General Purpose Systems: A Definition
In this article we introduce General Purpose Systems (GPSs) as a subcategory of General Purpose Technologies (GPTs). We will explain what both of those concepts mean and provide proof of why General-Purpose Systems is a valuable new concept.
The concept of General Purpose Technologies (GPTs) was first proposed in the early 1990’s by Manuel Trajtenberg and Timothy Bresnahan in their paper "General Purpose Technologies: "Engines of Growth?". They defined GPTs as the key technologies that appear to drive eras of technical progress and economic growth, dramatically altering societies due to their widespread use and capacity to foster further innovations. Key characteristics include:
Wide scope for improvement and innovation
One defining hallmark of a GPT is its plasticity: it can be continually refined, improved, and adapted to novel uses over time (Bresnahan & Trajtenberg, 1995; Helpman, 1998). Such adaptability explains how a GPT, once introduced, can evolve through continuous incremental innovations. These improvements drive down costs and increase quality, magnifying the GPT’s productive impact across sectors.
Pervasiveness
GPTs are employed in a wide range of industries and processes (David, 1990; Lipsey, Carlaw & Bekar, 2005). Their pervasiveness is typically reflected by their presence in core production functions and organizational routines. For instance, electricity became integral to manufacturing, transportation, and household services. Similarly, digital technologies permeate finance, retail, healthcare, and more.
Complementarities
GPTs typically require complementary innovations, both technical, for example specialized equipment and organizational, like managerial practices, to realize their full potential (David & Wright, 1999; Jovanovic & Rousseau, 2005). Electricity’s productivity gains, for instance, depended on factory reorganization and new machinery designs. ICT’s productivity gains rely on software, data analytics, and new management structures.
Inducement of innovation
GPTs spawn induced or secondary innovations in multiple sectors. As its core technology matures, the lowered cost and heightened capabilities of the GPT encourage entrepreneurs and firms to develop yet more novel applications or to invent complements. This accelerates dynamic increasing returns, in which each wave of related innovation fuels further expansions, fostering a prolonged productivity boom (Aghion & Howitt, 1998).
Common examples include the steam engine, which powered the Industrial Revolution by enabling mechanization; the AC transformer that revolutionized industries and households by allowing electricity distribution at low marginal costs; and modern information technologies that are making information processing and communication accessible to everyone.
In the three decades since this idea was first put forward, society has become increasingly interconnected. Singular technologies no longer have as great an impact compared to networks of integrated technologies.
With this in mind, we propose a novel subcategory of GPT, General Purpose Systems (GPSs).
Our concept of GPSs comes from the following idea:
GPSs are integrated, rules-based orders, including platforms and infrastructures that, like GPTs, have broad economic applicability. They are distinguished by their systemic nature, functioning as foundational systems that enable various technologies, services, and processes to operate and interact.
As with GPTs, GPSs have some key characteristics, which are:
An infrastructure-like nature
Serve as foundational layers for building other technologies and services.
Network effects
The system’s value increases as more users or participants engage.
Pervasive influence
Impact multiple sectors and societal aspects.
Facilitation of interoperability
Enable seamless interaction between different components, technologies, or services.
Catalyst for innovation
Provide platforms for new innovations and business models.
While all GPSs can be considered GPTs due to their broad impact and innovation-fostering role, not all GPTs are GPSs. The distinction lies in the systemic and infrastructural nature of GPSs, serving as foundational frameworks for diverse activities and innovations. To illustrate the difference, let us consider some potential GPSs: the internet; the AC grid; and an ideal government.
The internet is an ideal candidate for a GPS. It is a global network infrastructure for data exchange that has increased value with more users and connected devices. It enables communication among diverse technologies and platforms and provides a basis for services like e-commerce, social media, and cloud computing. Its utility has the potential to increase greatly as we further expand the internet of things (IoT) concept and Web3 technologies like decentralization, blockchain, and token-based economics.
The AC grid shows how physical technologies can be considered as a GPS. It is an infrastructure of wires and devices that delivers electricity regionally. AC power standards ensure device compatibility across the network. It is a foundational system, essential for operating modern technologies, and enables development of electrical appliances and machinery.
A more abstract example is an ideal government, as described by D.C. North in “Institutions, institutional change and economic performance.” It should be an institutional framework that establishes laws, regulations, and policies while also providing infrastructure, education, and security. It can facilitate markets by enforcing contracts and property rights which provides the security and trust essential for economic activities and investments.
Considering these ideas, we can define General Purpose Systems as:
GPSs are foundational infrastructures or platforms characterized by their systemic nature, broad applicability, and ability to facilitate a wide range of economic activities and innovations across multiple sectors. They:
Provide essential services and frameworks enabling other technologies and processes.
Exhibit strong network effects and increasing returns to scale.
Serve as catalysts for improving productivity and economic growth.
Enable interoperability and coordination among diverse agents and technologies.
With this definition we are confident that the concept of General-Purpose Systems (GPSs) extends the idea of GPTs by highlighting their systemic, infrastructural, and platform-based nature. GPSs like, but not limited to the internet, the AC power grid, the transportation system, the agriculture and food system, the health care system, the global finance system and government institutions (among others such as markets and major digital platforms) play critical roles in enabling diverse economic activities, fostering innovation, and driving productivity improvements. GPSs improve the productivity of capital and labor; provide environments conducive to innovation and entrepreneurship; and contribute to sustained growth through spillover effects and externalities. Recognizing and understanding GPSs can inform policies and strategies aimed at enhancing these critical systems for sustained economic prosperity.
In our next article we will dig deeper into designing for the diffusion of these pivotal technologies and systems.
References
Aghion, P., & Howitt, P. (1998). Endogenous Growth Theory. MIT Press.
Bresnahan, T. F., & Trajtenberg, M. (1995). General purpose technologies ‘Engines of growth’ Journal of econometrics, 65(1), 83-108.
David, P. A. (1990). The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox. American Economic Review, 80(2), 355–361.
David, P. A., & Wright, G. (1999). General purpose technologies and surges in productivity: Historical reflections on electrification. Industrial and Corporate Change, 13(2), 1–39.
Greenstein, S. (2015). How the internet became commercial: Innovation, privatization, and the birth of a new network, volume 16. Princeton University Press.
Helpman, E. (1998). General purpose technologies and economic growth. MIT Press.
Hughes, T. P. (1993). Networks of power: electrification in Western society, 1880-1930. JHU press.
Jovanovic, B., & Rousseau, P. L. (2005). General purpose technologies. In P. Aghion & S. Durlauf (Eds.), Handbook of Economic Growth (Vol. 1B, pp. 1181–1224). Elsevier.
Lipsey, R. G., Carlaw, K. I., & Bekar, C. T. (2005). Economic Transformations: General Purpose Technologies and Long-Term Economic Growth. Oxford University Press.
North, D. C. (1990). Institutions, institutional change and economic performance, volume 332. Cambridge University Press.
Milgrom, P., & Roberts, J. (1990). The Economics of Modern Manufacturing: Technology, Strategy, and Organization. American Economic Review, 80(3), 511–528.
