WHAT WE'RE UP TO TODAY
How the Four Parts of the Argument Unfold:
Don't worry about parts one and two being jumbled together at the outset here. There's a good logical reason, as you'll see in a moment. The key thing is to grasp how the argument unfolds in each part.
Parts 1 and 2. Joseph Schumpeter, a prominent Harvard professor in the 1930s and 1940s, is featured in this article . . . especially his important theoretical analysis of long-term economic growth, which has been elaborated on and refined by his small band of followers in economics since his death in 1950. In part 2, his crackling insights into the nature of capitalism and the causes of long-term economic growth are only sketched in, along with a lengthier analysis of the role of institutions that vary across countries, including the industrial ones that we have been probing in the current series. The role of a country's institutions --- economic, financial, legal, political, and administrative --- in technological innovation, especially of a radical restructuring sort for the entire national economy, is a key Schumpeterian concept, worked out by his followers in the last two decades. That includes how these various institutions interact --- not least, those in the public and private sectors --- and create a economy-wide system of national innovation.
The effectiveness and flexibility of these systems of national innovation, it turns out, vary noticeably across countries, including those in the industrial world. Ponder a moment this last proposition. In particular, how does it translate into the buggy terms that have been used in this current series of articles?
The answer is double-barreled.
First off, unlike Schumpeterians, we've reduced the diverse systems of national innovation to two distinct kinds of capitalism in the advanced industrial world: statist-capitalism that prevails in Japan and on the EU Continent and market-oriented capitalism in the English-speaking countries. That helps us understand the noticeably different economic performance of these two distinctive kinds of capitalism, particularly in an era of vast, fast-moving changes in global capitalism. And secondly, again unlike the Schumpeterians, prof bug --- a political scientist after all --- has used different ideological heritages in the industrial countries to explain why those that are English-speaking have institutions favoring market incentives and adjustments, with a far more limited role for states, and why Japan and the EU Continentals have a much more extensive state-role in economic life.
What follows then for the way the argument is organized in these two parts?
Part 1 will deal directly with the different ideological heritages that have shaped the two divergent systems of capitalism in the industrial world, adding some historical bulk to the earlier buggy analysis in the previous four articles. It will then link them once more to the noticeably different economic performances of the countries in each system, the English-speaking ones far outdoing those adhering to state-capitalism . . . particularly in an era of rapid and unruly change in global capitalism. Those rippling changes are pinned down and clarified in this part. So too are the criteria for successful economic performance in adjusting effectively or no to those changes. And once again some extensive evidence is set out in tabular form.
Part 2 will then do what was just said a couple of moments ago: briefly explain Schumpeter's key insights into long-term economic growth, along with a longer analysis of one of the neo-Schumpeterian inferences worked out in the last two decades: the fact that countries all have different systems of national innovation.
Part 3. In this next part, Schumpeter's unmatched insights into the causes of long-term economic growth are probed in much greater depth, four of which stand out.
(i.) The driving force in economic growth of revolutionary technologies that erupt on the economic landscape in long-term waves every 50-60 years --- and in the process drastically change the ways in which we work, live, and spend our leisure. To say nothing of the implications for altering the global distribution of power.
(ii.) The crucial role in bringing these revolutionary technologies to the market-place of bold, rambunctious entrepreneurs and their devil-may-care impulses to win glory and fortune.
(iii.) The inevitable need for all national economies --- especially rich ones with their high wages --- to let the gales of creative destruction play out freely and shatter the entrenched economic status-quo, itself manned and guarded by huge vested interests whose high-coiled resistance to change has to be overcome. Only in this way, it turns out, will there be enough scarce capital and human talent freed to let the successful entrepreneurial start-up firms grow and flourish and hence diffuse, over time, their innovative technologies and productivity enhancements across one industry after another. Only in this way will older, increasingly obsolete technologies, knowledge, skills, factories and other business firms --- not to forget piled-up inventories --- be destroyed, making way for a newer, updated economy to be created that is more dynamic and globally competitive.
(iv.) The institutionalized abilities of countries to innovate --- which means to provide bold entrepreneurs and overcome the backlashes from old-established firms and industries so that creative destruction can work its impact --- varies noticeably from one to another. They turn out to have different systems of national innovation, some more successful than the others. And in the US case, as we now know --- or so this buggy series has argued --- markedly more successful.
