Patterns of Change: Technological Substitution and Long Waves in the United States

Working Paper

PATTERNS OF CHANGE:

TECMOLOCICAL SUBSTITUTION Mill LONG WAVES

M

THE UNITED STATES

Nebojsa N a ~ i c e n o v i c

March 1986 WP-06-13

International Institute f o r ~ p p l i e d Systems Analysis

A-2361 Laxenburg, Austria

XOT FOR QUOTATION WITHOUT PERMISSION OF THE AUTHOR

PA'IlERNS OF CHANGE:

TECHNOLOGICAL SUBSTITUTION

AND

LONG WAVES

M

THE

UNITED

STATES

Nebojsa N ~ K ~ c ~ ~ o v ~ c

March 1986 WP-86-13

Working Papers a r e interim r e p o r t s on work of the International Institute f o r Applied Systems Analysis and have received only lim- ited. review. Views o r opinions expressed herein do not neces- sarily r e p r e s e n t those of t h e Institute a r of i t s National Member Organizations.

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS 2361 Laxenburg, Austria

P a t t e r n s of Change:

Technological Substitution and Long Waves i n the United States

ABSTRACT

Economic development and t h e advancement of technology i s p r e s e n t e d as a p r o c e s s of substituting old forms of satisfying human needs by new o n e s o r , more p r e c i s e l y , as a s e q u e n c e of s u c h substitutions. The examples, r e c o n s t r u c t e d from h i s t o r i c a l r e c o r d s . d e s c r i b e t h e q u a n t i t a t i v e , technological c h a n g e s in e n e r g y consumption, s t e e l production a n d m e r c h a n t marine in t h e United S t a t e s .

Logistic substitution analysis i s used t o c a p t u r e t h e dynamics a n d r e g u l a r i t y of t h e s e technological c h a n g e s . It i s shown t h a t technological substitution analysis d e s c r i b e s fundamental s t r u c t u r a l c h a n g e s t h a t lead to new economic p a t t e r n s and forms. The emerging p a t t e r n s of technological and economic c h a n g e s d u r i n g t h e l a s t two t o t h r e e c e n t u r i e s a r e shown t o p o r t r a y p e r i o d i c r e c u r r e n c e s a t i n t e r v a l s of a b o u t half a c e n t u r y . In t h i s s e n s e , t h e technological substitution p r o c e s s e s a r e r e l a t e d t o t h e long swings in economic development b e c a u s e t h e y identify a n d d e s c r i b e major a n d p e r i o d i c f l u c t u a t i o n s in tire h i s t o r i c a l rate of technological c h a n g e a n d accordingly a l s o t h e s e c u l a r c h a n g e s in t h e rate of economic growth.

A phenomenological a p p r o a c h 1s adopted t o i n d i c a t e t h e e v i d e n c e f o r t h e i n v a r i a n c e a n d logical o r d e r in t h e s e q u e n c e of technological c h a n g e s and long wave fluctuations.

TABLE OF CONTENTS

1 INTRODUCTION

2 TECHNOLOGICAL SUBSTITUTION

2.1 Primary E n e r g y C o n s u m p t i o n

2.2 S t e e l P r o d u c t i o n and J d c r c h a n t M a r i n e

3 LONG WAVES

AND

CHANGE OF TECHNOLOGY

3.1 Wholesale P r i c c s o f C o m m o d i t i e s 3.2 Primary E n e r g y C o n s u m p t i o n 3.3 E f f i c i e n c y o f E n e r g y U s e

3 . 4 P h y s i c a l Indicators: S t e e l a n d S h i p s

4 DYNABICS OF CHANGE

4 . 1 S y n c h r o n i z a t i o n a n d R e c u r r e n c e

5 CONCLUSIONS

E S T C F FIGURES

Figure 2.1 Figure 2.2 F i g u r e 2 . 3 Figure 2.4 Figure 2.5 Figure 2.6 Figure 2.7 Figure 2.8 Figure 3.1 Figure 3.2 F i g u r e 3.3 Figure 3 . 4 Figure 3.5 Figure 3 . 6 Figure 3.7 Figure 3.8 F i g u r e 3.9 Figure 4 . 1 Figure 4.2

P r i m a r y E n e r g y Consumption (since 1850).

P r i m a r y E n e r g y Substitution (since 1850).

P r i m a r y E n e r g y Consumption (since 1800).

P r i m a r y E n e r g y Substitution (since 1 8 0 0 ) . S t e e l Production.

Technological Substitution in S t e e l Production.

Tonnage of ~ e r c h a n t Vessels.

Substitution in Merchant Vessels by Propulsion System.

Wholesale P r i c e Index.

Long Wave in Wholesale P r i c e s .

P r i m a r y E n e r g y Consumption (with two s e c u l a r t r e n d s ) . Long Wave in P r i m a r y E n e r g y Consumption ( t h r e e estimates).

Long Wave in Fossil E n e r g y Consumption.

P r i m a r y E n e r g y . G r o s s National P r o d u c t and E n e r g y Intensity.

Long Wave in E n e r g y Intensity.

Long Wave in S t e e l Production.

Long Wave in t h e Tonnage of Merchant Vesseis.

E n e r g y , S t e e l and Merchant Vessels.

Long Waves and Substitution Dynamics.

Patterns ^of Change:

Technological Substitution and Long Waves in the United States

1 INTRODUCTION

The analysis of h i s t o r i c a l r e p l a c e m e n t of old by new technologies h a s shown t h a t most of t h e s e p r o c e s s e s can b e d e s c r i b e d by simple r u l e s t h a t are c a p t u r e d in t h e logistic substitution model ( s e e Marchetti, 1979; Marchetti a n d Nakicenovic.

1 9 7 9 ; a n d Nakicenovic, 1 9 8 4 ) , a n d t h a t technological s u b s t i t u t i o n , e x p r e s s e d in t e r m s of m a r k e t s h a r e s , follows c h a r a c t e r i s t i c S-shaped c u r v e s . In o r d e r t o i l l u s t r a t e a n d d e s c r i b e t h e p r o p e r t i e s of t h e a p p r o a c h w e will f i r s t give examples of how new e n e r g y forms r e p l a c e d t h e i r p r e d e c e s s o r s , s i n c e technological c h a n g e s in t h e e n e r g y system c o n s t i t u t e o n e of t h e f i r s t a n d most complete applications of logistic substitution analysis. To f u r t h e r e x p l o r e t h i s method w e t h e n d e s c r i b e similar substitution p r o c e s s e s in s t e e l production a n d m e r c h a n t marine.

The application of t h e logistic substitution model t o t h e a b o v e exampies indicates t h a t improvements a n d growth are a c h i e v e d t h r o u g h a r e g u l a r but discontinuous p r o c e s s . Each new technology g o e s t h r o u g h t h r e e d i s t i n c t substitution phases: growth, s a t u r a t i o n a n d decline. This r e g u l a r p a t t e r n points t o a c e r t a i n s c h e d u l e a n d r e c u r r e n c e in s t r u c t u r a l c h a n g e of competitive m a r k e t s . The s t r u c t u r a l c h a n g e in t h e a b o v e examples o c c u r r e d a t i n t e r v a l s of a b o u t 5 0 y e a r s .

The r e c u r r e n c e of c h a n g e s e v e r y 5 0 y e a r s r e s e m b l e s t h e long wave f1;lctuations in economic development originally d e s c r i b e d by Kondratieff (1926).

One o f t h e most e x t e n s i v e explanations of t h e long wave was given by S c h u m p e t e r (1939). F o r S c h u m p e t e r , innovations come in c l u s t e r s , a n d are n o t evenly d i s t r i b u t e d o r continuously a b s o r b e d , d u e t o t h e basic p r i n c i p l e s t h a t g o v e r n t h e p r o c e s s o f c a p i t a l i s t development. The c l u s t e r i n g of technological a n d e n t r e p r e n e u r i a l innovations l e a d s t o t h e p e r i o d i c e m e r g e n c e of new i n d u s t r i e s a n d subsequent growth, but t h i s growth n e c e s s a r i l y l e a d s t o llmits a n d eventual decline.

Thus, wave-like forms o f economic development are g e n e r a t e d with p h a s e s of growth a n d s e n e s c e n c e a t i n t e r v a l s o f a b o u t 5 0 y e a r s .

