**4. Endogenous insight into the technological input into production output**

states that: "The greatest technical discontinuity in history took place between 1867 and 1914. This era was distinguished by the most extraordinary concatenation of a large number of scientific and technical advances the synergy of which produced bold and imaginative innovations as well as ingenious improvements of older ideas, by the rapidity with which these innovations were improved after their introduction, by their prompt commercial adoption and widespread diffusion, and by the extent of the resulting socio-economic impacts. Even the most rudimentary list of these epoch-defining innovations must include telephones, sound recordings, light bulbs, practical typewriters, chemical pulp, and reinforced concrete for the pre-1880 years. The astonishing 1880s, the most inventive decade in history, brought reliable electric lights, electricity-generated plants, electric motors and trains, transformers, steam turbines, gramophone, popular photography, practical gasoline-fueled internal combustion engines, motorcycles, cars, aluminum production, crude oil tankers, air-filled rubber tires, steel-skeleton skyscrapers and pre-stressed concrete. The 1980s saw Diesel engines, x-rays, movies, liquefaction of air, and the first wireless signals. And the period between 1900 and 1914 witnessed mass-produced cars, the first airplanes, tractors, radio broadcasts, vacuum diodes and triodes, tungsten light bulbs, neon lights, common use of halftones in printing, stainless steel, air conditioning, and the Haber-Bosch synthesis of ammonia (without which at least 40% of humanity would not be alive)" (Vaclav [3]). The mismatch between these technologies, requiring the long-term investments into capital-intensive production and the gradual extension of sales, on the one side and the "market shortemism" on the other side was overcome by the state intervention. During the War economies of twentieth century the leading countries: the United States, the USSR, Germany, the United Kingdom, Japan and many others pursued the state intervention policy, replacing the market in terms of provision the long-term financial resources, state military procurement, R&D facilitation and protection of national companies from the international competition. Margaret McMillan writes: "Under the stimulus of war, governments poured resources into developing new medicines and technologies. Without the war, it would have taken us much longer, if ever, to enjoy the benefits of penicillin, microwaves, computers – the list goes on. In many countries, social change also

After the World War II, the enormous intellectual capital and R&D capabilities, accumulated during the war in order to facilitate the production of armaments, were shifted to the nonmilitary production, especially in the countries, in which the military spending were prohibited (Japan, Germany and alike). In coincidence, the world was divided on the fast growing countries, competing on the market of non-military production (the most spectacular was the rise of the so-called "catching up countries" of the East Asia), and the countries, producing innovations regardless their predominantly military application, the United States and the

That was the time of permanently cumulating welfare around the globe: the scale and diversity of production output in the leading countries was growing steadily, the international trade, propelled by the gradual elimination of the trade barriers expanded quite rapidly. The emergence of the new comer countries, "producing the same at less cost", filled out the fast

speeded up" (Margaret [1]).

8 Globalization

USSR to mention here.

There are two different theoretical insights into the role of technologies in economic development: one considers technologies as the exogenous input into production output and economic growth, the other considers technologies as the endogenous input into production output and economic growth. The critics of the "exogenous theory" writes: "Growth has occurred not by producing more of the same, using static techniques, but by creating new products, new processes, and new forms of organization" [4].

The general principles of the endogenous theory are reflected in the "steady-state growth model". Smriti Chand explains the essence of that model in the following way: "The concept of steady-state growth is the counterpart of long-run equilibrium in static theory. It is consistent with the concept of equilibrium growth. In steady-state growth all variables, such as output, population, capital stock, saving, investment, and technical progress, either grow at constant exponential rate, or are constant [5].

To some extent the Cobb–Douglas production function, based on the assumption that output increases by the labor and capital increments would be referred as the endogenous theory of economic growth, based on the steady-state principles. Peter Howitt writes: "The first version of endogenous growth theory was AK theory, which did not make an explicit distinction between capital accumulation and technological progress" ([6]). Charles I. Jones explains that theoretical model in the following way: The production function describes how input such as bulldozers, semiconductors, engineers, and steel-workers combine to produce output. To simplify the model, we group these inputs into two categories, capital, K, and labor, L, and denote output as Y. The production function is assumed to have the Cobb–Douglas form and is given by

$$Y = F(K, L) = K^{\alpha} L^{1 - \alpha} L$$

where α is some number between 0 and 1. Notice that this production function exhibits constant returns to scale: if all of the inputs are doubled, output will exactly double [2].

