FT.com / Columnists / Martin Wolf - The dangers of living in a zero-sum world economy
We live in a positive-sum world economy and have done so for about two centuries. This, I believe, is why democracy has become a political norm, empires have largely vanished, legal slavery and serfdom have disappeared and measures of well-being have risen almost everywhere. What then do I mean by a positive-sum economy? It is one in which everybody can become better off. It is one in which real incomes per head are able to rise indefinitely.
On the other hand, I do have to agree (and I know some people here will disagree with me) that political liberalism, an open society, social mobility, etc, are politically easier if there is strong economic growth. If the pie is expanding rapidly there is less incentive for defending privilege at all costs.
It the limits of growth are breached there are two posibilities. One is catastrophic overshoot and collapse, followed hopefully by another cycle of growth (which implies great hardship and then a slow opening up of society again), and the other is a sort of stationary-state economy. I have a hard time imagining how that would work, but one possibility is to consider three economic sectors whose business cycle is not synchronised, so when A is growing B is peaking and C is in a recession, and so on. The total amount of resources used by all three sectors might stay roughly constant but all three sectors would independently appear to follow normal business cycles. I am afraid, however, that such a system would appear to people in it to have inflation with negative "real GDP growth". We have met the enemy, and he is us — Pogo
As to the economic underpinnings of freedom and democracy, it's a two-way deal. Not chicken and egg, but a dynamic interlinking. (The "success" of the Nazi economy was posited on war and could only lead headlong into that, thus containing the seeds of its own demise).
All of which doesn't counter Wolf's point. I think the distribution graph Jerome posts does that most effectively. For the greater part of the population today, growth is barely perceptible. When locusts move on, they leave nothing behind
That is, innovations always come in waves, and the waves of innovations themselves comes in waves of bigger innovation waves separated by less dramatic innovation waves. If you want to label the biggest wave of innovations in a particular period a Revolution, then if you look around, you will find others just as dramatic.
Now, certainly it is likely to have felt "especially Revolutionary" inside England, since that was the wave of innovations that led to the reversal of the balance of trade between the Indian subcontinent and the European subcontinent, which was, in turn, the foundation for the establishment of the Raj. After all, the armies and munitions that England used to conquer India primarily originated inside India ... the power that came from England was its superior financial clout.
However, with respect to our current limits of growth, what is critical about the changes in institutional structures associated with the Industrial Revolution and later fossil fuel waves of innovation is the way that we have become dependent upon regular, annual economic growth.
That is, technological growth, resulting from more efficient use of given material inputs by a given population, necessarily involves innovation, and so inherits the wavelike character of innovation.
By contrast, extensive growth, resulting from acquiring more material input per person, permits economic growth without improved material efficiency, and so can proceed on a regular annual basis, except for the occasional recessions ... provided that it is possible to acquire an every increasing material input per person, and possible to generate the effective demand for the newly produced products.
At one time, conventional wisdom took both requisites for ongoing extensive growth for granted ... but as a result of the Great Depression, our societies learned that effective demand could not be taken for granted (of course, some individuals understood that previously, but there is a big difference between a conclusion of individual analysis and having that knowledge sink into the structure of social institutions).
Now, we are entering a period when as societies we will discover that the material input requisite can't be taken for granted either. Utsukushikereba sore de ii
This is an important insight, at least for me. We have met the enemy, and he is us — Pogo
The challenge is. as Jerome says, the "sustainability" of the growth enabled by this revolution in terms of minimising the calls upon finite resources.
- Jake Ceterum censeo Chicago esse delendam
It's possible to imagine a world in which industrial production is steady-state, or nearly so, and on a replacement only basis, and most of the value comes from culture.
You could then have continuous growth, literally only limited by people's imaginations.
This issue is more complicated than it looks, because the real reason 'growth' is necessary is because capitalism relies on deferred gratification and the promise that things will be better tomorrow - in the sense of better everything, from faster cars and computers to less time spent on chores.
