The questions how is the current global economic crisis similar to previous collapses of this kind and in what way it differs from them, as well as what lessons we should draw from it, has been debated on a number of occasions during various scientific discussions and in the media.
We need the analysis of the foremost general and specific features of the current crisis not with a view to following blindly some previously implemented solutions but in order to become aware of the mechanisms of complex macro-system self-organization and management. This in itself would lead to the elaboration of realistic scenarios for the reduction of insecurity levels within the global financial system as well as in the national economies.
The most analyzed topic is the fact that the current crisis is a global financial crisis, which almost leaves behind the question why is it a system crisis, a structural crisis – in other words why is it a crisis of the system and the structure of economy functioning and regulation. Unlike the aspect of globalness, which mostly covers the horizontal characteristics of the crisis, the aspect of systemness focuses upon its vertical characteristics without any disregard for the interlinked dependencies around the globe. Perceived from this perspective, the economic crises should also be analyzed as
Cyclical and structural crises
Generally speaking, the source of both types of crises lies in the production process or to be more precise – in the temporal rift between the influx of production-related resources, their processing and the subsequent sales and actual consumption (of both the resources and the end- products) . This concept is elaborated with the greatest precision by the British economist and Nobel Prize winner John Hicks in his fundamental work “Value and Capital” . When cyclical crises occur, the aggregate demand drops down, thus rendering a certain portion of the unfinished production and the finished goods superfluous in result of endogenous effects and random fluctuations as well as factors which are endogenous for the particular production processes. If any banks have credited the production sector during times of growth, then they are the entities which take up the initial shock of the subsequent decline. Rifts, caused by these crises, are relatively surmountable and in most cases the bank credits are repaid in result of the measures, taken by the borrowers. Cyclical crises are of common occurrence in market economy. A cycle usually lasts for 6 – 10 years. Risk management is based upon the fact that it is possible to subject the data of daily events and of those innovations which help improve human activities and production processes to statistical analysis and forecasts. This is the reason why such crises are overcome quite successfully through management coordination and risk distribution between the business entities, commercial banks and insurance companies.
The structural crisis represents such a status of the macro-economic system whereat most of the bank credits, taken during the time of growth (one might as well take account of resources accumulated through financial levers for the funding of own capitals), cannot be repaid during the next phase, given the current technology levels and labour distribution – be it domestic and /or international. A change in the overall structure of reproduction factors is quite time-consuming. The foremost shock in this situation is taken again by credit institutions and other organizations – financial intermediaries and holding structures, which find themselves in the position where their funds are insufficient to the extent of posing a bankruptcy peril in result of undertaking the risks for the production sphere.
Analyses show that in the course of the last one hundred years there were three larger structural crises and a quasi-structural one. Change-related processes and consequences of any structural crisis are of production-technological, managerial and social character and they actually move the market economy forward. There also are political consequences and a substantial reshaping of product distribution markets.
The differentiation I have made between cyclical and structural crisis with a view to the deeper understanding of the very essence of modern day crises does not mean that the algorithms of cycles, long waves (if we use Kondratiev’s term) and the so called financial bubbles are not interwoven or do not supplement each other in actual circumstances.
“Reality”, writes George Soros in his analysis on the reflexivity of decisions in the context of the current global crisis, “is always more complicated than the dichotomies we introduce into it. The recent crisis is comparable to a hundred-year storm. We have had a number of crises leading up to it. These are comparable to five or ten-year storms. Regulators who had successfully dealt with the smaller storms were less successful when they applied the same methods to the hundred-year storm” [2, p.53].
The first structural crisis in recent times, which has been most often analyzed by economic scientists, dates back to end-19th century and beginning of 20th century and it affects the leading countries in the world. At that time the major technological centers (Great Britain, Germany and the US) were hit by a crisis, precipitated by overaccumulation of capital, new equipment and technologies in the sectors of raw material extraction and processing industries, thus resulting in difficulties related to end-product sales. Times of growth are the heyday of the above sectors. Hindered sales led to substantial delays in credit repayments as well as in the processes within the scientific and technical progress which was already under way in the spheres that form the foundation for the overall economic development. Actions, undertaken by banks and companies, were unfocused. Developments in the US came to a happier ending with the beginning of World War I and the establishment of the Federal Reserve System (FRS) to serve as the country’s central bank. It issues the nation’s currency on a centralized level and regulates credit policy, thus undertaking the economic risks, generated by the reproduction process and accumulated previously within the decentralized banking system. The crisis in the European countries, though, ended up with the political and economic defeat of Germany, imposition of substantial reparations and redrawing of European and world political and economic maps in accordance with the interests of war-winning nations.