In other words, to produce more output the additional input of labor and capital is required – this is the core of the "steady-state" visioning of economic growth. Is there any other theoretical justification for the large corporations exploiting more and more resources all over the world, absorbing more and more people, ignoring their national identities and personal dignity?

The Cobb-Douglas model was further developed by the Nobel laureate in economics Robert Solow, by adding a technology variable, A, to the production function:

the humans existence. Probably, the J. Watt steam engine was never invented unless the deforestation, encountering by England in seventeenth and eighteenth centuries. In this sense, the successful technologies starts not when they are supported by the government but when they are focused on overcoming the very precisely identified economic

Technological Reconstruction of the Global Economy http://dx.doi.org/10.5772/intechopen.75096 11

• emergence of the technological innovations per se results from a very complicated economic configuration. This is not an easy deal to produce fabulous tune on that piano! Only a few remarks on that matter: the technological innovations (from its start in basic research as a part of the overall R&D) are very unattractive for the private investments (they require substantial long-term investments with low portion of commercially successful outcomes with high "spillover" and immense number of "imitators" "waiting at the door"). Moreover, successful technologies embraces not only the stage of their creation in the R&D laboratories, but their selection by the private companies, their adoption in the production processes, their commercialization on the market, their diffusion among as much as many national companies (for cumulating the national economic growth in general), their technological feedbacking from the markets. That is why it is a substantial simplification to consider technological development within a narrow framework of the government finan-

In fact, the intersection between technologies and economy represents one of the most significant theoretical and practical shortages. In this exploration we would like to explain only two among many others distinctive features of the core twentieth century technologies: their

The majority of the key technologies in twentieth century initially was applied in the production of armaments and then were diffused into the non-military production. VernonW. Ruttan in his book "Is War Necessary for Economic Growth? Military Procurement and Technology Development" writes about the dual-use properties of the military technologies: "It is difficult to overemphasize the importance of the historical role that military procurement has played in the process of technology development. Knowledge acquired in making weapons was an important source of the industrial revolution" [9]. The Scandinavian scientist T. Cronberg underlines the role of state in the R&D development in the United States: "State expenditure on research and development for the military has been the way the US government created a national technology base. In contrary where industrial policy and state intervention in the affairs of commercial companies are not accepted, military technology has been a way to go around this sensitive theme. Military research and development has constituted the industrial policy of the US, the very nature of the spin-off paradigm bears witness to this. The dual-use

The military procurements from the United States Department of Defense gave rise the basic industries, such as triangle - Aerospace, Communications and Electronic industries (ACE), incubating large American companies Rockwell, Lockheed, McDonnel-Douglas, General Dynamics, Huges, Northrop and others. The number of the new industries emerged in consequence of the advance in the military technologies and their spin off to the civil production:

necessities;

cial support for R&D and education.

dual-use capabilities and the large-scale character.

handshake is simply a new way of defending industrial policy" [10].

computers, jet aircraft, nuclear power and space communication.

$$Y = F(K, AL) = K^a (AL)^{1 - \alpha}$$

where A represents the technology variable.

Charles I. Jones writes: "An important assumption of the Solow model is that technological progress is exogenous: in common phrase, technology is like 'manna from heaven', in that it descends upon the economy automatically and regardless of whatever else is going on in the economy" [2]. Evidently, the "steady-state growth model", based on the exogenous insight into the role of technology in the production function and in economic growth in general, is not coinciding with the "new reality" of increasing economic flexibility.

Exogenous insource of technological changes in economies was further criticized by the followers of the endogenous economic growth theory. Paul Romer, Kenith J. Arrow, Lucas and others proposed their quite different insight into the role of technologies in economic growth. As Peter Howitt underlines: "The neoclassical growth theory of Solow (1956) and Swan (1956) assumes the rate of technological progress to be determined by a scientific process that is separate from, and independent of, economic forces. Neoclassical theory thus implies that economists can take the long-run growth rate as given exogenously from outside the economic system. Endogenous growth theory challenges this neoclassical view by proposing channels through which the rate of technological progress, and hence the long-run rate of economic growth, can be influenced by economic factors. It starts from the observation that technological progress takes place through innovations, in the form of new products, processes and markets, many of which are the result of economic activities". ([6]). However, the both theories consider labor and capital as the dominant factors for economic growth even when explaining the role of the "technological input" into the production output to quote here James Morley who writes for the World Economic Forum: "Economist Paul Romer has developed a theory of economic growth with 'endogenous' technological change — that is, it can depend on population growth and capital accumulation" ([7]).

