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Book review article Insearch of an alternativetheory: a critique of Dosi etal.'s Technical change andeconomic theorySlavo RadoševićPublished online: 28 Jul 2006.
To cite this article: Slavo Radošević (1991) Book review article In search of analternative theory: a critique of Dosi et al.'s Technical change and economictheory, Review of Political Economy, 3:1, 93-111, DOI: 10.1080/09538259100000007
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Review of Poli t ical Economy, 3.1 (1991), pp. 93-1 1 1
Book review article In search of an alternative theory: a critique of Dosi et al.'s Technical change and economic theory Slavo RadogeviC
In this article the author discusses the main contributions and controversial issues raised in an important book, Technical change and economic theory. The book represents a cornerstone in theorizing technical change. The main features of the book are summarized and the author discusses a number of controversial issues, such as: the evolutionary perspective; the notion of a technoeconomic paradigm; the analysis of firms' technological behaviour; the notion of institutions; the problem of 'catching up' in technology; the treat- ment of formal modelling and policy implications; and treatment of social aspects of technical change. The author concludes that the book should be treated as a work in progress and not as a fully developed and comprehensive approach. However, the critical mass of findings, gathered in this book, is important reading, and represents an important step forward in the explora- tion of a new approach to economic theory.
I Introduction
Technical change is the critical issue i n which all t h e weaknesses o f main- s t ream economics become noticeable. Dynamic concepts t h a t should b e t h e core o f a n y theoretical explanation o f technical change a r e inconsistent with the assumptions o f t h e d r thodox approach. here fore it is no t surprising that the most systematic a t t empt t o build an alternative theory comes f r o m theoreticians o f w h o m t h e main focus o f analysis is innovat ions a n d technical change. '
T h e crucial characteristic o f this b o o k is tha t t h e authors , in their analysis o f technical change, do n o t want t o s tay in t h e isolated field o f 'economics o f technological change'. This b o o k should be seen as 'an exploration o f a new approach t o economic theory, capable o f incorporat ing technical and
Comments from Christopher Freeman on an e?rlier draft of this paper are gratefully acknowledged. I am especially grateful to Bengt-Ake Lundvall, Esben Sloth Andersen and the participants in the programme 'Technology policy and social development' (Roskilde University Centre, Denmark) for common inspirational discussions about this book. I also benefited from the comments of an anonymous referee. None of them is responsible for my conclusions and remaining errors.
1 However, this attempt is not isolated. Geoffrey M. Hodgson (1988) is the author of the book which synthesizes the main contributions of institutional economics with the objective of building an alternative theoretical foundation of economics.
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institutional change into the mainstream of economic analysis and policy making'. There is no doubt that the authors themselves are aware that the incorporation of their main theses might lead to radically new mainstream economics.
The very objective of the book together with its impressive number (25) and stature of the authors (Freeman, Nelson, Dosi, Soete, Boyer, Perez, Chesnais, etc.) makes this book one of the essential contributions to the theory of technical change. It is a difficult task to review a book of such high standard but also of respectable length (636 pages and 28 chapters). I will try first to summarize the main features and the structure of the book. In the subsequent section I will try to emphasize some of the issues which seem to be controversial. However, these areas of disagreement do not in any way undermine my opinion about the importance of this book towards the development of economic theory in the coming years.
I1 The structure and the main characteristics of the book
The book is divided into eight parts, organized logically in accordance with the hierarchy of the arguments. In the introductory part, Freeman charac- terizes the approach as holistic, systemic and evolutionary, and having much in common with classical political economy, as well as with the more recent traditions of the institutional and evolutionary economists. Taking Schumpeter as a starting point for their work, Freeman emphasizes that they have tried to go well beyond Schumpeter in many respects. This is especially present in the treatment of international development issues, international trade, the dynamics of the science and technology system, the taxonomy of technical change, government policies for S&T, and, generally, the role of institutions in regulating the macroeconomic system.
Part 2 of the book, 'Evolution, technology and institutions: a wider framework for economic analysis' is intended to illustrate the authors' basic ideas about technical and institutional change in relation to the long-term dynamic behaviour of the economic system. The problem of dynamic stability of economic systems should be understood by studying and under- standing the regularities and patterns in the process of technical change itself (technological trajectories and paradigms) and by recognizing the role of institutions in regulating and stabilizing the behaviour of the system. The concept 'techno-economic paradigm' is further developed. It is seen as a 'cluster of interrelated technical, organizational and managerial innova- tions, whose advantages are to be found not only in a new range of products and systems, but most of all in the dynamics of the relative cost structure of all possible inputs to production'. Complementary to the concept of the technoeconomic paradigm, the regulation approach is seen as a potential and complementary framework for the analysis of the institutional side of the economic system. Boyer's article is one of the few and best accounts
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of the regulation school's work in English. Restricted analytical focus of economic theory is seen as the result of the prolonged domination of a Newtonian mechanistic perspective, which hinders the analysis of qualitative change and evolutionary development. The need for reintegrating economic theory with the other social sciences is strongly emphasized.
