Technical Change and Industrial Transformation: The Theory and an Application to the Semiconductor Industry

355 Pages·1984·30.924 MB·English

by  Giovanni Dosi (auth.)

TECHNICAL CHANGE AND INDUSTRIAL
TRANSFORMA TION
The book can be read in two ways, either as a theoretical analysis ofthe
patterns of technical change in modern economies with an illustrative
case study on the semiconductor industry, or, conversely, as a re
construction of the history of that industry, wh ich is at the core of the
microelectronics revolution, backed by detailed and unorthodox
theoretical premises.
A general theoretical task is the explanation of the determinants,
procedures and directions of technical change, and its effects on
industrial performance, structural change and international trade.
Despite powerful economic inducements, technology maintains rules
and a momentum of its own wh ich binds the direction of technological
developments.
There are, it is suggested, technological paradigms wh ich define clusters
of technological trajectories of progress. Scientific advances together
with various institutional factors contribute to determine the timing and
the nature of new paradigms, while markets perform as important
selection environments.
Innovative activities show varying degrees of private appropriability
and determine the pattern of lags and leads between firms.
Technological asymmetries between firms playaparamount role in
explaining industrial performance, including prices, margins, profit
rates. The assumptions of traditional industrial economics have to be
reversed: instead of starting from an assumption of identity between all
firms and then introduce oligopolies as a complication, one should begin
from the opposite assumption. Technical change makes every firm
different: a 'competitive environment' is that particular case whereby the
forces of technological diffusion are powerful enough to wither away
innovation-based asymmetries.
The analysis can be extended to account for international trade and
international investment. Technological asymmetries at the inter
national level define what classical economists called absolute ad
vantages (and disadvantages) and thus also the configuration of the
universe within which cost-based and, first of all, wage-based adjust
ments take place.
This book undertakes a detailed analysis of the effects of technical
change on the patterns oftransformation ofindustries, in both a closed
economy and an open-economy context, and in many ways can be
considered an exploration into the microfoundations of economic
dynamics.
The case ofthe semiconductor industry is not only an illustration ofthe
hypotheses and the methodology but is also ofinterest in its own right.
The analysis of the process of birth of the specific semiconductor
paradigm, with the contextual impact of American military and space
policies, helps in explaining the American technological leadership.
Innovation-based competition, cumulativeness of technological ad
vantages, learning by doing, 'technology-gap' patterns of trade and
investment are factors which through time produced the American
leadership over Europe. A different case is Japan: there, the book shows,
important institutional and policy factors fostered a very rapid
catching-up process ultimately leading to a joint Japanese-American
leadership in the world semiconductor oligopoly wh ich has been
forming throughout the 1970s and early 1980s.
The semiconductor industry is the main engine of transformation of all
the industries influenced by microelectronics. Its impact on the user
sectors is not confined to ever-improving components at rapidly falling
prices, but provides also (and is affected by) a set of untraded
technological interdependencies, stimuli, information flows, etc., which
shapes the overall pattern oftransformation ofthe electronics industry.
Finally, the book provides a thorough statistical analysis of the
semiconductor industry in the major European countries, the USA and
Japan, with respect to output, productivity, prices, market shares, trade
and investment flows.
Giovanni Dosi is a Research Fellow at the Science Policy Research Unit
(SPRU) ofthe University ofSussex and Visiting Professor at the Federal
University ofRio de Janeiro. After graduating at the State University of
Milan, he has specialised in economics at IST AO (Ancona, Italy) and
obtained a D.Phil from the University of Sussex. He has written several
articles on technical change, the semiconductor industry and macroecon
omic issues. He has been a consultant for the OECD, the EEC, and the
Italian Energy Commission (ENEA).
His previous work includes a monograph, 'Technical Change and
Survival: Europe's Semiconductor Industry', published by SERC,
University of Sussex.
TECHNICAL CHANGE
AND INDUSTRIAL
TRANSFORMATION
The Theory and an Application to the
Semiconductor Industry
Giovanni Dosi
Foreword by Christopher Freeman
M
MACMILLAN
© Giovanni Dosi 1984
Softcover reprint ofthe hardcover 1st edition 1984 978-0-333-36343-0
All rights reserved. No part of this pub1ication may be
reproduced or transmitted, in any form or by any means,
without permission.
First published 1984 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Companies and representatives
throughout the world
ISBN 978-1-349-17523-9 ISBN 978-1-349-17521-5 (eBook)
DOI 10.1007/978-1-349-17521-5
Contents
List of Illustrations vii
List of Tab/es viii
Foreword by Christopher Freeman xi
Preface xiii
INTRODUCTION
2 TRENDS IN INNOVATION AND ITS DETERMINANTS:
THE INGREDIENTS OF THE INNOVATIVE
PROCESS 7
2.1 Theories of technical change: demand-pull vs
technology-push 7
2.2 A proposed interpretation: technological paradigms
and technological trajectories 13
2.3 The semiconductor industry: definition and technolo-
gical features 22
2.4 The development of semiconductor technology 26
2.5 The USA, Europe, Japan: explaining the dynamics of
technological leads and lags 52
2.6 Technological trends in the 1970s (and some specu-