Assumedly, the notion "endogenous" for explaining the modern economic development based on technological innovations precisely is what the new economic mainstream should have as its core. However, the theories, shortly described above, have a critical shortage – they are academic. Robert L. Heilbroner describes this shortcoming as the economic irrelevance: "As a rule, the aspect of economics that upsets those who begin to study it is its abstractness, its seeming removal from life, but any instructor worth his salt can reassure his students that this abstract quality is a strength and not a weakness if we are to study large-scale questions, and that the "unreality" of many economic conceptions conceals a sharp cutting edge" [8].

Perhaps there are at least two main aspects of the "endogeneity" of the modern technologydriven economic development stemming from the real life and practice:

• technological innovations represent the main tool, invented by the human being, for overcoming various obstacles, restricting economic development or even worse – threatening the humans existence. Probably, the J. Watt steam engine was never invented unless the deforestation, encountering by England in seventeenth and eighteenth centuries. In this sense, the successful technologies starts not when they are supported by the government but when they are focused on overcoming the very precisely identified economic necessities;

The Cobb-Douglas model was further developed by the Nobel laureate in economics Robert

Charles I. Jones writes: "An important assumption of the Solow model is that technological progress is exogenous: in common phrase, technology is like 'manna from heaven', in that it descends upon the economy automatically and regardless of whatever else is going on in the economy" [2]. Evidently, the "steady-state growth model", based on the exogenous insight into the role of technology in the production function and in economic growth in general, is

Exogenous insource of technological changes in economies was further criticized by the followers of the endogenous economic growth theory. Paul Romer, Kenith J. Arrow, Lucas and others proposed their quite different insight into the role of technologies in economic growth. As Peter Howitt underlines: "The neoclassical growth theory of Solow (1956) and Swan (1956) assumes the rate of technological progress to be determined by a scientific process that is separate from, and independent of, economic forces. Neoclassical theory thus implies that economists can take the long-run growth rate as given exogenously from outside the economic system. Endogenous growth theory challenges this neoclassical view by proposing channels through which the rate of technological progress, and hence the long-run rate of economic growth, can be influenced by economic factors. It starts from the observation that technological progress takes place through innovations, in the form of new products, processes and markets, many of which are the result of economic activities". ([6]). However, the both theories consider labor and capital as the dominant factors for economic growth even when explaining the role of the "technological input" into the production output to quote here James Morley who writes for the World Economic Forum: "Economist Paul Romer has developed a theory of economic growth with 'endogenous' technological change — that is, it can depend on population growth

Assumedly, the notion "endogenous" for explaining the modern economic development based on technological innovations precisely is what the new economic mainstream should have as its core. However, the theories, shortly described above, have a critical shortage – they are academic. Robert L. Heilbroner describes this shortcoming as the economic irrelevance: "As a rule, the aspect of economics that upsets those who begin to study it is its abstractness, its seeming removal from life, but any instructor worth his salt can reassure his students that this abstract quality is a strength and not a weakness if we are to study large-scale questions, and that the "unreality" of many economic conceptions conceals a sharp cutting edge" [8].

Perhaps there are at least two main aspects of the "endogeneity" of the modern technology-

• technological innovations represent the main tool, invented by the human being, for overcoming various obstacles, restricting economic development or even worse – threatening

driven economic development stemming from the real life and practice:

Solow, by adding a technology variable, A, to the production function:

not coinciding with the "new reality" of increasing economic flexibility.

*Y* = *F*(*K*, *AL*) = *K<sup>α</sup>*(*AL*)1−*<sup>α</sup>*

where A represents the technology variable.

10 Globalization

and capital accumulation" ([7]).

• emergence of the technological innovations per se results from a very complicated economic configuration. This is not an easy deal to produce fabulous tune on that piano! Only a few remarks on that matter: the technological innovations (from its start in basic research as a part of the overall R&D) are very unattractive for the private investments (they require substantial long-term investments with low portion of commercially successful outcomes with high "spillover" and immense number of "imitators" "waiting at the door"). Moreover, successful technologies embraces not only the stage of their creation in the R&D laboratories, but their selection by the private companies, their adoption in the production processes, their commercialization on the market, their diffusion among as much as many national companies (for cumulating the national economic growth in general), their technological feedbacking from the markets. That is why it is a substantial simplification to consider technological development within a narrow framework of the government financial support for R&D and education.

