to achieve that goal. As we noted in Chapter 3, many scholars have made the
link between investment and economic growth. But this finding offers no guid-
ance to policy-makers on how to increase investment. Private or public invest-
ment? Foreign or domestic investment? Investing in roads or electricity
supply? Reducing interest rates to make it cheaper for firms to borrow for
investment projects of their own choices or offering government subsidies for
specific investment projects according to some view of national needs?
Reform must be compatible with Political Economy
There are three types of economic analysis. Positive Economics purports to
show what will happen in the advent of a change in any economic policy: what,
for example, will be the effects on investment of raising interest rates?
Normative Economics adds to this a value judgement: what policies or goals of
economic change should be pursued? For example, faster economic growth is
desirable therefore the government should reduce interest rates to stimulate
investment. The third type is Political Economy which seeks to answer the
questions:‘Who owns what? Who does what? Who gets what? What do they
do with it?’ (Bernstein, 2010:22). In contemporary Britain, for example, many
have argued that big MNCs should pay more taxes to protect government
spending on health and education,but the political influence of such large
firms expressed through lobbying and donations to political parties may make
this difficult to achieve. Any efforts or reform programmes to increase the rate
of economic growth or perhaps make a given rate of economic growth more
pro-poor or less environmentally damaging must consider these sorts of polit-
ical economy issues, of which there have been many examples in this book.
Economic growth and technological change are in general accompanied by
what the scholar Joseph Schumpeter called ‘creative destruction’. Even if
ov erall incomes rise (economic growth) there will be both winners and losers
and the fear of the destruction may be enough to prevent the creation. Chapter
4 noted that technological change is likely to create losers whose skills become
obsolete or who lose employment as a task becomes mechanized. The organi-
zation and political influence of the losers is likely to be important in determin-
ing the feasible pace of technological change. In 1753 John Kay the inventor of
the Flying Shuttle (an important technological innovation in the English textile
industry) had his house burned down by those fearing for their employment as
skilled craftsmen. In eighteenth-century Britain the Luddite movement started
in Nottingham, spreading rapidly after 1811. The participants (allegedly led by
a Captain Ludd) smashed wool and cotton mills, believing that mechanization
had deprived them of employment and left people destitute. The rising was
brutally suppressed by the government. Between 1750 and 1850 the British
political system continued to give consistent support to innovators and those
winning out from technological change (Mokyr, 1990: 256). Across Europe
resistance to new technology came from guilds of skilled artisans fearful of
Conclusion: Eight Principles for Policy-Makers 295