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The Economics of Frugal Innovation Technological Change for Inclusion and Sustainability

March 28, 2023


By Christian Le Bas, Professor of Economics, ESDES Lyon Business School, Lyon Catholic University, France

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Frugal innovation (FI thereafter) has been garnering great research interest in the last two decades. The literature tells us a new frugal product is associated with a substantial reduction in costs compared to a standard product due to the limited number of basic functionalities while having a minimum level of technological and ecological performance. Because its manufacturing cost is also reduced, its price is lower compared to those of more standard products, as a consequence, it can be purchased by consumers with low incomes. Such a new type of innovation provides valuable products for low-income communities contributing to economic inclusion in the process of consumption. FI is therefore, inclusive. This type of new product is more durable, simple, efficient, less technologically sophisticated and costly. In the past, located in emerging countries it is today more “global”, gaining followers in developed economies. In this context, FI shows strong potential to foster inclusion and sustainability effectively.

We show in the book, FI is part of a new technological paradigm. The size of the product is smaller, and the number of functionalities/components is reduced (product therefore easier to recycle). As a consequence, the product is more reliable (it has a longer lifespan) and less technological complex (easier to repair). The core of this new paradigm is therefore design simplification. As a result, there is less pressures on natural resources. It can be manufactured more easily/quickly and therefore saves energy. Consequently, FI is a green (or environmental) innovation. In the current period the frugal product seems to interest consumers who are ecologically virtuous by choice.

FI is without a doubt an innovation of transformative change (Schot and Steinmueller) aligning social and environmental concerns with innovation (for profit) objectives. FI can be considered as a part of the solution to the main problems of the planet (global economic inequalities and climate change).

Technological frugality shares a number of characteristics with the low-tech approach: simplicity in the architecture of the product, the search for (much) less technological complexity, the use of limited resources (including economic resources or R&D), ecological properties (“resources-saving”). But deviates from a low-tech paradigm in what the goal of frugality is not technological, it is to provide affordable goods in terms of price. Technology is just one way to do that. The frugality approach does not refuse (by principle) the use of high-tech technologies in design activities (such as the use of design methods as artificial intelligence) or in the manufacturing of frugal products (like robotics).
Until now, most of the literature addressing FI has been qualitative empirical and the analytical frameworks have come from Management Science. Little attention has been given to understanding the technological core of FI and, more importantly, to the underlying economic mechanisms that are affected by technological frugality. This book aims to fill this gap. For achieving this we rely on a mix of theories linked to the Schumpeterian approach to innovation (Economics of innovation) combining methods from Evolutionary Theory, Microeconomics, and Industrial Organization.

My book The Economics of Frugal Innovation. Technological Change for Inclusion and Sustainability aims to fill this gap. Chapter 1 of the book discusses the various definitions of FI found in the literature and pictures some striking cases of frugal product. In chapter 2 I articulate the notion of technological frugality (the frugal direction of technological change) and the concept of technological paradigm at the core of the innovation studies as an evolutionary research programme. The idea of design simplification resumes this new paradigm. Chapter 3 explores economic topics in relation with the frugal direction of technological change: the resource constraints schemes, a new model of induced innovations and the structure of innovation demand-side approaches. Chapter 4 proposes an analysis showing the positive consequences of the frugal direction of technological change for the environment. Chapter 5 addresses an issue much dealt with in the literature: the relation between technological frugality and sustainability. Because we assume FI is in general sustainable, we explore the relevance of a new taxonomy that sticks more the empirical evidence : weakly sustainable frugal versus fully sustainable frugal. In chapter 6 we fill a gap by delineating en econometric exercise aiming to understand what type of innovators implement FI. Our estimations enable us to retain complex innovator (achieving product and process innovation) are more prone to innovate frugally. Chapter 7 in the literature, we find the idea FI is considered as a disruptive innovation concept due to Christensen. New frugal product staying in the low-end segment of the market cannot be considered as competing standard product and therefore cannot feed a process of disruption. Our starting point in chapter 8 is : can FI a possible determinant of economic growth in LDC. Our pessimistic conclusion is : we do not find any evidence in favour of this assumption.

