Philip Sadler CBE

Futurist, Author, Speaker

Futurist
Author
Speaker

The Coming of post-scarcity society

18/05/2011

In 1931 John Maynard Keynes published an essay titled Economic Possibilities for our Grandchildren. This was the time of the great depression, so it is not surprising that he began by commenting on the prevailing mood of pessimism.
‘We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the nineteenth century is over.......The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface - to the true interpretation of things.’
The last few words are as apposite today as they were then. Keynes had the vision to foresee not just a return to pre-depression levels of prosperity but the eventual achievement of a standard of living undreamed of by most people at that time. So today, as the economy begins a halting recovery from the latest deep recession, we can look forward to an unparalleled level of future prosperity.
The world’s most highly developed economies, joined now by the emerging economies of China, Russia, India and Brazil, are producing increasing amounts of material wealth and are moving at an accelerating pace towards a state of post-scarcity, an age in which an ever wider range of goods and services will be available in abundant supply and at relatively low cost.
Huge strides in productivity growth are leading to greatly reduced costs of production, while markets continue to expand well beyond national boundaries, creating greater economies of scale. In recent years productivity growth in the developed world has been augmented by the globalisation of manufacturing and the accompanying very rapid increase in the supply of cheap labour as more and more countries have industrialised. 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 the growth of the internet has greatly increased the information available to consumers - particularly in respect of comparative prices.
The key role of innovation
Meanwhile the foundation of economic success continues to shift from the management of capital and labour to the management of knowledge and talent. Talent of very many kinds is being unleashed as millions of people whose fathers and mothers laboured in rice fields or tea plantations emerge through higher education into the professions and sciences. Both Japan (in the 1970s) and Korea (in the 1980s) began to challenge the West as their inventiveness and technical skill developed rapidly. Today, measured by patent applications, China’s rate of innovation is already eclipsing anything seen in Japan or Korea.
Over the past fifty years the scientist and engineers of the developed world produced technologies in a wide range of fields that have transformed our lives from mobile phones and the internet to genetic profiling and magnetic resonance imaging. The next fifty years will see the innovations of many times more scientists and engineers than in the past.
We are in the early stages of a new era that has the potential to be one of even greater abundance. Its growth being driven by new technologies which are developing at an exponential rate. These include the further development of computing power, biotechnology, nanotechnology and technologies that involve the convergence of all these. At some point in the near future molecular manufacturing may well have become a reality.
Molecular manufacturing will allow us to build large objects to atomic precision, quickly and cheaply. Molecular machine components are being built now, and molecular manufacturing could mature within the next ten years. When it becomes available, it will enable immensely powerful computers, abundant and high quality consumer goods, and devices able to cure diseases by repairing the body at the molecular level.

