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Futurist Carlota Perez’s “Beyond the Technological Revolution” research offers wise guidance to policymakers as Wiki describes it as “a further development of Joseph Schumpeter‘s work on Kondratieff waves“ earning her the 2012 the Silver Kondratieff Medal by the International N. D. Kondratieff Foundation. In Capitalism, Socialism and Democracy (1942), the “Prophet of Innovation” Professor Schumpeter characterized “industrial mutation” as a process that “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. (p. 83)” MIT elaborates that over half of productivity gains come this way:
“The process of Schumpeterian creative destruction (restructuring) permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets.”
Austrian School scion Schumpeter presciently warned that the collapse of capitalism would lead to global socialism as entrepreneurship is undermined and the ownership of the means of production becomes divorced from the producers themselves (essentially what we have now as Sutirtha Bagchi extracted in his Amazon review in 2008). Neo-Schumpeterian Carlota Perez who wrote Technological Revolutions and Financial Capital, was mentored by Christopher Freeman, and both elucidated the relationship between basic innovations, technical and institutional change, and economic development. Right to work states are defended by Mark Thornton, Senior Fellow at the Mises Institute, here in a recent preview of the Trump Administration’s economic policy outlook. What he prescribes is akin to the Hippocratic Oath, typically presented to physicians as “First, Do No Harm.” But Medicine.Net explains it is much deeper and more complex:
One of the oldest binding documents in history, the Oath written by Hippocrates is still held sacred by physicians: to treat the ill to the best of one’s ability, to preserve a patient’s privacy, and to teach the secrets of medicine to the next generation.
IAI believes that a successful long-term policy framework to promote economic growth should operate with some basic widely-agreed, fact-based principles. Neo-Schumpeterian political economists explain that policy needs to help entrepreneurs to success: fewer taxes, less regulation and minimal interference with the market’s price signaling mechanism. Perez laid out a history of five technological revolutions that follow a similar pattern of bang, bust and renewal. In The Other Canon Foundation, Perez and a dozen other economic historians celebrate “man the producer” (and not “man the consumer”) and highlight the critical the link between innovation and financial dynamics. In short, they are champions of the Learning Economy and DRUID’s Bengt-Åke Lundvall and colleagues developed the idea of innovation as an interactive process and celebrated the concept of National System of Innovation. The key here is being shown in how the technology surge has been creating knowledge worker jobs.
Picture Credit: CBRE Research
Just as in natural science, errors of commission or omission can be catastrophic, disastrous economic policy failures result when they:
- are made in secret;
- fail to account for industry operating conditions; and
- ignore history (the sine qua non)
Policymaking in Secret: The Council of Economic Advisors issued a report detailing the costs of withdrawing from the Trans-Pacific Partnership (TPP) right before President Obama announced the withdrawal from the TPP ! One year earlier, President Obama had hailed the proposed TPP (which no one had read) as “the most progressive trade deal in history.”
Failure to Make Any Policy: For example, product and liability insurance policy reforms are needed for Commercial Spaceports in new Trump administration as a recent GAO report pointed out and NASA somehow got stuck with a $5M bill for the 2014 Antares explosion which contractor insurance should cover, not taxpayers ! The GAO decried, ““FAA has not issued guidance to spaceport operators to clarify when it considers them third parties and when it considers them involved parties,” adding that agency officials told them that such guidance “has not been a high priority” for them.
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Ignoring History: Bertrand, Schoar and Thesmar (2004-7) drive home the point that problems in the banking sector can have grave consequences for the health of the restructuring process. Economic historian Thornton at Mises Institute warned in 2005 (just after the FBI and Professor William Black!) that a housing bubble was building in 2005. Deloitte has a great study here pointing out that Hong Kong benefits from a low tax structure, a “fair trade” approach distinct from mainland China, and a free movement of capital and skilled labor. Maybe, before the policy gets codified, the tax holiday repatriation of (at least) $2.1 TRILLION should get favorable tax treatment if it is invested in productive capital and infrastructure rather than used for share buybacks which are just another distortion of equity markets and a signal that corporations have no higher return alternatives. Let’s advocate for an infrastructure stimulus from these repatriations NOW !