The basis for developing an alternative theory is a systematic critique of orthodox economic theory. This is done in the third part of the book, "How well does established theory work?". Corricelli and Dosi intelligently try to show the impossibility of the neoclassical approach to interpret economic dynamics following its own logic and assumptions i.e., on its own terms. One of the main conclusions is that:
'. . . one cannot derive, in general, determinate and "orderly" properties of dynamic economies even under the most restrictive assumptions about the nature of production activities, using only given (and uniform) technologies, given preferences and also a "rationality" principle. This is when the multitude of agents is "compressed" into a single representative agent. Moreover, it can be shown that such reduction is generally illegitimate if one wants to maintain a microeconomic foundation with many agents, diverse at least in their preferences' (p. 122).
In order to confirm these findings, it is shown that aggregating agents, each of which behaves according to very simple and stable rules, may indeed produce very complex macrodynamics. Also the superior efficiency of rule- governed behaviour (versus maximization) in all those circumstances in which the information-processing capability of the agents is significantly less than perfect has been shown.
Part IV of the book, 'Innovation and the evolution of firms', is based on the understanding that technology tends to unfold in particular directions. That leads the authors to the common thesis, '. . . that firm behavior, and industry structure, may be molded by the way technology is unfolding, at least as much the character of innovation depends on firm behavior and market structure' (p. 230). Five articles are presented which develop this main theme from different perspectives. Their topics are: the nature of the innovative process; characteristics of new information - intensive production systems; the effects of in/outsourcing of R&D; the relationship between technology and the diversification activities of firms; the relation between R&D and corporate strategy and structure; and the relation- ship between technological advance and market structure.
In Part 5 of the book the focus of the analysis shifts from the analysis of mutual shaping of technical change, firm behaviour and industry structure, to an analysis of national systems of innovation. Using the examples of the USA and Japan, it is shown that modern national systems of innovation are institutionally complex and in some sense similar. Focusing on user-producer interactions, the national innovation system is envisaged as a network of technological interactions.
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In broadening the focus of analysis in Part 6 to, 'International diffusion of technology and international trade competition', the authors communi- cate that international patterns of competitiveness are strongly influenced by countries' technological capabilities. These capabilities are also seen as a n essential factor in explaining intercountry differences in macroeconomic growth. O n the empirical level, the process of catching up with the US levels has been shown as the dominant pattern. In relation to the possibilities of catching up for developing countries, two different views (theoretically and methodologically) are presented. Through a n analysis of recent trends in international 'sourcing' of S&T knowledge, new trends, which could have far-reaching implications for the international division of technology, are sketched.
The contributions in Part 7, which are related to formal modelling, show that there is already a coherent pattern and a consistent alternative framework for modelling technoeconomic change. The review of a number of specific models shows '. . . how a few basic mathematical structures can be adapted to . . . seemingly disparate applications when properly handled' (p. 528). Focusing on the industry-level dynamics of technological evolution, various traditions of modelling diffusion of innovations are presented. Far- reaching theoretical implications, which go beyond the diffusion/selection discussion, are brought in by viewing this process as one of competition of technologies with one another. Finally, in the manner of the regulation school, efforts are made, '. . . t o integrate several different forms of technical change with distributional mechanisms to obtain a dynamic model of an entire economy' (p. 529).
The book concludes with a brief attempt to hypothesize 'the implications of an evolutionary theory of technical advance for thinking about public policy' (p. 631).
The main features o f the authors approach are summarized by Freeman:
(a) Technical change is a fundamental force in shaping the patterns of trans- formation of the economy. (b) There are some mechanisms of dynamic adjustment which are radically different in nature from those allocative mechanisms postulated by traditional theory. (c) These mechanisms have to do both with technical change and institu- tional change or lack of it. As regards the former, we suggest it is both disequilibrating - and a source of order for the directions of change and the 'dynamic adjustment processes', as new technologies diffuse through the national and international economies. Paradoxically, despite its fluctuations and crises, the world is actually more stable and better ordered than could be deduced from prevailing economic theory. (d) The socioinstitutional framework always influences and may sometimes facilitate and sometimes retard processes of technical and structural change, coordination and dynamic adjustment. Such acceleration and retardation effects relate not simply to market 'imperfections', but to the nature of the markets themselves, and to the behavior of agents (that is, institutitons are an inseparable part of the way the market work) (p. 2).
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111 Consistencies and inconsistencies
I will now pinpoint some of the important and controversial issues raised in this book.
1 'Truly evolutionary' perspective or evolutionary metaphor?
As is emphasized in policy conclusions, 'common to the theoretical approaches sketched out in various chapters in this book is an understanding of the process of technical change, as being truly evolutionary in nature' (p. 632). A careful reading shows significant work done on achieving con- sistency between various contributions. This objective is apparent through frequent crossreferences, sometimes without real compatibility in content. Beyond such unifying efforts, different perceptions of issues and even start- ing points are present. This does not mean that these differences undermine the quality of the book. Rather, they should be seen as natural characteristics of a work in progress. I will try to show that the common basis of the authors is not a fully consistent theoretical perspective but a perception of tech- nology as an endogenous 'variable' of a socioeconomic system. I would say that the 'truly evolutionary' perspective is fully developed only in Allen's fishery model (p. 11 1). It seems to me that the two mainstreams of thought present in the book are: an evolutionary (Allen, Clark, Sil~erberg)~ and a historically structuralist approach (Freeman, Perez, Boyer). The evolu- tionary metaphor is used in building an alternative approach, primarily as a guiding principle, not as a consistent and developed concept. Before applying a truly evolutionary approach some questions should be answered. Is a truly evolutionary perspective fully applicable to economics or would a structural/evolutionary perspective be more appropriate.? Interestingly, in the case where a truly evolutionary approach is applied (fishery model), hunting is substituted for innovation. A truly evolutionary model presumes the diversity of behavioural rules as well as of techniques used.
