Philip Sadler CBE

Futurist, Author, Speaker

Futurist
Author
Speaker

Sustainable Growth in a post scarcity world Chapter 1

15/12/2010

Chapter 1 The next big system change
Introduction
This book is about the next big shift in the nature of the economic and social system within which we live and work, and about its causes and its consequences. In particular it is about its implications for sustainability.
It will be a bigger shift than we have previously experienced; bigger than the industrial revolution, bigger than the digital revolution that has brought us the internet and connected us all together. It will unravel between now and 2050, but it is already under way. Politicians and business leaders who are trapped in the mindsets of today’s world will not be conscious of this shift until it is well advanced. Once they become aware most will resist it strongly.
As individuals we have strong vested interests in the present system – it provides us with jobs; it offers a good return on our savings even if it does not consistently fulfil that promise; it gives the majority of us in the developed countries a lifestyle that our grandparents would have not even imagined; and it enables some of us to become extremely wealthy.. Businesses, particularly large global corporations and financial institutions also have very strong vested interests in the existing arrangements, which protect their markets and their profits.
As the shift gathers pace, however, it will involve creative destruction on a larger scale than has been seen previously. As in previous waves of change great companies will fail, whole industries will disappear, regions that were once prosperous will become depressed, new elites will emerge and existing ones obliterated.
At the same time the change will give rise to whole new industries, new fields of employment, new investment opportunities and new entrants to the group of the world’s top one hundred companies..
The new system will be known as the post scarcity society. It will, in many respects, be an age of abundance. It will bring mankind huge benefits but at the same time a whole new set of threats and dilemmas.
The main challenges
In what follows I will explain what is meant by a post scarcity society, and, provide the evidence for the fact that it is coming about. Among the many issues it will give rise to I will address three:
• As the abundance of goods and services continues to grow, how do we deal with the economic and social consequences.
• How do we spread the enjoyment of the fruits of greater abundance to the poorer countries of the world.
• Given the growing levels of consumption implied by the above, how do we cope with the impact on the environment and the world’s climate.
A dysfunctional system
In those parts of the world where it has prevailed the market economy has driven economic growth, lifting the living standards of millions of people. But the world is now undergoing a period of unprecedented change. In some respects it is nearing a tipping point and it is becoming clear that the current institutions and practices which the market facilitates are leading to unsustainable outcomes . There are major issues which the market has not resolved – particularly climate change, areas of persistent poverty, water shortages, exhaustion of fishing stocks and abuse of human rights.
The market operates within a wider system – a system which incorporates three sub-systems – the economic, the social-political, and the environmental. The London-based think tank Tomorrow’s Company (2008) has coined the term ‘the triple context’ to refer to this overarching system.). It is a way of expressing the fact that there are three distinct but interdependent systems – environmental, socio-political and economic - which, continually interact to create, on a global scale, an all-encompassing system resulting from the complex feedback loops existing between the three sub-systems.
It is important to make a clear distinction between the concept of the triple context, and the triple bottom line. The latter implies that there are actions companies can take that have an impact upon their own economic sustainability , others that have an impact upon sustainability of the communities or societies within which they operate and yet others that affect the sustainability of the natural world. In practice, however, these categories overlap, interact and become inseparable. Also, the activities of companies not only influence their own economic sustainability, but also the sustainability of the world economic system as a whole.
Aligning economic, environmental, and social interests may sometimes present few difficulties. For example, teleworking reduces pollution and greenhouse gas emissions, improves quality of life for erstwhile commuters and helps build a sense of community. Businesses get happier, and hopefully more productive, employees, and save costs on office space. But easy examples are the exception. It's hard to know what is best for the environment, because the environment is extraordinarily complex and diverse and seen from different perspectives by people from different cultures. This leads to social issues, where determining what is equitable and fair is often impossible to achieve to the satisfaction of all parties.
In many instances there are complex trade-offs between the three aspects of the triple bottom line. Consider the protection of old-growth rain forests. Companies could switch to paper made from non-wood fibre, and boycott wood and paper products from the region in question and thus gain a reputation for being ‘green’. Economically, the companies may be relatively unaffected, at least in the long term, and the easiest path is to avoid controversy by agreeing to the demands of pressure groups concerned with protecting the rain forests. Environmentally, the decisions are much more difficult, as there is significant evidence that manufacturing paper from non-wood fibre may well be worse - not better - for the environment. Socially, the decisions are even harder -: boycotting the products of an entire region may cause significant hardship, destroying jobs and , disrupting communities..
Zadek (2001) makes a similar point. ‘Social, environmental and economic gains and losses arising from particular business processes cannot simply be added up. We do not know, for example, whether an additional four weeks of employee training, minus a dozen or so trees, plus a ton of profit, add up to more or less sustainable development…In fact we do not and probably cannot know enough about the system to understand in this sense the relationship between the activities of one organization and the whole system.’
As Elkington (1998) has pointed out ‘Systems thinking tells us that sustainability cannot be defined for a single corporation. Instead, it must be defined for a complete economic-social-ecological system, and not for its component parts.’

