TECHNOLOGICAL CHANGE
Innovation’s
uncertain terrain
Nathan Rosenberg
Why Marconi needed Sarnoff
Our remarkable inability to see the future
Even pioneers lack vision. Railroads were developed to feed canals
Understanding uncertainty may help us place better bets on new technologies
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EW WOULD DISAGREE that technological change
F
is a major ingredient of long-term economic
growth, or that it is beset by a high degree of
uncertainty. Understanding the nature of this
uncertainty and the obstacles to surmounting it is
not a trivial matter. It goes to the heart of how new
technologies are devised, how rapidly and far they
spread, and how they aƒfect economic performance.
ROOTES/B&C ALEXANDER
The deep uncertainty associated with innovation
makes it hardly surprising that innovating firms
have historically experienced high failure rates.
Indeed, the vast majority of attempts at innovation
fail. But this is only part of the story. A more
intriguing field of enquiry might be the apparently
widespread inability to anticipate the future impact
of successful innovations, even aƒter their technical
feasibility has been established.
Uncertainty has a number of peculiar properties
that shape the innovation process and hence the
way in which technological change exercises its
eƒfects on the economy. In considering what has
determined the trajectory of new technologies, I
propose to focus on those that have made a
powerful impact. A study that included unsuccessful
as well as successful innovations might yield insights
of a very diƒferent nature.
The author wishes to acknowledge valuable comments on earlier
draƒts by Moses Abramovitz, Victor Fuchs, Ralph Landau,
Roberto Mazzoleni, Richard Nelson, Richard Rosenbloom, Scott
Stern, and members of the Program on Economic Growth and
Policy of the Canadian Institute for Advanced Research.
Nathan Rosenberg is Fairleigh S. Dickinson, Jr Professor of
Public Policy at Stanford University and director of the
Technology and Economic Growth program in its Center for
Economic Policy Research. This article is adapted from a paper
prepared for the Center’s June 1994 Conference on Growth
and Development: The Economics of the 21st Century. The
proceedings of the conference will be published in Mosaic of
Economic Growth by Stanford University Press in late 1995.
Copyright © 1995 Nathan Rosenberg. All rights reserved.
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INNOVATION’S UNCERTAIN TERRAIN
It is easy to assume that uncertainties disappear aƒter the first commercial
introduction of a new technology. Indeed, by this point some uncertainties
will have faded. However, aƒter a new technological capability has been
established, the questions change, and new uncertainties, especially those of
an economic nature, begin to assert themselves.
Historical perspectives
Consider the laser, one of the most powerful and versatile technological
advances this century. In the 30 years since its invention, its range of
uses has been breathtaking. Lasers allow the reproduction of music in
compact disc players, and of text via laser printers. They are widely used
for precision cutting in the textile, metallurgy, and composite materials
industries. The laser has become the instrument of choice in many surgical
procedures, including eye, gynecological, and gall bladder surgery.
Perhaps the most profound impact of the laser has been in telecommunications where, in combination with fiber optics, it is revolutionizing
transmission. In 1966, the best transatlantic telephone cable could carry
only 138 conversations simultaneously. The first fiber-optic cable, installed
in 1988, could carry 40,000. Those installed in the early 1990s can carry
nearly 1.5 million.* Yet despite what turned out to be a striking record of
success, the patent lawyers at Bell Labs were initially unwilling to apply
for a patent for the laser, believing it could have no relevance to the
telephone industry.
Many other case histories illustrate what now seems a remarkable inability
to foresee the uses to which new technologies would soon be put. The
inventor of the radio, Marconi, thought
it would mainly be used between two
Aƒter a new technological
points where communication by wire was
capability has been established,
impossible, as in ship-to-ship or ship-tonew uncertainties begin
shore communication. He envisaged the
to assert themselves
users of his invention as steamship companies, newspapers, and navies needing to
transmit private messages over long distances. The idea of communicating
to a large audience of listeners rather than to a single point seems never to
have occurred to the pioneers of radio.
