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EUGENE GARFIELD INSTITUTE FOR SCIENTIFIC lNFORMATION~ 3501 ST, PHILADELPHIA, PA 19104 Tksmy of Technology’s Role in Ikonornic Growth Brings MIT’s Robert M. Solow the 1987 in Economic Sciences

Number 17 April 25, 1988

For his contributions to the theory of economicgrowth, Robert M. Solow, Department of Ecmtosnics, Massachusetts Institute of Technology (MIT), Cambridge, was awarded the 1987Nobel Prize in cco- nornics. [n two ticks, published in 1956 and 1957, SoIow proved that technical change (both im- proved technology and improved education in the work force) was chiefly responsible for long-term growth, much more so than increases in labor or . Wow’s 10 most-cited publications are re- viewed, as well as the 1986 research fronts that include core publications by him. A biographical sketch highlights Wow’s long career at MIT and his profesaionrd partnership with colleague Paul A. Samuelaon.

Scientists probably do not realize it, but “Solow’s growth model constitutes a fYame- as a group they may owe a greater debt of work within which mcdem macroeconomic gratitude to Robert M. Solow, the 1987 No- theory can be structured. ” 1 bel laureate in economics, than to any one or all of last year’s prizewinners in the sciences. What Fuels the )?,conornicEngine? In the late 1950s Solow formtdrtteda theo- ry of that emphasized the What makes for steady growth in a rta- importance of technology. He stated that tion’s ? Before Solow’s work it was technology-broadly defined as the applica- thought that sustained growth required a tion of new knowledge to the production precise coordination of the rate of , process-is chiefly responsible for expand- the rate of growth in the labor force, and ing an economy over the long term, even the capital- ratio. These three had to more so than increases in capitaf or labor. be balanced within very narrow and unfor- And since basic and applied research is ohm giving parameters-on a “knife-edge’ ‘—or the prelude to the birth of uew technologies, else the economic engine, like a combustion the work of researchers has increasingly engine given the wrong mixture of fuel, been perceived to have economic-not would begin to sputter and cough. merely intellectual and cultural-signifi- Solow rejected the theory of knife-edge cance. equilibrium growth, which he found too in- “Research = ” is a ecmstantly flexible and remote from reality. Under such quoted equrstiottnowadays. That intellectual a scenario, he noted in his Nobel leeture, formulation has brought and will likely um- “most eeonomies, most of the time, would tinue to bring a ‘higher level of public and have no equilibrium growth path .... The his- private support to scientists than was avail- tory of capitalist should be an al- able long before. For that increased support ternation of long periods of worsening un- scientists can thank, at least in part, Solow. with long periods of worsen- The Royal Swedish Academy of sciences ing labor shortage,”2 which it plainly is chose to honor Solow for’ ‘his contributions not. to the theory of economic growth” and his Another implication of the then accepted analytical demonstration of that theory. theory of growth seemed unsound to Solow. The statement of the academy notes that The theory suggested that “a recipe for

123 Tabk 1: Robert M. ScrIow’spublications most cited in the SCP, 1955-1987, and the SSCF’, 1966-1987. A =number of citations, B= bibliographic citation.

A B

421 Arrow K J, Chenery H B, Miohas B S & ScAow R M. Capital-labor substitution and economic efficiency. Rev. .Econ. .$mriw. 43:225-50, 1961. 390 SoIow R M. Tecbnicsl change and the aggregate production function. Rev. Econ, .%aisr. 39:312-20, 1957, 341 Dorfman R, Samuelsmr P A & Scdow R M. Linear progrm”ng ad economic arrafysis. New York: McGrsw-Hill, 1958.527 p, 253 %lOW R M. A contribution to the theory of economic growth. Quart. J. ,%m. 70:65-94, 19S6. 143 SrIlow R M. The economics of resmcrces or tfre resources of economics, Amer. Econ. Rev. 6$(2):1-14, May 1974. 98 McDunatd 1 M & SO1OWR M. bargaining and employment. Amer, Econ, Rrv, 71(5):896-908, December 1981. 84 Wow R M. Intergenerstiorrsl eqcicy and exhaustible resources. Rev. &on, Sod (Symp.):29-45, 1974, 74 Sarnrrelson P A & SU1OWR M. Amdyticed sspccts of anti- Wlicy, &r. EcorI, Rev. 50(2): 177-94, ?&y 1960. 72 Mow R M. On theories of , Amer. Econ. Rev. 70(1):1-11, Mrcrch 1980, 71 SulOw R M. Growrh fheory: an exposition. New York: Oxford University Press, 1970. 109 p.

