Long run labour productivity growth: Is there a "New Economy"?

Average percentage growth rates of value added per labor hour(= labor productivity growth)

EU-14* USA Japan

195060 4.2 3.6 5.9

196073 5.7 2.6 8.4

197380 3.0 1.0 2.7

198190 2.1 1.5 3.0

199100 2.2 1.6 2.0

199195 2.3 1.1 1.8

199600 2.0 2.0 (!) 2.3

*Excluding LuxemburgSource: Computed from Groningen Growth and Development Centre data (www.eco.rug.nl/ggdc/)

Is there a "New Economy"?

• ICT obviously offers new possibilities for raising productivity

• There is a remarkable increase in rates of labour productivity growth in the USA after 1995!

• A considerable part of that rise comes from the ICT sector!

• Euphoria: The business cycle that started in the US in 1991 showed very little inflation, even towards its peak (thanks to efficiency gains from ICT!)

The Kondratieff cycle of 45-60 years length

Origin:• Observation of approximately 50 year periods of

inflation and deflation since ca. 1780• Observation of similar fluctuations in real interest

rates • Important authors: Nikolai Kondratieff, Jan van

Gelderen, Sam de Wolff; 1913-1926

Common sense at those times:• Times of inflation are "good" (demand > supply)• Times of deflation are "bad" (supply > demand)

More recent research

• Proof of long-run fluctuations in GNP, industrial production etc. (Bieshaar & Kleinknecht; Metz; Reijnders)

• Marxist theories of long-run fluctuations in profit rates (Shaikh, Poletayev, Menshikov, Reati)

• Schumpeterian theories of clusters of basic innovations (Mensch, Van Duijn, Haustein & Neuwirth, Kleinknecht)

Stylised Kuznets (1930) model: Breakthrough innovations that create new industries are distributed

randomly over the time-axes

Stylised Schumpeter (1939) model: Breakthrough innovations tend to cluster on the time-axes

Scheme of Schumpeter-Kondratieff waves

'Good' periods:

'Bad' periods:

Basic industries: Infrastructures:

1st wave

ca. 1780/90 to 1810/17

1810/17 to 1844/51

Textiles, metals, shipbuilding

Ports, canals, water power, streets

2nd wave

ca. 1844/51 to 1870/75

1870/75 to 1890/96

Coal, gas, steam engine, mechanical engineering

Railway and telegraph networks, steam ship, gas lightening

3rd wave

1890/96 to 1914/20

1914/20to 1945/49

Steal, electricity, metals, chemicals

Electricity network, steel ship, telephone

4th wave

1945/49 to 1966-74

1966/74to 1992/94

Petroleum, automobiles, durable consumer goods

Highways, airports, tankers, refineries

5th wave

1992/94 to ? ? Internet, digital data processing, info-services etc.

digital networks

Types of cycles:

• Juglar cycle ('classical business cycle‘; 7-10 years): periodic over-investment

• Schumpeter-Kondratieff cycle (45-60 years): new technological trajectories (railways, telephone, electricity, IT, etc.)

Less important:• Kitchin cycle (inventory cycle)• Kuznets cycle (migration cycle)