This failure of social imagination was widespread. One man, later to
become a leader of the broadcasting industry, announced that it was hard
to see what uses public broadcasting could serve. His sole suggestion was
≠ Walter B. Wriston, The Twilight of Sovereignty, Charles Scribner’s Sons, New York, 1992,
pp. 43–4.
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the transmission of Sunday sermons – the only occasion where one man
regularly addressed a mass public.*
When it became feasible in the second decade of this century, the wireless
telephone was viewed in the same way as the radio: namely, as an extension
of the existing wire system enabling remote
and inaccessible places to be reached. In
News of the invention of
1949, the computer was thought useful only
the transistor was nowhere to be
for carrying out rapid calculations in certain
seen on the front page of the
scientific and data processing contexts. Even
New York Times
Thomas Watson, Sr, then the president of
IBM, rejected the idea that the computer
might have a much larger market. The prevailing view until the fiƒties was
that world demand could be satisfied by just a handful of computers.
In December 1947, news of the invention of the transistor was nowhere to
be seen on the front page of the New York Times. Instead, it figured in a
small item buried deep in the inside pages. A regular weekly column, “News
of Radio,” suggested that this new device might be employed to develop
better hearing aids for the deaf.
This catalog of failures to anticipate future uses for new technologies could
be expanded almost without limit. We could, if we liked, amuse ourselves
indefinitely at the inability of earlier generations to see the obvious. But that
would be a mistake, given that our own ability to overcome the uncertainties associated with new technologies is unlikely to improve dramatically.
The nature of the problem
Much of the diƒficulty, I would suggest, derives from the fact that
new technologies typically come into the world in a primitive condition.
Their future uses will depend on an extended process of improvement that
vastly expands their practical applications. Thus Thomas Watson, Sr
was not so far oƒf the mark if we bear in mind the state of the computer
immediately aƒter the Second World War. The first electronic digital
computer, the ENIAC, contained no fewer than 18,000 vacuum tubes,
was notoriously unreliable, measured more than 100 feet long, and filled a
huge room.
This particular failure in prediction was an inability to anticipate
the demand for computers aƒter they had been made very much smaller,
cheaper, and more reliable, and aƒter their performance, and especially
≠ James Martin, Future Developments in Telecommunications, Prentice Hall, Englewood Cliƒfs, NJ,
1977, p. 11.
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their calculating speed, had been improved by many orders of magnitude.
In other words, it was an inability to foresee the trajectory of future
improvements and the economic consequences of those improvements.
The history of commercial aviation, like that of many other innovations,
could be expressed in similar terms. The introduction of the jet engine was
marked by a failure even among
eminent scientists to anticipate the
Around 80 percent of spending
importance of future improvegoes on improving products
ments. In 1940, a committee of the
that already exist, rather than
National Academy of Sciences was
inventing new ones
formed to assess the value of
developing a gas turbine for aircraƒt.
It concluded that such a thing would be impractical because it would have
to weigh 15 pounds for each horsepower delivered, compared to just over
one pound with existing internal combustion engines. Yet within a year, the
British were operating a gas turbine that weighed a mere two-fiƒths of a
pound per horsepower.*
Here we should note that most R&D expenditure is devoted to
product improvement. Around 80 percent of spending goes on improving
products that already exist, rather than inventing new ones. Instead of
being committed to the search for breakthrough innovations, R&D aims
to improve on the performance of technologies that have been inherited
from the past.
On reflection, this is not surprising. The telephone has been around
for more than a hundred years, but only recently has its performance
been enhanced by facsimile transmission,
electronic mail, voicemail, data transfer, onThe role of uncertainty in
line services, conference calls, and freefone
technological change goes
numbers. The automobile and the airplane
far beyond the issue of
are both more than 90 years old; the camera
technological feasibility
dates back 150 years; and the Fourdrinier
machine, the mainstay of today’s papermaking industry, was patented during the Napoleonic Wars. The
improvement process clearly deserves much more attention.