Economies, which reached partial balance in result of market redistribution, embarked upon the way to rapid growth. Boosting the aggregate domestic demand in the US through the FRS and banks exceeded the rates of economic growth. This over-liquid demand was channeled by the government towards stock markets and immovable assets with a view to entrepreneurship development and household support. The share of GDP sectors, cost and income structure within the overall structure of economy, which has not achieved a stable equilibrium, changes substantially. In parallel, one witnesses manifestations of the empirical law that over-investments are directed to certain sectors and production spheres during times of growth.
Bank-created over-liquidity through the issuing of currency, which serves to promote credit services, turns into a generator of financial bubbles. The first bubble that burst in the US in 1927 was the one between immovable asset demand and supply and in 1929 the stock market bubble met the same fate. This marked the beginning of the The Great Economic Crisi (The Great Depression) which is given in economic literature as the classic example for a structural economic crisis. Initially, the crisis development followed the so called deflation scenario, i.e. commodity prices fall down while authorities take no measures to support economic entities. Thus the decline in economic growth reached 1% per month and by end-1932 the overall accumulated decline of the US GDP reached 35-40% in comparison with the pre-crisis period . Shrinking demand and price cut-downs posed a substantial hindrance to the repayment of old debts. In 1932 the total amount of unpaid credits accounts for 250% of the US GDP [2, p.123].
At those times the mechanisms of monetary policy for the provision of funding to private companies were limited to working capital loans. Investments were not a subject of bank credits but of stock exchange operations where the banks had no involvement whatsoever. Bearing the salvation of their national economies in mind, many countries adopted the three principles of economic management, formulated by John Keynes: investments, employment and money . Budget programmes mainly supported the implementation of infrastructure works, but little funding was furnished to the private entrepreneurial sector for new technologies and production lines. After the crisis, an innovation-boosting equilibrium was reached only after the destruction of technological centers in Germany, Japan and partially Great Britain and the respective redistribution of their markets. As a matter of fact, World War II redefined political and economic space, the British colonial system collapsed and the US dollar gained supremacy as a world currency.
The upward trend of the leading and actively state-regulated market economies (with cyclical crises, occurring in particular countries and regions) continued till the 1970s, which marked the beginning of what I call a large scale quasi-structural crisis of capitalist economy. It is characterized by a decrease of capital efficiency and negligible cases of insolvency. Some researchers call it a crisis of the government-regulated economy as the measures, undertaken to overcome this crisis, marked the advance of the new, neo-liberal form of economic structure. The crisis gained gradual momentum ever since its first symptoms had been manifested in 1966, when the profit margin in the USA, Great Britain, Germany and France embarked on its long downward way [5, diagram 3.1]. in 1973 the full-fledged crisis set in, accompanied by both a decline and inflation, spreading with uncontrollable and ever-increasing speed (stagflation). The final collapse of Bretton Woods system shook the international monetary and financial institutions to their foundations. The crisis continued to the very end of 1970s.
This time the authorities perceived the potential way out of the situation not so much in the direct stimulation of large-scale increase of private demand but rather in the achievement of a much greater capital mobility by means of significant curbing of government macroeconomic regulation, including the control over the financial sphere. In the USA, for example, the government withdrew from the execution of active control over the previously heavily regulated spheres as transport, communications and energy, reserving the right to intervene in economic activity only to reduce inflation, not unemployment. A great number of state-provided services were privatized and the tax burden for the business sector and well-off citizens was alleviated. At the same time, some substantial government procurement orders are placed in the IT and defense programme spheres.
Application of these monetary principles, launched by Milton Friedman , coincides with the conclusion of the phase when the nucleus of fundamental (radical) innovations , related to microelectronics and software development, was formed. This is the nucleus of the technological foundation of the new wave of long-term development, dubbed later a wave of information and communication technologies (ICT). In the 1970s and 1980s the demand among investors in the production sector for securities of companies that contributed to innovations in this sphere became a stable trend. In the context of an already established technological nucleus of key innovations and productions, the accumulated private capital from previous years of growth and the resources from government procurement assignments quickly formed new production chains, new sectors and markets.
