Patterns of Change: Technological
Substitution and Long Waves in the
United States
Nakicenovic, N.
IIASA Working Paper
WP-86-013
March 1986
Nakicenovic, N. (1986) Patterns of Change: Technological Substitution and Long Waves in the United States. IIASA
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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 for~ppliedSystems 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 limited. review. Views o r opinions expressed herein do not necessarily r e p r e s e n t those of t h e Institute a r of its National Member
Organizations.
INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS
2361 Laxenburg, Austria
Patterns of Change:
Technological Substitution and Long Waves
in the United States
ABSTRACT
Economic development and t h e advancement of
technology is 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 ones o r , more
precisely, 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 historical r e c o r d s .
d e s c r i b e t h e quantitative, technological c h a n g e s in
e n e r g y consumption, s t e e l production and merchant
marine in t h e United S t a t e s .
Logistic substitution analysis is used t o c a p t u r e t h e
dynamics and r e g u l a r i t y of t h e s e technological changes.
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 changes during
t h e l a s t two to 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
periodic r e c u r r e n c e s a t i n t e r v a l s of about half a
c e n t u r y . In this sense, 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 because they identify and d e s c r i b e major
and periodic fluctuations in tire h i s t o r i c a l rate of
technological c h a n g e and accordingly a l s o t h e s e c u l a r
changes in t h e rate of economic growth.
A phenomenological a p p r o a c h 1s adopted t o indicate t h e
evidence f o r t h e invariance and logical o r d e r in t h e
sequence of technological changes 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 Jdcrchant M a r i n e
3 LONG WAVES AND CHANGE OF TECHNOLOGY
3.1 Wholesale P r i c c s o f Commodities
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 Synchronization a n d Recurrence
5 CONCLUSIONS
E S T C F FIGURES
Figure 2.1
P r i m a r y Energy Consumption (since 1850).
Figure 2.2
Primary Energy Substitution (since 1850).
Figure 2 . 3
P r i m a r y Energy Consumption (since 1800).
Figure 2.4
P r i m a r y Energy Substitution (since 1800).
Figure 2.5
S t e e l Production.
Figure 2.6
Technological Substitution in S t e e l Production.
Figure 2.7
t
Tonnage of ~ e r c h a n Vessels.
Figure 2.8
Substitution in Merchant Vessels by Propulsion System.
Figure 3.1
Wholesale P r i c e Index.
Figure 3.2
Long Wave in Wholesale P r i c e s .
Figure 3.3
P r i m a r y Energy Consumption (with two s e c u l a r trends).
Figure 3 . 4
Long Wave in P r i m a r y Energy Consumption ( t h r e e estimates).
Figure 3.5
Long Wave in Fossil Energy Consumption.
Figure 3 . 6
P r i m a r y Energy. Gross National P r o d u c t and Energy Intensity.
Figure 3.7
Long Wave in Energy Intensity.
Figure 3.8
Long Wave in S t e e l Production.
Figure 3.9
Long Wave in t h e Tonnage of Merchant Vesseis.
Figure 4.1
E n e r g y , S t e e l and Merchant Vessels.
Figure 4.2
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 replacement 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 (see Marchetti, 1979; Marchetti and Nakicenovic.
1979; and Nakicenovic, 1984), and t h a t technological substitution, e x p r e s s e d in
terms 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
illustrate and 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 , since technological changes in
t h e e n e r g y system constitute o n e of t h e f i r s t and most complete applications of
logistic substitution analysis. To f u r t h e r e x p l o r e this method w e then 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 and merchant marine.
The application of t h e logistic substitution model t o t h e above exampies
indicates t h a t improvements a n d growth are achieved through a r e g u l a r but
discontinuous process.
Each new technology goes through t h r e e distinct
substitution phases: growth, s a t u r a t i o n and decline. This r e g u l a r p a t t e r n points to
a c e r t a i n schedule and r e c u r r e n c e in s t r u c t u r a l change of competitive markets. The
s t r u c t u r a l change in t h e a b o v e examples o c c u r r e d at intervals of about 5 0 y e a r s .
The r e c u r r e n c e of changes e v e r y 5 0 y e a r s resembles 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 extensive explanations of t h e long wave was given by Schumpeter
(1939). For Schumpeter, innovations come in c l u s t e r s , and are not evenly
distributed o r continuously a b s o r b e d , d u e t o t h e basic principles t h a t g o v e r n t h e
p r o c e s s o f capitalist development.
The clustering of technological and
e n t r e p r e n e u r i a l innovations leads t o t h e periodic emergence of new industries and
subsequent growth, but this growth necessarily leads t o llmits and eventual decline.
Thus, wave-like forms of economic development are g e n e r a t e d with p h a s e s of growth
and s e n e s c e n c e at intervals of a b o u t 5 0 y e a r s .
A hypothetical relation between t h e 50-year periods in t h e introduction of new
technologies and 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 period in t h e changing
phases of growth and decline t h a t is associated with t h e long wave must b e verified
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 change c a n b e r e l a t e d t o each o t h e r . 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 from t h e time-series in a n attempt to f i l t e r o u t t h e long waves and t o
compare t h e so-derived fluctuation p a t t e r n s with t h e dynamics of technological
substitution. The changing phases of t h e long wave fluctuations will b e illustrated
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 and merchant marine.
