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America at the starting point.

The prevailing mood in the United States appears manifest in a desire for change. Nurtured in a crisis of econonomic anomalies and malfunction, the United States appears to be at the crossroads of a far-reaching transformation.

History is replete with the carcuses of many civilizations that rose and fell. Did the U.S. reach a hegemonic peak during the Bretton Woods era, 1944-1971? In terms of the long-term history and future path of the American economy, it might be said that the situation has never been more serious, and resolution never more urgent. The current period is demarcated by crisis.

It was not too long ago that the case was being made for a limits-to-growth policy orientation. Humankind, allegedly, was at a "turning point." The apocalypse, the doomsday denouement of collapse and chaos, could be avoided and our basic economic problems resolved ff only humankind turned from a policy of accelerated growth and pursued the path of a leveling and a limits-to-growth orientation. The human predicament is now viewed in converse.

The U.S. apparently is experiencing just such a leveling and an apparent limit to its capacity to grow and prosper, and no one seems too happy with the situation or with the future prospects. For rather than solving problems, the slackening of U.S. economic growth, more correctly development, has only exacerbated the malaise and nurtured a crisis situation in need of resolution. Today, consequently, few speak of a limits-to-growth policy direction, but, rather, the current buzzword is "sustainable development."

It is in this context that I address the issue "America at the Starting Point" in the sense of a turning point, as a newly-found start toward economic renewal, rather than at a turning point toward a continuity of economic decline and stagnation. Rather than portending crisis and despair, my analysis conveys optimism in that the malaise conceivably can be rectified. This optimism, however, and the basic thrust of this article, are predicated on the supposition that in order to place "America at the Starting Point" and to disengage from the inertia of long-term economic decline, marked structural change and transformation will ultimately be innovated.

Economic Decline: Fact or Fantasy

We have been assuming, thus far, that the American economy is in the throes of long-term economic decline. Is such a point of view correct?(1) No one denies that the U.S. is currently plagued by innumerable difficult and serious economic problems. The source of contention, however, rests with whether these problems are short-run or long-run in nature. The distinction is of importance and obvious in its implications. For if the problems are essentially cyclical in nature and of the short-run, then standard monetary and fiscal policies, associated with the neoclassical synthesis, would conceivably suffice for amelioration and resolution. If, however, the problems are essentially of the long-run, this would imply a structural weakness in an economy in need of transformation.

In the brevity of this article I obviously cannot present a detailed statistical case, but rather will simply present basic conclusions of the debate appearing in the literature.(2) On the one hand, during the past decade, the Councils of Economic Advisors in addition to many economists of a mainstream predilection, analyzed our current economic malaise from a cyclical or short-run point of view. The standard arguments roll off the word processors. Twenty million new jobs, the longest peacetime economic advance in U.S. history, the double-digit discomfort index of the Carter years cut in half, and on. These facts beseech the point of view that the economy is basically structurally sound, though admittedly in a current cyclical downswing. This position is not convincing, as I will try to demonstrate shortly, in that such facts focus on the statics of economic growth rather than the dynamics of development.

On the other side, and especially from the perspective of the "industrial policy" or international competitiveness debate, other economists argue the position of crisis nurtured via long-term economic decline. By comparison, we find the empirical evidence supporting this side of the debate to be overwhelming.(3) The data show: a loss of international competitiveness; an apparent de-industrialization and the associated loss of high-paying jobs; the loss of basic market shares - both domestic and international - of fundamental manufacturing industries; balance of payments deficits; international indebtedness; and on. But perhaps the most significant area of empirical reference relates to the U.S. decline in rates of productivity increase. And it is in the area of the productivity measure that we find statistics most relevant and indicative of a retardation of technological advance and a slippage in international competitiveness by the U.S.

Is the U.S. destined to follow the British pattern of decline? Are nations in the vanguard of modern economic growth ultimately foredoomed in their maturation to experience a "climacteric" of long-term economic decline and stagnation? I think not. Such a conclusion and prognosis, however, are predicated on concept and theory - more explicitly, a concept and theory of economic evolution.

Toward a Theory of

Economic Evolution

How the U.S. will respond to the changing conditions nationally and globally relates to the evolutionary processes of adaptation and transformation. Unfortunately, the processes of economic evolution and the dynamics of technological change have long since represented the terra incognita of economic analysis. Consequently, given the paradigmatic blinders of mainstream economics, the fundamental problems facing the U.S. are not simply obfuscated, worse, they are not even addressed.

