a kind that might produce extended peri-
that the slack in the declining phase of an ods of industrywide stagnation, were dis-
individual innovation cycle might not be cussed in connection with major substitute
taken up by other technological innovations, innovations. Should similar considerations of
thus eliminating the impact of a long phase spacing be extended to cases of unrelated or
of "sectoral" retardation. What would still complementary technologies unfolding along
be needed for a wave-like pattern of growth many different trajectories?
is that other major substitute innovations In the case of unrelated technologies, the
were excluded until the original one had run answer, prima facie, would be no. Even if
its course. Without such a spacing mecha- one argued that there were forces leading to
nism, partially overlapping innovations mightthe spacing of innovations in the same in-
otherwise generate steady rates of growth dustrial sector, in the sense that the arrival of
rather than cycles. a new technology has to wait until the bene-
What technological forces might impose fits of moving along the previous technologi-
cyclical behavior rather than some sort of cal trajectory had been largely exhausted,
relative stability of economic activity along this would be of limited relevance for major
any given path traced out by a sequence of innovations in other industries. The fact that
major substitute innovations? We have al- we are still on a highly productive portion of
ready suggested three such forces that might the steam trajectory might conceivably tell us
delay the introduction and widespread adop- something about the timing of substitute in-
tion of a new substitute technology, namely, novations, such as electric motors, but little

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 VOL. 73 NO. 2 LONG WA VES IN ECONOMIC ACTI VITY 149
if anything about the timing of unrelated
innovations and their subsequent diffusion
in electronics, synthetic fibers, or pharma-
ceuticals.
Yet the long cycle hypothesis might be
considerably strengthened if a large number
of unrelated innovations had the main phases
of their life cycles synchronized by macro-
economic conditions. Indeed, the simulta-
neous diffusion of a large number of unre-
lated innovations may be understood as being
regulated by general conditions in financial,
factor and product markets. If favorable,
they might lead to a "bandwagon effect"
along a number of separate industry trajecto-
ries, followed eventually by a slowdown. The
result would be an innovation cluster of type
M, the vertical summation of sectoral logis-
tics.
In the case of related technologies, an
additional reason can be invoked for the
synchronization of separate diffusion paths:
they may be linked by a system of techno-
logically connected 'families' of innovations,
made up of complementary, induced and
closely related ones.' This would come about
because the interactions of a few basic tech-
nologies would provide the essential founda-
tions for other technological changes in a
series of ever widening concentric circles. A
technological cluster, or a cluster of type T,
arises therefore when one (or a small number
of) major related innovations provide the
basis around which a large number of furthermechanisms through which particular
cumulative improvements are positioned.
Yet, the question persists: is spacing within
and synchronization among different diffu-
sion paths, for both technological and mac-
roeconomic reasons, sufficient to provide a
long-wave pattern of aggregative growth?
And if so, how?
It is our present, tentative assessment that
modes of argument at the technological level,
while potentially interesting and well worth
further exploration, will be of only limited
usefulness in providing a convincing account
of the generation of long waves. Technologi-
cally driven long waves can be made to
appear plausible only if macroeconomic fac-
tors can be shown to play a dominant role in
1 On this last point, see C. Freeman et al., 1982, ch. 4. centrated in the production goods sector. It
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shaping and disciplining the timing of the
introduction of innovations. The beginning
of an upswing would therefore be char-
acterized by a sufficiently large stimulus from
the M clustering process upon the previously
positioned T cluster. On the other hand,
once activated by the macroeconomic en-
vironment, the technological long cycle is
required to detach itself from swings in de-
mand which closely track short-run changes
in macroeconomic conditions, and instead
follow the internal dynamics of technological
factors. As we have already shown, these
may lead to extended periods of multisec-
toral growth and retardation, although there
is no reason to believe that they will add up
to cycles of forty-five to sixty years' dura-
tion. What has not been shown so far is the
connection between such factors and the de-
rived and induced demands for capital and
consumer goods which would account for the
economywide impact of innovation clusters.
Therefore, to argue effectively for a tech-
nologically driven long cycle, an additional
requirement has to be met: the cluster of
innovations must occupy a strategic position
in the economy in terms of backward and
forward links.
III. Economywide Repercussions
An essential step in a technological theory
of long cycles is the demonstration of the
changes in technology exercise sizable
changes in the performance of the macro-
economy. The economywide impact of tech-
nological innovations needs to be understood
not only in terms of the direct impact of cost
reductions and the release of resources to
alternative uses, but of the strength of their
backward and forward linkages.
1) They should be strongly linked back-
wards in terms of expenditures for buildings,
machinery, equipment, and raw materials,
such that the initial innovation and invest-
ment requirements lead to further investment
decisions in the production goods sector.
Historically, this second wave of investment
has often bred a second wave of innovations,
more explicitly "process" oriented, and con-
150 A EA PAPERS AND
should be particularly noted that this last set
of innovations has frequently had the effect
of increasing the productivity of the econ-
omy at locations far from the specific sector
that originally gave rise to the innovative
activity.
