Constraints. Induced Constraints. Induced Innovation.Innovation.

Miscellaneous on Philosophy, Methodology and TheoriesMiscellaneous on Philosophy, Methodology and Theories ConstraintsConstraints

Natural ResourcesNatural Resources Resource Constraint Resource Constraint

RicardoRicardo MarxMarx

Breaking the Resource Constraint for Breaking the Resource Constraint for Industrializing Countries – Science-Based Industrializing Countries – Science-Based AgricultureAgriculture

Development through Natural ResourcesDevelopment through Natural Resources Environmental ConstraintEnvironmental Constraint

Theory of Induced Innovation Theory of Induced Innovation Marx and New InstitutionalismMarx and New Institutionalism

Miscellaneous on Philosophy, Miscellaneous on Philosophy, Methodology and TheoriesMethodology and Theories

Problem of normative judgementsProblem of normative judgements System Theory and System MethodSystem Theory and System Method Thomas Kuhn and Revolutions in ScienceThomas Kuhn and Revolutions in Science

Example: Marginalist Revolution in Example: Marginalist Revolution in EconomicsEconomics

Methodological Wholism x Methodological Methodological Wholism x Methodological ReductionismReductionism Example: Model for optimal number of Example: Model for optimal number of

childrenchildren Models as simplifications of realityModels as simplifications of reality

Resource ConstraintResource Constraint Malthus (1798) was the first who pointed out Malthus (1798) was the first who pointed out

the possibility of the growing relative scarcity the possibility of the growing relative scarcity of natural resources as a binding constraint of natural resources as a binding constraint on economic growthon economic growth

The Club of Rome (1972) presented a report The Club of Rome (1972) presented a report “The Limits to Growth”“The Limits to Growth”

Population –food crisisPopulation –food crisis Natural resource exhaustionNatural resource exhaustion Environmental degradation due to overexploitation Environmental degradation due to overexploitation

and waste of natural resources resulting from the and waste of natural resources resulting from the exponential growth in economic activitiesexponential growth in economic activities

Prediction for the first two decades of the twenty-Prediction for the first two decades of the twenty-first century: industrialization would stop and defirst century: industrialization would stop and deaath th rate increasesrate increases

Now - Now - What is your opinion?What is your opinion?

Resource ConstraintResource Constraint Ricardo (1817) Ricardo (1817)

Mechanism Behind - Mechanism Behind - MalthusianMalthusian

Ricardian Ricardian TTraprap Solution: Trade Solution: Trade

LiberalizationLiberalization

(Source: Hayami: Development (Source: Hayami: Development Economics)Economics)

Resource ConstraintResource Constraint Marx Marx

For Stylized For Stylized Explanation – Explanation – Ricardo Ricardo Model Can Model Can Be Used Be Used

Mechanism Mechanism Behind: Behind: Industrial Industrial Reserve Army Reserve Army

(Source: Hayami: (Source: Hayami: Development Development Economics)Economics)

Breaking the Resource Constraint Breaking the Resource Constraint for for Industrializing Countries - Industrializing Countries - Science-Based Science-Based

AgricultureAgriculture

Why did real grain Why did real grain prices not rise when prices not rise when closure of open land closure of open land frontiers in the USA frontiers in the USA coincided with the coincided with the acceleration in acceleration in population growth population growth (around 1920)?(around 1920)?

Green revolution in Green revolution in developing countries in developing countries in the 60ies and 70iesthe 60ies and 70ies

(Source: Hayami: (Source: Hayami: Development Development Economics)Economics)

Development Development throughthrough Natural ResourceNatural Resourcess

The staple theoryThe staple theory A staple means a major primary A staple means a major primary

commodity which plays a leading commodity which plays a leading role in expansion of exports from role in expansion of exports from empty landsempty lands

The “Dutch disease”The “Dutch disease”

Environmental ConstraintEnvironmental Constraint

(Source: Hayami: Development (Source: Hayami: Development Economics)Economics)

Theory of Induced Theory of Induced Innovation - PrinciplesInnovation - Principles

Theory of Induced Innovation – bTheory of Induced Innovation – basic force asic force is the is the scarcity of resourcesscarcity of resources and the will to have success and the will to have success

Example 1: Example 1: Transition from the hunting and Transition from the hunting and gathering economy to the agricultural and gathering economy to the agricultural and pastoral economypastoral economy

