The Past and Future of America’s Economy: Long Waves of Innovation that Power Cycles of Growth

Published by EH.NET (May 2005)

Robert D. Atkinson, The Past and Future of America’s Economy: Long Waves of Innovation that Power Cycles of Growth. Cheltenham, UK: Edward Elgar, 2004. vii + 357 pp. $85 (hardcover), ISBN: 1-84376-955-7.

Reviewed for EH.NET by Wyatt Wells, Department of History, Auburn University — Montgomery.

In The Past and Future of America’s Economy, Robert Atkinson combines scholarly study with political polemic. Surveying American economic history, he develops a theory of growth based on technological change and then lays out a program for the Democratic Party to adapt to and take advantage of changes now underway in the United States.

Atkinson lambastes conventional economists for their neglect of technological change and, drawing on the ideas of Joseph Schumpeter, argues that long waves of innovation have driven economic growth. He identifies three distinct periods during which new technologies drove growth and, in the process, reshaped the economy: 1890-1940, 1940-1990, and 1990-. He describes the first period as the “factory-based industrial era” and argues that steel technology and the large-scale production of machinery and other producer goods drove growth. In the 1920s and 1930s, this technology reached the point of diminishing returns, and growth resumed only in the 1940s with the “mass production era,” which entailed the application of mass production techniques and electro-mechanical technology. This system, in turn, reached the point of diminishing returns in the 1970s, and growth resumed only in the 1990s with the development of information technology, which promises a new era of sustained growth.

According to Atkinson, these long cycles all follow the same broad pattern. Initially new technology is disruptive because it displaces older techniques and requires companies eager to use it to reorganize. This generates resistance and, sometimes, a political crisis. But as new technologies and techniques gain acceptance, the way opens for an extended period of growth in which higher productivity allows living standards to rise substantially. Invariably, however, technology reaches a point of diminishing returns, inaugurating a period of stagnation and crisis.

Having laid out his theory, Atkinson describes how today’s Democrats can guide and take advantage of this process. They should abandon policies such as protectionism designed to halt or slow change and instead work to accelerate it, increasing government funding for research and trying to force the pace at which individuals and companies adopt new technology. Democrats should then use the wealth generated by growth and higher productivity to allow Americans greater leisure, for instance by reducing the work week.

Atkinson’s book has substantial virtues. The author dares to think big, and by putting technology at the center of economic development, he emphasizes a key subject too often overlooked in economic discussions. This book also makes clear the link between new technology and new organization, and points out that their adoption is rarely painless. Finally, the focus on productivity brings to the forefront the most important factor in determining living standards.

Unfortunately, in supporting his thesis, Atkinson often does violence to the facts. No doubt the author is correct to note that the American economy transformed itself in the late nineteenth and early twentieth centuries, but his description of the process contains significant errors. Change depended far more on the railroads, which created a national market, than on steel, to which Atkinson gives emphasis. Atkinson discounts the role of consumer goods industries in this process, emphasizing instead producer goods. But Standard Oil, Proctor & Gamble, Heinz, the meatpackers, and similar producers of consumer goods were central to economic growth. According to Atkinson, the “factory-based industrial era” enjoyed its heyday between 1900 and 1914, but productivity gains during these years were weaker than in either the preceding or subsequent periods.

Similar errors appear in Atkinson’s discussion of the “mass production era.” The 1920s saw the introduction of many new techniques and products based on electro-mechanical and chemical technologies — not to mention the internal combustion engine — and rapid increases in productivity. During that decade General Motors pioneered the annual model change and segmented marketing strategy, RCA pioneered radio, and DuPont and other companies introduced rayon, the first synthetic fiber. The country was already shifting to the mass production economy when the Great Depression intervened, halting the process. Atkinson, however, blames the Depression on the final breakdown of the old “factory-based” industrial system and pushes the developments of the 1920s into the 1940s, asserting for instance, “It was not until after World War II that a truly consumer-oriented automobile industry emerged” (p. 46).

Atkinson’s partisanship also affects his judgment. For instance, he dismisses Herbert Hoover as a stand-patter who chose to ride out the Depression (p. 19), a view precious few historians would accept today. Hoover’s response to the disaster was unsuccessful and perhaps even counterproductive, but it was most definitely not passive. The Reagan administration’s extensive reforms of the tax system and government regulation merit scarcely a mention in Atkinson’s book, even though these were particularly important to telecommunications, one of today’s cutting-edge sectors. The author’s dislike of modern religious conservatives leads him to identify them as opponents of economic change, but in fact, they are generally middle class people comfortable with technological innovation — save perhaps internet pornography. Their concerns are chiefly social and spiritual, not economic.

The Past and Future of America’s Economy demonstrates once again that scholarly surveys and political polemics do not coexist easily. It is too shrill and careless for an academic study, too detailed and thorough for a partisan tract. This is unfortunate, for despite the considerable defects of his book, Atkinson is trying to get people to think seriously about big issues — and this is something that deserves encouragement.

Wyatt Wells, a professor of history at Auburn University Montgomery, is the author of Antitrust and the Formation of the Postwar World (2002) and American Capitalism, 1945-2000 (2003).