Wednesday, May 23, 2012

Global trends in an era of diminishing returns

In 1996, Lester Thurow's book entitled 'The Future of Capitalism' was published.  I found his book a very interesting read in the context of the global financial crisis which is continuing to unfold since 2007.  On pages 8-10 Thurow describes, what he terms as, 'five economic tectonic plates' crashing together and providing an ominous trend that helps to foretell capitalism's crisis.  They are:

  1. The end of Communism (leading to an increase of one third of humanity operating under capitalism's umbrella, "with a very different set of criteria for success and failure..."
  2. Technological shift to an era dominated by manmade brainpower industries which "don't have natural predetermined homes.  They are geographically free - capable of being located anywhere on the face of the earth..."
  3. A demography never before seen.  "Population is booming in the poorest countries [leading to] "the pull of higher standards of living abroad" where "unskilled labour is not needed". Thurow also mentions the development of "a new 'class' of human beings - a very large group of elderly, relatively affluent people, most of whom do not work, and who are dependent upon government social welfare payments for much of their income."
  4. A global economy.  "Shifts in technology, transportation and communications are creating a world where anything can be made anywhere on the face of the earth.....Thurow notes that this creates a 'disconnect' between "global business firms with a worldview" and national governments.
  5. An era where there is no dominant economic, political or military power.  How (Thurow asks) is the economic world to be designed or organised in a multipolar world?
By looking at the trends outlined above one is able to predict a few other things occuring simultaneously in the global economy.  With the very large increase in the world's workforce it is probable that the global unemployment would rise significantly, and wages would decline.  The deepening of globalisation would, in turn, lead to difficulties for national governments to secure a big enough tax (revenue) base from the incomes of dominant corporations (who can flit money across national boundaries at the tap of the keyboard.) I would also expect financial regulation to become almost impossible under the laissez-faire mentality created by the emergence of powerful global (self-interested) corporate giants.

Indeed, on page one of Thurow's book he writes: "In all of Western Europe not one net new job was created from 1973 to 1994."  And the International Labor Organisation reported a few years back that in Europe between 1970 and 2005 the financial sectors share of corporate profits climbed from 21% to 42% [1].

But why are the trends that Thurow outlines above happening in the first instance? Have we entered an historical era of 'diminishing returns'?

It looks quite possible that, for decades now, global economic growth has actually coexisted with a steadily declining general standard of living. 

Brenda J Rosser, 23rd May 2012.

[1]  World of Work 2009.  Snapshot of the European Union


Barkley Rosser said...

There have been a spate of articles and books recently arguing that we are moving into a new "great stagnation" as fewer and fewer useful technological innovations are appearing. Among others pushing this argument in a book recently has been Tyler Cowen, but he is not alone. What is curious in his case is that while previously people making this argument tended to be more on the "political left," Cowen is arguably not so, with a strongly libertarian orientation (he runs the blog, Marginal Revolution).

Unknown said...

Interesting post. Would say a couple of other things:

1) Speaking of demography, its not just more elderly people, but in some countries you can actually see a declining population already. Its almost like a kind of demographic national suicide. Japan and Russia most come to mind. As a Brit, we at least seem to have a better fertility ratio then many other European countries, so our population will continue to grow, but will certainly become older as well.

2) I actually look at technical innovation from two perspectives. First, there was an interesting article recently (although for the bloody life of me I cannot remember where) arguing that Sillicon Valley in the States has actually seen quite a drop off in truly game changing new technologies. Yes, social networking sites like a facebook and the like are creating wealth, but one would not consider these truly new technologies, or at least I wouldn't.

3) In addition, manufacturing and factories ARE becoming more advanced in terms of the machines and processes used to manufacture goods. Hence, manufacturing output in terms of GDP or some other measurement is not falling. However, with automation and robots comes a reduced need for actual people, hence the actual benefits to workers in the West may actually be a net negative.

4) Finally, the one piece of bright news on the horizon is the potential gains from plentiful natural gas in the States using new fracking technologies. This will - in theory - create more jobs in the energy industry and also it is said that cheap electricity will lure more energy intensive manufacturing back as well. The UK also evidently have quite huge shale gas reserves accessible by fracking, although its not 100% clear yet how much the government will allow this resource to be exploited.

agricultural investments

juan said...

