Modern Economy, 2011, 2, 228-258
doi:10.4236/me.2011.23028 Published Online July 2011 (
Copyright © 2011 SciRes. ME
A Critical View of Innovation in the Context of Poverty,
Unemployment and Slow Economic Growth
Roberto Kozulj-Fundación Bariloche
Bariloche, Río Negro. Argentina
Received January 31, 2011; revised March 16, 2011; accepted March 29, 2011
For the last two decades the study of technical innovation systems has been a regular practice. It has thus
become a specific field in which different approaches are constantly emerging. Its importance derives not
only from the needs of the productive sector in its search for new markets and opportunities, but also from
the fact that the formulation of public policies that will foster growth, employment and income depends on
its comprehension. In spite of the efforts made to understand innovation systems as socio-technical systems,
emphasis was laid on how to create new market opportunities and improve competitiveness, disregarding a
proper understanding of the global dynamics of growth. This was pushed into the background by the belief
that only good microeconomic results will lead to good macroeconomic ones. Thus, the complex and eVolu-
tionary perspective of the relationship between urbanization, growth, technological change and macroeco-
nomic structural changes has been ignored. This paper attempts to further explore and analyse this topic by
dealing with a series of issues: firstly, the effects of the decline in urban population growth on the use of
productive capacity in several important sectors; secondly, structural changes in product composition caused
by the saturation of urbanization processes and its effect on the behavior of productive units, and finally, the
effects of shorter lifecycles of products on income distribution. The whole perspective is useful to outline the
global context in which socio-technical systems develop and the challenges faced when testing their capacity
to provide solutions for labor and poverty-related problems.
Keywords: Economic Growth Theories, Urbanization, Unemployment Causes, Long-Term Structutal Crisis,
Poverty, Dual Society, Innovation
1. Introduction
The links between economic growth, technological in-
novation and better human welfare are among the main
topics in economic literature. However, mounting diffi-
culties to fight poverty, structural unemployment and the
loss of global dynamics deserve a deep look into the
problem, particularly when the current crisis, which
started in 2007 and has become deeper since 2009 and
2010, shows that there is more to it than just the crisis of
the financial system.
This paper focuses on the formulation of key hy-
potheses that could frame the phenomena under discus-
sion in a wider explanatory context. Such context should
help understand both the reasons for the decline in
long-term global growth rate, and the origins of the dual
society from a perspective that differs from the estab-
lished lines of thinking, despite the varied number of
schools of thought. Likewise, the role played by China,
India and other emerging economies in the growth proc-
ess may also be seen from a different, more promising
point of view when analyzing future scenarios and trying
to understand the deeper structural causes lying ahead of
economic growth in the coming decades.
Firstly, then, Section 2 briefly reviews the theoretical
background that established the axiomatics of the rela-
tion between innovation and growth, between growth
and welfare, and it discusses why such relations are so
relevant. Much weight has been attached to technical
progress as the cause of most product increase. This idea
is partially questioned here, since even today, the per-
manent addition of natural resources, capital and labor
seems to be an important explanatory factor, together
with territorial development and large-scale urbanization
processes, which are also drivers of growth.
Section 3 describes and interprets some robust trends
of long-term global growth by means of simple indica-
tors such as growth of GDP per individual. The GDP per
urban inhabitant variable is introduced here, to show
diverse beheviors of the indicators when urbanization is
considered an intervening variable.
Then, Section 4 states part of the theoretical back-
ground of the links between urbanization, technological
change, economic growth and income distribution. The
rationale for this line of argument is simple, albeit highly
relevant: 1) the global urbanization process is not just the
result of economic activity; it is in itself an important
constituent part of annual gross product generation, since
it involves a significant set of interdependent activities. 2)
The urbanization process depends, in the final analysis,
on the global population growth rate, on migratory proc-
esses – whether rural-uban or across countries –, and on
the urbanization level already reached. Therefore, in the
absence of other dynamic factors, if that process reached
saturation, the possibilities of product growth would
equally reach that point, thus leading to market saturation.
3) However, the role of technological innovation lies
precisely in its capacity to innovate productive processes,
as well as to create new products and servicies that can
mitigate the impact of this gradual process of market
This is why Section 5 goes back to this point, and
deals with five issues that have been generally over-
looked, or not considered in an integrated way, namely: a)
many innovation processes are not necessarily “innova-
tive”; they simply replace consumer goods (as they are
understood by classical economics) with others with a
shorter life cycle in order to maintain the activity level
and expand markets; b) not all productive sectors can
resort to this type of innovation because they imply dif-
ferent life cycles and production scales; c) whereas fi-
nancial capital can easily migrate from one activity to
another, physical capital and the abilities required for
production are not fully convertible, or at least not in the
short and mid-term; d) in the absence of an increase in
productivity, shorter product life cycles imply that, for
the same capital return rate, the capital recovery factor
will occupy a larger part of the price of the good or ser-
vice, which is a structural limitation to better income
distribution; e) in productive processes, innovation tends
to reduce employment, which is another obstacle to bet-
ter income because the total employment demand will
tend to be smaller than its suplly at a global scale. These
ideas are dealt with in the explanatory context of the shift
from the Fordist cumulative model to the flexible accu-
mulation model, References [18-21], since it is likely that
the current crisis be a wider replica of the crisis of the
mid 70s. This Section also describes part of the empyri-
cal evidence for this line of argument. However, both the
analytic model and the analysis of correlations between
urban population growth and product increase are shown
on the basis of an econometric cross-section analysis for
the 1960-1975 and 1975-1990 periods. (Annex
I-Empirical and methodological features of the links be-
tween urbanization, economic growth and technological
Section 6 deals with a different issue: innovation sys-
tems considered Socio-Technological Systems, since
they imply the intervention of forces coming from R&D
institutions and others devoted to their organization. The
question here is whether this is really useful in order to
prevent the dual society, poverty and unemployment
from developing more deeply, or whether there is a
strong bias towards the wrong belief that better compete-
tiveness will also and necessarily lead to a better macro-
economic behavior, when considered from a global
economy perspective and not only from that of a nation
or even worse, a company.
In short, this paper challenges the Schumpeterian hy-
pothesis about the positive global effects of the “creative
destruction” that has taken place since the end of the
“golden years”. This is done on the basis of the that the
global context of development has reached a stage of
evolution at which it requires new theoretical considera-
tions and an approach of the innovation system that will
consider it a more complex socio-technical system,
where part of the R&D effort should lead precisely to
reconciling research activities with these complex inter-
Finally, the conclusions drawn from the analysis em-
phasize what aspects scientific research should focus on.
2. Theoretical and Contextual
Considerations about Innovation and
Economic Growth
The close link between technological innovation and
economic growth has always been a specific topic of
economics and of a bulk of theoretical, conceptual and
empirical work aiming to prove the existence of a posi-
tive correlation between both variables. For some authors,
A theoretical link between innovation and economic
growth has been contemplated since at least as early as
Adam Smith (1 776). Not only did he articulate the pro-
ductivity gains from specialization through the division
of labor as well as from technological improvements to
capital equipment and processes, he even recognized an
early version of technology transfer from suppliers to
users and the role of a distinct R&D function operating
Copyright © 2011 SciRes. ME
in the economy”.
As is well known “Innovation” was introduced into
formal economic growth models in 1957 by Solow [2],
though the basis of the axiomatic relation be- tween in-
novation and growth dates back to the relatively remote
work by Abramovitx in Stantford, in the mid-1950s [3].
However, long has gone by since the introduction of
that conceptual background. The relationship between
innovation and growth has been modeled in increasingly
sophisticated ways by Lucas and Romer [4,5], which
gave rise to endogenous capacity theories, with a set of
indicators associated to their empirical verification, and
others such as R&D efforts, proxies for education, skills,
etc. Thus, theories that regard economic growth only as
the consequence of capital and labor in- crease were al-
most supplemented by this “residual” factor that consid-
ers the technological factorparticularly innovationas
the ultimate explanatory variable.
On the other hand, the evolutionary line of thinking,
rooted in Schumpeter’s ideas, gave rise to a lot of litera-
ture and research work about the link between techno-
logical innovation and large changes in economic cycles
through “creative destruction” processes, [6-10].
In turn, since very early on, even since “pre-modern”
times, economic growth has been considered a goal in
itself, linked to human welfare growth [11]. For instance,
in 1377, the Arabian economic thinker Ibn Khaldun pro-
vided one of the earliest descriptions of economic growth
in his Muqaddimah (known as Prolegomena in the
Western world):
When civilization [population] increases, the avail-
able labor again increases. In turn, luxury again in-
creases in correspondence with the increasing profit,
and the customs and needs of luxury increase. Crafts are
created to obtain luxury products. The value realized
from them increases, and, as a result, profits are again
multiplied in the town. Production there is thriving even
more than before. And so it goes with the second and
third increase. All the additional labor serves luxury and
wealth, in contrast to the original labor that served the
necessity of life [11].”
At least since 1940, mitigation and prevention of the
negative effects of a long economic crisis – or of reces-
sion periods – has been a major concern for governments.
No doubt, such concern is related to the fact that no in-
dustrial society can survive if it does not guarantee the
means for its permanent reproduction, from which better
human welfare should derive. In a modern society, this
necessarily implies the possibility of guaranteeing the
access to employment and jobs that, in turn, will permit
the necessary earnings to fulfil basic needs and, no doubt,
other not so basic ones but which have to do with sub-
ject- tive needs of the individuals and which are the con-
sequence of living in a certain society and of the fact that
the economic system needs to sell goods and services in
the market. Thus, after the “great depression”, Keynes’s
ideas dominated economic practices almost without ex-
ception, until about 1965 or 1969-1975, when the phe-
nomenon known as stagnation with inflationor stagfla-
tion – appeared. It should be remembered that, at the
time, the term itself sounded awkward, since in post-war
macroeconomic theory, inflation and recession were re-
garded as mutually exclusive. Since then, attempts to
show that alternatives involving neoclassical and mone-
tarist policies could be superior in terms of growth re-
sults have been permanent, although some have consid-
ered that this prevailing line of thinking has been merely
the result of a new axiomaticsand its subsequent for-
malizationimposed by scholars, and has absolutely no
correlation with empirical evidence [12].
On the other hand, there is indisputable evidence that
the product per individual has been growing at a global
scale, in spite of cyclical crises. This has obscured even
more the real perception of the structural limits of growth,
about which the Club of Rome has contributed, for some
decades already, pioneering research on resource ex-
haustion and the subsequent emphasis on the need to
reach sustainable development. This involves not only
natural resources, but also the society and the environment.
Issues regarding “convergence” from the pioneering
work by Baumol, Barro and Sala-i-Martín [13,14], other
more recent work [15], and research on growth stages
and equality, based on Kustnetz [16]are still under
discussion. Their significance may be explained more by
the expectations that economic development creates in
terms of human welfare than by the contradictory results
of empirical measurements.
Likewise, some interpretations of the new spatial bal-
ance of global economic growth due to the role played
by emerging economies – which could easily compensate
the slowing pace of activity in the US and Japan, both of
which should remain well containedare based on a
simplistic interpretation of innovation as the driver of
growth and of the role of China and India (which could
boost world economy to its highest level ever since the
first wave of growth after the second Industrial Revolu-
tion) [1,17]. These interpretations affect empirical results
regarding the debates on growth, convergence and equal-
ity, and also overlook the identification of probably more
robust factors that could explain both the diversity of
drivers of growth, such as this new spatial balance of the
world product, and also important links between techno-
logical innovation, shorter product life cycles, urbaniza-
tion and income distribution considered from an evolu-
tionary perspective of a wider explanatory scope.
