Milan Zeleny: We Are Undergoing a Major Transformation, Not Just a Crisis

In a recent interview with Financial Sense, Milan Zeleny, Professor of Management Systems at Fordham University, explained how the global economy is undergoing a transformation and not a crisis, as is so often claimed. Zeleny discusses the limitations of current economic policy regarding the changes we are seeing, and he offers his ideas regarding how our society can adapt to the new world of digitization and automation unfolding around us.

Zeleny laments that most policy and economic elites still view the economy as a controllable machine typified by simple input-output relationships. Sadly, this thinking—in demonstration of Einstien’s definition of insanity—leads central planners to believe that simply by doing the same thing over and over again—like lowering interest rates, or applying more quantitative easing—that a different, better result will occur.

Though conventional economists still think the economy as a man-made construct and something to be calibrated, Zeleny says the economy is a living, adaptive organism “and is, therefore, unpredictable.”

Speaking of current political elites, Zeleny maintains that “policy makers are good at making policy but the effectiveness of their policy doesn’t seem to be their job.” When one considers that the very idea of “data-dependent policy” is backward-looking, those making decisions for the rest of us are truly in the dark regarding how to even explain—let alone manage—the economy.

“mainstream economics cannot distinguish the phenomena that pertain to a crisis and those that pertain to a transformation...this is the greatest failure at the policy level”

“Economic policy must fundamentally be about predicting the future,” Zeleny states, and to do this economists must distinguish between a crisis and a transformation. A crisis is a short-term occurrence within an existing economic structure or a man-made cyclical phenomenon that does not last forever. But a transformation does last forever. Examples would be the Industrial Revolution or the mid-twentieth century transformation from industry to services. For Zeleny, a transformation is unidirectional and evolutionary, meaning that the societies will never return back to the older economic paradigm.

“The problem we have is that mainstream economics cannot distinguish the phenomena that pertain to a crisis and those that pertain to a transformation. They don’t have tools how to separate the two. This is the greatest failure at the policy level,” says Zeleny. He also notes that our current economic statistics measure the stage we are in, not the stage we are entering. Productivity improvements are not being properly accounted for and this highlights how little policy makers understand the world around them.

Zeleny believes that elites can do a better job of adapting to change. “At this point, we seem to be fighting the transformation in the United States,” says Zeleny. He feels that the current political discourse about deal making and the unfairness of trade agreements is an example. “You don’t try to save industries that are on the way out [but] open the way for industries that are on the way in.” He is also concerned about barriers impacting technology entrepreneurs.

As for ways that Americans can adapt to the transformation taking place all around them, Zeleny calls for entrepreneurial universities on a larger scale along with a re-localization of the economy, or community restoration. He believes that future generations will eventually find our current widespread practice of manufacturing and shipping across distant oceans “medieval” given that the technology is in place to bring production down to the local level. Digitization and automation are not things to be feared, he says, but are in fact the keys to a transformation as dramatic as that experienced in the Industrial Revolution.

The metamorphosis, as Zeleny calls it, of moving from globalization to re-localization will revolutionize productivity and hopefully move many western economies from “economic growth to economic flourishing,” as long as policy makers don’t stand in the way.

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