Erik S. Reinert

The role of the state in economic growth

This paper attempts to trace and describe the role played by the government sector – the state – in promoting economic growth in Western societies since the Renaissance. One important conclusion is that the antagonism between state and market, which has characterised the twentieth century, is a relatively new phenomenon. Since the Renaissance one very important task of the state has been to create well‐functioning markets by providing a legal framework, standards, credit, physical infrastructure and – if necessary – to function temporarily as an entrepreneur of last resort. Early economists were acutely aware that national markets did not occur spontaneously, and they used “modern” ideas like synergies, increasing returns, and innovation theory when arguing for the right kind of government policy. In fact, mercantilist economics saw it as a main task to extend the synergetic economic effects observed within cities to the territory of a nation‐state. The paper argues that the classical Anglo‐Saxon tradition in economics – fundamentally focused on barter and distribution, rather than on production and knowledge – systematically fails to grasp these wider issues in economic development, and it brings in and discusses the role played by the state in alternative traditions of non‐equilibrium economics.

Competitiveness and its predecessors - a 500-year cross-national perspective

Abstract This paper assumes that the term ‘competitiveness’, if properly used, does describe an important feature of the world economy. This concept suggests the consideration of important issues that are central to the understanding of the distribution of wealth, both nationally and globally. Competitiveness issues have been central in public policy for at least 500 years. The paper considers two different intellectual traditions behind the literature on economic growth: the classical mode and the collusive mode. When the second mechanism operates, the producer (company or nation) retains an important part of the benefits of improved productivity, and the issue of competitiveness may be discussed. The paper argues for the relevance of past economic policies and examines the non-monetary aspects of preclassical and later ‘anticlassical’ economic thought in England, United States, Germany, Japan. A discussion of competitiveness as a ‘proxy’ for the pursuit of dynamic imperfect competition concludes the essay.

Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter

This paper argues that the idea of ‘creative destruction’ enters the social sciences by way of Friedrich Nietzsche. The term itself is first used by German economist Werner Sombart, who openly acknowledges the influence of Nietzsche on his own economic theory. The roots of creative destruction are traced back to Indian philosophy, from where the idea entered the German literary and philosophical tradition. Understanding the origins and evolution of this key concept in evolutionary economics helps clarifying the contrasts between today’s standard mainstream economics and the Schumpeterian and evolutionary alternative.

Exploring the Genesis of Economic Innovations: The Religious Gestalt-Switch and the Duty to Invent as Preconditions for Economic Growth

This paper discusses changes in the level of knowledge, i.e. learning, as a key source of economic growth, and argues that historically a radical change in attitude towards new knowledge has been a necessary precondition for economic growth. The Renaissance created this radically new attitude in Europe, and this paper discusses contributions to economic theory and economic policy of some of the most influential scientists involved in this process: Francis Bacon (1561-1626) in England, and Leibniz (1646-1716) and Christian Wolff (1679-1754) in Germany. It is argued that these polyhistors viewed economic change as a dynamic knowledge-based process–a view that has important similarities with modern evolutionary or Schumpeterian economics. These similarities have so far not been recognized, and the paper suggests that modern economic theory would benefit from studying the theoretical and practical economics of these philosophers who laid the foundations for the industrial revolution.

Jacob Bielfeld’s “On the Decline of States” (1760) and Its Relevance for Today

The idea of economic decline has been with us for a very long time. The notion that human societies are bound to follow the cyclical patterns of nature—birth, life, decline, and death—is found from the Greek philosophy of Plato to the Arab philosophy of Ibn-Khaldun. Only late Renaissance and Enlightenment Entzauberung—demystification—of the world picture view freed mankind from the cyclical vicissitudes of the blindfolded goddess Fortuna and opened up for rational economic policy to prevent booms and bust. During the last century, the theory of decline in the West manifested itself in German Kulturpessimismus with Oswald Spengler’s Decline of the West (1918), in the USA with Paul Kennedy’s The Rise and Fall of the Great Powers (1987), but also as harsh reality in the Great Depression of the 1930s.

