Introduction and Chapter Outline

NATIONAL AND REGIONAL experiences of rapid growth that lack easy explanations are often casually ascribed to divine intervention. Over two dozen national and regional experiences of rapid growth lacking explanation have been dubbed "miracles." These so-called miracles are unexpected and outside the scope of the conventional market-centric economic paradigm. This book brings several such purported miracles back to earth. It offers an explanation in terms of a production-centric paradigm anchored by fundamental principles of production and business organization. The capability triad is the primary organizing concept. The claim is that we can learn about how capitalist economies function and malfunction from examining cases of rapid growth. The lesson is that there is no divine intervention, just a man-made conjunction of capabilities.

The Capability Triad Thesis: The Argument in Brief

In 1939 the US Army Air Corps had an inventory of 2,500 airplanes. On May 16, 1940, with the fall of France imminent, President Franklin Delano Roosevelt addressed Congress asking for appropriations to increase production, including a request for 50,000 planes within three years. Eighteen months later, the newly designated US Army Air Force still had only 3,304 combat aircraft (Tate 1998). Within four years aircraft production overall totaled 100,000 planes. The American production "miracle" was not limited to aircraft. Between 1935–39 and 1944, US munitions production increased 140 times versus 7 times in Germany, and national output nearly doubled. Over the same period, the nation's labor supply available for production declined by the nearly 12 million men and women, who were absorbed into the armed forces.

What makes the experience interesting is that it involved the crafting and enactment of a development policy that successfully transformed the nation's industrial structure and doubled output in half a decade. New industries were built and others reorganized according to more advanced principles of production and organization. It was a period of unprecedented government investment in research and development (R&D), but an R&D that interfaced with production engineering in companies to develop new productive structures and scale new production processes. The diffusion of innovation processes inside and outside enterprises combined to drive the rapid growth of the American economy.

Conventional economic policymaking was suspended during World War II. Prices were frozen, and macromonetary policies were subordinated to policies geared to the development and diffusion of production capabilities in the nation's business enterprises. Special-purpose "mobilization" agencies were constructed to design and operationalize productive structures to achieve the production goals outlined in the president's vision of an "Arsenal of Democracy."

The policy focus on production capabilities and business organization takes us into uncharted territory with respect to the mainstream economics of policymaking. For example, the World War II policy focus was on the transformation of the nation's production system and the creation of a new set of productive structures to meet the president's output targets. Organizational change and technological innovation were the only means of increasing productivity at a time when increasing numbers of workers were being transferred into the armed forces.

A development policy strategy and a governance structure were designed to organize entrepreneurial activity into a force driving national growth and economic transformation. Here the government was the organizer, and business was strategically reorganized to drive the transformation of production. What were the implications for economic theory, education, and policymaking? They take us beyond the standard paradigm to an emergent political economy framework in which production, enterprise, and governance are systemically interconnected.

The standard paradigm is theoretically rigorous, but its failure to account for the drivers, processes, and enablers of transformative experiences illustrates the limits of the a priori principles to address complex interactive processes in real-world economies. The role of historical experiences as a tool for theory construction and paradigm development signals a methodological divide between the standard equilibrium and the alternative systemic approach to economics and economic inquiry.

This book advances a production-centric economics paradigm that is constructed from an examination of real-world transformative experiences applying systemic observation rather than a priori reasoning to discover economic principles. The historical chapters serve as real-world laboratories for investigating patterns of change and characterizing deep structural principles of production and organization.

The historical case studies do not start from a blank page. They build on earlier work in which I characterized examinations of successful transitions in industrial leadership and economic transformative experiences in terms of a capability triad:

Rapid growth involves coordinated organizational changes in each of three domains: the business model, production capabilities, and skill formation. The three domains are not separable and additive components of growth, but mutually interdependent sub-systems of a single developmental process. No one of the three elements of the Capability Triad can contribute to growth independently of mutual adjustment processes involving all three elements. (Best 2000, 56)

Figure 1.1 visualizes this interconnectedness. This book applies and extends the thesis with new case studies and a chronologically organized supportive account of the major theoretical contributors to an emergent economics in which production and business capability development are the critical dimensions of variation and integral to transformative policy frameworks.

The interconnectedness theme has important implications. Policies that address production capability, enterprise growth, and skill formation separately and in isolation will not be successful. As noted, a requirement for transformative policies is that they be seamlessly blended into the detailed mechanics of organizational change within private firms, as investigation of the alleged economic miracles shows. The instruments are not subsidies and taxes to nudge and tweak business behavior but the provision of capability development...