The Path to Prosperity - Free Market. Sound Money Plus a Little Luck

Author: (USA) Rudiger Dornbusch / Country: Mainland China
Publisher:
Publish Date: 2006-07-01
Features: The record-breaking per capita GDP growth in the second half of the 20th century naturally raises the question: What are the underlying reasons for this growth, and is there a universally applicable explanation? Economics identifies two important factors: First and very obviously, there is rapid capital accumulation and capital formation worldwide. This increases the amount of machinery and equipment available to labor, thereby enhancing labor productivity. Another factor is equally obvious: technological progress. Technological progress means we can learn to do things better, allowing the same amount of labor and machinery to produce more goods. Under the same conditions, technological progress also means that new ideas and technological improvements will be reflected in better machinery, further boosting labor productivity. At the same time, technological progress is also reflected in better methods of organizing production and organizational structures, which are more conducive to specialization and productivity gains. Some emphasize creative destruction, while others view stable accumulation as a deception—does war and ideological conflict hinder progress compared to a world without war and conflict? Or, conversely, could they also be the driving force of progress by destroying outdated structures and technologies? This example is drawn from the progress observed in Japan and Germany after World War II, where post-war advancements propelled their development far beyond other countries. But why didn’t this happen in France? Nobel laureate in Economics Robert Solow (Robert Solow) proposed that a certain portion of economic growth could be attributed to capital formation, while the rest was due to residuals, i.e., technological progress. However, technological progress is a catch-all term that can encompass everything. His brilliant conclusion was to attribute one-third of per capita income growth to capital formation and the remaining two-thirds to technological progress. This conclusion remains exciting because it underscores the importance of savings and investment—in socialist countries, Japan, and Europe—perhaps to an excessive degree. After all, economic games are consumption-related, and if it’s possible to consume while developing, then the more consumption, the better. But this may be the wrong conclusion. The correct conclusion lies in growing interest in what truly constitutes the mysterious technological progress. Is it well-developed financial institutions? An economic environment that encourages efficient resource allocation? Political stability and property rights? Japanese-style obedience training in schools and workplaces? Imitating advanced technologies from other countries? Or the harsh and ruthless pressure on managers and workers in stock markets to extract better cost performance? Disappointingly, empirical evidence does not provide a shortlist of factors that promote technological progress; evidence is still lacking. Except for instability, inflation, ignorant bureaucracy, and closed, suppressive economies, all these aspects are potential conditions for progress, but only through additional hard work and thrift can it be achieved. However, when it comes to corporate governance, whether American methods are better than Japanese ones, or when discussing labor market characteristics, whether long-term labor relations in Europe are more beneficial than the high mobility rates in the U.S., it’s hard to say which is superior. It’s difficult to determine whether one or the other has a better impact on achieving progress. Japanese corporate governance and German labor markets once seemed to hold immense promise for exceptional performance. Today, the former is synonymous with Japanese bankruptcy, while the latter is closely linked to European rigidity. The search for a lasting perfect answer continues. P6-7