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Further arguments propose a possible long-term strategy for economic revival - eco-restructuring.

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This strategy involves a shifting away from production of goods to production of services, closing material cycles and eliminating reliance on non-renewable resources. Homepage Download PDF. The paradigm continues its march of transformation but almost entirely as a result of the imperatives facing production rather than financial capital.

Production capital does not possess the extraordinary mobility of financial capital and as such has little choice but to explore every possible opportunity to increase productivity within the new techno-economic paradigm and develop every possible market for the products and services to which it is organically linked. It is for this reason that the period after the crash is a time when the benefits of the new technology and paradigm are spread across the whole economy and emphasis switches to the role of productive and committed human capital, workplace innovation and the sustainable growth of consumer demand as the driving forces of the economy.

As mentioned above, the socio-institutional sphere finds it far harder to accept and adapt to the implications and opportunities of the new techno-economic paradigm than the commercial world. This is because the latter is governed predominantly by the profit motive rather than the more complex intersection of ideology, values and interests.

As such, there is usually a period of conflict and struggle between the crash and the new economic era. Some years after the crash and when the paradigm has worked its way across many sectors and markets, the productivity gains made by the paradigm begin to slow and the new markets created become saturated. Periods of stagnation and recession follow with the consequent political and social conflict these generate.

This period can last for a considerable time itself but during it there emerges yet another technology and paradigm which will start the whole process again. Perez is very clear that this narrative is a highly idealised account of historical processes which often vary very considerably in the timings and nature of each aspect.

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A new economic paradigm

Indeed, each seems to have its own unique elements. For example, the most recent crisis is noteworthy for the fact that it has been constituted of two bubbles and crashes: the dot com bust in and the credit crunch and banking crisis of This feature Perez has endeavoured to explain in a recent paper as the coincidence of a series of contingent factors which ensured that financial capital was able to continue operating for a specific period but linked to rapidly rising asset prices rather than a frenzy around IT companies Perez, b.

In addition, the contingent will always play a significant role in determining the exact shape of each phase. It may be better to understand the new conditions that characterise each phase as providing opportunities for certain practices, agents, policies and values to gain influence, rather than as providing certainties for their growth. It is notable, for example, that the period that developed after the financial crashes and which became known as the Belle Epoque was rather limited in its progressive characteristics, whereas the long period of turmoil and then stability after the crash represented a fundamental transformation in Western European and American economies and societies.

Based on this understanding of history, it is possible to start drawing out the broad policy implications which are required at this particularly important transitionary phase. The starting point for this is to acknowledge that in the post-crash period progressive economic policies are not just desirable as a means to social justice but become important ways to ensure economic growth and stability.

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The shock of major recessions and the loss of power of financial capital that follows a big crash creates historical political opportunities for progressive forces to shape post-crash economies. We have, of course, already seen something of this: with the victory of Obama in the USA; the renewed debate about the negative impacts of consumerism, individualism and inequality; alongside a new found interest in the economics of Keynes even amongst centre-right parties in Europe.

However, there is a more fundamental reason for the rise of progressive outlooks during these periods. This is the fact that the prescriptions and emphases of progressive approaches become much more closely aligned with the making of profit and the generation of economic growth following a crash.

In the phase of frenzied speculation, major growth and the high profits are driven by and located in finance sectors and the rising value of assets. Expansions in demand are often closely linked to these developments as can be seen in the way the rising housing market and cheap credit underpinned demand in the UKand the USA Holtham, ; Turner, a, b.

Thus the policy and strategic emphasis within government and many companies is on creating the conditions for such factors to continue and expand. After the crash, production capital takes the lead role and this has certain progressive implications. While financial capital seeks out short-term, high return investments and withdraws when it is not forthcoming, production capital has an entirely different dynamic. It is rooted to the firm and can only increase returns by improving products, building productivity and exploiting new and existing markets.

As a result, the longer term benefits provided by an able and committed workforce tend to come to the fore. More is said about this below. In addition, the collapse in the profitability of the finance sector and decline in asset-based wealth creates a crisis of demand as consumer confidence and the availability of cash recedes. We have clearly recently entered a very severe version of this phase with a rapid and deep collapse in demand right across the world.

What we have not yet entered is the period when policymakers and business leaders recognise that the long-term maintenance of profitability and growth can only occur when demand is consciously encouraged through public policy and business strategies. There is still a strong, though mistaken, expectation that while old-style demand stimulus packages will limit the recession and kick start a new period of growth, the longer-term policy framework will still probably be centred on a supply-side approach.

However, the historical pattern identified by Perez shows that demand side policy tends to become the norm as it becomes clear that the conditions of debt-backed consumption and high profits of finance cannot be recreated. It is highly likely that attention will soon turn to the fact that there has been a long-term decline in wages as a share of national income across the world since the s and that median incomes in countries such as the UK are far from high Holtham, ; Lent, ; TUC , ; Turner, a and b.

A new economic paradigm

In turn, it will become clear that if the economy is to continue to grow, if the productivity gains available from the spread of the new technologies and paradigm are to be funded, and if the UKeconomy is to remain competitive, then demand will have to be maintained by other means than previous policy frameworks. Under these conditions, the progressive call for higher wages, more secure employment and lower levels of inequality is not just made as a moral case but becomes fully aligned with the continued profitability of business.