doubling the rate of growth in a labor-sur- fusions yield in out- plus economy was simply to double the sav- put .4 ings rate....”2 This implied that nations Karl-Goran Maler, Stockholm School of that saved more could grow faster and that Economics, Sweden, a member of the No- poorer countries, because they saved so lit- bel committee, noted, ‘‘Solow showed us tle, could not attain high growth rates. The that in the long run it is not increase in quan- recipe sounded implausible to him, especial- tity that is important. It is the increase in ly in light of the rapid economic expansion quality through better technology and in- of some developing nations and the clear dif- creased efficiency.”5 ferences in rates of growth among developed The finding that technical change is most nations. responsible for growth “has held up sur- In 1956 Solow proposed a more flexible prisingly well in the 30 years since [its theoretical explanation of economic publication], ‘‘ Solow observed in his Nobel growth,s and in the next year he showed lecture. “It stimulated hundreds of theoret- how the various components of growth-in- ical and empirical articles by other econo- cluding technical change-could be sorted mists. It very quickly found its way into text- out and measured.q In these two articles books and into the fund of common knowl- Solow proved that steady growth could be edge of the profession.”2 From that find- achieved despite variations in the recipe. ing there emerged art entire sprzialty, . Solow’s 1957 and 1956 articles rank sec- The Role of Teehrtical Change ond and fourth, respectively, among his most-cited publications, according to data from the Science Citation @’, But most remarkable, and startling even 1955-1987, and the SOCLZ1Sciences Ciiwion to the discoverer, was the finding, reported ktdex@ (SSCF ), 1966-1987. (See Table 1.) in the 1957 article (’‘Technical change and Any attempt to judge the intluence and im- the aggregate production function’ ‘), that pact of this pair of papers by raw citation seven-eighths of the doubling in gross out- mres should, however, heed Solow’s warrt- put per hour of work in the US economy be- ng that his findings quickly entered into tween 1909 and 1949 was due to’ ‘technical “the fund of common knowledge of the pm change in the broadest sense” (which in- fession. ” cludes improvements in education of the la- That is very nearly a description of the bor force). Only one-eighth was due to in- obliteration-by -incorporation (OBI) phe- creased injections of capital. In fact Solow nomenon, whereby publications do not get observed that after a certain point capital in- :ited because their substance has km in-

124 corporate in current knowledge.~s Im- Prrrduetive efficiency 1322 pressive as his counts are for these two ar- and fuel choices ticles, they are undoubtecilydepressed by the (2/15) P OBI effect. Moreover, since the SSC[ begins only in 1966, many citations to these two papers from social-sciences journals of the late 1950s and eariy to mid- 1960s are missing entirely from our counts. The 1957 article is a core publication in the 1986 research front “Long-run pro- Regional growlh ductivity models and capital inputs” models Dynamic demand systems (#86-0289). (A research front consists of (2/l B) and nonlinear equations current-year articles and publications from (3/26) previous years that, after co-citation anrdy- Monte Carlo tests 1766 sis, cluster together into intellecmally coher- and damand systemsu ent, closely related units, each representing (2/19) an active area of current research.) This re- Furrre 1: DEMAND SYSTEMS AND PRODUCTIV- search front contains 231 articles indexed ITY MODELS. Multidimenaionsl scaling map for in 1986 and 34 core publications that those C2-level research front #86-0160. Nrmrbera in current-year papers consistently co-cite. psrentbeaes irrdkare the numbers of core/citing papers in each research front. The size of the circles is The cluster #86-0289 is linked to three determined by the totaf number of cites received by other Cl-level clusters: “Regional growth the core prrpers in the research front. models” (#86-4777j, “Productive eftl- ciency and fhel choices” (#86-1322), and “Dynamic demand systems and nonlinear Solow’s third most-cited publication is a equations” (#86-4674). The group of four book cowritten with Paul A. Samuelson, the fronts, and a fifth (“Monte Carlo tests and 1970 Nobel laureate in economics and his demand systems,” #86-1788), are aggre- colleague at the Massachusetts Institute of gated in the C2-level research front “De- Technology (MIT), Cambridge, and Robert mand systems and models” Dorfman, Harvard. 11 This volume, pub- (#86-0160), and the whole ap~ars in the lished in 1958, is an introductory text, writ- multidimensional scaling map in Figure 1. ten especially for without high- (A Monte Carlo testis a computer simula- level mathematical skills, on the theory of tion program used widely in economics and linear programming, an important tool for other sciences.) economic and econometric analyses. Solow’s most-cited publication, “Capital- labor substitution and economic efficiency,” Natural Resource Economics has collected over 400 citations since its pub- lication in 1961.9 Coauthor Kemeth J. Ar- His fifth and seventh most-cited papers row, , Cambridge, represent a more recent research , Massachusetts, the 1972 Nobel laureate in but one related to the theory of economic economics, wrote about this work in a Ci- growth. 12.13 The Nobel committee, al- tation Ckzssic@ ctmunentary published in though singling out Solow’s 1956 and 1957 Current Contents@ in 1979.10 The paper, articles, made mention of his “important Arrow recollected, showed that the Cobb- contributions in the area of natural resource Douglas production function’s iinear loga- economics. ” Their statement continues with rithmic formulation was too simple. “The a question: “Is it possible to imagine con- of substitution between capital and tinued ~onomic growth when we know that labor was [shown to&] no longer restricted natural resources are finite? Solow s~died to one, but could be any constant, ” Arrow this question from a theoretical perspec- wrote. He also mentioned Solow’s 1956 tive... and found that the key to this problem paper in which’ ‘Solow had in fact suggested lay in assumptions made about the substitu- just such a production function” in tion elasticity for capital and mtural resource theory. 10 inputs. ” 1