2) The impact of innovations will also
depend upon the strength of their forward
linkages. These might take the form of a
reduction in the price of the products into
which the innovation enters as an input,
leading to an expansion in the size of their
market, and therefore also to an expansion
in the rate of capital accumulation, output
growth, and technical progress in these in-
dustries. These induced responses would de-
pend upon the number of industries into
which the innovation enters as an input, its
substitutability for other inputs, the propor-
tion of total costs it accounts for and the
extent of cost reductions it imposes upon the
product.2 More important, innovations may
induce the creation and diffusion of new
products and processes that, in their turn,
would bring about the widespread adoption
of the original innovation (the microchip is a
compelling recent example). Alternatively,
the impact will depend upon the extent to
which the initial innovation proves to be at
the core of "major natural trajectories" (such
as the electric motor in relation to the pro-
cess of electrification), or more generally, in
key sectors of the economy, such as energy
and transportation.
In sum, the interindustry flow of new
materials, components and equipment may
generate widespread product improvement
and cost reduction throughout the economy.
This has clearly been the case in the past
among a small group of producer goods in-
dustries-machine tools, chemicals, electrical
and electronic equipment. Industrial pur-
chasers of such producer goods experienced
considerable product and process improve-
ment without necessarily undertaking any
research expenditure of their own. Such in-
terindustry flow of technology is one of the
most distinctive characteristics of advanced
2See, in this respect, Albert Fishlow's book, which is
a rigorous and imaginative attempt to measure the
economywide impact of a single innovation.
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PROCEEDINGS MA Y 1983
capitalist societies, where innovations flow-
ing from a few industries may be responsible
for generating a vastly disproportionate
amount of technological change, productivity
improvement and output growth in the econ-
omy. It is certainly conceivable that innova-
tions, depending upon their location, gener-
ate long cycles through such interindustry
flows and their consequent macroeconomic
effects. Yet, given the difficulties of knowing
what is the nature of the benefits flowing
from each innovation, and where exactly
within the structure of the economy these
benefits eventually accrue, this can at best be
regarded as no more than an untested hy-
pothesis until systematic attempts at quanti-
fication have been undertaken.
IV. Recurrence
The final requirement for a theory of long
waves based upon technological innovations
involves demonstrating their cyclical or re-
current character. In fact, it is not sufficient
to show that causality runs from innovation
to investment; that the economic and techno-
logical factors which determine the adoption
of new technologies do so in a manner com-
patible with the stringent timing require-
ments of a Kondratiev; and that patterns of
diffusion and interindustry linkage of new
technologies involve sufficient amplitude that
long cycles are perceived in the form of
sizable variance in aggregative growth rates.
It still has to be shown, if the argument is
going to be logically complete, that the waves
repeat themselves over time, either because
the wave-generating factors in the form of
innovation clusters are themselves cyclical
(or at least recur with a certain regularity), or
because there is an endogenous mechanism
in the economic system which necessarily
and regularly brings a succession of turning
points.
Let us briefly examine the conditions un-
der which long cycles become a historical
necessity, in the sense that there are struc-
tural reasons for one long wave to follow
another. The following should be present: 1)
the availability of an elastic supply of in-
ventions, at a time when risk-return combi-
nations appear propitious for innovations; 2)
VOL. 73 NO. 2 LONG WA VES IN ECONOMICACTIVITY 151
the formation of a cluster of innovations at
the base of the upswing, that is, a techno-
logically dense set which undergoes a rapid
process of diffusion under favorable macro-
economic conditions; 3) the reaching of an
upper turning point of the technologically
driven cycle due to increasing macroeco-
nomic instability, as well as forces that deter
the introduction of substitute technologies;
4) the arrival of the economy at a technologi-
cally fertile ground, after an appropriately
extended period of time. At this point, old
innovation paths have been largely ex-
hausted, but previously postponed ones have
not yet been taken up.
This schema brings numerous problems.
One would be hard pressed to show that
Kondratievs are regulated on a purely inter-
nal basis, and that, in the past, exogenous
factors have had only a marginal effect upon
such long-term movements. Others have in
fact argued that the recurrence of innovation
clusters has been more in the nature of his-
torical accidents than endogenously-gener-
ated fluctuations in the rate of innovation.
Further, our earlier discussion of timing pro-
vides no compelling reason to expect recur-
rence at forty-five to sixty-year intervals, even
if innovations cluster and such clusters ap-
pear regularly.
What we have attempted to show is the
far-from-trivial requirements that are neces-
sary in order to demonstrate that techno-
logical change, in conjunction with macro-
economic forces, can indeed be the
preponderant force behind long waves. Hav-
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ing made these conditions explicit, we feel
we are entitled to conclude that the concep-
tual framework of a model of long waves in
economic growth, which has at its core the
process of technological innovation, has still
not been adequately formulated. Until such
a model is developed, the assessment of its
historical validity remains unresolved.
REFERENCES
Fishlow, Albert, American Railroads and the
Transformation of the Ante-Bellum Econ-
omy, Cambridge: Harvard University
Press, 1965.
Forrester, Jay, "Innovation and Econom-
ic Change," Futures, August 1981, 13,
323-3 1.
Freeman, C. et al, Unemployment and Techni-
cal Innovation: A Study of Long Waves and
Economic Development, London: Frances
Pinter, 1982.
Kondratiev, N. D., "The Long Waves in Eco-
nomic Life," Review, Spring 1979, 4,
519-62; a complete translation of "The
Major Economic Cycles," Voprosy Kon'
iunktury, 1925, 1, 28-79.
Mandel, E., Late Capitalism, London: New
Left Books, 1975.
Rostow, W. W., The World Economy: History
and Prospect, Austin: University of Texas
Press, 1978.
Schumpeter, J., Business Cycles, A Theoretical,
Historical and Statistical Analysis of the
Capitalist Process, New York: McGraw-
Hill, 1939.