As history suggests, the role of uncertainty in technological change goes far
beyond the issue of technological feasibility. Indeed, the uncertainty
surrounding the eventual uses of the laser or the computer might be better
described as ignorance.
≠
Technical Bulletin No. 2, US Navy, Bureau of Ships, January 1941, p. 10. As cited in James Martin,
Future Developments in Telecommunications, Prentice Hall, Englewood Cliƒfs, NJ, 1977, p. 11.
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INNOVATION’S UNCERTAIN TERRAIN
Dimensions of uncertainty
Why is it so diƒficult to foresee the impact of even technically feasible
inventions? Many have emphasized the question: “Will it work?” Though
this is clearly a major source of uncertainty, fixating on it has served to
divert attention from other important factors:
Hidden usefulness
New technologies come into the world not only in a primitive state, but also
with characteristics whose usefulness cannot be immediately appreciated.
Identifying uses for new technologies is inherently diƒficult. It took many
decades to explore applications for electricity aƒter Faraday discovered the
principles of electromagnetic induction in 1831. Uses for the laser, as we
have seen, are still expanding three decades aƒter its invention.
Neither electricity nor the laser represented an obvious substitute for
anything that already existed. Neither had a clearly defined antecedent.
Each was a new discovery emerging from pure scientific research.
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In medical diagnostics, learning how to translate a newly developed
visualization technology into a clinically useful capability can take a long
time. This has been true of computerized axial tomography (CAT) scanners,
magnetic resonance imaging (MRI), and, most recently, echo cardiography.
Extensive additional research may be needed before it is possible to make
a reliable, clinically helpful diagnostic
interpretation of what has been visualized.
Learning how to translate a
Positron emission tomography (PET) is
newly developed visualization
currently at precisely this stage.
technology into a clinically useful
capability can take a long time
Unlike CAT and MRI, which are valuable
for anatomical observation, PET scanners
provide quantitative analysis of certain physiological functions. They can
supply information on, for example, the eƒfectiveness of drug therapy in the
treatment of brain tumors. But the application of PET in such fields as
neurology, cardiology, and oncology has been limited by the continuing
diƒficulty of translating measurements of physiological functions into
meaningful clinical interpretations.
Medical innovation involves some special diƒficulties. The inherent
complexity of the human body – and the heterogeneity of human bodies –
have made teasing out causal relationships extremely hard. Take aspirin,
probably the world’s most widely used drug. Though it has been taken for
almost a century, its eƒficacy in reducing the incidence of heart attacks by
virtue of its blood-thinning properties was established only recently.
Although the discovery of harmful side-eƒfects has received much more
public attention, unexpected and beneficial new uses for old medications
frequently emerge. Adrenergic betablocking drugs were originally
The inherent complexity of
prescribed to treat arrythmia and
the human body has made
angina. Today, they are used in the
teasing out causal relationships
treatment of more than twenty
extremely hard
diƒferent conditions – including
gastrointestinal bleeding, hypertension, and alcoholism – thanks to new applications uncovered aƒter these
drugs had been introduced into cardiology. Similar stories can be told about
AZT (currently employed in the treatment of AIDS), oral contraceptives,
RU-486, streptokinase, alpha interferon, and Prozac.
Complementary inventions
The impact of an innovation depends on improvements not only in the
invention itself, but also in complementary inventions. The laser was of no
use in telecommunications without fiber optics. Today, the combined
potential of these two technologies is transforming the entire industry.
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Optical fiber did in fact exist in a primitive state when the first lasers were
developed in the early 1960s, though not in any form that could
accommodate the requirements of telephone transmission.