All of t h e examples illustrate 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 and t h e
whole world. it is inconclusive whether t h e y may also 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 cannot be r e c o n s t r u c t e d from available 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 of 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).
-3-
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
subject of a l a r g e number of studies. One g e n e r a l finding is t h a t substitution of a n
old technology by a new one, e x p r e s s e d in fractional terms, follows c h a r a c t e r i s t i c
S-shaped curves. Fisher a n d Pry (1971) formulated a v e r y simple but powerful
1
model of technological substitution.
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 primary
energy h a s been shown t o obey 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 relatively simple r u l e s (Marchetti. 1977; Marchetti and Nakicenovic, 1979; and
Nakicenovic, 1979). The dynamic changes in this 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 and 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 primary e n e r g y consumption in t h e United 'states
since 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
primary e n e r g y by piece-wise Linear s e c u l a r trends. Thus, i t is evident t h a t e n e r g y
consumption grew at exponential rates during long time periods 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 discernable. However, t h e evolution of primary e n e r g y
consumption emerges as a r e g u l a r substitution p r o c e s s when i t is 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 Fisher and Pry model cannot b e used t o d e s c r i b e t h e evolution of primary
e n e r g y consumption, s i n c e evidently more than two e n e r g y s o u r c e s compete f o r t h e
market simultaneously.
In dealing with more than two competing technoiogies, w e must generalize t h e
Fisher and P r y model, s i n c e in such c a s e s logistic substitution cannot b e p r e s e r v e d
in a l l phases of t h e substitution p r o c e s s . Every competitor undergoes t h r e e distinct
substitution phases: growth, s a t u r a t i o n and decline. The growth p h a s e is similar to
t h e Fisher and Pry model of t w o c o n ~ p e t i t o r s ,but i t usually terminates b e f o r e full
substitution is r e a c h e d . It is followed by t h e s a t u r a t i o n phase which is not logistic,
but which encompasses t h e slowing down of growth and t h e beginning of decline.
After t h e s a t u r a t i o n phase of a technology, its 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 is in t h e s a t u r a t i o n p h a s e at any given time,
t h a t declining technologies f a d e away steadily at logistic rates not influenced by
competition from new competitors, and t h a t new competitors e n t e r t h e m a r k e t and
grow a t logistic rates. The c u r r e n t s a t u r a t i n g competitor is then l e f t with t h e
residual 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 and t h e sum of f r a c t i o n a l
market s h a r e s of a l l o t h e r competitors) and is 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 ,
1-f i s t h a t of t h e old one.
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
-.----. ---- -.- - ----. --.- -.---. - ---...- . -- . - -- -- - -.--. ----.- -. - .- ------
uater-ulnd-dl
I.-
I
\
I\\
1
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 period of growth to i t s subsequent period of decline. After t h e c u r r e n t
s a t u r a t i n g competitor 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 oldest
competitor e n t e r s i t s s a t u r a t i o n phase and t h e p r o c e s s is r e p e a t e d until aU b u t t h e
most r e c e n t competitor a r e in decline. A more comprehensive description of t h e
model and t h e assumptions is 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
and 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
representing fractional market shares).
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 phases. The
d e p a r t u r e a f historical 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 perturbation. This is 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
Primary 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 also indicate a possible absorption of 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 market 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
years.
Animal feed r e a c h e d i t s highest market 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 of local transportation and motive power in
a g r i c u l t u r e despite 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 freight t r a n s p o r t mode in cities. I t is curious
t h a t t h e feed 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
energy 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 the United States, wood remained t o be t h e
principal fuel 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 age. The l a s t phases 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 ships and many o t h e r s e c t o r s a r e associated with and
based on the technological opportunities o f f e r e d by t h e mature 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 and many o t h e r modern industries.
Figure 2.2 shows natural 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 about a 30 p e r c e n t market s h a r e by t h e end of t h e
c e n t u r y . For such a n explorative "look" into t h e f u t u r e , additional assumptions a r e
r e q u i r e d because potential new competitors such as nuclear o r s o l a r e n e r g y have
not y e t c a p t u r e d s u f f i c i e n t market s h a r e s in t h e p a s t to allow estimation of t h e i r
penetration r a t e s . The s t a r t i n g point For market penetration of n u c l e a r e n e r g y can
be dated back t o t h e 1960s when nuclear power acquired slightly l e s s than a onep e r c e n t s h a r e in primary energy. In o r d e r t o e x p l o r e t h e behavior 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 market 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 primary 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
century.
The evolution of fossil energy u s e in t h e United S t a t e s h a s a longer r e c o r d e d
history than t h e u s e of traditional 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
sources. f u e l wood and d i r e c t uses of water 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 sources. In this 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 primary 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 associated with t h e lack of
adequate annual estimates of e n e r g y use (feed requirements) of d r a f t animals is not
v e r y Large. Direct u s e of water power is included in t h e d a t a s e t , but due t o t h e Low
contribution t o total e n e r g y supply, when e x p r e s s e d in terms of i t s a c t u a l energy
inputs, water power is not observable at t h e one-percent 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 due not only t o t h e f a c t t h a t t h e
penetration r a t e s of various e n e r g y s o u r c e s remain constant o v e r periods of about
a c e n t u r y , but also due 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 the full market t a k e o v e r . The introduction of new energy s o u r c e s
and t h e long time constant lead t o maximum market penetrations of between 50 and
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 have 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 about 50 y e a r s , which c o r r e s p o n d s t o t h e time constant of about 5 0
y e a r s f o r market 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 .