The novelty of the book lies in presenting the economic mechanisms ruling the design, the implementation, and the diffusion of FI innovation. As such, the book is likely to be of interest to people (academics, experts, various kinds of practitioners) wanting to study new types of technological innovation in relation to sustainability.

The Economics of Frugal Innovation by Christian Le Bas, Professor of Economics, ESDES Lyon Business School, Lyon Catholic University, France is out now.

Read the introduction and other free chapters on Elgaronline

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Developing Countries’ Options in a prolonged atypical global slowdown

March 10, 2023


By Raghbendra Jha, Emeritus Professor, Arndt-Corden Department of Economics, Australian National University

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Despite some obstacles like the crises of the late 1980s and early 1990s, developing economies, the global economy, and international trade experienced steady growth during the period 1980-2000. It was widely claimed that this was partly the result of the adoption of the doctrine of the globalisation by a large majority of developing countries.

However, things changed dramatically with the food price crisis of 2007.  Quantitative restrictions on food exports were imposed by many countries.  At a philosophical level the importance of supply side effects was underscored at a global level.  This realisation was further reinforced by the Global Financial Crisis of 2008-09 when credit collapse on a global scale led to serious supply side impediments to credit growth.  Expansionary fiscal and monetary policies were put together in many countries and the G-20 group of nations was formed to nurse the global economy back to health. However, this led to the massive pile up of debt – both public and private – in many countries and some of them experienced debt crises as a consequence. It was becoming eminently clear that while demand side policies could be put together quickly, this approach had its limitations and attention to the supply side was essential.

With the large-scale dominance of global supply chains addressing supply side shortcomings would require global effort.  That this was in short supply was quickly made clear during the global COVID pandemic of 2020-22. All countries in the world were faced with an economic challenge and a public health challenge that fed on each other.  Addressing one challenge would exacerbate the other.  Reducing the economic challenge by removing lockdowns and allowing people to go to work would spread the virus further and enforcing lockdowns to slow down the progress of the virus would exacerbate the economic crisis. Developing countries were in a particularly vulnerable position since they had a general paucity of resources to meet the economic and public health challenges and had low capacity to produce vaccines and administer these to their populations.

Other supply side constraints developed soon.  Three illustrations of this would suffice. Public Protective Equipment (PPEs) needed to protect health care professionals who were looking after COVID patients were supplied largely by the country from which the virus emerged- China. China needed PPEs for its own needs and quickly cut off supplies to the rest of the world. When the vaccine was finally produced there was widespread hoarding in some developed countries in order to address their own domestic needs. This was self-defeating in a way because in a globalised world new variants of the virus could develop in under vaccinated populations anywhere in the world. Furthermore, there was (and still is) uncertainty about the efficacy of some of these vaccines. Finally, just as the end of the pandemic was in sight, a ferocious European war between Russia and Ukraine has disrupted supply chains the world over, particularly with respect to food and fuel.  This has fed into the inflationary processes in many individual countries as well as globally.   

Under such circumstances, countries started abandoning the idea of global supply chains and started cultivating more limited supply chains with countries they could rely on.  The importance of supply side policies was writ large all over.

This realisation spilled over onto the area of macroeconomic management.  Expansionary fiscal and monetary policies put in place to stimulate economies during the pandemic and inadequate attention to stimulating the supply side led to the build-up of massive excess demand in many countries. The resulting inflation has persisted well after the worst effects of the pandemic are over.  Interest rates have been raised globally to control this inflation with the result that many economies are slowing down and some of them are facing the threat of a recession. Public and private debt have spiralled in most countries.