A h y p o t h e t i c a l r e l a t i o n between t h e 50-year p e r i o d s in t h e introduction of new technologies a n d s a t u r a t i o n of t h e old o n e s and t h e 50-year p e r i o d in t h e changing p h a s e s of growth a n d decline t h a t is a s s o c i a t e d with t h e long wave must b e v e r i f i e d empirically b e f o r e t h e e x a c t n a t u r e of t h e two phenomena c o n n e c t e d with t h e p r o c e s s of technological c h a n g e c a n b e r e l a t e d t o e a c h o t h e r . The analysis will essentially c o n s i s t of using a phenomenological a p p r o a c h t o e x t r a c t long fluctuations f r o m t h e time-series in a n a t t e m p t t o f i l t e r o u t t h e long waves a n d t o c o m p a r e t h e so-derived fluctuation p a t t e r n s with t h e dynamics of technological substitution. The changing p h a s e s of t h e long wave fluctuations will b e i l l u s t r a t e d

with t h e same examples as t h e technological substitution: e n e r g y consumption, s t e e l production a n d m e r c h a n t marine.

All of t h e examples i l l u s t r a t e t h e American e x p e r i e n c e . Thus, while t h e r e s u l t s a r e equivalent t o similar examples f o r some o t h e r industrialized c o u n t r i e s a n d t h e whole world. it i s inconclusive w h e t h e r t h e y may a l s o be of a more g e n e r a l n a t u r e . Unfortunately, h i s t o r i c a l d a t a c a n n o t be r e c o n s t r u c t e d from a v a i l a b l e r e c o r d s f o r t o o many d i f f e r e n t c a s e s , although t h e United Kingdom h a s been analyzed with equivalent examples. All o f t h e r e p o r t e d examples a n d t h e h i s t o r i c a l d a t a f o r t h e United S t a t e s (and a l s o t h e United Kingdom) are given in Nakicenovic (1984).

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2 TECHNOLOGICAL

SUBSTITUTION

Substitution of a n old way of satisfying a given need by a new path h a s been t h e s u b j e c t of a l a r g e number of studies. One g e n e r a l finding i s t h a t substitution of a n old technology by a new one, e x p r e s s e d in f r a c t i o n a l t e r m s , follows c h a r a c t e r i s t i c S-shaped c u r v e s . F i s h e r a n d Pry (1971) formulated a v e r y simple but powerful model of technological substitution. ¹

2.1 Primary E n e r g y C o n s u m p t i o n

The analysis of t h e competitive s t r u g g l e between various s o u r c e s of p r i m a r y e n e r g y h a s been shown t o o b e y a r e g u l a r substitution p r o c e s s t h a t c a n b e d e s c r i b e d by r e l a t i v e l y simple r u l e s (Marchetti. 1977; Marchetti a n d Nakicenovic, 1979; a n d Nakicenovic, 1979). The dynamic c h a n g e s in t h i s p r o c e s s are c a p t u r e d by logistic equations t h a t d e s c r i b e t h e r i s e of new e n e r g y s o u r c e s a n d t h e s e n e s c e n c e o f t h e old ones. Figure 2.1 shows t h e p r i m a r y e n e r g y consumption in t h e United 'states s i n c e t h e middle of t h e l a s t c e n t u r y . Data are plotted on a logarithmic s c a l e a n d show exponential growth p h a s e s in consumption of t h e most important s o u r c e s of p r i m a r y e n e r g y by piece-wise Linear s e c u l a r t r e n d s . Thus, i t i s evident t h a t e n e r g y consumption grew at exponential rates during long time p e r i o d s but no o t h e r r e g u l a r i t i e s are d i r e c t l y d i s c e r n a b l e . However, t h e evolution of p r i m a r y e n e r g y consumption e m e r g e s as a r e g u l a r substitution p r o c e s s when i t i s assumed t h a t e n e r g y s o u r c e s a r e d i f f e r e n t technologies competing f o r a market. Unfortunately, t h e F i s h e r and Pry model c a n n o t b e used t o d e s c r i b e t h e evolution of p r i m a r y e n e r g y consumption, s i n c e evidently more t h a n two e n e r g y s o u r c e s compete f o r t h e m a r k e t simultaneously.

In dealing with m o r e t h a n two competing technoiogies, w e must g e n e r a l i z e t h e F i s h e r a n d P r y model, s i n c e in s u c h c a s e s logistic substitution c a n n o t b e p r e s e r v e d in a l l p h a s e s of t h e substitution p r o c e s s . E v e r y c o m p e t i t o r u n d e r g o e s t h r e e d i s t i n c t substitution phases: growth, s a t u r a t i o n a n d decline. The growth p h a s e i s similar t o t h e F i s h e r a n d Pry model of t w o c o n ~ p e t i t o r s , but i t usually t e r m i n a t e s b e f o r e full substitution is r e a c h e d . It i s followed by t h e s a t u r a t i o n p h a s e which is not logistic, but which encompasses t h e slowing down of growth a n d t h e beginning of decline.

A f t e r t h e s a t u r a t i o n p h a s e of a technology, i t s m a r k e t s h a r e p r o c e e d s t o decline logistically.

W e assume t h a t only one competitor i s in t h e s a t u r a t i o n p h a s e at a n y given time, t h a t declining technologies f a d e away s t e a d i l y at logistic rates not influenced by competition from new c o m p e t i t o r s , a n d t h a t new competitors e n t e r t h e m a r k e t a n d grow a t logistic rates. The c u r r e n t s a t u r a t i n g competitor i s t h e n l e f t with t h e r e s i d u a l m a r k e t s h a r e (i.e.. t h e d i f f e r e n c e between 1 a n d t h e sum of f r a c t i o n a l m a r k e t s h a r e s of a l l o t h e r c o m p e t i t o r s ) and i s f o r c e d t o follow a nonlogistic path

1 The b a s i c sssumptlon postulated by F i s h e r and P r y 1 s t h a t once a s u b s t i t u t i o n o f t h e old by t h e new h a s p r o g r e s s e d a s f a r a s a f e w percent, I t w i l l proceed t o completion along t h e Logistlc substitution curve:

where t Is t h e Independent v a r i a b l e usually r e p r e s e n t i n g some unit of time. a and B a r e c o n s t s n t s ,

f 1s t h e f r s c t l o n s l m a r k e t s h a r e of t h e new cdmpetitor, while 1-f i s t h a t of t h e old one.

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Figure 2.1 P r i m a r y E n e r g y Consumption (since 1850).

t h a t joins i t s p e r i o d of growth to i t s s u b s e q u e n t p e r i o d of decline. After t h e c u r r e n t s a t u r a t i n g c o m p e t i t o r h a s r e a c h e d a logistic r a t e of decline, t h e n e x t o l d e s t competitor e n t e r s i t s s a t u r a t i o n p h a s e a n d t h e p r o c e s s i s r e p e a t e d until aU b u t t h e most r e c e n t c o m p e t i t o r a r e in decline. A more comprehensive d e s c r i p t i o n of t h e model a n d t h e assumptions i s given in Nakicenovic (1979).

Figure 2.2 shows t h e p r i m a r y e n e r g y substitution f o r t h e United S t a t e s . Data a n d model estimates of t h e substitution p r o c e s s a r e plotted on a logarithmic scale using t h e quantity f / (1-f) v e r s u s time r e p r e s e n t i n g f r a c t i o n a l m a r k e t s h a r e s ) . The piece-wise l i n e a r s e c u l a r t r e n d s indicate logistic substitution p h a s e s . The d e p a r t u r e a f h i s t o r i c a l m a r k e t s h a r e s Cram t h e i r long t e r m p a t h s , d e s c r i b e d by t h e Logistic substitution model, sometimes l a s t f o r o v e r two d e c a d e s only t o r e t u r n t o t h e t r e n d a f t e r t h e prolonged p e r t u r b a t i o n . This i s t h e c a s e with t h e m a r k e t s h a r e s of

Figure 2.2 P r i m a r y Energy Substitution (since 1850).

coal and oil during t h e 1940s and 1950% and fuel wood and animal feed during t h e 1860s and 1870s. This may a l s o indicate a possible a b s o r p t i o n o f t h e d e p a r t u r e of coal and n a t u r a l g a s m a r k e t s h a r e s from t h e i r long term p a t h s during t h e l a s t ten y e a r s .