The components of the system
The Global Economy
The global economy can be viewed as consisting of 3 inter-related sub systems:
• The ‘real economy’ – producing goods and services that meet human needs and wants
• The financial services industries, which facilitate the provision of capital for the real economy on the one hand and the provision of credit for consumers on the other.
• What Professor Susan Strange (1997) has dubbed the ‘casino economy’, the largely speculative activities of those in the financial sector which are unrelated to the production of goods and services.
As the so-called credit crunch crisis of 2008-2009 developed, many commentators around the world attributed blame to the operations of the casino economy and the use of derivatives in particular, coupled with the fact that financial services institutions such as retail banks and mortgage societies became involved in casino type operations.
The Social and Political Systems
Social and political systems are the human element; the people on the Earth and the political and social institutions that govern their interaction. There is, of course, no global socio-political system in the same way that there is a global economy or a global natural world. Each society has its own set of values, characteristic lifestyles, traditions, mores and institutions. Unsustainable systems are characterised by oppression, corruption, crime, extremes of inequality and poor human rights. They also tend to have weak, fragile economies and poor records in such matters as pollution, conservation of species and deforestation. Economic activity is in many cases sustained only by virtue of rich natural resources – oil or diamonds, for example.
Within the past few decades we have seen the collapse of a number of such unsustainable systems such as the Soviet bloc and the former Yugoslavia. Currently Zimbabwe is close to collapse. Within the foreseeable future we can expect the breakdown of the existing socio-political systems in a number of countries, including North Korea, Cuba and Burma (Myanmar).
The Natural Environment
The natural environment can be defined as landscapes, flora and fauna, freshwater and marine environments, geology and soils. It is persistently under pressure from a range of threats, many of which have been evident for more than a century. These include the sheer pressures created by population increases, the clearance of woodland for settlements or for agriculture, the various forms of pollution produced as one country after another has industrialised, the mindless harvesting of fishing stocks and the unthinking exploitation of a wide range of non renewable resources. Further economic growth, if it is to be sustainable needs to be accompanied by deliberate action to protect the structure, functions and diversity of the world's natural systems, on which our own species depends.
Changing the system
“What history teaches us is that man does not change arbitrarily; he does not transform himself at will on hearing the voices of inspired prophets. The reason is that all change, in colliding with the inherited institutions of the past, is inevitably hard and laborious; consequently it only takes place in response to the demands of necessity. For change to be brought about it is not enough that it should be seen as desirable; it must be the product of changes within the whole network of diverse casual relationships which the determine the situation of man.’ (Durkheim 1883)
Today, beyond any doubt, the necessity to change in the interests of sustainability is increasingly widely accepted. Changing the global system , however, cannot be brought about by the isolated actions of nations acting alone or of individual companies trying to be a force for good. Nor does it result from advocacy, however persuasive. If efforts to achieve sustainability are to be effective governments, international agencies, multinational companies, NGOs and other bodies must work together..
The shift to a post scarcity world
The world’s most highly developed economies are now capable of producing huge amounts of material wealth in the form of goods and services with the aid of a relatively small percentage of the population and are moving at an accelerating pace towards a state of post scarcity, or an age of abundance, a state in which an ever wider range of economic goods and services is available in abundant supply and at extremely low cost
In the early days of industrialisation most goods and services were expensive relative to average earnings and were produced by the masses of the working class for consumption primarily by the middle and upper classes.
However huge strides in productivity growth have led to greatly reduced costs of production, while markets have expanded well beyond national boundaries, creating greater economies of scale.. In recent years the impact of productivity has been augmented by the globalisation of manufacturing and the accompanying very rapid increase in the supply of cheap labour as a result of the rapid industrialisation of Asian countries. The consequent intensification of competition is causing prices of a wide range of goods to fall to the marginal cost of production. At the same time, rises in real wages have placed an increasing range of goods and services which, within living memory, were restricted to the middle and upper classes, within the reach of ordinary working people – foreign holidays, cruises, eating out, sound systems, sports cars, etc.
This shift from relative scarcity to relative abundance has been progressing steadily for many years. It was first pointed out in America before the second world war, notably by John Maynard Keynes ( 1931) and Stewart Chase ( 1934)
A consequence of the development of abundance over the past few decades has been the shift in emphasis from managing production to managing consumption. In modern manufacturing enterprises the numbers of employees directly engaged in production is remarkably small. The majority are employed in functions such as sales, marketing, public affairs, human resources, finance and accounting, and, more recently, in corporate social responsibility. As productivity has grown, jobs have not only shifted from production to other functions, but they have also shifted from the private sector to the public sector.
Henry Ford’s great vision was that he saw mass production and its impact on productivity as merely as a means to the end of mass consumption; hence the model T, designed so that every American family would be able to afford a motor car..
“ I hold that it is better to sell a large number of cars at a reasonably small profit…I hold this because it enables a larger number of people to buy and enjoy the use of a car and because it gives a larger number of men employment at good wages. Those are the two aims I have in life.” (Ford 1929)
Huge reductions in costs have been achieved despite the fact that the supply of most things involves massive expenditure on distribution. As well as wholesalers’ and retailers’ mark ups there are the costs of building brand identity, advertising, marketing, packaging and promotion and the costs of physical movement of goods. For most goods today the costs of distribution far outweigh the costs of production.
Examples of things that are abundant and hence command low prices or, indeed, are given away include:
Manufactured goods such as clothing, furniture, watches mobile telephones
Newspapers, magazines, books
Much software – particularly open source software.
Foreign package holidays
Air travel
Fast food
Just as manufacturing continues to exist in a mainly service economy, so elements of scarcity will continue to exist in a mainly post scarcity economy.
Things that will remain scarce and hence command relatively high prices include:
Services of highly educated, skilled, talented people – lawyers, brain surgeons, hedge fund managers, CEOs of global corporations, world- class entertainers and sports players.
A meal at a fashionable ‘celebrity’ restaurant
What Hirsch (19xx) calls ‘positional goods’ such as a place at a world- class university or a private parking lot in a major city.