Against this background, with the developed countries deeply involved in their own economic affairs, not much attention has been paid to the economies of the developing countries. My book Macroeconomics for Development: Prognosis and Prospects has been put together partly to address this paucity. Chapter 1 of the book places the macroeconomic challenges of economic development in context whereas Chapter 2 outlines widely accepted contours of economic development.  Chapter 3 explores the role of finance and institutions in economic development and Chapter 4 discusses the design of monetary policy.  Chapter 5 discusses the design of fiscal policy for economic development and Chapter 6 considers macroeconomic policy design in open economies.  Chapter 7 articulates two versions of the stochastic general equilibrium model of the macroeconomy – the Ramsey model and the overlapping generations model. Chapter 8 examines the consequences of the pandemic for the developing world and Chapter 9 considers how uncommon macroeconomic policy has been designed during the pandemic.  

The novelty of the book lies in presenting the received theory of macroeconomics for development as well as the particular challenges thrown up by the pandemic. As such, the book is likely to be of interest to students in undergraduate and graduate courses in macroeconomics of economic development as well as to other interested readers.   It is written in relatively non-technical language so that it can appeal to students, scholars and general readers alike.

Macroeconomics for Development by Raghbendra Jha, Emeritus Professor of Economics, Arndt-Corden Department of Economics, Australian National University, Australia is out now.

Read the introduction and other free chapters on Elgaronline

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Rethinking Public Choice

February 27, 2023


By Richard Wagner, Emeritus Professor of Economics, George Mason University, US

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I was pleased when Edward Elgar invited me to contribute a book on public choice theory to its series on “Rethinking Economics.” My entire academic career has taken place inside the corridors of public choice thinking, starting with my 1963 enrollment in the Ph.D. program in economics at the University of Virginia. I enrolled there and not somewhere else after reading James Buchanan’s and Gordon Tullock’s 1962 Calculus of Consent. That reading settled my indecision about whether I would study economics or political science, for reading that book convinced me that I could study both in Virginia’s economics program.

            After my first year at Virginia, moreover, Buchanan and Tullock invited me to attend a conference they were sponsoring in October 1964 in what at the time they were calling “nonmarket decision making.” With weakening memory after nearly 60 years, I no longer recall full details of that conference. Among the 15-20 attendees were such prominent contributors to the early years of public choice as Duncan Black, Anthony Downs, Roland McKean, William Niskanen, Elinor Ostrom, Vincent Ostrom, William Riker, and Thomas Schelling.

            The conferees were united in their dislike of the common practice of using concepts from welfare economics to offer advice to politicians about optimizing one thing or another. It’s not that they were opposed to optimizing in principle, but that they thought that politicians were already quite adept at being politicians, and so didn’t need help from economists. After all, politicians were typically elected repeatedly to their offices, leaving those offices only when they chose to do so. Politicians didn’t need economists to help them to be better politicians.

            The conferees pursued a quite different analytical challenge, which was to uncover the hidden logic that undergirded political action. Politicians were recognized to be at least as rational as ordinary people, only they operated inside a different type of social and institutional environment than did ordinary persons. In this respect, Vilfredo Pareto’s 1915 treatise on Mind and Society distinguished between two major environments that contained human action within society. One of those environments elicited logical action by participants. These were commercial and scientific environments. The other of those environments elicited action that was non-logical, which is different from being irrational. The primary non-logical environments in society were politics and religion.

            Logical environments were primarily environments dominated by direct experiences of costs and gains by participants. Those participants invested in their choices and bore the value consequences of the resultant outcomes. By contrast, non-logical environments were animated by impressions and images. One beautiful illustration of the difference in environments arises in different approaches to the existence of God. Pascal’s Wager pertains to a logical environment with Pascal counseling that the mathematics of infinity explains that a prudent person would choose to believe in God. Alternatively, Anselm’s so-called proof starts with someone who believes in God and counsels people to probe the meaning and significance of that belief in their lives. Applied to politics, this means that people start with feelings to which politicians seek to appeal by crafting images that resonate with those feelings.

