Ch 3: Evolution – Path Dependency and New Path Creation in a Complex Adaptive System

3.1 Introduction: Inside the technological ‘black box’

Given how deeply impregnated our world is by technological objects, it is easy to take for granted the nature and processes from which these objects have become established. Fundamentally, there seems to be something inherently human about technology and the process of finding new and better ways of doing things. Some theorists have gone so far to suggest that technology is not just the driving force of economic change, but the driving force of all history (technological determinism) – and others, in biological anthropology, have observed (with a good dose of hubris attached) that technology can be considered the evolutionary feature that separates humanity from every other creature on earth giving us the power to control and shape the world around us. For example, Aunger (2010:762) writes: “the best chimpanzees can do on the technological front is use small stones to break nuts open on large stones, whereas humans build sky-scrapers and rocket themselves to the moon”.

When one thinks of what our lives would be like without airplanes, computers, washing machines or refrigerators the significance of technology is immediately apparent. This is not to mention the innovations that gave us agriculture, an alphabet and printing. Despite its fundamental underpinning of modern life, the role of technology has been curiously underplayed in mainstream economics – viewed as important, but exogenous; or seen through some relatively abstract or aggregate measure of capital accumulation. Such conceptualisations of 135 technology within economics has led to the description of the innovation process as a “black box” and left to economists outside the neoclassical mainstream (e.g. Rosenberg, 1999), and to other disciplines (e.g. MacKenzie et al, 1985; Winner, 1985; Bijker and Law, 1992; Bijker et al. 1987).

This notion of a “black box” is exemplified in the section above on ‘new’ growth theory where we saw how human capital was added to the neo-classical model to help explain a large proportion of economic growth left exogenous in the CobbDouglas production function. However, even in these ‘endogenous’ models, technology is still viewed as a fairly abstract aggregate concept related to research and development or education and training. But for many practical purposes, such as an interrogation of the forces behind change towards low carbon development – a more relevant unit of analysis is likely to be a specific technology such as wind turbines, power stations, electrical appliances, and so on. To proceed along this second vein of research in the social sciences, we can bring together a group of theories which provide greater contextual detail than neoclassical theories – which this review will broadly classify under the banner of evolutionary theories.

3.2 What is technology?

Despite its pervasiveness, technology can lend itself to a variety of definitions – thus the need to explicitly state what we mean when we speak of ‘technology’. Generally speaking, it can refer to: a specific naturally occurring object such as a reed used as a straw for drinking or a man-made artefact such as an electric light bulb; it could be a set of activities or processes, such as electrical power generation, or finally it can refer to a set of general knowledge or skills associated with the production or use of technologies, such as the engineering expertise associated with power plant design and use, as well as the broader social and cultural processes associated with the electricity industry (Kuper and Kuper, 1996; Winner, 1985).

So far, the way technology has been conceptualised within neoclassical theory is as an improvement in labour or capital (or some other input) which allows the individual or firm, and by extension the entire economy, to get more with less. Technologies are embodied in inputs and products (such as energy or an appliance) which make up the production function and, in the case of consumables, are subject to individual preferences which are the focus of demand. However, despite placing technology and technological change at the centre of what drives the economy forward, the neoclassical model has surprisingly little to say about what it actually is. Indeed, an important limitation of the neoclassical explanation of the economy is that it does not seem to capture particularly well the qualitative dimensions of technological change and economic growth. As Rosenberg (1999:3-4) writes:

The great bulk of the writing by economists on the subject of technical progress – both theoretical and empirical – treats the phenomenon as if it were solely cost reducing in nature, that is, as if one could exhaust everything of significance about technical change in terms of output per unit of input that flow from it. Technical progress is typically treated as the introduction of new processes that reduces the cost of producing an essentially unchanged product.

For instance – an economy may build its energy network on technologies which significantly differ between countries – France’s electricity is 80 per cent nuclear, in Russia natural gas dominates, in Brazil biofeuls are used in cars rather than petroleum; the Danish specialise in wind turbines and in Australia coal is the preferred energy source. These are important differences, because while two countries may be otherwise equal in terms of GDP and GDP growth, there are large differences in how they source their growth. Furthermore, differences between product quality and the variety of products available, while not contributing necessarily to GDP growth, may have a major impact on economic welfare in a broader sense.