In order to take a step further in applying the evolutionary metaphor to economics, I hold that an answer should first be given on the following three problems:
a Selection mechanisms: The character of selection mechanisms is unclear. Is the market the only selector? In biology we do not know the level on which selection occurs. How can we approach that problem in economics? If a technological paradigm is a selection mechanism ex ante, how is this choice made?
2 Clark and Juma (1987). have developed further the evolutionary concept of technical change. However, the core of their theses is not represented in this book in spite of a similar line of thought.
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b The role of random events: How does one take into account the role o f random events which by amplifying their effects turns to a new regularity? Could small, random events change the technoeconomic paradigm or create a new one? Is the microelectronic paradigm a necessity created by the previous paradigm (contradictions in Fordism leads to post-Fordism) or a result of the possible spin off of military technology to civilian use (random event) or the combination of the two? Allen presumes that there is a whole variety of possible hypotheses that could be made, which range from the complete random to a view in which the 'environment' completely deter- mines which mutations occur (p. 105).
c Mechanical or evolutionary dynamics: If a technological paradigm 'provides a relatively coherent source of mutations' (p. 17), what causes a shift in paradigms? Since we still have difficulties with understanding the coherence and the stability of an economic system in certain periods, how can we understand the sudden shift in 'principles of mutations'? Is it not more appropriate to label our current level of understanding as a mechanical dynamic?
2 Notion of technoeconornic paradigm
The notion of a technoeconomic paradigm has been used by FreemadPerez in their previous works.' In the context of this book, this paradigm repre- sents a key concept. Generally the authors see the process of development as a continuous process of socioinstitutional adjustment to a newly emerging technical system. History is a set of matchings and mismatchings between socioinstitutional and technoeconomic spheres. A crisis is perceived as, 'the increasing degree of mismatch between the technoeconomic sub-system and the old socio-institutional framework' (p. 59). The solution is to reaccom- modate social behaviour and institutions to suit the new requirements. In developing this concept further, they connect the characteristics of specific technoeconomic paradigms with the key factor of that paradigm (steel, steam-powered transport, oil, chip) and the overall cost structure. The problem of mismatching is caused by the adaptation of the socioinstitutional system not only to new technical innovations and managerial styles but also to a new cost structure.
A complication with the concept of the technoeconomic paradigm arises at the point of its (mis)matching with a socioinstitutional framework.
First, how can we methodologically separate the technoeconomic para- digm from the socioinstitutional framework? FreemadPerez's definition of the technoeconomic paradigm involves, among other elements, a new 'best practice' form of organization in the firm and at the plant level, a new
3 See Perez (1983) and Freeman el al. (1987).
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pattern of consumption of goods and services and new types of distribution of consumer behaviour (p. 59). Are all these elements independent of the socioinstitutional framework and given exclusive to the character of the technoeconomic paradigm? Finally, what are the elements of the socio- institutional framework?
Secondly, a relation exists between the technoeconomic paradigm and the socioinstitutional framework which is mechanical. The socioinstitutional framework plays a reactive role in relation to changes in technology. Institu- tions are to be adjusted to technological style. They, by themselves, do not shape technology. I will try to indicate using a few examples that the socioinstitutional framework cannot be reduced to a 'dependent variable' which is to be adjusted to a technological regime.
Nuclear power was adjusted to civilian use by a military sector imme- diately after the second world war. Consistently supported for 30 years in the forms of national nuclear programmes, such power was not developed as part of a new promising technoeconomic paradigm. However, the point is that the nuclear alternative was persistently promoted by governments, the military, R&D institutions and companies, but without sound economic justification. Using FreemadPerez vocabulary, the nuclear alternative was pushed by socioinstitutional factors.
The 1974 oil price shock, caused by TNCs and OPEC, fostered the process of creating energy-saving technologies based on microelectronics. In a way, the 'oil shock' accelerated the drive for a fifth Kondratieff. Again the socio- institutional framework played an active role.
As FreemadPerez emphasize, the new technoeconomic paradigm involves, 'a new pattern in the location of investment both nationally and internationally as the change in the relative cost structure transforms comparative advantages' (p. 59). Taking the example of Japan, we could say that in the 1950s there was nothing, except massive labour, that indicated 'comparative advantage' for Japan in the fourth Kondratieff. Again using the experience of Japan, which has introduced a dual structure of prices in order to make rational investments in capital-intensive technology in its labour-intensive economy, may add new light to the scope of the socio- institutional f r a m e ~ o r k . ~
Finally, there is a certain number of research papers within the sociology of technology that present technical change essentially as a process of social action and interaction (see, for example, Bijker et al., 1987; ,Noble, 1984; MacKenzie and Wajcman, 1985). The majority of these studies have researched the shaping of specific technologies. Further work is needed which will confront this problem from a macroperspective. Some elements pointing in that direction can be found in Lambright (1974).
