Why We Must Debate the Future Now

Many societies are facing monumental and potentially irreversible shifts in how people live, work, and think. There is an increasing need for socio-economic relationships to be once again be examined and debated. Evidence of similar discussions and their consequences can be found in history during various pivotal moments of change. This article sheds light on the significance of such socio-economic discussions, the factors that shape them and ways forward.

The fluctuating fortunes of nations throughout human history and the accompanying development of socio-economic relationships can be thought of as providing a structure to world economies. Such socio-economic developments are shaped by the status of various institutions (both in the political system and economic order) and are based on deep-rooted and complex change processes along with the interplay of instability and stability.

Given that today's 21st century society is undergoing a number of fundamental changes - from digitalization to targeting social inclusion to learning to live sustainably with nature - it is surprising that the current order of existing socio-economic relationships is not being actively debated. However, in the face of such rapidly evolving externalities, there continues to be little focus on how socio-economic systems can change to adapt and how these change processes can be designed. This lack of interest is also attributed, in part, to fading awareness of the need for structural changes in many economies. Ironically, at the same time we are also witnessing increased calls globally for a complete transformation of the status quo. Much of these so-called ‘transformational voices’ appear bereft of an understanding of the needs, vision and context of an aspirational socio-economic state to make it viable and sustainable.

Looking back in time, we find several instances across history when such socio-economic discussions took center-stage. These were increasingly prominent in the periods after World War II and the collapse of the Iron Curtain in the 1990s. After the latter event, in particular, the question arose of the regulatory design of national economies and their transformation from more planned, centrally organized structures to market-based, decentralized structures. Many countries had previously adopted the model of a planned economy with market economy elements. Examples ranged from the transformation of a socialist Hungary (post-1968) to several centrally administered Eastern European economies (before the collapse of the Warsaw Pact) as well as market socialism based on the Yugoslav model or the ideas of the Polish reformers (Louven 1988, p. 100).

Let us delve into understanding these change processes in more detail. An economy and a society follow a path dependency. This dependency is governed by Braudel’s longue dureé (a very long passage of time, witnessing structural changes) and the courte dureé (a short passage of time, with phases of upheaval shaped by events). Socio-economic developments therefore follow a kind of chreode (chre - "it is necessary" and hodos - "path"), a target path. Socio-economic developments are shaped by the culture and associated values and belief systems of the societies – both through identification as well as non-identification. Identification in the context of socio-economic development is understood as a necessary condition for successful development; without continuous identification, tensions set in which can lead to a break in the previous development. Such identification can take place through cultural tools such as (visual and performing) art, language, literature, and music, but also through how individuals perceive themselves in the institutional setting. If their needs are met, they have room to develop.

The institutional structure - formal and informal - of an economy thus appears as a meaningful agent in the context of social development. Furthermore, it can be assumed that cultural progress, if preserved, is also something that is more permanent in nature viz a viz political structures – which can easily be changed and are therefore more unpredictable. Once these informal institutions (morality, self-image, culture) are created, regardless of the prevailing political structures, in varying intensities they endure through the passage of time as the intellectual heritage of a society. In that sense, they represent a precondition and a kind of a passive determinant for the future.

As Braudel already aptly wrote: “The present comes from yesterday, the day before yesterday and the past at the same time” (Braudel 1977, p. 60). Societies as well as the individual are caught in these developments, as they are not necessarily free to make decisions, i.e., without being dependent on the chreode (target path). This means that the individual is not free to decide whether he or she likes this game and its rules, or not. Individuals are consequently subject to a limited rationality in their preference setting (in contrast to the neoclassical theories of economics). This is how individuals behave based on social preferences, according to applicable social norms and reciprocity, and based on their intrinsic motivation and identity.

Societies can strive to transform their economic orders and associated processes from a previously applicable system into a new system with different mechanisms of action. In order to achieve the target state, the economy concerned must change relevant institutions or “set up” new ones. A transformation therefore takes place largely through changes in formal and informal institutions. Informal institutions are, among other things, habits or the consciousness of the individual, which control the actions of the individual and are no less important. They cannot be changed centrally, as is the case with formal institutions. This means that the existing social system plays an important role in the system transformation.

Path dependency amongst many factors – social, political, and historical - is also a function of societal influences. The nature and socioeconomic stage of an influencer - a role model, via direct or indirect association, helps steer societies in a particular direction of change. Of course, in turn, the role model is also dependent on its own individual path dependencies and is in a constant state of evolution as well. In that context, it is not necessary that the role model must be a contemporary (although this is often the case) but rather that it serves as a harbinger of a path that is perceived to be successful and worth emulating.

