The Rise and Fall of Technological Leadership: General-Purpose Technology Diffusion and Economic Power Transitions

Abstract

How do technological revolutions affect the rise and fall of great powers? Scholars have long observed that major technological breakthroughs disrupt economic power balances, yet they rarely investigate how this process occurs. Existing studies establish that a nation's success in adapting to revolutionary technologies is determined by the fit between its institutions and the demands of these technologies. The standard explanation emphasizes institutions suited for monopolizing innovation in new, fast-growing industries (leading sectors). I outline an alternative pathway based on general-purpose technologies (GPTs), foundational advances that boost productivity only after an extended diffusion process across many sectors. Specifically, GPT diffusion demands institutional adaptations that widen the base of engineering skills associated with a GPT. To test this argument, I set the GPT mechanism against the leading-sector mechanism across three cases, which correspond to past industrial revolutions: Britain's rise to preeminence in the early nineteenth century; the United States's overtaking of Britain before World War I; Japan's challenge to US technological dominance in the late twentieth century. The findings support a novel explanation for technology-driven power transitions, directly bearing on how emerging technologies like AI, which some regard as driving a fourth industrial revolution, could influence a possible US-China power transition.