Managed Destruction, or, Where Are the Paleo-Schumpeterians When We Need Them?
Can Carlota Perez save the global economy?
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GoogleWhat will central planning look like when central planners dare not speak its name? Carlota Perez may have the answer.
The Venezuelan economist excites people, particularly self-styled progressives. Mary Kaldor, professor of global governance at the London School of Economics, believes Perez's economics contain the seed of a new Keynesianism that will "eradicate poverty and tackle climate change world-wide" while spreading a "new techno-economic paradigm." Strategy+Business columnist Art Kleiner calls Perez the most influential contemporary proponent of "long wave" boom-and-bust cycles, while BusinessWeek's Steve Hamm simply calls her one of the "smartest people in the world." In a very long meditation in this month's U.K. Prospect, Geoff Mulgan envisions Perez' ideas transforming the cities of the West into cultured workers paradises, with "great leisure palaces and sports stadiums; universities and art galleries; water towers and hanging gardens; or perhaps biotech empires."
The praise is not as surprising as the subject. Perez is a follower of Joseph Schumpeter, the economist whose 1942 work Capitalism, Socialism, and Democracy introduced the world to the concept of "creative destruction." Specifically, Perez is a "neo-Schumpeterian," plying a branch of economics that deals with dynamic and novel processes that transform economies.
Perez' celebrated 2002 book Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages broke new ground by treating financial evolution in the context of more familiar technological changes in productivity. (The neo-Schumpeterians also draw heavily on the "wave" theory of economic cycles pioneered by Nikolai Dimitrievich Kondratiev, a heterodox Russian economist who was purged and executed by the Soviet government and not rehabilitated until the tail end of the Perestroika period.) An admirer of entrepreneurs, a favorite thinker of gearheads, libertarians, and Sand Hill Road venture capitalists, Schumpeter is an odd figurehead for people who welcome the new era of re-regulation and assertive states.
But there's more here than just the irony that every premise eventually gets used to support every position. The Schumpeter surge reflects the bipolar nature of our time. A few weeks ago Time and/or Newsweek declared, "We are all socialists now," and the most successful business people of our day are working overtime to prove that statement true.
Yet the return of central planning, at least in the Obama administration, is the province of people like the bold and selfless national hero Larry Summers, the sort of planner who acknowledges the effectiveness, if not the ethics, of a free market. Leaders in Western Europe—where opposition to the genocidal horror of neo-liberal capitalism is more common than in the United States—preface international bailout plans with lip service about their preference for free-market solutions. The only form of anti-capitalism willing to come out of the closet is the hybrid socialism apparently being concocted by Hugo Chavez and Mahmoud Ahmadinejad—and that seems unlikely to be a crowd pleaser.
Within this context the popularity of Perez, a fellow at Cambridge and the University of Sussex and a professor at the Technological University of Tallinn, makes sense. In a recent article, Perez wrote that the enfeeblement of the world economy is a "Turning Point," a period of meaningful choice and vast possibility which marks the transition from the "Installment Period" of the tech revolution to its "Deployment Period."
But this excitement doesn't stem from the chance to move away from hated old industries like your cable company or local newspaper, nor from the wonderful, liberating possibility that GM may soon follow the USSR into the grave.
No, what makes this a "time for rethinking" is that job losses and black hole mortgages are creating "enough political pressure for regulation and institutional recomposition." This will enable "the State to come back actively in order to [enable] a shift in the balance of power from finance to production" and "change the focus from the stock market indexes to the expansion of the real economy, and to the increase in social wellbeing."
To accomplish these wide goals, national governments and transnational institutions must deploy not only financial regulation but "a wider package of measures that truly tilt the playing field in favor of real investment in real job creating production within each country and across the globe."
Expanding on this idea, Perez notes that she is seeking smarter rules, not just more regulation. "Sarbanes-Oxley was a bureaucratic obstacle rather than proper regulation," she wrote by email. "Hedge funds and the whole of the shadow banking industry did what they wanted without much supervision."
A free marketer might counter that the shadow banking industry throve, overindulged, and then failed in the area of ultra-sophisticated derivatives for the same reason other gold-diggers have pursued other bubbles in the past: because this was the one playing field where upstarts and small operators could escape domination by apparatchiks and arthritic legacy players. You might even say it's a feature, not a bug, that Bear Stearns and Lehman Brothers eventually decided to jump in and ended up catching the same MBS pox that thinned the herds of IndyMacs and New Century Financials.