+
Figure 2.3
total
Primary Energy Consumption (since 1800).
-
t
Figure 2.4
P r i m a r y Energy Substitution (since 1800),
2.2 Steel Production and Merchant Marine
Figure 2.5 shows t h a t s t e e l production increased rapidly during t h e second half
of t h e 19th c e n t u r y , a f t e r Henry Bessemer patented 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 according to t h e p r o c e s s used. P r i o r t o t h e introduction of t h e
Bessemer p r o c e s s a l l s t e e l w a s produced by t h e traditional c r u c i b l e methods used
since antiquity. Figure 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
traditional methods within two d e c a d e s supplying almost 90 p e r c e n t of all s t e e l by
t h e 1880s. The n e x t improvement in steelmaking w a s achieved by t h e introduction of
t h e open-hearth 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 end of t h e
century. The use of t h e open-hearth p r o c e s s continued t o i n c r e a s e during 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 and by t h e 1950s i t accounted 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 based on
acid chemistry although l a t e r t h e basic open-hearth also found extensive use. The
basic systems have a decided advantage in flexibility with r e g a r d t o r a w materials
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 use 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 advantages such as f a s t e r melting and r e d u c e d c h e c k e r chamber capacity.
Consequently, t h e Bessemer p r o c e s s w a s a l s o extended t o basic chemistry and
oxygen use, t h e most s p e c t a c u l a r application originating in Austria as t h e Linz and
Donawitz (L-D) p r o c e s s , now generally r e f e r r e d to as b a s i c ~ x y g e nsteelmaking.
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 of 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 process. 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 because it 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 rapid
s h a r e i n c r e a s e s reaching more than 50 p e r c e n t of t h e market 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 next t w o d e c a d e s due t o t h e saturation of demand f o r domestic s t e e l in t h e
United S t a t e s . The dwindling total production leads to higher and higher
p e r c e n t a g e s of s c r a p iron and s t e e l inputs instead of iron 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 it is suitable f o r making many g r a d e s of s t e e l and c a n almost
exclusively use recycled s c r a p iron 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 it allows f o r almost exclusive use
of recycled inputs and flexible 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 of 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 returning
t o t h e analysis of r e c u r r i n g periods in technological change and long wave
fluctuations in economic development, w e will f i r s t consider t h e substitution p r o c e s s
in t h e merchant fleet 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 period of two
hundred y e a r s and includes fundamental transformations of propulsion systems.
o-hearth
Figure 2.6
Technological Substitution in S t e e l Production.
increased speed and size of t h e vessels and change of t h e construction methods and
materials.
The traditional ship propulsion, in use e v e r since 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, it 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 and 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 industries, 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 practically
constant since t h e end of t h e 18th 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 during 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 total r e g i s t e r e d tonnage of t h e merchant f l e e t increased 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 capacity of a n a v e r a g e
vessel c a n only be 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 market penetration of motor, diesel and semi-diesel ships
in terms of t h e i r r e s p e c t i v e tonnage. Sailing ships dominanted t h e merchant fleet
until t h e 1880s although s t e a m e r s acquired a one p e r c e n t s h a r e of t h e total tonnage
n ~ l l l o nTons
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 primary 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 of merchant tonnage, thus t h e replacement of t h e
traditional sailing ship lasted one hundred y e a r s . During t h e same decade motor
ships were introduced and t h e i r s h a r e of 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 acquired much more than one tenth of t h e fleet
tonnage. Consequently, steam ships remain an important type of merchant vessel
and are projected in Figure 2.8 to s t a y in t h a t position throughout this c e n t u r y ,
although today they are fueled by oil and in some c a s e s use steam turbines instead
of coal fired atmospheric engines. During the Second World War, t h e s h a r e of motor
ships s h a r p l y increased, but this 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 of merchant
vessels indicates t h a t technological improvements and growth are achieved through
a r e g u l a r process. 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 saturation phase and then 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 phase 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 be
s t r o n g and unassailable, but with time i t decays as emerging competitors "attack"
t h e newly exposed position of t h e mature 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 of t h e introduction of new technologies. The
limits t o growth of a n o l d e r technology are encountered usually b e f o r e the complete
market t a k e o v e r due t o t h e i n h e r e n t performance 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 of a given market t h a t is in t u r n
r e l a t e d t o overall economic and social development and not necessarily 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 changes 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 change of human activities. Horse riding, wood f i r e and sailing ships
have become a e s t h e t i c and 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 still constitute 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.
- 13 -
3 LONG WAVES AND CHANGE OF TECHNOLOGY
W e h a v e seen t h a t technological advancement is a n evolutionary process.
