Technical change, vertical and horizontal rigidities: a neo-Austrian approach

It is well known that the neo-Austrian theory is a powerful tool to study the structural change of "an economy which is [initially] in a steady state under an 'old' technique; then , at time 0, there is an 'invention', the introduction of what, in some respect at least, is a new technology. Among the new techniques, which becomes available, there is one which, at the initial rate of wages, is the most profitable; so, for processes started at time 0 (or immediately after time 0) is adopted" Hicks (1973) p. ?? 'Invention' has steadily been understood as an innovation affecting the whole economic system, or at least a considerable number of its different sectors. This interpretation is surely what Hicks himself meant with 'invention' and has been maintained in all subsequent contributions that have followed Capital and Time in this vein (See Hicks (1977) (1984), Belloc (1980), Gozzi Zamagni (1982), Zamagni (1984), Belloc (1992), Nardini (1990) (1993)a (1993)a (1994), Proops Speck (1995), Kim (1996)). . It is to be noted, however, that innovations are generally idiosyncratic events, hitting the system at the single sector level or even at the individual productive unit level. The diffusion of an innovation among different sectors is a fairly complex phenomenon, which is by no means to be given for granted, even if it is not only possible but also commonly observed. Here we do not want to investigate into the problem of how an innovation, initially arising in a specific sector, may prime an innovation wave in the whole system, causing the emergence of a new technological paradigm and requiring a restructuring process of whole productive capacity of the economy See Andergassen Nardini (2002), Andergassen Nardini Ricotilli (2003). . We simply want to address the problem of an innovation which remains limited to a single, possibly small, sector and show that the neo-Austrian theory is well suited to investigate whether the innovating sector may perform a successful adjustment process, whereas the rest of the economy remains completely unaffected by the innovation. The difficulty basically arises in reconciling the vertical rigidities, due to the complementarities over time characterizing the updating of the productive process within the sector, with the horizontal rigidities determined by the persistence of the ongoing growth trend in the overall economy. We stress that "to address the problem" does not mean to solve it, but simply to examine some successful and unsuccessful adjustment processes and to make some conjectures about the conditions that may ensure the feasibility of such adjustment.