Long Wave Cycles of Innovation

Long Wave Cycles of Innovation

Source: Adapted from Hargroves, K. and M. Smith (2005) Natural Advantage of Nations: Business Opportunities, Innovation and Governance for the 21st Century. London: Routledge.

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 opportunities for investment and growth. Since the beginning of the industrial revolution in the late 18th century, six waves have been identified:

  • 1st wave (1785-1845). Leaned on innovations such as water power, textiles, and iron. The beginning of the Industrial Revolution mainly focused on simple commodities such as clothes and tools that could benefit many people. The conventional maritime technology relying on sailships was perfected, supporting large colonial and 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 internationally and inland. The steamship had a similar impact on maritime transportation and permitted expanded commercial opportunities in global trade. Also, the mass production of cotton substantially improved the opportunities of the textile industry by making articles of clothing much more affordable.
  • 3rd wave (1900-1950). Electrification was a major economic change as it permitted the usage of a variety of machines and appliances. It also permitted the development of urban transit systems such as 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 as electronics (television). The jet engine expanded the aviation industry towards the mass market, and mobility could be realized globally.
  • 5th wave (1990-2020?). The development of information systems substantially improved the transactional environment with new communication methods 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 platforms.
  • 6th wave (2020?-). The key technologies that are likely to be the drivers of the 6th wave are already in place and mainly include robotics, automation, digitalization, and sustainability. Digitalization implies a high level of information technologies in goods and services as well as for their management and operations. The 6th wave has also been labeled as the fourth industrial revolution.

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.