Low carbon energy, sourced from stable and preferably domestic suppliers, is qualitatively different from oil shipped in from an unstable state with conflicting political values to the importing country. These qualitative differences are not easily picked up on by the price mechanism. This lack of recognition may then find political expression as hitherto un-priced and escalating externalities start to be to be accounted for; or as agents struggle to secure contested political and natural resources associated with specific technologies. To understand these differences better we need a more detailed theory and taxonomy of technology and technological change.

3.2.1 General and specific purpose technologies

The first step we will take in further defining the nature of technology will be to classify it along a spectrum which identifies the breadth of its application using Bresnahan and Trajtenberg’s (1996) notion of general purpose technologies (GPTs). These are seen to have three characteristics. Firstly, a GPT should be pervasive, in that it should spread to most sectors of the economy. Secondly it should get better with time, that is be subject to continual improvement; and thirdly, a GPT should make it easier to invent or produce new products or processes.

While almost all technologies have these characteristics to some degree, this concept is valuable at placing technologies along a spectrum ranging from general to specific purpose, which can give an indication of its potential productivity implications. In the non-energy space computer technology provides one of the most ubiquitous examples of a GPT. In the energy space, moving from general to specific we might have electricity; the electric motor; the electric lamp; and the electric toothbrush. Each of these technologies is necessary for me to effectively brush my teeth before bed, but some are more specialised (or general) than others.

The more ‘general’ the GPT, the greater the potential for innovation complementarities and the greater the potential effect on economic growth. Such complementarities are said to exist when the productivity in a down-stream sector increases as a consequence of innovation in the GPT; these complementarities magnify the effects of the innovation, and help propagate them through the economy. In addition to electricity, commonly referred to GPTs for energy include: water, steam power; and the internal combustion engine. The use of the GPTs has influenced profoundly the underlying structure of energy demand in the economy with the advent of electricity in around 1890 and automotive transport in around 1909, with implications for coal and petroleum consumption respectively (Figure 3.1).

Figure 3.1 History of Annual Energy Consumption in the United States 1775-2009

History of Annual Energy Consumption in the United States 1775-2009

3.3 Process and product innovation: distinguishing between incremental (marginal) change versus radical (non-marginal) and qualitative change

In getting a fuller appreciation of the nature of technological change, we can also distinguish between process innovations and product innovations (Kamien and Schwartz, 1982:2). Process innovations are technological advances in equipment, techniques or software that reduce the cost of producing existing products or produce new, or significantly altered products (OECD, 2005). Product innovations more explicitly involve the development of new or improved products. Equivalently, the former may be thought of as an upward shift in the production function (as in Figure 2.4), and the later, as the creation of a new production function. In practice, 0 0.2 0.4 0.6 0.8 1 1.2 1750 1800 1850 1900 1950 2000 2050 % total energy consumption Wood Coal Petroleum Natural gas Nuclear Hydro Source: US Energy Administration Annual Review, 2009; Jovanovic and Rousseau, 2005 WaterPowered mills to Steam powered engines Electrification Internal combustion engine the classification of innovation will depend on the perspective of the actors and level of analysis.

For example, a new electricity source such as solar, wind, nuclear or geothermal energy may represent a new product innovation for the energy supplier – but for the energy consumer – say a manufacturing business they represent changes to input costs of doing business – a process innovation. In Figure 3.1, the shift from water powered mills, to steam powered engines, then to electricity as an energy supply source for the United States between 1869 to 1939 involved large qualitative shifts in energy supply. For those engaged in the production of energy, this involved the decline of old products and businesses and the rise of new ones – Schumpeter’s process of creative destruction in action. However, for a manufacturing company, these changes meant a decline in costs and an increase in the flexibility of energy supply.

This distinction between incremental and revolutionary change underpins Schumpeter’s attack on the primacy of price competition in defining a competitive market:

But in capitalist reality, as distinguished from its textbook picture, it is not that kind of competition which counts [price competition] but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) – competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives (Schumpeter, 1975[1942]:84).

Product innovations can have radical consequences for the sectors they affect. In the diagram above, water mills go out of business and are abandoned or transformed into tourist attractions as manufacturing becomes concentrated in large firms closer to markets; then manufacturers of steam engines face their own crisis and decline as energy consumers switch from steam to electric power, and industry is reconfigured again. We can think of many other examples, aeroplanes replace ocean liners for international transport; compact disks replace vinyl records; computers replace typewriters, electronic watches replace mechanical ones, and so on. This introduces the notion of non-marginal change into the analysis – where a product or service is either newly created, or effectively destroyed by a superior technological substitute. The more general purpose the technology for a given product innovation, the more profound its potential affect will be across the economy, boosting the so-called ‘multifactor productivity’ of the standard macroeconomic growth model.