125 The ninth most-cited publication of covered very quickly that I was not good at Solow’s is also his presidential address to those things, so I stopped, ” Solow recalled the American Economic Association, deliv- in an interview in 1983. ‘‘1 was interested ered in 1979, in which he examined macro- in sociaf questions because the Depression economic questions about unemployment. 14 was just over or not quite. I remembered This paper is core to the 1986 research front from my childhood what an unpleasant time “Equilibrium unemployment” (#86-7984), the Depression had been for my family and a smafl cluster composed of 22 current-year more so for others. ‘‘17Focusing on the so- citing articles and two core documents. cial sciences, Solow studied sociology with Solow’s tenth most-cited publication is the , anthropology with Clyde elegant little book Growrh i?reo~: An Ex- Kluckhohn, and economics with Paul po~ifion, 15 which con~n5 six lecture5 on Sweezy. Soon, however, his course work the aggregative theory of growth that he de- was interrupted by the war and he left col- livered at the University of Warwick, Cov- lege for in the US Army. In 1945, entry, UK, in December 1968 and January after completing his tour of duty, he returned 1969. to Harvard to finish his baccalaureate. Solow decided to major in economics and had the great fortune to have as his chief in- Embodiment, or the Vintage Approach structor Wassily Leontief, the 1973 Nobel Not listed in Table 1, but worthy of notice laureate in economics.’s ‘‘Wassily was my since the Nobel committee explicitly men- tutor; he taught me most of the economics tioned it, is Solow’s article’ ‘Investment and I learned, ” Solow has said. 17 In 1947 technical progress, ” published in 1960.16 Solow was graduated from Harvard College. In this paper Solow introduced the concept He continued at Harvard for advanced of “embodiment,” sometimes called the study in economics, concentrating on math- vintage approach, which attempts to account ematical economics and statistics. He re- for the tdmolo~ that is built into a capital ceived a master’s degree in 1949 and a PhD good. That good, say a machine, retains its in 1951. His dissertation examined how ran- level of technology throughout its life. In dom processes affect the distribution of in- projecting growth in which technology is a come by size among families. It won for key element, machines of different vintages, Solow Harvard’s David A. Wells Prize, embodying different technologies, must be given annually for the best PhD thesis in kept separate in the growth accountant’s led- economics. ger. Aside from making the work of accoun- tants more complex, the vintage approach SoIow Joins MIT revealed the rerdity that investment in today’s technology ties up future technology In 1950 Solow joined MIT as an assistant to some extent. “Nowadays, the vintage professor of statistics in the economics de- capitaf concept has many other applications partment, Again Solow was blessed with and is no longer solely employed in analyses gocd fortune, as he himself observed: “You of the factors underlying economic growth, ” take a 25-year-old , a theorist at noted the Nobel committee. “The vintage that, and you give him an office next to Paul approach has proved invaluable, both from Wunuelson.. that’s a great experience. ” 19 the theoretical point of view and in applica- Solow has been at MT ever since. He be- tions such as the anafysis of the development came associate professor in 1954, full pro- of industrial structure s.”1 fessor in 1957, and Institute Professor in 1973. In fact, his only extended time away Early Years from MIT came in 1961-1962, when he served as a staff economist on President Robert Merton SO1OWwas born in Kemedy’s White House Council of Eco- Brooklyn, New York, on August 23, 1924. nomic Advisors. Although he returned to He began his undergraduate studies at Har- MIT in 1962, his government service was vard College in 1940, intending at first to not yet over: in 1964 President Johnson study biology,-. botany,-- or genetics. ‘‘1dis- named Solow to the National Commission