Certainly there is ample discussion of declining international competitiveness, poverty and ecological decay among economists of a mainstream predilection. But the problem in economics is that these problems are not considered to be related or relevant to the dynamics of institutional adjustment. The social and cultural issues, as the so-called "noneconomic," are taken as given and fixed parameters, but not as variables of economic analysis. Basically, the mainstream of economics focuses on the quantitative statics of economic growth rather than the qualitative dynamics of development. This is reflected in policy derivatives as well.

To analyze the economic process from the vantage of the dynamics of structural change, there is the need to make the paradigm of mainstream economics permeable to a conception of economic evolution (Figure One).(4) Economic evolution concerns the processes of both economic growth (reproduction and replication) and development (transformation and metamorphosis). Three basic questions arise concerning the process of economic evolution: "What" evolves, "How" does it evolve, and "Whom" does the process benefit?

The "What," which substantively evolves in the economic process, is culture. We speak here of the anthropological conception of culture, as "that complex whole" that comprises material and social manifestations of human-kind's social heritage. Material culture, comprises bridges, buildings, and boats, and, depending on function, are viewed as forms of consumer or capital goods. Material culture constitutes the usual grist for the mill of economic analysis. But such material technics do not function, sui generis, but require social concomitants in the form of business firms, institutions of banking, government, trade unions, the family, and on, in order to be operable.

Specific structures of material culture such as bridges, buildings, and automobiles obviously experience transformation. Transformation also prevails for the business firm, government, the family, and on, as structures relevant to nonmaterial culture. At a more general level, culture, as an overall gestalt, also experiences a metamorphosis and can be depicted in the stages of economic development that characterize the various levels of the evolution of civilization (culture).

"How" is a Challenge

Describing the "What" is relatively easy; the "How" part, as an explanation of transformation, is much more difficult and challenging. The era of the Industrial Revolution provides a key to understanding. Modern economic growth is explained and characterized by Nobel Laureate Simon Kuznets in the context of a "scientific epoch."(5) The dynamics of the epoch are predicated on a science-fed technology. The dynamics of the Industrial Revolution are explained by a process through which knowledge begets knowledge and the result is exponential. The methods of science proved exponential not only in the production of knowledge, but also for technological advance and, consequently, the economic production and productitivity it promotes.

Humankind interacting with an environment of culture and the physical world creates new knowledge (Figure Two). Such knowledge, relevant to social organization and economic production, when applied and innovated, constitutes technology. Technology in this conception is both material and social. The textile production taking place and demarcating the Industrial Revolution was predicated on a gestalt combining both the steam engine (as material technology) and its social concomitant known as the factory system (social technology).

But the steam engine can also be viewed as material culture. Similarly, the factory system can be viewed as nonmaterial culture, as well. Therefore, the Janus-faced countenance of knowledge in its concretion appears, on the one hand, in its application as technology and, on the other, in its store as culture. To change one is to the change the other. The umbilical cord of connection between technology and culture is that both are forms of the protean concept known as knowledge. Before addressing the issue of "For Whom," let us first attempt to clarify a very important conceptual distinction relevant to economics and the current anomaly of U.S. long-term economic decline.

Growth Versus Development

Many economists, of course, deal with the problems of economic development. But the mainstream of economics, in terms of the "neoclassical synthesis" and the micro/macro courses that dominate the curriculum and textbooks, essentially deals with the quantitative statics of economic growth. Economic growth, in turn, is treated as the conceptual equivalent and as synonymous with economic development. Consequently, variables are identified, questions raised and policies pursued that are relevant to the quantitative statics of economic growth, but not necessarily to the dynamics of development.

Economists basically present the case for quantitative changes in the money supply, interest rates, fiscal policy or changes in exchange rates. And if the U.S. experiences economic growth as an increase in jobs and or GNP/capita, it is then assumed to have experienced economic development. Growth and development are obviously interrelated; the processes, however, are not the same.(6) The growth process, as replication and reproduction, and as indicated by more and more GNP/capita, does not necessarily, by itself, constitute the process of economic development.

For example, growth in the speed of transportation to the current level of 20,000 miles per hour was not achieved by humankind running faster and replicating more feet. Such a manifestation of exponential growth was achieved by transforming transportation technology from that of foot travel to that of rockets. The "principle of similitude" relates to the fact that ongoing growth requires a continuous transformation of structure.(7) There is an asymptotic limit, in the form of an "S" growth curve, in what can be done with propeller-driven aircraft. For humankind to experience a continuity of growth in miles per hour, there was the need to switch gestalts and to change the structure of technology from that of propellers to jets and then on to rockets.

