Schumpeter once said that ‘the upper strata of society are like hotels which are … always full of people, but people who are forever changing’ (Schumpeter 1934: 156). It is tempting to use the same metaphor on nations. Taking a long view, many nations have in sequence joined the upper strata hotel: Britain, the United States, Germany, Japan and others. Once there, however, they have tended to stay. The country occupying the best suites has changed, but all who ever moved into the hotel, still – compared to the Third World – ‘constitute “the rich”, a class … who are removed from life's battles’, to continue quoting Schumpeter on this issue (Schumpeter 1934: 156). These countries, however, are the home of only a minority of the world population.

The last 10 years have brought about a changing perspective on how economic growth actually happens. This improved understanding, however, has mainly evolved around the countries which are already living in Schumpeter's upper strata hotel – the Triad of Europe, Japan and the United States. In this chapter I shall mentally leave this hotel, and see the world from the Third World point of view. Unfortunately, the focus on the upper strata is somewhat in the spirit of the master himself. Schumpeter's own aristocratic manners, habits and tastes were not exactly compatible with viewing the world from the point of view of the ‘losers’ or laggards.

There is a second, and, less obvious, reason for studying the problems of the Third World. Understanding underdevelopment in the Third World can contribute effectively to a better understanding of the growth process in the industrialized countries. The economic problems of the industrialized world give weak and unclear symptoms, much in the same way that early stages of an illness produce general and unspecific symptoms: a fever or a headache. As the illness advances – as the patient gets sicker – stronger and more specific symptoms appear, making a diagnosis possible. My contention is that the study of the economically very sick nations can significantly contribute to the understanding of the developed world, for example the European Community running a slight fever.

Introduction

As a result of the inability of mainstream economics to tackle prominent problems of the global economy, some of its basic assumptions are increasingly being questioned. In this context, the standard emphasis on methodological individualism is gradually being eased in favour of studying the institutional structures necessary for economic development: The social, cultural and political norms and habits economists had come to take for granted. This ‘institutionalist’ approach is most often traced back to the work of Thorstein Veblen in the late nineteenth and early twentieth century. My chapter shows how an acute awareness of the importance of institutions, and more specifically of a certain kind of institutions, in fact has been explicitly present in the history of economic thought and policy at least since the Renaissance. Therefore, in addition to the ‘new’ institutional economics of Douglass North (1991) and the ‘old’ institutional economics of Veblen and Commons, there existed an ‘ancient’ tradition of institutional economics which, among other things, informed the policies responsible for the European economic miracle in the early modern period.

In light of this ‘ancient’ institutionalism, I wish to explore its relevance for economic development. Whereas today's literature tends to discuss institutions independent of the type of productive structure they support, both the ‘ancient’ and the ‘old’ institutional schools saw institutions as an integral part of a particular production system. Different technological systems, or modes of production, were seen as requiring different institutions, and an institution per se could not change the technological system. Whereas institutions like property rights and universal suffrage today often are seen as promoting economic development, I wish to show that the arrows of causality historically have been considered going in both directions. In fact, the institution of insurance came about after the need for it developed out of risky long-distance trade, and modern democracies, in any meaningful sense, were the fruits of literate urban artisan and working classes rather than of feudalism.

It is therefore not entirely clear that the Masaai are poor and stuck in subsistence agriculture because they lack property rights. Perhaps, I would argue, they lack property rights because they are poor and stuck in subsistence agriculture.

Energy futures and the case for renewables and cleantech can be framed in terms of their contribution to mitigation of climate change, as well as cleanliness and absence of carbon emissions. By contrast, energy security is generally discussed in terms of access to fossil fuels. In this chapter we make a different case for renewables: we contrast the extraction of energy (fuels), which – in spite of technological change – takes place under diminishing returns, with the harvesting of nature's renewable energy, which takes place in a process utilizing manufactured devices, where manufacturing generates increasing returns and costs decline along steep learning curves. This gives a fresh perspective on both renewables and energy security. We argue that energy choices can be framed as choices in favour of increasing returns (based on manufacturing), vs. choices in favour of diminishing returns activities, which usually involve extraction of fossil fuels. Such a framing does not entail assumptions as to whether the entire energy system can be converted to renewables, but simply as choices made at the margin – whose effects will cumulate over time. Energy security through renewables manufacturing therefore promises to be a fruitful area of futures studies.