At the beginning of 1990 the companies from the US production sector had already made proper use of the major internal technological effects, picked the cream from the utilization of fundamental innovations in microelectronics and software development and achieved a boom in their production and efficiency: the widespread application of information technologies (IT) helped automate all key processes within the functioning of production capital; integrated automatization of financial control and operational activity, related to supply chains and supplier-customer relations, was already in place. After the collapse of former socialist economies, the new markets that emerged in these countries became extremely convenient niches for the long-term wave of development that gained momentum subsequently as well as for the implementation of principles and methods of neoliberal policy in management practices. Even if the production economic sectors in these countries, where remainders of monopolistic structures and government regulation still continued to exist, implemented large-scale privatization programmes, they could not catch up efficiently with the new technical wave in the US and the leading market economies, whereas in the financial sphere the liberal economic theories found fertile soil and the functioning of the financial and banking systems of these countries were quickly realigned to the finance globalization was a worldwide trend.
The current crisis as a stalemate between two technological foundations for development
The beginning of the current economic crisis was marked by the bursting of the mortgage market bubble in the USA in 2007, which exploded the already formed financial super-bubble, reflecting the asymmetry, from the societal perspective, of labour division and the product thereof in the US economy as a world leader. Since the very beginning of the crisis, I have been examining it from the perspective of its being largely a result of “market fundamentalism” and have analyzed its genesis, socio-economic aspects and manifestations in the US, world and Bulgarian economies . It is no less important, though, to analyze the material-technical and scientific-technological aspects of current crisis as well from the perspective of the term “market fundamentalism” as the latter is used by the prominent financier and successful entrepreneur George Soros  to define the predominant reflexive policy of the financial authorities after the 1980s as a policy that treats markets as self-corrective actors and applies exclusively monetary methods for intervention.
After 1990 the development of the US economy entered the information age: the new technological foundation of micro-electronics and software development gained supremacy, the ICT penetrated every pore of economy and society and the level of informedness of both individuals and companies skyrocketed. The key technologies of the new wave became more and more involved with the exchange sphere, mostly with the stock exchange and financial services.
On the basis of increasingly sophisticated software development, the financial institutions which were allocated sufficient credit resources by the government were ever more inclined to apply pre-funding schemes. These make use of still unreceived but “expected income” as a credit guarantee. As a rule, these credits are guaranteed with the stocks of the borrowing company – the stock value is considered to mirror the value of expected income, while the credit amount depends on the level of company’s capitalization. Such schemes allow entrepreneurs launch new projects and undertake new risks without having to wait for a buyer for their previous projects. This helps accelerate the scientific and technical progress.
With a view to reducing their financial risks, creditors transferred an ever-growing portion of their credits to other investors through risk hedging – mostly by means of securitization of debts, i.e. by means of issuing and redistribution of new derivatives on the market. When the potential sale and purchase of the latter by new investors is assessed as positive, then the financial risks related to a particular project are classified as acceptable, no matter what the actual project efficiency might be. All this led to a dramatic increase of the integral economic uncertainty as regards the quick-paced implementation of scientific and technical progress. Roughly speaking, it repeatedly failed to buy itself out. New hopes for future revenues were triggered and the debt dynamics that overtook the actual economic growth was stimulated. The innovation potential was gradually yet consistently reallocated not to innovations, related to the still further penetration into the structure of matter and development of new technologies that are even less energy-and-resource-consuming, but rather to technologies, related to the subtleties of software development and the speculative effects of information superiority over competitors. Competition landmarks in the production sector outstepped the boundaries of sector innovation policy – production streamlining, product and service quality, new technologies for the processing of raw materials and resource saving.
Information and communication technologies helped create the favourable conditions for US capital to change its form, outdistancing competition, i.e. it can transform itself from one asset to another in real time. This over-mobility became a competitive advantage of the US capital, allowing to find and make use in due time of any opportunity, including speculative ones, no matter where they emerge. Furthermore, modern computer programmes make it possible to
“conclude” unique sale and purchase deals for investment instruments and through market outdistancing they allow playing on the momentary disparity between earnings from the purchased stocks and the interest rate of the loan, taken for their purchase. A special “financial robot” software allows perfectly legal, 24/7 scanning of the world financial system in search of cheaper credits in some zones and profitable financial instruments in other zones. The search for favourable options is practically performed worldwide, with electronic speed at that. Under the circumstances of globalization, it was the advanced implementation of state-of-art ICT in the financial sphere that allowed US economy to become highly specialized and outdistance other economies with regard to this sector of services, provided to both national and foreign capital. This had a substantial impact over the international division of labor.