As is oƒten the case, it took several years for the benefits of fiber-optics
technology to become apparent: the lack of electromagnetic interference,
the conservation of heat and electricity, and the enormous expansion in
bandwidth owing to the fact that the light spectrum is approximately a
thousand times wider than the radio spectrum.
My general point is that the impact of invention A will oƒten depend upon
invention B – which may not yet exist. Put a diƒferent way, inventions
will frequently give rise to a search for
complementary inventions. An important
As is oƒten the case, it took
impact of invention A is to increase the
several years for the benefits
demand for invention B.
of fiber-optics technology
to become apparent
Aƒter the introduction of the dynamo in
the early 1880s, the falling price of
electricity sparked oƒf a search for technologies that could exploit this
form of energy. However, the time frame over which complementary
innovations could be developed turned out to vary considerably. An
electrochemical industry employing electrolytic techniques emerged
almost immediately, but a much longer period elapsed before the launch
of the electric motor.
Similarly, the fact that transistors had not yet been incorporated into the
computers of the day was partly responsible for the early predictions of a
modest future for this new technology. The introduction of the transistor,
and later the integrated circuit, transformed the industry. Indeed, in one of
the most remarkable technological achievements of this century, the
integrated circuit itself eventually became a computer with the advent of
the microprocessor in 1970.
Long gestations
Major new technologies take many years to replace an established
technology. This delay is partly to do with the need to develop numerous
components of a larger technological system. Restructuring a factory to use
electricity instead of steam or water power oƒten meant a complete
redesign. Among other things, electric power represented a revolution in the
principles of factory organization, allowing machinery layouts to be much
more flexible.
Learning how best to exploit a versatile new power source with wholly
diƒferent methods of transmission involved decades of experimentation and
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learning. Indeed, major technological innovations usually entail profound
organizational change.
At the same time, firms with huge investments tied up in manufacturing
plants that still had long productive lives ahead of them were naturally
reluctant to discard such facilities. Hence, those that adopted electricity
between 1900 and 1920 tended to be new industries setting up production facilities for the first time. In older
industries, the introduction of electric
Thinking about new
power had to await the depreciation of
technologies is handicapped by
existing plants.
the tendency to conceive them
in terms of old technologies
In general, then, a radical new technology
like electricity must undergo a long period
of gestation before the opportunities it embodies are properly understood
and can be thoroughly exploited. In 1910, only 25 percent of US factories
used electric power. Twenty years later, the figure had risen to 75 percent.
If we date the origin of the modern computer to the invention of the
microprocessor in 1970, we are still only a quarter of a century into the
computer age. It took some 40 years or so for electric power to assume a
dominant role in manufacturing. Here, then, is cause for optimism: the
greatest economic benefits of the computer may still lie before us.
Unknown systems
Major innovations oƒten constitute entirely new technological systems. To
conceptualize an unknown system is extremely diƒficult. As a result, our
thinking about new technologies is likely to be handicapped by the
tendency to conceive them in terms of the old technologies which they will
eventually replace.
Time and again, people view a new technology as a mere supplement that
will resolve limitations inherent in an existing technology. In the 1830s and
1840s, railroads were thought of as feeders into the canal system, useful
where the terrain was unsuitable for canals. Similarly, the telephone was
originally conceived as a business instrument like the telegraph, to be used
for exchanging specific messages such as the terms of a contract.
It is characteristic of a system that improvements in performance in one
part have only limited impact without simultaneous improvements in other
parts. In this sense, technological systems may be said to comprise clusters
of complementary inventions. Improvements in power generation, for
example, can make only a slight diƒference to the cost of electricity until
improvements are made in the transmission network to bring down the cost
of transporting electricity over long distances. This need for further
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innovation in complementary activities helps explain why even apparently
spectacular breakthroughs usually have only a slowly rising productivity
curve flowing from them.
Within technological systems, therefore, major improvements in productivity are seldom produced by single innovations, no matter how important
they seem to be. But the cumulative eƒfect of multiple improvements within
a technological system may ultimately be immense.