Technological change and 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 successive alternation of growth and s e n e s c e n c e with a duration 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 and i n f r a s t r u c t u r e s . I t is t h e r e f o r e only
natural to a s k whether t h e whole p r o c e s s of economic growth and development c a n
a l s o b e considered as a s e r i e s of leaps with periods of r a p i d growth and periods of
relative 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 at l e a s t a n approximate
description s i n c e a number of s e r i o u s depressions and c r i s e s a s w e l l as periods of
unusual p r o s p e r i t y and g r e a t achievements have been r e c o r d e d s i n c e t h e beginning
of t h e industrial age.
This hypothetical connection between technological substitution a n d t h e long
wave must b e verified 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 and economic development can b e
r e l a t e d to each o t h e r . Here, w e will examine and document t h e evidence 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 were r e p o r t e d elsewhere (see Nakicenovic,
1984;
Marchetti, 1981; Bianchi. Bmckmann and 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 from h i s t o r i c a l r e c o r d s in a n attempt t o f i l t e r o u t t h e long waves and to
compare t h e so-derived fluctuation p a t t e r n s with t h e dynamics of technological
substitution.
Kondratieff (1926) and Schumpeter (1935) have 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 invariants in t h e dynamics of Long waves. They assumed
t h a t e v e r y sequence of annual economic ( o r o t h e r ) quantities and indicators c a n in
principle b e decomposed into two components
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 this trend. In p r a c t i c a l terms, t h e method consists 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 and then determining t h e residual
fluctuations of t h e time s e r i e s . Tne second s t a g e consists of eliminating a l l o t h e r
fluctuations s h o r t e r than t h e long wave.
-
in general, t r e n d elimination from time s e r i e s t h a t a r e not s t a t i o n a r y i s usually
more difficult t h a n t h e decomposition of t h e s t a t i o n a r y s e r i e s into various
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 different methods: t h e moving a v e r a g e o v e r
sufficiently long time periods, t h e exponential and t h e logistic growth curves. 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 changes, s i n c e each
method is associated with some problems and specific disadvantages.
3.1 Wholesale Prices of Commodities
The r e g u l a r i t y of 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 and o t h e r long-wave r e s e a r c h e r s t o postulate t h e existence
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 they can also be
observed in t h e p r i c e indices of o t h e r industrialized countries, examples include t h e
United Kingdom. France 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 be
s t a t i o n a r y with long fluctuations almost o v e r t h e whole historical period. Only a f t e r
t h e 1940s can a pronounced inflationary t r e n d be observed t h a t had a magnitude
g r e a t e r than any o t h e r fluctuation before.
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 and 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 spaced at intervals of 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 primary causes of
t h e long wave phenomenon but r a t h e r a good indicator of t h e succession of
alternating phases 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 phases of growth and s a t u r a t i o n with increasing p r i c e levels, and
phases of recession and r e g e n e r a t i v e destruction 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 have decomposed t h e time s e r i e s into fluctuations and a s e c u l a r
trend. Since 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
have smoothed t h e resulting residuals (i.e.. the r e l a t l v e difference 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 and o t h e r cycles 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 residuals 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 duration of t h e two fluctuations
between t h e 1840s and 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 duration
and amplitude. The o c c u r r e n c e of peaks and t r o u g h s v a r i e s by not more than a few
years.
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 use is dne of t h e r a r e quantitative indicators t h a t c a n , at l e a s t in
principle, b e compared o v e r long periods o f time in s p i t e of many technological
changes and substitutions of old by new s o u r c e s o f energy. This is possible because
t h e use of different 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 energy units. In
t h e context of long waves w e are i n t e r e s t e d in r e l a t i v e changes in t h e levels of
e n e r g y use 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
primary 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 phase of more r a p i d growth starts in 1900 and
continues until 1930. After a s h o r t interruptlon t h e r a p i d growth resumes a f e w
y e a r s l a t e r and continues until t h e l a s t decade.
The s e c u l a r t r e n d of primary 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 forms. 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 his estimate on five-year a v e r a g e s of primary
energy consumption. The resulting fluctuations around this t r e n d showed
pronounced long waves. The drawback o f this a p p r o a c h is 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 last and t h e c u r r e n t wave were displayed.
Our d a t a base goes back t o 1800 and extends o v e r one more wave.
W e will use o u r extended d a t a base (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 curves. Figure 3.3 shows t h e
historical 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 trends: t h e logistic fit with a s a t u r a t i o n level of about eight
iWyr/yr t o be 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 future. 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 the o t h e r two t r e n d s .
Figure 3.3
Primary Energy Consumption (with two s e c u l a r trends).
