Source: Adapted from the Economist, February 20th 1999.

Long Wave Cycles of Innovation

Technological innovation and economic growth are closely related and can be articulated within the concept of cycles or waves. Each wave represents a diffusion phase of technological innovations creating entirely new economic sectors, and thus opportunities for investment and growth. Since the beginning of the industrial revolution in the late 18th century five waves have been identified:

• 1st wave (1785-1845). Leaned on innovations such as water power, textiles and iron. The beginning of the industrial revolution in England was mainly focusing on simple commodities such as clothes and tools. The conventional maritime technology relying on sailships was perfected, supporting the creation large colonial/trading empires, mainly by Great Britain, France, the Netherlands, and Spain. Significant inland waterway systems were also constructed. The costs of production and transportation was significantly reduced.
• 2nd wave (1845-1900). Involved the massive application of coal as a source of energy, mainly through the steam engine. This induced the development of rail transport systems, opening new markets and giving access to a wider array of resources. The steamship had a similar impact for maritime transportation and permitted expanded commercial opportunities in global trade.
• 3rd wave (1900-1950). Electrification was a major economic change as it permitted the usage of a variety of machines and appliances. This permitted the development of urban transit systems (subways and tramways). Another significant improvement was the internal combustion engine, around which the whole automotive industry was created and permitted the motorization of mobility.
• 4th wave (1950-1990). The post World War II period represented significant industrial changes such as plastics (petrochemicals) and electronics (television). The jet engine expanded the aviation industry towards the mass market and mobility could be realized globally.
• 5th wave (1990-2020?). The current wave mainly relies on information systems, which have tremendously modified the transactional environment with new methods of communication and more efficient management of production and distribution systems (logistics). This spawned new industries, mainly computer manufacturing and software programming, but more recently e-commerce as information processing converged with telecommunications.

These waves are related to the phases of development of the world economy. As time progressed, the lapse between each wave got shorter. For instance, the first wave lasted 60 years while the fourth wave lasted 40 years. This reflects a growing capacity for innovation and the capacity of economic systems to derive commercial opportunities from an innovation once it has been adopted. Innovations are no longer the result of individual efforts, but are organized and concerted actions whose results are rapidly diffused. It is thus expected that the fifth wave will last about 30 years.

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