“This chapter discusses the revival of interest in long-term fluctuations in the growth of the world economy and particularly in the Schumpeterian theory of business cycles. After reviewing the common ground in relation to investment behaviour and business cycles, it goes on to discuss the failure of Keynesian economics to come to terms with the influence of technical change. The central theme of the chapter is that certain types of technical change – defined as changes in ‘techno-economic paradigm’ – have such widespread consequences for all sectors of the economy that their diffusion is accompanied by a major structural crisis of adjustment, in which social and institutional changes are necessary to bring about a better ‘match’ between the new technology and the system of social management of the economy – or ‘regime of regualtion’. Once, however, such a good match is achieved a relatively stable pattern of long-term investment behaviour can emerge for two or three decade. This point is illustrated with respect to the rise of information technology. It is argued that this pervasive technology is likely to heighten still further the instability of the system before a new, more stable pattern of growth is attained.
The resurgence of interest in Schumpeter’s ideas (e.g. Elliott, 1985) is associated with the slow-down in the growth of the world economy in the last decade. Whereas during the prolonged post-war boom of the 1950s and the 1960s there was some tendency to assume that the general adoption of Keynesian policies would prevent the recurrence of the any depression comparable to that of the 1930s and would smooth out small fluctuations, this confidence was somewhat undermined by the deeper recessions of the 1970s and 1980s and the return of much higher levels of unemployment. Not surprisingly, this has led to renewed interest in long-cycle or long-wave theories, which make analogies between the 1930s and 1980s. This chapter concentrates on the explanation of these deeper structural crises of adjustment, without making any assumptions about fixed periodicity or statistical regularity.
We start by looking at the common ground in the analysis of business cycles. We shall quote extensively from Samuelson for several reasons. First of all, he is probably the most authoritative neo-Keynesian economist, and one who commands respect through the profession. Secondly, business cycles have always been one of his central professional interests. Thirdly, as author of the most widely read economics textbook in the Western World, he provides in the successive edition of this book a convenient synthesis of the changing state of the art (Samuelson and Nordhaus in the most recent and thorough revision, i.e. the 12th edition)”