In fact, the intersection between technologies and economy represents one of the most significant theoretical and practical shortages. In this exploration we would like to explain only two among many others distinctive features of the core twentieth century technologies: their dual-use capabilities and the large-scale character.

The majority of the key technologies in twentieth century initially was applied in the production of armaments and then were diffused into the non-military production. VernonW. Ruttan in his book "Is War Necessary for Economic Growth? Military Procurement and Technology Development" writes about the dual-use properties of the military technologies: "It is difficult to overemphasize the importance of the historical role that military procurement has played in the process of technology development. Knowledge acquired in making weapons was an important source of the industrial revolution" [9]. The Scandinavian scientist T. Cronberg underlines the role of state in the R&D development in the United States: "State expenditure on research and development for the military has been the way the US government created a national technology base. In contrary where industrial policy and state intervention in the affairs of commercial companies are not accepted, military technology has been a way to go around this sensitive theme. Military research and development has constituted the industrial policy of the US, the very nature of the spin-off paradigm bears witness to this. The dual-use handshake is simply a new way of defending industrial policy" [10].

The military procurements from the United States Department of Defense gave rise the basic industries, such as triangle - Aerospace, Communications and Electronic industries (ACE), incubating large American companies Rockwell, Lockheed, McDonnel-Douglas, General Dynamics, Huges, Northrop and others. The number of the new industries emerged in consequence of the advance in the military technologies and their spin off to the civil production: computers, jet aircraft, nuclear power and space communication.

From the graph, depicted on **Figure 3** [11] the changing role of military and civil aircraft manufacturing during the wars and in between is seen. However, there would be no doubt that the military aircraft production fertilizes civil aircraft manufacturing in terms of technologies, R&D capabilities, graduation of personnel, provision of equipments and in terms of the other common production characteristics.

same time the military industry becomes more dependent on commercial technology, such as computers" [12]. Therefore, the military technologies could not play a role of the technologi-

Technological Reconstruction of the Global Economy http://dx.doi.org/10.5772/intechopen.75096 13

The other economic peculiarity of the core technologies in twentieth century, which we would like to mention in our investigation, is their consistency with the "economy of scale". In other words, in terms of capital turnover, profitability and cost competitiveness, their implication in industry requires gradual extension in production scale and subsequently in market sales scale. In case of issuing only a few copies, as it has happened with the aircraft manufacturing

The extension of production scale makes the cost of unit less, requiring expansions of the products sales on the international markets, conquering competitors and advocating the free trade regime. Ultimately, large corporations take the lead on the markets, swallowing up the competitors through mergers and acquisitions, launching the "entry barriers", establishing the multinational network in production and sale. The offshore production launched in the countries with cheap labor, tax holidays and devaluated currency, enables the large corporations to reduce costs of production through the exploitation of "geographic advantage" rather than application of process technologies. Logistically, the offshore production finds its sales in the United States, Europe and the other countries with high average income, large number of consumers and in the countries, where the domestic production was replaced by import (to mention here Russia and the other ex-USSR countries). The advantage of "large" became more lucrative and less risky than testing something new. The technological drive is not what the large corporations would like to accept. Needless to say, that that path of economic development became resource consuming, ecologically unfriendly and leads to suppression of the own national business in as much number of countries as never before. The most probably "national identity" agenda, which has been accepting today in many countries and usually referred by political establishment as "populism of political opposition" has its fundamental nucleus – the exhausted capacities of "large", whether they are corporations or any other actors, in their mission to lead the global world. The global world needs to reconstruct the whole economic architecture, reconsidering the role of large and small as its important chains.

**5. Changing role of technological system: from driving to impeding** 

The global crisis has interrupted the spectacular economic growth in 2008. As many experts agreed, the main causes of the beginning economic downfall were emerged in the financial sector. That is why the economic crisis was denoted as the global financial crisis. We have quite different standpoint on the nature of the global economic crisis, explaining it by the technological reasons. Generally speaking, large companies as the main actors in the global economy are not technological drivers any more, as we noted it before. The theoretical conceptualization of that fact is yet insufficient, that is why we are quoting the participants of the Davos forum 2017, who had expressed a strong concern about the emerging "shortemism"

**the global economic growth**

cal drivers for the national and global economic growth any more.

in Russia at the beginning of 1990, the industry could not exist.