Companies, either individually or acting in concert, engage in a variety of practices to create a degree of artificial scarcity with the aim of maintaining prices. These include restriction of production, (for example in diamond mining, agriculture, and oil extraction), branding, (particularly in relation to fashion goods), and patents, (most noticeably in software and pharmaceuticals.)and planned obsolescence.... Some things remain relatively expensive artificially because of taxes imposed by governments – Scotch whisky, for example.
The future development of abundance
We are in the early stages of a new era that has the potential to be one of much greater abundance. Its growth is being driven by new technologies which are developing at an exponential rate. These technologies include the development of computing power and speed, biotechnology, nanotechnology and technologies as yet dimly perceived that are the result of convergence of the aforementioned. At some point in the second half of this century, molecular manufacturing may well have become a reality.
The coupling of molecular manufacturing with appropriate programming tools could ultimately bring about a revolution that is being termed "personal manufacturing." Personal nanofactories (PNs) already have been envisioned and are likely to be similar in look and ease of use to a printer or microwave oven. 3D printers, which can produce three dimensional objects in colour, are already in use. They cost now about $20,000 dollars. If mass-produced they s could sell for about £1,000 each.
Meanwhile, computing power—information management—continues to expand exponentially even as its cost drops precipitously. Today, an increasing range of ‘ intelligent’ products contain greater and greater information content at lesser and lesser cost.
The post scarcity paradox
Poverty in the developed countries