The world crisis at the end of 2007and its subse-
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quent job destructioncannot be understood correctly
by the conceptualizations described above. Nor could
they explain the apparent paradox of a developed world –
overcome by a deep crisiscoexisting with growth in
emerging economies and a high demand of basic raw
materials (part of the growth driver in some regions).
Approaches focusing on endogenous development and
innovation cannot fully explain either the reasons for the
growing inequality and povertydespite the greater
world dynamics until before the crisis, not to mention its
huge impact on the worsening of the situation. This is so
despite the fact that these factors, among others, can ac-
tually explain to some extent the rate of competitiveness
across nations within the context of market globalization.
However, neither the negative role of “innovation” on
the possibilities of better income distribution, nor the
importance of innovation as a natural result of market
saturation have ever been considered seriously enough.
3. What do the Data Show about Economic
It has usually been considered that the world product per
individual has constantly increased for the last fifty or
sixty years, despite cyclical crises. Likewise, as has al-
ready been mentioned, growth explanatory factors have,
in the last decades, focused too much on the role of
technological innovation as the main driver of growth,
disregarding the classical theory that considered the
growth of primary factors such as labor, capital and land
essential. However, the “territorial” extension of capital-
ism is more related to such primary explanatory factors
than to technical progress, though it does not exclude it.
Territorial expansion certainly implies urbanization as
central to the industrial production mode.
However, the data currently used to show an increase
in productivity simply establish the quotient between the
gross world product (GWP) and total population as a way
of showing the continuous growth of human progress.
(Figure 1)
What these data conceal is the fact that most economic
growth is concomitant with urbanization processes at a
world scale. The interpretation of such continuous GDP/
individual growth trend is modified, partly, if the gross
world product is divided by urban population.
Although both trends seem very similar, the first nota-
ble difference between them is that, whereas the annual
average increase in per capita product value for total
population shows only a slight slowdown between 1980
and 1995, it never falls to its absolute global value.
However, the quotient between GDP and total urban
population quite clearly shows stagnationand even a
decrease of that indicatorin the same period (Figure 2).
The interpretation of these trends also differs radically.
Whereas the indicator for GDP/individual estimated with
total population data shows a slowdown but an increase-
ing trend in the long term, the product/urban inhabitant
data show the opposite trend (Figure 3).
Thus, whereas between 1960 and 1975 the absolute
value increase of product/urban inhabitant was 2.5 higher
than the average one between 1975 and 2000 and 1.4
higher than the 2000 - 2010 value, the proportion is 1.2
and 0.8 respectively for the same total population indi-
That is, whereas the global indicator (GWP/individual)
shows a smaller fluctuation and though it has a decreas-
ing tendency in the long term, it could be inferred that it
goes back to long term levels after the world economy
recovery until the recent 2009-2010 crisis. Then, once
the crisis was overcome, the world would continue to
have new and never-ending prosperity trends. Yet, the
urban population indicator has been more fluctuating in
the three long periods under consideration. This should
seriously warn about the link between urbanization limits
and growth limits, and casts doubts on the economic ac-
tivity basis on which the product, and therefore also in-
come and jobs, may be maintained in future. On the
other hand, though the annual average increase in abso-
lute value of GDP/urban inhabitant was almost 100%
higher than GDP/total inhabitant between 1960 and 1975,
as of that year, both values have been almost similar.
This points to a central aspect of the hypotheses that
will be formulated below: far from accompanying world
product growth, or being the result of such growthas is
sometimes consideredurbanization is also, to a great
extent, its cause or a “real economic growth’s machine”.
Therefore, the implications of this fact on the general
long-term slowdown of economic dynamics, and what
may be expected of such growth once urbanization proc-
esses are completed at a world level will be analysed here.
Finally, it should be noted that the world economic
growth trend is clearly decreasing, beyond the manage-
mentby means of different “economic policy recipes”
– of recession crises and decreasing periods whose
causes deserve to be considered seriously Table 1 and
Figure 4.
4. Urbanization, Growth and Technological
Change: the Structural Overcapacity
Crisis and its Effects.
The urbanization process of the last two centuries went
hand in hand with large clusters of technical innovations
that took place during the period. All these innovative
processes have been fully described in the literature
[6-0]. Besides, it has been common practice to relate 1
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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
GDP u$s 2000/Urban population estimates
GDP u$s 2000/Total population estimates
GDP/Urban Population
GDP/Total Population
Exponencial (GDP/Urban Population)
Exponencial (GDP/Total Population)
The second stage
of China reform
begin in the late
1980s and 1990s-
Great urbanization
proccess in Asia-
China WTO entry
The great wawe in
urbanization at world
The slowdown
in the
form "fordism"
Figure 1. GDP per total and urban world individual in constant values as of 2000 (US$ 2000). Source: author’s estimates us-
ing World Bank data, World Development Indicators database and United Nations, Population Division, Department of
Economic and Social Affairs, World Urbanization Prospects: The 2001 Revision and, World Population Prospects: The 2006
Revision, File 1: Total population (both sexes combined) by major area, region and country, annually for 1950-2050. Esti-
mates, 1950-2005, POP/DB/WPP/Rev. 2006/02/F01, August 2007.
Figure 2. Growth rate by five-year periods of GDP per total and urban world individual. Source: author’s estimates using
World Bank data, World Development Indicators database and United Nations, Population Division, Department of Eco-
nomic and Social Affairs, World Ur- banization Prospects: The 2001 Revision and, World Population Prospects: The 2006
Revision, File 1: Total population (both sexes combined) by major area, region and country, annually for 1950-2050. Esti-
mates,1950-2005,POP/DB/WPP/Rev.2006/02/F01,August 2007.
From 1960 to 1975From 1975 to 2000From 2000 to 2010
Average yearly incremental GDP per cápia in u$Sd 2000
u$sd 2000
GDP (u$sd
Popul ation
GDP (u$sd
2000)/Total Population
Lineal (GDP (u$sd
Popul ation)
Lineal (GDP (u$sd
Popul ation)
Figure 3. Annual average increase of product per total and urban inhabitant by long sub-periods expressed in absolute value
(US$ 2000). Source: author’s estimates using World Bank data, World Development Indicators database and United Nations,
Population Division, De- partment of Economic and Social Affairs, World Urbanization Prospects: The 2001 Revision and,
World Population Prospects: The 2006 Revision, File 1: Total population (both sexes combined) by major area, region and
country, annually for 1950-2050. Estimates, 1950-2005, POP/DB/WPP/Rev.2006/02/F01,August 2007.
Figure 4. GDP in 10^9 in constant dollars 2000, and annual variation in %. Source: author’s estimates using World Bank
ata: World Development Indicators database, 2009. Note: 2007-2010 data, from CIA World Factbook. d
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Table 1. Average growth rates of World GDP and Variability.
Average rate of
world GDP
Standard deviation
of world GDP
growth rates
variability (in %)
1960-1975 4.8% 1.7% 34.6%
1975-2000 3.1% 1.2% 39.0%
2000-2010 3.2% 1.8% 55.5%
Source: author’s estimates using World Bank data: World Development
Indicators database, 2009. Note: 2007-2010 data, from CIA World
technical innovation and long-term economic cycles.
This approach sees long termor Kondratieff cycles
linked to large clusters of technical innovations. For in-
stance, during the 1770-1840 period, when textile, iron
and some chemical industries prevailed, the steam engine
appeared and was improved. During the 1830-1890 pe-
riod, the railway, the steam engine and machine tools
spread world-wide and other innovations appeared, such
as steel, electricity, processed gas and some man-made
materials, thus giving place to expansive waves during
the 1880-1940 period. All along, engineering, electrical
machinery, steel products and wire became widespread.
Also during that period, innovations such as the automo-
bile, the aeroplane, the radio, aluminium, oil, plastics and
electrical appliances appeared and later expanded over
the 1930-1990 period. At the same time, there was the
television, the computer, the robot, nuclear power use,
the aerospace industry, new pharmacy studies, biotech-
nology and, over time, nanotechnology. All these devel-
opments resulted in the expansion of new electronic,
communication and computer industries, the develop-
ment of new materials, robotics, biotechnology and the
continuous exploration of new possibilities.
Most of these innovations and their expansion have
been based on the modern urban lifestyle. On one hand,
the urbanization process itself is the result of the array of
these technological changes as a whole. On the other
hand, the expansion of these technologies and the market
size for each of them depend on the global scope of the
urbanization process. Therefore, it is obvious that the
evolution from small-sized to larger-sized cities and the
increase in the number of large cities as of 1950 has been
closely related to the development and expansion of
various technologies, among them the car and other
means of transport such as buses, trucks, ships and planes,
and communication in general, with the growing rele-
vance of the telephone, computing science and satellite
development. It also involves a number of technological
processes linked to urban infrastructure and to the city as
such, namely electricity, water, gas supplies and data
processing networks, fuel stations, shopping centers,
schools, roads, airports, ports, storing structures, office
buildings, houses, factories producing different kinds of
consumer goodssemifinished and finished, plants and
equipment related to the daily distribution of goods and
But the increase in agricultural productivity on the one
hand, and the development of all these and other produc-
tive activities on the other, is precisely what gave rise to
job opportunities in relation to the internal and some-
times external migratory process. Together with the role
that some cities played in the regional, national and in-
ternational contexts, those processes were the central
factors for the creation of mega-cities and large cities in
general [22-26].
In turn, the development of smaller population centers
results from the localization of certain activities. Gradu-
ally, communications among minor population centers,
rural areas and large cities weave extensive and new
webs of infrastructure and flowing communications.
Over time, a small city may turn into a large one [27] in
a process that seems to multiply endlessly. But it is not
so, for the process cannot be repeated endlessly without
bringing about the irrational destruction of still useful
The process reaches a saturation point, a natural limit
that in a way also causes market saturation and the de-
velopment of productive capacity overflowing the possi-
bilities for exhaustive use. This leads to what has been
briefly named a process of “structural overcapacity” in
the face of which, anti-cyclical traditional policies be-
come gradually less efficient.
For the time being, it is interesting to highlight three
elements of this phenomenon: 1) the urbanization proc-
ess shows a natural limit, (i.e. 100% of the population
living in cities); 2) urban population total figures depend
on the pace of the urbanization process and on global
demographic trends; 3) the market size for existing
products is highly dependent on urban population figures
and on available income. The latter, in turn, derives from
structural change in the productive process, on the pro-
portion between different productive sectors and on dis-
tribution patterns existing in the present model. Such
model implies a close relationship between “effort and
income” (despite the gradual disruption of that relationship
due to both, income resulting from the financing system
and aid programmes for the poor and the unemployed).
If it is accepted that the urbanization process heads for
that natural limit and that demographic trends for the
next fifty years or more are already developing and seem
somehow predictable, it can be inferred that the behavior
of urban population evolution has all the features of a
logistic curve.
What are the features of a logistic curve, and how can
it be relevant in the phenomenon described? First, this
curve has two sections: the first one showing exponential
growth, and the second one showing a smaller growth
rate than the former, while the evolution of the variable
represented heads for the “roof” or asymptote. Therefore,
the process will have a first stage of rapid growth and a
second one, from a certain point of inflection, in which
the dynamics will tend to decrease and disappear, or will
enter a stability phase (see Appendix I for formal dem-
If market growth perspectives for a huge variety of
products only depended on urban population figures, the
economic growth process would obviously show features
similar to those of the urban development process. But it
is known that market size depends not only on the num-
ber of people but also on their income. Income, in turn,
somehow depends on both distribution patterns and total
amount of product. The latter, on the other hand, depends
on the amount of goods and services produced which are,
in a way, the result of the additional process of new goods
and services emerging from technological innovation.
