Long Waves and Industrial Revolutions

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NOT FOR QUOTATION WITHOUT THE PERMISSION OF THE AUTHOR

LONG WAVES AND I M ) U m REVOLUTIONS

CP-04-54 December 1984

CoUaborative Phpers report work t h a t has not been performed solely a t the International Institute for Applied Systems Analysis and t h a t has received only limited review. Views or opinions expressed herein do not necessarily represent those of t h e Institute, i t s National Member Organizations, or o t h e r organizations supporting t h e work.

INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS 2361 Laxenburg, Austria

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This is an extended version of t h e paper t h a t Professor Piatier r e a d a t t h e IJASA-IRPET Conference on "Long Waves, Depression, a n d Innovation: Implica- tions for National a n d Regional Policy", held in Siena a n d Florence i n October 1983. I t is a n i m p o r t a n t s u m m a r y of his work on innovation a n d i t s relationship t o t h e long-wave phenomenon a t t h e microeconomic level. In t h e paper t h e au- t h o r explores several f e a t u r e s of innovation using t h e r e s u l t s of r e s e a r c h activities and surveys m a d e for t h e OECD a n d CEC. Here t h e word "innovation" is used in t h e widest context.

Professor P i a t i e r ' s paper i s significant because i t describes t h e idea of innovation-based industrial revolutions, a t h e m e developed in his n u m e r o u s works a n d in t h e works of others, especially of French r e s e a r c h e r s . The paper also fulfills an important function of liaison between t h e French-speaking and English-speaking r e s e a r c h c o m m u n i t i e s

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in spite of t h e widely held view t h a t n o gaps exist between t h e s e communities, m u c h remains t o be desired. In addi- tion, by publishing t h i s work separately we wish t o serve o u r "long waves" con- stituency.

I wo~ild like t o express my appreciation t o Vivien Landauer, who did a splen- did job of translating t h e p a p e r from French, a n d t o Steven Flitton for assisting with t h e English version.

Tibor Vasko Leader

Clearinghouse Activities

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AN

ATTEMPT TO CONSTRUCT A THEORY OF LONG WAVES 3.1. Innovation Does Not Appear in a Random Fashion 3.2. The Economic Conditions for t h e S t a r t of Production:

A Certain Complementarity

3.3. Economic Conditions (continued): Availability of Manpower

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and Capital

3.3.1. -Nothing is P o s s i b l e D u r i n g t h e Long G r o w t h P e r i o d

....

3.3.2. ... Nor a t t h e B e g i n n i n g of t h e G r e a t

C'riSk

3.3.3. All R i n g s B e c o m e P o s s i b l e a t t h e h r l of t h e D e p r e s s b n

3.4. An Attempt to Verify the Theory of Long Waves:

interpretation of the Tables by Mensch

3.5. Long-Term Movements and Short Cycles: the Short Cycle Becomes Longer a t the Turning Point of

the Long Drift 3.6. Parabolic Laws?

REFERENCES

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LONG WAVES AND INDUSTRIAL REVOLUTIONS

Andrd Piatier

Ecole des Hautes Etudes en Sciences Sociales 6 3 r u e Claude Bernard

F-75005 Paris France

1. The microeconomic analysis of innovation allows one to identify t h e salient features t h a t will be useful for explaining t h e course of industrial revolutions, which in t u r n a r e characterized by clusters of major innovations.

Innovation i s t h e final result of a process (research, development, experi- ments, implementation of a production system, manufacture, and com- mercialization). I t constitutes an extensive range: from major innovations to t h e improvement of processes; from inventions t h a t a r e new throughout t h e world t o t h e introduction of products already manufac- t u r e d elsewhere.

2. The establishing of the existence of long-term movements, generated by waves of innovation over a period of about two centuries in t h e industrial- ized countries, is based on t h e observation of t h r e e industrial revolutions during each of which innovations in the a r e a s of energy, transport, and basic industries took place. The resulting long-term movement follows a logistic curve (from youth t o m a t u r i t y and thence to decline). The biologi- cal a n d demographic analogy is obvious (population of a space u p to saturation).

3. The a u t h o r makes t h e following terminological distinctions:

A long-term movement is t h e most general expression: its evolution is not continual b u t consists of phases of unspecified highs and lows.

A long-term cycle is a movement t h a t h a s regularity and periodicity, with alternating phases of highs and lows.

"Long waves" h a s a less restrictive meaning and does not imply regularity in the alternation of highs and lows.

This paper deals with long waves, a n d has the aim of adding a number of characteristics:

a) Long waves a r e a succession of ascending movements having t h e form of logistic curves.

b) These logistic curves a r e separated by periods of uncertainty t h a t more often take t h e forrn of recessions than of periods of stagnation.

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c) The origin of long waves and t h e intervals separating t h e m may be found in t h e economic mechanism itself. Thus technological progress is endogenized.

4. lnnovations do not occur by chance, b u t a r e bunched a t c e r t a i n t i m e s t h a t correspond t o t h e decline of t h e preceding wave of innovations. It is a t t h i s point t h a t t h e economic conditions combine to favor t h e onset of a new wave. Unemployed manpower and available capital will be p u t t o work in risky ventures t h a t did not s t a n d t h e slightest c h a n c e of being undertaken whilst all industries were a t t h e height of prosperity and were using u p all available resources.

To verify t h i s theory t h e a u t h o r uses t h e tables of G. Mensch on t h e frequency of t h e appearance of innovations a t t i m e s coinciding with t h e g r e a t crises, which a r e shown by t h e author's logistic curves. A g r e a t crisis is caused by t h e superposition of a logistic curve t h a t h a s come t o a decline upon t h e n e x t one, which is still in t h e embryonic phase (Section 3.4).

The small cycle is perturbed a n d extended a t t h e turning point of t h e long wave (Section 3.5), whilst parabolic laws d e t e r m i n e numerous examples of t r a n - sition from expansion t o saturation or recession.

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This paper is t h e direct result of a series of studies dealing with innovation a n d technology [I]. A p r i o r i we may say t h a t it is profoundly different t o studies of long cycles ( a s defined by Kondratiev), which sought t o identify such cycles throughout t h e history of humanity and which, above all, emphasized long price cycles.

Here, we a r e dealing more with long waves of activities r a t h e r t h a n with t h e succession of s y m m e t r i c periods of expansion a n d recession.

S c h u m p e t e r was t h e g r e a t f o r e r u n n e r of r e s e a r c h on innovation. His line of thought was a g r e a t stimulus t o t h e present a u t h o r . But he only c a r r i e d o u t a rapid analysis of innovation, and c a m e very quickly to a cyclic explanation:

his cycle of e i t h e r two o r four t u r n s justifies s h o r t a s well as long cycles.

There have been m a n y technological c h a n g e s a n d other events s i n c e t h e work of pioneers s u c h as Schumpeter. By observing these very objectively, a significantly different s t r u c t u r e m a y be perceived.

1.

