Contents:
This is perhaps just one of the many hypotheses prompted by this thoughtful book. The third part begins by analysing the posts decline in economic conditions productivity, employment and income equality in the US and Europe. The book argues that the traditional narratives of US decline do not adequately explain the real causes of that decline.
The first narrative is that the golden age of the post-war decades was based on federal government providing welfare support in the New Deal and its decline resulted from a resurgence in efficient managerial capitalism. This provides a justification on the left for a return to corporatism.
The other narrative argues that the golden age began prior to the New Deal and was driven by low taxes, less regulation and support for free enterprise. The decline resulted from leaving this path. This underpins arguments on the right for a return to lower taxes and regulations. Phelps persuasively argues that neither narrative is appropriate and asserts that decline in the US resulted from a decline in dynamism and a move away from the generation and acceptance of new ideas and innovation. The latter part of this section considers the dynamic modern economy in the context of the good life and one of the key arguments of the book, and perhaps its most controversial, is that a dynamic modern economy is consistent with ideas of economic justice and the concept of the good life.
The book poses challenges to the techno-fetishist and techno-nationalist approaches to innovation that underpin many national and supra-national policies. Over the last few years, innovation has been appropriated as a scientific concept, particularly in Europe, but also in the US. It is notable how innovation policy now appears as an addition to science and technology policies. For example, the European Commission has developed a strategy on Science, Technology and Innovation; the UK government has issued a Science and Innovation Investment Framework; the Danish government has a Minster for Science, Technology and Innovation; and Ireland has published a similarly titled strategy.
He argues that these policies could do more harm than good and that successful innovation relies more on input from, and funding for, entrepreneurs, salespeople, managers and consumers. The linear idea that science and technology is the only, or even the primary, driver of innovation and, in turn, economic growth, is impressively shattered in this book.
It places the human, with her ideas, creativity and art, again at the centre of the innovative process. Phelps draws a distinction, which is very refreshing, between entrepreneurship and, what he terms, innovatorship. He argues that each of these draw on different sets of human resources. It is also refreshing to see a recognition of the important role of users of technology and innovation in the explanation of growth and development.
These are too often ignored or underestimated in analyses of the relationships between innovation and economic growth, and yet they are sources and inspirations for innovation and determine the relative success and diffusion of innovations subsequently. Phelps argues for a rethink on the fundamental principles underpinning the modern economies of developed countries.
This is a welcome call for governments and civil society in general to first accept that theories are important in enabling shared understanding of what types of economy and society we wish to have, and second, that we need to move beyond the superficial debates that prevent a return to the dynamism that drove modern economies previously.
In the US for example, he notes that dynamism and prosperity are unlikely to return as long as there remains the belief that freedom is sufficient for them to return. This is an example of the lack of an appreciation of the importance of theory. He implies that the contradictory calls in the US for a return to traditional values and a return of economic dynamism drown out the necessary societal debate on how dynamism and a just modern economy are to be achieved.
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This book is an important contribution to the battle of ideas on how we can respond to the crisis in economics and economies. There have been many books written on the causes and potential solutions, but this one joins the few that place the current problems in a broader and, consequently, more exciting context.
Please read our comments policy before commenting. Shortened URL for this post: He holds a PhD in Economics and his research interests include business innovation, regional development and competitiveness, economic growth, human capital and education.
This passage reveals that Phelps is no modern American conservative. Although he is hardly as vigorous or as consistent or as eloquent in his support for free markets as were F. Hayek and Milton Friedman, he is quite clear that market institutions, along with modern values, are indispensable for mass flourishing.
The corporatist economies must have come close to catching up with the American economy mainly by imitation. If growth relied on outside forces, by the way, the same is true of employment. A total cessation of American innovation would have sent the Continent into a long slump.
There is a looseness around the edges of his analysis. A trope especially popular with the political Left, this stagnation thesis springs in part from a sloppy reading of statistics: Princeton University Press, to be a failure of national-income accounting to keep pace with economic change. Measuring early-twenty-first-century economic processes using midtwentieth- century economic categories ironically blinds us to much of the innovation that Phelps rightly celebrates.