Part 4. With these pivotal concepts clarified and ready for use, the argument shifts in this part to probe the failures of the state-capitalist systems in Japan and the EU-15 to keep up with the innovative pace and dynamism of the English-speaking countries and their market-oriented systems.
It turns out that statist-capitalisms don't and probably can't adapt quickly to the swift, turbulent changes at work in global capitalism, and even less, it appears, can they innovate radically in the technological domain.
The chief reason why? In such systems, the logic of politics trumps the logic of markets, and political calculations and maneuverings dominate market incentives and flexibility, institutionally and in the outlook and behavior of individuals who are in the work force, in coping with the tumult in their wider technological and global environments. The English-speaking countries tend, as a general rule, to reverse the logic here. Markets are allowed to operate with much greater flexibility, and individuals --- risk-taking entrepreneurs, the managers and work forces in big established corporations, unionized and non-unionized workers, and those who run financial institutions --- are more willing to accept and innovate. In any case, to the extent they aren't willing, they can't have such easy recourse to state regulations and subsidies to block the gales of creative destruction.
Addendum, added June 11th, 2005, just before publishing this article on the buggy site: What with the length of the finished article --- a good 45 pages, single-spaced, in Word --- it seems wiser to divide it into two articles. The current version, accordingly, stops at the end of Part 2. Parts 3 and 4 are essentially done, with a need for some more back-up data and other evidence; little else. They will be published in the follow-up article, most likely on Monday or Tuesday, depending on how much time prof bug takes off from writing this weekend.
INTRODUCTORY COMMENTS:
SOME ESSENTIAL BACKGROUND POINTS ABOUT ECONOMIC AND POLITICAL INSTITUTIONS AND THE DOMINANT IDEOLOGIES IN THE INDUSTRIAL COUNTRIES
I. Schumpeterian Concepts and Buggy Analysis
Joseph Schumpeter and His Theoretical Work
As its jump-off point, our argument in the substantive parts will unfold a Schumpeterian approach to long-term economic growth, using the four concepts sketched in above and clarified and elaborated on later in part one.
As for Joseph Schumpeter's life, no need to dwell at length on it here: an Austrian by birth, he fled the growing Fascism and Nazism spreading in Europe in 1932 and ended up a professor at Harvard. It was there, in the 1930s and 1940s, that he developed his most important theoretical work on the causes of sustained economic-growth and the related idea that capitalist economies are inherently dynamic and not subject to the sort of equilibrium analysis that dominates neo-classical mainstream economics, with its penchant for marginal analysis in stable macro-economic conditions. Why no need to elaborate? Quite simply, because prof bug has discussed Schumpeter in an earlier buggy article, complete with some links to Schumpeter's life and work. Click here for that article. Those who want to deal further with Schumpeter --- at any rate, in greater depth than the points that unfold in today's article --- will find all sorts of online sources at this web site.
Of Schumpeterian insights into long-term economic growth, we're especially interested in . . .
in Diverse Systems of National Innovation and How They Handle Entrepreneurship and the
Rugged Gales of Creative Destruction.
All four of the key Schumpeterian insights touched on at the start of this article --- long-term waves of clustered revolutionary technologies, the key role in innovation of the raw energies of risk-taking entrepreneurs, the inevitability of creative destruction if the innovative start-up firms are to prevail, and different systems of national innovation --- are important for the substantive argument today, but the one that needs to be singled out here is the last of them. The chief reason? It's the one that hooks up most closely with the buggy stress on the institutional networks within industrial countries.
What we've done is to add two high-coiled twists to this institutional approach.
- We've divided the various economies of the rich industrial countries --- 20 in all that span the EU-15, Japan, the US, and Canada, Australia, and New Zealand --- into two distinct systems of advanced capitalism: statist-capitalism that dominates Japan and the EU countries on the Continent, and market-oriented capitalism that flourishes in the English-speaking countries, including the two in the EU: Britain and tiny Ireland. Later on, in part one, we'll clarify once more the reasons for sticking to two such encompassing systems.
- And the buggy series has sought to pin down and explain the historical causes of these two different systems of organizing capitalism --- especially the key relations between states and markets. Our chief explanatory concept has been different ideological heritages in the English-speaking countries as opposed to Japan and the Continental West European countries.