The End of Growth: Adapting to Our New Economic Reality (32 page)

Long-distance trade expanded dramatically from the 1980s onward as a result of the widespread use of cargo container ships, the development of satellite communications, and the application of computer technology. New international agreements and institutions (WTO, NAFTA, CAFTA, etc.) also helped speed up and broaden trade, maximizing efficiencies at every stage.

It may be that people were happier before trade, when they were embedded in more of a gift economy. But the material affluence of the world’s wealthy nations simply cannot be sustained without trade at current levels. Indeed, without expanding trade, the world economy cannot grow. Period.
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Most economists regard division of labor and globalization as strategies that can continue to be expanded far into the future. To think otherwise would be to question the possibility of endless economic growth. But there are reasons to question this belief.

There may not be much more to achieve through specialization in the already-industrialized countries, as most tasks that can possibly be professionalized, commercialized, segmented, and apportioned already have been. Moreover, in a world of declining energy availability, the trend toward specialization could begin to be reversed. Specialization goes hand-in-hand with urbanization, and in recent decades urbanization has depended on surplus agricultural production from the industrialization of agriculture, which in turn depends on cheap oil.
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Relegating all food production to full-time farmers leaves more time for others to do different kinds of work. But in non-industrial agricultural societies, the class of farmers includes most of society. The specialist classes (soldiers, priests, merchants, scribes, and managers) are relatively small. It was only with the application of fossil fuels (and other strategies of intensification) to agriculture that we achieved a situation where, as in the US today, a mere two percent of the population grows nearly all the domestically produced food, freeing the other 98 percent to work at a dizzying variety of other jobs.

In other words, most of the specialization that has occurred since the beginning of the Industrial Revolution depended upon the availability of cheap energy. With cheap energy, it makes sense to replace human muscle-powered labor with the “labor” of fuel-fed machines, and it is possible to invent an enormous number of different kinds of machines to do different tasks. Tending and operating those machines requires specialized skills, so more mechanization tends to lead to more specialization.

But take away cheap energy and it becomes more cost-effective to do a growing number of tasks locally and with muscle power once again. As energy gets increasingly expensive, a countertrend is therefore likely to emerge:
generalization
. Like our ancestors of a century ago or more, most of us will need the kinds of knowledge and skill that can be adapted to a wide range of practical tasks.

Globalization will suffer a similar fate, as it is vulnerable not only to high fuel prices, but grid breakdowns, political instability, credit and currency problems, and the loss of satellite communications.

Jeff Rubin, the former chief economist at Canadian Imperial Bank of Commerce World Market, is the author of
Why Your World Is About To
Get a Whole Lot Smaller: Oil and the End of Globalization
, which argues that the amounts of food and other goods imported from abroad will inevitably shrink, while long-distance driving will become a luxury and international travel rare.
⁵¹
Given time, he says, we could develop advanced sailing ships with which to resume overseas trade. But even then moving goods across land will require energy, so if we have less energy that will almost certainly translate to less mobility.

The near future will be a time that, in its physical limits, may resemble the distant past. “The very same economic forces that gutted our manufacturing sector,” says Rubin, “that paved over our farm land, when oil was cheap and abundant, and transport costs were incidental, those same economic forces will do the opposite in a world of triple digit oil prices. And that is not determined by government, and that is not determined by ideological preference, and that is not determined by our willingness or unwillingness to reduce our carbon trail. That is just Economics 100. Triple digit oil price is going to change cost-curves. And when it changes cost-curves, it is going to change economic geography at the same time.”
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Despite their economic advantages, specialization and globalization in some ways reduce resilience — a quality that is essential to our adapting to the end of growth. Extremely specialized workers may have difficulty accommodating themselves to the economic necessities of the post-growth world. In World War II, auto assembly plants in the US could be quickly re-purposed to produce tanks and planes for the war effort; today, when we need auto factories to make electric railroad locomotives and freight/ passenger cars, the transition will be much more difficult because machines as well as workers are much more narrowly specialized. Moreover, dependence on global systems of trade and transport will leave many communities vulnerable if needed tools, products, materials, and spare parts are no longer available or are increasingly expensive due to rising transport costs. Successful adaptation will require economic re-localization–and a generalist attitude toward problem solving.

Whether we like or hate globalization and specialization, we will nevertheless have to bend to the needs of an energy-constrained economy — and that will mean relying more on local resources and production capacity, and being able to do a broader range of tasks.

Of course, this is not to say that all activities will be localized, that trade will disappear, or that there will be no specialization. The point is simply that the recent extremes achieved in the trends toward specialization and globalization cannot be sustained and will be reversed. How far we will go toward being local generalists depends on how we handle the energy transition of the 21st century — or, in other words, how much of technological civilization we can preserve and adapt.

The near-religious belief that economic growth depends not on energy and resources, but solely on increasing innovation, efficiency, trade, and division of labor, can sometimes lead economists to say silly things.

Some of the silliest and most extreme statements along these lines are to be found in the writings of the late Julian Simon, a longtime business professor at the University of Illinois at Urbana-Champaign and Senior Fellow at the Cato Institute. In his 1981 book
The Ultimate Resource
, Simon declared that natural resources are effectively infinite and that the process of resource substitution can go on forever. There can never be overpopulation, he declared, because having more people just means having more problem-solvers.