IMPORTANT

_EXXWWEOF A MICROECONOMIC

ANALYSIS

OF INNOVATION

The first o p e r a t i v e definition of innovation dates f r o m 1990. It was expressed by t h e OECD (Frascati Manual) as: "An idea t h a t i s transformed into something saleable" [ 2 ] . The p r e s e n t a u t h o r h a s suggested modifying it t o

"...

transformed i n t o something sol&', since if it i s not possible t o diffuse t h e product successfully, it is n o t an innovation in t h e economic s e n s e of t h e t e r m ; it remains but a plan, a dream, or a failed attempt.

Another improvement would be t o say: "sold or u t i l i z e d " since some innovations c a n n o t be marketed.

1.1. The Dualism of Innovation: P r o c e s s and Result

The concept of innovation commonly covers a t o n e a n d t h e s a m e time a succession of operations ( t h e transition from t h e idea t o i t s materialization) a n d a result: t h e product or t h e new process, first saleable, t h e n sold or used.

Innovation is a -succession of r i s k s . The risks a r e related first t o t h e idea, t h e n t o i t s f e a s i b i l i t y , and then t o i t s r e p r o d u c i b i l i t y (an innovation does n o t exist in t h e industrial sense of t h e t e r m if i t is n o t possible t o repeat endlessly what i t was possible t o do t h e first time). Finally, t h e r e is risk associated with t h e diffusibility of t h e product: does i t correspond t o the possible demand of a u s e r ? This is what m a r k e t surveys or interviews with u s e r s outside t h e m a r k e t (nonmarket analysis) m u s t show. The risks a r e t h u s related t o the a d a p t a b i l i t y t o r e q u i r e m e n t s , t h e price, t h e r e l i a b i l i t y , and t h e q u a l i t y of t h e innovation.

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1.2. The P r o c e s s Leading t o Innovation

The following outline describes t h e process t h a t results in innovation. It begins with scientific r e s e a r c h , which has a dual aim: to h o w a n d understand, on t h e one hand, a n d t o a c t , on the other. Only the p a r t of t h e scientific output t h a t leads t o action c a n be considered as part of this process.

T h e r e follow n e x t the tasks of applied r e s e a r c h and of research a n d development

(R

& D). It is t o this phase t h a t t h e t e r m "technology" may best be a p p l i e d The t e r m s "research" and "development" cover n u m e r o u s complex and varied operations. There a r e loops in the process a n d r e t u r n s from technology back t o science a n d from industry back t o technology. There is a feedback of t h i s kind every t i m e a f u r t h e r piece of research or development becomes directly applicable e i t h e r t o t h e invention itself or t o c o n n e c t e d activities: a n u c l e a r i n d u s t r y would not have come into being based m e r e l y on ideas regard- ing plans for t h e r m o n u c l e a r power plants (decisive progress was also necessary in t h e a r e a s of information processing, cement technology, and boiler engineering).

The technological process requires long periods. In t h e examples studied both by C. F r e e m a n a n d by G. Mensch they lie between 10 a n d 50 years, with a n average of 25 years. In t h e field of electronics t h e transition period from t h e invention t o t h e innovation is probably t h e s h o r t e s t , a n d i s tending t o become s h o r t e r .

The t e s t s t h a t have t o be carried out, t h e transition from laboratory t o fac- tory prototype, t h e construction of new production plants, and t h e invention a n d completion of new mcchines all account for t h e long periods, the costs, a n d t h e risks involved.

7Re cost s t r u c t u r e of technology is falsely perceived. General opinion s t r e s s e s t h e cost of r e s e a r c h , b u t practice has shown t h e cost of development t o be t h e greater. In t h e USA, t h e expenditures for military

R

& D over t h e last t e n y e a r s c a m e t o 5% f o r r e s e a r c h , 10% for exploratory development, 70% for development of t h e new product, and 10% for administration and maintenance.

For example, t h e US a e r o n a u t i c s industry devotes 97% O F R & D costs t o develop- m e n t . In m a n y o t h e r examples t h a t we have had occasiori t o observe, t h e costs for t h e realization of t h e prototype for industrial m a n u f a c t u r e exceed t h e e n t i r e s u m invested t o produce the laboratory prototype.

In economic t h e o r y efforts have been made t o improve t h e presentation a n d explanation OF production processes. In t h e beginning, capital a n d labor were t h e only two factors considered. Then t h e production Functions were expanded t o cover energy and materials

(KLEM

functions). In t h e c a s e of innovation it is essential t o expand t h e m still f u r t h e r t o cover r e s e a r c h (fundamen- t a l a n d applied), a s well a s technology a n d development.

1.3. lnnovation as Result

Consideration of innovation as a result also requires a refinement OF t h e analyt- ical approach. According to Schumpeter t h e innovator was surrounded by imi- t a t o r s a n d the innovation was rapidly analyzed. Today we have t o establish a typology of innovations. That suggested by t h e p r e s e n t a u t h o r distinguishes t h e following:

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C r i t e r i a relaCing t o t h e t e c h n o l o g i c a l l e v e l : e.g. radical, usual, trivial.

C r i t e r i a r e l a t i n g to d e g r e e of n o v e l t y : e.g. t h e first ever; realization of something t h a t h a s already been developed elsewhere ( a t t h e national level, t h e n a t t h e regional level, and t h e n a t t h e company level):

t h e r e a r e imitator-innovators, for example those who work as subcon- t r a c t o r s , o r with a license granted by t h e "original" innovator; industrial espionage, t h e stealing of ideas o r techniques, which has been widely practiced in certain parts of t h e world, also produces innovators whom this a u t h o r will call "local" or "relative" ( a s opposed t o "original").

C r i t e r i a of e z t e n t : t h e product o r t h e process is entirely new, or i t is in t h e n a t u r e of a n improvement incorporated in t h e product or e a r - lier process, or it is a n a d d e d improvement t o a n earlier product (e.g.

in t h e form of a s e p a r a t e accessory).

C r i t e r i a r e l a t i n g t o t a n g i b i l i t y : t h e innovation is e i t h e r visible or invisible. For example, t h e first television s e t was a visible innovation.

On t h e o t h e r hand, over a period of t e n years t h e automobile h a s gen- erally r e m a i n e d outwardly unchanged, whilst invisible progress h a s been made (lubrication, reduced petrol consumption, etc.)

C r i t e r i a r e l a t i n g t o a p p l i c a t k n : t h e novelty c o n c e r n s t h e product itself, or one of i t s inputs, or the method of i t s production or sale.

Recent technical history is full of new m a t e r i a l s t h a t a r e used in manufacturing traditional products.

The a u t h o r h a s suggested a presentation, in m a t r i x form, of t h i s typology [3] and proposed a n u m b e r of additional c r i t e r i a . The m o s t impor- t a n t of t h e s e is certainly t h e c r i t e r i o n r e l a t i n g t o t r a n s f e r a b i l i l y : an innovation t h a t originates i n one sector, or performs a well defined function, passes on (or does n o t pass on) t o o t h e r s e c t o r s or other functions. For example, a grape-picking m a c h i n e will r e m a i n useful only in t h e wine-growing sector, but an electronic device will gain a foothold in all s e c t o r s of industry, medicine, recreation, t h e a r t s , and culture.

