Technology represents new ways of doing things and, once mastered, creates lasting change that business
and cultures do not ‘unlearn’. Adopted technology becomes embodied in capital, whether physical or
human, and it allows economies to create more value with less input, in particular less labour input. New
technologies are mostly cost-saving technologies, but they can also improve the quality and user
convenience of the goods and services. At the same time, however, technology often disrupts,
supplanting other ways of doing things and rendering old skills and organisational approaches irrelevant.
Besides considerations on improvements in the quality of life and work, in purely economic terms
technological change matters enormously for the creation and distribution of wealth. Following Krugman
(1997), the sources of growth can be classified as ‘perspiration’ and ‘inspiration’.
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‘Perspiration’ refers to
the standard factors of production, essentially labour combined with physical and human capital, whereas
‘inspiration’ refers to the ability of an economy to generate new products and processes. The relative
importance of perspiration and inspiration changes with the level of development. At low levels of
income per capita, the returns to investment in physical capital and education will be very high; a
minimum level of infrastructure and of education in the work force is a necessary condition for a
manufacturing base. Once this requirement has been fulfilled, other factors become more important in
determining how the accumulated capital can be put to the most productive use. At an intermediate stage
of development, investment in education and new capital accelerate the absorption of existing knowledge.
However, as an economy gets closer to the technological frontier, it must innovate on its own, and
inspiration then becomes the main driver of growth.