Developing countries are so due to the leadership they
exercise on early stages of the innovation processes and
because they own the capital used by large-scale produc-
tive units independently of the process of de-territoriali-
zation of production. If permanent addition of new goods
and services was possible and production levels of goods
and services could be maintained, the product would
endlessly increase. If it did at a rate higher than the
population figure, the amount of product per individual
would also increase. But this is not the way it happens.
Year after year, maintenance of production levels of
products existing at a specific time is constrained both
because the market for each individual product tends to
become saturated, and because there is an inevitable
point at which the productive capacity for a certain
product reaches its maximum size, and that will occur
even before the demand for such product begins to de-
cline in absolute terms. This last process applies espe-
cially to the cluster of products related to the composi-
tion of capital goods.
In other words, the investment process for the creation
of new productive capacity, as in the case of the automo-
bile industry, is fostered by investors’ expectations on
demand for automobiles. They usually estimate figures
by extrapolation from past trends or they forecast on a
certain set of hypotheses. If such forecasting is made at a
time when expansion still shows exponential trends,
these will encourage them to invest in order to create
additional productive capacity. But what will happen if
real market trends begin to show that growth in demand
is slower than expected because real demand has crossed
the inflection point naturally attained by every curve
with logistic behavior? In that case, industry will suffer
from overcapacity. It means that existing capacity will
only be partially used and therefore, investment will not
be recovered as expected when the decision to invest was
made. Some factories will close, merge or downsize. The
microeconomic solution will be innovation or the search
for foreign markets. Many people will be made redun-
dant and salaries reduced. That, in turn, will affect the
demand capacity for those or other products. In short, a
decline in aggregate demandin Keynesian terms will
take place.
The same reasoning may be followed for a large group
of sectors related to the construction of the modern urban
system itself, that is, the whole array of infrastructure
and productive equipment involved in the process: the
capacity of the cement and building industry, of the ma-
chinery to produce it, as well as the of machinery and
equipment that, in turn, will produce these other ma-
chines and equipment, will all depend on the pace of
construction of roads, ports, airports, buildings and
houses, factories, service centers and shopping centers
and all types of infrastructure. It is clear then, that prima
facie, their expansion depends directly on large-scale
urbanization dynamics.
If the addition in economic terms of a number of new
goods and services is less significant than the decline in
production involved in the slowdown of the urbanization
pace, the product will fall from previous levels.
Consequently, if saturated markets either in the goods
and services industry or in the capital goods industry are
not superseded by a “quantum” of product similar to or
larger than the amount involved in the loss of product
derived from saturation, economic growth will stop or,
even worse, recede. Such recession implies the post-
ponement of commitments made for the implementation
of solutions to meet basic material needs and to solve
serious social and political problems.
Considering that the urbanization process had an in-
flection point in dynamics towards the 70’s, and that the
correlation between growth and urbanization is robust
both in theoretical and empirical terms [28,29], it is pos-
sible to assert that the relative slowdown of the urbaniza-
tion rate has been one of the relevant factors accounting
for: a) the global crisis of the mid 70s, and b) the changes
undergone by way in which the world system has devel-
oped ever since. In the same way, the hypothesis has
been useful to detect at an early stage the success of the
big Asian countries now in speeding expansion and,
maybe also to cast some light on the current crisis.
Figures 5-7 show population growth rate trends for
the world’s largest mega-cities and GWP (Gross World
Product) growth rate (Figures 5 and 6). In the first case,
continuous decline in both variables during the 1960-
Copyright © 2011 SciRes. ME
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1995 period can be observed.
Figure 6 shows the breach of economic dynamics that
took place hand in hand with urbanization process dy-
namics at the inflection point of the 70’s. Such breach is
extremely significant for countries such as Japan and the
former Soviet Union and, in a smaller proportion, for the
USA and Europe. On the contrary, China shows an op-
posite trend, as its urbanization process begins at that
It is important here that there is a declination in both
variables, but also that correlations between growth
whether in total urban population, large cities or mega-
cities and world product increase are more robust when,
in this interactive process, the increase in total urban
population of cities or mega-cities is used as the ex-
planatory variable rather than as the response variable.
This may be determined by shifting variables by periods
so that the explanatory variable is chronologically pre-
vious and can thus not be taken for the response variable
[28,29]. In logical terms, such process could only be
possible if the kind of explanation was teleological,
which is not applicable, or at least hard to justify in this
case. As long as both phenomena are considered interac-
tive, this trick and the outcome of the correlations clarify,
at least partially, doubts regarding the inductive nature of
urban growth with respect to economic growth. Besides,
since this is an interactive process of positive feedback, a
constraint in one of the variables will undoubtedly affect
the other variable by somehow restricting it. This last
fact in a way turns the discussion about causality irrele-
From a conceptual viewpoint, this assertion is rein-
forced when, apart from considering the values of the
growth rates; the absolute value of the increase in the
number of people living in cities and mega-cities is taken
into account. Why is it important to consider the value of
population increase in absolute terms? Because such
growth broadly expresses the incremental market size in
quantitative terms the absence of significant changes in
income distribution. This means that, if the established
capacity created by the economic system was prepared to
meet the demands for a cluster of goods, services and
infrastructure on the basis of an annual increase in popu-
lation of, for instance, 4 million people a year in the 25
largest mega-cities during the 1960-1985 period, and
between 1985 and 1995 the recorded increase was only 3
million, the capacity for such cluster of goods would
obviously be used to a lesser degree than expected. This
unless the vertical component of the demand grew so as
to balance the loss of goods “quantum” brought about by
1960-75 1975-85 1985-95
En % aa
Mega cities
Countries total
Figure 5. Mega-cities population and Gross World Product inter-annual growth rates by decades between 1960-1995. Source:
author’s estimates using World Bank data, World Development Indicators database and United Nations, Population Division,
Department of Economic and Social Affairs, World Urbanization Prospects: The 2001 Revision and, World Population
Prospects: The 2006 Revision, File 1: Total population (both sexes combined) by major area, region and country, annually for
1950-2050. Estimates, 1950-2005, POP/DB/WPP/Rev.2006/02/F01,August 2007.(图中最下脚有黑点看不清)
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Japan 9 to 11 %
URSS 6 to 7%
China 3 to 4%
Japan 4 to 5%
URSS 4 to -1%
China 5 to 8%
USA 3 to 5%EEUU 2 to 3%
Europe 4.5 to 5.0%
Europe 1.5 to 3%
Figure 6. Urbanization and economic dynamics rates in the USA, Japan, Europe, former Soviet Union and China. 1950-2000
period (expressed in percentage of total population figure and GDP inter-annual growth rate). Source: author’s estimates
using World Bank data, World Development Indicators database and United Nations, Population Division, Department of
Economic and Social Affairs, World Urbanization Prospects: The 2001 Revision and, World Population Prospects: The 2006
Revision, File 1: Total population (both sexes combined) by major area, region and country, annually for 1950-2050. Esti-
mates, 1950-2005, POP/DB/WPP/Rev.2006/02/F01,August 2007.
76709 79374
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
In thousand inhabitants
Increase by five-year period
(in thousand people) Cities
Increase by
five-year period
Figure 7. Lation trend in large cities and five-year period increases during the 1950-1995 period. Source: Estimate based on
ata from World Urbanization Prospects, United Nations, 2001. d
Copyright © 2011 SciRes. ME
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a lower increase in the horizontal component. But this is
not usually possible for infrastructure works and others
closely related to the capital goods industry. In other
sectors, it is severely constrained by reward policies for
labor and capital.
Figure 7 shows by five-year terms how a maximum in
annual average growth rate of people living in large cities
was reached towards 1970. After that, such process came
to a halt until the mid 80’s and then growth restarted,
fostered by urban growth in the USA and Asian countries.
Figure 8 shows the growth of population living in
large cities of over 750,000 inhabitants in Europe, the
USA, Japan, the former Soviet Union and China. Except
in the case of the last country mentioned, increases with
even five-year period fluctuations have declined since
the 70s. The former Soviet Union is probably the most
pathetic case, but such declining trend is also recorded in
Japan, the USA and Europe.
An extra element is added to this descriptive context:
If the world product growth is divided by the growth of
population living in large cities (both variables expressed
in absolute values), the quotient obtained is an almost
constant value (Figure 9). It is difficult to elucidate
whether this value is the result of a simple coincidence or
it is a kind of new marker revealing the focus of this ar-
gument. Nevertheless, all the arguments put forward, and
the empirical evidence analysed to prove them are sound
enough to challenge ordinary explanations which try to
account for both the abandonment of the “fordist “ model,
and the crisis and changes that took place over the last
quarter of the XXth century. As a rule, it is sustained that
economic growth has continued and it has not been pos-
sible to solve poverty problems just because the cumula-
tive model and politics have concentrated power -a fail-
ure in the redistributive income policies side of econom-
ics- explained by power and politics. The hypothesis
outlined here shows and adds another aspect of the prob-
lem, more linked to technological inflexibility, due to the
fact that financial capital enjoys great mobility, which is
not the case with physical capital.
On the other hand, it is worth pointing out that statistic
results would be different if product growth per individ-
ual was considered. In that sense, the correlation between
world product growth and total population increase
shows very low coefficients [28].
Regarding the abandonment of fordism, it is clear that
such model is compatible and beneficial in terms of co-
incidence at microeconomic and macroeconomic levels
only if the growth perspectives of all companies are real.
If productive units do not find a market for their products,
that will imply leaving productive capacity out of service
and not being able to maintain a stable working staff, a
desirable condition in macroeconomic terms which, so
far, is not sustainable in the new global context. Compe-
tition between firms for a reduced market will lead to the
search for flexible contractual conditions as a survival
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Western Europe
Figure 8. Five-year period increases in population of large cities, sorted by economic power or group during the 1950-2000
period. Source: Estimate based on data from World Urbanization Prospects, United Nations, 2001.
33670 34497
1960-75 1975-90
Annual GNP
growth (in
million 1985
owth in cities
shifted back by
10 years ( U$S)
Figure 9. GDP average annual growth in absolute values, corresponding to 1960-1975 and 1975-1990 periods, and quotient of
GDP/increase in number of people living in large cities during the decade previous to GDP growth: World estimate. Source:
Author’s estimate based on data from United Nations, Division, Department of Economic and Social Affairs, World Urbani-
zation Prospects: The 2001 Revision and Penn World Tables 5.6 Version.
strategy. The author considers this one of the initial
causes for the appearance of the “every-rule-breaking
rule”, pointed out as a feature of the world system after
the 70s, Reference [30].
It is helpful not only to conceptualize the problem, but
also to provide evidence. It is worth examining what
happens, for instance, in a market closely related to the
urbanization process such as house building. Figure 10
shows a logistic simulation developed on the basis of
data about house building recorded between 1960 and
1992 in countries belonging to the OECD. Such diagram
means to prove how the loss of dynamics in one sector
affects the growth perspectives of the industries provid-
ing equipment to that sector and that, in turn, affects the
industry related to such suppliers, going down a de-
scending spiral. In this way, a simple instance and real
data show how growth expectations both of the final
product market (that may still be expanding) and of re-
lated markets, may undergo what is called a “market
saturation structural crisis”. That happens when there is a
surplus of production capacity over real demand and also
when the sector is not easy to restructure and readjust in
terms of product or market alteration without becoming
liable to growing failure risks. This kind of problem has
been dealt with, Reference [31] by application of the
Berry matrix to the weapon industry.