Animal feed r e a c h e d i t s highest m a r k e t s h a r e in t h e 1880s indicating t h a t d r a f t animals provided t h e major form o f local t r a n s p o r t a t i o n and motive power in a g r i c u l t u r e d e s p i t e of t h e dominance of r a i l r o a d s and steamships as long distance t r a n s p o r t modes. Horse c a r r i a g e s and wagons were t h e only form of local t r a n s p o r t in r u r a l a r e a s and basically t h e only f r e i g h t t r a n s p o r t mode in cities. I t is curious t h a t t h e f e e d and c r u d e oil substitution c u r v e s c r o s s in t h e 1920s as if to suggest t h e simultaneous substitution of t h e h o r s e c a r r i a g e and wagon by t h e motor vehicle (see Nakicenovic, 1985).

The substitution p r o c e s s c l e a r l y indicates t h e dominance of coal a s t h e major e n e r g y s o u r c e between t h e 1870s and 1950s a f t e r a long period during which fuel wood and animal feed were in t h e lead. In t h e United S t a t e s , wood remained t o be t h e principal f u e l f o r t h e r a i l r o a d s up t o t h e 1870s, although r a i l r o a d s are considered the symbol of t h e coal a g e . The l a s t p h a s e s of r a i l r o a d expansion up t o t h e 1920s.

t h e growth of s t e e l , steam s h i p s and many o t h e r s e c t o r s a r e a s s o c i a t e d with and based on t h e technological o p p o r t u n i t i e s o f f e r e d by t h e m a t u r e coal economy. After t h e 1940% oil assumed t h e dominant r o l e simultaneously with t h e maturing of t h e automotive, petrochemical a n d many o t h e r modern industries.

Figure 2.2 shows n a t u r a l gas as t h e dominanting e n e r g y s o u r c e a f t e r t h e 1980s although c r u d e oil still maintains a b o u t a 3 0 p e r c e n t m a r k e t s h a r e by t h e end of t h e c e n t u r y . F o r such a n e x p l o r a t i v e "look" into t h e f u t u r e , additional assumptions a r e r e q u i r e d b e c a u s e potential new competitors such as n u c l e a r o r s o l a r e n e r g y h a v e not y e t c a p t u r e d s u f f i c i e n t m a r k e t s h a r e s in t h e p a s t to allow estimation of t h e i r p e n e t r a t i o n r a t e s . The s t a r t i n g point For m a r k e t p e n e t r a t i o n of n u c l e a r e n e r g y c a n be d a t e d back t o t h e 1960s when n u c l e a r power a c q u i r e d slightly l e s s t h a n a one- p e r c e n t s h a r e in p r i m a r y e n e r g y . In o r d e r t o e x p l o r e t h e b e h a v i o r of t h e logistic substitution model when t h e competition between t h e e n e r g y s o u r c e s is extended into t h e f u t u r e , w e assumed t h a t n u c l e a r e n e r g y could double its c u r r e n t m a r k e t s h a r e of about f o u r p e r c e n t by t h e y e a r 2000. This leaves n a t u r a l g a s with t h e lion's s h a r e in p r i m a r y e n e r g y advancing i t s position t o t h e major s o u r c e of e n e r g y a f t e r t h i s c e n t u r y .

The evolution of fossil e n e r g y u s e in t h e United S t a t e s h a s a l o n g e r r e c o r d e d h i s t o r y than t h e u s e of t r a d i t i o n a l e n e r g y s o u r c e s such as d r a f t animals and wind power. Figure 2.3 gives t h e annual consumption of all fossil primary e n e r g y s o u r c e s . f u e l wood a n d d i r e c t u s e s of w a t e r power s t a r t i n g in 1800. while Figure 2.4 shows t h e substitution of t h e s e e n e r g y s o u r c e s . In t h i s example, t h e logistic substitution model d e s c r i b e s with g r e a t precision t h e evolution of p r i m a r y e n e r g y consumption. Due t o t h e dominance of fuel wood as t h e major s o u r c e of e n e r g y during most of t h e l a s t c e n t u r y , t h e information loss a s s o c i a t e d with t h e lack of a d e q u a t e annual estimates of e n e r g y use (feed r e q u i r e m e n t s ) of d r a f t animals is not v e r y Large. Direct u s e of w a t e r power is included in t h e d a t a s e t , but d u e t o t h e Low contribution t o t o t a l e n e r g y supply, when e x p r e s s e d in t e r m s of i t s a c t u a l e n e r g y inputs, water power is not o b s e r v a b l e at t h e o n e - p e r c e n t level.

The r e g u l a r i t y of t h i s substitution p r o c e s s is d u e not only t o t h e f a c t t h a t t h e p e n e t r a t i o n r a t e s of v a r i o u s e n e r g y s o u r c e s remain constant o v e r p e r i o d s of a b o u t a c e n t u r y , but a l s o d u e t o t h e f a c t t h a t t h e s a t u r a t i o n levels of e n e r g y s o u r c e s a r e much Lower than t h e full m a r k e t t a k e o v e r . The introduction of new e n e r g y s o u r c e s a n d t h e long time c o n s t a n t lead t o maximum m a r k e t p e n e t r a t i o n s of between 50 a n d

70 p e r c e n t . N e w e n e r g y s o u r c e s are introduced b e f o r e t h e dominant ones h a v e even r e a c h e d a 50 p e r c e n t s h a r e . In addition, t h e maxima are roughly s p a c e d a t intervals of a b o u t 50 y e a r s , which c o r r e s p o n d s t o t h e time c o n s t a n t of a b o u t 5 0 y e a r s f o r m a r k e t s h a r e i n c r e a s e s from 1 0 t o 50 p e r c e n t .

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Figure 2.3 Primary Energy Consumption (since 1800).

F i g u r e 2.4 P r i m a r y E n e r g y Substitution (since 1 8 0 0 ) ,

2.2 Steel Production and Merchant Marine

F i g u r e 2.5 shows t h a t s t e e l production i n c r e a s e d rapidly d u r i n g t h e s e c o n d half of t h e 1 9 t h c e n t u r y , a f t e r Henry Bessemer p a t e n t e d t h e f i r s t high-tonnage p r o c e s s f o r steei production in 1857. Figure 2.6 shows t h e a c t u a l technological substitution in steelmaking a c c o r d i n g to t h e p r o c e s s used. P r i o r t o t h e i n t r o d u c t i o n of t h e Bessemer p r o c e s s a l l s t e e l w a s p r o d u c e d by t h e t r a d i t i o n a l c r u c i b l e methods used since antiquity. F i g u r e 2.6 shows t h a t t h e Bessemer p r o c e s s r e p l a c e d t h e t r a d i t i o n a l methods within two d e c a d e s supplying almost 90 p e r c e n t of a l l s t e e l by t h e 1880s. The n e x t improvement in steelmaking w a s a c h i e v e d by t h e introduction o f t h e o p e n - h e a r t h f u r n a c e , which supplied 50 p e r c e n t of a l l s t e e l by t h e e n d of t h e c e n t u r y . The use of t h e o p e n - h e a r t h p r o c e s s continued t o i n c r e a s e d u r i n g t h e f i r s t d e c a d e s of t h i s c e n t u r y a n d by t h e 1950s i t a c c o u n t e d f o r more t h a n 90 p e r c e n t of t h e s t e e l produced. The f i r s t open-hearth p r o c e s s to b e used widely w a s b a s e d on a c i d c h e m i s t r y although l a t e r t h e basic open-hearth also found e x t e n s i v e use. The basic systems h a v e a d e c i d e d a d v a n t a g e in flexibility with r e g a r d t o r a w m a t e r i a l s consumed a n d g r a d e s of s t e e l produced. The steelmaklng p r o c e s s e s were f u r t h e r improved by t h e u s e of oxygen f o r e x c e s s combustion instead of a i r . This o f f e r s many a d v a n t a g e s s u c h as f a s t e r melting and r e d u c e d c h e c k e r c h a m b e r c a p a c i t y . Consequently, t h e Bessemer p r o c e s s w a s a l s o e x t e n d e d t o basic c h e m i s t r y a n d oxygen u s e , t h e most s p e c t a c u l a r application originating in Austria as t h e Linz a n d Donawitz (L-D) p r o c e s s , now g e n e r a l l y r e f e r r e d to as b a s i c ~ x y g e n steelmaking.

n l l l l o n Tons

Figure 2.5 S t e e l Production.