By this, I only want to emphasize that the relation between the
4 See Blumenthal (1980).
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socioinstitutional and the technological side is much more complex than the authors suggest and cannot be treated in a dualistic manner. The socio- institutional framework is structured by technology but it also structures technology. In this context, it would mean that the socioinstitutional framework also shapes the technoeconomic paradigm. I hold that Freeman/ Perez have made too sudden a jump in their analysis from changes in technology systems to changes in technoeconomic paradigms.
The complexity mentioned can be noticed when comparing the Freeman/ Perez approach with Boyer's summary of the regulation school approach. For Boyer, the specific constellation of social institutions gives rise to regularities and stabilities in economic processes. For Freeman/Perez, the technological paradigm and adjustment to it creates stability. Therefore, we can say that emphasis exists on both sides of the same coin. However, although complementary, they do not form a synthesis. The point of agree- ment is in the problem of (in)compatibility between technical systems and institutional forms. Nevertheless, the explanations of how they are inter- related and conditioned are unrelated. For Freeman/Perez, a crisis is the result of a mismatch between the technoeconomic subsystem and the old socioinstitutional framework. For Boyer, a crisis can also be the result of weakness of trade unions in fighting for higher wages, reflected in diverging trends between real wages and productivity, and consumer demand and investment (p. 83). Therefore, a crisis for Boyer is not necessarily related to technical systems, but may be independent of them.
Moreover, Boyer argues that the technological system was the same in the 1920s and in the 1960s (p. 84). but its economic impact was very different. The reason for that should be sought in social institutions. The problem is that when Boyer talks about technology he refers mainly to the rates of growth in labour productivity rather than to any specific technical system. He uses the term Fordism which refers to a principle of socioeconomic and technological organization (p. 86), but the technological side is rudimen- tarily specified (mainly defined as a system of mass production).'
3 Firm level
One of the main accents of the evolutionary approach is on the diversity of microbehaviour. In this book, I should logically expect progress along this route. However, this part is mainly traditional without new insights. This gap seems even more noticeable because the contributions which give a wider framework for the specific discussions (Part 1) do not deal with the micro- perspective of the evolutionary approach but remain on a macrolevel. In discussing corporate strategy and structure, the analysis is reduced to the
5 For a thorough critique of the concept of Fordism see Williams et al. (1987).
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role of R&D, but is R&D all that can be said about the innovative behaviour of a company? Much innovative work at the firm level is not the result of the R&D function. Bearing in mind the character of technology, of which a significant part is tacit, it seems to me necessary to expand the analysis of the firm level by introducing the concept of 'organizational learning'.
Adding to this line of traditional understanding of the relationship between technological innovation and the enterprise is an extensive dis- cussion (8 pages) about the role of vertical integration. Teece sees vertical integration as the only way to facilitate systemic innovation at the firm level. As he himself admitsthe evidence for that proposition is rather weak. In the case study of the petroleum industry in the period 1951-75, he shows the correlation between R&D expenditures and the level of vertical integration. The rest is anecdotal but again related to the period 1930-70. Symptomatically, all the arguments are related to somewhat outdated cases. A more balanced discussion about the boundaries of the firm and innovation would show that the problem is somewhat more complex than in this case. Besides formal vertical integration, other numerous forms of co-ordination and co-operation have emerged: horizontal integration; group structure; 'quasi-integration'; associative industrial research laboratories; industrial fixed technical standards; common marketing services; R&D co-operative agreements; consortia set up for specific large industrial projects e t ~ . ~
4 Understanding institutions
One of the starting points of the analysis addresses the idea that dynamic stability should be understood by studying the regularities and patterns of technical change itself and 'by recognizing the role of institutions (including markets but not only markets)'. A careful reading of the book shows, however, that the understanding of institutions and their relation to tech- nical change has not gone very far. However, their importance is fully grasped on the macrolevel of the analysis (technoeconomic paradigm, regulation approach, and national system of innovation). By reading, one gets a feeling that institutions matter, but the understanding of their role in relation to technical change is still rudimentary. Unclear is the theoretical position towards the institutions. Should institutions be explained in terms of power or their ability to survive due to its cost-cutting efficiency? Implicitly it is possible to conclude that the market is understood as a social institution (opposite to the market as an abstract space). However, if the market is not only a transmitter of informations, how does it affect the actions and dispositions of agents of technical change? If the market has ineradicable social and 'collectivist' dimensions as well, how are they related to technical change? How is the intensity of market competition related to
6 See Chesnais (1986). A discussion about limits of vertical integration can be found in Buzzel (1983).
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technical change? What are the consequences of lack of or excessive competition? How does one explain the recent phenomenon, emphasized in only a few places in the book, of the combination of co-operation and competition? In general, I think that institutions are treated rather abstractly.