Through ICT implementation, the financial business in the USA and the other leading Western economies obtained maximum advantage over the government-regulated mechanism. Ever since the beginning of 2000s numerous experts voiced the opinion that the wide implementation of computer technologies for debt securitization on the part of the banks causes a specific synergetic effect and information asymmetry, which can discredit and even crash the securities market. The uncontrollable debt skyrocketing and the multiple implementation of monetary or financial stimuli on the part of financial authorities for the momentary salvation of financial institutions, threatened with bankruptcy under the current bubbles, turned into those “critical technologies” which on the one hand furnished the financial and economic supremacy of the USA and on the other – resulted in the explosion of the super-bubble of the current crisis.
The structural deformation of US economy and society, ensuing from “market fundamentalism” and “monetaristic ride” of scientific and technical innovations, can be clearly demonstrated by the following facts and indicators:
– The total amount of unpaid credits, excluding the widely used derivative financial instruments, in the US in 2008 reached 365% of the GDP (compared to 250% in 1932) [2, p.123];
– The ratio between the indicators for the average annual profit growth and the private sector salary levels has deteriorated dramatically: for the period 2000 – 2007 it was 8.2% to 1 %, while for the period 1979 – 1990 it was 2.6% to 1.7% ;
– Profits of the financial sector as percentage of the aggregate profit of all US corporations increased from 14% in 1981 to 39% in 2001 and to about 50% in 2007 [8, p.10];
– Household debts as percentage of the available personal incomes skyrocketed from 66% in 1980 to 91.1% in 2000 and to 128.8% in 2007. The actual median household income, which reflects business activity (and to some extent the actual potential for solvent consumer demand as well), dropped in 2007 below the level of 2000 ;
– The overall amount of US debt skyrocketed as well and as of 2008 it exceeded USD 50 trillion or 90% of the world GDP. The Federal Government debt for the period 2000 – 2008 ballooned from USD 5.7 trillion to USD 10.7 trillion. The major holders of US Treasury Securities as of the beginning of the crisis are China (USD 653 billion), Japan (USD 585 billion) and oil exporters . Thus, the global imbalances in the international capital flows reached critical limits, the attractiveness of US dollar as reserve currency dwindled and it became necessary to develop quickly the domestic consumption in countries with capital surplus (above all China).
Under these cicrumstances, the measures, undertaken by the USA and most other countries in the world after 2007 – 2008, no matter how diverse they were, naturally focused upon a painstaking government monetary intervention in the financial institutions – banks, mortgage agencies, insurance companies, etc. If such a powerful government support had not been provided, then the financial and banking systems in most countries worldwide would have crashed long ago, triggering even worse consequences for themselves than the ones in 1929 – 1933.
The world financial system remains unstable in its very core as it is erected, to use the phrase of George Soros, “on the false premise that markets can be left to their own devices” [2, p.129], i.e. decision-making takes no account of the extraordinary imbalance of the whole socio-economic system. Therefore, I reckon that we need a model of functioning and regulation of contemporary economy, which matches in a better way finances and production as the latter, unlike globally-organized finances, develops predominantly within national reproduction chains and outlines.
Currently, the USA and the world’s leading economies are making intense efforts to form the nucleus of technologies and pilot productions, related to the forthcoming new long wave of development. In a nutshell, this nucleus encompasses nanotechnologies, cellular technologies and genetic engineering methods. The transition from the first phase, when the nucleus of the new technological foundation for the production sphere is formed, to the second phase of accelerated growth and mass promotion of innovations, is expected to take place after 2015, when, according to the forecasts of the US National Science Foundation, the annual market turnover of such basic innovations will reach USD 1 – 1.5 trillion . Their wide implementation requires a relevant preparedness on the part of the socio-economic environment to form new highly-efficient reproduction chains around them. The achievement of such a level of preparedness is in all probability the hardest challenge for authorities and managers in all countries in the pursuit of sustainable development of national and world economies.
A number of studies, conducted by world’s leading scientists – Gerhard Mensch, Dmitry Lvov, Sergey Glazyev, etc. [7;13] – the long cycles of development are considered not just as wave “oscillations” but as S-shaped curves, or logistical curves. In actual fact they describe the life cycle trajectory of the technological foundation of production . At the completing phase of the previous technological foundation emerges a new one and the transition from one life-cycle to another is characterised by a “technological stalemate”, i.e. a normal pause in the gradual development of economy, a time for structural reform. The current “stalemate” is in actual fact at the boundary between the foundation of microelectronic and software technologies and the foundation of nanotechnologies, cellular technologies and genetic engineering methods.
