Technological change can wipe out business empires and give birth to entire new industries. Its direction and pace define the waves of creative destruction of capitalism. Plenty of resources are dedicated to predicting both, often with disappointing results. Neglecting that technological change does not happen by itself explains, to a certain extent, such results. Economic agents shape technological change. Exploring the factors influencing what these agents work on provides an alternative tool to look into the future of technology.
Nathan Rosenberg was an American economist who worked on the history of technology. His work is a prominent example of how to approach technological change from the perspective of economic agents. In his 1969 paper “The Direction of Technological Change: Inducement Mechanisms and Focusing Devices,” Rosenberg explored what induces entrepreneurs’ attention into some aspects of technology and not others. In this post, I first summarize the mechanisms described by Rosenberg. Then, I explore how these mechanisms apply today to renewable energies, and why this 1969’s paper brings hope for a 100% renewable electricity future.
Mechanism 1: Technological bottlenecks
“[M]ost firms – or at least most decision makers – are under pressure to undertake actions which promise a payoff in a relatively short time period and within at least most of the constraints imposed by the existing [technological context]. [-] They are naturally led to search the technological horizon, as it were, within the framework of their current activities to attack the most restrictive constraint.”(p.4). The most restrictive constraint is the one whose performance limits the performance of the system as a whole. In other words, it is the technological bottleneck. Rosenberg calls them “technical imbalances,” which prevent the exploitation of the full advantages of an innovation.
In the 1900 Paris Exposition, Frederick W. Taylor first demonstrated how high-speed steel allowed cutting speeds five times higher than the best ones at the time. However, “it was impossible to take advantage of the higher cutting speeds with machine tools designed for the older carbon steel cutting tools. They could not withstand the stresses and strains or provide sufficiently high speeds in the other components of the machine tool.” (p.7). The design of the machine tools had become a technological bottleneck for the machine tool industry.
Numerous entrepreneurs took up the challenge. “Beds and slides rapidly became heavier, feed works stronger, and the driving cones designed for much wider belts than of old. The legs [-] grew shorter and shorter and finally disappeared” (p. 8). The design of machine tools ceased to be a technological bottleneck, and, in the process, entrepreneurs unveiled many relevant innovations. Technological bottlenecks not only focus the attention of economic actors onto them. They also trigger “compulsive sequences” of innovations that often result in unexpected discoveries that shape the direction of technological change.
Mechanism 2: Unavailability or risk of unavailability
“[S]trikes or fear of strikes have served, historically, as a powerful agent for directing the search for new techniques in a particular direction. [-] Under nineteenth-century conditions, it was the disruption in the labour supply which seems to have constituted the most serious threat to entrepreneurs who were concerned with the continuity of their production operations.”(p.17) But “the point about uncertainties is, of course, in principle a general one.” (emphasis in original, p. 17).
When “an accustomed source of supply was, for some reason, cut off or drastically reduced, causing major disruption due to the unavailability either of alternative sources of supply or of satisfactory substitutes [-] led to a search activity out of which a satisfactory or superior substitute, or more productive process, eventually emerged.” (p.17).
In 1873, Nature published W. Smith’s report of how a selenium solar cell could produce electricity when exposed to light. Eighty-one years had to pass by before Bell laboratories retook the technology, this time based on silicon, and demonstrated its viability to supply power. Solar cells brought electricity where the availability of energy sources was the lowest (e.g., space, maritime buoys, desert areas), but it did not venture into mainstream electricity generation. It all changed when the availability of the world’s foremost source of energy, oil, was put in question. The 1970s oil crises turned the attention of the world to alternative sources of energy, forcefully altering the direction of technological change.
100% Renewable Electricity: One technological bottleneck away
Recently, the debate about a future with 100% renewable electricity supply made headlines when major economic agents committed to it (from firms to mayors and mayors). The debate triggered interesting exchanges among experts (here, also in podcasts one & two). One key element populated all discussions: energy storage. It is widely considered a key missing piece of the 100% renewable puzzle. Rosenberg’s paper suggests a bright future for renewable technologies such as solar photovoltaics and wind turbines, bringing hope for 100% renewable electricity in two ways.
The cost of renewable electricity rapidly approaches that of conventional power generation technologies (including natural gas power plants). Its biggest shortcoming become its non-dispatchability. Solar and wind energy, the leading renewable technologies, only provide electricity when the sun shines or the wind blows. This could create electricity supply risks and an erosion of the value of the technologies as their penetration rate grows. The non-dispatchability of renewable energies prevents us from taking full advantage of the very low operational cost and cleaner electricity they can provide. Thus, the non-dispatchability of the leading renewable energies is a technological bottleneck to exploit their full potential. Besides, a high penetration of these technologies may also cause a risk of unavailability of electricity.