5 National systems of innovations (NSI)
With the prior work done in the field of conceptualizations of technical change in mind, the national system of innovations is realized as a new concept. I presume that the idea is that national spaces could be treated as coherent production systems, systems of exchange (national markets) and systems of innovation. However, the concept itself is, in this phase of research, treated rather informally and without deep theoretical ambitions, except in the contribution from Lundvall. As I have already mentioned, Freeman and Nelson showed the institutional complexity of the capitalist system of innovation using the examples of Japan and the USA. Their presentation of two national systems, however, does not have much in common in conceptual terms. I see it as a refreshing but standard account of innovation systems of these two countries. The problem with such presentations in a theoretically ambitious book is that because of a lack of a common conceptual framework in the analysis of the two national systems, their stories are never exhaustive. In listing factors which can explain to us these two systems, every reader would probably add additional factors which could further explain the system. It confirms that we need a kind of theoretically more ambitious comparative framework in order to analyze two national systems. Finally, the conclusion that the systems of capitalism are complex institutionally cannot help us much. We could perhaps claim that the innovation system of the USSR in some fields is also as institutionally rich. This emphasis on institutional heterogeneity which, especially in the case of Nelson's contribution, seems rather abstract, leads him to admit, that 'a description and analysis of the innovation systems of any other major industrialized nations would show a similar complex structure' (p. 309). Indeed, the range of appropriability mechanisms, the public and private character of technology, technical and professional societies, the role of universities and government support programmes, are all characteristic institutional forms of the majority of developed countries. If so, one has to ask what really matters in explaining national systems of innovations - variations in similar institutional forms or something else?
Here I would consider the banking system and the role of public adminis- tration as factors that could matter in the comparative explanations of NIS. Both these factors are missing in the presentations of the USA and Japan. Freeman gives a comprehensive picture of the Japanese system, except on a macrolevel where the entire story starts and finishes with MITI. In spite
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of the significant role of MITI, it would be impossible to manage the entire complexity of technological development without making a rational invest- ment in capital-intensive technologies and innovations in a period when the market mechanism indicates something diiferent as rational. Policy of costs and prices together with the credit system was a necessary but also complementary element of NSI. Even Freeman himself (p. 339) has noticed that 'the lower cost of capital for strategically important areas of long term investment' is important in Japanese NSI. Therefore, I would argue that the banking system together with the general economic policy has equal importance for technological change in the institutions explicitly aimed to support and guide technology. This leads me to hypothesize that the NSI of innovation cannot be adequately conceptualized without considering its inter-relationship with the national system of production and exchange.
Further, the role of public administration as a mediator in technical change seems to me indispensable. Technical change presumes not only competition and an appropriate framework for the working of the market mechanism but also co-operation, stability and a process of learning. The role of public administration in bridging the gap between private and social costs in the innovation process, without taking the position of an active entrepreneur, seems to me relevant for the degree of strength of the NSI.
As I have already mentioned, the contribution of Lundvall is aimed in the direction of the theoretical development of the concept of NSI. He starts from user-producer inter-relationships as a systemic interdependence between formally independent economic subjects, showing how NSI is deter- mined by these information interlinkages. While the main emphasis of Nelson and Freeman is on innovation, Lundvall implicitly starts from the position that we cannot explain the pattern of innovation and learning, taking into account only discrete events (patents, number of innovations). Further, he develops this framework, introducing the final users of tech- nology into the system (workers and consumers), concluding that, 'workers and consumers tend to become passive beneficiaries or victims in relation to new technology, rather than subjects taking an active part in the process of innovation' (p. 365). Although he does not go much further, I guess these ideas will lead him to a kind of macroanalysis of social shaping of technology. The most important is that at that point the user-producer concept becomes an empty framework where even the phenomenon of Gorbachev can be treated as a social innovation (p. 366).
Quite unusual and refreshing is Pelikan's comparative analysis of the innovation system of capitalism and socialism. Although written with some- what 'cold war' objectives (trying to proof which system is superior), this useful and intelligent mental exercise has saved itself from banality by its high theoretical level of analysis. Capitalism and socialism are perceived both as mixtures of both markets and hierarchies. Capitalism is defined as private ownership of capital transferable through the capital market. In the
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case of socialism, 'only one kind of market is not allowed, by definition' to develop under a socialist regime - the market for capital' (p. 373). One of the crucial assumptions is that technical innovativeness of an economic system ultimately depends on its abilities to allocate economic competence efficiently. Since, 'economic self-organization cannot be optimally planned in advance, but must involve experimentation through associative trials and errors' (p. 390), the institutional mechanism which insures experimentation is crucial. Taking that criteria, Pelikan concludes that the potential for efficient experimentation (that stems from capital markets) is a crucial comparative advantage of capitalism.
This 'proof seems to me interesting, not because of the comparison of two systems, but mainly as a stimulative contribution for the theoretical development of NSI of capitalism. Pelikan bases his discussion on two implicit assumptions. The first is that the unlimited experimentation is socially costless and practically unlimited in capitalism. The second is that technological development stems exclusively from finance taken from the stock exchange. In other words, he presumes that UK technology is created by money taken from the London Stock Exchange.
