Globalization, Economic Development and Inequality

Globalization, Economic Development and Inequality

An Alternative Perspective

New Horizons in Institutional and Evolutionary Economics series

Edited by Erik S. Reinert

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.

Chapter 10: Diversity: Implications for Income Distribution

David B. Audretsch

Subjects: economics and finance, evolutionary economics, welfare economics

Extract

David B. Audretsch As recently as the early 1990s scholars and industry observers predicted, if not the death of Silicon Valley, then its slowdown.1 For example, in a muchcited article in the Harvard Business Review Charles Ferguson (1988, p. 61) argued: Fragmentation, instability, and entrepreneurialism are not signs of well-being. In fact, they are symptoms of the larger structural problems that afflict US industry. In semiconductors, a combination of personnel mobility, ineffective intellectual property protection and tax subsidies for the formation of new companies contribute to a fragmented ‘chronically entrepreneurial’ industry. US semiconductor companies are unable to sustain the large, long-term investments required for continued US competitiveness . . . Personnel turnover in the American merchant semiconductor industry has risen to 20 percent compared with less than 5 percent in IBM and Japanese corporations . . . Fragmentation discouraged badly needed coordinated action – to develop better process technology and also to demand better government support. A decade later, not only is Silicon Valley thriving but, as The Economist pointed out, average pay in Silicon Valley rose between 1995 and 1996 by 5 per cent in real terms, to $43,510, compared to a mere 1 per cent increase to $28,040 for the rest of the country.2 Despite high production costs, environmental destruction and overall congestion, reports of Silicon Valley’s demise were premature. The purpose of this chapter is to suggest that differences in the distribution of income across regions are likely to grow. As a result of globalization, those regions whose economies...

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