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National Competitiveness and Economic Growth

The Changing Determinants of Economic Performance in the World Economy

Timo J. Hämäläinen

The current paradigm shift in the world economy is challenging the traditional competitiveness and growth theories with their few explanatory variables. This book offers a more holistic framework to synthesise the key findings of the various branches of competitiveness and growth research. The author illustrates this framework with a new long wave theory of socio-economic development. This theory emphasises the competitiveness and growth benefits of rapid structural adjustment in the rapidly changing techno-economic environment. Based on thorough analysis the author argues that both markets and governments have become less efficient due to the current transformation of the world economy. His empirical data from 22 OECD countries in the 1980s and 1990s illustrates that efficiency and growth-oriented governments have significantly contributed to their countries’ economic success.
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Chapter 5: Socio-institutional adjustment

Timo J. Hämäläinen


A new Kondratiev upswing cannot begin before a new technoeconomic paradigm solves the structural problems of the old paradigm. Owing to competition and profit motive the new paradigm usually first emerges in the private sector and only later spreads into the public sector. The new paradigm leads to a rapid increase in industrial productivity, profits and output. The increased profit opportunities and expectations of firms produce a strong wave of new investment (Schumpeter 1939; Freeman and Perez 1988; Mandel 1995). The increasing output of the new technoeconomic paradigm is initially absorbed by the established or newly created markets without major dislocations in the economy (Schumpeter 1939). The new technologies and growing output of the leading sectors create new market opportunities for specialized supplying and related industries which increase their innovatory efforts and diversify their product offerings (Mensch 1979; Piore and Sabel 1984). The new innovations proceed in a pattern of ‘challenge and response’ which gradually spreads the new technoeconomic paradigm throughout the economy (Landes 1969). However, in the end, the economic upswing runs into growing difficulties. The rapid development and diffusion of the new technoeconomic paradigm leads to an increasing ‘mismatch’ or disequilibrium with the old socio-institutional framework. The economic development is not sustainable before the socio-institutional framework has adjusted to the new technoeconomic paradigm. This chapter analyzes the socio-institutional adjustment process. It builds on the works of Leon Festinger (1957), Thomas Kuhn (1975), Ervin Laszlo (1987), David Bohm and David Peat (1987) and Mark Johnson (1993). 1 NATURE OF...

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