The author is a Noble Laureate. His book chaiienges many of our cherished assumptions about how economles succeed.
As he points out it is not engineering skills or education or scientific discovery or entrepreneural enterprise that leads to economic change, it is the willingness of all society to plunge into the 'frenzy of development'. In brief, to embrace novelty. The whole of society has to change habits, attitudes and ideas, and depart the safe harbour.
He disputes, as have others, the theories of Schumpeter and Spiethoff. He exposes, with ease, the errors of Marx and his historical determinism. He points out that the industrial revolution in this country was not made by scientists, but by humble men with ideas. For example, Arkwright was a wigmaker who invented the water-powered spinning frame.
Phelps points out that culture is the key to economic growth. He cites Israel as a prime example. Business plans abound in the state. Innovation thrives. During the 1990's Israel absorbed one million Russians. Some 57,000 of them were engineers, twice the number of engineers in Israel before they arrived. Israel's population is around 7m, yet the number of start-ups is huge.
The author also examines America's innovative history and suggests why it has declined in recent years.
The most fascinating part of this book is that devoted to China. She has to innovate. In the past 30 years China has dramatically increased R and D spending and dual-use technologies. Once a formidable totalitarian state, she is emerging into an innovative Asian giant. By 2020, China will have a national system that can track everyones credit history, meaning marginal costs of getting bank deposits will fall to zero. By 2018, she will have provided free public wi-fi in every city, and in many rural areas. The centre of Shenzen is said to resemble Silicon City on steroids. By 2026, 600,000,000 will have been moved from the countryside to cities. A revolution is taking place that has never been witnessed before. The impulse to innovate is immense. We ignore it at our peril. Of the world population of around 7 billion, one third is either Chinese or Indian. Soon India will overtake the former as the world's most populous state. It is amazing how many seem to think this is of no concern to the West.
In the past 10 years China has turned out over three times as many graduates and postgraduates in science and engineering as America, and this does not include those Chinese graduating in other countries. Their universities are now beginning to rival the best elsewhere.
This is a very important book that ought to be required reading for all concerned about the shifting economic (and miltary power) in the world from West to East.
There are those who believe China will implode. This reviewer does not agree. Others focus on the pollution that has increased in her cities as a result of her massive industrial growth, conveniently overlooking the social horrors of our own industrial revolution in the 19th century. China is now the world's second largest economy. As such she is having an unprecedented impact on the global system. China is the only deveoping country that has participated in the Human Genome Project, and the first such state to complete a manned space programme.
Today China is investing enormous sums (at low rates of interest) in many African states and in Latin America. She is building aircraft carriers. A new superpower is on the horizon. She is the worlds largest exporter, and the second largest consumer of energy. Anyone who has witnessed the Chinese worker at first-hand can only admire his/her energy and work ethic.
That China will be an adversary is not a foregone conclusion neither is its friendship. She faces major political and economic challenges as well as opportunities. How she deals with these will affect the world, particularly the West. The balance of power is shifting in favour of Asia, we would do well to observe this closely.
An important book that will repay study. Buy it.
on 13 September 2013
Though this book is well written, there is not enough to it to justify the price or the time involved in reading it. Essentially it is one long platitude - market capitalism is the best way of providing people with satisfying lives - but very light on any kind of substantiating data. For example, the author assures us that people were/are extremely satisfied with jobs in factories - the evidence for this though is somewhat lacking and the counter argument (that such routine jobs are soul destroying and people take them because capitalism effectively gives them no choice) is not defeated.
I actually have some sympathy with what seems to be Phelps' main point - that modern capitalism is insufficiently able to take risks to be sustainable - but he does surprisingly little to prove it.
on 28 December 2013
The author is trying to propose a new way of looking at economic history, which is admirable enough, but his broad-brush conclusions are supported by little evidence and key concepts like 'innovation' and 'dynamism' are poorly defined.
Perhaps more worryingly the text fails to really carry the reader along or give context to where the story is headed.
A real disappointment :-(