            The early public choice theorists confronted the problem of making their ideas intelligible to an economics profession that for a good half-century had become accustomed to using economics to proffer advice to politicians, mainly through the medium of welfare economics. To gain a foothold in that profession, it seemed prudent to proceed by making marginal changes to the prevailing schemes of economic theory. Hence, public choice, which was given its name in only in 1968, embraced the standard postwar assumptions of optimizing individual choice and systemic equilibrium, and proceeded to emend those assumptions to incorporate political phenomena. For instance, William Niskanen published Bureaucracy and Representative Government in 1971. This book treated bureaus within the context of the theory of the firm by modifying the theory of the firm to account for the inability of bureaus to capitalize their profits. It wasn’t that bureaus couldn’t conceivably return profits; it was that their institutional arrangements prevented them from doing so. Instead of returning profits, bureau officials would convert what would have been profits into rents for bureau officials and relevant legislators.

            In my judgment, public choice has become ossified over the course of its life. Rethinking Public Choice seeks to fight that ossification by replacing the orthodox equilibrium framework with one based on such concepts as evolution, complexity, and emergence. Models don’t just help us to see more clearly; they also shape what we see or think we see. Models are not neutral elements that just magnify our thoughts. To the contrary, they carry our thinking in particular directions. In this respect, equilibrium models are rendered in the passive voice.

            In contrast, Rethinking Public Choice is rendered in the active voice. Everything that happens occurs because of actions people undertake somewhere within a social system. There is, moreover, no such thing as acting on a social system. All action occurs inside a social system, and with that system’s architecture continually changing in response to those actions. A central bank, for instance, does not control a price level. It instructs brokerage houses to buy private assets, which sets in motion transactions that bring about changes in asset holdings throughout the social system, including changes throughout the structure of prices.

            Rethinking Public Choice ranges widely throughout the material that public choice theorists have addressed, always seeking to explore alternative insights that arise through this emphasis on active voice theorizing where human population systems feature dense collections of people always acting, and with much of what those actions accomplish being unintended by-products of human interaction within complex social systems. In this respect, Rethinking Public Choice looks to the Scottish Enlightenment and not to post-war welfare economics for its animating scholarly inspiration, only integrating those insights of old with such new schemes of thought as evolution, complexity, emergence, and some dialectics of constituting social order.

Rethinking Public Choice, by Richard E. Wagner, George Mason University, US is out now.

Read the introduction and other free chapters on Elgaronline

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Rethinking Economics as Social Theory

January 25, 2023


By Richard Wagner, Emeritus Professor of Economics, George Mason University, US

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Richard Wagner discusses his innovative look at the origins of economics in his new book Rethinking Economics as Social Theory

What is the object at which economists direct their analytical energies, concepts, and imaginations? By far the most popular answer these days is that economics is a science that addresses efficiency in resource administration. This answer places economics as an administrative science whose primary analytical tools are mathematics, statistics, and accounting in conjunction with formal modeling. Rethinking Economics as Social Theory explains how this administrative vision renders economics deeply incoherent because it assigns to economics analytical tasks that the discipline cannot truly address.

Sure, there are many situations that call for an administrative style of thinking for which ordinary principles of economizing action are suitable. The entire world of commerce provides a limitless menu of cases for which the marginal calculus and optimization more generally represents the epitome of reasoned action. One of the most charming of all economists, Philip Wicksteed (1844-1927) in his 1910 Commonsense of Political Economy explained how a mother could use knowledge of marginal productivity theory to distribute a bowl of mashed potatoes among her children. Without doubt, economic principles can be helpful to someone seeking to maximize the difference between the value someone expects an action to yield and the cost of the inputs that must be assembled to conduct that action. All the same, it must be recognized that a formal model alone cannot answer substantive questions, for answers can’t be supplied  without importing other presuppositions into the model.

Economics goes astray when its formal framework is used to address substantive questions that have political character. There is all the difference in the world in this regard between an administrative science and a science of society. An administrative science pertains to organizations that are organized and operated through the offices of private law. They are organizations for which all participation is voluntary. Conflict there can be among organizations, as befits the idea of competition. But the internal operation of privately ordered organizations is consensual, which means in turn that for such organizations there is general agreement about the boundary between efficient and inefficient actions.