This p r o c e s s o f technological substitution continued during t h e l a s t 40 y e a r s with t h e introduction of t h e b a s i c a x y g e n and e l e c t r i c s t e e l methods. The e l e c t r i c arc p r o c e s s w a s introduced as e a r l y as 1900, so t h a t it gained importance b e f o r e t h e b a s i c a x y g e n p r o c e s s . However, t h e b a s i c a x y g e n p r o c e s s expanded faster, probably b e c a u s e i t i s technologically similar t o t h e open-hearth and Bessemer basic variants. During t h e 1960s, t h e b a s i c a x y g e n p r o c e s s p o r t r a y e d v e r y r a p i d s h a r e i n c r e a s e s r e a c h i n g more than 50 p e r c e n t of t h e m a r k e t in t h e 1970s. The e l e c t r i c p r o c e s s is gaining importance and will probably o v e r t a k e b a s i c a x y g e n within t h e n e x t t w o d e c a d e s d u e t o t h e s a t u r a t i o n of demand f o r domestic s t e e l in t h e United S t a t e s . The dwindling t o t a l production leads to h i g h e r and h i g h e r p e r c e n t a g e s of s c r a p i r o n and s t e e l inputs instead of i r o n ore. The e l e c t r i c p r o c e s s h a s t h e advantage t h a t i t is s u i t a b l e f o r making many g r a d e s o f s t e e l and c a n almost exclusively use r e c y c l e d s c r a p i r o n and s t e e l (Miller. 1984). Thus, t h e stagnating demand f o r s t e e l f a v o r s t h e e l e c t r i c p r o c e s s since i t allows f o r almost exclusive use of r e c y c l e d inputs and f l e x i b l e s t e e l production i n s m a l l e r mills.

This example i l l u s t r a t e s t h a t t h e evolution o f steelmaking technologies p o r t r a y s a r e g u l a r p a t t e r n t h a t is similar t o e n e r g y substitution. B e f o r e r e t u r n i n g t o t h e analysis o f r e c u r r i n g p e r i o d s in technological c h a n g e and long wave fluctuations in economic development, w e will f i r s t c o n s i d e r t h e substitution p r o c e s s in t h e merchant f l e e t of t h e United S t a t e s . A s a n example f o r t h e evolution of one of t h e oldest modes of t r a n s p o r t , t h e substitution p r o c e s s c o v e r s a p e r i o d of two hundred y e a r s and includes fundamental t r a n s f o r m a t i o n s of propulsion systems.

o-hearth

Figure 2.6 Technological Substitution in S t e e l Production.

i n c r e a s e d s p e e d and size of t h e vessels and c h a n g e of t h e construction methods and materials.

The traditional s h i p propulsion, in use e v e r s i n c e ancient times, w a s wind power and t h e traditional construction material was wood. With t h e development of t h e steam engine and t h e relatively high e n e r g y density of high-quality coals, i t w a s possible to slowly r e p l a c e s a i l s with steam engines. The f i r s t designs were of a hybrid t y p e employing both steam a n d wind power. With t h e i n c r e a s e in t h e size of vessels along with t h e expansion of o v e r s e a s t r a d e , and with t h e growth of t h e iron and s t e e l i n d u s t r i e s , wood was increasingly substituted by iron and l a t e r s t e e l as t h e basic construction material. In f a c t , t h e number of vessels remained p r a c t i c a l l y constant s i n c e t h e end of t h e 1 8 t h c e n t u r y until t h e 1940s at a b o u t 2 5 thousand s h i p s , doubling d u r i n g t h e l a s t t h r e e decades. During t h e same period of almost t w o c e n t u r i e s t h e t o t a l r e g i s t e r e d tonnage of t h e merchant f l e e t i n c r e a s e d by almost two o r d e r s of magnitude implying t h a t t h e a v e r a g e vessel is a b o u t 100 times l a r g e r today than in 1800. This enormous i n c r e a s e in t h e tonnage c a p a c i t y of a n a v e r a g e vessel c a n only b e explained by continuous improvements in propulsion systems, construction materials and design.

Figure 2.7 shows t h e tonnage growth of t h e merchant f l e e t in t h e United S t a t e s since 1789 and Figure 2.8 shows t h e substitution of sailing by steam ships. both coal and oil f i r e d , and l a t e r t h e m a r k e t p e n e t r a t i o n of motor, diesel and semi-diesel s h i p s in terms o f t h e i r r e s p e c t i v e tonnage. Sailing s h i p s dominanted t h e merchant f l e e t until t h e 1880s although s t e a m e r s a c q u i r e d a one p e r c e n t s h a r e of t h e t o t a l tonnage

n ~ l l l o n Tons

Figure 2.7 Tonnage of Merchant Vessels.

Figure 2.8 Substitution in Merchant Vessels by Propulsion System.

in 1819, more than half a c e n t u r y e a r l i e r and only two y e a r s a f t e r coal r e a c h e d a one p e r c e n t s h a r e in p r i m a r y e n e r g y (see Flgure 2.4). By t h e 1920s steam vessels constituted more than 90 p e r c e n t o f merchant tonnage, thus t h e replacement of t h e traditional sailing s h i p lasted one hundred y e a r s . During t h e same decade motor s h i p s were introduced and t h e i r s h a r e o f total tonnage h a s i n c r e a s e d e v e r since.

although even today they h a v e not a c q u i r e d much more than one t e n t h of t h e f l e e t tonnage. Consequently, steam s h i p s remain an important t y p e of merchant vessel and are p r o j e c t e d in Figure 2.8 to s t a y in t h a t position throughout t h i s c e n t u r y , although today t h e y are fueled by oil and in some c a s e s use steam t u r b i n e s instead of coal f i r e d a t m o s p h e r i c engines. During t h e Second World War, t h e s h a r e of motor s h i p s s h a r p l y i n c r e a s e d , but t h i s p e r t u r b a t i o n was r e a b s o r b e d during t h e 1960s t o r e t u r n t o t h e long t e r m t r e n d indicated by t h e logistic substitution model.

The application of t h e logistic substitution model to t h e h i s t o r i c a l replacement of o l d e r by newer forms of e n e r g y , s t e e l production and propulsion o f merchant vessels indicates t h a t technological improvements and growth are achieved through a r e g u l a r p r o c e s s . From t h e time of i t s f i r s t commercial use, e a c h new technology grows logistically until i t r e a c h e s a s a t u r a t i o n p h a s e and t h e n p r o c e e d s t o decline logistically while being r e p l a c e d by a newer and more promising technology. During e a c h p h a s e of t h e substitution p r o c e s s t h e dominant technology a p p e a r s to b e s t r o n g and unassailable, but with time i t d e c a y s as emerging c o m p e t i t o r s "attack"

t h e newly exposed position of t h e m a t u r e technology. In g e n e r a l , t h e s a t u r a t i o n point is determined by t h e dynamics o f t h e introduction of new technologies. The limits t o growth of a n o l d e r technology are e n c o u n t e r e d usually b e f o r e t h e complete m a r k e t t a k e o v e r due t o t h e i n h e r e n t p e r f o r m a n c e s u p e r i o r i t y of t h e new technology. They are imposed by t h e s t r u c t u r e o f a given m a r k e t t h a t is in t u r n r e l a t e d t o o v e r a l l economic and social development and not n e c e s s a r i l y t o m e r e r e s o u r c e depletion. Once t h e s e limits a r e r e a c h e d f u r t h e r growth becomes economically and socially unviable. Thus, technological and economic c h a n g e s have a r e g u l a r p a t t e r n and r u l e s t h a t point t o a c e r t a i n rhythm and schedule in t h e s t r u c t u r a l c h a n g e of human activities. Horse riding, wood f i r e and sailing s h i p s have become a e s t h e t i c a n d r e c r e a t i o n a l activities in t h e developed economies a f t e r they have been r e p l a c e d by new technologies while they s t i l l c o n s t i t u t e a daily necessity in many developing p a r t s of t h e world as means of t r a n s p o r t a t i o n and s o u r c e of energy.

