Umair Haque / Bubblegeneration
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Thursday, July 22, 2010

The Institutional Revolution


"While economists and policy-makers debate the short and medium-term remedies to the crisis, there is an incredibly surprising and under-discussed consensus emerging for the longer run. From the Financial Times to the South Centre there is agreement that the United States and East Asia (notably China) have to change the ‘structures’ of their economies.

The US has to stop over-consuming on credit and actually produce things for export again. East Asian nations have to slow down their over-reliance on exports and increase domestic consumption. Another way of putting it: the key actors in the world economy need to undergo structural change.

So are we all structuralists now?"

Link. Now we're getting to the root of the real crisis. Yes, economies need structural reshaping and reform.

Where will it come from? That's the big question. Macroeconomics often sheds little light on the answer, apart from various currency and tax regime games.

The better answer is this: from a new set of institutions. It's institutions which are the iron cage trapping us in the industrial age. It's only by rebuilding them that we can kickstart enduring structural change - instead of the minor-league product and market level changes today's decision-makers are mistakenly seeking. As I've been discussing at length here, here, and at my HBR blog in general.

Let me make that as crystal clear: no new institutions, no prosperity. Thinking about a lost decade? Think about several.

Today's policy-makers are putting tiny band aids on a gaping wound. The wound is an economy whose fundamental building blocks have eroded. No real value can be created atop them any longer. Until new ones are laid down, enjoy turning perma-Japanese.

-- umair // 11:33 PM // 0 comments


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