 It is a huge category mistake to apply principles and concepts of optimization to political organizations. For commercial organizations, the magic number is two. This means that even the most complex of commercial organizations and transactions can be meaningfully illustrated by simple models of exchange between buyers and sellers. In contrast, for democratic polities the magic number is three. Where Carl Schmitt (1932) asserted that political action turned on the friend-enemy distinction, William Riker (1962) asserted all democratic action has coalitional character. With either of these schemes of thought, democratic competition, in contrast to commercial competition, turns on forming and supporting winning coalitions, an accounting of which shows that those winnings are financed by imposing loses on the rest of society.

Prior to the emergence of neoclassical economics late in the 19th century, economics under the influence of Adam Smith and the theorists of the Scottish Enlightenment had as its analytical object society itself, and not the administrative problems of some members of society. Smith and his compatriots observed that societies worked in that people were able to feed, clothe, and house themselves even though there was no person or administrative office whose responsibility was to ensure those outcomes. Those outcomes just happened even though no one had the duty to ensure them.

Smith and the other Scottish theorists realized that societies resembled icebergs in that what you saw on the surface was but a small part of the entire object. A theorist whose vision was limited to connecting points of observation would misunderstand a good deal of the sources of social orderliness. Smith’s two most notable books, Theory of Moral Sentiments (1759) and Wealth of Nations (1776) form a complementary pair in the process of rendering a theory of society as based on recognition that people invariably seek to be successful in what they attempt. Each person in society has a domain over which he or she exercises administrative responsibility. Society, however, is not just another such domain, but is a container that holds the domains that constitutes a society.

While Adam Smith initiated the study of society centered on recognition that people were actuated by their desires to be effective in their chosen actions, that classical scheme of economics gave way a century later to the neoclassical focus on resource administration. Again, there is nothing illogical about constructing a science of administration. It’s just that such a science will necessarily be inadequate as a theory of society whose primary object are the properties of people living together in close geographical proximity, which in turn brings into the analytical foreground both the potential gains from cooperative action and the potential animosities that might be unleased through the never-ending search after position and status that are alive in societies.

Rethinking Economics as Social Theory seeks to carry forward the social-theoretic vision of the Scottish Enlightenment. It seeks to do this, however, not through some act of restoring the Scottish scheme of thought but by importing such modern modes of theorizing as systems theory, complexity theory, evolutionary theory, emergent phenomena, and agent-based computational modeling. It is surely plausible to assert that the Scottish thinkers attempted to address questions that are more complex than their methods and techniques allowed them to address, and to recognize that modern analytical developments supply instruments through which we can make progress on their concerns about the qualities of societies. As thinkers, we should always realize that our ability to develop our intuitions depends on the analytical techniques at our disposal. Recent development in computer and related technology over the past half-century has multiplied our ability to think about societies as ever evolving entities whose direction of evolution is no matter of policy choice but rather is an exceedingly complex matter about which there exists no obvious one best way but for which that evolution is of intense significance for our ways of life all the same.

Rethinking Economics as Social Theory, by Richard E. Wagner, George Mason University, US is out now.

Read the introduction and other free chapters on Elgaronline

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Hyman Minsky’s Enduring Relevance to Economic Theory and Policy

September 2, 2022


Written by Charles J. Whalen, Research Fellow, Baldy Center for Law and Social Policy, University at Buffalo, USA

On October 19, 1987, the US stock market lost nearly 25 percent of its value—the largest single-day drop in history. As market distress reverberated worldwide, values on global stock exchanges plummeted, resulting in “Black Monday”—the first contemporary global financial crisis. In the aftermath of that crash, American economists held their annual meeting in Chicago, and Hyman Minsky was the speaker it seemed everyone wanted to hear.

Minsky, then a professor on the verge of retirement at Washington University in St. Louis, was thrust into the limelight by the 1987 crash. That’s because many regarded him as the most prominent opponent of the economics profession’s insistence that financial crises and business cycles no longer represented important real-world problems. While other economists were either ignoring crises and cycles or dismissing them with general-equilibrium analyses, Minsky was developing a “financial instability hypothesis”—that explained booms and crashes as an inherent part of a modern economy—and patiently applying his theory to analyze a series of such episodes that occurred in the decades before and after World War II.