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¹³

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3 LONG

WAVES

AND CHANGE OF TECHNOLOGY

W e h a v e s e e n t h a t technological advancement i s a n evolutionary p r o c e s s . Technological c h a n g e a n d diffusion foilow r e g u l a r substitution p a t t e r n s c h a r a c t e r i z e d by s u c c e s s i v e a l t e r n a t i o n of growth a n d s e n e s c e n c e with a d u r a t i o n in t h e o r d e r of 50 y e a r s f o r l a r g e systems a n d i n f r a s t r u c t u r e s . I t i s t h e r e f o r e only n a t u r a l to a s k w h e t h e r t h e whole p r o c e s s of economic growth a n d development c a n a l s o b e c o n s i d e r e d as a s e r i e s of l e a p s with p e r i o d s of r a p i d growth and p e r i o d s of r e l a t i v e stagnation t h a t a r e r e l a t e d to r i s e and f a l l of dominant technologies and economic s e c t o r s . From h i s t o r y w e know t h a t this i s a t l e a s t a n a p p r o x i m a t e d e s c r i p t i o n s i n c e a number of s e r i o u s d e p r e s s i o n s a n d c r i s e s a s w e l l as p e r i o d s of unusual p r o s p e r i t y a n d g r e a t achievements h a v e been r e c o r d e d s i n c e t h e beginning of t h e industrial a g e .

This h y p o t h e t i c a l connection between technological substitution a n d t h e long wave must b e v e r i f i e d empirically b e f o r e t h e e x a c t n a t u r e of t h e two phenomena connected with t h e p r o c e s s of technological a n d economic development can b e r e l a t e d to e a c h o t h e r . H e r e , w e will examine a n d document t h e e v i d e n c e f o r t h e p r e s e n c e of long waves in t h e economic development of t h e United States. Examples f o r o t h e r c o u n t r i e s w e r e r e p o r t e d e l s e w h e r e ( s e e Nakicenovic, 1984;

Marchetti, 1981; Bianchi. Bmckmann a n d Vasko, eds., 1983). The analysis will essentially consist of using a phenomenological a p p r o a c h t o e x t r a c t long fluctuations f r o m h i s t o r i c a l r e c o r d s in a n a t t e m p t t o f i l t e r o u t t h e long waves a n d to c o m p a r e t h e so-derived fluctuation p a t t e r n s with t h e dynamics of technological substitution.

Kondratieff (1926) a n d S c h u m p e t e r (1935) h a v e a l r e a d y used a similar a p p r o a c h in t h e s e a r c h o f i n v a r i a n t s in t h e dynamics of Long waves. They assumed t h a t e v e r y s e q u e n c e of annual economic ( o r o t h e r ) quantities a n d i n d i c a t o r s c a n in p r i n c i p l e b e decomposed into two components

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a s e c u l a r t r e n d a n d t h e fluctuations a r o u n d t h i s trend. In p r a c t i c a l t e r m s , t h e method c o n s i s t s of f i r s t eliminating t h e s e c u l a r t r e n d from non-stationary time s e r i e s a n d t h e n determining t h e r e s i d u a l fluctuations of t h e time s e r i e s . Tne second s t a g e consists o f eliminating a l l o t h e r fluctuations s h o r t e r t h a n t h e long wave.

in g e n e r a l , t r e n d elimination from time s e r i e s t h a t a r e n o t s t a t i o n a r y i s usually more d i f f i c u l t t h a n t h e decomposition o f t h e s t a t i o n a r y s e r i e s into v a r i o u s fluctuations. Specifically, i t i s not always obvious which method of t r e n d elimination should be used. W e h a v e used t h r e e d i f f e r e n t methods: t h e moving a v e r a g e o v e r sufficiently long time p e r i o d s , t h e exponential and t h e logistic growth c u r v e s . In many c a s e s w e h a v e applied more than o n e method f o r t r e n d elimination in o r d e r to test t h e sensitivity of t h e obtained r e s u l t s with r e s p e c t t o such c h a n g e s , s i n c e e a c h method i s a s s o c i a t e d with some problems a n d s p e c i f i c disadvantages.

3.1 Wholesale Prices of Commodities

The r e g u l a r i t y o f fluctuations in p r i c e d a t a w a s t h e phenomenon t h a t f i r s t stimulated Kondratieff a n d o t h e r long-wave r e s e a r c h e r s t o p o s t u l a t e t h e e x i s t e n c e of Long waves in economic development. These waves a r e pronounced in t h e wholesale p r i c e indices f o r a l l commodities in t h e United States, but t h e y can also be

o b s e r v e d in t h e p r i c e indices of o t h e r industrialized c o u n t r i e s , examples include t h e United Kingdom. F r a n c e and Germany. Figure 3.1 shows t h e wholesale commodities p r i c e index f o r t h e United S t a t e s from 1800 t o 1982. Wholesale p r i c e s a p p e a r t o b e s t a t i o n a r y with long fluctuations almost o v e r t h e whole h i s t o r i c a l period. Only a f t e r t h e 1940s c a n a pronounced inflationary t r e n d b e o b s e r v e d t h a t had a magnitude g r e a t e r t h a n any o t h e r fluctuation b e f o r e .

Figure 3.1 Wholesale P r i c e Index.

The pronounced p r i c e p e a k s of t h e 1780s. 1820s, 1870s, 1920s a n d s h a r p i n c r e a s e s during t h e l a s t d e c a d e a r e s p a c e d a t i n t e r v a l s o f f o u r to five decades.

These r e c u r r i n g long swings in p r i c e s are in o u r opinion not t h e p r i m a r y c a u s e s of t h e long wave phenomenon but r a t h e r a good indicator of t h e succession of a l t e r n a t i n g p h a s e s of t h e long wave. W e consider t h e long swings in p r i c e movements to indicate t h e p h a s e s of growth and s a t u r a t i o n with increasing p r i c e levels, a n d p h a s e s of r e c e s s i o n and r e g e n e r a t i v e d e s t r u c t i o n with d e c r e a s i n g p r i c e levels.

In o r d e r to obtain a c l e a r e r p i c t u r e of t h e succession of t h e long waves in t h e p r i c e indices, w e h a v e decomposed t h e time s e r i e s into fluctuations and a s e c u l a r t r e n d . S i n c e t h e s e c u l a r t r e n d d o e s not indicate a simple functional form w e have used a 50 y e a r moving a v e r a g e method f o r its elimination from t h e time s e r i e s . We h a v e smoothed t h e resulting r e s i d u a l s (i.e.. t h e r e l a t l v e d i f f e r e n c e between t h e a c t u a l p r i c e level and i t s s e c u l a r t r e n d e x p r e s s e d as a p e r c e n t a g e ) with a 15 y e a r moving a v e r a g e in o r d e r t o eliminate t h e business a n d o t h e r c y c l e s s h o r t e r than t h e long wave. The resulting s e r i e s of smoothed and unsmoothed r e s i d u a l s is shown in Figure 3.2 f o r t h e United S t a t e s . The a v e r a g e d u r a t i o n of t h e two fluctuations between t h e 1840s a n d 1940s is a b o u t 50 y e a r s with small v a r i a n c e in t h e d u r a t i o n and amplitude. The o c c u r r e n c e of p e a k s and t r o u g h s v a r i e s by not more than a few y e a r s .

Percenl

Figure 3 . 2 Long Wave in 'Uholesale P r i c e s .

3.2 Primary E n e r g y Consumption

Energy u s e i s dne of t h e r a r e quantitative i n d i c a t o r s t h a t c a n , a t l e a s t in p r i n c i p l e , b e compared o v e r long p e r i o d s o f time in s p i t e of many technological c h a n g e s a n d substitutions of old by new s o u r c e s o f e n e r g y . This i s possible b e c a u s e t h e u s e of d i f f e r e n t e n e r g y s o u r c e s c a n be e x p r e s s e d in common e n e r g y units. In t h e c o n t e x t of long waves w e a r e i n t e r e s t e d in r e l a t i v e c h a n g e s in t h e l e v e l s of e n e r g y u s e in time. A t l e a s t t h r e e distinct p h a s e s c a n be o b s e r v e d in t h e growth of p r i m a r y e n e r g y consumption in t h e United S t a t e s ( s e e Figure 2.3). After r a t h e r s t a b l e long-term growth r a t e s , a p h a s e of m o r e r a p i d growth starts in 1 9 0 0 a n d continues until 1930. After a s h o r t i n t e r r u p t l o n t h e r a p i d growth r e s u m e s a f e w y e a r s l a t e r a n d continues until t h e l a s t d e c a d e .