The economics of abundance
The term ‘the economics of abundance’ is not new. It is, for example, the title of a 1935 book by the American economist Stuart Chase. It is now becoming a lively topic, the subject of an increasing number of learned articles and amateurs’ blogs.
In most of today’s highly developed societies the term ‘abundance’ can be reasonably applied to the wide availability and affordability of such things as staple foodstuffs, a wide range of manufactured goods and services. Within the lifetime of today’s elderly citizens, ordinary working families in European countries ate chicken only on feast days, rarely owned cars, had no central heating, no refrigeration, no washing machine, no television, no bathroom and never travelled outside their own country. These conditions of relative scarcity bred values associated with thrift and frugality – saving for a rainy day, re-using wrapping paper and string, meals conjured from left-overs and walking to save the bus fare. There was little need, at the lower levels of income, for lectures on re-cycling or energy conservation.
These conditions also bred economic theories based on the concept of scarcity and the allocation of scarce resources.
As goods and services of many kinds become more and more abundant the price set by the operation of the market approaches zero, and the economics of scarcity is being replaced by the economics of abundance. Societies are emerging from a state in which most goods and services are relatively scarce, and hence relatively expensive, to a state that can be described as post scarcity. This sounds like good news for the consumer but can be very bad news for producers. How is it possible to be profitable selling things the price of which is constantly falling??
New business models
Sometime around 1998, shortly after an article of his appeared in the magazine Wired, Kevin Kelly was invited to speak to KLM executives in Amsterdam.
He argued in his talk that in the distant future nearly everything we make will be given away free. He ended by inviting his audience to imagine what might happen if they made their airline seats free. Getting on a particular flight would be free. A passenger would pay for everything else around that flight: the meal, their luggage, movies, taxes, and maybe even the reservation. A person who walked up with no reservation, no luggage, didn’t want a meal, or rent headphones, might be able to fly for the cost of the taxes and airport fees if there was room. The cost of air transport per mile was headed toward the free, anyway, he explained. They should get used to the idea. He added that even if they found this prospect too radical, they should begin to think in these terms because their competitors certainly would.
After some polite applause, a silver haired gentleman put his arm around Kelly’s shoulder and introduced himself. Kelly was not sure whether he was the chairman or the CEO. ‘Young man,’ he whispered into Kelly’s ear, ‘that was the most ridiculous talk I’ve ever heard.’
Budget airline easyJet is now a household name. Yet it is only just over 14 years ago that its first flight took off in 1995. In that time, easyJet has made flying affordable for everyone in Europe.
The pressure on prices is dealt with in a number of ways. For example , while millions of people suffer hunger, crop prices are maintained by subsidies or dumping surpluses. Cartels such as OPEC restrict production. Patent law and copyright are used to create scarcity, while advertising campaigns to support famous brands create the illusion of scarcity and support existing pricing structures.
As productivity continues to grow, however, such tactics become less and less sustainable. Market forces have to cope with abundance of supply and business models have to adapt as we have seen in the newspaper and music industries. This adaptive process is well under way and can be illustrated in practice in such diverse fields as free internet services supported by advertising, free mobile phones supported by service contracts, music downloading facilities, free newspapers, a multiplicity of ‘buy one get one free’ offers and near-free aircraft seats. The least sensible response of business is to engage in price fixing and anti-competition conspiracies. In May 2009, the European Commission found leading computer chipmaker Intel guilty of violating European anti-trust rules and ordered that it pay a fine of 1.06 billion euros ($1.45 billion).
Abundance and sustainability
A post scarcity world could be a good world to live in, where many of today’s problems such as incurable diseases, famine, polluting methods of production and transportation, meaningless work and access to education have been solved. But that is an optimistic outlook; there is significant risk that that future may never arrive, or only in a severely compromised form that does irreversible damage to the planet or fails to benefit significant sections of human society.
Continued economic growth coupled with falling real prices will result in increased consumption (and waste) of goods and raw materials in ways which may prove to be sustainable, either because of the impact on climate change or water supplies or because supplies of energy and a range of non-renewable resources get used up. The first law of the economics of abundance is that anything that is abundant will be wasted. In the UK in 2008, research by The Waste & Resources Action Programme (WRAP) found that people were needlessly throwing away 3.6m tonnes of food each year.
The exigencies of space make it impossible to explore all the many aspects of sustainability in detail and so the discussion here will focus on climate change. The Earth has warmed by 0.74°C over the last hundred years. Around 0.4°C of this warming has occurred since the 1970s. The Fourth Assessment Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC) (IPCC 2007) asserted that human activity is the primary driver of the observed changes in climate.
There is an ongoing debate between the majority of scientists who accept that global warming is a result of human activity, and in particular the use of fossil fuels and the expansion of factory farming of livestock and a vocal minority who believe that global warming, if indeed it is taking place, results from natural phenomena. A different kind of scepticism, however, is to doubt whether the rich countries can do much to arrest climate change as vast populations in the emerging countries burn fossil fuels in their struggle to raise their living standards.
It is also the case that, despite the many calls for action on the part of campaigners, governments and businesses in the developed world have not been impressive in their efforts to date. A 2009 PriceWaterhouseCoopers Global CEO survey, found that 40% of CEOs were ‘not at all concerned’ about climate change. Only 7% were ‘extremely concerned’, compared to 42% who were ‘extremely concerned’ about the economic downturn.
Climate change, although its advance may be remorseless, will move relatively slowly. The rate of change to result, say, in a global average temperature rise of 4 degrees by the end of the century is an increase, on average, of .0044 degrees a year. The rate of change that new technologies will create will be exponential by comparison. The continuation of economic growth and technological progress over the next ninety odd years will enormously increase the wealth and know-how with which to tackle climate change and other sustainability issues.
Abundance and inequality
In those countries which have been foremost in creating post-scarcity conditions, millions still exist in poverty. 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. There is a growing gap in living standards between these groups and those on higher incomes which is dangerously socially divisive and will become more so
The gap between rich and poor in the developed world is, of course, greatly magnified on the global scene. C. K. Pralahad has argued that the business community’s contribution to the relief of poverty cannot succeed if it is based on philanthropy or corporate social responsibility (CSR) policies . The involvement of the major global companies is crucial to eradicating poverty, he believes, but ‘bottom of the pyramid (BOP) markets must “become integral to the success of the firm in order to command senior management attention and sustained resource allocation.”
Implications for business strategy
The emergence of post-scarcity conditions is precipitating a number of new, disruptive business models. A ‘disruptive business model’ is one that wrong foots existing companies in an industry sector to the extent that they are forced to concede leadership of that industry or, in the extreme, to see that industry decline and wither away. The concept was developed by J. L. Bower and Clayton M. Christensen in their classic 1995 Harvard Business Review article, ‘Disruptive Technologies: Catching the Wave’ (1995).
When a disruptive business model first appears on the scene it is often on such a small scale that the existing industry leaders take the view that it can be safely ignored – as was the case initially with IBM and the birth of Apple’s PC or Borders in respect of Amazon.
In the case of large multi-business corporations the response may be to exit from the particular industry sector under attack .Others may try to adopt the new model, but by starting late may find it difficult to succeed. If an existing industry leader has prospered over many years it will be likely that its cost structure is too high to enable it to adapt to the new model. It may be that to adapt calls for a radical change of culture which the existing company is incapable of achieving.
Today the forces that are beginning to disrupt existing business models in the case of a wide range of manufactured and informational goods include:
• Price competition from new entrants to global markets from BRICs
• Pressure on prices from global on-line retailers and supermarket chains
• Additional pressure from on-line price comparison sites
• A general pressure arising from ongoing productivity improvements and reduction in production costs.
• Growth of sophisticated counterfeiting
Company responses can be defensive or adaptive
Defensive responses include:
• Denial
• Strengthening brand image supported by real differences in quality of product and service
• Relying on protection via Patents, trademarks, copyright (e.g. the music industry)
• Flexible pricing (factory outlet stores, differential pricing in different markets, buy now pay later)
• Price fixing conspiracies
Adaptive responses include:
• Innovation, and rapid development of improved models
• Adopting radically new business models (e.g. Swiss watch industry)