[OPE-L:7282] [OPE-L:810] Re: Technical change and productivity change

Gerald Levy (glevy@pratt.edu)
Thu, 1 Apr 1999 07:22:01 -0500 (EST)

Re John's [OPE-L:809]:

> Forget the need to label something the "general case."

The other day when we were discussing the possibility of capital-saving
technical change that is not labor-saving, you asked me whether I thought
that was the "general case". Indeed, you seemed to think that the issue of
selecting a "general case" when discussing technical change and the FRP
was *very* important. Now you suggest that we should forget the need to
specify what is the "general case".

> We have no data at all.

That is a blatantly false statement. We have lots of data about technical
change in specific markets. Indeed the "economics of technological
change" is a rather important part of the literature on industrial
organization (and there is also a lot of relevant data in the literature
on economic history). If you wish, I can point you to some of this
literature. And, indeed, I think such a review of the literature would be
desirable since you say:

> The industry I am most familiar with -- the
> mailing industry -- is filled with examples of capital-saving and
> labor-saving machinery replacing older machinery. Is it the general
> case? I would claim it is and wait for someone to disprove the
> hypothesis.

It is *not* the "general case":

-- the computerized mailing industry is a relatively new market;

-- the level of concentration is relatively low and there are still large
numbers of small firms.

-- the investment in constant fixed capital per firm is relatively low.

-- demand for output is growing even where there are no price changes.

-- there is significant underutilization of existing capacity.

These characteristics would seem to be far more in keeping with what we
would expect in the period of manufacture than in that of "modern

[Of lesser important, there are some other odd dynamics to that

-- many of the consumers themselves have the same computers, and
can purchase similar "off-the-shelf" software programs, that can
allow them individually to perform many of the same tasks. This
is an issue, as well, in the markets for accounting services and
tax preparing since significant #s of consumers use their own
computers to do this rather than purchasing services from other
firms. Also, individual firms with a relatively low additional
investment in means of production and more labor-power, can
produce the mailing services internally.

-- a "perverse technological change" is possible. I.e. older
computers may be more cost-effective to produce output. If that
were the case (where the technological capacity of the computers
is significantly underutilized) than firms could purchase less
advanced technologies than are currently available. Indeed,
"reswitching" might even be cost-effective!]

> The import of working this out can not be overestimated. We are
> talking about the manner in which growth takes place.

If you believe that is the case, then a review of the existing literature
on technical change would seem to be in order.

In solidarity, Jerry