In r e c e n t years t r a n s s e c t o r a l innovation appears t o be playing a n increasing role. with electronics branching o u t into informatics, tdldmatique, robotics, office technology, automation of financial transactions, etc., a n d with biotechnologies supplying t h e agro-f oo:, chemical, pharmaceutical, and energy industries.

As t h i s happens, multisectoral mixes in t h e s t r u c t u r e of i n d u s t r y a r e emerging, and t h e redefinition of new industrial entities m a k e s o u r p r e s e n t sta- tistical n o m e n c l a t u r e obsolete.

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1.4. Economic: History Rewritten in Light of t h e Wcroeconomic Analysis of Innovation

In t h e beginning, m a n was both producer a n d consumer. Then, compared with t h e previous a u t a r k i c situation, surplus became available t o non-producers.

This is r e l a t e d to t h e tripartite view held by Boisguilbert of the exchanges between p e a s a n t s , t h e upper classes (landlords), a n d craftsmen (1695).

Later, t h e leading producers, faced with heavy demand, were s t r e n g t h e n e d by solid backing: t h e production of raw materials, intermediate goods, and e q u i p m e n t goods was added t o t h e production of c o n s u m e r goods. The production process continues to grow longer, and t h e innovation process brings with i t t h e tasks of science a n d technology. Society as a whole, as well as industrial firms, assigns increasingly large r e s o u r c e s to innovation and a vast a r e a of knowledge is formed between scientists u p s t r e a m a n d c o n t r a c t o r s downstream.

There is a n i n c r e a s e in jobs for t h e development, diffusion, a n d adaptation of knowledge, a n d t o convert ideas i n t o objects (transition from t h e intangible form to t h e tangible form), as well as jobs involving t h e transport of ideas and information (telecommunication), following t h e long period during which only m e n a n d m a t e r i a l s were transported.

S u c h an outline does not yet help explain t h e movements of h u m a n activities, with t h e i r propitious phases and setbacks. But we should not forget t h a t t h e s a m e applied t o t h e economic thinking of t h e past: all t h e classical works (e.g. Adam Smith and J.B. Say with t h e law of m a r k e t openings) were directed a t t h e a u t o m a t i c a d j u s t m e n t .of t h e s y s t e m a n d t h e analysis of cycles only appeared a c e n t u r y l a t e r (Juglar and Bagehot) [4], when i t was considered something of a heresy.

A similar g a p m u s t be filled between t h e theories of innovation and those of long-term movements. But before examining t h e conditions necessary for t h e e m e r g e n c e of s u c h movements as a r e s u l t of the innovations (see Section 3), we m u s t establish t h e i r existence based o n observations.

2.

ESTABLISHING THE

m N C E OF LONG= MOVEMENTS LINKED TO INNWATION: THE INDUSI?UAL REWOLUTIONS

We a r e dealing h e r e only with long-term movements caused by .waves of radical innovations. In no case will we r e t u r n t o t h e point of view held by Kondratiev on century-long movements.

The concept of industrial revolution i s a r e c e n t one: t h e transition from t h e Paleolithic Age to t h e Neolithic Age, due to t h e widespread cultivation of plants a n d animal husbandry, was never called a n industrial revolution; y e t i t was t h e first t i m e t h a t solar energy was ascribed a n economic value [5].

According t o

C.M.

Cipola, animal husbandry and t h e cultivation of p l a n t s r e p r e s e n t e d t h e first g r e a t upheaval in ' t h e life of m a n . What he did was t o replace t h e n a t u r a l converters of solar energy, which he found through hunting a n d g a t h e r i n g , by t h e first ever industry, which consisted of producing t h e s e energy converters: i t was possible for m a n t o produce anirr~als and plants in l a r g e r quantities and in proportion t o his needs. The ec:onomic effect of t h i s first revolution h a s been described elsewhere [6].

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The industrial revolution of the Middle .Qes ivas "discovered" only recently [?I. But, a t t h a t t i m e no g r e a t technical changes took place. The example of t h e 12th c e n t u r y i s nonetheless most noteworthy: although no real!). new technology was introduced, innovation, in the broad sense of t h e t e r m , did occur:

iron, which u p t o t h a t t i m e had been used for weapons a n d a r m o r , was now used to make plowshares. This resulted in a long boom, which began with t h e clear- ing of land for cultivation.

Four c e n t u r i e s l a t e r , a major innovation, namely printing, probably led t o a long-term expansion similar to t h a t which Marc Porat presently envisages with t h e growth of t h e "information sector" [9].

2.1. The Three Revolutions of Modern Times

The first z n d u s t r i n l r e v o l u t i o n , based on coal, was situated a t t h e e n d of t h e 18th c e n t u r y and in t h e 19th c e n t u r y (first in Great Britain, t h e n in France a n d a t the e n d of t h e 19th century, in Germany). But it became t h e subject of study only m u c h l a t e r 191. This revolution involved t h e development of iron and steel m a n u f a c t u r e , t h e railways, mineral chemistry, a n d m a n y industries manufac- t u r i n g c o n s u m e r goods (textiles, clothing, l e a t h e r , shoes, etc.).

The foundations of t h e s e c o n d i n d u s t r i a l r e v o l u t i o n were already laid by t h e end of t h e 19th c e n t u r y . The first c a r s had been driven, petrol and electricity were being used. A t t h e beginning of t h e 20th c e n t u r y t h e first aero- planes h a d flown, b u t t h e i r production was still a t t h e embryonic stage. The First World War impaired t h e "purity" of t h e long-term movement. As early a s t h e e n d of t h e 19th c e n t u r y , for example, t h e railway companies provided all rail connections t h a t i t was feasible to c o n s t r u c t a t t h e t i m e

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a n d even a little m o r e t h a n t h a t (e.g. Freyssinet plan). Military needs extended t h e growth curves (for railway t r a n s p o r t a n d particularly for iron and s t e e l manufacture) a n d deferred t h e drawbacks of m a t u r i t y and decline.

The crisis of 1930 probably m a r k s this transition from t h e m a t u r e opera- t i o n s t o t h e young, a s y e t little-developed ones, t h a t is t o say, t h o s e t h a t have n o t y e t t a k e n u p all t h e i r "possible space". These new industries brought with t h e m a new s o u r c e of energy (petroleum), new m e a n s of t r a n s p o r t ( t h e automobile and t h e aeroplane), a new chemistry (organic chemistry), new iron and s t e e l processes and products ( s h e e t and plate steel), new kinds of textiles with t h e introduction of artificial a n d synthetic tissues, etc. All t h e e l e m e n t s were r e a d y a n d available between t h e two World Wars, but i t was a f t e r t h e impetus of t h e postwar rebuilding period t h a t industrial growth intensified before slowing down from 1973-74 onward. The petroleum crisis t h a t o c c u r r e d a t this t i m e was probably t h e outward sign of a slowing down in growth already i n h e r e n t in t h e long-term development.

