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Revolutionary Developments in the World Economy

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  • Horst Hanusch

    (Institute of Economics, University of Augsburg, Augsburg)

Abstract

In the last decades the world changed dramatically. From a global point of view three disruptive processes are on their way which can be called revolutionary: a political, a technological and an economic revolution. This paper aims to give an overview when and how these movements started what the essence of these processes is and with which consequences we will have to deal with in the future. Concerning the political revolution the year 1990 can be characterized as a historical landmark because of two reasons: At first, it finished with orthodox communism as it was practiced primarily in the former Soviet Union. Secondly, this year created a new illusion which is described at its best by Francis Fukuyama in his book "The End of History" (1990). The Western form of a liberal representative democracy had overruled communism as its most important counterpart and it promised to stay forever as a political system when combined with a capitalistic market economy. That means in last consequence "the end of history". The paper shows how this illusive thinking has been demolished in the last twenty years and in which way a new regime of political thinking, the "autocratic system" of political decision making, is gaining relevance worldwide in developed as well as in developing countries. Starting in China and spreading over to other countries in the second half of the last century it now even reached countries in Europe which after 1990 tried to install a liberal representative democracy with great empathy, for instance Russia, Hungary, the Czech Republic and recently also Poland. The paper tries to grasp this process, to find answers why the attractiveness of the democratic ideal is fading away in these days and to show which consequences this political transformation process might have for the global economy. The last two decades of the 20 th century set off a third great wave of technological invention and disruptive innovation, the "digital revolution". Radical advances in computing-, information- and communication-technology may deliver a similar mixture of transformation as societies had experienced in the centuries before, getting acquainted to the steam engine, electricity, the telegraph and telephone for instance. The larger part of economists and scientists today sticks to the opinion that this new technological revolution will change fundamentally essential characteristics of the three pillars which constitute a socio-economic system: the financial, the public and the real sector. The paper intends to show how each of these pillars are already affected by the eruptive development of digitalization and how this process may go on in the future with all its social, economic and institutional consequences. If the 1990’s are taken as a historical landmark for fundamental changes in the world, one miraculous development has to be stressed as most important: The economic "catching up" process of the developing world, especially in those emerging countries called the BRICS group consisting of Brazil, Russia, India, China and South Africa. In the last 20 years these nations’ growth has far outpaced that of the US and the EU, with China already having become the second largest economy in the world. The paper will show how this growth phenomenon already changed fundamentally the structure of the world economy and which consequences can be expected in the future, if a country like China will be successful in combining elements of the political and the technological revolution in its development strategy. This scenario and the economic system standing behind may be called "state capitalism" and it is thoroughly in conflict with what is named as "entrepreneurial capitalism", concretized at its best in the US and its Silicon Valley. If we go back to Schumpeter, the Silicon Valley example can be pictured as a realistic portrait of what he had in mind in his 1912 book (The Theory of Economic Development). Whereas the Chinese kind of forming the country’s development process and its innovation culture seems to be more in accordance with the Schumpeter book of 1942 (Capitalism, Socialism and Democracy). The paper will at the end shortly focus on this interesting issue, which might be called a "Schumpeterian Battle of Systems", namely "Entrepreneurial Capitalism" against "State Capitalism". Perhaps, this antagonism might shape the development of the world economy in the coming decades of the 21 st century more than any other event.

Suggested Citation

  • Horst Hanusch, 2016. "Revolutionary Developments in the World Economy," Discussion Paper Series 332, Universitaet Augsburg, Institute for Economics.
  • Handle: RePEc:aug:augsbe:0332
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    File URL: https://vwl.wiwi.uni-augsburg.de/vwl/institut/paper/332.pdf
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    More about this item

    Keywords

    Development Economics; Institutional Theory; Technological Change; Schumpeterianism;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • P10 - Economic Systems - - Capitalist Systems - - - General

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