3.4 Socio-technological change

In understanding the social dimensions of technological change, it is helpful to consider technology as having two inherent components: one relating to its physical form or properties; and the other related to a socially derived functional identity. (Faulkner and Runde,2009). A technology’s physical characteristics are perhaps its most immediately obvious defining features. For example, a motor-car is an object which transports people from place to place propelled by the work of a motor; a telephone is an instrument for communicating verbally across distances and a light bulb (the very symbol of innovation) a device for illumination. Less obvious, perhaps, is the importance of individual agency at assigning technological identities to objects.

Drawing on John Searle’s theory of social reality (1995, 1999, 2001) it is possible to highlight how people assign functions to objects or other entities. For example, Searle focuses on the use of pieces of paper for the functioning of money as one manifestation of this, however there are many others – a straw for drinking could just be a reed by a river bank, coal just a dirty rock; or a watch may just be an aesthetically pleasing trinket – each requires human agency and knowledge to assign it its purpose. The relevance of this second dimension is to highlight that if you do not know how something works, then it is not fulfilling its technological function, and it is not a technology (at least in the terms that it was designed for). For example, compact disks may be used as coasters or to scare away birds from fruit trees rather than for data storage. Following this logic, we can say that to have a meaningful identity, a technology must have both a form (its physical properties); and a function (people must understand how to use it).

Faulkner and Runde (2009) go on to articulate a taxonomy of technological change comprising of three elements:

  1. Technological change manifested in the form of an object;
  2. Technological change manifested in the function of an object; and
  3. Technological change manifested by both 1) and 2).

The most obvious manifestation of technological change is change in the form of an object – either by the creation of a new one (the introduction of personal 143 computers); or the adaptation of an existing one (desk-top PCs to laptop PCs). However, change in how objects are used is also a vital element in technological change. For example, a pilot will be trained to use jet engines to fly planes; but an engineer in an electricity power plant will use a similar technology to burn gas to create heat and turn a turbine. Similarly, computers can be used differently depending on a wide range of users: from writing, to a mechanism of transaction, to an instrument of war. In Denmark, the wind energy cluster evolved out of declining boat manufacturing businesses looking for opportunities to mould fibreglass. The key insight here is that we should think about technological change in broader terms than simply changes in the physical form of the object to include also the the rules and routines, both formal and subconscious, that govern the use of those objects – in other words on institutions.

3.4.1 Using institutional economics to help understand technological change

The tradition of institutionalism in economics has existed at least since the early twentieth century and the work of Thorstein Veblen who characterised institutional forces as ‘settled habits of thought common to the generality of men’ (Veblen, 1919:239). More recently, Rogers Hollingsworth (2000:601) describes institutions as the ‘basic norms, rules, conventions, habits and values of a society’ that organise and regulate human activity. Geoffrey Hodgson (1993:253) provides a definition of institutions as:

… the commonly held patterns of behaviour and habits of thought, of a routinized and durable nature, that are associated with people acting in groups or larger collectives. Institutions enable ordered thought and action by imposing form and consistency on the activities of human beings. …institutions play an essential role in providing a cognitive framework for interpreting sense data and in providing intellectual habits or routines for transferring information into useful knowledge.

This institutional economics literature has also been informed by the Regulation School (Boyer, 1990; Boyer and Hollingsworth, 1999); related institutionalist streams within political economy (Maurice et al. 1986; Streeck, 1992; Zysman, 1994; Lane, 1997; Lazonick, 2001); the ‘national business systems’ approach (Wever, 1995; Pauly and Reich, 1997; Whitley, 1999; O’Sullivan, 2000, 2005;Lam, 2000, 2005); the national innovations systems literature (Freeman, 1987; Lundvall, 1992; Nelson, 1993), and the literature on the varieties of capitalism (Albert, 1993; Hall and Soskice, 2001).

In the domain of understanding technological change, what brings these threads of literature together is the view that technology, in addition to consisting of objects or artefacts, is also made up of the social relations and practices, the assumptions, beliefs, language and so on involved in that object’s design, manufacture and use.

