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Understanding the effects of different generations of Large-Scale Technological Change

Professor N. F. R. Crafts and Dr T. Leunig

We propose to use modern economic theory to measure more accurately the effects of major technological changes. We will do this in a comparative setting, comparing the current new technology - computing - with those of the 19th and early 20th centuries, railways and electricity. In order to understand the effects fully, our work will approach these incidents from consumers', as well as producers' points of view, looking at social as well as private returns The role of computing, information technology and especially the internet in the economy is currently of interest to academics, policy makers, journalists and the general public. Many feel that computing represents one of the biggest changes in everyday life that they have yet experienced.

Yet our understanding of the effects of computers is surprisingly limited, in two senses. At one level we can literally see computers everywhere, and, in the US at least, the current output boom has led even cautious people such as Alan Greenspan to conclude that something in the economy has changed. And yet, surprisingly to most people, economists can find relatively little evidence that computers have raised productivity.

Second, when we look at figures on the effects of computers, we have no real sense as to what would constitute a 'large' effect - in short, we have no yardstick with which to judge computing. We want to substantially advance our understanding of the effects of computing in both of these directions. First, it is critical to have something with which to compare computing. A number of authors have suggested that computing is the 'new electricity', and we think that this, along with an earlier macro-invention, the railway, make suitable comparators for computing. We want to explicitly assess whether 'the inventions of the late 19th and early 20th century were more fundamental creators of productivity than the electronic/internet era of today.' (Gordon, 1999).

We also want to move away from seeing new technology is simply reducing the cost of producing existing goods, and to include the notion that all macro-inventions lead to the creation of new goods. The last decade has seen economists greatly improve our understanding of how to estimate the welfare gains from new goods; we will use these advances to ensure that our estimates of the benefits of the railway, electricity and computing compare the benefits to consumers as well as to producers.

Finally, we will aim to better understand the nature of large-scale technological change itself, by looking at the effects of these three technologies at a sectoral level. It is often claimed that these are 'general purpose technologies', that is, technologies with economy wide effects. By looking at the distribution of productivity gains across sectors we can see whether these technologies really do work like yeast, raising the whole of the economy, or whether they have much narrower effects. By better understanding the areas in which technologies are effective, we expect to be in a better position to draw out implications, both for sectors, and, insofar as regions and countries often have strong sectoral concentrations, for public policy.

The funding for this project has now finished, although work arising from it is ongoing. The project was judged "outstanding" by the ESRC assessors.