This is what happened in the s when Keynesian policies designed to generate a growth in mass demand became necessary to rebuild businesses after the devastation of depression and war around the paradigm of mass production. Admittedly, the shift in priorities will probably be less radical today, simply because the current economic situation is not nearly as extreme as that which faced Europeafter the War, but the same pressures, if somewhat less intense, still exist.

It is inevitable that political tensions rise during a period of deep recession.

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The loss of livelihoods, the discrediting of incumbent politicians, and the often bitter struggle between economies to force recovery at any cost is a combustible mix. But the historical patterns described here also suggest a different, longer term source of tension. This is the constellation of new political forces and alignments which form in response to the continued impact of the techno-economic paradigm after the crash. The various responses and conflicts are far from straightforward: a diverse and sometimes self-contradictory mix of hostility to the paradigm and claims to be its embodiment, underpinned by conflict of more fundamental economic interests to seize the great material advantages that can present themselves in a post-recessionary environment as growth is re-established.

The starkest example of the risks inherent in this phase is, of course, the period after the crash. But similar periods of political conflict have followed each of the turning points identified by Perez: the growth of political radicalism in Englandafter the banking crisis of ; the European liberal revolutions after the financial collapse; and the period of intense industrial conflict during and after the financial crises.

It is impossible to predict what new political constellations might emerge in this particular turning point, although the way the current political and constitutional crisis has intersected with the post-crash recession in the UKdoes suggest that those new constellations may begin to emerge sooner rather than later.

If the emergence of new political forces and an intensification of political tensions across the world is probable, then the highest imperative is to ensure that these are included in and shaped by processes based on democratic engagement and dialogue. At the international level, this must mean an emphasis on discovering multilateral and negotiated solutions to the international tensions that might interweave with the crisis and become exacerbated by differing national economic approaches.

For example, it should be a matter of deep concern that two alternative models of capitalism are emerging, authoritarian and democratic; both of which, no doubt, could soon claim to be best placed to take advantage of the productive benefits of the extension of the current paradigm; or, maybe more probably, could come into conflict over the necessity of adopting the paradigm and its wider political and social implications in full. When such conflict is overlaid with the potential for violence in the South China Sea, the Middle East or the Indian sub-continent — as well as political tension over the spread of democracy and pluralism — then it is clear that we have indeed been launched on a more fragile and dangerous period than existed before the crash.

Within the UK, it suggests that the job of re-engaging citizens to the world of democratic politics has never been more urgent. If new political alliances and approaches emerge, the risk of conflict between them would be all the greater if it was impossible for those alliances to play out their differences within the democratic framework because of the obstacles created by the electoral and party system. It is heartening therefore that the parliamentary expenses crisis is rapidly turning into a wider debate about how to reform the political system more fundamentally and how to deepen democracy in the UK.

It is important, however, that this debate and the changes that follow are genuinely focused on giving democratic voice to new post-crash constellations and not simply a way of shoring up the credibility of vested political interests. It should also be said that a significantly reformed state in the UK, with a stronger emphasis on decentralised power, pluralism and diversity, and ongoing engagement between citizens and representatives, would seem much closer to the nature of the current techno-economic paradigm than the hierarchical, two-party and centralised system we have at the moment, which owes far more to eras that predate even the mass production paradigm that dominated the twentieth century.

One of the most significant shifts Perez identifies in the period after historical crashes is a shift from financial to production capital as the driving force of the spread of the techno-economic paradigm. In essence this means that the highly mobile capital which seeks out profit and withdraws from loss at a rapid pace plays a far less significant role in the economy, giving way to capital which is often very closely linked or tied to specific economic initiatives or commercial organisations.

An extreme example again comes from the post-war period in the USAwhere stock markets became very quiet places and the most successful companies of that era generated capital for investment largely from within their own organisations.


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Unless we face further collapses in the financial and banking sectors in the short-term, it seems unlikely we will enter quite such a radical shift. However, there can be little doubt that the sheer severity of the recent crash will mean that the free-wheeling capital markets of the last decade will now be much more conservative places in the coming years.

In addition, it seems extremely unlikely that investors or boards will welcome strategies for business growth which rely on high levels of borrowing and over-reliance on the banking sector. However, this is not to say that there should be any easing in the imposition of a tougher regulatory framework on key financial centres. Financial capital still has the power to severely limit the progressive and wider economic potential of this new phase through destructive investment practices and undue influence over policy.

A fact which has recently been illustrated by the readiness of financial companies to start paying out high bonuses once again and to continue their high-profile lobbying against any attempt to restrict the behaviours which existed prior to the crash. As Perez shows, financial capital plays an indispensable role in the earlier stages of a new technology and techno-economic paradigm. As mentioned above, production capital does not possess the mobility or dynamism of financial capital but it is far more likely to generate genuine innovations in the workplace and in the generation of new markets.

It is for this reason that the period after the crash is a time when the benefits of the new technology and paradigm are spread across the whole economy, and emphasis switches to the role of productive and committed human capital and the sustainable growth of consumer demand as the driving forces of the economy.

The tensions and patterns of capitalist development