**3. Technological system: the backbone of the post war economy**

Economists often treat the monetary policy, embracing manipulation of interest rates, exchange rates, taxes as the main regulation intervention of state to the market economy and the means for spurring the economic growth. Charles I. Jones writes on that matter: "…it is helpful to think of the economist as a laboratory scientist. The economist sets up a model and has a control over the parameters and exogenous variables. The 'experiments' is the model itself. Once the model is setup, the economist starts the experiment and watches to see how the endogenous variables evolve over time" ([2]).

On the contrary, our perception about economic growth is based on the assumption that it is driven by the technological nucleus, endogenously created within the economic system. Technological systems overlapping with economic systems could either facilitate the economic growth or impede it. After the World War II and until 2008, the technological input into economic development has produced an output – explosive economic growth, gradually spreading over the increasing number of countries.

The technologies, invented during the so-called "golden age of technologies" (the period embracing the second half of the nineteenth century and the first decades of twentieth century), have composed the technological backbone for the post war recovery and forthcoming economic growth. In his book, entitled "Creating the Twentieth Century" Vaclav Smil

At the same time the circulation of the production factors – capital and labor – among the countries has intensified substantially. Gross cross-border capital flows rose from about 5% of world GDP in the mid-1990s to about 20% in 2007, or about three times faster than

**Figure 1.** World manufacturing output and GDP (rebased, 1800 = 100). Source: HIS global insight, Paul Bairoch, World Trade Organization. https://pt.slideshare.net/geoffriley/tutor2u-global-economy-peter-marsh-on-a-new-industrial-revo

lution?ref=&smtNoRedir=1.

6 Globalization

**Figure 2.** The development of world trade. Source: WTO.

<sup>3</sup> International capital flows: Structural reforms and experience with the OECD Code of Liberalization of Capital Movements Report from the OECD to the G20 Sub-Group on Capital Flow Management June 2011 https://www.oecd. org/economy/48972216.pdf

<sup>4</sup> http://www.vitainternational.media/en/article/2015/12/17/150-million-migrants-in-the-global-workforce/139/

<sup>5&</sup>quot;T James, K. Jackson. The United States as a Net Debtor Nation: Overview of the International Investment Position" October 7, 2016. https://fas.org/sgp/crs/misc/RL32964.pdf

states that: "The greatest technical discontinuity in history took place between 1867 and 1914. This era was distinguished by the most extraordinary concatenation of a large number of scientific and technical advances the synergy of which produced bold and imaginative innovations as well as ingenious improvements of older ideas, by the rapidity with which these innovations were improved after their introduction, by their prompt commercial adoption and widespread diffusion, and by the extent of the resulting socio-economic impacts. Even the most rudimentary list of these epoch-defining innovations must include telephones, sound recordings, light bulbs, practical typewriters, chemical pulp, and reinforced concrete for the pre-1880 years. The astonishing 1880s, the most inventive decade in history, brought reliable electric lights, electricity-generated plants, electric motors and trains, transformers, steam turbines, gramophone, popular photography, practical gasoline-fueled internal combustion engines, motorcycles, cars, aluminum production, crude oil tankers, air-filled rubber tires, steel-skeleton skyscrapers and pre-stressed concrete. The 1980s saw Diesel engines, x-rays, movies, liquefaction of air, and the first wireless signals. And the period between 1900 and 1914 witnessed mass-produced cars, the first airplanes, tractors, radio broadcasts, vacuum diodes and triodes, tungsten light bulbs, neon lights, common use of halftones in printing, stainless steel, air conditioning, and the Haber-Bosch synthesis of ammonia (without which at least 40% of humanity would not be alive)" (Vaclav [3]). The mismatch between these technologies, requiring the long-term investments into capital-intensive production and the gradual extension of sales, on the one side and the "market shortemism" on the other side was overcome by the state intervention. During the War economies of twentieth century the leading countries: the United States, the USSR, Germany, the United Kingdom, Japan and many others pursued the state intervention policy, replacing the market in terms of provision the long-term financial resources, state military procurement, R&D facilitation and protection of national companies from the international competition. Margaret McMillan writes: "Under the stimulus of war, governments poured resources into developing new medicines and technologies. Without the war, it would have taken us much longer, if ever, to enjoy the benefits of penicillin, microwaves, computers – the list goes on. In many countries, social change also speeded up" (Margaret [1]).

growing market of consumer goods, first emerged in the leading countries and then – in the rest of the world. Besides, the new economic activities, such as tourism, logistics and transportation, appear. The technological backbone, created at the beginning of twentieth century, gave a birth for the enormous varieties of economic activities, embracing countries, compa-

Technological Reconstruction of the Global Economy http://dx.doi.org/10.5772/intechopen.75096 9

**4. Endogenous insight into the technological input into production** 

products, new processes, and new forms of organization" [4].

constant exponential rate, or are constant [5].

*Y* = *F*(*K*, *L*) = *K<sup>α</sup>L*<sup>1</sup>−*<sup>α</sup>*

There are two different theoretical insights into the role of technologies in economic development: one considers technologies as the exogenous input into production output and economic growth, the other considers technologies as the endogenous input into production output and economic growth. The critics of the "exogenous theory" writes: "Growth has occurred not by producing more of the same, using static techniques, but by creating new

The general principles of the endogenous theory are reflected in the "steady-state growth model". Smriti Chand explains the essence of that model in the following way: "The concept of steady-state growth is the counterpart of long-run equilibrium in static theory. It is consistent with the concept of equilibrium growth. In steady-state growth all variables, such as output, population, capital stock, saving, investment, and technical progress, either grow at

To some extent the Cobb–Douglas production function, based on the assumption that output increases by the labor and capital increments would be referred as the endogenous theory of economic growth, based on the steady-state principles. Peter Howitt writes: "The first version of endogenous growth theory was AK theory, which did not make an explicit distinction between capital accumulation and technological progress" ([6]). Charles I. Jones explains that theoretical model in the following way: The production function describes how input such as bulldozers, semiconductors, engineers, and steel-workers combine to produce output. To simplify the model, we group these inputs into two categories, capital, K, and labor, L, and denote output as Y. The production function is assumed to have the Cobb–Douglas form and

where α is some number between 0 and 1. Notice that this production function exhibits con-

In other words, to produce more output the additional input of labor and capital is required – this is the core of the "steady-state" visioning of economic growth. Is there any other theoretical justification for the large corporations exploiting more and more resources all over the world, absorbing more and more people, ignoring their national identities and personal dignity?

stant returns to scale: if all of the inputs are doubled, output will exactly double [2].

nies and ordinary people.

**output**

is given by

After the World War II, the enormous intellectual capital and R&D capabilities, accumulated during the war in order to facilitate the production of armaments, were shifted to the nonmilitary production, especially in the countries, in which the military spending were prohibited (Japan, Germany and alike). In coincidence, the world was divided on the fast growing countries, competing on the market of non-military production (the most spectacular was the rise of the so-called "catching up countries" of the East Asia), and the countries, producing innovations regardless their predominantly military application, the United States and the USSR to mention here.

That was the time of permanently cumulating welfare around the globe: the scale and diversity of production output in the leading countries was growing steadily, the international trade, propelled by the gradual elimination of the trade barriers expanded quite rapidly. The emergence of the new comer countries, "producing the same at less cost", filled out the fast growing market of consumer goods, first emerged in the leading countries and then – in the rest of the world. Besides, the new economic activities, such as tourism, logistics and transportation, appear. The technological backbone, created at the beginning of twentieth century, gave a birth for the enormous varieties of economic activities, embracing countries, companies and ordinary people.