Introduction

Energy policy and the discussion of energy futures have moved to the centre-stage of political and policy debate – driven by concerns over global warming and the impact of the continued burning of fossil fuels. The case for renewables and cleantech is usually given in terms of contribution to mitigation of climate change, as well as cleanliness and absence of carbon emissions. Energy security too is widely discussed, and usually in the context of securing access to fossil fuels, either of the traditional kind (oil, gas, coal) or the new non-traditional fuels (coal seam gas, shale oil).

In this chapter we link the two and thereby make a quite different case for renewables, couched in terms of their contribution to energy security. Renewable energy systems embody technological change, manufacturing, learning curve effects and the capture of increasing returns. Because they are produced by manufacturing activities, which can be conducted virtually anywhere, they offer prospects of long-term energy security for the countries that adopt them. Renewables may be viewed as a developmental strategic choice – and the effects on climate change mitigation, energy security and environmental cleanliness are useful and desirable adjuncts.

After receiving the National Bank of Sweden's 1973 ‘Nobel’ Prize in economics – shared with development economist Gunnar Myrdal – Friedrich von Hayek (1899–1992) held an unusual dinner speech where he quite explicitly criticized the prestigious prize he had just received: ‘…if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. One reason was that I feared that such a prize … would tend to accentuate the swings of scientific fashion.’ Hayek believed that economics was different than other sciences, and his 1973 speech shows a degree of humility towards the complexities of economics which, in my view, differs profoundly from today's professional attitudes.

An insight from a 1952 book by Hayek strengthens the argument: ‘Never will man penetrate deeper into error than when he is continuing on a road which has led him to great success.’ In other words: when being right and successful, Mankind will ‘overshoot’ into error.

The origins of what colleague Mark Thoma refers to as the ‘Great Disconnect’ between professional economics and the public sphere can be better understood by taking a closer look at Hayek's propositions. Observing the economics profession over time, it indeed appears to be subject to cycles of fashion as Hayek suggests: apparent theoretical success overshoots the scientific fashion into error and irrelevance

Other economists have contributed, from different angles, to describing this ‘overshooting’ phenomenon. Norwegian-American economist Thorstein Veblen (1857–1929) suggests that knowledge exists on two different levels. Highly abstract and esoteric knowledge, like that of high priests, carries much prestige, but is – in practice – often fairly useless. On the other hand there is exoteric knowledge – useful knowledge – based on facts and experience that carries little prestige. Using Veblen's terminology, we can argue that Hayek's overshooting of scientific fashion corresponds to Veblen's idea that irrelevant education may contaminate healthy instincts of useful and exoteric knowledge.

In this chapter I shall provide examples of historical instances where esoteric knowledge has created crises, and how these crises were only solved by resurrecting alternative, sometimes near-defunct, paradigms of knowledge.

We argue that the process of European economic integration has made a qualitative shift: from a Listian symmetrical economic integration to an integrative and asymmetrical integration. This shift started in the early 1990s with the integration of the former Soviet economies into the economies of Europe and the world as a whole, reached its climax with the Eastern enlargement of the Union in 2004 and now forms the foundation of the renewed Lisbon Strategy. This change is measurably threatening European welfare: the economic periphery in the first instance, and potentially the core countries as well. Two parallel processes aggravate this development: the timing of the enlargement at this particular phase of the evolving techno-economic paradigm; and the creation of the European Monetary Union along the so-called Maastricht route towards convergence and fiscal stability.