The first and second derivatives in the figure show
annual increases in demand recorded in that series. Such
increases in a way indicate real market growth perspec-
tives (housing in this case), which may not have been
considered by investors. It is easy for them, encouraged
by the prosperity of the ascending period, to imagine that
the market will continue to grow as in the past. If they do,
reality will show them that they are not able to sell the
whole of their production. That will paralyse investment
in equipment and supplies industries and in related in-
dustries. Finally, the building market as a whole will be
affected and this will echo on aggregate demand levels of
the economy as a whole. Workers will no longer have the
stable contract typical of fordism, but they will need to
enter a more flexible market with fewer opportunities for
stable contracts. Therefore, the issue is not just the in-
troduction of “labor saving” production technologies;
another strong trend comes into play here.
This instance is repeated in many other sectors, such
as the automobile, infrastructure building industries, etc.
The need to resort to global markets becomes crucial and
even when not all goods and services can be exported;
many are such as equipment, financing and experts. It is
also possible to act through the financial system to
de-nationalize property in other countries and destroy
pat of their productive capacity. This is one of the r
Copyright © 2011 SciRes. ME
Annual average variation
Logistic Simulation
Maximum of the first
Maximum of the second derivative
Figure 10. Logistic simulation of housing investment in countries belonging to OECD and market perspectives related to the
building sector. Source: Author’s estimate based on data from Penn World Tables 5.6 Version.
causes of progressive globalization of the markets and of
the imposition of policies on countries with less power
and technology control.
In Figure 11 the relationship between product and
production types is established. This graphically illus-
trates the explanation given about the different nature of
goods, their markets, their historical dynamics and their
relationship with structural economic changes at the
same time as the dynamics in the urbanization process
Table 2, on the other hand, typifies the analysis of the
differences between capital goods industries (more closely
linked to infrastructure development, production capacity
creation and the war industry) and industries more re-
lated to massive daily consumption and consumption of
durable and semi-durable goods. Such characterization is
later rounded off by trying to describe their impact on the
economy through interactive dynamics and product com-
The issue explained here is very simple to understand
through Gross Domestic Product (GDP) and Added
Value (AV) definition and equivalence equations.
Added value statements are, as it is known:
1) GDP = C + I + X M, where
C = consumption; I = Investment; X = Exports and M
= Imports, and
2) GDPtn = GNPt0 + ΔGDPtn, which means that inter
annual or larger period variations can be defined as the sum
of the initial product of a certain year plus the variation
produced over the subsequent period, which can have a
positive or negative sign.
In turn, ΔGDPtn may be the result of variations of the
components in
,,CIX n
3) AV = CR + OFR where
AV = added value, CI = Capital recovery and OFR =
other factors’ recovery.
Hence GDP = AV.
Now, if
Equation (1) is separated to distinguish between in-
vestments linked a) to infrastructure (t
f), b) to the
creation of productive capacity for traditional goods
Ctr ) and c) to the creation of new products charac-
terized by rapid innovation and technological intensity
Np ), and also
consumption is sub-divided to distinguish the type more
dependent on incomes of wage earners (t
CMs ) from
the type linked to sectors owning the productive units -
or to high income sectors as a result of high specializa-
tion or privileged position in society by any means
(CNp ), Expression (1) changes into:
4) GDPı =
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Production Volume
Small scale
Large scale
Mass production
Continuous Process
Low High
Satellites, flight
Metal mechanics
Plastic Matrixes
Electronic Appliances
Capital goods. Long life
cycles, high complexity.
Concentrated market
structure (monopsonies,
monopolies or oligopolies),
Direct contracting, specialised
Consumer goods. Short life
cycles, lesser relative
complexity. More
competitive markets.
Durable goods, supplies,
daily consumption.
Production Type
Figure 11. Diagram of product and production type relationships. Source: Author’s estimate on the basis of Davis A.’s pres-
entation, Product complexity, innovation and industrial organization, SPRU Masters, Sussex, 2003.
Table 2. Matrix of differences between capital goods industries and mass production industries.
Complex projects and infrastructure. Simple projects. Mass production.
Capital goods and infrastructure.
High unit price.
Product cycle (decade).
Made-to -measure (non standard) components.
Complex interfaces.
More inflexibility for products and markets re-conversion.
Hierarchical/systemic organization.
Productive capacity growth closely linked to the building of
the urban lifestyle or to the Military System.
Wide variety of consumer goods.
Low or slightly cheaper unit prices.
Short (and gradually shorter) product cycles.
Standard components.
Less complex or very simple interfaces.
Conversion flexibility varying according to products
and markets.
Simpler organization systems.
More stable demand. Growth depending on population
growth and income.
Individual or small-scale projects.
Design influenced by contractor.
Non planned (“spur-of-the-moment”) design alterations.
High to mass production volumes.
Design previous to production stage.
Design altered according to user’s preferences or
fashion trends.
Features of Development
Permanent development during expansion of the urbanization
Highly dependent on public budget.
Enters overcapacity crisis alongside decline in dynamics of
urbanization process.
Needs new government decisions to survive.
Evolves heading for hyper complex technological forms (in
CMI it means shorter cycles).
Permanent development during expansion of the
urbanization process.
Dependent on consumer’s income.
Market dynamics decrease alongside saturation of
urbanization process. It is more stable.
Market saturation is counteracted by the creation of
new products and designs.
The innovative process shortens lifecycles.
Impact on economy
Volume of projects influences investment rate.
The government needs a bigger budget to support industry.
Investment hard to recover through market mechanisms.
Recouped infrastructure produces extra income and
competition in unequal conditions. It also influences
profitability rates across sectors. Accessibility barriers.
Projects with guaranteed profitability but without natural
Inequality between savings-investments benefits the
financing sector.
Assets overvaluation (use of recouped infrastructure,
projections of unaccomplished demand).
Shorter lifecycles influence income distribution.
Consumers wish for higher income to be able to afford
new products. They ask for tax reductions.
Possibility to obtain technological income for short
periods. Even profitability rates.
Natural continuity of markets in hyper competitive
Part of extra savings finances consumption.
Reinforcement of the financing sector.
Assets overvaluation subject to technological risk,
shorter lifecycles or market risk fluctuations.
ource: Author’s design on the basis of Davis, A.’s presentation, Product complexity, innovation and industrial organization, SPRU Masters, Sussex, 2003.
Copyright © 2011 SciRes. ME
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considering, thus, that t
fICtr Urb, t
Ctr will depend on t - being t urban
population at a certain time. A decline in its growth is pre-
dictable in the long term. That will produce a slowdown in
the process of investment fostered by the urbanization
process. It must be taken into account that initial infra-
structure is always built for long term use and productive
capacity developed for products with longer lifecycles.
It is known that, whatever its cause, a decline in the in-
vestment rate leads to recession and economic cycles. Tra-
ditional anti-cyclic measures may not be efficient in a con-
text of overcapacity in a sector which, due to its intrinsic
nature, is incapable of liquidating stock, simply because
such stock is not the outcome of mass production. There-
fore, recession caused by this type of fall in investment
rates will cause a decline in total activity levels. This is an
L-type recession, in which the decline period of the activity
is not only longer, but also produces a lower threshold. On
the contrary, U-type recession has fast recovery and the
possibility to return to the growth trend.
On the other hand, at the same time as the t
f and
Ctr in total investments decrease and the proportion of
the t
Np type rises (see Figure 8), OFR, as will later be
explained, will necessarily hold a lower proportion of AV.
This, in turn, will affectt
CM by deepening the structural
crisis that gives birth to the dual society. This is so because
productive sectors linked to t, t
f and t
Ctr that
supported the fordist” model, can no longer play by the
old rules. These consist in increasing salaries together with
productivity, guaranteeing employment stability and basic
conditions which lead to the Welfare State and to old
anti-cyclic policies of the Keynesian kind.
In this context, if investment is influenced by the ur-
banization process and its dynamics decline alongside
that process, GDP will only grow if there is growth in
total consumption, in exports or in both.
At the global level, however, imports and exports to-
tals are equal. Therefore, if they consist of the same
products, they cannot contribute to global economic dy-
namics. Consumption depends to a great extent, as has
been said, on the recovery of other factors. If the decline
in investments linked to urbanization as an integral
process (infrastructure and creation of productive capac-
ity) is superseded by the creation of new goods, which
requires fast technological change and usually shorter
lifecycles, the proportion of product meant to recoup the
rest of the factors will be lower and that will constrain
consumption increase. This issue will be further dealt
with later on. Before that, it is important to underline the
fact that the matrix for the creation of the dual society
takes the form of an internal breach in the productive
system. It leads to a perverse dynamics where those with
purchasing power have access to an ever increasing dis-
play of goods and services and those without it, cannot
even meet their basic needs. Foreign trade may foster the
growth of some countries but it cannot do it globally by
rule, except for the fact that even the urbanization proc-
ess is not fully completed and then it works as a motive-
tion for modernization. That is the case of Asia, espe-
cially today’s China and India, but it will probably work
only until they complete the process.
So far, explanations have focused only on the role of
urbanization and the technological inflexibility that some
groups of processes related to it suppose. The explana-
tory approach could benefit even more from the consid-
eration that urbanization in China and India has been
related to the quest for more modern styles in both coun-
tries. And another important element is the fact that
transnational companies knew they could hire inexpen-
sive trained labor there that would permit better competi-
tiveness and market expansion, not to mention the fact
that environmental restrictions are more lenient in those
countries, which is an additional competitive advantage.
Exports to OECD markets and to the rest of the world are,
no doubt, evidence of this (Figure 12). However, this is
not the focus of this research. On the contrary, the idea is
to warn about the wider dynamics of such urbanization
process at a world scale regarding market saturation as
the main cause of a future crisis that might be unprece-
dented in scale, and of which the present crisis is only a
small sample.
In this context, today’s emphasis on technical innova-
tion as a means to making up for that extra “quantum” of
product is really evident. Therefore, this phenomenon
will be dealt with only because it is considered a “natu-
ral” strategy entailing serious consequences. Such con-
sequences are related to the following aspects:
1) The possibility of improving income distribution;
Social organization models, change in values and cul-
tural production of the knowledge society;
2) Its relationship with the industrial military force and
its growing relevance as an instrument for anti-cyclic
policies and for making the dream of a stationary or
growing economy true, and
3) The process of economy dematerialization, which
means both a smaller use of material per unit of product
and a growing proportion of services in total economy.
Some of these effects will be dealt with below.
5. Market saturation, innovation, planned
obsolescence and lifecycles: their effect on
society, geopolitics and sustainability of
the long term economic system.
Planning the forced obsolescence of products to avoid
market saturation and to keep the productive system go-
Average 1950-
Average 1972-
House Building
Other Buildings
Industrial and Commercial
Buildi ng s
Transportation Equipment
Mach in ery
Figure 12. Investment composition in countries from OECD classified by assets type: contrast between 1950-1970 and
1972-1992 periods (expressed in percentage of total fixed gross investment). Source: Author’s estimate based on data from
Penn World Tables 5. 6. version.
ing, implies that invested capital must be recovered in a
term shorter than before.
When the profitability analysis of a project is per-
formed through project evaluation techniques, hypothe-
ses about the following factors are put forward: a) market
size; b) expected sale prices; c) investment costs; d) op-
erative costs including labor, taxes, supplies, etc. Con-
ventional criteria for the acceptance or rejection of a
project are basically the net present value (NVP) which
must be positive at a specific discount rate – and the In-
ternal Return Rate (IRR), defined as that which cancels
out present net value. This is also the rate at which in-
vestment will be annually recovered, provided the fore-
casts developed in the economic feasibility analysis,
once its technical feasibility has been decided, are ful-
In order to make such internal rate of return feasible,
once the investment has been decided and the project
executed, the sales and costs behavior must be equal to
the ones considered for the analysis. Therefore, initial
hypotheses influence the formation of supply prices.