The s e c u l a r t r e n d of p r i m a r y e n e r g y use in t h e United S t a t e s can b e c a p t u r e d by a number of functional f o r m s . S t e w a r t (1981) used t h e logistic growth c u r v e t o eliminate t h e s e c u l a r t r e n d basing h i s estimate on five-year a v e r a g e s of p r i m a r y e n e r g y consumption. The r e s u l t i n g fluctuations a r o u n d t h i s t r e n d showed pronounced long waves. The drawback o f this a p p r o a c h i s t h a t h e used s h o r t e r time

s e r i e s s t a r t i n g in 1860, s o t h a t only t h e l a s t and t h e c u r r e n t wave were displayed.

Our d a t a b a s e goes back t o 1800 a n d e x t e n d s o v e r one more wave.

W e will use o u r extended d a t a b a s e (from Figure 2.3) and will employ t h r e e d i f f e r e n t estimation methods of t h e s e c u l a r t r e n d : t h e geometric 50-year moving a v e r a g e , and t h e logistic and exponential growth c u r v e s . Figure 3.3 shows t h e h i s t o r i c a l primary e n e r g y consumption in t h e United S t a t e s (from Figure 2.3) with two a l t e r n a t i v e s e c u l a r t r e n d s : t h e logistic f i t with a s a t u r a t i o n level of a b o u t eight i W y r / y r t o b e r e a c h e d a f t e r t h e y e a r 2050 and a n exponential f i t t h a t would lead t o astronomical consumption levels in t h e f a r f u t u r e . Being t h e simplest of t h e t h r e e s e c u l a r t r e n d s , t h e moving a v e r a g e is not shown in t h e f i g u r e in o r d e r not t o o b s c u r e t h e o t h e r two t r e n d s .

Figure 3.3 P r i m a r y Energy Consumption (with two s e c u l a r t r e n d s ) .

Figure 3.4 shows t h e r e s i d u a l s , smoothed with a 15-year moving a v e r a g e . resulting from t h e t h r e e a l t e r n a t i v e estimation methods of t h e s e c u l a r t r e n d ( t h e logistic and exponential estimates a n d t h e 50-year geometric moving a v e r a g e ) . The fluctuations show t h e same r e g u l a r a n d p a r a l l e l movements as t h e long waves in p r i c e s ( s e e Figure 3.2). The second u p p e r turning point in e n e r g y consumption is not a s pronounced as in p r i c e movements a n d i t a l s o o c c u r r e d approximately a d e c a d e e a r l i e r . The f i r s t two fluctuations of primary e n e r g y consumption a r o u n d t h e s e c u l a r t r e n d s , however, may b e t o a n e x t e n t o b s c u r e d by t h e f a c t t h a t especially f u e l wood, with a 90 p e r c e n t m a r k e t s h a r e ( s e e Figures 2.2 and 2.4) t h e most important o f a l l t r a d i t i o n a l e n e r g y s o u r c e s during t h i s p e r i o d , was estimated primarily on t h e basis of p e r - c a p i t a use and population growth. In f a c t , fuel wood

Figure 3 . 4 Long Wave in P r i m a r y E n e r g y Consumption ( t h r e e estimates)

consumption ( s e e Figure 2.3) i s wery smooth, r e f l e c t i n g a countinuous a n d r e g u l a r s e c u l a r t r e n d in population growth. Thus, s i n c e t h e Fuel wood time s e r i e s do not r e p r e s e n t a c t u a l u s e , but r a t h e r serve as a n i n d i c a t o r of t h e r e l a t i v e importance of i t s use, some of t h e fluctuations o b s e r v e d in o t h e r e n e r g y s p u r c e s may b e o b s c u r e d and not contained in t h e d a t a .

I t should b e noted t h a t t h e turning points of t h e fluctuations are r e l a t i v e l y i n v a r i a n t to t h e estimation method. The amplitudes of t h e fluctuations, however, depend o n t h e estimation method. Especially t h e amplitude of t h e l a s t u p p e r turning point in 1 9 7 5 i s v e r y sensitive. I t i s lowest in t h e c a s e OF t h e exponential Fit since t h e iow rates of e n e r g y growth d u r i n g t h e l a s t t e n y e a r s are below t h e t r e n d of t h e exponential growth c u r v e . I t i s a l s o i n t e r e s t i n g t o n o t e t h a t t h e lower t u r n i n g point of t h e f i r s t wave in F i g u r e 3 . 4 i s d a t e d in 1 8 9 7 by t h e moving a v e r a g e method and in 1 8 8 3 in t h e c a s e of t h e e x p o n e n t i a l a n d logistic methods. This confirms t h e f a c t t h a t t h e moving a v e r a g e method i s not w e l l suited f o r timing t h e turning points of t h e long wave. Despite such r e l a t i v e l y small c h a n g e s in t h e dating of t h i s turning point a n d a l a r g e r v a r l a n c e in t h e amplitude of t h e l a s t wave, t h e p a r a l l e l fluctuations of a l l t h r e e long wave c u r v e s indicate t h a t t h e b r o a d f e a t u r e s o f t h e fluctuations in primary e n e r g y consumption a r e n o t a function of t h e method used t o eliminate t h e s e c u l a r t r e n d from t h e d a t a . Apparently, a l l t h r e e methods a r e suited f o r t r e n d elimination in t h i s p a r t i c u l a r c o n t e x t , a n d s i n c e t h e moving a v e r a g e is t h e e a s i e s t t o compute, t h i s sensitivity analysis o f f e r s a n a p o s t e r i o r i justification f o r using t h e simpiest method of t r e n d elimination in o t h e r examples.

The consumption levels of fossil e n e r g y s o u r c e s a r e known with g r e a t e r c e r t a i n t y t h a n t h e estimates of o l d e r , traditional e n e r g y s o u r c e s . This i s especially c r i t i c a l in t h e United S t a t e s w h e r e f u e l wood constituted t h e major s o u r c e of e n e r g y during t h e l a s t c e n t u r y . Figure 3.5 shows t h e fluctuations in fossil e n e r g y use (i.e., fuel wood was eliminated from t h e d a t a s e t given in Figure 2.3). The pronounced fluctuations indicate t h e long wave more c l e a r l y than t h e t o t a l primary e n e r g y consumption from Figure 3.4. A s was mentioned e a r l i e r , t h e f u e l wood consumption (see Figure 2.3) i s v e r y smooth, p r o b a b l y b e c a u s e population growth was one of t h e most important s e c u l a r t r e n d s used t o estimate t h e d a t a . Thus, d u r i n g t h e l a s t c e n t u r y when fuel wood was t h e most important s o u r c e of e n e r g y , i t o b s c u r e d some of t h e fluctuations p r e s e n t in fossil e n e r g y s o u r c e s . Without fuel wood, primary e n e r g y consumption as s u c h p o r t r a y s pronounced long wave movements.

1800 1850 1900 1950 2000

Figure 3.5 Long Wave in Fossil Energy Consumption.

3.3 Efficiency of E n e r g y Use

T h e r e a r e many ways of determining t h e efficiency of e n e r g y use. The most obvious indicators are t h e efficiencies of primary energy conversion t o s e c o n d a r y and final e n e r g y forms. Another possibility is t o estimate t h e efficiency of e n e r g y end-use. Examples include t h e amount of fuel needed f o r t r a v e l , o r f o r s p a c e conditioning. All of t h e s e efficiences h a v e improved radically since t h e beginning of t h e industrial revolution along with t h e introduction of more efficient technologies.

In some c a s e s t h e improvements s p a n almost a n o r d e r of magnitude. F o r example, in 1920 t h e a v e r a g e efficiency of n a t u r a l g a s power plants in t h e United S t a t e s was nine p e r c e n t , w h e r e a s today t h e best gas t u r b i n e power plants c a n o p e r a t e with e f f i c i e n c e s of almost 6 0 p e r c e n t . Over longer p e r i o d s t h e improvements are even more impressive. F o r example, t h e second law efficiency of prime movers increased by two o r d e r s of magnitude since 1700, t h a t of lamps by almost t h r e e o r d e r s of magnitude during t h e l a s t c e n t u r y and s o on ( s e e Marchetti. 1979). All of t h e s e efficiency improvements of individual technologies are t r a n s l a t e d into more effective use of e n e r g y and o t h e r materials at t h e level of t h e o v e r a l l economic a c t i v i t y . Some efficiency I n c r e a s e s r e s u l t from improved technologies and o t h e r s from substitution of t h e old by new technologies.