Figure 3.4 shows t h e residuals, 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 (the
logistic and exponential estimates and t h e 50-year geometric moving average). The
fluctuations show t h e same r e g u l a r and parallel 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 it 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 energy 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 obscured by t h e f a c t t h a t
especially fuel wood, with a 90 p e r c e n t market s h a r e (see Figures 2.2 and 2.4) t h e
most important of a l l traditional e n e r g y s o u r c e s during this period, was estimated
primarily on t h e basis of per-capita use and population growth. In f a c t , fuel wood
Figure 3.4
Long Wave in P r i m a r y Energy Consumption ( t h r e e estimates)
consumption (see Figure 2.3) is wery smooth, reflecting a countinuous and 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 use, but r a t h e r serve as an indicator 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 obscured
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 relatively
invariant to t h e estimation method. The amplitudes of t h e fluctuations, however,
depend on 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 1975 is v e r y sensitive. I t is 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 during t h e last ten 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 is a l s o interesting t o n o t e t h a t t h e lower turning point
of t h e f i r s t wave in Figure 3.4 i s d a t e d in 1897 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 exponential and 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 is not w e l l suited f o r timing t h e turning points of t h e long
wave. Despite such relatively small changes in t h e dating of this turning point and a
l a r g e r v a r l a n c e in t h e amplitude of t h e last 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 of t h e fluctuations in
primary e n e r g y consumption a r e not 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, all t h r e e methods a r e suited f o r t r e n d
elimination in this p a r t i c u l a r context, and since t h e moving a v e r a g e is t h e e a s i e s t to
compute, this 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 than 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 where 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 century. Figure 3.5 shows t h e fluctuations in fossil energy 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 total primary energy
consumption from Figure 3.4. A s was mentioned e a r l i e r , t h e fuel wood consumption
(see Figure 2.3) i s v e r y smooth, probably because 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 data. Thus, during 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 energy 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
Figure 3.5 Long Wave in Fossil Energy Consumption.
1950
2000
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 secondary
and final energy 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 have 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 span almost a n o r d e r of magnitude. For example, in
1920 t h e a v e r a g e efficiency of natural 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 , whereas today t h e best gas t u r b i n e power plants can o p e r a t e with
efficiences of almost 60 percent. Over longer periods t h e improvements are even
more impressive. For 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 overall economic
activity. 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 of t h e s e changes and improvements can 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 of g r o s s
national product in a given y e a r . Figure 3.6 shows t h e total primary energy
consumption (from Figure 2.3), p e r c a p i t a consumption and 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 product (energy intensity) f o r t h e United States.
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 gross national
product 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 180 years. 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) dollar in 1800 t o
slightly more than two kilowatt-years p e r dollar 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 historical period
indicating t h a t e n e r g y conservation is a historical p r o c e s s t h a t was discovered as a
concept only during t h e l a s t decade.
Figure 3.7 shows t h e fluctuations in energy 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 less
rapidly. This means t h a t during t h e downswing in economic activity general
rationalization measures 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 the a v e r a g e historical reductions. A s t h e competition intensifies
during t h e recession 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 of 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 markets. 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 activities 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 be a n important competitive
c r i t e r i o n . N e w technologies and energy forms o f f e r possibilities f o r continued
expansion in new markets s o t h a t relative 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 encounters limits once more. These are
r e f l e c t e d in saturating demand and general 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 (see Figure 3.2). Thus, during t h e downswing
energy use reductions become important. These reductions are not only due to
e f f o r t s t o c u t c o s t s as a reaction t o saturating demand, but also due t o a host of
lo
1000
1050
1900
1350
Figure 3.6
Primary ~ n e r g Gross
~.
National Product and Energy Intensity.
Figure 3.7
Long Wave in Energy Intensity.
2000
social constraints. Many e n e r g y technologies, along with o t h e r economic activities.
become socialiy and environmentaily unacceptable toward t h e end 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 during t h e growth
phase become internalized as additional economic costs o r as explicit limits t o
f u r t h e r expansion. These 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 benefits
of t h e economies of s c a l e achieved during t h e expansion phase. In f a c t , with t h e
demand reductions during t h e downswing t h e l a r g e capacities 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 costs as e x c e s s capacity.
The relationship between primary e n e r g y consumption p a t t e r n s and t h e long
wave a p p e a r s t o extend beyond t h e parallel changes in t h e r e l a t i v e level of energy
consumption a n d e n e r g y intensity with t h e fluctuations of o t h e r long wave indicators
such as t h e wholesale p r i c e s . Comparison of Figures 2.2 a n d 3.6 indicates 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 primary 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 1915 turning point with t h e
s a t u r a t i o n in coal substitution, and t h e turning point of t h e 1970s 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 one-percent market 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 close relation 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 primary 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 and merchant ships. Now w e will
consider 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. Figure 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
since 1860 (given in Figure 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 and 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 observed t h a t t h e long wave movements in s t e e l
production are o u t o f phase with r e s p e c t t o t h e p r i c e swings. The lower and 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 corresponding turning
points in p r i c s s . This probably means t h a t t h e markets f o r steel are more sensitive
t o t h e f l r s t signs of economic changes and thus respond 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 unfavorable conditions. The r e a s o n s f o r this advanced
r e s p o n s e of t h e s t e e l industry may b e relatively simple. I t i s possible t h a t s t e e l , as
o n e of t h e most important industrial materials, is by and l a r g e used in capital
intensive goods t h a t h a v e a relatively long life-time. Typical examples from t h e last
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 ships, today they 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 important e f f e c t on t h e
reduction of s t e e l production. Thus, i t is possible t h a t t h e f l r s t signs of economic
change are visible in t h e fluctuations of s t e e l production because t h e e f f e c t of
smaller reductions 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 this actually i s t h e c a s e , than 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 merchant vessels.
The same d a t a were used as in Figure 2.7 where w e considered t h e technological
substitution by t y p e of vessel employed by merchant fleets. The fluctuations
Figure 3.8
Long Wave in Steel Production.
Percent
1750
Figure 3.9
1800
1850
1900
Long Wave in the Tonnage of Merchant Vessels.