But Perez seems unwilling to spill the blood of even the most decrepit and ill managed industries. In the same article, she argues that it "makes sense to save mature industries (such as automotive) while helping them move towards fundamental product change, instead of letting them fall precisely now when they will pull the rest of the economy further down." (In her email, Perez declined to opine on whether "the current US auto-industry should necessarily survive.")
This gentleness of tone extends to her regulatory ideas. "Both the rules and the incentives that would strongly tilt the paying field towards expanding production, job creation and probably clean-tech (including durability, recycling, dis-assembly, materials and energy saving, etc.) would be guided by...consensus and would serve to reinforce it," Perez wrote in her email.
Perez acknowledged that optimism about resurgent state planning, not to mention the propping up of dying industries, at least appear to contradict the idea of creative destruction as a decentralized, distributed, bottom-up process. But she noted, "Schumpeter himself used the term 'abnormal liquidation' when the recession turned to depression and many of the companies that could have survived went under." She also located the phrase "creative destruction" within its historical context: "I think that organizational structures are dependent on the particular paradigm that is providing the basic technologies. Mass production was by its very nature a top-down hierarchical method of achieving complex tasks, especially the production of enormous quantities of identical products at very low cost through routinization."
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But there's more here than just the irony that every premise eventually gets used to support every position.
Looks like I'm going to have to get all Miss Crabtree on your ass.
That isn't irony, that's begging the question. Both are commonly misused. You missed the opportunity to correctly invoke the latter in favor of further abusing the former. Now that's funny. -
"Kaldor, professor of global governance at the London School of Economics, believes Perez's economics contain the seed of a new Keynesianism that will "eradicate poverty and tackle climate change world-wide" while spreading a "new techno-economic paradigm.""
Oh, and the increase in size? well, that was kind of fun too. -
Leaders in Western Europe-where opposition to the genocidal horror of neo-liberal capitalism is more common than in the United States
WTF? I'm having a hard time coming up with any examples of genocidal horror causes by any form of liberal capitalism. National socialism yes, international socialism yes, but capitalism no. -
I'm having a hard time coming up with any examples of genocidal horror causes by any form of liberal capitalism.
Kristallpepsi.
NEVER FORGET -
Europeans are more familiar with genocide than we, it's true.
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er hello
If anyone gets the chance please use the term
neo-mercantilist
as much as possible
cheers! -
"professor of global governance"
Not able to get past just that. -
Kristallpepsi.
NEVER FORGET
It's such a rare joy when the thread winner appears in the first five posts. :) -
If anyone gets the chance please use the term
neo-mercantilist
as much as possible
Runner up.
Yeah, that pretty much describes Perez's position, and is probably a better description of what we're in for than "socialism", "facism" or "progressive corporatism".
We're talking state-sanctioned oligopolies, where corporations are going to be leashed to the political goals of the state. Kinda how the East-India Company was effectively a branch of the British Empire.
If the left thought that neo-liberal capitalism was a form of "economic imperialism", just wait until they get a load of the new and improved General Motors.
That is assuming GM can actually sell any cars outside the US. Chances are the next stage will be attempts to manipulate trade to try to force US products on the world though. -
"Looks like I'm going to have to get all Miss Crabtree on your ass."
I thought Miss Crabtree just told people to sit down and shut up. -
If the left thought that neo-liberal capitalism was a form of "economic imperialism", just wait until they get a load of the new and improved General Motors.
Why would the left be concerned with "The New GM" as long as GM is, as you astutely say "leashed to the political goals of the state.
Who cares if the New GM makes a profit, by God, they'll be producing an entire line of hybrids, electrics and various 'green' Trabants, erh, automobiles. Then, and only then will GM be "successful" and a model for the rest of the automotive world.
Come along, auto industry, get on board, or have the Auto Czar revoke your license... -
Perez notes that she is seeking smarter rules, not just more regulation.
Laugh? Cry? -
It depends on what she means by smarter rules. For example, while my preference with respect to Fannie Mae and Freddie Mac would have been to remove their special government privileges, a second-best solution, to me, would have to at least subject them to the same regulations as truly private entities.
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From "A Vision for Latin America: a resource-based strategy for technological dynamism and social inclusion" (by Perez)
To set the stage for this strategy proposal we begin with an interpretation of Raul Prebisch's Import Substitution model, seen as a successful positive-sum strategy within a very specific window of opportunity.
How many generations have to live in poverty before Import Substitution Industrialization is discredited? People do not rise out of poverty by having that which they would buy forcibly made more expensive!
