Cardwell’s Law

While reading Joel Mokyr’s newest book I came across an older paper of him, which I found very interesting. It is about what Mokyr calls Cardwell’s law*— the empirical regularity that “most societies that have been technologically creative have been so for relatively short periods”. Throughout economic history successful countries in terms of innovation and economic growth have usually lost their competitive edge pretty soon again and were overtaken by others.

Mokyr cites several examples:

“Led first by northern Italy and southern Germany, technological leadership passed briefly to Spain and Portugal in the Age of Discoveries to the Low Countries in the age of Reformation. Much of Holland’s spectacular success in the Golden Age was a result of her technological innovativeness which complemented her commercial achievements. From there technological leadership passed to Britain during the first Industrial Revolution, then to the United States and Germany.”

I find this fascinating exactly because the pattern seems to be so pervasive. And we don’t have to go back far in history to see it happening.

Mokyr’s explanation for the regularity is based on political economy arguments. Innovation requires “creative destruction”, i.e., old ways of doing business need to be abandoned in favor of new technologies and business models. But more often than not there is a great deal of hostility against new technologies by people clinging to the old ways. It can come from incumbent businesses who currently make a good profit from, let’s say, fossil fuel exploitation and therefore oppose renewable energy sources. But also from workers who are threatened to lose their jobs.

On a more theoretical level, Mokyr posits that incumbent technologies—represented by the businesses employing them and their associated workforce—are often able to create entry barriers for rival technologies by tweaking the institutional framework in their favor. We see, for example, a lot of lobbying in favor of coal and fossil fuels but not nearly as much for renewables. If barriers to technology adoption become too large creative destruction dies out and the country loses its competitive edge.

It’s very hard for societies to overcome this resistance to technological change and emerge on a path of perpetual economic growth. A country might be lucky and experience a short successful period in which new technologies thrive. But Cardwell’s law tells us that preserving the openness towards innovation proved to be difficult for many societies throughout history because powerful political forces are pointed against technological progress.

* The name goes back to Donald Cardwell who first described the regularity.