In simplified terms, unit supply prices include basi-
cally the following components: capital recovery and
other factors recovery, called CR and OFR above, with
respect to total added value.
In order for the expected internal rate of return to be
fulfilled, the discount rate used in the capital recovery
factor expression must be the same. An interesting fea-
ture of such factor is that it depends on the assumed re-
covery term in a non linear mode. Therefore, in gradually
shorter periods of investment recovery, the capital re-
covery factor also holds an increasingly larger proportion
of the product’s sales price. (In Annex I a mathematical
demonstration of this is submitted, together with empiri-
cal evidence and theoretical arguments about the rela-
tionships between urbanization and growth).
If the trend is generalized, the result is that at a certain
level of global productivity and for the same income rate,
the proportion of the global product used for labor and
tax remuneration is gradually smaller. It is not the in-
crease in the IRR, but shorter capital recovery cycles
what makes it impossible to improve public and private
income distribution. How much of the distribution prob-
lem is explained through this mechanism and global
structural change? It has not yet been researched into, but
there are global signs of the growth of the capital-product
ratio. This means that a large amount of technological
change has not implied a macroeconomic increase in
capital productivity and it can therefore be predicted in
analytical terms that it must have affected income distri-
bution in a structural way [29].
This means that nowadays, the same work is done for
less or the same earnings. Innovation focused on substi-
tuting products that perform the same basic functions
Copyright © 2011 SciRes. ME
even with quality and yield improvementsdoes not
mean an improvement in productivity or necessarily
contribute to a large extent to the global welfare when its
effect is the creation of a more conflictive, dual and de-
manding society.
The automobile, electronics, computing and medicine
industries are clear instances, but not the only ones, of
the systematic use of innovations which are not com-
pletely disruptive, and have as their basic purpose the
maintenance or the increase of activities at the micro
level to a certain level. In fact, a great deal of the “evolu-
tionary flow” in economy is bound to show the processes
of the firms’ technological learning and the dependence
of their success on their innovative capacities.
Companies specializing in advising about optimization
of product lifecycles management have surprisingly in-
creased their activities during the last decade. This has
happened as a result of the pressure for costs reduction
and for the design of new and attractive products which
are indispensable for micro -and also macroeconomic -
survival in present economic conditions.
The cycles of electronic, computing and communica-
tions products, as well as of products from the medicine,
light chemicals and automobile industries have been re-
duced from years to months, in some cases, since the
beginnings of the 90’s. This situation causes losses in the
value of assets and entails the threats of new risks. These
have led to the appearance of government programmes
such as ATP (Advanced Technology Program) in the
USA and their world-wide expansion in order to foster
research for the creation of high technology products.
Their aim is to reduce the typical risks of markets which
are gradually more competitive, with shorter lifecycles
for most products emerging from research and develop-
ment activities and from those in the Computing Tech-
nology area. The situation has likewise caused the de-
velopment of “protected niches” as in the case of some
energy technologies, whose support is also related to the
foreseeable exhaustion of non-renewable fuels and the
will to reduce global CO2 emissions.
It is in a way obvious that, without innovation, many
factories and production plants would have disappeared
because shorter lifecycles of products would have meant
the decreasing use of existing capacities at the same time
that markets for different goods and services became
saturated. That is inevitable, since sales progression for
each product also shows a logistic behavior. That is to
say, it is distinguished by a rapid ascending exponential
phase for a period, and a phase of decreasing dynamics
as of a certain inflection point.
In this way, the possibilities to use a larger proportion
of product to expand the purchasing power to sectors
which cannot afford certain goods and services are
gradually fewer. This is one of the reasons and features
of the consumer society from the viewpoint of produc-
tive supply. There is a segment of population, either
linked to property or to high salaries deriving from the
key positions they hold in the growing process of pro-
ductive specialization, who have the possibility to con-
stantly renew their goods. On the contrary, another sector
lives on second-hand goods or cannot afford goods at all.
This is part of the above mentioned matrix of creation of
the dual society, but also of growing insecurity, uncer-
tainty and exposure: the “Unsicherheit” described by
Bauman [30], and explained here from the point of view
of the material basis of society.
There is another factor that has not been deeply ana-
lysed yet. It is another natural limit and the consequences
of innovative trends. On one hand, permanent addition of
new goods and servicesand the replacement of goods
already possessed in basic functional terms with new
models - by the population belonging to the sector that
can afford it, has a problem: time use and availability.
The natural twenty-four hour limit would be impossi-
ble to overcome except because the intense use of time is
a psychic and physiological phenomenon, if such a dis-
tinction can be made. The tendency to suffer from stress
among people with purchasing power is an undeniable
phenomenon. Such stress may be the result of a great
diversity of causes. Nevertheless, and without being ex-
tremely simplistic, it is clear that time distribution among
the working requirements derived from the need to ac-
celerate the processes of innovation and supplying that
“quantum” of product in a hyper-competitive society,
together with personal needs of time to take care of ma-
terial possessions, lead to a deep “compression of the
psychic space” which also functions in an environment
of exposure, uncertainty and insecurity. Through this
mechanism, the twenty-four hour barrier can be over-
come and a vast bulk of requirements can be taken care
of simultaneously. But this occurs only through extra
work and the intensive use of psychic energy. Therefore,
the following question arises: How many more products
and innovation processes will fit in the time-space of a
human mind before it collapses? Even when there is no
answer to that question, the growing phenomenon of
stress among “winners” in the production system renders
the issue licit and not trivial.
The second problem involved in this kind of produc-
tion and consumption is related to motivation, informa-
tion and formation of human resources required by the
knowledge society. Jeremy Rifkin [32] (2003) has re-
cently passed serious judgement - in his own words - on
the type of personal commitment of the new genera-
tions with respect to the values required by a technologi-
cal society that can make the American dream come true.
Copyright © 2011 SciRes. ME
In that sense, values such as faith, discipline, work, self
assertion and sacrifice, would be far away from the val-
ues that most mid-class American youngsters have. Even
when Rifkin makes an effort to show the differences
between European and American behavior, he openly
suggests that there exist clear signs of a “withering of
labor ethics”.
Rifkin also provides evidence of the growing pressure
felt by society about the use of time and the scarcity of
money. In that context and considering the large amount
of research carried out about the behaviour of American
society, he points out people’s decreasing tendency to
use their time for community purposes. Such feature, as
explained by the author, used to be a prototype of the
American society and of its particular method to face
poverty problems through the aid of voluntary organiza-
tions. That inheritance is thought to come from a strong
religious tradition and from church-state segregation.
However, the number of people who are ready to use
their time and efforts for free is decreasing due to pres-
sures for time and money they experience daily. In addi-
tion to that, they feel disillusioned for “having closely
followed the script only to feel disappointed at the end”.
The following extract is even more revealing:
Until the 60’s, social mobility was the essence of the
American dream. Then, the dream began to collapse,
slowly first, but then the collapse became clearer through
the 1970, 1980 and 1 990 decades. Nowadays, America
can no longer seek to be the model of ascending social
mobility for the rest of the world. This does not mean
that there are no opportunities for both, native inhabi-
tants and newly arrived ones. But the unrestrained mo-
bility that made America the envy of the whole world no
longer exists.
What is the cause for such retrogression in the process
of social mobility? May such a huge change have its ori-
gins in an attitudinal change, in a change in values or in
the failure of a specific cultural trend (i.e. the American
dream)? Is it not in full agreement with the hypotheses
set forth in this paper? What other explanation is possible
for the emphasis put on the development of China and
India, the two more promising countries as regards huge
market opportunities already being performed on the
basis of large-scale urbanization processes? In the first
case, the urbanization process is so huge that it takes
about 25% of the concrete produced in the world. Be-
sides, by the year 2020 it is expected to have increased
its automobile fleet to such an extent that it will be simi-
lar or even larger than USA’s expected increment in the
number of cars, Reference [33]. In fact, 78% of the in-
crease in the total automobile fleet will take place in re-
gions outside the OECD. Of this percentage, 42% will be
attributable to Asian countries (Figure 13). This also
leads us to the geopolitical issue.
In such context, the USA strategy in the Middle East
may have multiple objectives. Not only does it justify the
growth of the industrial military complex (that supplies
the “lost quantum” of product and prevents L-type cy-
cles), but it also implies control over the growth of the
Asian giants and of Europe. The conflict areas are all
related to the supply of the energy potential that China
will need as its own dream comes true. Its dream stands
as an extension of the American dream, of the needs of
the USA, Europe, Japan and the rest of the world.
But, what will happen with the possibility of using a
large amount of productive capacity on a world-scale
basis once the urbanization processes of China, India,
other Asian countries and large countries such as Brazil
have been completed?
It is generally assumed that there is a new technologi-
cal generation “incubating” a new growth era, the sixth
Kondratiefflong waves of prosperity, Reference [34].
But, is there an estimate of the real impact it will have in
terms of product addition in view of the decline of other
activities resulting from the mechanisms described in this
paper? In that sense, views and opinions seem to detract
from objective evidence, and arguments are too similar
to those underlying any pre-scientific belief. Discussions
of this kind are usually far from being serious or
well-grounded and they lack any tentative methodology-
cal development to deal with this complex issue.
Moreover, the phenomenon of urban marginality in
third world countries - and in almost all countries - could
not be totally explained without resorting to hypotheses
that describe the different stages of this dynamic process
linked to urbanization, growth and changes in the tech-
nological paradigm.
In fact, the ties binding rural-urban migration and
marginality can be explained as follows: during its as-
cending phase, the urbanization process attracts crowds
of people coming from the countryside. In general, those
people - especially the less qualified - work in the build-
ing industry and in non-qualified services. At the same
time, as the urbanization process loses its initial dynamo-
ics, the number of workers offering their services sur-
passes demand. This process lasts long enough for
themigrant generation to have children born in the urban
environment. However, the cultural features of their
family environment restrain their access to the develop-
ment of abilities and to the acquisition of knowledge that
will allow them to succeed in the new urban surround-
ings in later stages of their lives. These youngsters born
in a totally urban culture, are eager for those levels of life
exhibited by society as attainable by anyone. This is not
only suggested by the media through advertising, but
also reinforced by the system of education and by the
Copyright © 2011 SciRes. ME
Copyright © 2011 SciRes. ME
China, South Asia
and other Asiatic
USA, Canada, Europe
and Pacific ODEC
Rest of the World
68% outside OECD Countries
Figure 13. Regional distribution of increase in world total automobile fleet projected to year 2020. Source: Reference [33].
modern political project, no matter how distorted it is at
present. But these youngsters see the opposite reality in
their homes. Their parents, once laborersunion mem-
bers or not with secure jobs, begin to face a totally dif-
ferent working reality. Employment opportunities be-
come more isolated, access to new goods more difficult
or impossible. Most working opportunities for women in
these sectors are as household servants or other
badly-paid services. Total family incomes do not reach
the amount earned by just one of the salary-earning fam-
ily member in the previous stage. For the parents’ gen-
eration, urban life is still considered superior to rural life,
because in the countryside they used to face a still
tougher reality. They will rarely return to their place of
origin and to rural labor. Instead, they will try to give
their children a better standard of living. But, what can
these youngsters born in the urban environment hope for
when they are facing such tough reality? Is it strange,
then, that they attempt to reach through different means
what the society and even their own parents have prom-
ised them? Can their parents’ traditional values survive
in that situation and last through the following genera-
tions? What changes in the system of education are nec-
essary to produce social integration? What distribution
patterns could accompany those changes in the face of
the structural restraints already pointed out?