Unexpected applications
Historically, one of the reasons why predicting the uses of a new technology
is so diƒficult is that many inventions originate in attempts to solve specific
problems. Once a solution has been found, it oƒten turns out to have
applications in totally unexpected contexts. Serendipity plays a large part in
the life history of inventions.
Take the steam engine, invented in the eighteenth century to pump water
out of flooded mines. A succession of later improvements made it
a feasible source of power for textile factories, iron mills, and an
expanding array of industrial facilities. In the early nineteenth century,
steam power was adopted more widely in railroads and steamships. Later
that century, it was used to produce a new
kind of power, electricity, which in turn
Major innovations, once
satisfied innumerable final uses to which
established, have the eƒfect of
steam power itself did not apply.
inducing further innovations
across a wide front
Finally, the steam turbine displaced the
steam engine in electric power generation,
and the qualities associated with electricity – ease of transmission over long
distances, capacity for making power available in “fractionalized” units, and
much greater flexibility of electric-powered equipment – sounded the
death-knell of the steam engine.
As this suggests, major innovations, once established, have the eƒfect of
inducing further innovations across a wide front. Indeed, being able to do
this amounts to a defining quality of a major innovation, and helps
distinguish technological advances that are merely novel from those that
have the potential to make a genuine impact. The nature of the eventual
impact, however, remains diƒficult to predict, since it will depend on the size
and direction of subsequent complementary innovations.
Since innovations oƒten arise as solutions to specific problems in particular
industries, their flow to applications in diƒferent settings is bound to be
highly uncertain. In some cases, an innovation may have multiple points of
impact on another industry.
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Consider the role of the computer in air transport. Changes in the
performance of this industry have been influenced at least as much by new
applications of the computer as by R&D spending:
• Supercomputers now carry out a good deal of aerodynamic research,
including much that was formerly performed in wind tunnels.
• Computers have helped to reduce costs in the design of specific aircraƒt
components. They played an important role in the wing design of the
Boeing 747, 757, and 767, and the Airbus 310.
• Computers are responsible for much of the activity that takes place in the
cockpit – including, of course, the automatic pilot.
• Together with weather satellites, which routinely monitor the movement
of high-altitude jet streams, computers are widely used to determine
optimal flight paths. The resulting fuel saving for the world’s commercial
airlines probably exceeds $1 billion per year.
• Computers are at the core of the current global ticketing and seating
reservation system.
• Computer simulation has become the preferred method of instruction in
teaching novices how to fly.
• Along with radar, the computer is central to the operation of the air
traƒfic control system.
As this example illustrates, R&D spending tends to be concentrated in a
small number of industries. Each industry should be regarded as the locus
of research activity that generates new technologies which may be diƒfused
throughout the entire economy. Historically, a few industries have played
this role in especially crucial ways, such as with the development of steam
engines, electricity, computers, transistors, machine tools, and so on.
This brings us back to the notion that a major – or breakthrough –
innovation may be defined as one that establishes a new framework for the
working out of incremental innovations. Incremental innovations are the
natural complements of breakthrough innovations. In turn, breakthrough
innovations have oƒten provided the basis for the emergence of entirely
new industries.
Unmet needs
The ultimate impact of a new technological capability is not merely a
matter of technical feasibility or improved performance. It also has to do
with identifying specific categories of human need and catering to them in
novel, cost-eƒfective ways. All innovations need to pass an economic test, as
well as a technological one. Concorde might be a spectacular success in
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terms of its flight performance, but it has proven a financial disaster, costing
British and French taxpayers billions of dollars.
What is at stake here is not just technical expertise, but a leap of the
imagination. Understanding the scientific basis for wireless communication,
as Marconi did, was no help in anticipating how the radio might be used to
enrich human experience. In fact, it was an uneducated Russian immigrant,
David Sarnoƒf, who envisaged how the new technology could be employed
to transmit news, music, and other forms of entertainment and information.
