The Industrial Revolution, past and future

June 13, 2004 4:11 PM

The Industrial Revolution, past and future:

The entire human race is getting rich, at historically unprecedented rates. The economic miracles of East Asia are, of course, atypical in their magnitudes, but economic growth is not the exception in the world today: It is the rule.

Nobel Prize winner Robert Lucas discusses wealth redistribution and the world economy.
posted by trharlan (9 comments total)

Basially, then, he is sying don't worry about the poor cause distribution a waste of effotso instead smile at the growing prosperity for many Haves...ok. But when food gives outp; when water gives out etc etc guess who will come knocking at the doors to go where there is wealth so that families can live.
posted by Postroad at 4:22 PM on June 13, 2004

Aaah but food, water and fuel will never run out remember, Postroad - those are resources the human race could never deplete or over-exploit! The market will correct for that if we ever come close! La la la la la I can't hear you I've got my fingers in my ears! </neolibertarianism>

On a slightly less cynical note, can someone explain to me what is meant by "economic growth" precicely - does it mean having "more money" in absolute terms, or does it mean having "greater wealth" in terms of having lots of food, suitable shelter, health care, education, protection from crime etc.?
posted by Jimbob at 4:26 PM on June 13, 2004

Thanks for a great article, tharlan. It's great to read such economic optimism. I wonder about the effects of overpopulation in a passage like this:

"In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother."

Is the economic infrastructure burdened by an enormous population, or does an enormous population translate to an equally enormous, educated work force, as has largely been the case in northeast Asia?
posted by hama7 at 4:42 PM on June 13, 2004

Postroad: But history has shown that this has happened, again and again. Either there are no energy alternative to what we are using now, in which case we are screwed anyways, or there is a way but it will be discovered when the market says it's worthwhile to do so.

Jimbob: The GDP figures most economists use to measure economic growth is the "real" GDP, i.e. it is adjusted for inflation. So yeah, greater wealth means actually having more of everything, not just paper money.
posted by VeGiTo at 5:34 PM on June 13, 2004

Interesting article. He is not a historian but interesting perspective of the Industrial revolution looking at it from an Economists viewpoint.

I always thought the Industrial Revolution ended around 1955, when the number of white collar jobs outnumbered blue collar. Of course Industry continues on just like the Agricultural revolution continues on but I think the big jump in production starting in 1950 on his charts can be attributed to increased efficiency brought on by an information based economy.
posted by stbalbach at 7:50 PM on June 13, 2004

At the same time, countries that have been kept out of this process of diffusion by socialist planning or simply by corruption and lawlessness will, one after another, join the industrial revolution and become the miracle economies of the future. The income growth rates in these catch-up economies may be very high, but as fewer and fewer countries remain in this category, the effect on world averages will shrink. If so, then world population growth will attain a peak and begin shrinking toward less than 1 percent, and world production growth will similarly cease to rise and will fall back toward 3 percent. In other words, we will see a world that, economically, looks more and more like the United States.

No question about the population growth, but the production growth scenario makes at least one assumption: US and other countries (let's say group I) do not undergo another "industrial" revolution.

For example, we discover fusion and AI; we do not need oil anymore and we are able to make small, very flexible manufacturing units run by one or two persons. Labor costs go down and at point it would be cheaper to have reliable manufacturing units close to stores (globalization is not stable, it assumes layoffs, disruptions, inventories, etc.) Imports/exports would go down and US, for example, would almost leave the global trade scene. Comparative advantage, which goes hand in hand with Lucas' transition period, is no longer of any use because of lack of trading partners. You can create your own scenario if you wish - just eliminate some of the trading participants.


The other problem is represented by the status quo of international trade. Imagine two countries that use comparative advantage to specialize, each in its own area. As a result, there are additional goods available (surplus) and one can compute a range of exchange rates for which trade makes sense. How is this surplus allocated depends on the negotiation skills of both parts.

If we assume we are back in 18th century, both France and England (for example) have the same negotiation skills - none of the businessmen is more efficient or has exceptional skills, and, hence the surplus is split "relatively close" to 50%-50% (assume to military factors). In 21th century, things are different, we even have a term for these skills: "know how". A "western" corporation has the experience to build a factory and impose such contracts so that it can go away with, let's say, 90% of the comparative advantage surplus.