The exponential is really an envelope curve concealing the underlying pattern of transformation in which one "S" curve is superimposed on the next. This basic pattern of "logistic surges" so obvious in transportation technology also characterizes the general culture evolution-overall classified as the stages of economic development. The sequential pattern of transformation also prevails for energy control, trade unions and the labor movement, financial institutions, and business enterprise, and on. The business firm, for example, has also experienced a sequential pattern of evolution. Even John D. Rockefeller experienced such a pattern of structural transformation of the business firm from that of a proprietorship, to a partnership, to a corporation, and, currently, to a multi national corporation. Consequently, General Motors could not have grown to its current size, given a "ma and pa" type of proprietorship as the basis of organization. Therefore, not only do material technics require a continous change of structure; the same sequential process also prevails for social technics as well. Humankind's adaptation to a changing environment is predicated on an ongoing process of structural transformation of both social technics, and material technics, embedded in the "core of culture." But it is through changes in social technics and values that humankind can potentially control and avoid malfunction in the ongoing acceleration and advance of material culture.

To Deny the Social

is to Deny the Solution

"Four yards and a cloud of dust" has, to be sure, won quite a few football games. But when losing seasons appear evident and frequent, it is time to transform the game plan and start to throw a few passes. By the same token, the U.S. also has to change its losing game plan through institutional adjustment. The problem, however, is that many Americans (especially economists) still do not concede the losing record. During the Great Depression, it was easy to recognize that America was not winning the economic ball game and that a crisis situation prevailed.

In the context of the slow crescive changes relevant to long-term economic decline, however, crisis is not that obvious or that easy to understand and see. Even if the American electorate were aware of the fact of a one percent annual decline in productivity, this would not be that easily recognized as a losing score in the economic ball game and indicative of crisis. As Lester Thurow states in his recent book Head to Head, "No one can solve a problem that they cannot see."

Given the reality of long-term economic decline, the time has come to change the American economic game plan. The American economy also must overcome "institutional sclerosis." Europe has the EC, Japan has MITI, and the U.S. has nineteenth-century, horse-and-buggy social technology. As we have tried to demonstrate, an ongoing acceleration of economic growth and the avoidance of economic decline are predicated on the process of economic development fed by the dynamics of technological transformation. A transformation of technology that includes both social technics and the material is required.

The U.S. is currently experiencing economic growth, but it is not developing at a pace commensurate with that of its global competitors. If adding 20 million new workers leads to a growth process, as Chalmers Johnson notes, in which the American economy ends up as the leading producer of soybeans and the MX and Japan produces everything else, this will hardly solve the competitiveness problem. Is the growth and replication of the current structure of the American economy, as it now stands, really our desideratum? Do we really want more industrial decay and more balance of payments deficts and de-industrialization, the loss of high-paying industrial jobs, a growth of unemployment, more leveraged buyouts (LBOS), more savings and loan bailouts, more poverty and homelessness, more pollution, crime, drugs, and on? Clearly, the problem facing America is not growth, as replication, but rather "sustainable development", in the form of qualitative transformation.

The Cultural Lag

The basic problem faced by the American economy is cultural lag. Our social institutions, embedded in nonmaterial culture, have not kept pace with the acceleration so apparent in material culture. What we must do is create the prerequisite institutional adjustments necessary to keep pace with the dramatic changes taking place in our material culture.

The dynamics of modem economic growth are predicated on the flow of knowledge into the basic technological dichotomy. Given the fact that in terms of the flow of science, the U.S. is perhaps paramount among nations, why do we have economic decline? hi the context of his analysis of the New Industrial State, and in his later, Economics and the Public Purpose, John K. Galbraith raises a relevant question: who and/or what controls that science and knowledge and for what purpose? The permeability of our culture to the direction and flow of knowledge, which directs and controls the crucial domain of technological advance, is a function of our social institutions and values embedded in our social organization. And in this process it appears that corporate culture, in its power, controls and dominates.

Our great accumulation of science, capital, and energy control have been diverted and subverted by an elite, by an oligarchy, in control and in power, intent on garnering profits from whichever source.(8) Unfortunately, those profits are not always based upon a greater efficiency of economic production. New social and economic technics, in the form of political action committees, technics of taxation, LBOS, paper entrepreneurship and financial wizardry, have led to profits to be sure, but at the apparent expense of economic production and economic efficiency.

