Nathan Rosenberg and the Innovation System

Today brought the sad news that Nathan Rosenberg — one of the finest economic historians of the last fifty years — passed away. He was 87.

I learned economic history from Rosenberg when I was at Stanford University. That and his writings had a profound influence on me and also on many students that passed through his good graces. But, in reflecting today, I realised that his impact on the profession of economics has been equally as profound — so profound that it is my guess, many do not appreciate the roots of their own knowledge.

If Rosenberg was known for one thing, it was to bring economics, real economics, into the study of the history of technological change. To be sure, Marx was not unaware of how capitalism promoted technology and Schumpeter certainty saw competition and technological change being intimately linked. But it was Rosenberg who identified where, in the thinking of so many, circa 1970, they had failed to appreciate the endogeneity of technological change. And not just the innovations that lead to new apps but instead right to the heart of science itself.

Rosenberg pointed out the fallacy that so many social scientists engaged in when taking technological change as some sort of black box or a divine process not unlike manna falling from heaven. In the 1960s, when Rosenberg was starting his career, there was no greater demonstration of this than they way economists were thinking about economic growth. To be sure, they knew growth was a function of how technology combined natural inputs (like labor and land) with invested inputs (like capital and later human capital), but they kept the relationship as a black box. Unlike so many historians, Rosenberg observed the behaviour of his economics colleagues and called them out. How could it be that, in a world where it took effort and resources to generated new innovations in the great labs of firms and universities, that growth itself could not impact on that process? What was, say, a machine tool or telecommunications network if not the embodiment of that fact. It was as endogenous a process as one could imagine. The issue was how to deal with it.

Piece by piece, Rosenberg shed light on areas that others would later model, gather data and subject to standard economic tools of analysis. He noted that the direction of technological change was dependent on the anticipations and expectations of complementary inputs. He saw that as people used technology they learned further where to push and that this function caused firms to actually do basic research so they would have a window on the future. And he saw that this process was governed by uncertainty. Not simply uncertainty that would cause one to have calculate risk weightings but uncertainty that made forecast impossible and so made it all the more important that society gave people and organisations the freedom to experiment without at the same time threatening their ultimate existence.

It is probably hard for many to appreciate how this view was not the view in economics prior to around 1990 only to gain mainstream ground with the theory of endogenous growth and the microeconomics of intellectual property development. But to Rosenberg, technological change deserved to be part of the system. Something that needed to be understood front and centre. As fundamentally pushed by the ebb and tide of incentives, the allocation of resources and the control of assets as any plant, bridge or professional. It was part of the System.

Rosenberg was the ultimate in someone who reminds us. Today, we are reminded of him and his legacy.