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  • Series: New Horizons in Institutional and Evolutionary Economics series x
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Åke E. Andersson and David Emanuel Andersson

In this chapter we provide a broad overview of the four logistical revolutions that initially only shaped European economic history, but later have come to affect all of the world’s regions. The First Logistical Revolution was a consequence of a slow but persistent extension of transport and communication networks, which eventually resulted in a sudden phase transition and a network that encompassed most of Western Europe. This led to a dramatic spatial restructuring of the European economy and the establishment of hundreds of market towns. While changes to the transport network was the underlying cause of the First Logistical Revolution, later restructurings also depended on other factors that improved network connectivity, especially technological knowledge gains and institutional reforms. The development of reliable credit systems was a major cause of the rapid increase in long-distance trade and commerce in the seventeenth century. Influential decision makers in Amsterdam seized the opportunity to innovate a series of path-breaking financial institutions and organizations in the early seventeenth century. The establishment of the first stock exchange was followed by the first bank with public guarantees. But Amsterdam did not remain unique for long. By the end of the seventeenth century, the Bank of England offered the same services but on a larger scale. The Bank of England had the right to organize transactions involving both money and bills of exchange; it later became the prototype for central banks in all parts of the world. The City of London thereby established its position as a leading financial center, which it has remained ever since. The Third Logistical Revolution is more often called the Industrial Revolution; technological progress was however only a proximate cause of this phase transition. The underlying cause was the abandonment of centrally planned mercantilism, first in Britain and later elsewhere, and the rise of the sort of liberal institutions that are closely associated with Scottish Enlightenment figures such as David Hume and Adam Smith. These institutions included free international trade, unrestricted entry to product markets and the reliable enforcement of private property rights with the help of an independent legal system such as English common law. We are now experiencing a Fourth Logistical Revolution, which is sometimes referred to as the Information Revolution. This ongoing restructuring is primarily a consequence of technological advances in information and telecommunications, which in turn reflect much earlier creative breakthroughs in science, as exemplified by the theoretical contributions of Alan Turing and John von Neumann in the 1930s and 1940s. The main contemporary symptoms are especially rapid global growth rates of international trade in services, science output and patents. In advanced regions of the world, there has been a transformation of the occupational structure away from manual work in the direction of creative knowledge services.

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Åke E. Andersson and David Emanuel Andersson

Real estate capital is interesting not because it is a combination of land and physical capital (the usual interpretation), but because it represents a bundle of physical and social capital attributes. In places with high land values despite an elastic supply of land, it is social capital—that is, superior access to other people and adequate institutional support for economic interactions—that explains almost the entire capital value of local real estate. The capital value of real estate is around 50 percent of household wealth in Europe and the United States. In the Eurozone, the value of households’ direct real estate ownership amounted to more than €15 trillion in 2015. The price and thus capital value of a house varies between different locations because of actual and expected differences in accessibility, amenities and local services. An apartment on Fifth Avenue near Central Park may be therefore 50 times more valuable than a seemingly similar apartment in downtown Poughkeepsie, New York. Because of the extreme durability and fixity of real estate, there are substantial entrepreneurial opportunities in real estate markets. New uses, improved technical solutions and changes to the interior and exterior architecture of buildings are thus typical of the most dynamic cities. Some of the greatest increases in the cost of real estate are however not caused by an expansive regional economy, but instead by land use regulations that render the supply of developable land inelastic. North American examples of dramatic planning-induced increases in real estate values include Honolulu, San Francisco and Vancouver. Similar planning initiatives have made some of the world’s financial cities even less affordable than they would have been with less restrictive land use regulations, with Hong Kong and London being two notable examples of the combined land price effects of agglomeration economies and urban growth boundaries.

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Åke E. Andersson and David Emanuel Andersson

Social capital has been used in many different ways, and one aim of this chapter is to introduce a definition that is useful for the general theory that we propose in this book. Consequently, we limit ourselves to three major categories of capital: physical, human and social. Thus real estate capital is a combination of physical and social capital, while wages and salaries are payments for the human and social capital combinations that make each individual worker unique. We argue that it is helpful to use three levels of aggregation when analyzing social capital: micro, meso and macro. At the micro level, we find more or less stable interpersonal networks that tie people to one another in ways that increase “labor productivity,” while the meso level represents the various associations and subcultures that make up what is commonly referred to as civil society. The macro level of social capital is less obviously based on networks: it consists of the shared institutions and values that make a society more or less conducive to economic activities, ranging from everyday market transactions to disruptive product innovations. We thus view “institutional capital” and “cultural capital” as subsets of social capital. Logistical revolutions tend to have a social capital dimension. At present, the most visible manifestation of this is the cohort-driven change in social values from materialist, modernist values toward post-materialist, postmodern ones. Ronald Inglehart was the first to identify this restructuring, referring to it as “the silent revolution” in the 1970s.

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Åke E. Andersson and David Emanuel Andersson

In this chapter knowledge capital is seen as a specific combination of subsets of human and social capital, much as real estate capital combines physical and social capital. Knowledge capital is a key factor that drives economic growth and development. Knowledge is different from information; it is more complex and multifaceted, as it can be private or public. It can be embodied in machinery or tacit knowledge in humans, but dissemination processes cause its disembodiment. Scientific knowledge has become an increasingly important precondition for the emergence of investments in industrial research and development. The broad spectrum of new technologies in the pharmaceutical, biotechnological, information and transportation industries would have been unthinkable without earlier fundamental creativity in mathematics, physics, chemistry and biology. Scientific breakthroughs almost always occur many decades before being exploited by entrepreneurial innovators. Rogers Hollingsworth has shown that the increasing complexity of many products and production systems requires a reorganization of scientific research with a greater emphasis on multidisciplinary departments and laboratories. The possibility of exploiting advantages of a diversified scientific knowledge base also points toward increasing dynamic comparative advantages of locating universities and research institutes in large cities. Quantitative analyses of science networks show that the San Francisco Bay Area, Boston, London, Tokyo, Paris and Randstad (Amsterdam) are the most important nodes in the world of science, with Beijing, Seoul and Shanghai exhibiting the highest growth rates in science output among large cities. The advantages of dynamic interactions between scientific creativity and industrial development will reinforce the long-term sustainable growth in regions that host large-scale agglomerations of scientific research.

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Åke E. Andersson and David Emanuel Andersson

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Åke E. Andersson and David Emanuel Andersson