An Institutionalist Review of Long Wave Theories: Schumpeterian Innovation, Modes of Regulation, and Social Structures of Accumulation
O'Hara, Phillip Anthony, Journal of Economic Issues
Since the late 1960s and early 1970s, most highly developed capitalist economies have suffered from a high level of instability and a sustained reduction in the rate of growth of real GDP. This has manifested itself in the three major recessions of 1974-75, the early 1980s, and the early 1990s in addition to the stock market and commercial property market crashes. A number of political economists of various ideological persuasions are sympathetic to the view that this relative downgrade should be examined within the context of successive long waves of economic growth, each lasting between 40 and 60 years. These authors take seriously the idea that capitalist economies have evolved through a series of qualitatively different historical epochs--1780s-1840s, 1850s-1890s, 1890s-1940s, and 1940-1990s--each of which can be divided roughly between phases of expansion (20-30 years) and contraction (20-30 years).
Given the emphasis most long wave analysts place on interdisciplinary method, evolution, technology, and institutions, it is perhaps surprising that no major article has appeared on long waves in the Journal of Economic Issues. Part of the reason for many AFEE members eschewing long waves relates to the tendency of some wave approaches to be deterministic, in the sense that events are said to occur through laws such that if these laws were known, then it would be
possible to comprehend the past and predict the future [Brodbeck 1968]. Some wave theories are also economistic (not holistic) and mechanistic (rather than processual). However, not all wave theories are of this nature. In this paper, I scrutinize two theories that many institutionalists would have sympathy with: the Schumpeterian theory of innovation (linked to the "regulation approach") and David Gordon's theory of social structures of accumulation (SSA). These approaches are critically examined to determine broad continuity with the institutionalist method of (1) holistic and interdisciplinary analysis, (2) utilizing the notions of circular and cumulative causation, (3) incorporating evolutionary change, and (4) emphasizing the contradictions within and among institutions.(1)
Schumpeterian Innovation and the Regulation Approach
Joseph Schumpeter's theory of innovation and business cycles was developed in The Theory of Economic Development [Schumpeter 1911] and his two-volume work Business Cycles [Schumpeter 1939]. He devised less a theory of long waves than a useful historical method for understanding cycles in general. Schumpeter's method was not essentially interdisciplinary, since he sought in these works to delimit the scope of analysis to "economic life," one in which "private property, division of labor, and free competition prevail" [1911, 5]. This is true despite the fact that he realized that the "social process is really one indivisible whole" [1911, 3].
His model developed the notion of multiple cycles, and the three-cycle schema of Kitchin (3-5 years), Juglar (7-11 years), and Kondratieff cycles (40-60 years) was introduced because he found it to be "useful" in "marshalling the facts" [Schumpeter 1939, 169-70]. Schumpeter differentiated between "factors of change," which are endogenous to capitalism, and those which are exogenous [1939, 73]. The exogenous factors include war, revolution, social unrest, government policy, earthquakes, and crop production. For an understanding of the endogenous factors, it is necessary to comprehend his notion of "economic development." As he said: "By 'development,' therefore, we shall understand only such changes in economic life as are not forced upon it from without but arise by its own initiative, from within" [Schumpeter 1911, 63]. Development is the process of discontinuous change and disequilibrium brought about by innovation: "the carrying out of new combinations" [1911, 66].(2)
Such innovations (rather than inventions) include the introduction of a new good, the introduction of a new method of production, the opening of a new market, the conquest of a new source of supply of raw materials or half-manufactured goods, and the carrying out of the new organization of any industry (such as the creation or breakup of monopoly) [1911, 66]. …