Our first blog will be devoted to the need for Innovation Systems to be combined with the formation of welfare states at “the periphery”. Believing that this institutional co-evolution would break through the existing constraints of development, the most important being uneven income distribution.
Inequality is a structurally reinforcing phenomena through a process of that is called ‘modernization-marginalization’. This implies that the demand created by the consumption pattern of a small social-economic elite, being similar to that of developed economies, provides a market for ‘limited industrialization. In the first stages of industrialization, the process of import substitution internalizes the production of those goods that replicate the consumption patterns of developed economies. Import substitution requires a combination of protection for the consumer goods industry and subsidies for imports of capital goods. This combination combines productivity gains with the growth of unemployment and this explains the origin of a growing structural employment surplus. Besides, the incentive for import of capital goods blocks the development of an internal capital goods industry. This process leads to both modernization and marginalization having long lasting affects. Industrialization begins, but instead of solving the employment problem, it brings the seeds of new sources of unemployment. Underdevelopment is thus claimed to be directly related to income concentration.
There are two necessary conditions for overcoming underdevelopment: (1) ‘social homogenization’ and (2) ‘the creation of an efficient productive system, endowed with relative technological autonomy’. Technology alone is not capable of overcoming underdevelopment, (high) social heterogeneity , with uneven income distribution, may be a blocking factor. For this reason innovation systems should co-evolve with welfare states which are institutions directly aiming to deal with inequality issues.
Contributions of the welfare state to NSI (National Systems of Innovation) are: nutrition and health: basic condition for education and work; (b) education: contributing to learning by doing, a prerequisite for activities of a knowledge-based economy; (c) work conditions (safety, healthy, etc.): productivity improvements, learning by doing, workers’ involvement in technical change; reduction in unemployment, internal market expansion, and consequent sophistication of division of labor. Furthermore welfare institutions would mitigate ‘friction’ in the labor market due to technical change: (a) during catching-up process, technical progress may destroy some occupations and demand new ones (labor training and retraining necessary); (b) welfare institutions might establish ‘flexibility’ (worker mobility) without high social costs: this would reinforce a precondition for a more dynamic society, allowing a permanent process of ‘labor repositioning’ pushed by technological revolutions.
From the other direction, NSI improve welfare conditions too: (1) output and productivity growth are sources of welfare improvements; (2) technical progress as a tool for improvement in labor conditions (priority for automation of working places that cause occupational diseases for example); (3) scientific community as a ‘focusing device’: definition of targets that are country specific; (4) ‘mission-oriented’ projects: defined in terms of economically feasible technical solutions to particular social problems.
As is being claimed more and more often in times of economic crises, social goals should be at the heart of directing economies and technology policies. Politics should again decide the direction of economic behavior instead of politics now being the servants of neoliberal economics. For an interesting paper on the relation between politics and economics in Europe (written in Dutch) see: http://www.trouw.nl/tr/nl/5535/Denker-des-Vaderlands/article/detail/3021193/2011/11/07/Het-einde-van-de-economisch-gerichte-benadering-van-Europa.dhtml
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