NOT FOR QUOTATION WITHOUT THE PERMISSION OF THE AUTHOR
L O N G WAVE RESEARCH:
THE STATE OF THE ART, ANN0 1983
Jos f i l b e k e
CP-84-53
December 1984
Collabonztive Pcyoers report work that has not been performed solely at 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, its National Member Organizations, or other organizations supporting this work.
INiXRNATIONAL INSTITUTE FOR APPLIED
SYSTEMS
ANALYSIS 2361 Laxenburg, AustriaThis Collaborative Paper is very deserving of t h e n a m e b e c a u s e i t r e s u l t s from a conference held in Italy in October 1983 a n d from t h e collaboration t h a t h a s continued since t h a t meeting. Dr. Delbeke h a s done a magnificent job in placing individual theories in t h e wide s p e c t r u m of views on t h e long wave on t h e basis of t h e r e s u l t s of t h e l a t e s t r e s e a r c h , a n d in identifying t h e relation- ships among t h e different theories. What is m o r e , h e has managed t o describe t h e c h a r a c t e r of t h e s e relationships ( a s e i t h e r complementary o r contradicto- ry). so creating a complete picture of t h e most r e c e n t thinking on t h e subject.
We a r e making t h i s overview available before t h e proceedings of t h e confer- e n c e appear, a n d particularly t o provide background material for t h e n e x t long-waves conference, which will be h e l d on 10-15 J u n e 1985 in Weimar in t h e German Democratic Republic.
Tibor Vasko Leader
Clearinghouse Activities
PREFACE
This review of c u r r e n t research i n t o long waves i s primarily based o n t h e papers a n d discussions a t t h e Conference on "Long Waves, Depression, a n d Inno- vation: Implications for National and Regional Economic Policy", organized by IIASA (Austria) a n d IRPET (Italy) and h e l d in Siena a n d Florence from 26 t o 29 October 1983. This meeting, t h e m o s t r e c e n t of i t s kind, was intended t o bring together all t h e leading r e s e a r c h e r s in t h e field. Although t h e organizers al- m o s t succeeded in reaching t h i s goal (E. Mandel, W.W. Rostow, a n d I. Wallerstein could not attend), i t was t o be r e g r e t t e d t h a t a r e p r e s e n t a t i o n of economic his- t o r i a n s was n o t invited. Their absence will therefore inevitably be felt in t h i s paper, b e c a u s e t h e reconstruction a n d reliability of historical t i m e s s e r i e s were n o t t r e a t e d a t t h e Conference. In o u r view, however, t h e participants were r e p r e s e n t a t i v e of t h e main schools of inductive a n d deductive research.
The organizers planned five topics upon which t h e discussions should con- c e n t r a t e . These topics were:
(1) Theories of t h e Long Wave (2) Identification of Long Waves (3) Theory Testing and Integration
(4) Possibilities for Influencing Long-Wave Behavior (5) National a n d Regional Aspects.
However, t h e s c h e m e was not followed very s t r i c t l y in t h e composition of m o s t papers. partly because t h e various long-wave studies do n o t yet form a c o h e r e n t body of r e s e a r c h ; t h i s i s still i n i t s early p h a s e s of scientific development, though i t i s evolving fast. Different approaches of i n t e r p r e t a t i o n a r e competing on a n equal level, a n d i t seems t h a t m a n y of t h e m m i g h t be profitably i n t e g r a t - e d.
Jos Delbeke
The a u t h o r is very grateful t o C. Freeman, G. Haag, A. Kleinknecht, C.
Perez-Perez, A Piatier, E. Schokkaert, G. Silverberg, L. Soete, and J. Tinbergen for their useful comments. They helped t o improve this review substantially.
Thanks a r e also due t o Steven Flitton a t IIASA for his editorial work on t h e manuscript. The a u t h o r is reponsible for all remaining errors.