The previous foundation was built upon the achievements of microelectronics in the management of material process at “micron” level, while the current foundation – upon the implementation of the above-mentioned basic innovations, operating at a scale of one billionth of the meter. The new nano-level makes it possible to change the molecular structure of the matter, impart new expedient properties to the matter, penetrate and change the organism cellular structure. The difference between the two technological foundations for the production lies in the scale of penetration of technologies into the structure of matter and the scale of processing the related information. Thus, they play different roles for the efficiency and sustainability of the development process. Statistical studies show that today’s stock market crisis, production decline and unemployment upsurge can be identified as typical manifestation of depression in accordance with the model of long waves when the production technological foundation undergoes change .
Contemporary crisis along with the deterioration of investment climate and the decline of inefficient innovation implementation helps re-allocate investments to assets of real value, related to the scientific and technical trends. Therefore, a number of national economies worldwide (mind you, not only the leading ones) launch intertwined measures for both overcoming the depression as well as for creating and widening the range of elements of the new technological foundation. The advanced implementation of key productions in the sphere of nanotechnologies, cellular technologies and genetic engineering will allow innovative economies to collect intellectual rent on a global scale and invest it in the further and wider reproduction of the new foundation. In such circumstances it is very important for each country to formulate clearly its national strategy. The latter should reflect the nation’s objective ability for advanced development on the crest of the new long wave of economic growth on the basis of, firstly, quick establishment of pilot productions, related to key innovations, and secondly – modernization of the sectors which distribute the technological foundation and can be viewed as wave-carrying productions.
The prominent Russian academic Sergey Glazyev  considers the information and communications sector, electronic, nuclear and electro-technical industries, pharmaceutical industry, solar energy, rocket and space industry, airplane and apparatus construction, cellular medicine, etc. as such “wave-carrying” productions. He also includes as “carriers” of the new wave some of the leading sectors of the previous wave, such as education, healthcare (the efficiency of which is going to multiply with the implementation of cellular technologies and methods for diagnostics of genetically transmitted diseases), agriculture (which makes use of the achievements of molecular biology and genetic engineering), as well as the chemistry and meteorology complex, civil construction, airplane and ship construction, which will apply a wide range of the new materials with pre-programmed properties. I would add the more general sphere of priority – the full scale technologies in all these sectors. The big question is: what will our unique priority technologies in these spheres be, what is that thing that we are we going to do and others cannot?
The way out
From a systematic perspective, the world economy has built up the capitals to enhance the economic activity, upon which the new technological foundation is based. It is necessary on the one hand to realign the global financial system with a view to its development and establishment of a better mix of global, regional and national regulators, and on the other hand – this should be such a reform of national financial and banking institutions which would enable them manage their financial imbalances through furnishing a rational level of savings and investment activity.
Such a reform, though, cannot but trigger a reduction of consumption growth and changes in savings and governmental expenditure in the world’s leading economy – the US one, with a possible aggravation of social conflicts and dwindling of its geopolitical ambitions. Thus, the way out of the global crisis is largely dependent on the extent in which the USA will prove capable of such reform.
The threats to the sustainability and the further development of world economy, including the economies of the US and the other economic leaders, had a great impact over G20 member countries which as early as November 2008 adopted an unprecedented for the period of “market fundamentalism” Declaration Summit on Financial Markets and the World Economy. It states the common will of the countries to unite their efforts to correct the actions of market forces and promote the role of the governments in the new spheres of activity, generated by the scientific and technical progress. It would be inaccurate to quote one section or another of the systematically elaborated Declaration as this would distort its integral meaning –what really matters is that the envisaged actions should be implemented. It would not be exaggerated to state that the elaboration of this Declaration and the decisions adopted at subsequent G-20 summits testify not so much to the overruling of pragmatism over liberalism but to the fact that we witness the laying of the foundations for the development of a new economic paradigm of the 21st century. The starting point of the planned actions is the sustainability of world economy and the stable development of national economies as guarantees for civil rights and freedoms. National interests define the way private interests are to be safeguarded. The more markets, the greater the need for regulation on the part of the governments and the larger their responsibility for the vectors of economic and social development of countries and regions.