The migratory process, on the other hand, does not
stop with the loss of dynamics of the urbanization proc-
ess. It continues at the same time that suburbs become
spotted with shantytowns. This phenomenon is certainly
more serious in third world cities, generally with more
fragile industrial systems and where control over capital
accumulation and reproduction is weaker. Such features
are the result of the de-nationalization of property and, in
many cases, of natural resources.
The reinforcement of migratory laws in the USA and
Europe in the last years, however, is undeniable, and it
will gradually put more pressure on poorer countries. In
fact, the recent crisis has revealed the magnitude of the
unemployment phenomenon among young people also in
developed and other European countries.
Figure 14 shows the magnitude of youth unemploy-
ment rate increase both through its value in 2010 and its
increase between 2007 and 2009, and also in its propor-
tion with respect to total unemployment rate in 2010. In
all cases, the youth unemployment rate is almost twice as
high as the global rate in societies where, besides, life
expectancy is very high.
This process, caused by internal migration in regions
such as Latin America and some regions of Asia, is being
caused by external migration in Europe and the USA.
Their internal migration processes were completed a long
time ago, as in the case of Europe, or are gradually ceas-
ing, as in the case of the USA. In all cases, marginality
has very defined cultural and racial features and it brings
about violence and segregation.
In Latin America, for instance, the total number of
peple who were below the poverty line in the year 2000 o
unemployment rate (%)
unemployment rte-youth/total unemployment rate
Unemployment rate increase 2007-2009 (Youth)Unemployment Youth rate in 2010
Unemployment rate youth/total unemplyoment rate
Unemployment rate increase 2007-
2009 (Youth)
23,44,6 5,8 5,2 7,9 1,6
Unemployment Youth rate in 201041,6 23,5 22,4 19,5 18,49,3
Unemployment rate youth/total
unemplyoment rate
207% 245% 207% 279% 192% 182%
SpainFrance PortugalUKUSAJapan
Figure 14. Unemployment rates in some countries in Europe, Japan and in the United States of America. Source: author’s
estimates using ILO data, Reference [35].
reached 211.4 million. That number includes people who
were below the indigent line. On the other hand, the
number of indigent people that year rose to 89.4 million.
The poverty rate in LAC&C in the year 2000 was 43.8%
and the indigent population rate rose to 18.5%.
From data provided by ECLAC it can be deduced that
the proportion and the number of poor in urban areas
with respect to the total number of people in urban areas
increased remarkably and continuously during the 80’s
and 90’s. Thus, while in 1980 the number of poor people
living in urban areas was 14% lower than the number of
them in rural areas, in 1999 the urban poor rate grew to
74% over the rural poor rate. In 1980 the urban poor ac-
counted for 46% of the total of poor people in the region,
while in 1999 this rate rose to 63.5%.
In places like the American society, for instance,
which are more likely to believe that progress and
achievement depend more on personal effort and capac-
ity than on social organization, the social problem be-
comes even more serious. On the other hand, it would be
naive to believe that in Europe the social organization is
ready to shelter and help every person to the same extent.
The fear to be overridden by immigration tides gives
place not only to tougher requirements for legal admis-
sion, but also to racist expressions. This is the case with
the Turks in Germany, the Algerian in France, the Lib-
yan in Italy, among others in the European Community.
This process constitutes an element of the new world
map that emerged after the inflection point recorded in
the 70’s. In Europe, the pressure to abandon the rules of
the Welfare State is leading to pathetic situations of
street violence which are reminiscent of the Middle East
and Latin America. All these factors also reduce com-
petitive possibilities.
It may be useful to consider the following recent
demographic projections in order to reinforce the hy-
pothesis of the unrepeatable and irreversible urbanization
process that accompanied and quite successfully con-
trib.-uted to the completion of modernization, particu-
larly over most of the twentieth century.
Figure 15 shows the differences in composition of
urban population growth by regions during the “golden
years” and the growth rates expected for the next decades.
There is a clear predominance of Asia and a standstill in
Europe and the USA. In addition, Figure 16 points out a
much deeper issue: while in the golden years the increase
in urban population represented 51% of total world
population increase, in the next 25 years it will represent
Copyright © 2011 SciRes. ME
1950-1975 2000-2025
Contribuci de cada continente (en %)
Latin America
North America
Figure 15. Role played by each continent in the increase in total urban population: Contrast between 1950-1975 and
2000-2025 periods. Source: United Nations, World Urbanization Prospects, The 2001 Revision, New York, 2002.
1950-1975 1975-2000 2000-2025
En miles de personas
% sobre el total del incremento de la poblaci mundial
Urban Population Increase
Total Population Increase
% of increase attributable to urban population
Lineal (Urban Population Increase)
Lineal (Total Population Increase)
Figure 16. Increase in total world and urban population 1950-2025. Source: United Nations, World Urbanization Prospects,
The 2001 Revision, New York, 2002.
almost 100%.
The mechanisms inducing growth through rural-urban
migration will gradually stop at the same time as the
large Asian countries and some other large countries
such as Brazil complete their urbanization processes.
From then on, the situation will be very near complete
saturation and it will have predictable effects on the pos-
sibilities to grow on the grounds of present global eco-
nomic dynamics. In that context, and analysing the se-
quence: “higher agricultural productivity labour shift to
Copyright © 2011 SciRes. ME
industries.” The following question arises: when it
reaches that point, what sector could labour possibly shift
At least it is predictable that the global system will
gradually face a severe transformation. The following
section comprises a brief analysis of some consequences
of the context described in the analysis of socio-technical
systems of innovation.
6. Views about the Socio-Technical System
of Innovation in a Context of Structural
Crisis: The Need for New Rules from an
Evolutionary Perspective.
The study of evolution systems, especially during the last
two decades of the last century, has focused basically on
biology and on computing and computer engineering
systems. Both disciplines have mutually benefited from
their advances. Does the same happen with economic
evolution approaches? The answer is yes, it does, and no,
it does not. On one hand, the analysis of incremental and
disruptive innovations has interesting parallelisms with
some versions which attempt to explain genetic proc-
esses through the theory of evolution; on the other, the
analysis seems to have overlooked the fact that genetics
has become gradually less suitable to explain evolution-
ary processes.
As Evelyn Fox Keller (2000) [36] has pointed out by
quoting Hartwell and his colleagues, “particular solu-
tions obtained by means of a computer or by any other
manufactured device, are the result of an elaborate his-
torical process of selection through ec0nomic, techno-
logical and sociological restraints”. The same fact is
observed in biological processes: in fact, it could be as-
serted that computers, like living organisms, are selected
by their survival and (in a way) reproductive capacity.
Nevertheless, while economic, technological and socio-
logical restraints participate in the selection process in
the area of engineering, engineers are the ones who cre-
ate these systems with their intelligence and are
therefore external to the system. In biology, on the con-
trary, it is usually accepted that intervention of external
agents is unnecessary. In that context, Fox Keller analy-
ses: What type of evolutionary processes involved in
such mechanisms can function by themselves, without
the assistance of human intelligence? Next, she pays
homage to “the million years of experimentation and the
constructive creativity of an eternity of bricolage, of
aleatory combinations of existing parts which, thanks to
recombination and continuous interaction and feed- back
with the environment, acquire new functions”. In such
context she also asserts that Darwin himself warned us
not to miss “the fundamentally historical nature of the
biological function or the creative potential of historical
accumulation”. This author obviously suggests the exis-
tence of an external intelligence necessary for the evolu-
tionary process, after examining the failure of genetics to
reduce the complexity of evolution to its basic elements
and proving through careful analysis of the evolution of
the biological sciences that evolutionary processes in-
volve the survival of the organism as a whole.
When analysing the question of “What organic human
intelligence is involved in the evolution of civilization or,
rather, in the socio-technical and economic system?”
answers given from the viewpoint of the economic evo-
lutionary theory are too similar to the ones that biologists
tried to provide by focusing on the gene as the center of
Those answers failed in both fields: biology and
economy. Even if it is assumed that there may be
self-organising phenomena, it is clear that such self or-
ganization implies the organism and its functions. In
Economics, will such organism be simply the market and
its regulation? In fact, the strong claim for regulation of
imperfect markets, the financial system, etc. are real dis-
tress calls for some “external body” to “correct” market
imperfections. But a different type of problem has pre-
sented here, one that has to do with the way in which the
socio-economic system has evolved under a paradigm
(whether a market-paradigm or not) and that has to do
with the technological side of the question, not only the
economic one. This is a little bit reminiscent of Geor-
gescu-Roegen’s arguments [37], when he complained
that economics should have taken physics and not chem-
istry as a reference paradigm. Because, precisely, the
explanatory dynamics underlying the declining trend of
global economy, its structural changes and their future
trend that will predictably develop the dual society even
deeper, the growing exclusion of people from the em-
ployment and income systems, must be accounted for
with better arguments. They require “the restructuring of
lines of thinking regarding technological innovation sys-
tems”, a sustainable development proposal, which does
not simply mean that new products should produce low
global CO2 emissions, or that innovations should become
widely accepted products in the market.
In socio-economic systems, the global organization is
carried out by a group of institutions that “think up the
system” and lead it accordingly. But institutional and
human drawbacks are well known phenomena and so are
the failures and dangers that integral solutions conceal.
Solutions of that kind may lead to totalitarian trends, as
was the case with those the XXth century, some of which
still exist in XXIst as well.
The innovation system and its analysis must therefore
be considered in such context. However, the dominant
Copyright © 2011 SciRes. ME
approaches [38-42] describing the actor-rules system
dynamics in an explanatory and descriptive framework
analysing everything that is considered exogenous (ma-
terial conditions, external agents, large socio-cultural
contexts) [38] seem to ignore the kind of issues that
global context and its dynamics put forward as a great
challenge to overface long term structural crisis as des-
cribed above. To what extent is it possible to be sure of
the survival (and reproduction) of the system as a whole?
How would it be possible, considering the restrictions
that will gradually appear (restraints imposed by satura-
tion of the urbanization process, macroeconomic impact
of innovation leading to shorter product lifecycles)? Are
large socio-cultural contexts and material conditions not
influenced by the set of actors-rule interactions and
modified by it? The answer is clearly affirmative.
Therefore, Geels’ framework “as paradigm” applies only
in the short term analysis of such interactions.
But the challenges to systems of innovation in the long
term can be very different and even contradictory if
global system engineering begins to be considered in
terms of survival and reproduction. Such thought would
ethically imply survival and reproduction of the indi-
viduals that constitute the global systemunless a Mal-
thusian viewpoint of population behavior was shared and,
in that context, the progressive extinction of the unfit
would be allowed to occur.
Therefore, the challenge is to keep the system fulfill-
ing a growing degree of material and spiritual needs in
the present, and to outline the future.
If, at present, innovation heading for shorter product
lifecycles is the necessary survival condition for produc-
tive units and, if that leads to unsustainable social and
material conditions (unnecessary use of non-renewable
resources), it is time to think the global system over and
to readapt the innovation system in terms of global sus-
Such decision implies thinking of political, cultural,
technological and economic transitions that will develop
a new set of rules. Among those, the following should be
agreements between productive units to coordinate
goods replacements and longer life cycles,
programmed changes across sectors that will include
producers of basic everyday consumption needs
within growing fulfillment thresholds, creating pro-
ductive capacities in accordance with such fulfillment
rules to keep progressive effort-and-reward disruption
from affecting availability of goods, or creating stable
jobs as a consequence of a wider market and with
guaranteed expansion
concentration of resource and energy saving through
innovation but with longer lifecycles
rules related to the introduction of automation in ac-
cordance with labor reduction but not with reduction
of mechanisms to access basic goods.
