Source: Adapted from Hargroves and Smith (2005).
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 a series 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 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/commercial empires, mainly by Great Britain, France, the Netherlands, and Spain. Significant inland waterway systems were also constructed. The costs of production and transportation were 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. Also, the mass production of cotton substantially improved the opportunities of the textile industry.
  • 3rd wave (1900-1950). Electrification was a major economic change as it permitted the usage of a variety of machines and appliances and 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 expanded the mobility of passengers and freight.
  • 4th wave (1950-1990). The post World War II period represented significant industrial changes with new materials such as plastics (petrochemicals) and new sectors such electronics (television). The jet engine expanded the aviation industry towards the mass market and mobility could be realized globally and created an active aerospace industry.
  • 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 forms of management of production and distribution systems (logistics). This spawned new industries related to personal computing devices, 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 potential 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. Also, at the end of a cycle the rate of innovation usually declines as most of the main innovations in the driving sector have already occurred and that the industry has been captured by commercial and regulatory interests that focus more on rent seeking than innovation. It remains to be seen which innovations and technologies are going to support the next wave of economic development. Robotics. automation and sustainability are likely to be among the key drivers.