# Technical progress

Development of the maximum speed of various motor vehicles compared to a galloping rider

Under technical progress is defined as the total of all technical achievements of culture .

Technological progress means that either the same amount of production (output) can be created with a lower use of labor or means of production (inputs) or a higher amount with the same use of means of production and labor. In addition to the quantitative improvement in the input-output ratio, there are also qualitative improvements such as new products (see also Chronology of Technology ).

As with biological evolution , the time periods between development steps are getting shorter and shorter with technical progress.

Any development trend that is commonly referred to as progress has an impact on socio-cultural and economic change . Today, the concept of progress is often reduced to technical progress alone . However, this does not do justice to the originally much broader meaning of the idea of ​​progress as “striving for perfection” , since the impulses for progress take place independently of ethical questions and their implementation primarily serves purely economic or political interests. The most impressive example of this is nuclear energy , the various risks of which the anti-nuclear movement has made known to the public; or the misuse of this form of energy for the atomic bomb as a weapon of mass destruction .

Technical progress is a key driver of economic growth. While the latter is difficult to compare with other (non- market- oriented) historical or recent forms of economy , the technical development can be easily quantified in many ways: For example, a comparison of the time it takes for a tree to be cut down to debarked and de-limbed trunk with historical and modern tools ( stone or metal ax , hacksaw , chainsaw , wood harvesting machine ) is obviously required.

In view of the global environmental risks (which are largely the result of technical developments), dwindling resources and the political and social effects of the new media , the fundamental question of the controllability of modern cutting-edge technology arises . The history of technology shows that a large number of technical problem solutions unexpectedly lead to new and larger problems - often in completely different places.

## History and criticism

The steam engine is a symbol of the industrial revolution

In the early days of human history, the speed of technical progress was relatively slow, even if major upheavals occurred at longer intervals, such as the Neolithic Revolution .

The industrial revolution and, since the mid-1970s, the digital revolution have led to major social upheavals .

Historically, in addition to times of technical progress, there have also been times of technical regression. A classic example is the decline of ancient culture with the subsequent Middle Ages . However, historians argue on this question to what extent, for example, in certain areas (spread of the water mill) technical progress continued during the Middle Ages.

It is controversial whether an innovation in technology, due to the partially negative impact on people, nature and society, is always a step forward in the sense of a general improvement for people. This is why the literature also speaks of technical change. In view of the diverse global problems, which are undoubtedly also consequences of technical progress (e.g. forest destruction, reactor disasters, anthropogenic climate change, etc.), nature conservation biologist Raymond Dasmann sees the future of humanity threatened in particular by the fact that negative consequences of progress over time To be forgotten (see communicative memory ) and the state of the world is considered "normal" by the people living in it. In addition, ancient, traditional empirical knowledge from “ trial and error ” would be lost and solutions to problems based on unproven technologies would often be sought instead.

Ethnological studies of communities of “ ecosystem people ” ( hunters , pastoral nomads , field farmers ) have shown that complex socio-cultural mechanisms exist to preserve tradition and avoid (technical) progress - unless there are compelling reasons. Claude Lévi-Strauss coined the term “cold cultures” for this .

The sociologist Johannes Weyer writes that technical innovations are perceived by today's industrial society “as a kind of practical constraint that controls us and dictates how we should use them” . However, he points out that the direction of these developments does not follow a “law of nature”, but is guided by political decisions. One example he cites is the electric motor, which was the most common form of drive for vehicles at the beginning of the 20th century. Nevertheless, the internal combustion engine prevailed, favored by various interest groups. Only in connection with the current sustainability debate does the electric drive experience renewed interest. Which form of propulsion will prevail at the latest after the oil reserves have dried up and whether and how the pressing future problems in the areas of environment, energy or transport will be solved will in turn depend largely on the influence of very different actors - and not (only) on rational considerations. In order to minimize wrong decisions here, the instrument of technology assessment was created, which only works if politicians take the prognoses into account.

## Manifestations

The three main manifestations of technical progress are:

Technical progress is not only about increasing labor productivity - for example, that a certain number of people can manufacture more and more cars - but also about qualitative changes, innovations, innovations in the products produced for human consumption.

Effect of technical progress on the input-output ratio with constant output
Effect of technical progress on the input-output ratio with constant input

Joseph Schumpeter distinguishes between five different innovations that make up technical progress:

1. Introduction of a new product,
2. Introduction of a new production process,
3. Opening up a new market,
4. Development of a new source of supply of raw materials or semi-finished products and finally
5. Introduction of new forms of industrial organization.