These key issues call for cooperation rather than com-
petition. Both are quite natural, only the ruling paradigm
has placed more emphasis on competition than coopera-
tion, on strength and power than on wisdom.
These rules will all contribute to gradually relieving
human effort in pursuit of a better quality of life for most
In the meantime, in the context of current rules of the
game, the preceding analyses may be of help to distin-
guish the peculiarities of each trend according to the
features of the goods they produce (Figures 7 and Table
1) and to focus the view of market opportunities, in
which suitable strategy design can help countries to re-
locate properly.
In that sense, this global approach should be useful,
among other things, to distinguish across the productive
patterns under consideration, because it is likely that the
indicators as well as the conclusions and analysis con-
trasting several patterns will lead to incorrect conclusions
and recommendations if the dynamic evolutionary con-
text is not taken into account.
Nevertheless, that is just a minor aim. It would be de-
sirable to obtain long range conclusions, useful in the
design of an innovation policy that will consider em-
ployment a variable that could be modified through mi-
cro-, mid- and macro-system interactions, guided by in-
telligence and knowledge exogenous to the system (as
long as possible). Such intelligence and knowledge, as in
the case of the biological systems, cannot function with-
out considering the past; a past rich in diversity and wis-
dom both in western countries and in the rest of the
7. Conclusions
Despite the emphasis on innovation as the universal
panacea, the global context in which innovation systems
develop involves challenges which are completely dif-
ferent from the ones recorded historically.
In this work, two of these are pointed out:
1) the urbanization process is reaching, or will soon be
reaching, a point of almost absolute saturation, which
implies market saturation to a level that has never been
recorded before. It is believed that this will have an ef-
fect on job creation and on the use of existing global ca-
pacity. At the same time, it may also lead to planned de-
struction as a pragmatic answer.
2) Related to the above are the problems arising from
shorter lifecycles of products. It is asserted that, in the
absence of an increase in real productivity, technological
Copyright © 2011 SciRes. ME
changes focusing on new product designs for identical
functions contribute to progress, but they prevent mas-
sive spread of their products by restraining the possibility
of income distribution.
This leads to the need of setting up models that can
predict impact in terms of global added value of the de-
veloping cluster of innovations in view of the declination
of the added value produced by sectors which inevitably
enter less dynamic phases or, even worse, a phase of
productive retrogression.
In the same way, it is necessary to analyse the effects
of introducing products with great technological intensity
and quality, and longer lifecycles. As a consequence of
this process, it may be deduced that the socio-economic
system will need new approaches about social organiza-
tion and the world of labour. The division between work
and leisure time, the redefinition of rules for the use of
leisure time and for income distribution, the effects of
the gradual loss of connection between effort and reward
among others, are issues for which there does not seem
to be a unified research plan.
Today, such plan does not seem to comprise an open
field of research. Neither are there any consistent meth-
odological approaches to be carried out. The creation of
world-level product databases, the simulation of product
growth in terms of lifecycles overlapping in time, and the
proper methods to appraise them, may constitute a first
step towards the understanding of the real dynamics of
the global system. That would make it possible to assess
the expected impact of both, developing and predicted
innovations, to design strategies to overcome restraints
deriving from the saturation of the urbanization process
and from current innovation rules.
The relevance of this issue is not be discredited by
simplistic arguments asserting that the growing complex-
ity of society will always entail new demands for goods
and services and that they, in turn, are expected to foster
a lever of labour demand that will prevent a global col-
lapse. In any case, in order not to be just a dogmatic be-
lief, such assertion should undergo severe scientific
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[39] T. R. La Porte,, Social Responses to Large Technical
Systems: Control or Anticipation. Kluwer Academic Pub-
lishers, Dordrecht, NL.1991 Malerba, F., 2002. Sectoral
systems of innovation. Research Policy 31 (2), 247-264.
[40] T. P. Hughes,, Networks of Power, Electrification in
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[41] T. P. Hughes,, 1987. The eVolution of large technological
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The Social Construction of Technological Systems: New
Directions in the Sociology and History of Technology.
The MIT Press, Cambridge, Massachusetts, 51-82.
[42] R. Mayntz and T. P. Hughes, The Development of Large
Technical Systems. Campus Verlag, Frankfurt, 1988.
[43] C. M. Wesley,, Businnes Cycles: 10-17, Burt Franklyn,
New York, 1970.
[44] Perrin S. Meyer, W. Jasón Yung and Jesse H. Ausubel, in
A Primer on Logistic Growth and Substitution: The
Mathematics of the Loglet Lab Software, published in
Technological Forecasting and Social Change an Inter-
national Journal, North Holland Vol. 61, No. 3, July
[45] Fu chen Lo. The Impacts of Current Global Adjustment
and Shifting Techno-Economic Paradigm on the World
City System. Fuchs, R., E. Brennan, J. Chamie; F. Ch. Lo
and J. I. Uitto . Mega-City Growth and the Future. Tokyo:
United Nations University Press; 1994.
[46] Penn World Table (Mark 5.6 a) The Center for Interna-
tional Comparisons at the University of Pennsylvania
[47] United Nations, World Urbanization Prospects, United
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[48] R. Kozulj, , Megalópolis, Cambio Tecnlógico y Crecimiento
Económico: Desde los Años Dorados a la Crisis Actual.
(Megalopolises, Technological Change and Economic
Growth: From the Golden Years to the Present Crisis), Di
Marco, L. E., Humanismo Económico y Tecnología
Científica: Bases para la Reformulación del Análisis
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Growth: The Anatomy of Urban Crisis. William J. Bau-
mol. The American Economic Review, Volume 57, Issue
3 (Jun., 1967), 415-426.
Copyright © 2011 SciRes. ME
Copyright © 2011 SciRes. ME
Annex 1
Empirical and Methodological Features of the Links
between Urbanization, Economic Growth and
TechnoLogical Change.
AI-1- The problem of structural overcapacity due to
market saturation. Its relationship with the logistic be-
havior of urbanization and market development proc-
This idea derives partially from the economic cycle
theories based on the unbalances produced in economy
between the sectors producing consumer and capital
goods, Reference [43] It is obviously compatible with all
the cycle theories which consider changes in investment
expectations, technological changes and the behavior of
durable good markets among others, as causes of such
The hypothesis to be analysed in this case is the fol-
lowing: If it is accepted that for each consumer good,
market development in the long-term has the form of a
logistic function, its first derivative will represent the
projected demand in time for the capital goods industry
for that good. The second derivative will be the projected
demand for the capital goods industry for the production
of capital goods for the first good, and so will happen
indefinitely. This is so if it is accepted that the capital
goods industry is not homogeneous with regard to its
products, as some authors generally assume.
It is almost evident that the concrete process of eco-
nomic growth is, in fact, the overlapping of the “supply =
demand in time” function for different goods. Conse-
quently, the aggregate demand will decline at the same
pace as the decline of the capital goods demand, if there
is not a process of continuous technological change .
In simplified terms, each product will grow endlessly or
in an exponential manner, provided there are no restrict-
tions according to a function of the type, Reference [44]
Pt Poe
is growth (generally expressed in %), P(o) is the
initial magnitude of the market for a certain product, i.e.
the value of P in t = 0. But, actually, each product has an
exponential growth phase and it then reaches saturation
as a consequence of real demand. This saturation is
equivalent to the number of people who can afford such
product, which means that they do not have it, and that
they have the want and the means to acquire it.
Therefore, it has been usual to add corrective factors
to equations of that type, i.e .:
in a way that the growth of the referred variable (in this
case a product) diminishes as the k variable is reached.
This variable represents the asymptotic value towards
which the function heads (in this case the maximum
market size for a certain product iii, and also the maxi-
mum size of urban population during a certain period).
In this way, the growth equation can be expressed as
 
Pt Pt
i.e., as a typical logistic function.
The solution to equation (2) is
Pt e
Now, the first derivative of this function (in this case,
the projected demand of capital goods for the product in
question) will be:
 P
The main concern here is to find the maximum of this
function, because from that point on, the capital goods
industry in question will enter a phase of structural
overcapacity due to saturation (and so will some other
sectors as a result).
The maximum and minimum of this derivative func-
tion P
are obtained by identification of the t’s that
result in
dt kttk
 
Two of the points at which this function becomes 0 are
clearly trivial: (t = 0 and t = ), then
, which is equivalent to
(* )12
 
And hence,
 0
With which
* o *
It means that, in this case, the t* time searched for, in
which the first derivative reaches its maximum (pro-
jected maximum capacity in the capital goods industry
corresponding to the consumer good in question), will be
the time needed for the market to reach half of its maxi-
s not altered if, instead of adopting
mum magnitude.
This reasoning i
is form, the logistic function was slightly different. In
that case, P(t*) would not be 2k, but something similar
The reasoning underlined here is that as long as the
markets for the different goods behave in a way similar
to a logistic function, the investments induced by these
sectors will decline at a point in which signs of great
dynamics in the industry in question can be observed,
whether it is of consumer or investment goods.
Therefore, industries producing capital goods will in-
e to this will obviously be technological
considering one product, a group of
states, therefore, that the
etween urbanize-
orrelations between urbanization and
r to explore the central hypothesis addressed in
ion data,
of this
nchronic models have been tried
e is
e results of correlations with abso-
hat, in order to establish more precise links be-
ect, Reference [48]
itably reach a phase of structural overcapacity that
will affect the dynamics of economy as a whole through
the multiplying effects caused by the reduction in aggre-
gate demand.
The respons
novation, which will allow the industries to remain in
the market, creating new sources of supply and demand.
But this will not be possible in all sectors to the same
extent, due to the heterogeneous and rigid nature of the
production system.
When, instead of
oducts is considered, related to what could be called a
paradigm of technological consumption (a cluster of
goods which characterise a certain lifestyle, such as the
modern urban style, for instance) and these products
have developed practically along the same period, the
described effect for one product, will affect economy as a
whole. This could be virtually represented as the aggre-
gation of varied logistics or similar functions, each cor-
responding to a good or service. therefore, it is not evi-
dent that the process of technological change can per se
maintain the dynamics of economy at the same level as
during the initial phase of development (for example, the
first two decades after the Second World War). This gave
a reason for the rupture point associated with the decline
in urban population growth.
The present hypothesis
ng-term cycles described by Kondratieff, and referred
to by some authors during the last years, Reference [8,45]
actually reflect this type of process.
AI-2. Results form the correlations b
n and growth.
1) Statistical c
In orde
is paper and some previous works by the author previ-
ously mentioned here, several models of correlation be-
tween population and GDP level have been tried. For that
purpose, GDP data from the Penn World Table (Mark
5.6 a), Reference [46] and data on total population, urban
population and population in cities with over 750,000
inhabitants in 1990 from the United Nations Population
Division, Reference [47] have been elaborated.
The correlation models are based on cross-sect
it would be impossible to deal with time series.
It would be tedious to list here all the results
alysis. Therefore, the reader is referred to Reference
[29] in which the details of such analysis are explained.
Anyway, it seems useful and necessary to comment on
some of these results:
In the first place, sy
tween: 1- total population and GDP level; 2- total ur-
ban population and GDP level; 3- population in large
cities and GDP level, with data from numerous countries
from all over the world for the years 1960 and 1990.