It is way too complex to forecast particular changes which should take place in compliance with the spirit of the Declaration, all the more so in the context where some of the crisis manifestations start to fade ways and the clash between economic practice and “market fundamentalists” is unavoidably exacerbated. There are, though, a handful of activity directions which are worth taking into consideration:
– Measures for the realignment of the international currency system are being discussed, particularly the widening of the scope of currencies that are issued on the basis of special rights, including the Chinese Yuan. These rights will help achieve a well-targeted international crediting to the spheres which are in the greatest need of credits, while the well-off countries that do not require additional reserves, will be able to transfer shares to the countries in need. In parallel, this would allow the US dollar to regain at least partially its position of preferred reserve currency, while the Chinese economy can continue to boom as the new motor of the world consumption growth.
– There has been a very active debate on the overall reform of the international currency system, which is to be effected through the introduction of a supra-national world reserve currency under the control of the global economy community and the transition thereto is proposed to consist in a system of several regional reserve currencies with a relevant reorganization of the IMF and the World Bank. This concept is supported both by national leaders (such as Nursultan Nazarbayev) and many renown economists, including Nobel Laureates (such as the “father” of the Euro, Robert Mundell) . In my opinion, the extent and poignancy of the proposed all round reform still remain unrecognized by all parties concerned as an exceptionally complicated issue, related to the redistribution of economic power between the world leaders, which makes it even more difficult to implement (let alone, quickly), given the current labour division and scientific and technical development trends.
– There are propositions for the establishment of clearer and more transparent rules for the regulation of complex (secondary) financial instruments through the establishment of controlled hubs, which could be clearing houses for example, to perform stock trading. This will affect above all the credit swaps market. Meanwhile, the need of additional taxes on particular speculative deals is frequently discussed.
– Measures for deterring artificial increases and reductions of oil prices are also under consideration – through recurrent reviews and fixings on the basis of a better balance between the producer and consumer interests.
– New financial instruments are being developed in parallel to proposals for resorting to already tested instruments on the basis of precisely tuned monitoring on the monetary supply and loan access in compliance with forthcoming market fluctuations and potential imbalances.
– Universality rate reduction is under consideration in parallel with the return to a refined specialization in the activity of banks and other financial institutions – like, for example, a clearer distinction between investment and commercial banks, accompanied by a separation of the trading with own instruments on different markets;
– The scope of implementation of various regional financial instruments is widened so as to cover larger zones, which are sufficiently homogenous and have reached similar development stages from economic point of view. Recently, this particular tendency in globalization processes is growing even stronger. Currently, there are over 30 integration groups with various formats worldwide and approximately 80 regional trade agreements are being implemented.
– Measures for the enhanced coordination between budget and fiscal policy with the banking and monetary policy in regional and national aspects are under way . Further proof of that is the stronger effort and intensive actions for the implementation of rules for long-term financial sustainability on national and regional association level (such as “pacts”, “boards”, etc.). Under the current instability, though, these could only be successful if they ensure not only better budget discipline in annual terms, but also a better business climate and investment activity, which are necessary in the long-term.
– Widening the scope of state aid for topical education programmes, employment stimuli, support for pension and health insurance funds and savings guarantees. New forms of public control over the quality and efficiency of programme budgeting and project management are introduced in the course of implementation of social and environmental policies.
The above-listed directions and packages of measures, in the discussion on many of which I was directly involved at various international forums, do not exhaust the all round system reform that the functioning and regulation of market economy require today. Additional research and modelling is necessary for each of them, especially within the context of particular national economies. I do believe, though, that they represent in an adequate way the logic and direction of the change, which is currently acquiring clearer outlines in the system of market economy. After the Great Depression, market economy overcame the crisis by means of the model of government regulation from the perspectives of long-term scientific and technical as well as social development and we can likewise expect a further development of this outdated model in today’s world in accordance with new facts of life – as a model of regulatable market economy of global and regional character. This would be one more proof as to the general rule for the spiral of human society development, which manifests the inevitable outdating and replacement of each major development model by a preceding one, which has nevertheless been brought in compliance with the new historic level.
1. After Joseph Schumpeter , economic science uses the term basic (primary or radical) innovations to describe those innovations which establish the foundations for the emergence and formation of new sectors, markets and professions. They open new horizons for human activity .
2. Instead of the term “foundation”, some authors use the term “sector”, but it does not express sufficiently well the cluster character of this phenomenon and its role as an engine of growth .
3. More details on the art of balance between the two policies .
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