Dosi understands technical progress as: "The search and discovery, imitation and introduction of new products, new production processes and organizational innovations."

Geigant assumes that technical progress in the manufacture of new or improved products or in the introduction of new production processes makes it possible to manufacture an unchanged product at constant costs in larger quantities or in constant quantities at lower costs.

The technical progress thus leads to an increase in productivity because

• the input can be reduced while the output remains the same (Fig.) or
• the output can be increased while the input remains the same. (Fig.)

## Technical progress and economic growth

According to Schumpeter, a creative process of destruction takes place in markets. Creative destruction means that innovations come onto the market that displace other products from the market. This process is fueled by competition , as companies strive for innovation in order to gain a competitive advantage. The innovations represent a technical advance that leads to an increase in productivity . This enables a reduction in prices and thus improved opportunities in competition. Technical progress is dynamically efficient , as the increase in productivity creates further incentives for innovations.

Together with the learning curve effect (i.e. lowering unit costs while increasing production due to the experience of the workforce) and human capital accumulation (e.g. increasing the level of education through further training of employees), technical progress is an important source of productivity increases and economic growth .

However, growth due to the learning curve effect or human capital accumulation always reaches its limit due to the decreasing marginal utility (under the neoclassical assumptions) in contrast to technical progress. Technical progress alone enables long-term economic growth (see also endogenous growth theory ).

The importance for economic growth is also proven by empirical studies from 1994, according to which the contribution of technical progress to economic growth is between 40% and 60%, depending on the type of calculation.

The technical progress according to Schumpeter is calculated from the difference between production growth and the pure change in the use of factors ( total factor productivity ). This difference is known as the “residual”.

## Technical progress and unemployment

The invention of the weaving machine initially raised fears that it would lead to mass unemployment.

The question of whether technical progress creates jobs or, on the contrary, causes unemployment is often discussed . This question came up again in 1817 with David Ricardo and later in the discussion about automation and rationalization .

### Release theory

Technical progress, through further developments and innovations, increases productivity and changes input-output ratios that were previously considered efficient. (See Fig. Effect of technical progress on the input-output ratio)

Based on this knowledge, David Ricardo put forward the thesis in the 3rd edition of his Principles of Political Economy and Taxation from 1821 that unemployment rises due to technical progress if demand remains temporarily constant. This thesis is called the release theory. Even Karl Marx joined this thesis.

Technical progress increases ⇒ productivity increases ⇒ demand for this good does not necessarily increase ⇒ fewer workers are needed ⇒ unemployment increases

According to the release theory, technical progress would result in unemployment. A well-known example that illustrates this thesis is the following: 10 people are employed in the pin industry. After the introduction of a machine into the company, these 10 employees are replaced by the machine. Only one employee is still busy operating the machine. The new machine can produce many times the amount of pins the 10 workers could make. Since the demand for pins does not necessarily increase by more than a multiple due to the higher supply, there are layoffs in the pin industry.

### Compensation theory

Price and wage development in the Federal Republic of Germany

The following objection to the release theory is raised in the compensation theory : Technical progress not only increases the amount of goods that can be produced, but also decreases the price of the goods produced. This has the consequence that real income increases. Due to the higher real income, the consumption of the considered good and other goods increases. The higher consumption leads to recruitment in other sectors. Following the example above, the price of pins would decrease due to the higher supply. The tailor can use the money to consume other goods.

Technical progress can therefore be neutral in terms of employment if a technological change triggers a higher demand for other goods and the workforce that has become free as a result of rationalization is reinstated.

Critics counter the compensation theory that, despite technical progress, prices have been rising in line with the inflation rate for more than 50 years . However, it can be countered by the fact that wages will rise much faster than prices in the long term. (See Fig. Price and wage development). Real incomes have risen due to technical progress, among other things.

### Concept by Karl Popper

In his work The Open Society and Its Enemies , Volume 2, Hegel and Marx, the philosopher Karl Popper gives a systematic compilation of how a society can react to an increase in labor productivity resulting from technical progress.

The available higher productive power can be used for:

• Case A : Capital goods . Then investments are made to manufacture more capital goods that increase productivity even more. The problem is postponed into the future. Popper therefore does not consider this to be a permanent solution.
• Case B : consumer goods
• for the entire population
• for part of the population
• Case C : Reduction of working hours
• daily work time
• the number of “unproductive” workers is increasing. Popper means those outside the manufacturing industry, especially scientists, doctors, artists, business people, etc.