Introduction

Economic integration can take many forms. Some are more conducive to wealth and freedom than others. Colonialism was probably the first form of international economic integration. Intuitively, we understand that what the European Union has attempted to achieve is something qualitatively very different from colonialism. Successful economic integrations are win-win situations that extend and develop capitalism to new areas. On the other hand, unsuccessful ones are forms of integration where one or both parties lose or are prevented from dynamic economic structures conducive to wealth creation.

In this chapter we argue that European economic integration has made a qualitative shift from one type of economic integration to another: from a Listian symmetrical economic integration to an integrative and asymmetrical integration. This shift started in the early 1990s with the integration of the former Soviet economies into the European and world economies, reached its climax with the Eastern enlargement of the Union in 2004 and currently forms the foundation of the renewed Lisbon Strategy. This change is measurably threatening European welfare: the economic periphery in the first instance, and potentially the core countries as well. Two parallel processes aggravate this development: first, the timing of the enlargement in the present phase of the techno-economic paradigm under conditions of normal circumstances characterized by deflationary and downward pressures on wages, like in the 1930s (Perez 2002, 2004, 2006);

Report for the Global Policy Forum ‘The Modern State: Standards of Democracy and Criteria of Efficiency’, Yaroslavl, Russia, 9–10 September 2010.

Introduction. Modernizing Russia: The Context

‘Despite many currents and cross currents, continuity is perhaps the most impressive phenomenon in the history of economic doctrines.’1 These words by a very experienced economic historian are still extremely relevant, also for economic policy. But continuity in economics is of a peculiar and cyclical kind. It does not manifest itself in smooth incremental transitions, but rather in the recurrence of similar sets of ideas in similar contexts over time.

The economics profession and what is considered ‘best practice’ economic policy is, then, decidedly cyclical. Its cyclicality appears to follow the same type of mechanisms of ‘destabilizing stability’ described by US economist Hyman Minsky as leading up to financial crises. In the financial sector, when things are stable and improving over long periods of time, bank routines of risk evaluation grow increasingly lax, and in the end credit is given to people who are not even able to pay interest on the loans they are given (‘Ponzi financing’, as with subprime loans). In other words, long periods of stability lead to increasing vulnerability: to Minsky's ‘destabilizing stability’.

Similar cycles are at work as regards our understanding of economics and industrial policy: long periods of economic progress in the core countries lead to increasingly abstract and irrelevant economic theories. ‘Bad’ theories – particularly as they are applied outside the economic core – are allowed to dominate the discipline for long periods of time because the underlying economy is strong enough to withstand their poisonous influences, but, eventually, reality catches up and disaster ensues. This brings less abstract and more relevant economic theories and practices back; mindless laissez-faire is abandoned and more active economic governance again becomes acceptable. These turning-points can, after their most famous manifestation, be referred to as ‘1848 moments’, and they tend to be caused by economic crises, just as the 1848 turning point followed upon the severe financial crisis of 1847.

Part of the aesthetics, one might even say the romance, of writing a novel in Hindi was, for me, using the Devanāgarī script. At the time I started writing my novel, the Roman script was coming into vogue. A fellow writer, Raymond Pillai, had written a play in Hindi using the Roman script. To me, Hindi in Roman script looked unadorned, robbed of its grace and poetry. If this is how Hindi was to survive, then it seemed an insidious, degraded survival; just a temporary reprieve. The trend had to be resisted.

I had learnt Hindi only up to the secondary school level. My first attempt at writing fiction was in Devanāgarī. I wrote a highly sentimental novel in the style of the popular writers of romance. My teachers rightly dismissed it as trash.