Of course the promise is a lie, because the cost is excessive. When you spend 8-16 hours a day working and another couple of hours commuting, an iPhone is a poor consolation prize.
If culture and deep inventiveness became core values, replacing the idea of accumulation as 'progress', that would certainly be revolutionary.
By deep inventiveness I mean the creativity needed to produce Maxwell's equations or relativity, rather than the creativity needed to produce an iPhone.
Currently we're wasting bright people by making them to do pointless and often silly things. Freeing up people from the work -> consume treadmill might create some unexpected results.
I doubt that matching the Industrial Revolution in significance is possible: After all, what happened then was the disassociation between production and physical labour. The 'information revolution' is so far 'merely' a revolution in the speed and capacity of bulk transmission of information. Important? Yes. A match for mechanisation, in terms of social, political and economic consequences? No, definitely not.
The information revolution has the capacity of extracting hugely greater value from a given set of resources. It take very little materials to build amobile phone and transmision network, but think of the amount of time and materials saved by having say (a delivery van) contactable at all times.
PCs are becoming more powerful by orders of magnitude but often take less physical materials to build. The bigger problem is that all consumer durables are becoming non-durable, and you have to throw away your v=car, phone, PC after shorter and shorter intervals. We have to do something radical about making manufacturers 100% responsible for the maintenance/recycling costs of their wares to break that cycle.
So it IS conceivable that we can achieve sustainable growth from diminishing resources - and at a micro level we already are in many industries. This is partly why more recent Oil price shocks have had less impact that the previous ones. The problem is whole economies are still becoming more resource dependent and so hugely incremental efficiencies will be required to ofset resource depletion all the time. notes from no w here
Without these three advances, you'd die from diseases that are today considered trivial (at least in the developed world) and every citizen not working as a bureaucrat, soldier or parasite (nobility, clergy, etc.) would be tied up producing foodstuffs and very basic commodities.
The ability to efficiently produce basic things like food and clothes in bulk quantities, combined with the industrialised distribution systems for these goods (as well as for clean water) are quite simply the underpinning of every creature comfort you or I currently enjoy.
Ultimately, satisfaction of basic human demands - heat, air, water, food, shelter - must surely rank as more important than any other advance. And industrialisation, for the first time in human history, provided the tools to ensure that those demands are reliably met for the vast majority of the population (notwithstanding the fact that the world lacks the political will to use the tools in this fashion).
Praxis informs information; building a steam engine teaches one how to build a better steam engine. A doo run-run-run, a doo run-run
In the first iteration, Society was decentralised but disconnected, and "market presence" was "physical" ie buyers and sellers met physically in a market forum.
In this current second iteration, Society has become centralised, but connected, and market presence has been through (increasing consolidated) intermediaries.
The next, probably final, iteration - "Society 3.0" - will be decentralised but connected, and market presence will be a "network presence".
The transition to Society 3.0 manifested itself most memorably in Napster, the out-rider of the "peer to peer" markets to come.
I give banks (ie credit intermediaries) between 2 and 5 years before they are "Napsterised" and after this happens, progress to a fairer society will be rapid.
Except that the parties to the credit transaction (which may be settled in money or even "money's worth") will be members of the "third party".
ie a form of mutualised credit I call a "Guarantee Society".
Investments are something else, and distinct IMHO from credit (= time to pay").
Here I see investors in productive assets (eg property renewable energy) connected "peer to peer" with people who need investment. The difference being that the investment vehicle would no longer be the existing sub-optimal "Corporation".
This will be superseded by partnership based forms such as US LLC's and UK LLP's.
Except that the parties to the credit transaction (which may be settled in money or even "money's worth") will be members of the "third party". ie a form of mutualised credit I call a "Guarantee Society".
Credit Unions create no credit "ex nihilo", as a bank does, based upon the amount of capital set by the Basel-based BIS.
www.zopa.com and www.prosper.com essentially disintermediate/ Napsterise credit unions, but lack a guarantee function.
