21st-century political economy transition
by C. Warren Neel*

Viewing the evidence of the past 200 years affirms that a nation’s success has a tendency to generate a different model or some significant modifications, particularly during a crucial change in the business cycle.

Today’s global economic issues reflect changes in the financial wellbeing of countries. Political models are also undergoing change in national and international governments, particularly where there are new elections of leaders. When aware of these changes, one wonders if the global historical pattern of political economics thesis challenges the antithesis, and a synthesis is formed.

The US government is an example of the changing process, having spent most of the 1900s defining “who we were not.” Even while dealing with recessions, inflation and a variety of other economic issues, political actions appear to be dictated by a vision that policies would be designed and implemented to avoid communism. Democracy indeed had a powerful antithesis that pressured action.

In reality, the mirror of communism was used by virtually all political leaders to define what the country would not become and dictated what should be done to make sure democracy remained. Then in the mid-1980s when Russia abandoned the communist model, the US lost the reference that defined its actions.

Because countries no longer have the communist reference and no longer have individual political clout as in the past, it is becoming evident that emerging changes will continue to affect politics, making the public wonder if the political-economic model that dominates the “democracy model” in the US and new forms of government in Europe and Asia will now move nations to a global model of governance rather than that of individual country. If not, will it simply modify countries’ governance practices?

Major evidence reflecting change began appearing with the G-8 of the 1970s. Now it has become the G-20 and will move even further and continue to influence monetary and fiscal policies. Moreover, the growth in capital markets and their daily assessment of global activities add to the new emerging model of political economy. With each passing year, such critical financial policies are becoming more coordinated among nations, rather than having a single country dictating policies and having complete control over their economy. As evidence, the G-8 recently met to discuss monetary and fiscal policies. That has happened before, but this time it appeared different in that it is increasingly necessary for nations to coordinate policies and actions.

The period following the 1980s has produced enormous growth in technology. The results appear to be a major source of sea change to virtually every facet of the 21st century and thus are affecting all countries.

One of the major items creating political and economic change is technology. It appears to be developing, affecting virtually every industry and, ultimately, creating a major source for a different economic thesis that a host of nations will have to deal with in this century. Healthcare, retail, manufacturing and education are but a few examples. Delivering better healthcare is gradually being shifted toward individual responsibility, with the analysis of individuals and community wellbeing available immediately online. Forms of surgery are even being done by robots. Retail firm sales are growing online as pattern sales analysis is reducing the necessary inventory in stores to service a specific location. This has resulted in more rapid inventory turnover and an increase in gross margins. Manufacturing is changing due to a host of technology that is replacing labor. Education is also being affected, altering the delivery of the content to students in grade schools and universities.

The most notable statistic that reflects major change is the employment patterns that traditionally follow a business cycle. In the 1980s the accepted outcome of a typical business cycle was, in the US, 5 percent unemployment. The past four years have remained above 8 percent, and the pattern is not following the historical model. Stimulus funds have also not materially affected the pattern, as was very much the case in the past. Reality suggests that layoffs have resulted in a modest increase in increased capital investment in technology that enhanced the service and product outcome rather than rehiring. Thus the substitution of capital for labor is part of the sea change that is occurring.

Decisions made by companies will obviously continue to reflect a different model of service to customers and collectively continue to reflect a change in the historical business cycle of recovery.

The technology era is providing major changes, even to classic principles of economics. Perhaps the most significant change is, in principle, the economy of scale. Since the start of the industrial revolution, firms have always focused on growing to increase profits and compete very effectively. This era of technology could be replacing that principle with the “economy of agility” as a major objective. How quickly can a firm change its competitive edge in the global economy could become the focal point, not just size.

The emerging 21st century has begun to modify the traditional means of a government’s economic control. The borders of a nation, its states, countries and cities have been viewed in large measure as reflecting the rights and responsibilities of citizens. Now borders have begun to experience changes because of the technology. Tax collections, property values and a host of other changes appear to be absent from policies that have been significant in defining a government’s authority and responsibility.

The question remains as to how the democracy model changes will occur or if they will. Increasingly, evidence does suggest change is under way and will continue to alter the form of a nation’s and the globe’s political economic model.

*Dr. C. Warren Neel is executive director of the Corporate Governance Center, University of Tennessee, Knoxville.