Sustained Economic Development

This paper, and the body of empirical research and theoretical formulation on which it is based, introduces national policy makers to a more rigorous and relevant approach to understanding the operation and performance of the economy. In sharp contrast to neoclassical theory, the theory of innovation and economic development that guides the analysis in this paper rejects the notion of an economy organised by perfect markets as ideal precisely because such an economy is one in which innovation and economic development would not, and could not, occur. From our perspective, those real-life phenomena that neoclassical economists depict as market imperfections often reflect the social organisation of innovative enterprises, regions, and nations. The point then is not to rid the economy of these so-called "imperfections" or to optimise taking these "imperfections" as constraints. The point is rather to use this social organisation to generate innovation and economic development.In what follows, we outline a perspective on economic development for national policy makers who want to design policies that can encourage the nation's business enterprises to engage in innovation rather than adaptation. We examine the theoretical and empirical weaknesses of the standard analysis of national economic performance that neoclassical economists use in trying to account for economic growth over time and across nations. We argue that what is missing from the neoclassical analysis of growth is a theory of economic development as well as a methodology for analysing the process of economic development in, and changes in economic leadership among, the advanced national economies over the past century.