Back to Overview
Review Question


The very high standard of living that the developed world enjoys clearly owes a great deal to the technological advances of the past two hundred years. Consider how disabled we are during a power outage; our way of life is dependent on electricity, a form of energy little used before 1850. The ability to use energy to manufacture and transport products and the ability to transmit information more rapidly and in greater quantity have made our lives radically different from lives 250 years ago.1

It is not clear when people became aware that what is usually called the Industrial Revolution, a transition unlike any before, was happening. Joseph Schumpeter, who stressed the importance of innovation and the role of the entrepreneur in economic development, argued that Karl Marx clearly understood the dynamic nature of capitalism, something earlier economists had not fully recognized. An integral part of that dynamism was an encouragement of technological change. In contrast, previous political and economic systems almost always discouraged change of any kind. Both the feudal/manoral system and the guild system of medieval Europe were designed to promote stability, not change. Still, Europe in the Middle Ages was "one of the most inventive societies history had known."2 However, resistence to change was so strong that in the mercantilist system of 18th century France, "Jean-Baptiste Colbert's technocrats executed 16,000 small entrepreneurs whose only crime was manufacturing and importing cotton cloth in violation of France's industrial codes."3

Economic historians have long asked, "Why Europe?" China and the Islamic countries had a huge lead over Europe before 1000 AD. Why did they fall behind? In the Islamic world the conviction that all truth worth knowing had been revealed seems to have been a major factor in resistance to change. As for China:

"The ingenuity and inventiveness of the Chinese, which have given so much to mankind--silk, tea, porcelain, paper, printing, and more--would no doubt have enriched China further and probably brought it to the threshold of modern industry, had it not been for this stifling state control. It is the State that kills technological progress in China."4

The state not only nipped in the bud any change that seemed to be against its interests, but also contributed to a culture of routine, immobility, and traditionalism that discouraged innovation. Economic development requires an acceptance and maybe even the encouragement of change.

Technology is clearly the main reason that people in the United States, Europe, and the rest of the developed world enjoy a much higher standard of living than did their ancestors of two centuries ago. However, technology does not explain why some nations today are so much richer than others. Technology is a form of knowledge, and knowledge is usually a public good, something freely available to everyone. Modern technology, which is knowledge, is available to all nations. The puzzle is why some countries have not been able to effectively use this knowledge.

The public-good quality of technology has given rise to the idea of convergence, the idea that it is possible for poor nations, if they pursue the right policies, to grow more rapidly than the rich nations and to attain equivalent standards of living within a few generations. Per capita growth in rich nations is limited by the development of new technology because they are currently on the technology frontier. They have to "buy" more technology to grow more. In contrast, poor nations do not have to develop new technology to grow. They can simply adopt the existing technology. Furthermore, the poor nations can skip all the layers of obsolete technology that the rich nations developed in the past and go directly to the current technology. There is no need for a developing nation to adopt the technologies from the age of steam, or to construct a telegraph network, or to ever watch black-and-white television.

Technology to a large extent determines what is and what is not a natural resource. Until the nineteenth century, petroleum was a nuisance, not a resource. Petroleum seeps reduced the value of land. In the Stone Age a deposit of obsidian attracted people from a wide area; today it would have little value. Virtually all ores that are mined would not have value were it not for the technology that allows them to be processed.

To some extent technological change is unpredictable--there is a role for the random genius. But much technological change is the result of planned research and development efforts. A company can invest in research and development in much the same way that it invests in more equipment. The fact that technological change is not random but can be accelerated or slowed in various ways means that government policy can affect technological change. Government can sponsor research directly or it can encourage it indirectly through subsidies, tax incentive, and patent laws.

Back to OverviewReview QuestionExploreNext

1 For a fascinating look at the development of energy utilization, see Smil, Vaclav. Energy in World History. Boulder, CO: Westview Press, 1994.

2David Landes, The Wealth and Poverty of Nations, (Norton, 1999), p 45.

3Etienne Balazs, La Bureaucratic Celeste, quoted in David Landes, The Wealth and Poverty of Nations, p 57.

4 Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. Basic Books 2003. page 10.

Copyright Robert Schenk