Similar to aircraft manufacturing the other industries in the United States acquired advantage from the dual-use capabilities of key technologies. To mention electronic industry, about which T. Cronberg writes, "Early military and space programs helped the US electronic industry to achieve research and production superiority over its competitors through the early 1970s. The military requirement-for example, for miniaturization and lower power consumption- coincided almost exactly with the likely needs of commercial uses in the computer industry" [10].

Undoubtedly, the war economy had been dominating through the entire twentieth century and it cross fertilized the other industries and countries through the process of technology spin off. However, the impact of the military technology on the civil production has changed since then. Ann Markuzen and Joel Yudken underline: "The military requirement no longer coincides with the likely needs of commercial users. This is due to the more complex nature of the military technology, its special product development environment and the general dynamics of the military-industrial complex itself. Innovation in the military becomes scrutinized and leads only to incremental improvements…. Submarines become faster and faster, quieter, bigger and with longer ranged instead of becoming simpler and more efficient. At the

**Figure 3.** U.S. aircraft production in the twentieth century. Source: Paul D.Collopy. Military technology pull and the structure of the commercial aircraft industry. 2004 https://www.researchgate.net/figure/U-S-aircraft-productionin-the-20th-century-9-10\_245430534.

same time the military industry becomes more dependent on commercial technology, such as computers" [12]. Therefore, the military technologies could not play a role of the technological drivers for the national and global economic growth any more.

From the graph, depicted on **Figure 3** [11] the changing role of military and civil aircraft manufacturing during the wars and in between is seen. However, there would be no doubt that the military aircraft production fertilizes civil aircraft manufacturing in terms of technologies, R&D capabilities, graduation of personnel, provision of equipments and in terms of the other

Similar to aircraft manufacturing the other industries in the United States acquired advantage from the dual-use capabilities of key technologies. To mention electronic industry, about which T. Cronberg writes, "Early military and space programs helped the US electronic industry to achieve research and production superiority over its competitors through the early 1970s. The military requirement-for example, for miniaturization and lower power consumption- coincided almost exactly with the likely needs of commercial uses in the computer

Undoubtedly, the war economy had been dominating through the entire twentieth century and it cross fertilized the other industries and countries through the process of technology spin off. However, the impact of the military technology on the civil production has changed since then. Ann Markuzen and Joel Yudken underline: "The military requirement no longer coincides with the likely needs of commercial users. This is due to the more complex nature of the military technology, its special product development environment and the general dynamics of the military-industrial complex itself. Innovation in the military becomes scrutinized and leads only to incremental improvements…. Submarines become faster and faster, quieter, bigger and with longer ranged instead of becoming simpler and more efficient. At the

**Figure 3.** U.S. aircraft production in the twentieth century. Source: Paul D.Collopy. Military technology pull and the structure of the commercial aircraft industry. 2004 https://www.researchgate.net/figure/U-S-aircraft-production-

common production characteristics.

industry" [10].

12 Globalization

in-the-20th-century-9-10\_245430534.

The other economic peculiarity of the core technologies in twentieth century, which we would like to mention in our investigation, is their consistency with the "economy of scale". In other words, in terms of capital turnover, profitability and cost competitiveness, their implication in industry requires gradual extension in production scale and subsequently in market sales scale. In case of issuing only a few copies, as it has happened with the aircraft manufacturing in Russia at the beginning of 1990, the industry could not exist.

The extension of production scale makes the cost of unit less, requiring expansions of the products sales on the international markets, conquering competitors and advocating the free trade regime. Ultimately, large corporations take the lead on the markets, swallowing up the competitors through mergers and acquisitions, launching the "entry barriers", establishing the multinational network in production and sale. The offshore production launched in the countries with cheap labor, tax holidays and devaluated currency, enables the large corporations to reduce costs of production through the exploitation of "geographic advantage" rather than application of process technologies. Logistically, the offshore production finds its sales in the United States, Europe and the other countries with high average income, large number of consumers and in the countries, where the domestic production was replaced by import (to mention here Russia and the other ex-USSR countries). The advantage of "large" became more lucrative and less risky than testing something new. The technological drive is not what the large corporations would like to accept. Needless to say, that that path of economic development became resource consuming, ecologically unfriendly and leads to suppression of the own national business in as much number of countries as never before. The most probably "national identity" agenda, which has been accepting today in many countries and usually referred by political establishment as "populism of political opposition" has its fundamental nucleus – the exhausted capacities of "large", whether they are corporations or any other actors, in their mission to lead the global world. The global world needs to reconstruct the whole economic architecture, reconsidering the role of large and small as its important chains.