This would-be do-over of that failed policy apparently relies on differentiation via technological development, as opposed to complete reliance on the old fetish on the "commanding heights" of heavy industry. But all the blueprints for technology in the world won't bring technology to the poor if no one has anything saved to procure them. Technology, tangible and intangible, far too divorced today from what it should by rights be considered: fancy capital. -
"To set the stage for this strategy proposal we begin with an interpretation of Raul Prebisch's Import Substitution model"
Shorter version: We're going to dredge up the old protectionist model again, because protectionism has historically been such a great boon to the poor. -
Import Substitution Industrialization:
Adopted in many Latin American countries from the 1930s until the late 1980s, and in some Asian and African countries from the 1950s
Well, that about wraps it up for Import Substitution Industrialization. -
"WTF? I'm having a hard time coming up with any examples of genocidal horror causes by any form of liberal capitalism. National socialism yes, international socialism yes, but capitalism no."
Which form of socialism motivated the dispossession and eradication of the native Americans? -
Uh, yeah. Ask any Cherokee you happen to meet if a "capitalist" state can't indulge in genocide. Don't mention Andrew Jackson during the conversation.
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Uh, yeah. Ask any Cherokee you happen to meet if a "capitalist" state can't indulge in genocide.
By "Capitalist state" you mean the complicit state that figured Indian lands could be eminent domained for a "public purpose"? That capitalist state?
Right, public private partnership state. -
Sorry for the confusion. "Genocidal horror" is straw man by proxy: Making cartoon shorthand of lefty rhetoric about the commoditization by alienation of the value dialectic, and so on. (I'm a buff of anti-market vocabulary, and I guess I just got carried away...)
Warren, not sure I follow you on the question begging issue. -
By "Capitalist state" you mean the complicit state that figured Indian lands could be eminent domained for a "public purpose"?
No kidding. The indian tribes in Canada STILL have this problem, but their lefty defenders continue going around saying "Private property rights? But Native Americans don't believe in land ownership! It would be wrong to give them property rights, just wrong. How could they live in harmony with the land if they are contaminated by the sin of owning it!!! " -
My one comment is this: for those who have not read Schumpeter's most celebrated work, get a copy and read it.
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Ah. I meet so few people that when given the chance aren't in favor of subsidy's, regulation, tarriffs, etc. Especially economists.
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"Mortgage-backed securities of varying degrees of risk, credit default swaps, and the securitized debt of even credit-worthless people are not inherently flawed. we have nevertheless decided to live with. They will be used again, by sadder and wiser investors, and the world will be richer as a result. "
Where's your proof of this? I'm curious how much value these products have actually generated. Although it's quite clear how much damage they have caused. All this mortgage securiziation etc seems like off balance sheet financing writ large to me. It's a way to try and hide the risks involved, and leverage to the hilt. It's trying to get rich without really creating anything of value.
Sure capital allocation is necessary, and yes we need capital markets. But if a bank needs to raise more money for loans, let them issue bonds, and keep the risk on their books. Investors would then be free to buy those bonds.
We've become WAY to focused on finance, and forgotten that it's the goods and services that are produced (from the capital provided by finance) that is actually important. -
Neo-mercantilism, I like the sound of that. Does it come with guilds and all the other neat stuff I get to read about in Victorian fantasy fiction and MMOs?
No really though, exactly how many cycles of "down with the state! down with government control!"-"ah the government is dangerous, but we can keep a handle on it"-"ah the government isn't too bad if we use it as a tool to help ourselves"-"ah the government is the solution to everything if we just give it all the power it needs to operate"-"down with the state!" do we really need to figure this central planning thing out? Are we really so addicted to authority that we can't imagine a world where people, who already show they're competent and responsible whenever given the opportunity in the realm of minutia, can also be trusted with the larger problems?
There is a real problem with cavities, you know; possibly the issue is that there is no law to regulate how one must brush one's teeth! There is a real problem with inefficiency in carrying out the garbage, too. Thousands of steps and thus hundreds of calories could be saved every month by adopting a uniform system, which could be better directed into state-approved activities! (oh yes, I can keep this up a long time) -
There is a real problem with cavities, you know; possibly the issue is that there is no law to regulate how one must brush one's teeth! There is a real problem with inefficiency in carrying out the garbage, too. Thousands of steps and thus hundreds of calories could be saved every month by adopting a uniform system, which could be better directed into state-approved activities!
Your dental problems cost the state (and hence me) money. Therefore I'm justified in forcing you to brush your teeth the proper up-and-down way instead of the inferior back-and-forth way. -
I've already used neo-mercantilism™ in a conversation, and I just love it!
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is good