The idea of a "Guarantee Society" is that bilateral "trade" credit - ie from seller to buyer - is subject to a mutual guarantee by members of the GS collectively in respect of which the users of the guarantee pay an amount into a "default pool".
Settlement of the credit granted may be either in conventional money, or, if the seller agrees, in "money's worth" (ie barter).
The result is of banking without the bank as intermediary, although there is a requirement for a service provider to manage the system, allocate "guarantee limits" manage defaults etc.
ie the bank becomes a service provider.
But note that this model facilitates the creation and circulation of wealth through "mutualising" credit creation.
Equitable investment of existing wealth is another matter entirely.
But local groupds will be able to link together to form "pools of pools" and so on...
Conventional "microcredit" Grameen Bank style relies upon small groups of guarantors.
And when you think about it, all that credit derivatives are is a form of time limited guarantee, but not exactly a transparent one...
We are talking "bottom up" community based groups here, probably both geographical and functional. ie any group of individuals with a "common bond". But local groupds will be able to link together to form "pools of pools" and so on...
Sounds like the credit union movement to me.... notes from no w here
Existing credit unions would manage the process and the default "pool", and handle accounting and defaults etc as "service providers".
What has happened since - automation, miniturisation, nanotechnology, electronics, digitisation, bioengineering and computerisation etc. are largely about "the knowledge" revolution - doing totally new and previously unimaginable things - didn't really get going until the middle of the last century - is ungoing, and is qualitatively different. I don't think we are even beginning to see its potential yet. notes from no w here
To build on some ideas in earlier replies, here is a parallel:
You quite properly count agriculture as a great revolution, and count as one aspect of the greatness of the industrial revolution the emergence of industrialised agriculture.
Likewise, however, one can regard much of modern physical technology (both production and products) as a sort of "informationalised industry", made possible only by the explosion in information technology. The information revolution thus gets an increment of credit as a part of the industrial revolution, in addition to its other revolutionary aspects. Words and ideas I offer here may be used freely and without attribution.
The 'information revolution' is so far 'merely' a revolution in the speed and capacity of bulk transmission of information.
To the extent that it has happened yet, the Information Revolution is a revolution in the speed and capacity of the customized transmission of information.
And if we are going to move from a paradigm of throwing material and energy at the inefficiency of one-size-fits-all designs to a paradigm of mass roll-out of designs customized to be efficient matches to their context, the "Information Revolution Thus Far" would seem to be an essential pre-requisite. Utsukushikereba sore de ii
I could rant some more about that, but the key objection is that there seems to be a huge correlation between measures of improved wellbeing and energy usage, particularly fossil fuel exploitation.
That suggests that things weren't so much "zero-sum" as mostly a product of growth. If Wolf is admitting that, it's an interesting admission, although of course he wouldn't admit that "growth" is purely a matter of energy consumption, he'd try to make some claim that trade is the engine...
As for the future, the key is to rethink "productivity" which tends to be measured in terms of return on human or capital input. The future of "growth" is in "productivity" that is increasing output for static amounts of energy input. At least, that my utopian idea for the day.
The future of "growth" is in "productivity" that is increasing output for static amounts of energy input. At least, that my utopian idea for the day.
Increasing output for the same or smaller energy use is the history of basic/process industry for the last 30 years. Peak oil is not an energy crisis. It is a liquid fuel crisis.
After the cold spell that allowed the Bubonic plague to climb down from the upper Nile River Valley to the Mediterranean world, that reliance on rapid transport across the Med turned from a blessing into a curse ... and undermining Justinian the Great's reconquests of North Africa, Iberia and Italy (guess who recently read Justinian's Flea?) ...
... but then after the collapse of that system emerged the North Atlantic economy built on the heavy horse-drawn moldboard plough and the three-field system, and the growth that followed from that was positive sum growth as well. Utsukushikereba sore de ii