Here Popper draws a line. So far, there have been positive effects for the population from an increase in labor productivity. However, unpleasant effects are also conceivable:

• Case D : The number of goods that are produced but neither consumed nor invested increases
• Consumer goods are being destroyed
• Capital goods are not used, i. H. Businesses lie idle
• goods are produced that are neither capital nor consumer goods, for example weapons (see also Armaments Keynesianism, permanent armaments economy )
• Labor is used to destroy capital goods and thus reduce productivity again.

### Artificial intelligence

In the industrial revolution , muscle power was replaced by the machine with the invention of the steam engine. Accordingly, the conventional physical unit for power, namely horse power (PS), has been replaced by watt . According to some authors, in the digital revolution, human thought performance is increasingly being taken over by machines, i.e. by artificial intelligence (AI).

In an interview, the computer scientist Constanze Kurz describes some examples of applications of artificial intelligence. The spokesman for the Chaos Computer Club , Frank Rieger , warned in various publications (e.g. the book Arbeitsfrei ) that the accelerated automation of many work areas will result in more and more people losing their jobs in the near future. Among other things, this poses a risk of weakening unions that are losing members. Rieger therefore advocates a “socialization of the automation dividend”, ie taxing non-human work, so that general prosperity also grows and is fairly distributed as the economy grows.

In 2015, German-Swedish researchers calculated that computers could take on every second job. An Oxford study from 2014 assumes that every second job in Germany will be replaced by machines within the next 10 to 20 years. In Romania, for example, this proportion is even higher. Schools and universities would have to change their training towards more creative and social skills, as machines so far have no capabilities in these areas.

### Empirical data

Studies have shown a “U-profile” of polarization in labor demand for the USA between 1979 and 2007: During this period, the demand for both high and low-skilled occupations rose sharply compared to medium-skilled occupations. Similar developments can be demonstrated for all EU countries, especially for Austria and France, and less so for Germany. The reasons for such a polarization are sought, among other things, in the type of activity: “The activity-based approach shows how the changed technology leads to a substitution of routine activities by computers and other automation. As a result, the demand for those workers who do non-routine jobs is increasing. These are cognitive, abstract, and interactive activities that are at the top of the wage distribution, as well as manual activities at the lower end of the distribution. Correspondingly, the hypothesis of the polarization of employment and wage structure can be derived directly from this. "In Germany, where this polarization is comparatively low, there was an increase in atypical forms of employment: marginal employment and temporary work rose above all in low-paid sub-areas of the service sector, and temporary employment also increased in higher paid areas.

From 1960 to 2010, based on Germany (until 1990: West Germany; from 1991: Germany), the volume of work per employed person fell by 31 percent and the volume of work per inhabitant by 29 percent.

## Economic policy measures

An economically liberal recipe for preventing structural unemployment is to make the labor market more flexible in the sense of compensation theory . The aim is to transfer the workers freed up as a result of technical progress to other industries whose goods are in greater demand due to the increase in real income, in order to lead them into a new job as quickly as possible. In order to accelerate the transition to a new employment relationship, politics can also specifically promote retraining and further training measures.

## Technical progress in growth theory

The growth theory tries to mathematically tap into the possible effects of technical progress. Technical progress plays an important role in neoclassical growth theory. Under neoclassical assumptions, technical progress is an important prerequisite for long-term economic growth as well as the main cause for the growth of the world population . This can be explained with the following example:

A farmer produces grain. He has a limited amount of labor and capital in the form of seeds and acreage of arable land. Taking into account the neoclassical assumptions, the output will grow with every additional use of labor and capital. The marginal return of the additional factor input will decrease until the output no longer increases with increasing factor input. Only an increase in the input of labor and capital can only increase the output in the short term.

Technical progress alone could, as in this example, enable the farmer to continue increasing output or marginal yield in the long term. Examples of technical progress here are: the introduction of fertilizer, which enables the field to be tilled several times a year, or the invention of the plow, which makes the soil more fertile.

In the first half of the 20th century, little attention was paid to the importance of technical progress as a source of growth for an economy in growth models (exception: Schumpeter ). Traditional models of growth saw the supply of labor and the available capital as sources of economic growth. Robert Solow (1957), with his neoclassical growth model ( Solow model ), was one of the first to integrate technical progress into a growth model alongside labor supply and capital as a source.

In the Solow model (1957), Uzawa-Lucas model (1965) and Rebelo's AK model (1991) it is assumed that technical progress is an externally given factor. This implied that technological progress cannot be changed by political measures.

