The Early Growth Models

Better Machine Tools

Recall from Section 3.2.3 of Chapter 3 the following statement by Adam Smith from his Wealth of Nations:

All the improvements in machinery, however, have by no means been the invention of those who had occasion to use the machines. Many improvements have been made by the ingenuity of the makers of machines, when to make them became the business of a peculiar trade; and some by that of those who are called philosophers or men of speculation, whose trade is not to do any thing, but to observe every thing; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects. In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens....1

Smith clearly suggests that new technologies developed by the entrepreneurs are often made available to the rest of the economy "embodied" in the machines provided by the capital goods sector of the economy.

     Steve Liesman (2001), "Better Machine Tools Give Manufacturers Newfound Resilience," Wall Street Journal, February 15, p. A1, provides some current examples of what Adam Smith described over 200 years ago. Liesman's article describes the machine tool industry in the United States, which has undergone some rapid technological changes in recent years. Machine tools are the machines that perform the traditional
1Adam Smith(1976), An Inquiry into the Nature and Causes of the Wealth of Nations, University of Chicago Edition, Chicago: University of Chicago Press, Chicago, pp.13-14. 		industrial functions of cutting, grinding, and shaping pieces of metal. Back in the 1950s some machine tools were directed by instructions coded onto paper tapes. The first computer-controlled machine tools appeared in the early 1970s, but they were still invariably large, mechanically driven machines that required substantial operator input. Reprogramming the machines was a difficult task.

     Liesman describes the present products of Huffman Corp. of Clover, South Carolina, and the impact of recent computer technology on machine tools becomes apparent. For example, Huffman manufactures a grinding machine that produces broaches, which are surgical tools used to shape bones during operations such as hip replacements. These tools used to be made by hand because the shape of the cutting edges was too complex for machines to handle. Now, Huffman's grinding machines perform the task that used to take 222 minutes of labor in less than 20 minutes. The quality of the broaches has permitted surgeons to work faster, which has freed up doctors' time and reduced patients' discomfort.

     Improved machine tools has increased output per employee in the auto parts industry by nearly 30 percent between 1992 and 1998, a five- fold increase in the rate of efficiency growth compared to the prior six-year period. The improved precision of the computer-controlled machine tools has so reduced the cost of making power steering units for automobiles that many auto makers now make power steering a standard feature.

     Even more impressive has been the increase in efficiency in the aircraft engine industry. The article describes how Pratt& Whitney, the leading maker of jet engines, switched production from a huge 1.3-million- square-foot plant, where parts were made in batches by large machines and then stored until assembly. Batch processing was often
more efficient, but inventory costs were high because there was always a large amount of parts sitting around waiting to be assembled into the final product. Now, the versatility of smaller computer-controlled machine tools has enabled Pratt & Whitney to produce the same output at a 300,000-square-foot plant with 1,700 fewer workers. Parts are made when they are needed because the smaller machines are faster and much more versatile. They can be reprogrammed to perform another task with the click of a mouse. Inventory costs are just a small fraction of what they were before.

     As there were signs of recession in February, 2001, Huffman Corp. was not seeing any reduction in orders for its machines. "When you have what we call killer apps, machines that are five times more productive, people are going to be buying those things even during a slowdown," says Huffman's president. The booming sales of the new equipment means that the full effect of information technology has not yet been felt and further gains in productivity are likely.

!!! This account of Huffman's new digitally controlled machinery again brings up an issue discussed in Chapter 6, namely whether whether technological progress must be accompanied by investment or whether new knowledge and technology is separate from physical and human capital.
How Far Can We Take Creative Destruction?

The British artist Michael Landy has rented an empty store in downtown London in order to "dismantle and destruct everything he owns," according to Lynn MacRitvchie (2001), Financial Times, February 21. To be destroyed are all his remaining art, all the gifts from others, and even his Saab 900. "We are defined by what we own," says Landy. "I'll be different at the end of this." Is this how an artist, whose product is creativity, carries out creative destruction?