Basic force – scarcity of resourcesBasic force – scarcity of resources =scarcity of food =scarcity of food Accumulation of knowledge – Accumulation of knowledge – inin tangible (physical) and tangible (physical) and

intangible (human) capitalintangible (human) capital Cattles and seeds and the knowledge how to take care of themCattles and seeds and the knowledge how to take care of them

Change of institutions – property rightsChange of institutions – property rights First to livestock and standing crops, later extended to landFirst to livestock and standing crops, later extended to land

Success is survivalSuccess is survival

Theory of Induced Theory of Induced Innovation - PrinciplesInnovation - Principles

Theory of Induced Innovation – bTheory of Induced Innovation – basic force asic force is the is the scarcity of resourcesscarcity of resources and the will to and the will to have successhave success

Example 2: Example 2: Transition from the Transition from the „small firms „small firms capitalism“ to „capitalism of corporations“capitalism“ to „capitalism of corporations“

Basic force – scarcity of resourcesBasic force – scarcity of resources =scarcity of =scarcity of financial capitalfinancial capital

Accumulation of knowledge – Accumulation of knowledge – inin tangible tangible (physical) and intangible (human) capital(physical) and intangible (human) capital

Usually succesful firms with „know-how“ go publicUsually succesful firms with „know-how“ go public

Change of institutions – property rightsChange of institutions – property rights Protection of small shareholdersProtection of small shareholders

Success is economic power (market share, Success is economic power (market share, rate of profit etc)rate of profit etc)

Theory of Induced Theory of Induced Innnovation – Innnovation –

Institutional InnovationsInstitutional Innovations Institutions are public goods. Institutions are public goods. Public goods have Public goods have

two basic properties: non-excludability and non-two basic properties: non-excludability and non-rivalness – problems of free-ridersrivalness – problems of free-riders

The supply of public goods in response to social The supply of public goods in response to social needs is determined through political processneeds is determined through political process..

VVarioariouus interest groupss interest groups take part in this process take part in this process For the supply of public goods, someone must For the supply of public goods, someone must

organizorganizee collective action collective action Collective action is usually much less organized Collective action is usually much less organized

than a society optimum level is, public goods are than a society optimum level is, public goods are usually undersuppliedusually undersupplied

Theory of Induced Theory of Induced Innovation - Import of Innovation - Import of

InnovationsInnovations A wide gap exists in technology and A wide gap exists in technology and

institutions between developing and institutions between developing and developed economiesdeveloped economies

This gap could be – through transfers – This gap could be – through transfers – a potential source of rapid economic a potential source of rapid economic development for developing economiesdevelopment for developing economies

Basic problem is to incorporate Basic problem is to incorporate informal institutions (e.g. informal institutions (e.g. cultural cultural traditionstraditions)) appropriately appropriately

Theory of Induced Theory of Induced Innnovation – Institutional Innnovation – Institutional

InnovationsInnovations Marginal analysis of politicians´ decision Marginal analysis of politicians´ decision

making making Marginal revenue: marginal increase in Marginal revenue: marginal increase in

his utility from the strengthening of his his utility from the strengthening of his power basepower base

Marginal cost: marginal disutility of his Marginal cost: marginal disutility of his time and effort (increase because of the time and effort (increase because of the free-riders’ problem increases with the free-riders’ problem increases with the quantity)quantity)

Marx and New Marx and New InstitutionalismInstitutionalism

Marx Marx economic infrastructure and social economic infrastructure and social

superstructuresuperstructure major time lag between increases in production major time lag between increases in production

capacity and changes in superstructure capacity and changes in superstructure (institutions)(institutions)

core institution is the property right assignment core institution is the property right assignment of a key production factor at each stage of of a key production factor at each stage of economic developmenteconomic development

gap between the institution and the production gap between the institution and the production potential is ultimately closed through a violent potential is ultimately closed through a violent political revolutionpolitical revolution

Marx and New Marx and New InstitutionalismInstitutionalism

New InstitutionalismNew Institutionalism Emphasis on changes in relative resource Emphasis on changes in relative resource

endowments and prices due to population growth endowments and prices due to population growth and other factorsand other factors

Institutions are not so inflexible to make a violent Institutions are not so inflexible to make a violent revolution inevitablerevolution inevitable

But, if the cumulative adjustment of But, if the cumulative adjustment of institutions by such means as informal institutions by such means as informal agreements and reinterpretation of laws and agreements and reinterpretation of laws and codes is not sufficient, a violent revolution codes is not sufficient, a violent revolution may occurmay occur