Search

The new normal is a conceptual situation where economic and political agents are economically convinced and politically motivated to adapt to temporary austerity in economic growth and political participation. The concept entails a remarkable and rare mix of economics and politics. The alternative is to actively plan towards changing the underlying benchmark. Focusing on Russia, the paper draws on re sults from two studies that reflect on underlying weak links in the benchmark economy. One study examines the tendency and causes for slow growth and sticky distribution in Russia (when compared to other leading countries), making use of social accounting matrix multipliers. The tendencies are partly due to structural imbalances inherited from the past economy with its state-led and parallel shadow counterparts. The other study looks forward into the future and examines Russian prospects for a leading role and influence potential in the global economy. The study makes use of a dominance index composed of the relative sizes of transforming agents (i.e. population) and transformed value (i.e. GDP). Results for Russia suggest that in a few decades global marginalization is imminent, unless agents and production change course and actively link and substantially integrate with other world blocs.

While there is a general acceptance of a broad definition of social institutions as accepted rules of conduct in agent interactions, there are overlapping views on how institutions come into being and develop. Different views see institutions as the result of evolution, contract, convention, game theory, political power, or legal necessity. Once created, institutions can live their own life and gain influence on the whole economy/society in respects beyond their intrinsic origins. The overlapping views give the impression of pursued piecemeal approaches in addressing the issues. Treating issues of institutional formation and development in the framework of social system theory and analysis can be shown to simplify the picture appreciably and bring more insight. This paper intends to do that. It will display and apply the social system perspective to understanding institutional formation and development. The paper falls in two sections. First, it develops an analytical framework that views the economy as a social system with interactive subsystems that initiate and maintain their own subsystem institutions. Some subsystems expand faster than others, gaining more influence. Interaction of agents across subsystems facilitates the dominance of the more influential subsystem and the spread of the subsystem’s allied institutions to the whole social system. Second, the paper illustrates the validity of the social system perspective via reviewing a timeline that highlights the changing and evolving dominance of the major subsystems and their attached institutions in the economic history of the western world, and in particular, the interactions between the firm subsystem and the state subsystem.