CONTENTS
ABSTRACT
1. INTRODUCTION
2. A CLASSIFICATION OF RECENT THEORIES 3. THE INDUCTIVE RESEARCH
4. THE MORE DEDUCTIVE RESEARCH
4.1. T h e Historical-Institutional Approach 4.2. T h e Growth-Theoretical Approach 4.3. T h e Macroeconomic Approach
4.4. T h e I m p o r t a n c e of Noneconomic Variables 5. IMPLICATIONS FOR ECONOMIC POLICY AND FURTHER
RESEARCH REFERENCES
LONG-WAVE RESEARCH:
THE STATE OF THE ART, ANN0 1983
Flemish Economic University, Brussels, and Catholic University of Louvain, Belgium
In this paper a classification a n d . a survey of recent long-wave theories are presented. According to the basic variable of each approach, real-economic, monetary-financial, and social structure theories can be discerned.
The inductive research is concentrated round the generalization of logistic growth paths borrowed from natural science, and the traditional but perhaps more preferable descriptive statistical methods for treating historical time series.
The more deductive research is the most expansive field, and four direc- tions can be found in it. The historical-institutional approach of Freeman and his
SPRU
group considers essentially the diffusion of the microelectronics tech- nology complex as the most important challenge for the world economy. The growth-theoretical approach, starting with Mensch's publications, deals more with the analysis of unstable growth paths originating from technological basic innovations. The system dynamics model simulation of Forrester and hisMIT
group accentuates the rational behavior of rnicroeconomic agents resulting in macroeconomic instability, caused by a self-ordering mechanism. In this con- text, monetary and financik variables seem to be important axnplid~rs of that instability. Finally, the influence of extraeconomic variables is an important debating theme. Indeed, fundamental technological change leads to institu- tional innovations on a national but most of all on an international level, and this leaves ample room for economic policy.
Given the current state of long-wave research, it is difficult t o present a comprehensive summary of all the papers and discussions a t t h e Conference.
Therefore, this paper presents only one of the possible interpretations of the state of the art. Nevertheless, we a r e convinced t h a t this disadvantage represents a t the same time a merit of the paper. Indeed, i t is in the early stages of research, when the confusion is considerable, that insights are essen- tial. This is why the paper will not adhere to t h e five planned topics, but will review t h e most important issues.
In t h e next section, we sketch t h e theories that have been revived or developed recently and classify them according to which variables a r e con- sidered crucial in the different explanations. The rest of the paper deals with relatively new methods and models. After a short review of the inductive inves- tigations, the fourth and most extensive section concentrates on theory build- ing. Four main classes of explanations can be discerned: the historical-institutional, the growth-theoretical, and the macroeconomic approaches, completed with theories based on t h e influence of noneconomic variables. The final discussion is dedicated to policy issues and the probable
directions of further research.
2.
A
CULSSIFlCATlON OFRECENT THEORIES
In a general sense, we may state t h a t long-wave research deals with structural changes in the economy. Nevertheless, there a r e many different approaches, and several authors have developed schemes of the most important ones. In our view, three main categories of theory can be discerned: the real, the mone- tary, and the institutional. A t the time of writing. the real theories clearly are t h e most attractive, and this was made evident a t the Conference.
Delbeke (1981) classifies t h e real theories according t o the production fac- tor t h a t is supposed to be crucial and shows t h e complementary character of t h e different approaches. The role of entrepreneurship is considered to provide t h e most important approach (&uckmrznn)*. Schumpeterian innovation Authm' names are italiciaed where references are to Conference papers (see list of References at end of paper).
theories a r e certainly the most widely debated since Das Technologische Patt (Mensch 1975). Freeman stresses the impact of innovation on labor demand.
and he and his Science Policy Research Unit (SPRU) a t the University of Sussex a r e becoming increasingly involved in a fundamental discussion with Mensch (Freeman e t al. 1982). The capital theories of Forrester (1977) (excess capa- city) and Mandel (1980) (the Marxist law of the falling rate of profit) a r e taking u p and modifying the original ideas of Kondratiev. Rostow (1978) stresses the availability of raw materials and is, to a certain extent, generalizing from the oil scarcity of the 1970s.