The e x t e n t o f t h e s e c h a n g e s and improvements c a n b e e x p r e s s e d a t a n a g g r e g a t e level by t h e amount of primary e n e r g y consumed p e r unit o f g r o s s national product in a given y e a r . Figure 3.6 shows t h e t o t a l primary e n e r g y consumption (from F i g u r e 2.3), p e r c a p i t a consumption a n d t h e r a t i o of e n e r g y consumption o v e r g r o s s national p r o d u c t (energy intensity) f o r t h e United S t a t e s . The a v e r a g e reduction in e n e r g y consumed t o g e n e r a t e one doUar of g r o s s national p r o d u c t was a b o u t 0 . 9 p e r c e n t p e r y e a r during t h e l a s t 1 8 0 y e a r s . The r a t i o d e c r e a s e d from more than t e n kilowatt-years p e r (constant 1958) d o l l a r in 1800 t o slightly more t h a n two kilowatt-years p e r d o l l a r in 1982. Thus, a r e g u l a r decline in e n e r g y intensity of t h e whole economy prevailed o v e r a long h i s t o r i c a l period indicating t h a t e n e r g y conservation is a h i s t o r i c a l p r o c e s s t h a t was discovered as a c o n c e p t only during t h e l a s t decade.

Figure 3.7 shows t h e fluctuations in e n e r g y intensity in t h e United S t a t e s a f t e r t h e elimination of t h e s e c u l a r t r e n d by a 50-year geometric moving a v e r a g e . The fluctuations show pronounced long wave movements and a high d e g r e e of synchronization with t h e p r i c e swlngs. During t h e downswings in p r i c e s t h e e n e r g y intensity of t h e economy d e c r e a s e d more rapidly and during t h e upswings l e s s rapidly. This means t h a t during t h e downswing in economic a c t i v i t y g e n e r a l rationalization m e a s u r e s of individual e n t e r p r i s e s c a u s e l a r g e r e n e r g y savings compared with t h e a v e r a g e h i s t o r i c a l reductions. A s t h e competition intensifies during t h e r e c e s s i o n and depression. e n e r g y savings become an important f a c t o r in c o s t reduction. With r e c o v e r y , new demands and p r o s p e c t s o f continued economic growth r e l e a s e many p r e s s u r e s associated with s a t u r a t i n g m a r k e t s . Most of t h e e n t r e p r e n e u r s in t h e new growth s e c t o r s must intensify t h e i r a c t i v i t i e s in o r d e r to meet new demands, and low e n e r g y intensity c e a s e s t o b e a n important competitive c r i t e r i o n . N e w technologies and e n e r g y forms o f f e r possibilities f o r continued expansion in new m a r k e t s s o t h a t r e l a t i v e e n e r g y use intensifies. Toward t h e end of t h e p r o s p e r i t y period t h e growth p r o c e s s e n c o u n t e r s limits o n c e more. These are r e f l e c t e d in s a t u r a t i n g demand and g e n e r a l p r i c e inflation i u u s t r a t e d by t h e long wave of wholesale p r i c e movements ( s e e Figure 3.2). Thus, during t h e downswing e n e r g y use r e d u c t i o n s become important. These reductions a r e not only due to e f f o r t s t o c u t c o s t s as a r e a c t i o n t o s a t u r a t i n g demand, but a l s o d u e t o a host of

lo

1000 1050 1900 1350 2000

Figure 3.6 Primary ~ n e r g ~ . Gross National Product and Energy Intensity.

Figure 3.7 Long Wave in Energy Intensity.

social c o n s t r a i n t s . Many e n e r g y technologies, along with o t h e r economic activities.

become socialiy a n d environmentaily u n a c c e p t a b l e toward t h e e n d of p r o s p e r i t y . This means t h a t some diseconomies t h a t were socially a c c e p t a b l e d u r i n g t h e growth phase become internalized as additional economic c o s t s o r as explicit limits t o f u r t h e r expansion. T h e s e c a u s e s of additional c o s t s a p p e a r t o off-set t h e b e n e f i t s of t h e economies of s c a l e a c h i e v e d during t h e expansion phase. In f a c t , with t h e demand r e d u c t i o n s d u r i n g t h e downswing t h e l a r g e c a p a c i t i e s t h a t o f f e r e d economies of s c a l e become s o u r c e s of additional c o s t s as e x c e s s c a p a c i t y .

The r e l a t i o n s h i p between p r i m a r y e n e r g y consumption p a t t e r n s a n d t h e long wave a p p e a r s t o e x t e n d beyond t h e p a r a l l e l c h a n g e s in t h e r e l a t i v e l e v e l of e n e r g y consumption a n d e n e r g y intensity with t h e fluctuations of o t h e r long wave i n d i c a t o r s such as t h e wholesale p r i c e s . Comparison of Figures 2.2 a n d 3.6 i n d i c a t e s t h a t t h e u p p e r turning points of e n e r g y intensity fluctuations c o r r e s p o n d t o t h e s a t u r a t i o n points of p r i m a r y e n e r g y s o u r c e s . The u p p e r turning point t h a t o c c u r r e d in 1860 is r e l a t e d t o t h e s a t u r a t i o n in animal f e e d substitution, t h e 1 9 1 5 turning point with t h e s a t u r a t i o n in coal substitution, a n d t h e turning point of t h e 1 9 7 0 s with t h e s a t u r a t i o n of c r u d e oil. In addition, new e n e r g y s o u r c e s r e a c h e d o n e - p e r c e n t m a r k e t s h a r e s during t h e times of low e n e r g y intensity (during t h e 1880s a n d t h e 1950s). Thus, t h e dynamics of e n e r g y substitution in t h e United S t a t e s indicate a c l o s e r e l a t i o n t o t h e succession of t h e long wave fluctuations.

3.4 P h y s i c a l I n d i c a t o r s : Steel and Ships

In addition t o p r i m a r y e n e r g y substitution, w e h a v e shown t h e examples of technological substitution in s t e e l production a n d m e r c h a n t ships. Now w e will c o n s i d e r t h e s e two examples again in t h e c o n t e x t of t h e long wave. F i g u r e 3 . 8 shows t h e long wave fluctuations in s t e e l production, d e r i v e d from t o t a l s t e e l production s i n c e 1860 (given in F i g u r e 2.5) by using a 50-year, geometric moving a v e r a g e t o eliminate t h e s e c u l a r t r e n d a n d a 15-year moving a v e r a g e t o smooth t h e fluctuations of annual residuals. I t should b e o b s e r v e d t h a t t h e long wave movements in s t e e l production are o u t o f p h a s e with r e s p e c t t o t h e p r i c e swings. The lower a n d u p p e r turning points p r e c e d e by a b o u t one t o two d e c a d e s t h e c o r r e s p o n d i n g turning points in p r i c s s . This p r o b a b l y means t h a t t h e m a r k e t s f o r steel are more sensitive t o t h e f l r s t signs of economic c h a n g e s a n d t h u s r e s p o n d b e f o r e o t h e r s e c t o r s t o t h e emergence of f a v o r a b l e o r u n f a v o r a b l e conditions. The r e a s o n s f o r t h i s advanced r e s p o n s e of t h e s t e e l i n d u s t r y may b e r e l a t i v e l y simple. I t i s possible t h a t s t e e l , as o n e of t h e most i m p o r t a n t i n d u s t r i a l materials, i s by a n d l a r g e used in c a p i t a l intensive goods t h a t h a v e a r e l a t i v e l y long life-time. Typical examples from t h e l a s t c e n t u r y a r e t h e r a i l r o a d s a n d s h i p s , today t h e y are power plants, r e f i n e r i e s , l a r g e buildings, f a c t o r i e s , automobiles, e t c . Even a small d e c r e a s e in demand f o r t h e s e goods, if i t would o c c u r simultaneously, would h a v e a n i m p o r t a n t e f f e c t on t h e r e d u c t i o n of s t e e l production. Thus, i t i s possible t h a t t h e f l r s t signs of economic c h a n g e are visible in t h e f l u c t u a t i o n s of s t e e l production b e c a u s e t h e e f f e c t of smaller r e d u c t i o n s in many o t h e r s e c t o r s i s amplified when t r a n s l a t e d into s t e e l demand. If t h i s actually i s t h e c a s e , t h a n one could use t h e fluctuations of s t e e l production as a n e a r l y warning f o r t h e upcoming turning points of t h e long wave.