1350
2000
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 last wave. A second peak follows immediately after t h e upswing and downswing
between t h e 1890s and 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 and t h e n declines during t h e 1950s and 1960s. I t is interesting t o
note t h a t this second peak can a l s o b e d e t e c t e d in o t h e r indicators, but i t is not s o
pronounced as in this c a s e . F o r example, t h e fluctuations in primary 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 period, but i t a p p e a r e d to
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 period with a local peak in 1955.
a decline and a renewed r i s e a f t e r 1971. Although this fluctuation is a l s o p r e s e n t in
some o t h e r indicators of t h e long wave, i t is by f a r not s o pronounced as in t h e c a s e
of merchant f l e e t tonnage. Thus, i t is not c l e a r f r o m t h e empirical evidence alone
whether 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 duration,
o r whether this intermediate fluctuation 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 hypothesis would b e a c c e p t e d , then 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 frequency because t h e last
fluctuation, as a s e p a r a t e long wave, extends only o v e r t h r e e decades.
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 strong evidence t h a t
symmetric o r at 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 historical content 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 higher level of abstraction. In o r d e r t o understand t h e actual
mechanisms behind t h e long wave phenomenon and 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 descriptions of v a r i o u s mechanisms and
causal relationships of what w e generally call historical e x p e r i e n c e . This would
also imply t h a t we need t o understand the c o u r s e of specific events and t h e i r
individual manifestations t h a t lead, f o r example, from a period 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 can 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 change from one long wave t o another.
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 striking regularity. The annals of business cycles (see 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 regularly 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 suggests a n obvious historical
manifestation of t h e prolonged periods of stagnation, but t h i s does 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 be applied t o d e s c r i b e t h e
observed 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 patterns. Figure 4.1 shows t h e s e t h r e e
substitution cases. Besides t h e now obvious similarity in t h e substitution p a t t e r n s , it
should be observed t h a t t h e timing of t h e s a t u r a t i o n phases is also synchronized in
t h e t h r e e examples. In o r d e r t o facilitate t h e comparison we have shifted t h e
c u r v e s in time s o as t o align the s a t u r a t i o n phases. In comparison t o t h e saturation
of coal in t h e example of primary 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 ships is Lagged by about 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 saturation phases
c o r r e s p o n d t o each o t h e r as well. For 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 feed 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 about 20 y e a r s l a t e r . A similar correspondence can be observed f o r t h e l a s t
saturating technoiogies Crude oil and basic-oxygen s t e e l . The substitution of o t h e r
merchant vessels by motor ships corresponds t o market penetration 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 about 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 future. It
should be observed t h a t t h e lag of 20 y e a r s spans a s h o r t e r period of time than t h e
duration of t h e upswing o r downswing phases 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.
Percent
4s. 0
1950
a00
iractlm
\
coal
F i g u r e 4.2
Long Waves and S u b s t i t u t i o n Dynamics.
(r)
examples, t h e change in leadership from t h e old t o t h e new dominating technology is
strikingly similar. The open-hearth s t e e l making p r o c e s s emerged as t h e dominating
technology (in 1907) a b o u t 2 1 y e a r s a f t e r coal r e p l a c e d fuel wood as t h e major
s o u r c e of e n e r g y (in 1886). The lag was even s h o r t e r in t h e case of steam s h i p s
which overtook sailing ships in 1892. Thus a l l t h r e e t a k e o v e r s took place within two
decades. Half a c e n t u r y l a t e r , a similar c o r r e s p o n d e n c e c a n b e o b s e r v e d again.
Crude 011 s u r p a s s e d coal in 1950 and basic-oxygen s t e e l overtook t h e open-hearth
p r o c e s s in 1969. Again a lag of two decades. Just as in t h e case of t h e long wave
fluctuations, w e find t h a t t h e substitution dynamics can b e c h a r a c t e r i z e d by
coordinated 50-year p h a s e s of change in market domination from old t o new leading
technologies and e n e r g y sources.
A possible explanation of t h i s similarity in t h e substitution p a t t e r n s is t h a t t h e
specific changes t h a t led t o t h e replacement of old by new technologies and energy
s o u r c e s were i n t e r r e l a t e d . For example, t h e new steel p r o c e s s e s and marine
propulsion systems were dependent on new e n e r g y technologies. On t h e o t h e r hand.
t h e new e n e r g y s o u r c e s could only b e developed with increased intensity of energy
use, such as in t h e new industrial and u r b a n complexes t h a t emerged as the
availability of t r a n s p o r t possibilities and basic materials increased (symbolized
h e r e by .steel and merchant vessels). This kind of interdependent lacing of
technological development and growth of demand indicates t h a t a c e r t a i n d e g r e e of
synchronization in t h e substitution p r o c e s s e s could b e expected. This of c o u r s e still
leaves t h e question of t h e p r e c i s e n a t u r e of t h e 50-year time constant unanswered.
Since w e have a l r e a d y shown t h a t t h e t h r e e substitution p r o c e s s e s a p p e a r t o be
synchronized a f t e r allowing f o r a two-decade lag in t h e timing of c r u c i a l market
s a t u r a t i o n and t a k e o v e r events, w e will now consider t h e timing of long wave
fluctuations and e n e r g y substitution (taking i t t o be indicative of o t h e r
technological substitution p r o c e s s e s ) .