It was not until the early 1990s that the models by Grossman-Helpman (by Gene M. Grossman and Elhanan Helpman ), Romer ( Romer model by Paul Romer ) and Jones ( Jones model by Charles I. Jones ) were assumed to be more technical Progress is an endogenous influenceable variable. The basic idea is that research and development influence economic growth. By promoting research and development, targeted economic policies can influence economic growth.

### Harrod Domar model

In order to investigate the conditions under which technological progress creates jobs or makes them unnecessary, one can consult simple growth models from economics. A well-known growth model is the Harrod-Domar model, which derives the conditions for equilibrium growth and can also take technical progress into account. The model is based on the dual character of investments , which on the one hand are part of the overall economic demand (the other part is consumer spending ) and on the other hand increase the capital stock and thus the potential supply. In equilibrium growth, demand should equal supply. The following equilibrium condition results:

${\ displaystyle g = {\ frac {s} {v}}}$
• ${\ displaystyle g \,}$: equilibrium growth rate that creates supply equals demand.
• ${\ displaystyle s \,}$: Savings rate , share of savings in income that equals the economic supply of goods in equilibrium as demand. Under the model assumption that all savings are invested, s is at the same time the investment rate, i.e. the share of investments in total production.
• ${\ displaystyle v}$: Capital coefficient , it indicates how much capital stock is necessary to be able to produce a certain amount of production.

The formula says that the higher the investment rate (which is equal to the savings rate s ), the greater the growth that can be achieved, i.e. the greater the part of production that is used to build up the capital stock. The larger the capital coefficient, the lower the growth, the more capital is needed to produce a unit of production.

If there is no technical progress, then the equilibrium growth should correspond to the "natural", demographically given growth of the labor supply, otherwise either the labor supply is insufficient or there is increasing unemployment .

${\ displaystyle {\ frac {s} {v}} = n}$
• ${\ displaystyle n \,}$: Growth of population

The technical progress is introduced into the model in such a way that it is assumed that the capital expenditure per worker (or per job), the capital intensity , grows at a certain rate (m) and that as a result labor productivity also grows at this rate. It is also assumed that the wage per worker also increases at this rate.

This growth rate m of labor productivity and capital intensity is understood as the growth rate of technical progress. If production were constant, jobs could be rationalized every year at this rate (-m), so employment would shrink. So if there is no unemployment, the equilibrium growth must now be:

${\ displaystyle {\ frac {s} {v}} = m + n}$
• ${\ displaystyle m \,}$: Growth rate of technical progress, defined as the growth rate of labor productivity and capital intensity.
• ${\ displaystyle n \,}$: demographic, i.e. exogenously given population growth, which is equal to the growth in labor supply.

According to this model, such growth can be achieved by increasing the savings and investment ratio s if necessary. Since investments are primarily financed from profit and not from wage income, economic policy often calls for moderate wage policy and higher profit income in the event of persistent unemployment in accordance with the GIB formula , in order to trigger all the more investment, growth and employment. Of course, such a policy can also lead to distribution conflicts, since profit income is to be increased at the expense of wage income.

Technical progress means that, compared to total production, more capital goods are required than without technical progress, if full employment is to be achieved. However, it is a one-off sacrifice; if the savings rate s is large enough, then the wages per worker can grow from then on in accordance with the growth rate of technical progress, i.e. like labor productivity.

### Production function

Technological progress can be built into a production function in a number of ways , for example:

A production function indicates how much can be produced if a certain amount of labor and capital ( capital stock ) or means of production is used: ${\ displaystyle (Y)}$${\ displaystyle A}$${\ displaystyle K}$

${\ displaystyle Y = f (K, A) \,}$

One speaks of labor-saving, labor- increasing or Harrod -neutral technical progress if the following applies:

${\ displaystyle Y = f (K, a (t) \ cdot A)}$
• ${\ displaystyle a (t)}$is a factor that increases over time and reflects the gradual increase in labor productivity due to technical progress .${\ displaystyle t}$

The Hicks -neutral technical progress is less common

${\ displaystyle Y = a (t) \ cdot f (K, A)}$

and the Solow -neutral, capital-increasing or capital-saving technical progress

${\ displaystyle Y = f (a (t) \ cdot K, A)}$.

An early attempt to explain technical progress endogenously is the Technical Progress Function by Nicholas Kaldor . There is now the endogenous growth theory .

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17. Out of Control - When Computers Take Power . ARD Quarks and Co, minute 4:30 p.m., September 6, 2016
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27. The current employment optimism in a historical perspective . basic income blog.blogspot.com, November 3, 2010, graphic .
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