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International economic theory and politics: world structure before, during and after the early 21st Century Crisis

Naqvi, Nadeem (2010): International economic theory and politics: world structure before, during and after the early 21st Century Crisis.

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Abstract

In his Inquiry into the Nature and Causes of the Wealth of Nations Adam Smith (1776) considered the phenomenon of division of labor so enormously significant for the creation of a nation’s wealth that he devoted the first three chapters of his book to an investigation of this process. This is an ongoing process of greater and greater specialization, and there have been episodes of faster pace, and some slower pace, but the process has never stopped so far in human history. However, this process, carried far enough, can eventually results in episodes, sometimes painfully prolonged, in which there emerges a divergence between the distribution of quantities supplied of horizontally-differentiated distinct types of human capital embodied in different persons and distribution of quantities demanded of persons with distinct skills by employers, private or public, or otherwise. This sustained divergence of supply and demand distributions of distinct skill categories may be called Embodied Human Capital Unemployment. This is a phenomenon not seen before in social history, simply because specialization of persons in very narrowly partitioned skill types that are, effectively, non-transferable across different persons, had never occurred before in our history. That is why it is a new phenomenon, and it is time we understood what it is. Moreover, it has an abiding character, a stationary state nature, and (1) thus should emerge as an equilibrium phenomenon in a fully specified general equilibrium model of a market economy, and (2) should be of concern to us, since it is going to be around for a while as we all live our lives.

I illustrate the relevance of this new concept of unemployment to the U.S economy in the first decade of the 21st Century. This helps achieve a deeper understanding of the current global economic crisis, and inter alia to identification of potentially effective, and potentially ineffective, public policies. Additional implications are (b) the emergence of a new social formation that may be called World Market Capitalism, which has a vastly different economic foundation of relations of production and income distribution compared to the pre-21st Century economic system that then existed in the world, and (c) the transition from a uni-polar world, with the U.S.A. as the single center of power, after the fall of the Soviet Union in 1989, to a multi-polar world order at the end of the first decade of the 21st Century, with implications for strategic interaction and coalition formation. (403 words)

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