It is generally not recognized that two Nobel laureates in economics have provided two conflicting theories of what will happen to world income under globalization:

1. Based on the standard assumptions of neo-classical economic theory, US economist Paul Samuelson ‘proved’ mathematically that unhindered international trade will produce ‘factor-price equalization’, that is that the prices paid to the factors of production – capital and labour – will tend to be the same all over the world.
2. Based in an alternative dynamic tradition – which we here label The Other Canon – Swedish economist Gunnar Myrdal was of the opinion that world trade would tend to increase already existing differences in incomes between rich and poor nations.

We would argue that the second approach easily incorporates the main elements of evolutionary or neo-Schumpeterian economics, but with a broader theoretical and historical perspective and with a broader agenda. The aim of this book is to explore the contributions of today’s evolutionary economics to the understanding of the increasing gap in global income inequality, that is to broaden the normal perspective of neo-Schumpeterian economics consciously into the realm of development economics.

In economics, the theory that the world is flat has been coexisting for centuries with the theory that the world is round. In this essay we shall argue for the existence of an alternative to today’s mainstream theory: the continuation of the canon that dominated the worldview of the Renaissance – The Other Canon. Using a metaphor from Kenneth Arrow, ‘this tradition acts like an underground river, springing to the surface every few decades’.
We argue that during the Cold War the ‘underground river’ of Renaissance Other Canon economics all but disappeared from economic theory, and that it is time to reintroduce it. Traditionally, The Other Canon has been resurrected in times of crisis, such as national emergencies, which bring production – not barter – into focus. This occurs, for example, when an exclusive focus on barter has caused financial bubbles that subsequently burst, when nations are engaged in serious catching up with the prevailing world leader (as the United States, Germany and Japan were in the nineteenth century, or as Korea was until recently), or when a war economy forces a national political system to focus on production (of materials of war). Today the urgency of a change of focus toward the Renaissance conception of economics is particularly acute in the Third World and in formerly communist Eastern Europe. Unfortunately, this is not where economic theory is produced.

"...it seems to me that the problem of the current mainstream, mathematical, usually neoclassical approach to economics2 is two-fold. It is flawed both practically and theoretically: practically because it does not deliver, theoretically because it rests on premises that are problematic at best, and extrapolates from them by equally questionable means. The argument by its protagonists has been to excuse practical problems by pointing to theoretical truth-value, and theoretical ones by pointing to practical success.
This chapter concentrates on the theoretical problems. It rests on the assumption, rather than tries to demonstrate, that mathematical economics does not deliver; if one feels that it does, then one need not read on. But of course the theoretical problems have a practical connection (see Kant 1992, pp. 23–5), because the purpose of pursuing economic scholarship is not to create an aesthetically pleasing theoretical system, but rather to say something meaningful and consequential, directly or indirectly, about reality.

During the 50 years preceding the reforms of 1991, Mongolia slowly but successfully built a diversified industrial sector. The share of agriculture in the national product had declined steadily from 60 per cent in 1940 to about 16 per cent in the mid-1980s (International Monetary Fund 1991, p. 13). However, the de facto Morgenthau Plan proved exceedingly successful in deindustrializing Mongolia. In Mongolia 50 years of industry building was virtually annihilated over a period of only four years, from 1991 to 1995, not to recover again. In a majority of industrial sectors, production is down by more than 90 per cent in physical volume since the country opened up to the rest of the world, almost overnight, in 1991 (see Tables 6.2–6.4 in Appendix 2).

The last decades of the twentieth century were a time of uncertainty and extremely uneven development. People in many countries and in most walks of life felt uncertain about the future for themselves and their workplaces, about the prospects for their own countries and for the world as a whole. Inside each country and between countries there were strong centrifugal trends generating unprecedented growth and wealth at one end of the socio-economic spectrum and increasing poverty, deterioration and degradation at the other. Among those old enough to remember, there was widespread recognition that the erratic, uneven and unstable climate of the 1980s and 1990s was profoundly different from the ‘golden age’ of growth of the 1950s and 1960s. This recognition is probably at the root of the revival of interest in long waves.
This chapter puts forth an interpretation of the long-wave phenomenon which offers to provide criteria for guiding social creativity in times such as the present. In it, I define this period as one of transition between two distinct technological styles – or techno-economic paradigms – and of construction of a new mode of growth. Such construction would imply a process of deep, though gradual, change in ideas, behaviours, organizations and institutions, strongly related to the nature of the wave of technical change involved.