Figure 3.9 shows t h e long wave fluctuations in t h e tonnage of m e r c h a n t vessels.

The same d a t a were used as in Figure 2.7 w h e r e w e c o n s i d e r e d t h e technological substitution by t y p e of vessel employed by m e r c h a n t f l e e t s . The fluctuations

Figure 3 . 8 Long Wave in Steel Production.

Percent

1750 1800 1850 1900 1350 2000

Figure 3 . 9 Long Wave in the Tonnage of Merchant Vessels.

c o r r e s p o n d t o t h e Long waves i n p r i c e s although a major i r r e g u l a r i t y o c c u r r e d a f t e r t h e l a s t wave. A second peak follows immediately a f t e r t h e upswing a n d downswing between t h e 1890s a n d t h e 1930s. This second peak r i s e s during t h e 1940s, r e a c h e s a maximum in 1950 a n d t h e n declines during t h e 1950s a n d 1960s. I t is i n t e r e s t i n g t o n o t e t h a t t h i s second peak can a l s o b e d e t e c t e d in o t h e r i n d i c a t o r s , but i t i s not s o pronounced as in t h i s c a s e . F o r example, t h e f l u c t u a t i o n s in p r i m a r y e n e r g y consumption a l s o p o r t r a y e d s u c h a peak during t h e same p e r i o d , but i t a p p e a r e d t o b e only a n a c c e l e r a t i o n a n d d e c e l e r a t i o n during t h e upswing p h a s e of t h e long wave t h a t w a s initiated in 1944 with a global peak in t h e 1980s. Even t h e wholesale p r i c e index shows a subdued fluctuation during t h e same p e r i o d with a l o c a l peak in 1955.

a decline a n d a renewed r i s e a f t e r 1971. Although t h i s fluctuation i s a l s o p r e s e n t in some o t h e r i n d i c a t o r s of t h e long wave, i t i s by f a r n o t s o pronounced as in t h e c a s e of m e r c h a n t f l e e t tonnage. Thus, i t i s not c l e a r f r o m t h e empirical e v i d e n c e alone w h e t h e r t h e c u r r e n t long wave should b e divided into two waves of s h o r t e r d u r a t i o n , o r w h e t h e r t h i s i n t e r m e d i a t e f l u c t u a t i o n is a n i n t e g r a l p a r t of a single long wave initiated in 1944. If t h e f i r s t a l t e r n a t i v e h y p o t h e s i s would b e a c c e p t e d , t h e n t h e long waves would b e s u b j e c t to a n a c c e l e r a t i o n in f r e q u e n c y b e c a u s e t h e l a s t fluctuation, as a s e p a r a t e long wave, extends only o v e r t h r e e d e c a d e s .

4 DYNAMICS OF CHANGE

At t h e r i s k of overgeneralizing, w e can s t a t e t h a t t h e r e is s t r o n g evidence t h a t symmetric o r a t l e a s t similar changes in p a t t e r n s of e n e r g y consumption and p r i c e niveau o c c u r from one long wave t o a n o t h e r although t h e h i s t o r i c a l c o n t e n t and individual manifestations change profoundly s o as t o make t h e symmetry a p p a r e n t only at t h e h i g h e r level of a b s t r a c t i o n . In o r d e r t o understand t h e a c t u a l mechanisms behind t h e long wave phenomenon a n d cilange in technology, w e must a c q u i r e b e t t e r s t a t i s t i c a l and analytical d e s c r i p t i o n s of v a r i o u s mechanisms and causal r e l a t i o n s h i p s of what w e generally call h i s t o r i c a l e x p e r i e n c e . This would also imply t h a t we need t o understand t h e c o u r s e of s p e c i f i c e v e n t s and t h e i r individual manifestations t h a t l e a d , f o r example, from a p e r i o d of r a p i d growth a f t e r t h e Second World War t o t h e oil s h o c k s of t h e 1 9 7 0 s s a t u r a t i n g world markets.

changing industrial s t r u c t u r e , increasing national d e b t in many q u a r t e r s of t h e world and t h e economic slow-down of t h e l a s t decade. For t h e time being w e c a n only o b s e r v e t h a t t h e p a r t i c u l a r circumstances c h a n g e from one long wave t o a n o t h e r . but t h a t t h e sequence of fluctuations and s t r u c t u r a l changes at a h i g h e r level of a b s t r a c t i o n indicate a s t r i k i n g r e g u l a r i t y . The a n n a l s of business c y c l e s ( s e e f o r example Thorp and Mitchell. 1926; and Mitchell. 1927) show t h a t t h e s e v e r e c r i s e s o r so-called Great Depressions o c c u r r e g u l a r l y during t h e downswing of t h e long waves. I t suffices h e r e t o mention t h e G r e a t Depressions and financial panics of 1819, 1874 and 1929 in t h e United S t a t e s t h a t with small v a r i a n c e o c c u r r e d throughout t h e rest of t h e world. This immediately s u g g e s t s a n obvious h i s t o r i c a l manifestation of t h e prolonged p e r i o d s of stagnation, but t h i s d o e s not answer t h e question whether t h e s e G r e a t Depressions a r e a n e c e s s a r y c h a r a c t e r i s t i c of t h e downswing.

4.1 Synchranization and Recnrrence

The analysis of technological substitution in s t e e l production. merchant vessels and e n e r g y showed t h a t t h e same basic a p p r o a c h can b e applied t o d e s c r i b e t h e o b s e r v e d s t r u c t u r a l changes. In all t h r e e c a s e s o l d e r technologies were r e p l a c e d by new o n e s with r e g u l a r r e c u r r i n g p a t t e r n s . Figure 4.1 shows t h e s e t h r e e substitution c a s e s . Besides t h e now obvious similarity in t h e substitution p a t t e r n s , i t should b e o b s e r v e d t h a t t h e timing of t h e s a t u r a t i o n p h a s e s is also synchronized in t h e t h r e e examples. In o r d e r t o f a c i l i t a t e t h e comparison we have s h i f t e d t h e c u r v e s in time s o as t o align t h e s a t u r a t i o n phases. In comparison t o t h e s a t u r a t i o n of coal in t h e example of p r i m a r y e n e r g y substitution, t h e s a t u r a t i o n of open-hearth s t e e l technology and steam s h i p s is Lagged by a b o u t 20 y e a r s . Once t h e c u r v e s are shifted in time by two decades, as shown in Figure 4.1, o t h e r s a t u r a t i o n p h a s e s c o r r e s p o n d t o e a c h o t h e r as well. F o r example, t h e s a t u r a t i o n of hay as t h e energy s o u r c e f o r animal f e e d was r e a c h e d in t h e 1870s and t h e s a t u r a t i o n of Bessemer s t e e l a b o u t 20 y e a r s l a t e r . A similar c o r r e s p o n d e n c e can b e o b s e r v e d f o r t h e l a s t s a t u r a t i n g technoiogies

-

Crude oil and basic-oxygen s t e e l . The substitution of o t h e r merchant vessels by motor s h i p s c o r r e s p o n d s t o m a r k e t p e n e t r a t i o n of e l e c t r i c s t e e l and n a t u r a l g a s with a lag of a b o u t 20 y e a r s . This may b e indicative of t h e continuing synchronization of t h e dynamic substitution p r o c e s s e s in t h e f u t u r e . It should b e o b s e r v e d t h a t t h e lag of 20 y e a r s s p a n s a s h o r t e r p e r i o d of time than t h e d u r a t i o n of t h e upswing o r downswing p h a s e s of t h e long wave. Although t h e timing of t h e introduction of new technologies at t h e one-percent level d i f f e r s in t h e t h r e e

Figure 4 . 1 Energy, Steel and Merchant Vessels.

P e r c e n t

4s. 0

1950 a00

i r a c t l m

( r )

\

c o a l

F i g u r e 4.2 L o n g W a v e s and S u b s t i t u t i o n D y n a m i c s .