Now, a t t h e e n d of t h e 20th century, a t h i r d i n d u s t r i a l r e v o l u t i o n is beginning. I t includes new forms of energy, new means of transport, and new m e a n s of communication (integrated networks for telephone, telegraph, electronic mail, teleinformatics, photocopying, video conferencing, etc.). Satellites and s p a c e rockets will no doubt coexist with the dirigibles and new sailing ships t h a t have been r e s c u e d from oblivion by already visible technical changes. Genetic engineering and automation open up vast prospects with r e s p e c t t o manufacturing whilst t h e ocean economy increases m a n ' s food production a n d indus- t r i a l potential: we will find h e r e both factors conducive t o prosperity and well- being a n d a t t h e s a m e t i m e , sources of conflict. The bioteehnologies will per- vade a large n u m b e r of activities.

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2.2. The Substance of Industrial Revolutions

With regard t o t h e t h r e e i n d u s t r i a l revolutions we c a n identify major innovations in four areas: energy, t r a n s p o r t , tools or equipment, and "manufacture".

An industrial revolution is therefore, a t first sight, a combination of activities.

I t c o n s t i t u t e s a cluster of major innovations, linked t o each o t h e r (for example, coal, t h e s t e a m engine, iron a n d steel m a n u f a c t u r e , a n d railways). Another, m o r e r e c e n t link is, technically speaking, even more obvious: electronics, informatics, tdlematique, robotics, office technology, etc. These activities grow simultaneously and l a t e r t h e i r outlets become s a t u r a t e d simultaneously.

Table 1 outlines roughly t h e substance of t h e industrial revolutions.

Table 1

E n e w Transport Tools Basic products

Neolithic Period: Wood Draught animals Plough Cereal & crop, animal husbandry

Agricultural Charcoal Wheel Loom Textiles

Revolution Stone

19th Century: Coal Railway First lndustrial

Revolution

Mechanical Steel bars (rails) l ndumy Mineral chemistry

All kinds of manufacture (textiles, etc.)

Beginning of Petroleum Automobile Electrical Plate steel (sheets) 20th Century : Electricity Aeroplane Industry Orpanic chemistry

Second Industrial Plastic

Revolution

End of 20th Nuclear Rocket, satellite Electronics Steel and special alloys Century : Solar Telecommunications Informatics Synthetic-plastic products

Third Industrial Other new Airship Robotics Aqwwlture

Revolution forms of Cargo sailing boats Office technology (Neolithic marine)

energy Biotechnologies All production processes

Genetic engineering using biomass Fiber optics

2.3.

The Form

of Industrial Revolutions

An industrial revolution s t a r t s only very slowly. For it t o become established, two phases a r e necessary: t h e objective in t h e first phase is t o a c c u m u l a t e a s t o c k of knowledge a n d of appliances for practical application (discoveries, inventions, tests, combinations of ideas, and anticipation of progress of adja- c e n t technologies). All t h i s m u s t first be available, then accessible, a n d finally financeable before it can be p u t i n t o practice: this explains t h e second phase, which l a s t s until t h e diffusion of t h e products and new processes.

The way time is used i n these two periods s e e m s to vary according t o t h e progress of an industrial revolution. A t t h e beginning of a long-term move- m e n t , r e s e a r c h i s t h e most i m p o r t a n t factor. But throughout t h e long period of

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growth t h e role of development increases. Afterwards, the sales only increase slowly, both because i t t a k e s t i m e for t h e demand to become more c e r t a i n and for the necessary purchasing power t o be built up, and because it takes time for t h e supplier t o position t h e production factors a n d t o c r e a t e sufficient production capacity.

2.3.1. me hbryonic Phase of t h e long-term movement l a s t s a long time;

growth is very slow. It appears like a period of proliferation of "attempts" of all kinds. The idea is t h e r e , a n d we feel certain t h a t i t c a n be realized. The need for t h e new product takes s h a p e very slowly: very many heads of companies combine t h e information from t h e technical field with m a r k e t information and deliver t h e f r u i t of t h e i r imagination. Thousands of models existed for t h e automobile a n d aviation industries when these were in their infancy. Today t h e s a m e overabundance h a s developed in t h e field of information technology and tClCmatique with regard t o "pCri-informatique", "pCri-tClCphonie"*, office material, e t c .

Thus t h e embryonic p h a s e sees a proliferation of small and m e h u m - s i z e companies, and even of isolated producers who may launch t h e i r products before t h e y have g a t h e r e d a t e a m of collaborators.

The large company, however, plays a role with regard to major innovations, which can be tackled only with large financial means. Even m o r e significant innovations a r e taken over by t h e s t a t e or by international bodies. But even h e r e we find once again t h e multiplication of proposals

-

for example. with r e g a r d t o n u c l e a r power t h e r e were more t h a n t e n different processes using u r a n i u m for t h e production of electricity. Little by little t h e selection was m a d e and two or t h r e e s y s t e m s r e m a i n e d in t h e running when t h e growth phase really s t a r t e d .

The s a m e evolution applies t o t h e automobile and aeronautics industries, a n d t o electronics/information technology/tClCmatique in t h e future: t h e r e is a tendency towards unification of models a n d types.

The small a n d medium-size companies, including those t h a t were c r e a t e d a s a result of t h e branching o u t of large companies, suffer. They have a very high "death rate": only a few, which enjoy technoeconomic success, survive a n d grow. And t h e s e m u s t t a k e c a r e t o avoid "accidents" in t h e c o u r s e of t h e i r growth, s u c h a s a cash-flow crisis.

2.3.2.

7he Phase of Accelerated Orowth corresponds t o t h e phase of "populating a space", which corroborates t h e biological thesis of societal growth.

The concent'ration of i n d u s t r y becomes m o r e pronounced, which is a s m u c h a r e s u l t of t h e s u c c e s s of c e r t a i n small a n d medium-size companies t h a t h a v e conquered a m a r k e t as i t is of certain o t h e r s having been bought back by t h e big groups.

I t

results also from sharing t h e spoils of yet o t h e r s (which in t u r n allows a n investment t o b e realized a t very low cost).

The n u m b e r of models o r types of a product decreases, a n d monotony increases. Innovation c h a n g e s in nature: i t will be effected through imitation, through improvements, and through combinations of these.

*

^Equipmentused in conjunction with information technology, t616matique, etc.

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The g r e a t innovation has given way to secondary innovations. Little by little t h e r e is less space t o conquer, and t h e s t r a t e g y is d i r e c t e d a t enlarging t h e s h a r e s of t h e m a r k e t .

When growth slows down, t h a t is, when t h e point of inflection of t h e logistic curve h a s been passed, t h e most obvious s t r a t e g y is t h e s e a r c h for new openings. The new m a r k e t s a r e reached first through export, t h e n by d i r e c t invest- m e n t abroad, a n d finally by technology transfer. S u c h a n evolution signifies t h a t t h e long wave is approaching maturity.

