Dienstag, 23. Oktober 2012

The farmland analogon

Growth is a complex matter. Its measurement as GDP gain has given reason for debate as we now see that GDP gain alone will not define a society’s wellbeing. Herman Daly, growth critic for decades, has summarized the fallacies of growth on the casse website (second part).
Criticism of GDP growth can be summarized in the following arguments:
  • To have more is certainly not beneficial if we already have enough. There is no use in having more washing machines if everybody owns one already.
  • The measurement of the GDP in currency falsely implies a decoupling from physical realities, while money supply might be endless, our world is not. Production needs the physical reality. There is only so much land to grow food on.
  • The future costs of growth are not calculated into the GDP. The total benfits of growth can be smaller than its costs. Waste, pollution, etc. could bind more productivity over time than is gained by wasteful production.
  • Consumption of resources and common goods is counted as growth (income) even if nothing was produced but money. (Cutting down a Forest is growth, depleting fishing grounds is growth, burning oil is growth etc.).
  • Production and services that do not enter the market do not add to the GDP. The people in a rural society producing their own food, the practitioners of the new urban gardening trend or people that help somomebody out of friendship or kinship do not add to the GDP growth even if they produce essential goods and services for the survival of their society.
Growth had its benefits for society in the past, this is not even disputed by growth critics, but to ignore the above "headwinds" of growth is a certain path to ruin and destruction.

These arguments above give rise to the most important questions everybody has to ask himself and the leaders he has chosen:
  • How did we grow in the past?
  • Can we grow this way forever?
  • Are there other ways for growth?
  • Do we need growth in the future?
  • What growth do we need, if any?
  • Who will benefit from future growth who will suffer from it?

Above fallacies of growth and open questions can be formulated as one central question:

Is our (growth capitalist) society so dependent on unsustainable growth that it will collapse if growth comes to its inevitable end?

All these open questions about growth will define our future first and foremost. As long as these questions are not answered all other discussions are moot. How we answer those questions, will affect every aspect of our life.

And yet, the economic and political leaders and our media are stonewalling this discussion. Growth economics are presented as the only possible alternative for our society to thrive.

Behind these false assumption lies the neoliberal ideology. Its mantras are: Growth is the answer to all problems of society, growth goes on forever, the invisible hand of the market will always ensure growth by inspiring innovations that deal with any obstacle to growth.

These assumptions can be falsified easily by numerous scientific studies, basic math or physics and by common sense. This does not impress our leaders at all. The growth doctrine is followed with fanatic fervor.

In the last post I presented a anthropological analysis of the findings of Robert J. Gordon. It might have helped to understand why growth had happened, and what forces drove it. I also tried to explain again why endless growth is impossible and that there is evidence that the end of growth has been reached.

Also, based on the analysis of Robert Gordons findings, I would put forward a systematic flaw in the capitalist growth economy. Growth in a capitalist system steers itself into situation where the friction between the state, the people and the capitalists interests must increase from the moment that growth can no longer keep up with capital gains (the increase of private capital by interests).

I will try to summarize my understanding of growth and to illustrate the inherent flaws of capitalist growth economy in an analogon.

The Farmland Analogon

For this analogon let us picture our society as a small village settling on a little Island. The villagers represent the society or the "state" in my analogon. The reasons for growth to happen, as described by Robert Gordon, were the industrial revolutions happening in our past.

In my analogon of the village, this is represented by the villagers reclaiming farmland on which to grow new crops. Let us say the farmers found a new well in an arid corner of the island. (Science and technology and the evolution of society open the possibility for an industrial revolution.)

Reclaiming this farmland (initiating the industrial revolution) can only be achieved by the villagers (the state) as it does not immediately produce returns (and thus is of no immediate interest to "the market"), but only opens the possibility to do so in the future. All hands have to invest work (taxes) to make the land arable.

To get returns, anybody who wants to produce on this new farmland has to have seeds to sow, and the ability to plow the field and harvest the crop.

In my analogon the seeds represent the investment that has to be made, by investors, banks or the state using "surplus from earlier harvests".

To sow and harvest the village will have to find somebody or something to do the work (The farmers, the work force of the population).

They would also need water and minerals for the crops to grow (resources like oil, ores, etc.). Without it the new farmland can’t produce yields at all.

If the village has all those things, the success of the undertaking is determined by the efficiency with which the workload is handled. It’s measured in the productivity they have invested in relation to the products returned per worker (unit labour cost).

"Governments will always play a huge part in solving big problems. They set public policy and are uniquely able to provide the resources to make sure solutions reach everyone who needs them. They also fund basic research, which is a crucial component of the innovation that improves life for everyone." Bill Gates

How market forces drive innovation (or not)

In any society, be they "capitalist" or "socialist", these steps are the same. Market mechanisms did not come into play so far. The "market forces" and the "invisible hand" make their entry when the efficiency with which the claimed new marked is exploited is determined. (increasing production per worker).

If the village has a capitalist system the "market forces" will drive the invention of new machines for more efficient plowing and harvesting or an entrepreneur might invent new ways to enhance the harvest. (Fertilizers, Pesticides etc.). In a state socialist system this might take longer as the motivations for finding new efficient ways for production are lower.

But there are restrictions. The  farmland is of a certain size that can’t be expanded and it will need water, sun and minerals to produce crops. This represents the natural boundaries of earth and the fact that resources are limited and efficiency can not exceed a maximum. So efficiency will rise steeply at first but to be more efficient will get harder with time.

Please refer to Stefan L. Eichner if you would like to know more about market forces, innovation and growth:

Thanks to S. L. Eichner for his great work explaining the
mechanisms of growth and innovation in market driven economies

In the long run the villagers will have optimized all ways of producing crops on this newly claimed farmland. Production will not rise anymore but stay constant, provided I have enough farmers, water and minerals and my climate is stable. (market saturation is reached)

In the end, the field will only provide the village with the same amount of crops every year if they can somehow sustainably supply all the factors that are needed.

In our current economy, the "water" we use is oil. We are taking it from a finite resource. If the villages new found well runs dry the crops will wither and die no matter how many farmers they use to plow or harvest.

To rely on the market will not help if your production depends on finite ressources. Increasing efficiency will not fight the drought or "invent" new water.

(For explanations see my posts about the limits of growth due to finite ressources here, german only, or this one about the problems with compensating for peak oil, in english).

Even if the ressources are in endless supply the invisible hand will slow progress because it is attached to the arm of capitalism.

Why capitalism impedes innovation and growth:

When the end of growth is reached (either way) it depends very much on how the village has organized itself as a society. In western capitalist societies this land is now surely owned by some landlord. (The owner of the means of production and large capital, the capitalist in the classic sense).

Source: H.Genreith, Dead Man Walking Model (german)
This landlord is by now accustomed to the fact that his share of the yields grows every year (by the exponential effects of interest) and he thinks that this will go on forever (because he can’t see why not or does not care). His firm believe is, that he is entitled to an ever increasing share of the harvest. Many years growth only ensured the rise of his share and finally got to be the only reason why growth was needed (see here or here for scientific arguments for this development, german only).

To satisfy his greed the workers share will finally decline every year that growth did not keep up with the landlords demands (or they are laid off and less workers work overtime). The village that is raising taxes from all the workers (not the landlord) is getting poorer despite the successes of raising production for years and being the power that made reclaiming the field possible, while the landlord accumulates riches. (The neoliberal growth capitalist ideology holds to the myth that low taxation, especially low taxation of the very wealthy is benefitial to growth, this is untrue as this study shows.)

Due to the dropping taxes the impoverished village is no longer able to afford to send out a geologist (scientist) to search for a new well, even if the well should fall dry. If the village did not find a well then now it might be too late. Also, finding the next well will be harder and will proabably provide less possibilities for new growth. (productivity growth was less for every cycle of industrial revolution.)

The landlord though is not at all interested in a new patch of land reclaimed or a new well found.This new field would belong to some other landlord and his profits and power would decline. Instead he raises productivity by carelessly endangering future yields. I.e. as the soils minerals are depleted he uses lime that will bring him more yields for some time but ruin the field for years to come.

In the real world "lime" stands for the harmful byproducts of growth that last longer than its short term benefits, like fracking waste, CO2 production, radioactive waste, etc. described by Gordon as the "downwind" of growth or by Herman Daly as uneconomic growth.

Source: CASSE (steadystate.org)

It is obious today, that unchecked, the growth capitalist system will not work to the benefit of mankind. Instead of heeding the warnigs of a climate collapse and investing into renewable energy, established giants in the (i.e. oil) industry intensivate production (fracking etc.) and increase the tremendous overshoot allready existing.

These big (i.e. big oil) players in the market use their considerate power to impede the development of alternative renewable energy sources. Meanwhile oils spills, toxic waste, radioactive waste, CO2 emissions etc. will bind future productivity in an ever increasing amount, denying future generations the benefits of growth or even the standard of living we have today.

Whenever a societies consumption is higher than its carrying capacity (overshoot),
 it reacts with intensivation that decreases the future carrying capacity.
(Marvin Harris,Orna Johnson, cultural anthropology)

In the end something happens that everybody thought would never happen again when the new field was reclaimed. The harvests decline and can no longer feed the grown population. Most people might still be better off as before the new well was discovered but now they are used to a higher standard of living and are getting angry, but some even might be facing starvation and get desperate.

Here the analogon ends. How the populace of the village reacts is random and we will see what the future will bring.

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