As an example, think of Wal-Mart and how their are able to dictate their prices to their manufacturers - the interesting part is that Wal-Mart does not keep the surplus for itself, mostly it is passed down to the consumer. Another example would be intellectual property rights.

To keep foreign corporations in group IV or V countries, tax advantages has to be offered. However, this does not guarantee that "know how" is passed to the local people and that next time they will find a way to get closer to 50%-50%.

The above does not imply the main cause for inequality is the first mover advantage which group I countries presumably have. Let people have secure property rights (Hernando De Soto's work), and soon they will engage in trade, and create capital and "know how" from local comparative advantage,
posted by MzB at 7:53 PM on June 13, 2004

In other words, we will see a world that, economically, looks more and more like the United States.

Pictures a world covered in strip malls.
Passes out.
posted by signal at 8:32 PM on June 13, 2004

"But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor."

Ah, but that isn't the question, is it? The question is what has been the cost to the potential increase in productivity by various and sundry attempts at redistribution? Have any attempts at redistribution(from the Marshall Plan to subsidized polio shots to the March of Dimes) allowed for increased productivity that offset their expenses?
posted by dglynn at 10:37 PM on June 13, 2004

This point has been made before but it needs to be made incessantly until the point begine to sink in : the human "economy" exists within a natural economy, which forms the substrate. Until mainstream economists such as Lucas begin to account for this dependency, and until they start to frequent the professional conferences of those scientists who study the intricacies of those natural systems upon which all human life is based, the long term predictions of Lucas and his cohort will be suspect.

Thought Experiment :

Supply Robert Lucas and several other top economists with a limited stock of food, water, and air and - also an unlimited light source and a stock of plants which will supply them with food and replenish their air stock. This is a very, very crude "biosphere". That original stock, plus the "farm" will compromise their "economy" over which they will have to make recommendations as to the allocation of priorities - who gets to consume how of that limited stock, how to manage the "farm", and so on.

Lucas and the other economists will be placed in a very large Bell Jar and lowered to the bottom of the sea.

: One economist among them argues that - according to his theoretical models - economic optimization demands utilization of the farm plants, for their cellulose and fiber, to make comfy mattresses for the group to sleep on at night.

Do the other eight follow the recommendation ?

Or do they eat that economist and so widen the margins of survival for the rest of the group ?

______________________________

Hazel Henderson - A different view on "Economics"

"Henderson charges that standard economics is fatally flawed because it ignores the economic value of Mother Nature. Decrying the short-term concern with growth, she adds reflectively: 'It doesn't take a genius to pump up the GNP by burning down rainforests, using slave labor and social repression to keep things in place.'

Henderson also charges that mainstream economists focus too much on the private sector while downplaying the public sector and totally ignoring what she calls the 'love economy'- volunteering, barter and other self-help efforts.

'This stuff has been missing from the GNP, yet it's about half of all economic activity,' she notes. 'It was even more important before we decided to make economics our religion and Mammon our God.'

Even more perverse, says Henderson, is that this destructive economic model distorts our understanding of each other. 'Fifty per cent of human nature is caring and sharing and fifty per cent is competitive,' she stresses. 'You need both. Competition is great. But when you reward only the competitors, you get into serious trouble.'

Despite her anger with conventional economic thinking, Henderson is passionate in her conviction that ordinary citizens, forward-thinking political leaders and savvy companies can turn things around. She's a keen advocate of socially responsible investing. Even though, as she notes with a chuckle, 'a lot of people think that if you get involved in capitalist enterprises, it means you've sold out'.

Henderson reaches a wide audience with her books and speeches and through a worldwide syndicated newspaper column. Yet at home in the US it's tough for her to get a hearing. That fits her critique of 'mediocracy', a term Henderson coined to describe the shallow, mass-media culture which shapes not just our private lives, but also our politics.

'We're so dumbed down in the US,' she sighs. 'The media don't ) want to discuss anything controversial.' "
posted by troutfishing at 6:41 AM on June 14, 2004