Similar r e s u l t s for trying t o prolong t h e growth a r e obtained through innovation in connection with new functions of t h e product. The typical example is t h a t of nylon [lo]: Figure 1 shows the successive conquests of t h e m a r k e t through adaptation t o new uses.

The re-release of a product after changing t h e model, a s is done in t h e automobile industry, is a n o t h e r illustration of t h i s extensive procedure. There is also a n o t h e r , intensive, approach for when openings r e m a i n constant: growth will o c c u r through increase in demand, which itself is related e i t h e r t o individual n e e d or t o t h e number of customers. Marketing provides n u m e r o u s examples of this, which could be compared with m o r e macroeconomic, o r biological, t h e m e s .

Figure 2 presents t h e example of e l e c t r i c lighting: t h e curve is a n envelope plotted from successive logistic curves (in semilogarithmic coordi- n a t e s ) [ l l ] .

2.3.3. The Mature Phase appears when signs of s a t u r a t i o n of t h e solvent d e m a n d at a c e r t a i n fixed price become manifest. Secondary innovations now play a g r e a t e r role: they t e n d t o improve productivity and l e a d to price drops o r t o increases i n quality a n d performance, or t o both a t t h e s a m e time.

The growth may continue, but with a slower r h y t h m . This marks t h e e n d of t h e exponential phase of t h e preceding growth. At this point, one could refine t h e typology of innovations by suggesting innovation (beginning of t h e industrial revolutions) and renovdion (the m o m e n t when t h e revolutions a r e spent).

This distinction can lead t o a n additional interpretation. Certain innovations t h a t follow t h e radical innovation may, during t h e long-term movement, r e p r e s e n t t h e renovation. Alternatively, sometimes, a f t e r a period of latency during t h e e n d of an industrial revolution, t h e y m a y become decisive e l e m e n t s of t h e next revolution. Figure 3, taken from G. Simon [12], shows t h e case of t h e space rocket, which originated during t h e second revolution and which will only be exploited completely during the t h i r d revolution. On t h e o t h e r hand, t h e jet plane h a s been fully integrated in t h e second revolution.

2.3.4.

me

Phase of Sationarity, Decline, or Death ends t h e evolution of t h e innovation c l u s t e r s t h a t were responsible for t h e beginning of an industrial revolution a few decades earlier. Some continue a t a certain level: t h i s s t a - tionarity, far from being ideal, is disturbed by s h o r t fluctuations. Others s u f f e r a complete setback before finding a s o r t of survival level (e.g. t h e railway having t o compete with road and air travel). And finally, t h e r e a r e others t h a t col- lapse: t h e m o s t e x t r e m e example of rapid growth a n d equally rapid decline, all within a few years, was t h a t of t h e Vespa, which still survives today, a q u a r t e r of a c e n t u r y l a t e r , a t a n insignificant level of production.

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M = Evolution attributable to 140

-

the material

---

P = Evolution attributable to Textured threads, 130. the product pullovers, men's rocks

-

= Actual curve

--- - --- -

-I = Trend r Tyrrcau'ngs 120, a mu $ ---,-,

,

Chain erticla Tyre casings (PI Meshed fabirc

--- ---

fabric Taffeta Twill Voile --c--- ' Circular kn~twar Various Thread Parachutes Rgurc 1 l'l~e conquest of successive rrlarSkels: Lhe example of nylon.

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Theoretical dficiency 4

White light

Carbon filament

In Edison lamp

Y a r d f i n candle

Figure 2 E l e c t r i c lighting.

Source: Recherche S c i e n t i . q u e e t h n o v a t i o n Technique, F a c t e u r s de Di2veloppement de 1 ' E n t r e p r i s e , p.9, by Dr. Ferdy Mayer, LEAD, Grenoble.

Propeller aeroplane

I

Years

Figure 3 S o m e innovation "relays" in a e r o s p a c e t r a n s p o r t .

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2.3.5. R e Best Approzimation of the Entire Movement is a Logistic C u r v e . The above descriptions show t h a t most of t h e approximations t h a t have been made (fortunately over relatively short periods) a r e hardly able to describe t h e evolution fully. The infatuation with the exponential explains t h e short-sightedness of the statisticians during the second phase (rapid growth). The only descrip- tion likely t o give a full account of t h e four phases (embryonic phase, rapid growth, slower growth (or maturity), and old age) is t h a t provided by logistic curves. A f u r t h e r adjustment m u s t be added to the logistic curves for t h e final phase since t h e y tend, in general, towards an asymptotic value, which only applies to a small number of observable cases.

With regard to t h e other cases, t h a t is, to those where a d o w n t u r n appears, a different adjustment m u s t be used, which, after this point, will account for t h e more or less pronounced decline.

Figure 4 (taken from [B]) t r a c e s the long waves t h a t followed t h e t h r e e industrial revolutions of the l a s t 150 years. For the third revolution, different forecasts, depicted by the broken lines, pose t h e problem of t h e aptitude of society t o accelerate the transition from t h e embryonic phase of activities to t h e i r adolescent phase, i.e. to accelerate growth.

Year

Figure 4 The t h r e e industrial revolutions. A: coal, steel, railway, textiles, mineral chemistry.

B:

petrol, electricity, automobile, steel (sheet), mechanical engineering, aeroplane, organic chemistry. C: new forms of energy (including nuclear), oceanic development, biomass, electronics, tClCmatique, robotics, office technology, biotechnologies, genetic engineering, etc.

The envelope curve resulting from t h e superimposition of t h e industrial revolutions distinctly shows t h e long fluctuations. In the case of t h e first revolution t h e ascending and descending phases a r e about half a c e n t u r y long

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(1840-1890 a n d 1890-1940). For the second, which is from 1900-1910 onward, progress is very m a r k e d over t h e 20 or 25 y e a r s f r o m 1945-50 t o 1970-74.

I t is difficult t o d e t e r m i n e the turning points exactly: t h e fluctuations vary with t h e component activities and also depend on t h e d a t a used. A t present, we do not have adequate statistics a t our disposal since, for example, the serial decompositions include u n d e r each heading old activities and new activities.

An aggregate is m a d e u p of series in t e r m s of volume multiplied by alternative prices: a high price may equally well correspond t o s t a r t i n g u p in production for which t h e r e a r e a s yet n o scale economies (as is t h e case for innovation when i t begins), a s i t could to an old and high-capacity production for which the components have become s c a r c e r . A low price m a y indicate t h a t the producer h a s had t o m a k e a sacrifice on a reluctant m a r k e t , or, on t h e contrary, t h a t h e h a s very successfully i n c r e a s e d his productivity.

The aggregate values incorporate all this information and m u c h more. And for t h e t i m e being we do n o t know how t o "aggregate" statistics in kind (do we n e e d s e r i e s with alternative fictitious prices?). We do not have t h e necessary nomenclature: an innovation only appears in t h e s t a t i s t i c s if t h e observer is able t o differentiate these products from those h e i s accustomed t o recording

-

which m e a n s t h a t when we give the innovation a place n e x t t o t h e o t h e r products i t is t h e n no longer an innovation. Can we blame this on the customs officer or a n y o t h e r a g e n t responsible for producing s t a t i s t i c s [13]?

