Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

1
The Role of Technology in the
Creation of Wealth
Chapter 2
 GROWTH OF TELECOMMUNICATION
TECHNOLOGY IN INDIA
• The major positive changes started coming up only after the announcement of
National Telecommunication Policy 1994 (NPT 1994), which was further reinforced
by New Telecom Policy 1999 (NPT 1999)
• While tariff in India is one of the lowest in the world, subscriber base has been
growing tremendously in the recent years

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Source: COAI
Growth of Indian
Telecom Sector
 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
HISTORICAL PERSPECTIVE

Evolution by Age of Technology

HISTORICAL PERSPECTIVE (Contd.)

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Dow Jones Industrial Average (The Dow Jones Industrial Average has Broken Symbolic
Barriers with Increasing Frequency. This Graph Shows the Ten Thousand-Point Milestone).
https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
 THE CREATION OF WEALTH
• Capital is best employed for the production of wealth; that
each nation should produce the goods in which it has
absolute advantage – Adam Smith

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• Schumpeter showed that industrial expansion is also the
result of economic forces and argued that innovation in
competitive capitalism is typically embodied in the
foundation of new firms—the main lever
• Attempts to define the different sources of economic growth
and quantify their relative contributions have been pursued
by many economists, including Abramovitz (1956), Solow
(1956–1957), Dennison (1962, 1967, 1979, 1985), Kuznets
(1971), Kendrick (1973), Jorgenson, et al., (1987), and Boskin
and Lau (1992)
 THE CREATION OF WEALTH (Contd.)
• Economic growth is determined by the rate of change in per
capita real gross domestic product (inflation-adjusted GDP)

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• Boskin and Lau (1992) indicate that the three principal sources
of nations’ economic growth are enhanced capital, labor, and
technical progress (or, equivalently, total factor productivity)

• Robert Solow argued that technical progress (the change in

production techniques) is built into machines and other
capital goods and that this must be taken into account when
making empirical measurements of the role played by capital
 THE LONG-WAVE CYCLE
• Technology also triggers another mechanism for economic
growth that is yet to be fully appreciated, one whose effect
has not been quantitatively measured

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• In 1930, the Soviet economist Kondratieff observed that
fluctuations occurred in Western economies every 30 years
and attributed them to the long-wave effect
• Mensch (1979) studied this phenomenon and suggested that
basic new technology began the economic expansion in each
long wave
• Graham and Senge (1980) concurred with the view that
inventions and innovations trigger economic long cycles
 THE LONG-WAVE CYCLE (Contd.)
• Betz (1987) suggested the following sequence of events for the
long-wave process:
1. Discoveries in science create a phenomenal base for technological
innovation

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2. Radical and basic technological innovation creates new products
3. These products create new markets and new industries
4. The new industries continue to innovate in products and processes,
expanding markets
5. As the technology matures, many competitors enter internationally,
eventually creating excess production capacity
6. Excess capacity decreases profitability and increases business failures
and unemployment
7. Subsequent economic turmoil in financial markets may lead to
depressions
8. New science and new technology may provide the basis for new
economic expansion
 THE LONG-WAVE CYCLE (Contd.)
• Betz (1987) argued that the long-wave hypothesis merely
describes past connections among pervasive basic innovation,
long-term economic expansion, and excess capital formation in

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

technology-mature industries. His observations:
– Cutting-edge technology is behind the long waves of economic
activity
– High-technology products displace old technology when there is a
justification for performance over cost
– Technology life cycles of industries affect long cycles in the national
economy
– New technology comes from science, and science comes from new
discoveries in nature
– A new technology, when created, will begin a new wave
 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
PRODUCTION TECHNOLOGY
THE EVOLUTION OF

Evolution of Production Technology

THE EVOLUTION OF PRODUCT
TECHNOLOGY

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Important Technological Innovations (Updated From US Dept of Commerce, 1996)
 TECHNOLOGY AND NATIONAL
ECONOMY
• Developed economies are identified with countries that properly use
technology for the creation of wealth

• Less developed economies are identified with countries lacking the

technological know-how necessary to create wealth

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• Two examples in modern history are Japan’s and Germany’s recent
successes in the world markets and their subsequent economic
prosperity

• Proper management of technology encompasses all levels of

technology, from low-tech to super-high technologies
 WEBLINKS
• http://www.boston.com/globe/search/stories/nobel/1987/1987g.html
• http://nobel.sdsc.edu/laureates/economy-1987-press.html
• http://www.vnl.in/blog/2009/telecom-knight-in-shining-armor/

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• http://coai.in/
• http://www.trai.gov.in/WriteReadData/trai/upload/StudyPapers/17/ASSO
CHAMMVAS_STUDY_%20paperfinal.pdf
• http://www.telenor.com/telektronikk/volumes/pdf/3.2004/Page_187–
194.pdf
• http://latimesblogs.latimes.com/technology/2009/05/invented-text-
messaging.html
• http://timesofindia.indiatimes.com/topic/Sunil-Mittal
• http://www.airtel.in/
• http://www.forbes.com/profile/sunil-mittal/