Governance and The New Economic Order: At The Roots of Uncertainty. Managing Risks in The Service Economy

Orio Giarini
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Orio Giarini: the European Association of Risk and Insurance Economists (EGRIE, Geneva) — Honorary Founding President, the European Papers on the New Welfare (www.newwelfare.org Geneva, Trieste) — Editor, the Risk Institute (Geneva - Trieste) — Director

Timisoara Journal of Economics, 2008, vol. 1, issue 1, 7-38

Abstract: The Club of Rome has achieved worldwide renown, sometimes stimulated by heavy criticism, after the publication in 1972 of its report on «Limits to Growth». This was a very critical time since the high rate of growth of the economy in most of the industrialized countries after the World War II had been until then of around 6% per year. From 1973 until now, such rate of growth has declined to about 2 to 3 % per year in the average. The "scandal" of the Club of Rome consisted in the fact that doubts were expressed on the possibility of a continued, and as one would say today of a "sustainable", growth. This article summarizes another point of view: during those years, there has been a fundamental change in the way in which wealth is produced. The industrial revolution based essentially on investment in new machines, tools and products, had given way to the emergence of service functions- in all sectors of the economy - as the key factors of production. This issue is therefore essentially a view from the supply side of the economy. A series of reports were proposed through the Club of Rome to support this analysis based on over two decades of experience in the manufacturing as well as in the traditional service sector. The difficulty, which persists today, is that the classical and neo-economic analysis is still bound essentially to fundamentals linked to a reality in which the manufacturing system would be dominant. When services become determinant for the production of the wealth of nations, the very basic notion of economic value changes its connotations and the issue is at the end philosophical: value can not anymore be defined as the result of an equilibrium system where the disequilibria have to be considered as a matter of imperfect information. Such information is bound, in the service economy, to remain constantly imperfect because it involves the utilization of products and systems in time. A larger and larger part of costs in the performance of such systems in time is linked to future events where even that duration of utilization is uncertain. The value system is therefore basically dependent on the uncertainties of reality. The assumption is that the deterministic model, which is still dominant in the traditional macroeconomic analysis, has in fact given way to in deterministic systems. As a major consequence, the key economic issue today is that of understanding and managing, as fundamental problems, risks, uncertainty and vulnerability.

Date: 2008
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