Introduction to: Updating Schumpeter’s Gales of Creative Destruction To Explain the Failure of the New World Order of Corporate Globalism.

Introduction.

Joseph Schumpeter described capitalism as an evolutionary economic growth theory.

If there is a dynamic force within the free market system that can be explained by natural laws, then Schumpeter explained that the free market economy is either growing or it is dying. (The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, 1911.).

Schumpeter explained that the relationship between small business entrepreneurship and national economic growth was a result of technology innovation caused by capital investments in new technology ventures.

Schumpeter emphasized that the process of technological innovation brought about by investments in new entrepreneurial ventures made existing products and older manufacturing processes obsolete.

He used the term economic evolution to describe this process of technological innovation, and his use of the term “evolution” was probably 70 years ahead of its time.

Because of the importance of his insights about technology and economic evolution, Schumpeter is now rightly recognized as the founder of the new theory of entrepreneurial economic growth.

He wrote during a period of time when the basic unit of economic analysis for macro economic growth and international trade was the sovereign nation state.

For example, both David Ricardo’s theory of comparative advantage, and the Heckscher–Ohlin theory of international trade begin with an understated initial assumption that the units of analysis are one national economy compared to a second national economy.

Their theories of the benefits of trade were based upon the diverse national factor endowments between nations. Their theories were designed to explain and predict how different factor endowments would lead to increased national social welfare as a result of international trade.

After the collapse of the Berlin Wall in 1989, a new form of global trade began to emerge that featured an open, borderless global market, where large corporations traded goods in a seamless international market.

This new form of global trade subordinated the role of national governments, and replaced the unit of analysis from nation states to an analysis of a global stateless market dominated by trade among large corporations.

This shift in the unit of analysis from nation states to corporations has been described as a new world order, which does not require the existence of nation state governments in order to function in the global market.

This transition to the global corporate market, after 1989, has been called the “great reset,” which implies a reset from sovereign nation states to a new world order of global corporate fascism, where global corporations direct non-governmental organizations (NGOs), to perform functions previously performed by the governments of nations.

In other words, a “one-world-government,” that functions on a rule-based framework, not a citizen democratic framework, is required by corporations to manage trade relationships among global corporations.

The emphasis of economic analysis in the new world order shifts, from examining the welfare differences among nations, caused by economic growth, to the analysis of global corporate technological competitive advantage among corporations.

In other words, under globalism, the macro general equilibrium economic analysis changes from the dynamics of national economic competition to the maintenance of the global technological status quo economic welfare, in a zero-sum corporate globalism.

The data for global analysis shifts from improvements of national social welfare to the analysis of the profits of large corporations, as if profits of global corporations are surrogate indicators of improvements in global social welfare.

The initial, unstated, unverified assumption of the new world order, after 1989, is that global social welfare will be better under a one world global government than it would be under the national sovereignty model of economic growth.

The rhetoric and propaganda of proponents of the new world order is that the global middle class is growing faster, and therefore, global social welfare is improving more than it would under the national sovereignty economic model.

The logic about the welfare benefits of the new world order is flawed because it assumes that the growth of the global middle class is, ipso facto, proof of the benefits of globalism.

The improvement in social welfare benefits can never be empirically tested or verified, under traditional macro general equilibrium theory because global trade’s unit of analysis is one global economy, not a comparative analysis of social welfare improvements of the middle class, in independent nation states.

The new world order of the global corporatism features a global macrotechnology that is the same for all corporations around the globe. Internet communication technology (ICT), allows every corporation to see, and implement, a technology innovation at the same time as any other corporation.

Hyman Minsky has called global corporatism “managed corporate capitalism,” because both the pace and direction of technological innovation and the market price of goods must be managed, under a collaborative, not a price-competitive model of the economy.

Under the conditions of global managed capitalism, the big pension funds, mutual funds, trust funds, otherwise known as institutional money, require predictable cash flows in the near term to support the stock prices and the bond prices in their heavy levels of indebtedness on liability structures, such as mortgage backed securities, that they have securitized.

Prices of goods must be managed by the corporations to provide stable, predictable flows of revenues in order to provide consistent flows of interest payments to the institutional investment banks.

 

The global macrotechnology is the weak link and vulnerable point of attack for updating Schumpeter’s gales of creative destruction of the new world order. Global corporations require a stable legal and political environment in order to control the pace and direction of technological change.

The weak link in the great reset is that if corporations cannot control the pace of technological innovation, they would lose control over managing prices in the collaborative global economic model.

Updating Schumpeter’s insights about the economic growth effects of technological innovation, in a national setting, provide a superior social welfare alternative to the false narrative of the benefits of the new world order globalism because the income and wealth benefits of entrepreneurial economic growth are widely distributed, and geographically decentralized, throughout the national society.

We update Schumpeter’s original analysis in order to argue that the best pathway away from corporate globalism is the revival of Schumpeter’s entrepreneurial economic growth model in a nation state framework of international trade.

Real economic growth is caused by capital investments made by entrepreneurs in new production units, and in new technology products, which create new interindustry relationships, new flows of income, and new market relationships that did not exist before.

We explain that under Schumpeter’s economic growth model, national interindustry relationships [supply chains] are the communication pathways of diffusing technical knowledge.

The global macrotechnology features corporate supply chains tightly controlled and centralized  by large corporations in very few locations, such as the large metro regions of China.

Under Schumpeter’s economic growth model, each metro region has its own unique supply chains, and, consequently its own unique factor endowment of technological knowledge.

In the global macrotechnology, the open flows of tacit knowledge are internalized within the legal organizational entities of large corporations in order to avoid technological knowledge from slipping off the plate of a corporation, and potentially falling onto the plate of a venture not controlled by the corporations.

Clayton Christensen has called this inadvertent release of technological knowledge a “disruptive technological innovation.” What Christensen means is that the inadvertent release of technological knowledge disrupts the revenue flows of large corporations in the managed global economy.

As a consequence of the implementation of the global macrotechnology, the American economy has suffered a lower rate of technological innovation, and consequently reduced rates of economic growth, after China was admitted to the World Trade Organization, in 2001.

In the absence of real economic growth, after 2001, the U. S. economy has reverted to a permanent boom-bust-bubble economy, caused by monetary and currency manipulation, coordinated by the Fed and global central banks, not real economic growth caused by private business capital investment.

The mirage of global central bank monetary manipulation, replaced the real economic growth that was formerly caused by capital investment in small technology ventures, which primarily took place in 300 of the largest U. S. metro regions.

Under corporate globalism, we argue that the benefits of economic growth that result for technological innovation are internalized and captured by large corporations.

The distribution of benefits from economic growth arising from global trade do not benefit the broader societies of nation states.

Based upon an analysis of the components of U. S. GDP, about 80% of all GDP is related to six service industrial sectors, which employ about 70% of the U. S. workforce.

About 20% of U. S. GDP is related to the industrial sectors engaged in global trade, in the global macrotechnology. We estimated that the new world order economic model benefits about 20% of the U. S. population, who get richer and richer from the operation of the global model.

We argue that the ultimate economic consequence of new world corporatism is economic collapse because there is insufficient technological innovation to allow the global economy to break free of a global Nash equilibrium.

As the U. S. economic growth rates continue to decline around the world, the social welfare consequences for the 80% of the U. S. population that does not benefit from global trade, will also collapse.

Corporate new world order is a failure because the global ruling class malappropriates the benefits of economic growth in a economic system of exploitation of social classes around the world.

We argue that the solution to the new world order of global corporate fascism is to blow the global corporate economy away with the technological innovation of  Schumpeter’s gales of creative destruction.