Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17
Can Marine Le Pen Win? French Presidential Election Forecast 2017 - 21st Apr 17
Why Stock Market Investors May Soon Be In For A Rude Awakening - 21st Apr 17
Median US Household’s Wealth Has Declined by 40% Since 2007 - 21st Apr 17
Silver, Platinum and Palladium as Investments – Research Shows Diversification Benefit - 21st Apr 17
U.S. Stock Market and Gold, Post Tomahawks and MOAB - 21st Apr 17
An In Depth Look at the Precious Metals Complex - 20th Apr 17
The Real Story of China’s Strong First-Quarter Growth - 20th Apr 17
3 Types Of Life-Changing Crisis That Make You Wish You Had Some Gold - 20th Apr 17
The Truth is a Dangerous Thing - 20th Apr 17
2 Choke Points That Threaten Oil Trade Between Persian Gulf And East Asia - 20th Apr 17
Gold’s Next Downside Target Is Around $700… Even if It Breaks Up First - 19th Apr 17
SPX May be Completing its Corrective Pattern - 19th Apr 17
Silver Production Has “Huge Decline” In 2nd Largest Producer Peru - 19th Apr 17
Soothing East Asia's Nerves as Trump's Administration Reaffirms US Power in Asia-Pacific - 19th Apr 17
The Brexit War - Article 50 Triggered, General Election 2017 Called - Let the Games Begin! - 19th Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

Retroeconomics – Global Challenge for Economic Development

Economics / Economic Theory Feb 09, 2017 - 01:58 PM GMT

By: Submissions

Economics

Vladimer Papava writes: In many and mostly poor countries, their economies have been using obsolete technologies.  As a result, all of these countries do not have a real chance to be successful in any long-term economic growth.  The usage of obsolete technologies by any company can create the illusion that this or that business is prosperous.  At the level of international competition, however, it is obvious that these types of companies do not have any chance for success.


In the modern world, the reindustrialization of national economies is a topical issue for many political leaders.  For reasons of politics (such as the limitation of one’s time of stay in a political position), their most frequent error is to attain success at breakneck speed.  As a result, the process of reindustrialization in many – and, again mostly poor countries – is based in the application of obsolete technologies.  The theory of technological backwardness and its detrimental effect upon a country’s economy is something I call retroeconomics.

To explain further, the type of economy that fosters the functioning of firms (i.e., retro-firms) that are relatively technologically backward in comparison to contemporary global achievements but where, nevertheless, the demand for their products still exists is a retroeconomy.

The establishment of a retroeconomy is based on different factors:

First, there is the protection of intellectual property which restricts the free dissemination and accessibility of new technological know-how.  The authorized use of new technology becomes expensive, especially for firms that operate in poor countries with a relatively low level of economic development.  As a result, priority is given to relatively outdated technologies in these particular countries.

Secondly, there is the monopolization of the economy wherein monopolies purchase patents on new technologies, not for the purpose of applying them in a more or less efficient manner but to prevent third parties from employing them, even if the monopolies in question put the patents to use at a later time (or as they deem necessary).  According to Michael Porter from Harvard Business School, the leading international competitors, as a rule, prefer not to sell the highest-quality latest-generation technology.  On the contrary, in order to maintain a competitive advantage, they sell already used, second-hand technology.  Due to such policies, economically backward countries accumulate not innovative but imitation technologies.

Thirdly, the low level of education and the absence of an appropriately educated workforce make it virtually impossible to utilize information even via open channels (not to mention channels of commercial knowledge transfer).

Lastly, we can see the emergence of a so-called zombie economy, signifying a consolidation of firms (and associated banks) rendered insolvent as a result of a financial crisis which continue to operate via bank loans taken on the basis of government guarantees.  Naturally, zombie-firms have no interest in technological upgrades to manufacturing and/or replacing management since, owing to government support, they manage to maintain operation without these efforts.  It is clear that a zombie economy contributes directly to the establishment of a retroeconomy.

Although the retroeconomy established in economically backward countries at the expense of an imitation policy ensures economic growth, imitator countries are under the threat of a long-term maintenance of relatively low levels of productivity as compared to developed countries.

The role of the government is very important for overcoming the effects of a retroeconomy.  Its economic policy has to be concentrated on the following directions:

The development of the education system which implies the improvement of the quality of the general secondary education and the harmonization of vocational and university education with international standards; given the country’s economic development potential, the government must define priority areas based on which relevant scientific groups should be funded to implement pertinent research projects in universities.

The establishment of channels of commercial knowledge transfer when the government should acquire patents on modern technology in keeping with relevant economic sectors to then supply these firms at reduced prices; in order to attract modern technology, the government should render assistance to relevant firms to cover part of the bank interest and also offer tax concessions.

The guaranteeing, to the maximum extent possible, that no non-viable firms remain on the market which, first and foremost, should occur via the establishment of an adequate legislative framework;  national bankruptcy laws should rely on a basic principle which states that a balance should be maintained between the interests of the creditors, on the one hand, and the timely liquidation of non-viable firms, on the other;  the sound legal space on the market which excludes other laws and regulations impeding the efficient application of bankruptcy law should to be established.

It should be taken into account that in imposing these functions on the government, when there is a real threat of failure and, especially, when state institutions are weak and the corruption level is high, great significance is afforded to publicizing the decisions to be taken by the government in order to ensure maximum public and expert engagement in the development of these decisions.

The phenomenon of a retroeconomy is already quite deep-rooted throughout the world and it is essential to consolidate the attention of economists and politicians on this threat in order to stop the process of the zombification of a retroeconomy.

By Vladimer Papava

Vladimer Papava is a Professor of economics, Ivane Javakhishvili Tbilisi State University, a Senior Fellow at Rondeli Foundation – Georgian Foundation for Strategic and International Studies, a former Minister of Economy of the Republic of Georgia, and is the author of Necroeconomics, a study of post-Communist economic problems.

© 2017 Copyright Vladimer Papava - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife