Saturday, September 29, 2012

We get richer also without growth

World manufacturing output grows much quicker than GDP. This is shown quite convincingly by Peter Marsh in his recent book "The New Industrial Revolution" which I am currently reading. His main point is that manufacturing is still very important, contrary to what we may believe when we live in a post-industrial society. He also states that the notion of "de-industrialization" of western econonmies is exaggerated.

While I agree with his point, the book raised some other thoughts. I picked the graph above from the book. Between 1800 and 2010, world manufacturing increased 200 times, while the GDP increased "only" some 60 times (for those interested in the effect of rather small differences in growth rate, this means that manufacturing output grew with 2.6% per year against 2% for GDP - not a big difference is it?)

This means that we don't only have more money today than ever before, we also get a lot more "stuff" for that money. E.g. between 1900 and 2000 US residential prices fell by approximately 94 %, adjusted for inflation - and people say energy has become expensive!
In the early industrialization of textile manufacturing productivity in spinning increased 1000-fold in two generations from the end of the eighteenth century in England (Ayres 1989). The increase in productivity is not unique for manufacturing. As a matter of fact the productivity gains in farming are equally impressive if not more. In the areas with lowest productivity, where farmers produce with more or less the same technology as 200 years ago, one person can produce not even 1 ton of grain per year, whereas the most productive farms exceed 2000 tons per person-year (Rundgren, Garden Earth, 2012). 150 years ago it took Swedish farms 250 hours of work to get one ton of barley from the field into the barn - today it takes five minutes with a combine harvester (Jordbruk och skogsbruk i Sverige sedan år 1900).
Endless fields of corn in Mato Grosso
There are many different observations possible from this. 

1) One obvious observation is that manufacturing will go in the same direction of farming, albeit slower. That is, the relative importance of manufacturing in the GDP will continue to decrease.Our needs of manufactured good certainly is not as easily saturated as our needs for food, but clearly there are limits to how many new "things" we need, and want to buy all the time.
A farmer in Zambia working manually

2) Because of productivity gains quicker than economic growth we can actually increase our standard of living (measured in "things") even without any economic growth, we get richer even if we don't get more money. Every year the same money buys us more things. This seams to be a rather strong argument for a non-growth economy.

3) Because of saturation in markets for manufacturing, and increasing competition, there are small possibilities to make profit from manufacturing:
"Stagnating demand will affect large segments of the industry in a similar way as agriculture suffered from lack of demand and falling prices for 100 years, despite an enormous population growth. The combination of increased competition, increased productivity and automation means constantly falling prices up to point where there is no profit to be made." (Garden Earth). Capital and capitalists need to find new arenas, and they find them today in three areas: 
    • In privatization of society functions (schools, utilities, railroads etc.). I don't think i need to give any examples, they are everywhere in European countries and elsewhere
    • In financial capital. The value of swaps and derivatives at the end of 2007 was US$ 454 trillion (ISDA 2009). This corresponded to some eight times the world GDP and around four times the global household wealth (Davies et al. 2008). The value of stocks in the 54 biggest markets in 2007 was more or less on par with the world GDP and the value of currency trading amounted to more than US$ 2 trillion per day (Reuters 2007), that is, more than 10 times the world GDP in a year.
    • and in ecosystem services - measures to reduce carbon emissions or to compensate for emissions already represented a market worth US$ 143 billion in 2009 (World Bank 2010b). Following this path, we see more and more ecosystem services being regulated by market mechanisms, which is a euphemism for privatization.
      4) That manufacturing output grows quicker than GDP contributes to the understanding why there is still such a strong link between GDP and use of energy and other nature resources. It is the production side of the so called "rebound effect" or "Jevons paradox", i.e. that saving are offset by increased consumption.

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