126 on Technology, Automation and Economic he has said, “Aman wotddhavetobe a fool Progress and in 1968 to the President’s to go somewhere just for when in- Commission on Income Maintenance Pro- stead he could sit and trdk with Paul grams. Solow aiso served as a member of Samuelson every day. ” 19 the board of directors of the Federal Reserve It is not merely his association with Bank of Boston iiom 1974 to 1980 and was Samuelson that has kept Solow in one place its chairman during 1979-1980. for 38 years but also the excellence of the Solow’s list of visiting professorships, Depamnent of Economics at MIT, which for honorary degree-s,society memberships, and the past decade has been rated the best in awards is, as one would expect, quite ex- the nation. tensive. Especially notable are his 10 honor- ary degrees from highly distinguished uni- MIT: A National Treasure versities worldwide and his membership in the American Philosophical Society and in Last August-two months before SO1OW’S the National Academy of Sciences, among prize was armounced-I received a letter others. He was also elected president of the from my &lend Robert K, Merton of Co- in 1964 and of the lumbia University, New York, in which he American Economic Association in 1979. drew my attention to’ ‘the vastly talented ar- One honor of special significance to ray of taxonomistsat MIT.’ ’21He was sug- Solow is the James R. Killian, Jr., Faculty gesting that I might conduct a citation-based Achievement Award, which he received in study on the research activities and impact 1977-1978. Given by an MIT faculty com- of this department. He noted tlsatamong the mittee for “extraordinary professionrd ac- faculty were two Nobel laureates-Sarnuel- complishment,” the award recognized the son and Franco Mcxligliani, who won the excellence of his teaching, as well as the prize in 1985.22He rdso noted “an overdue more widely recognized impact of his re- prospect, Bob Solow. ” About this extraor- search. The citation accompanying the dinary group of economists he continued, award specifically mentioned that he has “accorded equal time and attention” to un- I don’t think one has seen their equiva- dergraduates as to graduate students and his lent anywhere else-and for such a sus- own research.zo tained period. Initiated years ago by Paul While it is plain that Solow has given Sarnuelson, they have recruited and de- much to MIT and its students, he would say veloped exceptionaltalents. What’s strik- that the institute and his colleagues there ing, ~Y ~ all great talentsAND @y have given much more to him. In particular, like one another. I have the well-basedim- pression that this is one of the more un- his long-standing personal and professional usual academic departments in any field association with Samuelson, now Institute anywhere.21 Professor Emeritus, has been extremely tiuitful. The citation of the KiUianprize con- In the near future I hope to undertake the tains the following observation: intriguing study he proposes. But I can pre- The intdlectuatpartnershipof Solowand dict what it would reveal in general terms: Samuelsonmustrankamongthemostpro- an influence throughout the scholarly liter- ductiveof sucht’dationshipsin the history ature that is disproportionate to the size of of economics, extending far beyond the its faculty or the number of their contribu- occasional explicitly collatxmativework. tions. And that goes as well for the entire Each served as a testing ground for the research community at MIT, which is no ideas of all of his colleagues, but most of less than a nationrd treasure. MIT now all for each other. The gain to each, and counts eight Nobel laureates on its faculty, to the dkcipline of economics, from the the most recent of whom, besides Solow, interaction has been irnrneasurable.20 is immunologist Susumu Tonegawa, who Solow has frequently been the target of re- won the 1987 prize for physiology or med- cruiters from other universities but has icine and about whose life and work I have steadfastly refused their offers. About that also recently written.zs

127 Wealth from Knowledge Fhatly, basicresearchis anelementcon- tributingto the outputof highty qualified I stated at the beginning of this essay that men and women educated in science and perhaps not many scientists have realized the its methods. Of these three factors, the impact of Solow’s work and its importance manpowerbenefitmaybe thekno8tifnpor- to public and private support for scientific tant when the justifications for basic scienceare consideredin the nationaf mn- research. However, in the late 1960sa group text, partlybecausedkcovenes and tech- of researchers on the science faculty of the niquescrossinternationalboundariesmore Victoria University of Manchester, UK, easily than men.24 were inspired by Solow’s classic paper of 19574 to investigate closely the role of That work of some 20 years ago invites science in creating wealth by underpinning renewed investigation of the relationship be- technology and industry. Using the case tween science, technology, and economic study method on some 84 technical innova- advance. But for opening up this whole field and for placing such investigations on a firm tions they found that scientific footing, we have Solow to thank. Scientificdiscoveries occasionallylead to applications in the form of new technolo- ***** gy; this is rare, but the effects may be multipliedindefinitelyas technologyW My thanks to C.J. Fiscus and Dovid on technology.science also providestech- niques which make it possible or easier Pendlebury for their help in the preparation to tackte industrial problems successftdty. of this essay. O,mlsl