This institutionalist literature also formed the foundation for the challenging of the triumphal tales of scientific and technological progress (e.g. Kuhn, 1962). This ‘social constructivist’ body of work attempts to show scientific consensus or progress not as a product of disinterested inquiry, but as the pursuit of social interests. In the 1980s Bruno Latour (1987, 1991, 1993) took these arguments a step further by proposing his ‘actor network theory’ which insisted not only (reasonably enough) on the central role of technological objects in framing the process of technological change; but also (less reasonably) on the need to credit machines and instruments themselves with agency and motivation. This somewhat bizarre turn in the study on the nature and direction of technological change helped inspire other attempts in the sociology of technology to “recuperate” the persons and things marginalised or obliterated by the heroic tales of progress: women; technicians; routine investments; buildings and so on.

Elsewhere in the innovation literature, the large technical systems (LTS) approach developed the notion of the ‘seamless web’ as a metaphor to explain how the interactions between “heterogeneous elements” can explain the dynamics of big infrastructure systems such as electricity, rail and telephone networks (Hughes, 1983, 1987; Mayntz and Hughes 1988). A related approach is the sectoral systems of innovation framework which defines “system” as a group of firms active in developing and making a sector’s products and in generating and utilising a sector’s technologies’ (Breschi and Malerba, 1997:131; Malerba, 2002). In yet another related approach, the technological systems approach looks at how ‘networks of agents interacting in a specific technology area under a particular institutional infrastructure to generate, diffuse and utilize technology’ (Carlsson and Stankiewicz, 1991: 111; Carlsson, 1997).

This work has culminated in what can be grouped under the banner of the “geographies of science”, the focus of which is on the conditioning of the processes of technological and economic change by national institutional and geographical factors, and the way in which science and technology is distributed and moves between locations under study (Meusburger, et al., 2010).

It is well worth noting at this point that there are a range of views and analytical benefits regarding where to draw the line between seeing technology itself as an institution, which guides and shapes human action, versus seeing it as being distinct, albeit surrounded by, institutions.

In one of the most widely accepted, but stripped down definitions of institutions, Douglas North (1990:3-5) does not explicitly include technology in the humanly devised, formal and informal ‘rules of the game’ that constitute his conception of institutions. The important distinction that he does make is between the ‘rules’ and the ‘players’:

The purpose of the rules is to define the way the game is played. But the objective of the team within the set of rules is to win the game.

In this context, technological change seems to be subject to humanly devised changes in the rules of the game (e.g. policies targeted at low-carbon technologies, such as carbon pricing) thereby giving ontological scope for human agency to shift technological pathways. This notion is developed further and made explicit by Gertler (2004:7-8) in his characterisation of institutions as:

Formal regulations, legislation, and economic systems as well as informal societal norms that regulate the behaviour of economic actors: firms, managers, investors, workers. They govern the workings of labour markets, education and training systems, industrial relations regimes, corporate governance, capital markets, the strength and nature of domestic competition, and associative behaviour. . . . Collectively, they define the system of rules that shape the attitudes, values, and expectations of individual economic actors. Institutions are also responsible for producing and reproducing the conventions, routines, habits, and ‘settled habits of thought’ that, together with attitudes, values, and expectations, influence actors’ economic decisions. . . . Although these institutionally shaped attitudes, values, and conventions influence choices and constrain decisions regarding practices, they do not wholly determine them. There is still a major role here for individual agency to produce a variety of responses within the same sector, region, and nation-state.

In contrast to this view where actors may select a variety of technological pathways; the social constructivist might argue that the individual is so deeply rooted within their social circumstances (including its embedded technologies) that they have little control to shift pathways. This view emphasises the formidable role of path dependency and behavioural barriers to technological change.

This discussion about institutions and technology brings us to one of the key points of contention in the social science discussion of technology: the degree to which society is shaped by technology (technological determinism); versus the degree to which society shapes or chooses different technologies (implicit in the rational actor model and the neoclassical theory of externalities). It is true that we inherit a world full of institutions and technologies: but what shapes technological development before it has its ‘effects’? If technological objects are embedded in broader social institutions – how can we sensibly talk about technological change when so much else is involved than just the object? Perhaps these difficult questions help explain the enduring popularity of the neoclassical approach, despite its limitations, but to find potential answers to them – rather than assume them away – we must delve deeper into studies on the evolutionary nature of technological change.

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