The conclusion so far: The societies’ perceptions of what is desirable and what is not, based on social norms and values, is the fundamental question for understanding how socioeconomic transformations work.

But how to transform actively a current socioeconomic model?

Such a transformation builds on a socio-political basis by creating a fundamental consensus on system transformation as a necessary condition for success. This is the only way to support inherent changes in system transformation and to ensure the necessary process stability and the necessary sequence of institutional changes. The new formal institutions then act as rules of the game to control human actions.

Transformation and institutional structural change can, therefore, be understood as the creation of a new economic system through inherent changes in all of its elements. When economic systems are transformed, it is not determined a priori which process will ultimately be followed and which outcome will emerge (Weidenfeld 2001, p.48). This applies regardless of whether or not there is a plan or an idea regarding the transformation. The results of a transformation are therefore not to be assessed as the success of a fixed programme, but rather as the result of balanced decisions and sustainable policies. Against this background, it should also be noted that the course, dynamics, success, and failure of transformation processes are for the time being the result of structures and corresponding actions. There are a large number of possible variants of systems. They all depend on the interpretation of the system and are based on established traditions, political experiences, and cultural backgrounds (Weidenfeld 2001, p.49). So, it is very important that such factors are well-understood and taken into account when thinking about socio-economic transformations.

This makes it particularly important that governments and institutional bodies globally take the lead to embrace a philosophy of change. The policy approach needs to be anticipative which provides guidance and development but at the same time also continuous identification with the changes underway. In the absence of a single, central role model, the approach should also be to provide room for flexibility and tolerance to coexist in the multipolar and diverse world that we live in today.

Going back to the historical examples noted above (post-WW II and the fall of Iron Curtain), western democracies, although imperfect in many senses, provided a role model at those two points for many nations around the world. In the increasingly multipolar and diverse world that we live in today, we lack a similar role model on how to approach the current transformational process.

Global topics like world trade, data laws, environment and sustainability, technology (blockchain, AI) or geopolitical strategy segregates countries into several silos of socioeconomic development. Whether it is West vs East, developing vs developed, mainland vs island, NATO vs non-NATO etc. – what is clear is that there exists not a single common ground but a myriad of positions, interwoven with others’ positions. While many countries would share views on several common issues, at the same time they may also staunchly oppose each other on other issues.

In that sense, the 21st century socio-political arrangements have superseded the mid to late 20th century politics of consensus and multilateralism. Consequently, the proposition to build or arrive at a single role model then becomes a highly unlikely or impractical outcome. The focus should be on each individual nation’s desires and aspirations and how it can coexist with other values and beliefs.

But above all, there is first a need for initiating such socio-economic discussions and associated fundamental relationships must be once again brought to the fore to enable a customised vision for the way forward for each nation. As the discussion points will reach far into an unknown future and our knowledge is not complete and may change over time, these discussions have to be organized as a continuing process open to various outcomes. Fortunately, or unfortunately, if anything is certain it is that we cannot assume a consensus on the way forward anymore. So, we need to help build one.

Markus H.-P. Müller is Global Head of the Chief Investment Office International Private Bank, Deutsche Bank AG. Markus has held teaching posts in corporate finance and economics, being a visiting scholar at the Frankfurt School of Finance and the University of Bayreuth as well as at the Banking and Finance Academy of the Republic of Uzbekistan in Tashkent. His main research interests lie in the structural transformation of economies and societies as well as in the area of ​​sustainability. Markus authored several books and articles on the transformation of society and economies.

This work is solely the author's own opinion and is produced independently of his role at Deutsche Bank Group.

Photo by Alexas Fotos from Pexels

References

Louven, E. (1988). Reform und Modernisierung der chinesischen Wirtschaft seit 1976. In: Ostkolleg der Bundeszentrale für politische Bildung (Ed.), VR China im Wandel, 267 Edition, pg 100-117.

Braudel, F. (1977). Geschichte und Sozialwissenschaften, Die longue dureé. In: Block, M. et al .(Ed.), Schrift und Materie der Geschichte, Vorschläge zur systematischen Aneignung historischer Prozesse (pg. 47-85). Frankfurt am Main: Edition Suhrkamp.

Weidenfeld, W. (2001). Kriterienraster für die Bewertung von Transformationsprozessen. In: Weidenfeld Werner (Ed.), Den Wandel gestalten - Strategien der Transformation. Gütersloh: Verlag Bertelsmann Stiftung.