This classification scheme can be broadened to incorporate relative prices, which many authors treat either implicitly or explicitly. In our scheme, we observe t h a t the production factors gradually become s c a r c e d u r i n g the upsw- ing and abundant during the downswing, but to varying degrees. This is, in principle, reflected in the relative factor prices. However, this redistribution of factor income, which is an essential feature of the long wave, can be hindered by inertia. Some institutional theories consider this disturbance explicitly, and interpret the time lags as necessary t o produce the long-wave depression.
Some authors take the Marxist approach to be a different class of real theory.
However, Marxists a r e opposed to this, in our view rightly, because the declin- ing and rising r a t e of profit, i.e. t h e r a t e of capital accumulation, is also inherent in any other approach. In fact, they take t h e distribution of factor income, a n d the concomitant social struggle, as the most important element of their theory.
- Theories based on the relative prices of goods can also be included in our classification scheme sketched out above. For example, t h e rapid growth of leading sectors is caused by declining relative prices of their products, made possible by improvement innovations in the products and in t h e production processes. Similarly, on an international scale, Rostow's theory deals explicitly with t h e t e r m s of trade of primary versus industrial goods.
The monetary theories can be treated as a second category. lnterest in the monetary aspects of the long wave has been remarkably low in recent research. During the interwar period it was quite t h e reverse, when most researchers stressed that the price level most clearly reflected t h e long wave, being the link between t h e real and t h e monetary sector (Dupriez 1947, 1959).
Of late, few researchers have been a t t r a c t e d to this type of analysis because of the constant rise in prices since t h e 1930s. Therefore, when prices were
analyzed, interest shifted more to relative prices. Moreover, most researchers are troubled by the stress laid by Kondratiev and Cassel on gold discoveries, which have, of course, been important to the gold standard but much less so to the fiduciary standards since the interwar period.
Some Conference participants mentioned, however, t h a t t h e price level, calculated as the wholesale price relative to gold, showed the clearest long wave ( B i g and Watt, Goodwin). Others stated that a study of long-term fluctuations in price formation, credit, and money circulation is absolutely essential (Menshikou and Klimenko). The group from the Massachusetts lnstitute of Tech- nology emphasizes the role of these variables in the downswing, particularly for economic policy. Two papers were presented to stimulate long-wave analysis of the monetary sector. S n g e analyzed the interplay of nominal interest rates and inflation, i.e. the real interest rate, while Delbeke and Schokkmrt studied the interaction of investment and debt. indicating the possibility of endogenous money creation during the long wave.
Theories that emphasize social and institutional s t r u c t u r e s can be con- sidered a s the third main category of long-wave theory. A very appealing approach of this kind was presented by Perez-Perez of the SPRU. She calls for a global view instead of a too narrow economic analysis: to explain long waves t h e total system must be studied, i.e. the interactions of the technological, social, and institutional components with the economic subsystem. (The work of Gordon e t al. (1982), stressing the social structure of capital accumulation, should also be mentioned here.) For example, the distortion of market signals as a result of the counterproductive behavior of institutions, which prolongs the depression, can be interpreted as a specific case of institutional factors a t work (GIismann).
This classification of real and monetary economic theories and of theories referring to social s t r u c t u r e allows us t o make some useful observations. All three types of approach agree, implicitly or explicitly, t h a t the long wave is inherently based on capital accumulation and is therefore most noticeable in the industrial economies, especially t h e market-oriented economies. Moreover, it seems t h a t a fruitful integration of long-wave theories is not possible if these three main categories are not included. The monetary and financial sector seems to be particularly neglected in research, because it has t o be considered as more than a mere reflection of the real sector. Finally, i t should be noted t h a t any classification is only possible with some degree of simplification. In
