Economic Policy for Structural Change

Abstract

Starting from a conceptualization of structural change as an uneven phenomenon punctuated by technological revolutions that give rise to long-term movements of real and monetary variables, i.e. long waves, this paper puts forth an explanation of radical technical change. Then, drawing upon Post-Keynesian theory, the neo-Schumpeterian school of techno-economic paradigms, and the work of Luigi L. Pasinetti, we suggest guidelines for economic policy to manage structural change and its consequences. While economic policy cannot by itself fully tame the dynamics of structural change, it can ameliorate its disruptive effects, firstly by helping us to manage the stagnation phase of the long wave in order to avoid a deep depression; secondly by preparing the way for a new long-wave and, thirdly, by facilitating the establishment of the institutional conditions for the diffusion of the new technological paradigm. The paper concludes by comparing these suggested policies with those pursued by the dominant western economies after the Second World War. We find that three broad factors—a misdiagnosis of the nature of the crisis that began in the 1970s; a shift in power relations that was strongly unfavorable to the working class; and the rise of neoliberal ideology—led to the adoption of policies that had disastrous social and economic consequences.