How can resources be infinite on a small planet such as ours? Easy, said Simon. Just as there are infinitely many points on a one-inch line segment, so too there are infinitely many lines of division separating copper from non-copper, or oil from non-oil, or coal from non-coal in the Earth. Therefore, we cannot reliably quantify how much copper, oil, coal, or neodymium or gold there really is in the world. If we can’t measure how much we have of these materials, that means the amounts are not finite — thus they are infinite.
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It’s a logical fallacy so blindingly obvious that you’d think not a single vaguely intelligent reader would have let him get away with it. Clearly, an infinite number of dividing lines between copper and non-copper is not the same as an infinite quantity of copper. While a few critics pointed this out (notably Herman Daly), Simon’s book was widely praised nevertheless.
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Why? Because Simon was saying something that many people wanted to believe.

Simon himself is gone, but his way of thinking is alive and well in the works of Bjorn Lomborg, author of the bestselling book
The Skeptical
Environmentalist
and star of the recent documentary film “Cool It.”
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Lomborg insists that the free market is making the environment ever healthier, and will solve all our problems if we just stop scaring ourselves needlessly about running out of resources.

It’s a convenient “truth” — a message that’s appealing not only because it’s optimistic, but because it confirms a widespread, implicit belief that technology is equivalent to magic and can do anything we wish it to. Economists often talk about the magic of exponential growth of compound interest; with financial magic we can finance new technological magic. But in the real world there are limits to both kinds of “magic.” Modern industrial technology has certainly accomplished miracles, but we tend to ignore the fact that it is, for the most part, merely a clever set of means for using a temporary abundance of cheap fossil energy to speed up and economize things we had already been doing for a very long time.

Many readers will say it’s absurd to assert that technology is subject to inherent limits. They may recall an urban legend according to which the head of the US Patent Office in 1899 said that the office should be closed because everything that could be invented already had been invented (there’s no evidence he actually did say this, by the way).
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Aren’t claims about limits to substitution, efficiency, and business development similarly wrong-headed now?

Not necessarily. Humans have always had to face social as well as resource limits. While the long arc of progress has carried us from knives of stone to Predator drones, there have been many reversals along the way. Civilizations advance human knowledge and technical ability, but they also tend to generate levels of complexity they cannot support beyond a certain point. When that point is reached, civilizations decline or collapse.
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I am certainly not saying that we humans won’t continue to invent more new kinds of tools and processes. We are a cunning breed, and invention is one of our species’ most effective survival strategies. However, the kinds of inventions we came up with in the 19th and 20th centuries were suited to human needs and interests in a world where energy and materials were cheap and amounts available were quickly expanding. Inventions of the 21st century will be ones suited to a world of expensive, declining energy and materials.

CHAPTER
5

SHRINKING PIE:
COMPETITION AND RELATIVE
GROWTH IN A FINITE WORLD

...[C]ommerce is but a means to an end, the diffusion of
civilization and wealth. To allow commerce to proceed until the
source of civilization is weakened and overturned is like killing
the goose to get the golden egg. Is the immediate creation of
material wealth to be our only object? Have we not hereditary
possessions in our just laws, our free and nobly developed constitution,
our rich literature and philosophy, incomparably above
material wealth, and which we are beyond all things bound
to maintain, improve, and hand down in safety? And do we
accomplish this duty in encouraging a growth of industry which
must prove unstable, and perhaps involve all things in its fall?

— William Stanley Jevons (economist, 1865)

Is the central assertion of this book — that world economic growth is over — already disproved? How else to explain China’s continued exuberant expansion, or signs of recovery in the US in 2010?

As stated in the Introduction, I am asserting that
real
,
aggregate
,
averaged
growth is essentially finished, though we may still see an occasional quarter or year of GDP growth relative to the previous quarter or year, and will still see residual growth in some nations or regions. The point can be summarized in a single sentence, but it bears reiterating and unpacking because there are several kinds of relative growth, and the competitive pursuit of advantage within a global economy that, overall, is shrinking rather than growing will powerfully shape political, geopolitical, and social developments for the next few decades.

In this chapter we will explore the growth prospects of the Asian economies. We will also examine the dynamics of currency wars. And we will see how rich and poor countries, and demographic sectors within those countries, are likely to fare in post-growth economy, and how increasing competition for depleting resources may drive nations toward conflict.

The best place to start this survey of prospects for short-to-medium-term relative growth is with China, which not only exemplifies rapid residual economic growth, but also points the way to how currency and resource rivalries, as well as old/young, rich/poor, urban/rural divisions might play out as the global economy contracts.

The China Bubble

If one were looking for a single arguing point against the idea that world economic growth is ending, China would almost certainly be the best choice. New Chinese cities are springing up in mere months. A stop-motion–video posted on the Internet last year showed a 15-story hotel being built in six days.
¹
A new coal power plant opens, on average, every four days. Twenty million Chinese move from the countryside to cities each year. Because city dwellers contribute 20 times as much per capita to GDP, urbanization alone accounts for half or more of China’s 10 percent annual GDP growth. China is building highways faster than any other nation, and its motorists are now buying around 13 million automobiles per year, versus 11 million annually in the US — which had been the world’s largest market for cars since the days of the Model T. It’s all happening blindingly fast. Indeed, in both its scale and speed, the expansion of the Chinese economy is unprecedented in world history.