lation on the 1980s) 66
2.7 Some conclusions: technical progress as an asymmetrie
process 71
3 TECHNICAL CHANGE AND INDUSTRIAL
TRANSFORMATION: THE PATTERNS OF
INDUSTRIAL DYNAMICS 86
3.1 Opportunities, incentives and constraints to technical
change 87
vi Contents
3.2 The interplay between technical change and industrial
structures 93
3.3 Costs and prices under conditions of technical change 111
3.4 Technical change and growth: the world semiconductor
industry 147
3.5 Conclusions 192
4 TECHNICAL CHANGE IN THE INTERNATIONAL
ENVIRONMENT: THE DYNAMICS OF TRADE
AND INVESTMENT 218
4.1 Technology, trade flows and international investment:
an introductory view 219
4.2 International technological asymmetries, oligopoly
and wage rates: an attempt at a synthesis 225
4.3 The development of a world semiconductor industry 249
4.4 Conclusions 275
5 SOME CONCLUSIONS ON TECHNICAL CHANGE
AND TECHNOLOGICAL DIFFUSION AS AN
INTRODUCTION TO MACROECONOMIC
TRANSFORMATION 284
5.1 The diffusion of innovations and the transmission
mechanisms of technical change 285
5.2 Conclusions: technical change and system trans-
formation 292
Appendix I A Methodological Note on the Estimates of
Semiconductor Prices 304
Appendix II Patterns of Technical Change, Relative Costs and
International Specia/isation: Some Properties of
Absolute and Comparative Advantages 307
Bib/iography 312
Index 329
List of Illustrations
2.1 An overview of electronic and e1ectrica1 components 24
2.2 Number of components per chip 39
2.3 Semiconductor memory cost per bit 40
2.4 Reliabi1ity of components, by techno10gy 41
3.1 Prices, costs and margins with 'learning effects' and
imitation 1ags: two extreme examp1es 118
3.2 Demand e1asticity and profit margins in presence of
1earning-by-doing 127
3.3 Cost structure of the industry, by firm, and gross margins 134
3.4 Rates of growth of output, at constant prices 179
3.5 Gross margins over variable costs 180
3.6 Investment/output ratios (at current and constant prices),
output, relative prices of investment to output; indices 187
3.7 Number of entries in a sampie of US semiconductor firms,
1951-79 188
4.1 U nit costs and international differences in wage rates 231
4.2 Foreign investment and foreign market shares: an
illustration 236
4.3 Semiconductor production, exports and imports, USA 250
4.4 Semiconductor production,exports and imports, Germany 251
4.5 Semiconductor production, exports and imports, UK 252
4.6 Semiconductor production, exports and imports, France 253
4.7 Semiconductor production, exports and imports, Ita1y 254
4.8 Semiconductor production, exports and imports, Japan 255
A.l Wage-profit frontiers by each technique 308
A.2 Labour productivity and mechanisation automation of
production 309
vii
List of Tables
2.1 Major innovations in products and design in the semi-
conductor industry 30
2.2 Major process innovations in the semiconductor industry 32
2.3 Innovations by kind of company and nationality (1950-
~ ~
2.4 Patents gran ted in the USA in semiconductors and related
devices, by country and by company 35
2.5 Basic research by major contributors and total R & D,
USA, 1972 37
2.6 USA: estimates of military and direct government
demand for semiconductors and integrated circuits,
1965-78, and 1979 VHSI Plan 44
2.7 US Government contribution to firms for R & D and
refinement projects 45
2.8 Average lag in first commercial production, by country,
1951-63 54
2.9 Lags in first commercial production in the European
industry, by dass of product and technology, 1970-80 55
2.10 Estimated size of government markets as a percentage of
the component industry output, mid-sixties 58
2.11 State support for R & D in the component industry as a
percentage of total R & D (1965-8) 59
2.12 Japan: MITI's plans for the promotion of the data-
processing industry, 1972-82 63
2.13 Government-funded R & D and patent applications of
so me US firms 80
3.1 Estimates of major world semiconductor markets, 1974-
W 1~
3.2 World production of semiconductors, by region and by
ownership, 1973, 1976 and 1978 150
3.3 Employment in the world semiconductor industry, by
region and by ownership, 1958-78 152
V11l
List of Tab/es ix
3.4 Value of semiconductor shipments per employee for
various countries, 1973 and 1978 153
3.5 Worid market share and geographical distribution
of markets of major 'world semiconductor producers,
1978 154
3.6 US: indices of shipment, productivity and prices in the
semiconductor industry, 1958-78 155
3.7 End-users of semiconductors on US and Western
European markets, 1978 156
3.8 Major Western European-owned semiconductor pro-
ducers, 1978 157
3.9 Western Europe: Shares of major firm!; in national
semiconductor markets, selected years 159
3.10 Major US semiconductor producers, 1978 160
3.11 F oreign investment in the US semiconductor industry,
1969-79 161
3.12 Western Europe: production of integrated circuits, by
country, 1974-8 162
3.13 Major Japanese semiconductor producers, 1978 163
3.14 Market shares in US semiconductor market by major
companies, 1957-74 168
3.15 Market shares of the Japanese semiconductor market,
1959-78 169
3.16 Estimates of gross margins in the semiconductor industry,
1958-76, regression analysis 177
3.17 Number of companies in the semiconductor industry,
USA, 1963-72 181
3.18 Gross margins and net earnings after taxes as a percentage
of sales, 1964-77 182
3.19 Employment in the US semiconductor industry, 1954-76 183
3.20 Net income after taxes as a percentage of stockholder
equity for selected US semiconductor companies, 1970-5,
by size - classes and standard deviations 185
3.21 Investment expenditure, output and estimated capital
stock, US semiconductor industry. 1963-76 186
3.22 Financial structure of semiconductor and all manufactur-
ing industries, 1969 -77 190
4.1 US direct export shares of major foreign markets (total
semiconductors), 1967-78 260
4.2 Trends in production, exports, imports, consumption in
the major industrial count ries, 1968-78 261