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Chapter 2 The New Economy in Historical Perspective:
Evolution of Digital Electronics Technology “Digital electronics” literally means electronic components that process signals or information as binary (as in 0 or 1) values. More commonly, the term is used as shorthand for the hardware building blocks on which modern information technology relies. This chapter reviews and interprets available evidence on the historical pace of innovation in digital electronic hardware, from the electronic components that form the foundation for digital electronics to the downstream electronics-using hardware industries—computer and communications—that are the heart of the information technology revolution. Most of the discussion will focus on the semiconductor components that are the building blocks for information technology hardware downstream, but linkages between the upstream semiconductors and the downstream equipment making use of these inputs will also be analyzed. The chapter outlines a framework for understanding the economic implications of the technical changes that are described by Moore’s law, document the ebb and flow of technical change in electronic components, computers, and communications over the past few decades, and interpret them by using this framework. It begins with a description of the history of Moore’s law and explains why it has such potentially wide-ranging consequences. We will then see how a Moore’s law prediction must be coupled with other assumptions in order to produce an economically meaningful link to what is the key economic variable of the information age: the cost or price of electronic functionality, as implemented in a semiconductor integrated circuit. The historical evolution of semiconductor prices through the mid-1990s is then related to developments in several key parameters over this historical period. This chapter surveys the evidence on acceleration in the rate of decline in leading edge semiconductor prices to changes in the underlying technical parameters, tying prices to technical trends in the mid-1990s, and suggests that measured increases in historical rates of decline over this period seem unlikely to persist. It reviews the economic literature measuring technical innovation in the principal semiconductor-using industries and discusses the extent to which technical change in those hardware products was dependent on technical change in semiconductors. Finally, the chapter explores the nature of the man-made historical and institutional economic processes that made these technical accomplishments possible and argue that their consequence has been an unappreciated but radical transformation of the industrial framework in which research and development are undertaken within the global semiconductor industry. |