REFS2RENCES

I RoyaJ Swedkb Academy of Sciences. Press release. 21 October 1987.4 p, 2. Solow R M. Growth Iheory and qler, (Nobel lccrure.) Smckhofm, Sweden Nobel FoundatimI, 1987.28 p. 3. —----- A contribution to the !hemy of economic gmh. Qua!. J. E@n. ‘70.63-94, 1956. 4 ——. Technical change and the aggregate pmd.crion Jim.tion. Rev. .Econ. Srmikt. 39:312-20, 1957. 5 Rail C H. Solow cited for econonuc growth thmry. MJ7 Rep. Oecember-Jauuary: J3, 1987. 6. Merron R K. On theoretmai mciology, New York, Free Press. 1%7. p. 27-835-7. 7. Gnrf2eld E. The ,obliteration phe”ommon’ m wie”ce-and rbe d’811k4kW of Lwng obliterated! Essays of an iqlmmaim scit-nrut. Ptuladelpbia: JSI Press, J977. Vol. 2. p. 3%8. S, Merkon R K. Foreword, (Gti]eld E ) Ciwrion indexing: m theory 4 application in mience, Iechmdogy, and humanities. New York: Wiley, [979. p. v]i-xi. 9. Arrow K J, Chenery H B, Mfnhas B S & SaIow R M. Capiti-kbor substitution acd economic efkicwncy. Rev. Econ. SIarist. 43:225-50, 1%1. 10, ArTow K J. Citation Classic Commemasy on Rev. .&m.. .%firf. 43:225-50, 1%1. (Smeker N J, romp.) Conwnpora?y classics in the sockd ond behuviond sciences. Phdadelphia: 1S1Press, 1987. p. 3 J8. (Refrinfed from; Current ContcnrdSociaJ & Behavioral Sciences 11(17): 18,23 April 1979.) 11, IJorfman R, ,%muetwn P A & .%IowR M. tine-m pro8rumrning and ecormmc rmdy$i.s New York: Mffiraw-Hill, 1958.527 p, 12 %1OW R M. The WO!KUlliCS of re.sources or lhe resources of WCUWKUCS.Amer. Econ, Rev. 64(2): 1-14, May 1974. 13. -—. fntergemmtional equiry and e?.hau$fihle rewmrces. Rev, .%?.. Mud. (Symp.):29-15, 1974. 14 —. On thcones of unemployment. AIIUr. Ec... Rev. 70(1): I-1 I, March 1980, I 5 _——. Grow?h fhcorj: an e.rpmifion. New York: Oxford Universi& Press, 1970, 109p. 16. —. Investment ad technical progress. (Arrow K J, fkrlin S & Suppes P, d..) 6f@Jwmaricaf methods in rhc social sciences, 1959 Stanford, CA: Stanford Universiv Press, 1954. p. 8S- 104. 17. Kkamer A. Robert M. Solow. Conversations wirh economists. Totowa, NJ: Rowmm & A!!ddd, 1984. p. 1274S. IS. Gar@ld E. Wassity Leontie[ pioneer of input+urput anatysis. Current Comem,S (37):3-12, 15 Sepremter 1986. 19 Ma&afk E. Nobel prize for Ihmry of ecommic Erowlb. Scimce 238(4828):7545, 6 November 1987 20, Masw.wbwus Iastftute of Tecfmo@. press release. October 1987.3 p. 21. Merran R K. Personal communication. 22 August 1987. 22. Garffeld E. Fmnco M0di81iti of MJT wins Ihe [985 NobeJ prize in wmmnics; novelist Cfaude Simon of FraIw receives the prize for literature. Currem Conrenrs (41):3- II, J3 Ocrober 1986, 23. —. Citation anatys]s kgN\ghts fhc key role in antibxfy divemity research played by Susumu Tonegawa, tJK 1987 Nobel laureate in medicine. Cm-mm GmImrs (14).3-10, 4 April 1988. 24. Langdsh J, Gihboms M, EvaM W G & Jevons F R. JPeahh from kw.kdge: a srudy of imma”on m indumy. )iew York Wky, 1972, p. 42,

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