Minsky understood that achieving serious public-policy reform—aimed at reaching and sustaining full employment and better addressing financial instability and other real-world problems—requires also reconstructing economics. In fact, that was the explicit aim of a workshop he convened in 1991, when he served as a senior scholar at the Levy Economics Institute of Bard College. Minsky stressed a reconstruction grounded in an appreciation of the following: constant economic change, the need for economic decision-making in the face of uncertainty, and the role of socioeconomic institutions and public policy as key determinants of economic processes and outcomes. He was an eclectic economist, who learned from a diverse group of professors at the University of Chicago and Harvard University (including Henry Simons, Oscar Lange, and Joseph Schumpeter), but in the last few decades of his life he was most at home among economists calling themselves post-Keynesians and institutionalists.

When the severe global financial crisis of 2007–2009 blindsided economists and policymakers alike, Minsky and his ideas were back in the headlines. For example, he was featured in a front-page story in The Wall Street Journal, and The Nation published an essay with the title “We’re all Minksyites Now.” However, by then Minsky had been dead for a decade, so the task of applying his insight to that crisis fell upon his intrepid followers, many of whom who have come to embrace the term “post-Keynesian institutionalism” to describe their approach to economic theory and policy.

Two new books by Edward Elgar Publishing look at the global financial crisis and several new and continuing economic challenges by drawing heavily on Minsky’s insight and analyses. The books also seek to trace the development and contours of post-Keynesian institutionalism, and to advance that approach by taking the ideas of Minsky and other pioneering contributors—including John R. Commons, Joan Robinson, and John Kenneth Galbraith—in new directions.

In Reforming Capitalism for the Common Good: Essays in Institutional and Post-Keynesian Economics, 25 essays (written over three decades) build on the work of Minsky and institutionalist John R. Commons to address the causes and consequences of US macroeconomic instability, job offshoring, community economic dislocation, financialization, income inequality, and rising worker insecurity. The result is a compelling case for reforming capitalism by addressing workers’ interests as an integral part of the common good, and for reconstructing economics in the direction of post-Keynesian institutionalism. Scholars and students of economics and labor studies will appreciate the incisive analyses and real-world focus, while policy analysts and concerned citizens will welcome the book’s optimistic vision for our economic future.

In A Modern Guide to Post-Keynesian Institutional Economics, an international team of more than a dozen scholars breaks new ground by extending recent analyses of today’s investor-driven (“money manager”) capitalism, with special attention to financialization and economic insecurity. It also sharpens concepts and methods (such as social capital and stock-flow consistent modeling, respectively), sketches new theories on labor and financial markets, and infuses post-Keynesian institutionalism with insight from other research traditions including feminist and environmental economics. The book serves as both a valuable reference volume and a source of material suitable for course adoption at either the undergraduate or graduate levels.

Both books make it clear that post-Keynesian institutionalism does not rest upon Minsky alone. But they underscore the continuing importance of Minsky’s contributions for those interested in a historically and institutionally grounded reconstruction of economics. They also highlight the enduring relevance of his focus on ongoing economic evolution, support for the goal of full employment, and commitment to a democratic and humane economy.

Minsky pointed us in the right direction. Earlier this year, a team of foundations announced a commitment to allocate more than $40 million to economic and policy research focused on alternatives, with special attention to inequality and the economic challenges faced by workers. Inspired by Minsky, post-Keynesian institutionalists have been studying these problems for decades. Minsky may be gone, but we can still stand on his shoulders to better understand the real world and craft a more constructive body of economic theory and policy.

Reforming Capitalism for the Common Good
is available to purchase now.

Charles J. Whalen, Research Fellow, The Baldy Center for Law and Social Policy, University at Buffalo, Buffalo, NY, US

Read a sample chapter on Elgaronline.

A Modern Guide to Post-Keynesian Institutional Economics
is also available to purchase now.

Charles J. Whalen, Research Fellow, The Baldy Center for Law and Social Policy, University at Buffalo, Buffalo, NY, US

Read a sample chapter on Elgaronline.

This is also part of the Elgar Modern Guides Series

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