The first assumption is questioned explicitly by Freeman. Explaining the Japanese system, he comes to the conclusion that, 'firms which are in more perfect competitive market situations would not be able so easily to amass or to allocate resources for these long-term objectives' (p. 338). Since innovation requires a long-term view with respect to research, training and investment, these conditions are inconsistent with the pressure from the capital markets to achieve 'short term profitability by sacrificing long-term investments'.
Excessive entrepreneurialism (i.e., experimentation) can lead to the erosion of producer's surplus rather than innovation. Entrepreneurialism, through its fragmentation and permanent flux, prevents stability, long-term co-operation and a process of learning by interacting. Excessive entrepre- neurialism, through permanent competition, cannot establish links among isolated units of learning. It leads, through start-up sales to foreigners, to the loss not only of assets and tax subsidies but also to a loss of experience and know-how. Since start up costs are shared by the entire industry, it is a loss for the national system of learning.'
The second assumption is questioned by Rothwell and Zegveld (1986). They have surveyed literature about financing technological change showing the crucial importance of close links between the banking sector and industry. With the example of the UK, they claim that the short-term interest of British stockholders, '. . . has serious implications for the ability of British companies to initiate and sustain major long term programmes of technological development' (p. 173).
For a discussion on this see Fergusson (1988).
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Finally, in the context of the evolutionary approach, it is interesting to examine how permanent experimentation can be connected with the need for stability and social consensus. Freeman presumes that in the case of Japan, perhaps 'this consensus tends to diminish the pluralism and range of evolutionary alternatives' (p. 344). Clark and Juma also talk about 'socially agreed paradigms' (p. 21 5).
6 Technological change and international trade
Dosi and Soete have traced in their chapter, 'Technological change and inter- national trade', the way of research that can radically change today's dominant perspective in international trade theory. Although a complete set of arguments is given in their book (Dosi et al., 1989), the main propositions sketched out could have far-reaching implications. They claim that the degree of innovativeness of each country in any particular technology is explained through the interplay between, '(i) science related opportunities (ii) country-specific institutions which foster/hinder the emergence of new technological paradigms, and (iii) the nature and intensity of economic stimuli which stem from critical scarcities of inputs, specific patterns of demand and levels and changes in relative prices' (p. 419).
This seems to be quite a new perspective for two reasons. First, it finally removes teleological elements from the theory of international trade. Specialization of one country in international trade is not the result namely of (n0n)availability of certain production factors or the consequence of '(non)appropriate' specialization, but the result of actions of national and foreign actors. In other words, people matter. Secondly, such a formulated theory leads to an integration of international trade and growth theory. Fundamental international differences are related to country-specific condi- tions of technological learning and accumulation. The point is that this shifts the focus of analysis towards the problem of domestic building of tech- nological capabilities. In the context of the DCs/LDCs, research and policy perspectives become similar. As confirmed by Fransman (1985), there is a trend of increasing convergence in analysing technological change in developed and developing countries.
Closely connected to the chapter by Dosi and Soete is Fagerberg's attempt to explain, 'why growth rates differ'. He presumes that there is a close relationship between economic growth and growth of national technological activities. Economic growth depends on three factors: creation of new technology; diffusion of technology; and efforts related to the economic exploitation of innovation and diffusion. The problem in Fagerberg's article arises due to his inability to concretize that model.
First, is the problem of availability of indicators which would indicate creation, diffusion and a degree of exploitation of innovation. Fagerberg solves this by using conventional econometrics, relating R&D/GDP and
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external patent applications per billion of exports to GDP per capita. Once he uses this econometric exercise using the only two available indicators of technological activity for LDC and DCs (patents and R&D), he is faced with the problem of finding an econometric relationship which fits the presumed hypothesis. Therefore, he is reporting good results when using R&D/GDP and external patent applications per billion of exports separately. What about the results when they are used together? What is the relation between exports and external patent applications? What is the direction of causality between GDP per capita and R&D/GDP? The careful reader would like also to see the test for multicollinearity. Further complication arises with explanations of groupings of countries given on the bases of these two indicators. All of these are problems which one usually finds when using available, very rudimentary indicators and when trying on the basis of them to confirm a hypothesis which requires much more complex indicators than are available today. If Fagerberg's econometric exercise was meant to empirically confirm that growth rates differ due to different national techno- logical activities, then it seems to me that conventional econometrics based on R&D and patents is too weak a tool for that. A type of analysis which would seem more fruitful ought to go in the direction of developing a set of complex indicators as are sketched by Sharrif (1986; 1988).
The chapters by Perez/Soete and Unger discuss the problem of catching up in technology. The findings are somewhat optimistic in the case of Perez/Soete concluding that, 'the present period has been and continues to be particularly favorable for attempting a leap in development of whatever size is possible' (p. 478). Unger, by contrast, claims that LDCs are on 'the verge of a new vicious circle' (p. 490) mainly because of new types of skills needed and scarcities of entrepreneurial resources. Such disparate conclu- sions are in my opinion caused by different methodological approaches. PerezISoete build their conclusion on the technology life cycle model and by drawing parallels with the catching up of the USA and smaller European countries in the nineteenth century. Making conclusions on a rather ahis- torical basis, they tend to presume that government action could compensate for one of the main conditions for needing to catch up - lack of infrastruc- tural advantages and qualified human resources. Unger, on the contrary, bases his analysis on an evaluation of the contemporary historical situation. Taking a strict structural position, he does not see a possibility for over- coming rigidities in developing countries. His position does not see any actor in developing countries which would be able to break the vicious circle of technological backwardness.