As a result of this analysis it can be stated that ther
significant correlation between total urban population
and GDP, and between population in large cities and
GDP on the basis of both, absolute value data and their
logarithms. The adjustment on the basis of absolute value
data in the case of population in large cities was slightly
better than the one produced by total urban population
data (R^2 = 0.89 against 0.82 for the 1960 data; 0.74
against 0.63 for 1990). The explanatory variable was
highly significant and the other parameters for interpret-
ing statistical results were more than satisfactory, con-
sidering that they are models with only one explanatory
variable. Also, other analyses were carried out applying
the White test to determine whether there was het-
eroskedasticity, which is frequent when working with
cross-section series and variables of this size. Its exis-
tence was indeed proved, but correction through balance
of the explanatory variable still produced reliable t val-
ues at 0% and it even improved the value of R^2 in the
corrected equations.
On the contrary, th
te value data of total population and GDP produced a
low correlation (R^2= 0.27 for 1960 and 0.21 for 1990),
even when the variable was significant and models on
logarithms produced better results. Results of the last
type appear to be the ones that, in a way, supported the
idea of a lack of causality between population growth
and economic growth in analyses such as those carried
out by Blanchet (1985-1991); Chesnasis (1985); Bairoch
(1981) and others, Rference [29]. All these are mainly
focused on the classical debate on whether population
growth has a positive or negative effect on economic
After t
een urbanization and economic growth, other models
were used which consider the increase in the value of
both variables over a certain period.
In previous studies on this subj
ere used data about GDP growth as annual growth per-
centage accounted for by: a) the mean annual increase in
Copyright © 2011 SciRes. ME
order to avoid multiple co-linearity and
60-1975 and 1975-1990 periods.
AI-1. It
rrelation matrix between total urban
een analysed in order to
and results by
n GDP growth (response
details about the statistical
neral, the
the number of people living in mega-cities, with data for
twenty three of them shifted one decade with respect to
economic growth data, and: b) the initial GDP of the
countries where the largest mega-cities were located.
By introducing binary variables to the equation in o
r to correct the cases of China and India - which were
atypical for valid reasons - a good correlation was ob-
tained (R2 = 0.81) with high significance of all the ex-
planatory variables and with correct signs for theoretical
However, in
agnitude asymmetry problems in cross-section series,
very simple correlations were made on the basis of GDP
increase in absolute values by five-year periods (the
five-year period averages were chosen for the estima-
tions in order to avoid distortions caused by simple criti-
cal points in extreme years). Other correlations were
made with urban population growth data in cities with
over 750,000 inhabitants shifted backwards and forwards
by two five-year periods in order to study possible inter-
active causalities. The results have been very positive
and are set out below.
2) Results for the 19
A very simple model is presented in these cases
here the increase in absolute GDP values for these pe-
riods is explained by the increase in the number of peo-
ple living in large cities which took place a decade be-
fore. Also, a binary variable is introduced in order to
show whether the nation to which the data belongs is a
developed or a developing country (DC), and another
variable to deal with the case of India, with its problems
of fast city growth - especially after the separation of
Muslim Pakistan -, and its simultaneous low economic
growth caused by the peculiarities of its culture.
The results obtained are summarized in Table
ould be noticed that the main explanatory variable for
GDP growth expressed in absolute values is the popula-
tion growth in large cities occurred earlier on. Thus, for
instance, the explanatory variable for the GDP increase
that took place between 1960 and 1975, is the population
growth in large cities that took place between 1950 and
1960. For the GDP increase between 1975 and 1990, the
explanatory variable is defined as the population growth
in large cities between 1960 and 1975. According to the
correlation matrix, the R value between population
growth and GDP is 0.76 for GDP data in the 1960-1975
period, and 0.82 for GDP data in the 1975-1990 period.
The correlations are very similar when considering to
l urban population data, but they are not so similar if
total population data is considered. The results obtained
from shifts with total urban population data are shown in
Table AI-2.
The simple co
pulation growth and GDP results in a value of 0.85 for
GDP data in the 1960-1975 period, and a value of 0.83
for 1975-1990 data, but the values are considerably
lower when dealing with data for total population growth:
0.45 and 0.55 respectively. It should be taken into ac-
count that even this relatively good correlation between
total population growth and GDP is explained because in
some cases such growth values correspond mainly to
urban population. On the other hand, the results of the
correlations between population in large cities, total ur-
ban population and total population, reveal a high degree
of existing correlation, with R values between 0.8 and
0.9 in both cross-section series.
Several other methods have b
tter understand the degree of correlation existing be-
tween urban population growth in large cities and GDP,
taking into account the fact that, as was explained in i),
this is an interactive type of phenomenon.
3) The problem of interactive causality
e-year periods with the explanatory variable shifted
“backwards” and “forwards”.
Correlation exercises betwee
riable) and urban population growth (explanatory
variable) have been applied with data by five-year peri-
ods between 1950 and 1990, with several degrees of dis-
placement between both variables. The purpose of such
displacements was to analyse more deeply the interactive
causalities between both variables, taking into account
the fact that, even if GDP growth may be partially attrib-
uted to the migratory process, the latter depends, in turn,
on job opportunities generated and/or promised by the
growth process, for instance.
In order to avoid excessive
sults of the several displacements, Figure AI-1 shows
the R^2 values obtained with data on population growth
in large cities referring to: 1- two five-year periods pre-
vious to the period to which GDP growth data belongs;
2- one previous five-year period; 3- the same five-year
period; and 4- the subsequent five-year period.
The results lead to many conclusions: in ge
2 value is higher (and the rest of statistical analysis
parameters are better) with the adjustments made on the
basis of data shifted “backwards” than with the syn-
chronic data - those shifted “forwards”. It should be no-
ticed that, in most of the five-year periods analysed, R^2
values obtained were between 0.6 and 0.8 for GDP
growth “accounted for” by the population growth that
took place in large cities in one or two of the previous
five-year periods. In contrast, the correlations with syn-
chronic data (third series) or with the explanatory vari-
able shifted forwards by one five-year period (fourth
series), in general showed lower R^2 values. On the
other hand, it is important to remark that the analysis of
Copyright © 2011 SciRes. ME
Copyright © 2011 SciRes. ME
owth and population growth in cities with over 750,000 inhabitants,
GDP C Cities-2 or 3 five-year periods DC or non-d India R2 F Prob. F Remarks
Table AI-1. Summary of the results of correlations between GDP gr
according to type of country (developed or developing one). 1960-1975 and 1975-1990 periods
– 0.6
8.7 0.000 86
0.78689.6 0.000 77
Sourcnce [2
e results of correlations between GDP growth and total urban population growth, according to type of country
GDP C Cities-2 or 3 five-year periods DC or non-d India R2 F Prob. F Remarks
e: Refere8,29].
able AI- 2. Summary of thT
(developed or developing one). 1960-1975 and 1975-1990 periods.
– 0.1
20.2 0.000 86
0.77986.2 0.000 77
Sourcnce [2
e: Refere8,29].
R^2 values
GDP p7377/6065
Cities -2 5yp
Cities -1 5yp
Cities - 5yp
Cities +1 5yp
Figure AI-1. Results of R^2 of the correlations tested by shifting the response (population growth in large cities) and ex-
e correlation between GDP growth and total population
rrelation and
the existence of a necessary “theoretical” causality – nei-
planatory (GDP growth) variablesSource: Reference [28,29].
growth has not revealed satisfactory results.
It is true that the existence of a positive co
e virtue of the tests carried out do not guarantee per se
ther can the criticism of a possible spurious correlation
be totally disregarded. Yet, the arguments outlined in
section 2 and the results obtained (with only one ex-
ial structure (both urban and GDP) to account
planatory variable), are more than satisfactory to point to
the need of analysing this issue more deeply in future
The correlation obtained also shows the great inertia
of the init
r subsequent growths in both variables, which renders
the controversial issue of convergence, References
[13-15] between developed and developing countries
relative, at least for 40- and 50-year periods.
AI-3- Properties of the added value distribution func-
tion with relation to product cycles and their d
The starting point of this analysis is an aggregate
function of supply price formation consisting of two fa
rs: capital recovery (CR) and other factors (OFR).
A simplified way to represent a distribution function
of the part of social product resulting from factors o
an capital (basically salaries and taxes) from a formula
that considers the product-capital relationship and the
capital recovery factor at the same time, is the following
11CCii n
 
or, likewise,
11GDPC iin
 
since C GDP
s the part f social product that constitutes the
of factors other than capital
Gto the
is the value of the product/capital relationship
C is the capital value
DP is the gross domestic product, identical
ded value and the expr
11iin is the
grows (capital intensity
pi- tal recovery factor, with i being the discount rate
and n the capital recovery term.
The result is, therefore, that the value of rises when
the product/capital relationship
clines), which is trivial; but it falls with decreasing
values of n in a non-linear manner.
In fact, by deriving with respect to n, the following
expression is obtained:
 
**ln11212 2
 
Ci iinin
 
 
This shows the positive sign of the derivative ( rises
when n rises, or it falls when n does) according to a
shorter life-span or capital re-
result of the more basic and aggregate func-
e distribution is totally compatible
h practically determines market
continuous and rapid tech-
s in the investment and
e distribution affects sala-
70s when the inflection point in
asi-hyperbolic function, which shows the particular
sensitivity of the function with respect to the range of n
values, especially when the variations occur with n val-
ues lower than 15 years.
It should be noticed that, in order to prevent the fall in
as a consequence of a
very term (in turn the result of continuous and rapid
technological change), an important increase in produc-
tivity (a drop in the Capital-Product relationship) must
take place.
As has already been stated, the previous function is
actually the
n of global supply prices formation. This latter func-
tion is composed by the capital recovery factor (CR) and
another factor comprising the total cost of the rest of the
factors other than capital (basically salaries and taxes).
As is known, if the i rate used to calculate the CR is
the desired or expected IRR, and n is the project life span,
r else the basis on which the IRR is calculated in the a
priori project evaluation), then the supply prices formed
by that CR guarantee the realization of the theoretical
IRR of each project.
Therefore, the analysis of the effect of the decrease of
the n value on incom
ith the theoretical notion that the IRR represents capital
revenue. What is to be highlighted here is that in order to
obtain an identical IRR because of the existence of dif-
ferent capital recovery terms, shortened by forced (or
accelerated) technical obsolescence, the distribution of
aggregate value is modified in favor of capital and against
the rest of the factors. This, however, does not imply
greater capital revenue.
In practice, this occurs by means of the process of sup-
ply price formation, whic
ices in a modern economy.
Although there is still no empirical basis to analyse
this aspect of the problem of
logical change more deeply, the theoretical issue in-
troduced here is hard to avoid.
The capital-product relationship has been growing as can
be deduced from the variation
product rates, Reference [29].
It is to be noticed that the structural constraint imposed
on the improvement of incom
s as well as the portion of income devoted to finance
public expenditure.
At this point, it seems convenient to remember that it
was just by the mid ‘
stribution patterns and also the urge to reduce public
expenditure and tax pressure - both measures constrain-
ing aggregate demand - became more noticeable. On the
other hand, this was also the context in which active
re-distribution policies led to the phenomenon of stagfla-
tion - unknown in the 1950-1970 period. Yet, paradoxi-
cally enough, once the urban life style has been adopted
by large masses of population, public expenditure and
income redistribution are most needed, for the reasons
explained by Baumol (1967), Reference [49] in his pio-
Copyright © 2011 SciRes. ME
s are very impor-
nce and the con-
neer work on this topic, among others.
Then, the issues addressed here, should foster a wide
research program, since the implication
nt and far-reaching. What is suggested here is that a
great economic effort is being made, which would be
somehow useless in terms of welfare.
On the other hand, forced obsolesce
uous creation of new products, bring about unneces-
sary pressure on natural resources, a phenomenon of
highly limited rationality in terms of sustainable devel-
Copyright © 2011 SciRes. ME