Figure 4.2 shows e n e r g y substitution (from Figure 2.2) on t h e lower plot and
long wave in e n e r g y consumption, energy intensity and wholesale p r i c e s (from
Figures 3.4. 3.7 and 3.2) on t h e u p p e r plot. In t o t o , Figure 4.2 summarizes t h e
r e s u l t s of t h e phenomenological analysis of t h e dynamics of technology and long
waves in t h e United S t a t e s . A c a r e f u l examination of t h e timing and p a t t e r n s of
changes shows t h a t they are a l l in tune. The s a t u r a t i o n periods of e n e r g y
technologies coincide with t h e peaks in p r i c e s and e n e r g y intensity. The period of
decline from s a t u r a t i o n t o loss of dominance (i.e. loss of the. highest market s h a r e s )
lasts on t h e o r d e r of 2 5 y e a r s , o r about as long as t h e downswing p h a s e of t h e long
wave which i s c h a r a c t e r i z e d ln Figure 4.2 by t h e fluctuations of e n e r g y consumption,
intensity and t h e p r i c e index. By symmetry, t h e upswing of t h e long wave is
paralleled by t h e growth of t h e new e n e r g y s o u r c e from newly acquired dominance
t o saturation.
5 CONCLUSIONS
..
The f a c t t h a t a l l of t h e e v e n t s t h a t c h a r a c t e r i z e profound changes in
technology and economic s t r u c t u r e o c c u r in tune i s striking, but it leaves many
questions open. F o r instance, w e have observed t h a t technological substitution in
s t e e l production and merchant vessels is lagged by about two decades behind t h e
equivalent events in e n e r g y substitution. This would imply t h a t t h e s e o t h e r
dominating technologies d o not s a t u r a t e during t h e end of t h e p r o s p e r i t y phase, but
r a t h e r during t h e onset of t h e downswing. P e r h a p s t h i s i s a n a r t i f a c t of t h e choice
of technological substitution p r o c e s s e s in t h a t they are v e r y closely r e l a t e d t o t h e
changes in t h e s t r u c t u r e of t h e e n e r g y system. Yet, given t h e s p a r s e statistical
r e c o r d s , it is difficult t o find o t h e r examples t h a t span equivalent historical
periods.
Nevertheless, t h e importance of t h e energy system and r e l a t e d i n f r a s t r u c t u r a l
developments a p p e a r s to b e c r u c i a l with r e s p e c t t o t h e o b s e r v e d pulses in economic
activity. F o r example, t h e construction of g r e a t c a n a l s throughout Europe q d t h e
United States during t h e 18th and beginnlng of t h e 19th c e n t u r y was initiated by t h e
e v e r increasing need t o t r a n s p o r t timber and o t h e r goods in l a r g e r quantities o v e r
longer distances. L a t e r , r a i l r o a d s were associated with a similar boom period
basically d u e t o t h e same r e a s o n s - t h e concentration of production in u r b a n areas
r e q u i r e d a more efficient t r a n s p o r t system t h a t a l s o helped in t h e acquisition of new
and l a r g e r markets. Thus, canals and r a i l r o a d s expanded existing m a r k e t s and
"created" new o n e s f o r new products. In terms of t h e e n e r g y system, t h e l a r g e
canals are associated with t h e t r a n s p o r t of fuel wood t h a t was at t h a t time t h e
primary s o u r c e of e n e r g y in many industrial activities such as iron smelting. The
r a i l r o a d e r a is v e r y closely r e l a t e d t o t h e widespread diffusion of steam and coal
r e l a t e d industries.
In t e r m s of t h e long wave fluctuation, w e will name t h e upswing p h a s e from 1773
t o 1810 t h e "age of canals" and t h e upswing from 1840 t o 1869 t h e "age of
railroads". Accordingly, w e name t h e upswing from 1895 to 1920 t h e "age of
electricity" because of i t s significant contribution to t h e r a p i d development of new
industries and communication technologies. The last upswing, from 1945 t o t h e
1970s, w e symbo!ically identify with t h e motor vehicles, a i r c r a f t and petrochemical
industries. Unfortunately, i t is not possible t o time this l a s t turning point with any
precision, but in view of t h e empirical evidence in t h e synchronization of
technological substitution p r o c e s s e s , energy efflciency and o t h e r indicators, i t
probably o c c u r r e d during t h e "oil crises'' of t h e e a r l y 1970s t h a t mark t h e
saturation of c r u d e oil a n d i t s eventual replacement as t h e dominant s o u r c e of
primary energy. Let us assume f o r t h e s a k e of naming a p a r t i c u l a r r e f e r e n c e y e a r
t h a t it in f a c t o c c u r r e d in 1973. If t h i s were actually t h e c a s e , and assuming t h e
continuation of t h e long wave fluctuations, t h e next turning point could b e expected
sometime around t h e t u r n of t h e c e n t u r y . Going f u r t h e r into t h e f u t u r e t h e following
upswing phase could b e e x p e c t e d to l a s t until t h e 2030s.