Globalization, Economic Development and Inequality

The expert contributors gathered here approach underdevelopment and inequality from different evolutionary perspectives. It is argued that the Schumpeterian processes of ‘creative destruction’ may take the form of wealth creation in one part of the globe and wealth destruction in another. Case studies explore and analyse the successful 19th century policies that allowed Germany and the United States to catch up with the UK and these are contrasted with two other case studies exploring the deindustrialization and falling real wages in Peru and Mongolia during the 1990s. The case studies and thematic papers together explore, identify and explain the mechanisms which cause economic inequality. Some papers point to why the present form of globalization increases poverty in many Third World nations.

Adapting to Climate Change in Reindeer Herding: The Nation-State as Problem and Solution

This paper discusses the role of nation-states and their systems of gover- nance as sources of barriers and solutions to adaptation to climate change from the point of view of Saami reindeer herders. The Saami, inhabiting the northernmost areas of Fennoscandia, is one of more than twenty ethnic groups in the circumpolar Arctic that base their traditional living on reindeer herding. Climate change is likely to affect the Saami regions severely, with winter temperatures predicted to increase by up to 7 centigrade. We argue that the pastoral practices of the Saami herders are inherently better suited to handle huge natural variation in climatic con- ditions than most other cultures. Indeed, the core of their pastoral practices and herding knowledge is skillful adaptation to unusually frequent and rapid change and variability. This paper argues that the key to handle permanent changes successfully is that herders themselves have sufficient degrees of freedom to act. Considering the similarities in herding practices in the fours nation-states between which Saami culture is now divided . Norway, Sweden, Finland, and Russia . the systems of governance are surprisingly different. Indeed, the very definition of what is required to be defined as an ethnic Saami is very different in the three Nordic countries. We argue that timely adjust- ments modifying the structures of governance will be key to the survival of the Saami reindeer herding culture. Since the differences in governance regimes . and the need to change national governance structures . are so central to our argument, we spend some time tracing the origins of these systems.

Full circle: economics from scholasticism through innovation and back into mathematical scholasticism: Reflections on a 1769 Price essay: “Why is it that economics so far has gained so few advantages from physics and mathematics?”

Through the sixteenth and seventeenth centuries, European science slowly lifted itself out of the fog of Mediaeval scholasticism. A rational, quantified and mechanised world picture emerged. In 1769 an essay questioned why economics benefited so little from the use of mathematics and quantification. Today the opposite may be argued – the increasing loss of relevance of economics is associated with the use of mathematics. Based on Francis Bacon’s criticism of scholasticism, it is argued here that strong parallels exist between the decay of scholasticism and the decay of modern economics. From being a science of practice, late neoclassical economics has degenerated into “working upon itself”, as Bacon says about late scholasticism. Since the 1769 essay, economics has come “full circle”. The problem for economics is not then mathematics per se – mathematics is just one language in which science may decay.

Johann Heinrich Gottlob von Justi - The Life and Times of an Economist Adventurer

The term merchant adventurer was applied to the earliest medieval English merchants who made their wealth and fame in new and hazardous markets (Carus-Wilson, 1967). A similar spirit of hazardous economic adventure cum economic career characterized the life of economist and social scientist Johann Heinrich Gottlob von Justi (1717–1771) as well as several of his cameralist contemporaries in Germany and Austria. Justi epitomises the heyday of the German brand of mercantilist writing, cameralism. These traditions represent the reasoning on economics and state sciences that laid the necessary groundwork for the creation of all European nation-states and for the Industrial Revolution, but was later excluded from the more narrow and barter-based economics of the English tradition. Justi was both a synthesizer and a modernizer of this tradition, absorbing the important novelties of the 1700s into the already existing consensus of the late 1600s. Justi was, as far as we can judge, probably also the most prolific writer of all economists in any language, publishing a total of 67 books of which 8 works were translated into five languages (see the bibliography in chapter 2). As a profession, these early German-speaking economists stand out as being of a very different class and type than their English contemporaries. This is emphasised by Keith Tribe, the English-speaking author who in a very thorough work has devoted more time and space to Justi than anyone else in the English language (Tribe 1988). However, when comparing Justi’s writings with the economics traditions in the rest of the European continent – from Spain to Sweden and Finland – rather than with England, it is in fact the English tradition that stands out as being ‘‘different’’.Whereas most early English economists were themselvesmerchants, the professional career of the typicalGerman economist at

The Political Economy of Northern Regional Development : Vol. I

“….Taking the structure and functioning of the Arctic regional economies and the degree of economic dependence as a point of departure, these regions self-reliance and comparative ...