I returned to creating in Hindi after I had established myself as a writer in English, three decades later. What I remembered of the Devanāgarī script had receded to the far corner of my memory. I had to bring it to the fore, and work like a medieval monk, arduously forming each letter and word, re-capturing their curve and swirl, putting them together like a jeweller inserting tiny gems to form an ornament. I sensed the old rhythms returning. Devanāgarī was my link with life that I had left behind. The words fell on the page, looking so unfamiliar, unlike the characters I saw in Hindi textbooks. That did not deter me. At no time did I doubt about the worthiness of the writing project. In fact, I was struck by the originality of what was appearing in front of me. I was confident enough to read the pages, as they emerged in slow increments, to a real scholar of the language – Pandit Vivekanand Sharma. He taught Hindi at the university. He came to my office at the University of the South Pacific every morning, an embroidered shawl thrown over his shoulder, and heard me, Scheherazade, telling a thousand and one tales to a tyrannical Sultan who would behead me if I failed. I was hugely relieved seeing the Sultan chortle, guffaw, and at times breaking into uncontrollable laughter. I was assured that the story would live.

‘Smith and Ricardo were our best allies in the cold war against central planning – but that battle is over and won, and we are now facing other challenges where other prophets will better serve Society's needs.’

‘Neo-classical economics fundamentally lacks a theory of economic development beyond seeing it as a process of adding capital to labour.’

‘The “Green Movement” has done us all a great favour by pointing to the severity of the problems of environment and sustainability. But, although they are not aware of it, their solutions to these problems are framed in the static and barter-centred theories of Smith, Malthus and Ricardo.’

‘All levels of knowledge carry with them their own limits to ecological sustainability. For this reason, the habit of making predictions holding the level of knowledge constant produces curious and overly pessimistic results.’

The work of the 1997 Bergo Commission is based on today's standard economic theory, the economics of Adam Smith and David Ricardo. The theories of Smith and Ricardo were our best allies in the cold war against central planning but that battle is over and won, and we are now facing other challenges in areas which these authors ignored. We shall argue in this chapter that today's mainstream economic theory – because of its basic structure – contains important ‘blind spots’ when it comes to the role of knowledge, technology and energy for the welfare of nations. We further argue that the monopoly of this type of economic theory, based on the ‘dismal science’ of Adam Smith, Thomas Malthus and David Ricardo, is a fundamental source of inspiration for the techno- and eco-pessimism which dominated the Zeitgeist of the late 1990s. The same production functions predicting diminishing returns which gave birth to Malthus’ dismal predictions of disaster, are still at the very core of the tool-box of today's standard economic theory.

We here suggest an alternative tradition in economic theory which can help us find our place in the knowledge-based society of the future. Where Smith and Ricardo focused on barter and exchange, other economists have focused on knowledge, production and the harnessing of energy, and produced theories which in our opinion will better serve us as guides for today's challenges.

After Ḍaukā Purān, Subramani spent some 17 years writing an even larger subaltern novel, 1,000 pages long with a word count of over 300,000. If the first, narrated by a man, was a picaresque tale written in a comic mode (as indeed the conventions of the genre demanded), this novel, Fījī Māṁ (‘Mother of a Thousand’, hereafter without diacritical marks and given as Fiji Maa), narrated by a woman, is the ‘subaltern historical novel’, a national allegory, with an epic sweep of a thousand [and one] tales. The novel, clearly structured as a filmic narrative, deploys cinematic techniques of representation with the point of view of the eye of a camera. Indeed, cinema is what the novel becomes in the end as we are informed that fiction – here narrative as biography – will exist in the cultural domain as film and not as book. There is, however, a more difficult reading which is embedded in the novel itself, and this reading turns the reader's attention to language. As a literary work of art, this subaltern work too exists as language, a demotic language that captures the cri en cale, the scream from the hold. This cry or scream that produced the Fiji Hindi demotic is the voice of the coolie, part of the girmitiya historical consciousness through which experience is given form. In other words, discourse itself speaks, as language carries the experience of the race: language, in short, functions as ideology. Language makes the novel a private subaltern affair as it registers a mode of literary articulation that, like an anti-language, is an exclusive social semiotic of the people, a people who can only speak to themselves. It follows that any reading of the text is an exercise at once of interpretation (hermeneutics) and annotation (poetics).