Both of these positions focus only on part of the problem. A more balanced view about the possibility of transforming dependency, is given by Evans (1986) using the case of the Brazilian computer industry:
At moments of transition, when the interests of local capital are still undefined and international capital may be caught off balance, state action can be decisive. If actors within the state apparatus can, at these points, devise
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strategies that take advantage of the momentum of international industrial transformation, they may be able to redefine the interests and structure of local capital and shift position of local industry in the international division of labour. States cannot make industrial policy as they choose, but neither must they accept local industrial structure as exogenously determined (p. 805).
In order to take advantage of moments of transition, a considerable pre- existing infrastructure is needed. This means that dependency can be transformed only when a cumulative process of technological learning is coupled with temporarily accessible technology on the world market and an appropriate strategy.
7 Formal modelling
Although the authors of this book do not perceive of economics as an exact science, a mathematical formulation of the emerging paradigm is seen as a logical validity test of new concepts. Moreover, a systematic attack on main- stream economics could have the strongest effect on this line. A battle for scientific legitimacy in economics is still deeply rooted around mathematical applications of economic concepts.
Indeed, Silverberg's survey of evolutionary models discovers much relatively rich and promising work that is being conducted. Metcalfe's and Arthur's chapters are useful review works which, together with Silverberg's review, form a relatively coherent pattern. However, for a full evaluation of formal modelling in this book, a degree of consistency with the other (nonformalized) contributions is crucial.
These two types of analysis are not fully integrated. This is a normal characteristic of a work in progress, where only some of the problems of a complex process of innovation and technical change may possibly be elaborated in a formal way. Surprisingly, the rigorousness of formal think- ing has produced some concepts which are not yet in focus within descrip- tive studies. These are concepts of hysteresis (primitive path-dependent memory of a system's own past), hyperselection (completely different but self-consistent long-run outcomes in a system's behaviour, caused by initial conditions and/or small random disturbances), collective phenomena, co-operative effects, attractors etc. Further conceptual integration of these two lines of research could avoid the trap of modelling as the I'artpour I'art discipline as well as enrich the descriptive approach.
Conceptually somewhat distinct from evolutionary modelling is Boyer's modelling of the regulation approach. The historical-structuralist approach of the regulation school is based also on different analytical tools. While a basis of evolutionary models is nonlinearity, Boyer's modelling is based on average values and linearity. Both include irreversible (historical) time, but stochasticity is a cornerstone only of evolutionary models. Evolutionary models tend to be dynamic while Boyer's modelling is of a comparative-static
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nature. Finally, the prescriptive power of Boyer's models is weaker in relation to evolutionary models. Nevertheless, regulation modelling is much closer to reality and has a more ambitious objective - to model growth regimes.
Boyer himself is aware that the model presented is '. . . more suggestive than really demonstrative. Many detailed statistical and econometric studies will be needed in order to support these hypotheses' (p. 622).
8 Policy conclusions
The 'Policy conclusion' chapter is, in my opinion, without real justification. In the case of a comprehensive and fully consistent approach, such a chapter would normally summarize policy implications. However, in the case of a book where there is still a lot of inconsistencies and especially lack of clarity with regard to the very evolutionary concept, policy conclusions could only be one more source of confusion.
I think that the policy conclusions cannot be drawn directly from the content of the previous chapters. Probably specific policy research has to be done in the context of the new paradigm. Instead of a policy chapter, I guess it would be more interesting to have a chapter which would sum- marize the main findings, showing points of agreement and disagreement. This chapter should give avenues for further research. A policy implications chapter gives the incorrect formal impression that the paradigm has been developed up to a policy level. However, let me turn to the content of the policy conclusions offered. They are: 1) we cannot optimize ('the concept of 'social optimum' disappears'), but we can guide the evolution of the economic system through experimentation; 2) Policy should encompass the whole innovation process; 3) A broad concept of policy is suggested which would deal with mismatching; and 4) International bodies and national governments should be equally responsible and able to monitor techno- logical problems.
Postulated in a rather abstract way, these policy implications allow for different interpretations. If the concept of social optimum disappears, what about the concept of 'social consensus'? The authors d o not discuss this. Should we presume that they are suggesting a kind of 'evolutionary laissez- faire'? They emphasize that the processes of technical change are:
Such evolutionary processes (that) will be inherently wasteful . . . Economies of scale and scope that might be achieved through coordination will be missed. Certain kinds of scientific or technological research that would have high social value simply may not be done because they would not yield proprietary advan- tage, or because no one is minding the overall portfolio (p. 632).