I t is therefore too early t o discuss the comparative qualities of t h e various logistic approximations, o r of their properties, used t o describe t h e aggregates s t u d i e d Whereas Marchetti usually studies evolutions by products a n d by sec- t o r s (e.g. t h e automobile sector), t h e present a u t h o r is m o r e inclined t o exam- i n e t h e evolutions a s national wholes or parts. In o t h e r respects Marchetti uses only a single logistic curve, namely t h a t of Volterra, whereas this author would be inclined t o keep groups of approximations. The chronological regularities t h a t Marchetti obtains a r e excellent but perhaps t h e y a r e partly due t o the technique used. Apriori t h e present author prefers m o r e irregularities in thp r h y t h m s a n d less rigidity in t h e calculations.

2.3.6. New B e g i n n i n g s in t h e Logirtic h r v e s . What I called "relays" above in connection with long-term movements may reappear h e r e as t h e word '!boostw (or "re-release") in t h e logistic curves. In fact, i t appears t h a t a movement t h a t i s observed c a n be broken u p into two superimposed logistic curves.

The logistic curve of naval construction in t h e first industrial revolution includes vessels with coal-fired boilers and riveted iron plates. Naval construction i n t h e second industrial revolution released a logistic curve superimposed on t h e first one a s a result of t h e introduction of t h e fuel engine and soldered iron plates.

The steam-driven automobile had no economic success whatever during t h e first revolution. With t h e introduction of t h e petrol engine t h e automobile industry grew rapidly during t h e second revolution. The textile industry (first revolution) went through successive phases of expansion, first with linen and hemp, t h e n wool, and finally cotton. During the second revolution, t h e textile industry began a new logistic curve with the introduction of a new series of syn- t h e t i c fibers.

The chemical industry was based on minerals during t h e first revolution, whereas organic chemistry prevailed during the second. During t h e t h i r d revolution new possibilities for t h e chemical industry will be discovered in t h e field

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of biotechnologies, e t c .

A last e l e m e n t m u s t be considered: i t may happen t h a t a new p r c 3 i l c t can- n o t gain a c c e s s t o t h e m a r k e t b e c a u s e of its price: produced in small qilanti- ties, i t is expensive a n d c a n n o t compete with t h e old product, which occupies all of t h e m a r k e t . This was t h e c a s e for quite a long time for s y n t h e l i c rubber.

It was only t h r o u g h t h e S e c o n d World War, which brought with i t a rise i n the p r i c e of n a t u r a l r u b b e r , r e l a t e d t o growing military needs, t h a t s y n t h e t i c r u b b e r was able t o m a k e a b r e a k t h r o u g h . Its increasing production rilade scale economies a n d p r i c e d e c r e a s e s possible. When t h e price of n a t u r a l rubber decreased, t h e price of s y n t h e t i c r u b b e r could also drop a n d its s h a r e in t h e m a r k e t i n c r e a s e d in s t e p with t e c h n i c a l progress (new uses possible).

2.3.7. Is Logistic Growth a F b m of Biological Evolution? I do n o t wish h e r e to r e f e r to t h e life-span c u r v e of a p r o d u c t , which is a macroeconomic c o n c e p t widely used i n t e a c h i n g business m a n a g e m e n t . B u t t h e m o s t convincing analogy can be m a d e with s a t u r a t i o n s : a population occupies a c e r t a i n "terrain"

a n d t h e n u m b e r of individuals grows according to a logistic c u r v e until t h e s p a c e is completely occupied. This evolution m a y be observed i n t h e c a s e of b a c t e r i a on a film of g e l a t i n e a s well as for m o r e developed living species. It probably applies t o h u m a n societies with a c o n s t a n t level of equiprrlent a n d education.

A change in t h e e n v i r o n m e n t m a y l e a d t o a new logistic m o v e m e n t a n d postpone t h e s t a t i o n a r i t y o r decline. A good example of this relationship between e n v i r o n m e n t a n d population t h a t h a d to be changed is offered by t h e i n d u s t r y t h a t p r o d u c e s p r o t e i n s f r o m raw p e t r o l e u m . In order to p r e v e n t t h e development of y e a s t s on a c e r t a i n q u a n t i t y of petroleum from being severely r e s t r a i n e d , i t was n e c e s s a r y t o conceive a device For withdrarving t h e "population formed" i n o r d e r t o m a k e r o o m f o r a new, younger population: s u c h a dev- i c e linearizes t h e g r o w t h a n d m a k e s i t endless.

We recall h e r e t h a t t h e growth of living organisms (animal, vegetable) is logistic. The s a m e holds t r u e for t h e organs of t h e body. An example is t h e h u m a n brain, t h e c a p a c i t y a n d p e r f o r m a n c e of which grow rapidly, b u t with s o m e r e s u l t s b e t t e r t h a n o t h e r s depending on t h e "environment", education, e t c . And we m u s t n o t f o r g e t t h a t t h e capabilities of t h e brain begin to d e c r e a s e at a time when t h e individual h a s not y e t completed his total growth; h e contin- u e s the r e s t of h i s life with a declining "cerebral i n s t r u m e n t " . This decline is compensated, t o a g r e a t e r o r l e s s e r e x t e n t , by o t h e r , acquired factors, s u c h a s experience.

If we t r a n s p o s e t h i s e x a m p l e i n t o o u r field, it shows t h a t logistic c u r v e s t h a t a r e linked with e a c h o t h e r c a n unfold with different r h y t h m s : for example, t h e logistic c u r v e of e l e c t r o n i c chips is probably very different t o t h e logistic c u r v e of c o m p u t e r s o r of robots.

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3.

AN ATlTXPT TO

CONSLTUCT

A

THEORY

OF

LONG WAWS

In order f o r t h e r e to be a long wave, \>-e must prove t h a t m a j o r innovations a r e launched simultaneously and t h a t , in the course of t h e evolution, there is a moment during which i t i s possible lor them to be launched.

3.1. Innovation Does Not Appear in a Random Fashion

It is often a s s u m e d on principle t h a t discovery a n d invention are random events, t h a t is, t h a t t h e y a r e distributed haphazardly over t i m e (which, t o t h e author, i s not obvious). But i t is impossible t o s e a r c h for "laws" according t o which a clustering of inventions and discoveries could take place. These laws a r e only very indirectly related to economic life a n d all t h e m o r e linked with t h e progresss of scientific thought, with methodological changes, with t h e fashions a n d contagion of ideas with which we a r e still unfamiliar.

Even in t h e c a s e of a random discovery in time, its practical result

-

be i t a new p r o d u c t or process t h a t has been diffused on t o t h e m a r k e t

-

is n o t random.

Several a r g u m e n t s m u s t be examined: learning a n d experience a r e accu- mulated in various "reservoirs" such as t h e mind, scientific publications, a n d patents a n d r e m a i n available until a favorable time for t h e i r u s e arrives [14].