Fiji Maa is divided into six parts of variable length: Kū Kū Esṭeiṭ (167 pages), Matuvālā Gāoṁ (443 pages), Beivākābulāī (97 pages), Beimānā (217 pages), Kū Kū Esṭeiṭ (51 pages) and Matuvālā Gāoṁ (50 pages). If importance is to be gauged by the length of the parts, then the second part, as the longest (around 40 per cent of the novel), is the centre of the novel.

Competitiveness - ‘corporate graffiti’ invades economic theory

Even a casual observer of the practice and science of management will not fail to notice how a continuous flow of new concepts are born, become fashionable and then disappear from management jargon. A recent article in Financial Times (Ref. 1, p. 10) suggests the term ‘corporate graffiti’ - or ‘management graffiti’ - to describe the unthinking use of buzz-words. Management language is ‘opaque, ugly, and cliché-ridden’, FT claims. ‘Management graffiti’ is intended as the catch-phrase to end all catch-phrases.

Clearly these ‘corporate graffiti’ are important not only to the world of business but also to the rest of society - largely due to the influence wielded by the people who employ them. Michael Porter, himself a contributor to corporate graffiti, has issued a warning to managers against paying too much attention to the fads - against what he calls single-issue management. Luckily, most management graffiti live and die without ever leaving the spheres of management. Exceptionally, however, the term competitiveness has taken the leap from management theory to the field of economics and public policy. Does this mean that public policy theory is starting to be subject to the same fads as management theory? Apparently, some mainstream economists are of this opinion. However - although most of the time ill-defined - the term competitiveness seems to fill a need in public discourse. Does the need for such a concept reflect a new situation in the world economy? Do we need the term competitiveness in order to come to grips with increasing globalization (another graffiti term), or is this a new term for a set of problems which have been around for a long time?

In this chapter I shall argue that, although often misused and mostly ill-defined, the term competitiveness properly used does describe an important feature in the world economy. This concept scratches the surface of important issues which are central for understanding the distribution of wealth, both nationally and globally. In spite of its fairly recent appearance on the scene, the term competitiveness in my view addresses issues which have been central in public policy at least during the last 500 years, albeit under different headings.

This chapter looks at the Dutch Republic from the vantage point of the economists of the period. These pre-Smithian economists are normally grouped together in the history of economic thought under the decidedly derogatory label of ‘mercantilists’. Under its standard Whig conception, any idea in the history of economic thought – as identified almost a century ago by English historical economist Ashley – instead of being judged by its relevance in a given context, is either hailed as a surprising early anticipation of a healthy neoclassical economic principle or as an example of hopelessly ill-conceived theories (Ashley 1920: II, 381).

I would argue that as a tool in order to understand the rise and fall of the Dutch Republic, mercantilism had some clear analytical advantages over neoclassical economics. Not only was the mercantilist or pre-Ricardian economists’ toolbox much larger than today’s, the pre-Ricardian system already included a large number of economic factors which the profession presently attempts to re-introduce to mainstream economics. Examples of what gradually was left out of economics starting with Adam Smith are innovations – part of English economics from Francis Bacon (1561–1626) until and including James Steuart's important work (1767) – technology, increasing returns, institutions, geography, synergies, path dependency, that economic activities are qualitatively different as carriers of economic growth, the idea that economic policy should be context-specific, and the whole fundamental question of why economic development is by nature so uneven. With the English classical economists economic theory gradually lost its previous understanding of the vicissitudes of technology and production, and came to concentrate upon trade and prices. The contemporary mercantilists are therefore likely to provide a much richer analysis of the Dutch Republic than what is found in the works of the later classical economists.