In short, he appreciated the commercial possibilities of radio, and his vision
eventually prevailed when he led
RCA aƒter the First World War.
Social change and economic
impact are not things that
can be extrapolated out of
a piece of hardware
Social change and economic impact
are not things that can be extrapolated out of a piece of hardware.
New technologies are unrealized
potentials – building blocks whose eventual impact will depend on what
is designed and constructed with them. The shape they ultimately take
will be determined by our ability to visualize how they might be applied
in new contexts.
MARY EVANS PICTURE LIBRARY
Sony’s development of the Walkman is a brilliant example of how existing
technological capabilities can be recombined to create an entirely new
product. Batteries, magnetic tape, and earphones had all been
around for some time. What was new was the idea of providing
entertainment in unexpected settings, such as while people
were out jogging. Admittedly, the components did need to be
reengineered, but the real breakthrough was Akio Morita’s
identification of a market opportunity that had previously been
overlooked.
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In the history of the video cassette recorder, the American pioneers, RCA
and Ampex, gave up long before a usable product had been developed.
Matsushita and Sony, by contrast, went on to make thousands of small
improvements in design and manufacture. The initial concept of the VCR
had been of a capital good for use by television stations. Progress came with
the realization that there might be a mass domestic market for the product
if its performance, and especially its
storage capacity, could be enhanced.
Dismissed as a hacker’s toy,
the personal computer was
thought to present no threat to
the primacy of mainframes
The crucial diƒference between the
Americans and the Japanese seems to
have been the latters’ confidence that
they could achieve the necessary cost
reductions and performance improvements. The rapid transformation of the
VCR into one of Japan’s largest export products was thus an achievement
of both imagination and engineering capability.
The blinkered view once held by American firms of the VCR’s potential
bears comparison with the disdain of mainframe computer makers toward
the personal computer when it began emerging about fiƒteen years ago.
Dismissed as a hacker’s toy, it was thought neither to have a future in the
business world nor to present any threat to the primacy of mainframes.
Reviving old technologies – or killing them oƒf?
So far, we have considered barriers to the exploitation of new technologies.
However, in highly competitive societies where there are strong incentives
to innovate, these incentives apply to improving old technologies as well as
to inventing new ones. In fact, innovations oƒten seem to provoke vigorous
and imaginative responses from firms confronted with substitutes for their
own products. The competitive pressure exerted by a new technology tends
to lead to an accelerated improvement in the old technology.
Wooden sailing ships enjoyed some of their biggest advances between 1850
and 1880 – just aƒter the introduction of the iron hulls and compound steam
engines that were to displace them by the beginning of the next century.
There were radical changes in hull design to accommodate more cargo and
increase speed, and labor-saving equipment was introduced that cut crew
requirements by two-thirds. In the same way, gas lamps for interior lighting
were most dramatically improved shortly aƒter the advent of the
incandescent electric light bulb.
In telecommunications, postwar research has not only led to the
development of productive new technologies, but also increased the
capacity of existing transmission systems. Pairs of wires, coaxial cables,
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microwaves, satellites, and fiber optics have all benefited from later
improvements in capacity, oƒten achieved with only minor modifications to
these technologies. Some improvements have produced order-of-magnitude
gains that have eƒfectively postponed the introduction of new generations
of transmission technology. Time-division multiplexing, for instance, now
allows a pair of wires to carry 24 voice channels instead of just one.
The same pattern can be discerned in fiber optics. When AT&T began field
trials in the mid-1970s, information was transmitted at 45 megabytes per
second. By the early 1990s, the standard for new fiber cables had reached
565 megabytes per second. Capacities of
almost 1,000 megabytes per second are
In fiber optics, capacities
predicted for the near future.
of almost 1,000 megabytes
per second are predicted
for the near future
As we have seen, the introduction of an
innovation oƒten has to await the availability
of complementary innovations; meanwhile,
established technologies may achieve renewed competitive vigor through
continual improvement. But this is not always the case. Innovations
sometimes turn out to be substitutes for – rather than complements to –
existing technologies. Such innovations will cut short the life expectancies
of technologies that once seemed to possess rosy futures.