In o r d e r for t h e m t o be p u t to use, one may call t o mind t h e following:

B c h n i c a l conditions: complementary discoveries in t h e same field, or discoveries in adjacent fields are necessary for t h e initial discovery t o become operational (e.g. to allow its mass m a n u f a c t u r e or to facilitate production by reducing t h e cost of t h e new product). The concept of a c o r n p l e m e n t w y discovery is illustrated by t h e equipment used by Norwegian whaling ships [15]. A series of p a t e n t s issued before t h e First World War were n o t enough for this e q u i p m e n t t o go into use. A second s e r i e s of patents issued between t h e two World Wars sufficed for t h e fleet t o be fully equipped within a very s h o r t time. A noteworthy example of t h e need f o r discoveries in adjacent fields may be found i n t h e n u c l e a r industry: impracticable as i t would be with only t h e knowledge of how t o master t h e atom, i t i s made possible through informatics and by t h e progress made in boiler engineering a n d c e m e n t technology, a s s t a t e d previously.

Psychological conditiom: it is not sufficient t h a t something is realiz- able. One m u s t also have a notion a s t o i t s usefulness. The s t e a m engine, according t o J.P. Vernant, does not date back t o Denis Papin.

I t was a l r e a d y known in Greek antiquity a n d was used only t o wave b a n n e r s in t h e temples. Gunpowder, for which t h e Chinese found a u s e in t h e form of fireworks, i s another good example.

The m o d e r n age is full of similar examples where i t was necessary t o wait for t h e "crystallization" of a demand in order t o develop t h e manufacture. T.

Gaudin [16] points out numerous innovations t h a t did not require any extraor- dinary t e c h n i c a l achievement, but which brought about profound changes in everyday life: for example, t h e prefabrication o l buildings, containers, t h e felt pen, the mixer a n d o t h e r domestic appliances, the cotton-harvesting machine, t h e zip, c a s s e t t e s for t a p e recorders, etc. A lot of t i m e was needed before some of these were completely ready for use (a c e n t u r y was necessary for t h e

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cotton-harvesting m a c h i n e ) , b u t all of t h e m "essentially testify t o a perception of t h e market".

Surveys on innovation (CETEM in France a n d t h e IF0 I n s t i t c t e in the Federal Republic of Germany) confirm t h a t , a t least in t h e 1980s, close t o half the innovations brought on t o t h e market a r e n o t high-technology products b u t constitute responses t o m a r k e t demands. Certain ages have "crystallized" customers, for example for radio broadcasting, a n d t h e n for television. In France, this crystallization is slow, a n d not yet over for t h e dish washer; in 1984, i t was very hesitant for videotex (cf. t e s t s carried o u t by P r e s t e l in Great Britain and TClCtel in France) and y e t t h e technique is complete a n d very l a r g e serial production is ready t o s t a r t up.

3.2. The Economic Conditions for the Start of Production: A Certain Complementarity

Once t h e aforementioned conditions have been fulfilled, we m u s t be in a position t o produce. For t h i s t o be possible, ideas a r e needed t h a t c a n be t u r n e d i n t o products: we have t h e s e ideas a t o u r disposal. Manpower and capital a r e needed.

First of all, a s we have seen, it is also necessary to have substantial inter- sectoral complementarity, i.e. innovations in t h e e n e r g y field, in t h e t r a n s p o r t sector. in t h e technical i n f r a s t r u c t u r e , a n d in t h e i m p o r t a n t new m a n u f a c t u r - ing industries.

Energy innovations a r e perhaps t h e driving force behind all o t h e r innovations: they a r e born of necessity. Coal, which h a d been h o ~ m for a long time, was exploited industrially following a very severe crisis affecting t h e previous

source of energy, namely wood.

Wood was unable t o respond both t o t h e d e m a n d of a n iron industry t h a t h a d grown because of innovations in agriculture a t t h e e n d of the 18th c e n t u r y (such as t h e shoeing of horses, agricultural tools m a d e of iron, etc.) and to t h e predicted consumption of t h e steam engine a n d t h e daily needs of a growing population (demographic boom after 1750).

Petroleum exploration was activated a s a r e s u l t of t h e drawbacks involved in t h e use of coal, which were most strongly felt when the i n t e r n a l combustion engine appeared.

Electricity production based on nuclear power began after u r a n i u m had come into u s e for military purposes. Its development was slow a t f i s t for technical reasons (choice between technologies with different safety m e a s u r e s ) a n d psychological r e a s o n s (opposition from ecologists, for example). It e n t e r e d phase 2 (acceleration) e a r l i e r in certain c o u n t r i e s than in others.

Ecological r e s t r a i n t played a n i m p o r t a n t role in t h e last c o u n t r i e s in Table 2, especially in Japan a n d in t h e Federal Republic of Germany. In Great Britain a n d in the United S t a t e s t h e abundance of o t h e r e n e r g y resources also made a difference.

The International Atomic Energy Agency (IAEA) predicts a rapid increase in t h e s e figures. World production is likely to increase from 191 GW in 1983 to 275 GW in 1985, 370-400 GW in 1990, and 580-850 GW in 2000. In t e r m s of growth, t h i s is no g r e a t e r than t h e growth predicted for petroleum during t h e second revolution.

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Table

2.

A t o m i c Energy: Percentage of Total Production per Country in 1983

F r a n c e Belgium Finland Taiwan Sweden Bulgaria Switzerland S o u t h Korea J a p a n FRG

G r e a t Britain USA

World Total 12.0 (estimated)

In reality, t h r e e factors a c t together t o s t a r t a long wave:

coal/railways/iron a n d steel m a n u f a c t u r e (first wave), petroleum/automobile/iron a n d steel m a n u f a c t u r e (second wave), electricity/telecommunications, rockets and satellites/electronics a n d optical fibers (third wave).

One a u t h o r h a d already identified this type of relationship during long- t e r m movements: with his Transport-Building cycle, W. Izard showed how a new m e a n s of t r a n s p o r t c h a n g e d t h e localization of activities

-

which led t o new factories having t o be built elsewhere, followed by t h e housing t o accom- modate t h e people working in t h e factories.

Even if it is not t h e most important aspect, this form of migration should n o t be forgotten.

3.3. Economic Conditions (continued): Availability of Manpower and Capital The knowledge is available, having been collected for many decades. One now waits for t h e available fnanpower and capital: only a crisis can provide t h e m .

3.3.1. Nothing .is Possible During the Inng Orowth Period

....

Indeed, during t h e g r e a t e r p a r t of t h i s period t h e r e is full employment a n d plenty of opportunities for investment i n flourishing industries a n d with high returns. Company capi- t a l and debts i n c r e a s e in order to permit a n extension of capacity.

Later on, expansion is less pronounced, t h e profit-making capacity a little weaker, a n d full e m p l o y m e n t only just assured. But one hopes for a r e t u r n t o g r e a t e r r a t e s of expansion. Staff a r e not reduced

-

a n d people invest, n o t i n major innovations, b u t in t h e improvement and perfection of existing products a n d processes, which will diminish costs and make it possible for prices t o be reduced, a n d t h u s t o a d a p t t h e products t o fit into new sectors of t h e market.

