Why technological transitions happen

14th October 2016

By: Saliem Fakir

  

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Sustainability theorists have generally provided broad and abstract descriptors of technoeconomic transitions, as they are focused on drivers that shift the adoption of new technologies, displacing old ones. They leave to the imagination the real mechanisms and the workings of the political economy. To a large extent, they assume that the core drivers are values and consensus.

This is relevant to the current debate about technology choices for diversifying our energy mix and seeking technologies that give us the best outcome in terms of reducing our carbon intensity. Economic agents simply seeking high returns are not always driven by values but by the incentives (rents) they can accumulate over time.

This is true of not only renewables but also nuclear, gas and coal. However, different forces can conspire to favour one above the others.

It is best to choose a model of transition that relies on interests and incentives-based agency. Use of the rent model is more applicable to emerging economies (although not exclusively) in that it not only creates a more granular observatory of the mechanisms for change but, more importantly, also links rent seeking to adoption, economic advancement, development and growth.

Sustainability theories can fall victim to political naivety and fail to read transitions as outcomes that are not underpinned by values or moralism, but represent shifts in interests. Moralism often simply gives cover for what is already an interests-based agenda.

In this theoretical model of rent-based transitions, State and private markets operate side by side. We can draw on economist Douglas North’s understanding of path dependence, which, he argues, is an outcome of institutional structure – the way rents are allocated and accessed. He adds that path dependence also relies on the beliefs of actors, which determine their technology options and choices.

Path dependence is an outcome of a cluster of activities that coalesce over time and ‘nest’ each other in a form of settlement that reinforces the coexistence and continuity of the system. Such dependence generates a polity that shapes the institutional structure and, in turn, consolidates the flow of incentives (rents) and directs skills and knowledge further to reinforce the very pillars that uphold path dependence. As North notes, the breaking of path dependence may come from the ‘superstructure’, the institutional system itself – shifts in cognition or the production system itself generates new innovations that disrupt the existing technological order and base of the economy. To a large extent, shifts in path dependence are incremental, as its centre is held together by powerful forces and incentives that cannot be easily dislodged.

Further, since we are concerned with transitions that involve new technology adoption – in this case, to achieve low-carbon objectives – questions of economic inclusivity are paramount. Inclusivity is a result of how rent-seeking distorts income distribution between different economic agents involved in economic activity. Perverse rent seeking directs entrepreneurship towards unproductive economic activity and reduces long-term learning and the stock of knowledge. Its primary rationale is predatory; so, there are no long-term goals attached to the reasons for its economic agency.

How is change possible for a more inclusive economy? Exclusion always sows the seeds of bitterness. Those left out feel that they are obligated to correct things. As we have learnt from other experiences in the history of human society, the transition from an exclusive economy to an inclusive one can happen in several ways:

• The ‘rent’ grab is so pernicious that further exclusion becomes socially untenable, with social dissent and eruption being the inevitable consequences.
• There is political realignment within the political elite because not all its members continue to benefit from the old resource- intensive economy, as too many hands begin to grab from a progressively small share of rents in the old economy. This is because the extractive model of the economy favours the dominance of unearned rents over rents from productive entrepreneurship.
• Political realign- ment and new incumbents entering the State can fundamentally shift the workings of the State – to the extent that adequate checks and balances are introduced to bring about an outcome that ensures a fairer economic system that benefits the general populace. There is also a danger that reforms can perpetuate the old system, with the result that, in the end, political change merely entails a transition from one political elite to another.

• The development of new sectors – especially those that require skilled entrepreneurs – can, with time, also shift the balance of power between political entrepreneurs and economic entrepreneurs, if there are also new rules for how economic spoils are dealt with. This means the system would have learned important lessons and then designs procurement or other rules that favour productive entrepreneurship above political entrepreneurship.

• The diversification of the economic base will, with time – because there are diminishing returns for rents in existing sectors – potentially shift both the economic power political power bases. A lot depends on whether political entre- preneurs are displaced by economic entrepreneurs, in which case a new extractive model prevails that is linked to concrete economic performance rather than the continuity of the old, where there is no accountability for performance.

Political mood and governance shape the relation between rents and performance. They do not remove rent seeking but merely ask more questions than before and place more emphasis on accountability. You can watch this reality playing itself out at present between renewables and nuclear as energy options for our future and, more tellingly, between political entrepreneurship and productive entrepreneurship.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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