The paradox is that in those countries which are foremost in creating post-scarcity conditions, millions still exist in poverty. These include those of working age who for one reason or another are unemployed, those who exist on minimum wage levels, single parents and the elderly who depend on state benefits. The modern developed economy has the capacity to produce goods faster than it can generate incomes to consume them. This gap between the supply of goods and services and the ability to consume them is increasingly filled by consumer credit offered at high rates of interest, the long term effect of which is to reduce consumers’ incomes still further, while building up a mountain of debt. This is particularly the case with respect to the actions of companies that specialise in loans to the very poor. Such companies justify very high rates of interest on the grounds that the default rate is very high. This, of course, is a circular argument, in that the very high interest rates themselves lead to borrowers defaulting. It was reported in The Times ( 29th July 2009) that Barnardo’s, the UK children’s charity, accused Provident Financial, , one of the biggest home credit providers in the UK and Ireland, of driving poor families into “worrying levels of debt” and called for an inquiry into the company’s lending practices. It said that Provident charged “extortionate” annual percentage rates of up to 545 per cent to borrowers on low incomes..
Provident Financial made a profit of £53.1 million in the first half of 2009, up 3.5 per cent on the previous year. On its website it gives an example of a loan of £300, to be repaid by a weekly payment of £10.50 for 50 weeks, making a total of £525, with an APR of 254 per cent.
There is a growing gap in living standards between the poor and those on higher incomes which is dangerously socially divisive and will become more so. It is also economically inefficient in that it stifles the demand needed to sustain economic growth.
Some years ago an American car manufacturer introduced a new assembly line largely manned by robots. Showing a Union leader around the company’s chairman said “ Do you know what I like about these robots? They will never ask for a pay rise and they will never go on strike.” “Yes” replied the Union leader “But how many cars will they buy?”
This anecdote illustrates the point that in the modern advanced economy consumers have become more important than producers. The main engine of the growth is a high level of effective demand rather than a high level of supply.
World poverty
The gap between rich and poor in the developed world is, of course, greatly magnified on the global scene.
The World Bank has warned that world poverty is much greater than previously thought. It has revised its previous estimate and now says that 1.4 billion people live in poverty, based on a new poverty line of $1.25 per day. This is substantially more than its earlier estimate of 985 million people living in poverty in 2004. . The new estimates suggest that poverty is both more persistent, and has fallen less sharply, than previously thought. However, given the increase in world population, the poverty rate has still fallen from 50% to 25% over the past 25 years.
Africa has been the least successful region of the world in reducing poverty. The number of poor people in Africa doubled between 1981 and 2005 from 200 million to 380 million, and the depth of poverty is greater as well.
But in absolute numbers, it is South Asia which has the most poor people, with 595 million, of which 455 million live in India. The poverty rate, however, has fallen from 60% to 40%.
China has been most successful in reducing poverty, with the numbers falling by more than 600 million, from 835 million in 1981 to 207 million in 2005. The poverty rate in China has plummeted from 85% to 15.9%, with the biggest part of that drop coming in the past 15 years, when China opened up to Western investment and its coastal regions boomed.
In fact, in absolute terms, China accounts for nearly all the world's reduction in poverty. In percentage terms, world poverty excluding China fell from 40% to 30% over the past 25 years.
Resolving the paradox
The growing wealth of nations will not resolve the paradox of poverty unless there are radical changes in the global economic system and in the social and political systems within countries.
The reform of the economic system
In 2007 a group of business leaders from global companies such as BP, ABB, Ford, SUEZ, Infosys, Anglo-American, McKinsey and Alcan set out their views in forthright fashion. “We believe that we are entering a period of history in which it is becoming clear that the operation of the current system is unsustainable and that to progress further tomorrow’s global companies need to redefine success and help to create better frameworks for the working of the market.” (Tomorrow’s Company 2007). ,
The report argued that the response should not be to turn our backs on the market economy - because the market has driven human progress and economic growth for centuries. Instead, we need to harness the power of the market and global businesses to be a force for good. The authors emphasised that global businesses have unique power to deliver practical solutions. For example, they can bring electricity, telephones and medicines to low-income communities. They can bring about advances in energy efficiency and low carbon power to address climate change. They can set high standards in working conditions. How far this optimism is justified will be examined in chapter 10.
Social/political reform
There is a clear need to develop a stable social/political framework within which the reduction of inequality can take place. This means tackling the causes of international conflict, civil war, civil disturbance, genocide and terrorism. By comparison the tasks of dealing with climate change or the collapse of the global financial system may pale into insignificance. There are clearly huge problems under this heading which greatly affect mankind’s prospects for survival and in regard to which the growing powers of technology may be relatively impotent.
The issues touched on briefly here will be discussed in depth in later chapters.