It is difficult to identify the so-called "military-industrial complex" with increased economic efficiency and production. The "why America went wrong" is as easy to perceive as the gross inequities revealed by Barlett and Steele in America: What Went Wrong?(9) Concerning the "For Whom" of the process of economic evolution, supply-side economics obviously has achieved-and with vigor-the objective of income redistribution. Unfortunately, having the rich get richer and the poor get poorer has not resolved our problem of long-term economic decline.

The Tasks Ahead

Therefore, although the problem area, in a general sense, resides in a malfunctioning area of social organization, the specifics of the mandatory changes in social organization will not be that easy to identify and, perhaps, will be even more difficult to implement and innovate. But certainly an internal and endogenous transformation of corporate culture and management will not, by itself, be sufficient. The problem of U.S. economic decline is in the nature of a metastasis and is embedded in many parts of "that complex whole" of American culture.(10) I speak here of a necessary transformation and the ongoing evolution of many other parts of the interrelated whole of culture such as the family, the educational system, the labor movement, the business firm, governmental policies, etc.

And certainly relevant to the institution known as science, the paradigmatic boundaries of economics must be expanded. Economists seem more intent on providing sophistry in the form of model building than on providing a science relevant to economic and social problem solving. What economists provide and seem intent on perfecting in their focus on equilibrium and stability is of the form of a gyroscope. What is necessary is to provide for the dynamics of direction in the form of a gyrocompass. Which institutional adjustments are necessary in order to direct the advance of technololgy and culture evolution to promote ongoing economic efficiency? But, further, the problem is then how to use that enhanced capacity in the promotion of human well-being and progress and the processes of "sustainable development."

Viewed in this context as a cultural lag, the problem escapes analysis by the mainstream of the economics' profession. I believe institutional adjustment and transformation is undeniably relevant in the resolution of our basic economic problems, in general, and especially relevant to the problem of long-term economic decline, in particular. Consequently: to deny the social is to deny the solution.

(1)The literature is extensive, and there are many books that offer a denial of long-term economic decline: Henry R. Nau, The Myth of America's Decline, New York: Oxford University Press, 1990; William J. Baumol, et al., Productivity and American Leadership, Cambridge: MIT Press, 1989; "..no clear basis for a conclusion that the long-run growth rate of productivity in the U.S. has fallen below its historical level...no grounds for hysteria or recourse to ill-considered measures.." p. 6, and for additional references in support of the Baumol point of view, p. 6. (2) Ibid. (3) On the other side arguing decline and crisis: The Cuomo Commission on Trade and Competitiveness, The Cuomo Commission Report, New York: M.E. Sharpe, 1988; Bertrand Bellon and Jorge Niosi, The Decline of the American Economy, Montreal: Black Rose Books, 1988; Michael L. Dertouzos, Made in America, Cambridge: MIT Press, 1989; and Lester C. Thurow, Head to Head, New York: William Morrow, 1992; and on. (4) This point of view is not that utopian, cf. Horst Hanusch, ed., Evolutionary Economics: Applications of Schumpeter's Ideas. Cambridge: Cambridge University Press, 1988; in addition to many other books and associations intent on promoting an evolutionary economics. (5) Simon Kuznets, Modern Economic Growth, New Haven: Yale University Press, 1966; and "Modern Economic Growth: Findings and Reflections," American Economic Review (June 1973):247-58. (6) Richard L. Brinkman, "Growth vs. Development," Vol 2, pp. 948-55, in Frank N. Magill, ed., Survey of Social Science: Economics Series. 5 Vols., Pasadena: Salem Press. 7 On the "principle" cf., Daniel Bell, The Coming Post-Industrial Society, New York: Basic Books, 1973, 172-74. (8) "America has an oligarchy, not an establishment." p. 411, in Lester C. Thurow, "An Establishment or an Oligarchy?," National Tax Journal (December 1989):405-411. (9) Donald L. Barlett and James B. Steele, America: What Went Wrong?, Kansas City: Andrews and McMeel, 1992. J.S. Mill long ago noted that whereas "economic laws" prevail for production, the game of politics prevails for the "For Whom" as distribution. (10) "The failure is systemic, reaching into many related areas of American economic life...," George C. Lodge, Perestroika for America, Boston: Harvard Business School Press, 1990, 201.
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Title Annotation:toward economic revival
Author:Brinkman, Richard L.
Publication:Business Forum
Date:Jan 1, 1993
Words:3530
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