Mercantilism can productively be seen both as state- and nation-building (Schmoller 1897/1976) and as a strategy of industrial import substitution (Perrotta 1993), which at the time was seen as two sides of the same coin.1 To the laggard countries of Europe, the Dutch Republic provided important inspiration on both these accounts. That inspiration did not come from Dutch policies, but by asking what policies would have to be created in order to achieve the same results as those observed in the Dutch productive system, but under very different circumstances and conditions; in very different contexts.

‘And the land was not able to bear them, that they may dwell together …’

Genesis XIII, 6.

(quote used by Alfred Marshall, Principles of Economics, London, 1890, in order to emphasize the role of Diminishing Returns as a fundamental factor in human history.)

‘I apprehend (the elimination of Diminishing Returns) to be not only an error, but the most serious one, to be found in the whole field of political economy. The question is more important and fundamental than any other; it involves the whole subject of the causes of poverty;.. .a nd unless this matter be thoroughly understood, it is to no purpose proceeding any further in our inquiry.’

John Stuart Mill, Principles of Political Economy, 1848.

This chapter explores the impact of Diminishing Returns on world poverty and sustainable growth. Diminishing Returns is an economic factor which not only heavily influences the behaviour of costs, wages and standard of living in any resource-based economy - particularly in Third World economies - but, I shall argue, this factor is the key to understanding the concept of sustainability. This chapter argues that the strong warning from John Stuart Mill quoted above is as valid today as it was almost 150 years ago. Mill's warning has, however, been largely ignored, almost completely so in the period following World War II.

Part one of the chapter traces how Diminishing Returns disappeared from economic theory as neo-classical economics and general equilibrium analysis took over from other, less abstract, economic paradigms. Part two discusses the impact of Diminishing Returns vs increasing returns if they were to be reintroduced in international trade theory. Part three describes how ‘The Triple Curse’ of Diminishing Returns, perfect competition and price volatility combine and mutually reinforce each other in maintaining vicious circles of poverty and unsustainable growth. Part four describes how a few resource-rich nations - Australia and Canada taken as examples - managed to escape the ‘Triple Curse’ which threatens all resource-based economies. The concluding part discusses the need for a wide-ranging overhaul of the World Economic Order, an overhaul which once again incorporates the lock-in effects created by Diminishing Returns in resource-based economies.

These volumes represent the second and last installment of my collected papers and chapters on economics. The first installment – The Visionary Realism of German Economics. From the Thirty Years’ War to the Cold War – was published in 2019, also then kindly collected and edited by Prof. Rainer Kattel of the Institute for Innovation and Public Purpose, University College London.

¡Viva el tercer extremismo! was once the only text in a mail I received from a Latin American friend: ‘long live the third extremism’. My friend and I are both what you can call children of the Cold War, born at its start in the late 1940s and spending many formative and active years under its reign until 1989. His point was that my form of extremism, instead of becoming a rigid ideology, was a rather extreme attention to historical facts and the tools and mechanisms they revealed. Indeed, I was very pleased when I found that an influential German economist, Gustav Schmoller, had referred to communism and what was to become neoliberalism as ‘twins of an ahistorical rationalism’1. My ‘extremism’ was intended to be the opposite, hopefully a ‘historical rationalism’, which by necessity had to be more complex than the simplistic solutions of the ‘ahistorical twins’ which dominated the Cold War view.

With time, I found that several approaches qualified as not belonging to any of the ‘ahistorical twins’ that dominated Cold War economics. I came to think of these as ‘reality economics’, but a philosophical discussion started within the group around ‘reality’ and we decided to adopt the term The Other Canon of Economics: the study of the economy as a real object, not defined in terms of the adoption of core assumptions and techniques. The end of this introduction provides a comparison between standard economics and The Other Canon, listing many economists who have provided input to The Other Canon. A family tree of The Other Canon is found here http://othercanon .org /family -tree/

The beginning of the Cold War brought a massive theoretical contradiction to the surface. We could call it Marshall vs. Samuelson. On June 5, 1947, US secretary of state George Marshall presented what was originally called ‘The European Recovery Plan’, later the ‘Marshall Plan’.