The Economic History Perspective

Whereas the communication perspective explains diffusion by the adopters' perceptions of the risks and benefits of an innovation, the economic history perspective treats all adopters the same - as rational economic agents - and instead explains diffusion by the improvements made to the innovation itself over time:

A better understanding of the timing of diffusion is possible by probing more deeply at the technological level itself, where it may be possible to identify factors accounting for both the general slowness as well as the wide variations in the rate of diffusion.17

Taking up the earlier study of the diffusion of hybrid seeds, an analyst of diffusion by the name of Griliches came to a very different set of conclusions to those of Ryan and Gross. Instead of looking at the relative innovativeness of adopters and their communication among themselves, Griliches proposed that the diffusion of hybrid corn could instead be explained by 'differences in the profitability of the changeover from open pollinated to hybrid seed'.18 This hypothesis was itself based on earlier findings by agricultural extension agencies that 'the greater the efficiency of the new technology in producing returns ... the greater its rate of acceptance'.19

Griliches's findings had considerable implications for the communication perspective, since it was now said to be 'possible to account for a large share of the spatial and chronological differences in the use of hybrid corn with the help of "economic" variables'. Indeed, he went on to conclude that the 'sociological variables . tend to cancel themselves out, leaving the economic variables as the major determinant of the patterns of technological change'.20 Others, such as Mansfield,21 subsequently lent further support to Griliches's economic explanations of diffusion, leading future economic historians to conclude that 'Griliches and Mansfield have clearly demonstrated the power and scope of purely economic explanations in diffusion of individual inventions'.22

When a new technology is invented, it is often crude and inefficient, offering few advantages over existing technologies. Think for example about the size of the first mobile phones. But, through a 'continuum of inventive activity', the newer technology is found to become increasingly competitive, with consequent impacts on its diffusion:

If it is true that inventions in their early forms are often highly imperfect and constitute only slight improvements over earlier techniques, it also follows that the pace at which subsequent improvements are made will be a major determinant of the rate of diffusion.23

In this way, economic historians have tended to link the diffusion of an innovation to the 'persistent, sweaty, sometimes grim, comparatively monotonous experience' that 'is often called development' of the innovation.24 Or, as another author concludes, 'the diffusion of technology is inextricably interwoven with its development'.25

Historical examples include Diesel's engine, which required more than 20 years of development to find an 'economic role', and only then began to take over 'surprisingly fast: ships in the 1920s, trucks in the 1930s and locomotives in the 1950s'.26 Similarly, improvements to the incandescent light-bulb by Edison's team of engineers were central to the diffusion of grid electrification itself.27 The diffusion of the steam engine is explained by Watt's improvements to the Newcomen engine, which opened 'the way to continuing advances in efficiencies that eventually brought the steam-engine within the reach of all branches of the economy and made of it a universal prime mover'.28 And improvements to high-yielding varieties (HYVs) of seeds and their adaptation to local conditions are said for instance to explain 'the dramatic speed with which new HYVs were diffused among peasants in South and Southeast Asia', and that such examples clearly 'demonstrate the power of the "economic" model of diffusion'.29

When we measure the rate of diffusion, we are basically asking how much time it takes for an innovation to be adopted by people. For the communication perspective, the amount of time it takes is dependent on the time it takes for people to become convinced through communication. But for the economic history perspective, the amount of time it takes is dependent on the time it takes for the propagators of an innovation to learn how to design, develop and manufacture a better product. The idea is that a propagator simply needs experience with an innovation, and as this experience accumulates, so too the product improves in terms of price and performance:

Falling costs and prices are the rule of technological innovations, a result of learning and accumulating experience in the methods of producing a new product. Empirical evidence concerning the well-known 'experience curve' indicates that the inverse relationship between unit cost and accumulated output (experience) generalizes across a wide range of innovations.30

The good thing about this perspective is that it all feels rather like common sense. After all, how many of us have at one time or another taken a conscious decision not to invest in a new innovation because we assume that the price will only come down over time and that the performance will only improve. Noting the price of the VCR, which fell from US$1200 to $300 in the space of a few years, even Rogers, an advocate of the communication perspective, concludes that 'when the price of a new product decreases during its diffusion, a rapid rate of adoption is encouraged'.31

The other good thing about this perspective is that it clearly recognizes the impact of entrepreneurs and their firms on the rate of diffusion. In addition to Edison, Watt and Diesel, mentioned above, you can think of Ford and the automobile, Remington and the typewriter, Wozniak and Jobs and the personal computer, and so on. But unfortunately, although the economic history perspective addresses the role of the entrepreneur, it tends to concentrate primarily on the entrepreneur's 'problem-solving' abilities,32 meaning technical problem-solving.

By mainly limiting the analysis to entrepreneurs' successes in overcoming technical problems and producing a better product at better prices, the economic history perspective tends to ignore all the problem-solving that surrounds the profitable selling of an innovation in large numbers - problems related to raising capital, distribution, promotions, pricing, taxes, supply chain management and even government policies. For instance, as one analyst reminds us, explanations of diffusion must account for even such seemingly banal things as 'management capacity decisions related to product availability'.33

Hughes's 1979 analysis of the diffusion of grid electricity in the US makes the useful distinction between an 'inventor-entrepreneur' and a 'manager-entrepreneur'. In the case of grid electrification, Edison was more of an inventor-entrepreneur, who together with his team of talented engineers developed a high-resistance filament in the light that allowed it to operate at higher voltages. This invention then paved the way for centralized electricity generation and transportation to point of use, as the operator could now use high-voltage transmission to transport the electricity, reducing the losses in the system and so making it financially viable. Based on this initial success, Edison went on to establish electric utilities in other American cities.

However, the expansion of the electricity grid to the millions of homes outside of the main cities was left to Samuel Insull, who was more of a manager-entrepreneur. Although Edison was 'deeply aware of the seamless fabric of economics and technology, he was relatively naïve about the long-term economic and social factors making up the environment within which his systems functioned'.34 By contrast, Samuel Insull brought both a technical and a managerial capacity to the task. He had been trained 'in the Edison school and absorbed its creative, problem-solving, inclusive, systematic, innovating and expansionist approach', but his problem-solving skills ultimately extended to a wider range of areas:

His conceptual syntheses involved social and market needs, financial trends, political (especially regulatory) policies, economic principles, technological innovations, engineering design, and managerial techniques.35

Thus it was under Insull that Edison's solely urban-based invention was turned into a regional system - bringing electricity to the small town and rural areas -such that by the mid 1920s, Insull presided over a utility with subsidiaries in 19 different states, supplying 8 per cent of America's electricity.

So it seems clear that the economic history perspective could benefit from a broader consideration of the problems entrepreneurs must solve in bringing innovations to market and what ultimately enables them to do so. Certainly, as we shall see, explanations of solar diffusion will mandate that we do so.

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