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American Political Economy, Disrupted

 With the help of markets and the state, technological innovations such as electrification and the steam engine have periodically transformed the economic system from which they emerged. But never before has a technological revolution defined the entirety of economic, political, and social life – until now.

NEW YORK, Aug.31.– History shows that the interactions between a mission-driven state, financial speculators, and the market economy – what I call the Three-Player Game – can marshal the funding needed to drive technological innovation beyond the frontier of visible economic value and commercial exploitation. Over time, the fruits of such innovation have transformed the market economy itself.

Both World War II and the Cold War offered what even the Great Depression could not: a rationale for state intervention to direct the allocation of resources in the private sector. And within living memory, the state has played a decisive and legitimate role in guiding the development of information and communications technology (ICT).

In the 18 years since the collapse of the dot-com bubble, however, the relationship between the technology sector and the state has been reversed. ICT’s growth to maturity depended on state-supported research and procurement. But now the sector is leading a full-fledged transformation of economic, social, and political life, comparable in scale and scope to the advent of the railroads and electrification.

In addition to attacking the legacy economy’s market and regulatory structures, the ICT revolution is redefining the responsibilities of the state. Those at the forefront of digital change are no longer functioning as collaborative partners with governments in an extended process of invention and deployment. Instead, they are directly challenging the state at both the micro and macro levels, while arrogating both economic and political power to themselves.

Reflections on the Revolution in Silicon Valley

At the micro level of individual firms pursuing opportunities in specific markets, the confrontation with the state is deliberate. As has always been the case, digital innovators are trying to disrupt established markets and destroy the incumbents who dominate them. But to do so, they are increasingly overriding and bypassing the ecosystem of state-sanctioned and state-enforced rules that co-evolved with the markets, and without which the markets would not function. Joseph Schumpeter’s principle of “creative destruction” has been refashioned for the digital age.

At the macro level, digitalization, operating through the troika of automation, globalization, and financialization, has drastically widened income and wealth inequality ...

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