The Next Economic Revolution: Economic Growth and the Steady State

Crossposted from The European Tribune to Docudharma …

… because the world can’t end today, its already tomorrow on Docudharma.

 

 Early this month I finished Justinian’s Flea, which looks at the reign of Justinian the Great as the pivot between “late antiquity” and the rise of medieval Europe … and the central role in the drama played by the Plague of Justinian, the first clearly documented outbreak of the Bubonic Plague.

Which was one more addition to the mix of things involved in my reaction (s) to the diary [NB. at the European Tribune] by Jerome a Paris, Hostility to the notion of limits to growth … and the question of what was so special about the Industrial Revolution.

I’ll start with what is normal, then with what has been peculiar in the past couple of hundred years, and then how that peculiarity must have warped our economic institutions … and to get back to normality, we will have to unwarp them.

OK, “tell them what you are going to tell them”. Check. Make it clear as mud. Check. “then tell them”. That’s after the fold.

Normal Economic Growth

Economic growth is normal. We have been experiencing economic growth since before we started writing about it … given that the first writing seems to have been accounting for things in the Big Man’s storehouse, and a recipe for beer, both of them early fruits of economic growth.

Indeed, at the time of Justinian, according to William Rosen in Justinian’s Flea, about half the global human population were located within the conventional boundaries of the Chinese and Roman empires. It did not start out that way … it got to be that way via economic growth.

The revolution in trade from luxuries to staples that saw Egypt emerge as the granary for Roman cities was positive sum economic growth … it was, indeed, positive sum in precisely the Ricardian comparative advantage sense. So, too, the trade in staples in China, especially along the Grand Canal that connected the North with the South, begun in 486BCE and completed in 610CE, finally connecting with … and therefore interconnecting … the five major rivers of the Haihe, Huanghe (the Yellow River), Huaihe, Changjiang (the Yangtze) and Qiantangjiang.

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 (as recounted in 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.

Indeed, the most extensive Empire in the Americas prior to our Age of Plagues, the Inca Empire, was founded on Ricardian comparative advantage trade in staples … but because of the extreme range of altitudes as you pass from the western coast of South America into the Andes, this trade between the coastal lowlands and the Andean highlands could ride on the back of pack animals, with the Imperial North-South road acting primarily as the Empire’s information super-highway.

Waves of Normal Economic Growth

Economic growth normally proceeds in waves, as we learn how to do things better, and then put that into practice.

The learning how to do things better … that is the continuous, ongoing process of invention, and its not what goes in waves. Its the putting inventions into practice … that is, innovation … that’s what goes in waves.

And “Economic Revolutions”? Well, innovations come in waves, and those waves of innovations themselves come 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.

This much is historical observation. So, taking the Industrial Revolution, for example, it was preceded in the modern period … that is, since the Europeans stumbled on mountains of silver in the New World and were able to buy their way into the lucrative carrying trade of richer East Asia … by Mercantile and Agricultural revolutions that share a role in laying the foundation for modern technology.

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.

Steady State Growth Versus Extensive Growth

That is, what was so distinctive about the Industrial Revolution, as opposed to the Mercantile and Agricultural revolutions (and etc.) that came most immediately before it, was not the economic growth, but the increased reliance on fossil fuels.

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.

Extensive growth, by contrast, requires either expansion into “virgin” territory … to get more economic activity from more people in the economy … or finding a way to acquire more material input per person.

Having lived for a decade in Australia, where the legal fiction of Terra Nullis had recently been overturned by the high court as a patent absurdity, I hasten to add that “virgin” territory here means a territory where a more productive technology is not yet in use … we basically filled up the world with bands of hunter-gatherers before being forced into the more arduous work of farming, and the last human entry into a big chunk of truly uninhabited territory seems to have been the Polynesian colonization of New Zealand, during the late medieval period of Peninsular Far West Asia (or “Europe” for short).

The material “Revolution” of the Industrial Revolution and succeeding big waves of innovation has been to shift the focus of extensive growth away from expansion into new terrain and toward the plundering of the stored up energy of fossil fuels.

This permits economic growth without improved material efficiency. It also permits economic growth without the continuous necessity of conquest. Therefore, it allows economic growth to 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.

The Two Requisites for Extensive Material Growth

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.

However, while the macro level models of economic growth used by traditional marginalist economists focus primarily on material extensive growth, and the micro level models of economic growth used by traditional marginalist economists focus on the static gains available from exploiting un-tapped comparative advantages … that tells us more about the limitations of traditional marginalist economics than it tells us about economic growth in the steady state.

In an ecologically sustainable steady state, we can still gain economic growth without additions in material inputs via technological progress. An ecologically sustainable steady state therefore does not imply an absence of economic growth.

However, we cannot depend upon ongoing, annual growth … since pure technological progress requires innovation, and innovation proceeds in waves. We will have to work out way to a set of economic institutions that is compatible with zero-growth, and at the same time is able to accommodate economic growth.

Which is where we arrive at the central issue of economic justice. A central myth used by the wealthy to attempt to legitimize concentration of wealth in democratic industrial societies is that it leads to every more stuff, so that ever more crumbs will fall from the tables of the wealthy to be gobbled up by the rest of us.

This is not a politically stable legitimization in an ecologically sustainable steady state economy. What will be required for political stability during the periods of economic stability between waves of substantial economic growth? What will be required is a common folkview that the current division of what we have is fair, and that the division of the gains of economic growth, when they do show up, will also be fair.

UPDATE: This can be seen as an extension of the Long Emergency series:

Is It As Hopeless As ‘The Long Emergency’ Says It Is?

Peak Oil and the Fall of Suburbia