Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
Trump Puts North Korea Nuclear WAR Back on Track as Plans for Nobel Peace Prize Evaporate - 25th May 18
Insane EU GDPR SCAM Triggers Mass Email Spam Attacks! - 24th May 18
Stock Market Higher Again, but Still No Breakout - 24th May 18
Study: Slowing Global Economic Growth IS NOT Bearish for U.S. Stocks - 24th May 18
What if This Week’s Rally in Gold is Already Over? - 24th May 18
EUR/USD – Reward for Bears - 24th May 18
5 Terrible Trading Mistakes That Rookie Investors Keep Making - 24th May 18
More Clarity for the Short Term for Bitcoin Price - 22nd May 18
Study: A Rising and Strong U.S. Dollar Isn’t Consistently Bearish for the Stock Market - 22nd May 18
Gold, Silver & US Dollar Updates with Review of Latest COTS - 22nd May 18
Upside DOW Stock Market Breakout May Be Just the Beginning - 22nd May 18
5 Reasons Why Forex Trading Is Becoming Such A Big Deal In SA - 22nd May 18
Fibonacci And Elliot Wave Predict Stock Market Breakout Highs - 21st May 18
Stock Market Ideal Cycle Low Near - 21st May 18
5 Effects Of Currency Fluctuations On The Economy - 21st May 18
Financial Conditions are Still too Easy for the Stocks Bull Market to End - 21st May 18
US Stock Market Elliott Wave Predictions for 2018 and Beyond - 20th May 18
Are You Still Fearful of Cryptos? - 20th May 18
US Stocks - Why I am Short-term Bearish, Medium-term Bullish - 20th May 18
Looking for a Turn in Gold Price - 20th May 18
GDX Gold Mining Stock Fundamentals 2018 - 19th May 18
Semiconductor Stock Market Canaries: Chirp, Warble… Soon a Croak and Silence? - 19th May 18
Three Drivers of Gold Price - 18th May 18
Gold Market in First Tertile of 2018 - 18th May 18
What Happens Next When Small Cap (Russell) Leads the Stock Market - 17th May 18
Negative Signs for EUR/USD? AUD/USD - Battle - 17th May 18
DOW Jones and CRUDE Oil on a Cliff Edge, Waiting for a Nudge! - 17th May 18
Gold Price No More Subtleness – It’s Show Time! - 17th May 18
VIX Cycles Point to Stock Market Correction - 17th May 18

Market Oracle FREE Newsletter

Trading Lessons

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.


© 2005-2018 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

6 Critical Money Making Rules