The prospects for communication satellites declined unexpectedly in the
1980s on the introduction of fiber optics, with their huge and reliable
expansion of channel capacity. In the same way, fiber optics, whose first
major application was in medical
diagnostics in the early 1960s, may
The CAT scanner is giving
be approaching the beginning of the
way to an even more powerful
end of its useful life. Fiber-optic
diagnostic tool: magnetic
endoscopes made it possible to use
resonance imaging
much less invasive techniques in
visualizing the gastrointestinal tract.
Recently, however, new sensors from the realm of electronics, charged
couple devices, have begun to produce images of a resolution and detail
that fiber-optic devices cannot match.
The CAT scanner, similarly, is giving way to an even more powerful
diagnostic tool: magnetic resonance imaging. Upheavals of this sort impart
considerable risk to long-term investments in expensive new technologies.
The process that eventually resolves such uncertainties is not the textbook
competition between producers all seeking to deliver the same product to
market at the lowest cost. Rather, it is a competition between diƒferent technologies, illustrating that one of the greatest uncertainties facing new
technologies is the invention of yet newer ones.
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Our lack of knowledge about the relationships between the diƒferent
dimensions of uncertainty precludes any understanding of its overall
impact on technological change. Consider the refinement of complementary
technologies and the potential for any technology to form the core of a new
system. The complementary technologies might exercise a coercive and
conservative pressure, compelling the new technology to be placed inside
the current system. Conversely, these complementary technologies might be
exactly what is needed to create an entirely new system.
The implications of uncertainty
Researchers are constantly exhorted to ensure the relevance of their work
to social and economic needs. Oƒten, however, there is no way of knowing
which new discoveries may turn out to be relevant, or to what realm of
human activity they may eventually apply. Uncertainty pervades not only
basic research, where it is generally recognized, but also product design and
new product development. This means that any early commitment to a
specific, large-scale project – as opposed to a more limited, exploratory
approach – is likely to be risky.
The pervasiveness of uncertainty suggests that governments should resist
the temptation to champion any one technology, such as nuclear power. It
is more prudent to manage a deliberately diversified research portfolio that
may throw light on a range of alternatives. The approach should be to open
many windows and provide the private
sector with financial incentives to explore
The pervasiveness of
the technological landscapes that can only
uncertainty suggests that
faintly be discerned from these windows.
governments should resist
the temptation to champion
any one technology
Private firms will naturally allocate their
R&D funds to projects they hope will turn
out to be relevant. Aware that they confront
huge uncertainties in the marketplace, they are capable of making their own
assessments and placing their bets accordingly. Bad bets are, however,
common – so much so that it is tempting to conclude that the manner in
which competing firms pursue innovation is wasteful. But such a judgment
ignores the role of uncertainty.
It is a singular virtue of the marketplace that, in the face of great
uncertainty about the uses of a new technological capability, it promotes
exploration along a multitude of paths. In the early stages of a technology,
when uncertainties are at their highest and individuals with diƒferent views
need to be encouraged to pursue their hunches, this property is especially
valuable. Technological progress relies on diƒferences of opinion.
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The marketplace also provides strong incentives to terminate, quickly and
unsentimentally, directions of research whose once glowing prospects have
been unexpectedly dimmed by new knowledge, changes in the economic
environment, or the restructuring of social or political priorities.
The simultaneous advance in new technology and upgrading of old
technology underlines the uncertainty confronting decision makers in a
world of rapid change. To imagine that a paradigm could be developed to
handle all the relevant factors systematically would be naive. But a more
rigorous analysis of the issues raised here might conceivably improve the
way we think about the innovation process.
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