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Thus a s t a t e of full employment permits only a limited type of growth.

There is n o t a single Keynesian, from Farrod via Joan Robinson t o Kaldor, who did not see t h a t a n industrial revolution during a t i m e of full employment was impossible. One is limited t o secondary innovations.

3.3.2. ... Nor a t t h e B e g i n n i n g c ~ f t h e &eat Crisis. Of course, i n v e s t m e n t in t h r e a t e n e d industries is discouraged. But t h e r e is little available capital: it i s being used up a n d blocked in growing debts t h a t a r e no longer m e a n t for pro- ductive investment but for plain survival.

People seek jobs, but t h e s e a r e not c r e a t e d for want of t h e financial resources necessary for new posts. The gross margins of t h e companies a r e small or zero a n d bankruptcies increase. Little by little, through t h e liquida- tion of stocks a n d t h e reduction of employment, it is possible to build u p t h e resources necessary for financing anew, b u t owing to t h e existing pessimism t h e r e a r e doubts a s t o t h e possibilities of investing in a n economy t h a t does n o t look as though it will recover.

3.3.3. ALL 7 h i n g s B e c o m e Possible a t the End of t h e D e p r e s s i o n . The second phase of t h e depression, with i t s lack of optimism, will lead people t o believe t h a t risky i n v e s t m e n t s in things t h a t have n o t been made before a r e preferable t o having i n e r t capital.

The takeoff becomes e i t h e r a complete success or a total failure, bringing with it prospects of considerable profit or, on t h e o t h e r hand, t h e possible total loss of t h e c o m m i t t e d resources. But t h e hope of making a profit on a single venture, t h a t is, on a single innovation, appears sufficient to compensate several losses. In view of t h e distribution of risks, a profit s e e m s likely, a n d t h e r e is a r u s h of capital. Reemployment will follow, b u t with some delay a s t h e creation of new jobs will be slowed by t h e caution a n d general dilatoriness of t h e embryonic phase of t h e new wave.

Moreover, t h e lowering of t h e r a t e of i n t e r e s t , which remained very high during most of t h e depression, now makes t h e whole process easier. States, companies, and private individuals will have ceased t o borrow e i t h e r because they have been able t o salvage what was most essential or because t h e y have disappeared in insolvency, which in t u r n also results in t h e availability of equip- m e n t and installations a t low prices when t h e m o n e t a r y a n d financial r a t e s go down. But t h e traditional activities, t h e openings for which still do n o t s e e m very certain, lack attractiveness. Only those activities likely t o r e s u l t in a large margin between t h e r a t e of i n t e r e s t a n d t h e marginal efficiency of real capital will bring about a convergence of initiatives. me i n n o v a t i o n is f h e r e f o r e the sole r e c o u r s e . Far from being t h e outcome of chance, as certain people have claimed, i t appears t o be t h e only means of concentrating the forces m a d e inactive by the crisis. But we a r e speaking h e r e only of radical innovations; an industrial revolution does n o t take place unless t h e y s t a r t up simultaneously within the broad range defined i n Section 3.2.

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3.4. A n Attempt to Verify the Theory of Long Waves: Interpretation of the Tables by Mensch

Mensch [17] collected lists of discoveries and innovations. Commentators have used t h e m , above all, to show the considerable t i m e lags (From ten years t o one c e n t u r y ) between discovery a n d innovation: t h e m e a n a n d t h e mode lie between 30 a n d 40 years.

In t h e graph by Mensch (Figure 5) we s e e t h a t t h e innovations appeared very frequently during s h o r t periods of about t e n years each, namely 1820-30, 1880-90, 1930-40. Thus the inventions a n d discoveries were c o n d e n s e d into s h o r t periods during very long s t r e t c h e s of time. Mensch indicates clearly t h e t i m e s during which discoveries a r e l a t e n t , and it is on t h e s e t h a t t h e p r e s e n t a u t h o r bases h i s line of argument.

This analysis is completed with Figure 6, which combines Figures 4 and 5.

We s e e t h a t t h e economic activities ensue from t h e t h r e e waves of innovation shown in t h e figures. The industrial start-up is very slow a t t h e t i m e when t h e innovation t a k e s shape, then it speeds u p and becomes exponential before slowing down and, still l a t e r , receding.

I t

is a t t h e point when a n industrial revolution r e a c h e s i t s ceiling t h a t t h e major innovations appear. The t h r e e g r e a t crises were strongly felt i n t h e years 1880, 1930, and 1975. Each time, t h e activities c r e a t e d by beginning industrial revolutions could not make u p for t h e difficulties a n d t h e loss of jobs c a u s e d by t h e declining industries.

When Mensch h a s prepared his c h a r t on t h e frequency of o c c u r r e n c e of innovation for t h e present period, we shall know whether t h e fourth point lies between 1975-85 or between 1980-90. It will t h e n be possible t o locate with g r e a t e r c e r t i t u d e t h e point of d e p a r t u r e of a g r e a t crisis, which, like t h e preceding ones, will probably l a s t for 10-15 years. But we already know t h a t t h e deep recession of 1974-75 marked i t s beginning.

The r e m a i n i n g unknowns a r e t h e possible accidents during t h e g r e a t crisis, s u c h a s the w o r l d w i d e financial Krach, which was clearly heralded by t h e records of debt of t h e Third World, of ce,rtain e a s t e r n countries, and of some western c o u n t r i e s , s u c h as France and t h e United States ( t h e s e two alone had twice t h e debts of t h e Third World).

In 1929, t h e stock exchange a n d bank c r a s h anticipated and began t h e g r e a t crisis. This time, s u c h a crash t h r e a t e n s to occur t e n years a f t e r t h e beginning of t h e crisis.

3.5. Long-Term Movements and Short Cycles: the Short Cycle Becomes Longer at the

Turning

Point of the Long Drift

Based on p r e s e n t studies, we may s u m m a r i z e a n u m b e r of proposals. The e x p e r t s o n economic fluctuation, and especia1l.y those of t h e National Bureau of Economic Research, working between t h e two World Wars, were almost all agreed on t h e 6-8-year duration of t h e Juglar cycle (or s h o r t cycle). During t h e s a m e period, Kitchin arinounced t h a t h e had uncovered a s h o r t e r cycle (3 t o 3.5 years). l n all probability t h e sarne cycle is m e a n t . Indeed, t h e observation periods of m o s t of t h e s e a u t h o r s covered, a t t h e most, periods from 1875 t o 1950.

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Periods of industrial growth related to innovations (after Piatier)

14- Wave of industrial production

12- 10- 8

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6 Waves of innovation

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1800 10 20 30 40 50 60 70 80 90 1900 10 20 30 40 50 60 70 80

Figure 6

Long Waves and Industrial Revolutions

LONG WAVES AND I M ) U m REVOLUTIONS

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CONTENTS

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LONG WAVES AND INDUSTRIAL REVOLUTIONS

IMPORTANT

ANALYSIS

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