Does this mean that the existing evolutionary path is the only possible one? How then can we interpret Swedish attempts to build a 'welfare indus-
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trial complex' (as sketched in the chapter by Lundvall)? Does it mean that a new evolutionary path which would be able to produce innovations of high social value is impossible? Can 'co-ordination' foster a push along the evolutionary path? Can social consensus reduce wasted effort? Finally, is the experimentation, which is emphasized as a necessary condition for technical change, really 'free' experimentation? Or could we say that it is restricted to a few options which are the outcome of the scheme 'sanctions - power - communication, (Giddens, 1984)?
9 Social dimension
It seems to me that it is difficult to give answers to the above questions from the perspective of evolutionary economics as it is presented in this book. From that perspective, the framework of social practice is curtailed. However, if the ambition is to build a holistic approach, then the scope of inquiry should be broadened.
For example, the problem of power is, probably unconsciously, systema- tically avoided. To illustrate the importance of this let me quote Turner (1986) who, explaining Giddens, says: 'Power is integrated into the very existence of structures, as actors interact they use resources and they mobilize power to shape the action of the others. Resources are the stuff of domination because they involve the mobilization of material and organizational facilities to do things.'
Interestingly, no sociologist has contributed to building an alternative approach to the theory of technical change in spite of the accentuation on holism and on the importance of social as well as technical integration of technical change. The only place where social aspects are fully grasped is in Footnote 5 in Willinger and Zuschovitch's chapter where they discuss the social implications of information-intensive production systems. They presume that in the near future, 'redistribution of resources will be even more needed than before in order to ensure minimal social integration' (p. 254).
The authors have emphasized the important issues that are not covered by this book: the role of consumers and the learning process by consumers; the role of finance, monetary and fiscal policy; and the role of armaments and military policy. In the second edition of this book, I would like to see a better integration of social and economic aspects of technical change. That, I guess, cannot be done by simply adding to the existing structure. A broader social theory is needed which can integrate these two sides of the same coin.'
8 An example of a work on that route is Burns el a/. (1987).
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IV Conclusion
In this review I have paid special attention to the controversial issues raised by the book. However, an extensive list of theoretical contributions may be sourced as well. Since that would require one more review, I will leave it to the reader.
There is no doubt that this book represents the cornerstone in theorizing technical change. A critical mass of expertise (previously scattered and unsystematized) has been gathered which clearly shows that mainstream economics can no longer avoid the problems that are presented as well as the concepts developed. Whether that will lead to a new wave of attempts to somehow integrate some of the stylized facts of this approach or further separate approaches cannot be predicted.
However, I think this remarkable book should be treated as a work in progress and not as a fully developed and comprehensive approach. The authors have themselves emphasized that. I have tried to show the incon- sistencies which I see and at the same time, reveal the real opportunities for further development along this chosen path.
V References
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Blumenthal, T. 1980: Factor proportions and choice of technology; the Japanese experience. Economic Development and Cultural Change 28, April.
Burns, F. et al. 1987: The shaping of social organization: social rule system theory with applications. London: Sage.
Buzzel, D.R. 1983: Is vertical integration profitable. Harvard Business Review January-February.
Clark, N . and Juma, C. 1987: Long run economics: an evolutionary approach to economic growth. Pinter Publishers.
Chesnais, F. 1986: Science, technology and competitiveness. Science, Technology, Industry Review 1, (1 16- 18).
Dosi, G., Pavitt, K. and Soete, L. 1989: The economics of technical change and international trade. Brighton: Wheatsheaf.
Evans, B.P. 1986: State, capital, and the transformation of dependence; the Brazilian computer case. World Development 14 (7).
Fergusson, H.C. 1988: From the people who brought you voodoo eco- nomics: beyond entreprenurialism to U.S. competitiveness. Harvard Business Review, May-June.
Fransman, M . 1985: Conceptualising technical change in the third world in the 1980s: an interpretative survey. The Journal of Development Studies 21, 572-652.
Freeman, C. and Soete, L.L.G., editors, 1987: Technical change and full employment. Oxford: Basil Blackwell.
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Slavo RadoSevic' 11 1
Giddens, A. 1984: The constitution of society: outline of the theory of structuration. Oxford: Polity Press.
Hodgson, G. M. 1988: Economics and institutions: a manifesto for a modern institutional economics. Cambridge: Polity Press.
Lambright, H.W. 1974: Governing science and technology. St Martin's Press.
MacKenzie, D. and Wajcman, J. 1985: The social shaping of technology. Milton Keynes and Philadelphia: Open University Press.
Noble, D. 1984: Forces of production: a social history of industrial automation. New York: Knopf.
Perez, C. 1983: Structural change and the assimilation of new technologies in the economic and social system. Futures 4, 357-75.
Rothwell, R. and Zegveld, W. 1985: Reindustrialization and technology. London: Longman.
Shariff, M. N. 1988: Basis for techno-economic policy analysis. Science and Public Policy 15 217-29.
1986: Measurement of technology for national development. Tech- nological Forecasting and Social Change 29, 11 9-72.
Turner H.J. 1986: The structure of sociological theory, fourth edition. Chicago: The Dorsey Press.
Williams, K., Cutler, T. and Haslam, C. 1987: The end of mass production? Economy and Society 3.
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