The overall p i c t u r e t h a t emerges suggests t h a t e a c h upswing p h a s e i s
associated with l a r g e i n f r a s t r u c t u r a l development. This development f i r s t opens
many new product and f a c t o r m a r k e t s and toward t h e end of t h e p r o s p e r i t y phase
leads t o eventual saturation of t h e s e m a r k e t s and full adoption of t h e technologies
t h a t were introduced during t h e r e c o v e r y period. This w a s t h e p r o c e s s t h a t
o c c u r r e d between t h e end of t h e Second World War and t h e initiation of a downswing
ten t o f i f t e e n y e a r s ago. Some of t h e developments of t h e c u r r e n t downswing period
w e c a n a l r e a d y anticipate. For example, t h e e n e r g y intensity c u r v e in Figure 3.7
indicates t h a t during t h e next d e c a d e s w e c a n a n t i c i p a t e f u r t h e r r e l a t i v e
improvements in t h e e n e r g y efficiency of t h e economy (i.e., r e d u c t i o n s in t h e amount
of primary e n e r g y consumed p e r monetary unit of g r o s s national product in r e a l
terms). Thus, w e c a n e x p e c t f u r t h e r dissemination of e n e r g y efficient technologies
and institutional measures during t h e downswing phase until t h e end of t h e c e n t u r y .
A s f a r a s e n e r g y technologies a r e concerned. t h e market penetration analysis
suggests n a t u r a l gas as t h e b e s t candidate f o r eventual dominance as t h e major
e n e r g y s o u r c e during t h e upswing period a f t e r t h e 1990s. Natural gas is t h e
c l e a n e s t fossil f u e l and from t h a t p e r s p e c t i v e alone i t is a t t r a c t i v e . I t could a l s o
become a v e r y efficient s o u r c e of e l e c t r i c i t y and clean fuels. Widespread use of
natural g a s would r e q u i r e new i n f r a s t m c t u r e s f o r production, long-distance
t r a n s p o r t , conversion t o fuels and e l e c t r i c i t y , and distribution t o t h e final
consumer. Thus, construction of l a r g e g r i d s and new industries based on n a t u r a l gas
would b e required. Candidates f o r f u t u r e growth s e c t o r s r e l a t e d to t h e wider use of
n a t u r a l g a s r a n g e from technologies f o r c o n t r o l and management of Large.
distributed g r i d s f o r t r a n s p o r t and distribution of e n e r g y a n d o t h e r goods, t o bioengineering technologies t h a t would allow f o r g r e a t e r efficiency and lowt e m p e r a t u r e chemical and industrial conversion and production p r o c e s s e s based on
methane and e l e c t r i c i t y . Thus, enzymes and microchips may b e t h e h a r d w a r e t h a t
could ailow t h e transition t o a methane-based e n e r g y system.
These a r e just some of t h e possible candidates, b u t t h e y are consistent with t h e
a p p a r e n t requirements t h a t emerge from t h e o v e r a l l p a t t e r n of economic pulses a n d
technological substitution dynamics s i n c e t h e beginning of t h e industrial revolution.
Before t h e s e a n d o t h e r new technologies could expand during t h e n e x t upswing, t h e
next decades would bring a p e r i o d of renewal and "gales of c r e a t i v e destruction". A
p e r i o d of r a p i d (relative) deflation c a n b e e x p e c t e d t o g e t h e r with prolonged
unemployment and f u r t h e r economic slowdown. These are t h e selection mechanisms
t h a t in t h e p a s t distilled t h e successful from a wide r a n g e of promising new
technologies a n d e n t r e p r e n e u r i a l innovations. The existing p a t t e r n s will h a v e to b e
destroyed b e f o r e new ones c a n emerge and t h e i r destruction will mark t h e beginning
of renewal and a oromise of p r o s p e r i t y .
Most of t h e s e speculations a b o u t t h e n a t u r e and tlming of f u t u r e events is based
on t h e dynamics of equivalent changes in t h e past. Some of t h e p a t t e r n s of t h e s e
dynamic changes c a n b e p r o j e c t e d into t h e f u t u r e . O u r analysis of t h e m a r k e t
substitution mechanisms indicated t h a t t h e invariance of t h e timing of market
s a t u r a t i o n and t a k e o v e r times a l s o allows e z p o s t projections o v e r periods t h a t s p a n
t h e duration of t h e long wave (see Marchetti and Nakicenovic. 1979). Similarly, o u r
analysis of t h e long swings in many indicators, ranging from e n e r g y efficiency t o
p r i c e fluctuations a n d Marchetti's invention and innovation pulses (see Marchetti,
1981), provide s t r o n g h i s t o r i c a l evidence t h a t t h e s e events a r e precisely timed a n d
invariant.
P e r h a p s t h e most important question is why t h e clock t h a t tunes such events as
t h e dynamic changes in technology a n d long waves in economic activity o p e r a t e s on a
50-year scale. Since w e have shown t h a t t h e events t h a t mark s t r u c t u r a l changes
a r e synchronized and follow a logical o r d e r , t h e question of t h e time-scale a n d
invariance i s crucial. If i t w e r e answered aU t h e o t h e r events, since they o c c u r in
Logical o r d e r a p p a r e n t l y as r e q u i r e d , would f i t t h e g r a n d p a t t e r n like p i e c e s of a
puzzle.
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