The history of technology, as portrayed in Rosenberg’s 1969 paper, tells us that economic agents will direct their efforts to address technological bottlenecks and ameliorate risks of unavailability of important production factors. What’s more, it suggests that we can expect unexpected discoveries in the process. Economic agents seem to have gotten the message. Firms are investing heavily in energy storage, researchers aim at providing paths for its deployment and governments start to support it. Rosenberg’s mechanisms seem to be at work, explaining how the direction of technological change is turning. This is why a 1969’s paper brings hope for a 100% renewable electricity future.
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NB: I hope you enjoyed the first post of the “Paper Summary (PS)” series. Each month, I will publish a new post based on a particularly interesting paper and link it to current developments in the energy industry. Upcoming PS-series posts:
- Even if the mechanisms defining the direction of technological change exist, how long will the transition take?
- Conventional generation agents will be encouraged to fight for their businesses. In terms of technology change, what will the effect be?
Edited on February 19, 2018.
Alejandro Nuñez-Jimenez 
Thanks for your post, Alex! Expectedly, I would like to bring in some contradiction…
I read a post a few years ago that argued that innovation, left to economic actors, merely leads to a “repackaging” of existing technologies (logically, since that minimizes cost uncertainty), which are much more efficiently found through undirected, publicly funded research. This post in a way provides examples of this, with a “repackaging” of cutting machines around the newly invented steel (how was this steel discovered, though?). Similarly, todays solar cells are only a repackaging of existting technologies, developped initially for publicly funded space research. The same famously goes for radioactivity and nuclear applications. As for batteries, they too are based on century old technologies. New “home batteries” are strikingly a fancy repackaging, with an energy density of about 100Wh/kg, while Li-ion technologies, around for over two decades (and initially developped in universities), allow for densities up to 200Wh/kg.
I might be overly pessimistic, but I’m not not sure how the current stress perceived on fossil ressources (might be worth reminding that prices are back to historical lows in the last years) would trigger, by itself, a technological breakthrough paving the way to a 100% renewable world. I’m rather warry that it will generate a wave of products targetted for rather wealthy households wanting to “go green” or “off-grid”, increasing energy inequalities and spreading fire and health hazards (as batteries are, the higher the energy density, the higher the risk) in our basements.
Food for a future discussion, I hope :-)!
Hi Thomas, thanks for reading and for your comment!
This debate is really attractive to me, I am trying to read as much as I can about it. But I will try to limit my comment to Rosenberg (upon whom work the post is based). Somehow I feel I have to defend him because I would be sad if my poor writing misleads those who read this post about what his thinking was.
Rosenberg explicitly acknowledges the importance of the two directions in which technological change spreads into the economy. Both from science-based institutions (typically, publicly funded) to production-based organizations (companies, economic agents in general), and the other way around. It is true that from the post, one might think Rosenberg argued that economic agents (production-based) drove technological change. However, he never said that is exclusive to them or primarily because of them. I quite agree with his view that which direction dominates is rather dependent on the technology and the industry we discuss.
From your examples, I must note that while the nuclear industry has indeed strong foundations in publicly funded research, the solar photovoltaics industry has had a more dialectic development between public research and innovation carried out by companies. But to be honest, the current solar cells also own a big deal to big government expenditures on space applications. But beyond this, my point is that it is not black or white, but rather contingent on the technology and industry. Some other energy technologies, the oil industry, for example, were primarily developed by economic actors, as far as I know.
On repackaging, economic agents may be repacking technological knowledge uncovered by publicly funded research, but that does not prevent them from creating valuable new combinations or unveiling new limits to the technology that may, in turn, go back to the scientists and guide their research. It is then the coevolution of both aspects, science and economic activity, what shapes technological change. Rosenberg has a nice article about this dialogue between economy and science in the context of the aircraft industry.
Regarding your last point, I am not so optimistic either. I think Rosenberg’s paper brings hope because it highlights that it is often when a technological bottleneck occurs where most efforts go into solving them, and many times the results have brought with them more benefits than were initially foreseen. It can also be the case that it does not happen this time, bien sûr. I think there is room to be optimistic about storage because a lot of people could make a lot of money if it works. Sadly, it seems that turning the fight against climate change into a lucrative business could be the fastest way to address it. What it means in terms of sustainability, that would make for a good discussion.
I am happy to discuss with you, thanks for reading my blog again!