Brenda, when you have the chance please read Mike Davis' "Planet of Slums" which goes into some [q & q] detail re.recent and expected urban expansion around the planet - beneath a petite bourgeois cloak, a truly massive labor excess stands out against a world capital forever unable to directly use it -- the system retrogresses as, on a GDP and rate of profit base,has been the case since late 1960s-early 1970s.

permit a quote -

people are at last compelled to face

with sober senses

their real conditions of life
and their relations with their kind

[which could easily lead into a "Joe Dirt" story on my behalf - the 'compelling' can be quite intense - but very many are aware of that]

Myrtle Blackwood said...

Barkley, I am not sure that there is economic stagnation resulting from a decline in the right types of technological innovation. I tend to think social change (including lifestyle change) and myopic promotion of a single form of economic 'development' have more to do with the emergence of stagnation. thanks for the lead to Tyler Cowen's book.

'Fracking'. Why doesn't that ring alarm bells for you?

Nice to hear from you again. I've been attempting to follow the global crisis of urbanisation. I agree with you about this unprecedented, extraordinary 'development'. Something's gotta give real soon! I heard recently that there is now (this year) a net migration from cities to the country in China. I wonder if anyone know more about this?

juan said...

Hi Brenda,

Yes, I had heard that as well but believe it had more to do with the 'hyper-smog'.

This article from Caixin is likely more correct -
What policy-makers noticed is that urbanization might hold the key for the next phase of development. In 2011, the country's urbanization rate hit 51.27 percent. This means that for the first time in history, more of China's population lives in cities than in rural areas.

The core of urbanization lies not only in large-scale city building and expansion of industrial parks, but also in the great migration of people from farm villages into cities.
In 2011, the total number of migrant workers moving into cities hit 253 million. The reasons are simple: There are more opportunities, a more comfortable life, better education, better hospitals, more convenient communications and more cultural diversity in cities. And there is more money, too. The Chinese rural per capita income in 2011 was 6,977 yuan, much lower than even the per capita disposable income in urban areas that year, 21,810 yuan. For these reasons, most rural migrants never plan to return to their villages.

Without plans to turn rural workers into urban citizens, urbanization can only become yet another round of massive land grabbing and city-building that has happened around the country for the last decade. This will create more people without roots who can neither integrate with their new urban environment nor return to their village. The next phase will no longer be only urbanization of the land, but of people.''

Juan - and please watch/listen to-

Ring the bells that still can ring, Forget your perfect offering. There is a crack, a crack in everything, That's how the light gets in. ~ Leonard Cohen

juan said...

Additionally, you might look to either

China Study Group


Michael Pettis

juan said...


Possiblyt this and others like it-

''More than 150,000 Chinese became permanent citizens in major immigrant countries including the United States, Canada, Australia and New Zealand last year, topping the world’s list of overseas migration in absolute numbers, a recent report revealed.

The Centre for China and Globalisation (CCD) and Beijing Institute of Technology (BIT) School of Law jointly released their findings in the Chinese International Talents Annual Blue Book's International Migration Report (2012) on Monday, according to media reports.

Global migration increased from 195 million in 2005 to 214 million in 2010, constituting 3.1 per cent of the world's population, statistics showed.

International migration in and out of China spiked in the past decade. In 2010, the number of overseas Chinese reached 45 million, ranking first in the world.

Still net urbanization.


juan said...

Barkley - Just read your ''Are There Nonlinear Speculative Bubbles in Commodities Prices?'' and found it very interesting....yes, arriving at fundamental price, etc, can be difficult and time consuming especially if 'everyone' tells you the market is efficient, therefore...

A guy at Cornell with his doctorate in microbiology never did grasp price regime change no matter how I explained it and no matter how detailed the history[ies]. Too bad, he was heavily into the energy sector.

Any Event - Take Care

Myrtle Blackwood said...

Juan, I will reply as soon as I am able. Thanks for your helpful comments.