What Happened To Economic Growth?

By: Andrew_McKillop

The magical invention of economic growth needs the magic of invention, and technological-type invention is always around and available the optimists tell us. When it isn’t, like now, doctoring the numbers and letting them doctor themselves with false overvalued monetary units "measuring" the growth that is not there will pass muster, the optimists don’t tell us. Doctoring growth that isn't also draws on productivity gains that aren't, using the same vastly overvalued money units that "measure" growth: for how many years have we had productivity gains (or claims) at 6% or more every year ? In plenty of national cases, simply inverting claimed productivity gains, and claimed rates of inflation, will give a much more honest picture of what is going on. This now longstanding and traditional doctoring of the data, both deliberate and inadvertent, extended over 10 and 15 years or more, gives us vastly different readouts for the real situation: which is bad.

We get a better look at what happened to the economy's "growth machine" through a long decade or more. The no growth economy process has been mirrored by flagging rates of innovation and invention, but with no surprise at all, this is usually denied.

The numbers can sometimes switch so radically from fact to fiction, real to virtual that we can suspect something strange has happened to the economy: physical output figures as basic as tons of steel or concrete produced and poured can first be given heavy upward distortion with overvalued monetary gauges. Then they can be compressed to almost nothing, as in the real estate boom-slump syndrome. It was like the concrete and the steel had no value - but that isn't the same thing as free. We only have one constant readout: the game is zero-sum and there is no trade-off of diminishing returns in the economic process through innovation and invention.

Possibly soon now, we can arrive at an event horizon where the process breaks apart. The downsized dwarf of the real economy is engulfed by the red giant virtual economy of fake numbers and false values used to gauge them, and there is no prize for guessing what happens: both will shrink.

THE OLD MODEL
In a slowly globalizing economy of the early 1970s type with oil at $1 and 50 cents a barrel and a world population of 3.5 billion, one-half of today's, short downturns in real economy growth could be toughed out, while awaiting the magic wake up call of invention. Today, we can maybe hope for breakthroughs in individual cup-size espresso coffee serving machines, but not much more. To be sure and as always we have a solid line-out of fake or useless inventions and innovations, like mass electric car fleets running on Tesla coils (or maybe on cup-size plastic pots of used coffee powder), but this is light years away from the classic fairy story model of constant economic growth. This says that some kind of invention will always come along delivering a magnitude of outputs which can exceed by almost infinite amounts what was put in, the inputs. The 1920s version was called the car industry, in the 1930s and 1940s the weapons industry served, oil and petrochemicals helped in the 1950s and 1960s, and from the late 1970s we had the microcomputer and network revolution.

On offer but doing almost nothing in the way of magic and burning up resources at a frightening rate, we have had green energy and cleantech invention for the last 10 years. Before that, in the 1990s we had a lost decade of financial invention, although others call it financial crime, producing the metrics that fooled us that all was OK.

Even the classic old model of invention driving growth in the economy has itself had critics from as far back  as the 1930s, even before. This is because simple facts show that invention flags when recession bites, and during recession the only kind of "allowed invention", which is industrial, gets especially hard hit by falling research budgets and corporate panic-mode decision making.

Simple facts show that invention doesn't lift the economy out of recession except in very rare and special cases. The boost to economic growth from inventions that happened during a recession will only take place later on, well after economic recovery started: it was not the invention(s) that caused recovery. For Schumpeter in the 1930s the real problem was that industrial and corporate invention is always threatened during recessions, and by the corporate-type ethos and ways of doing things. He argued that it was unlikely that invention could be a quick fix either for the economy or for saving corporate dinosaurs, and he surmised that corporate-type capitalism was doomed to fail. Corporate survival constantly levers up the invention need for survival, it depends on always bigger inventions coming along on a reliable and regular basis upstream from the recession - but they don't come.

The reason is simple. Despite the optimistic claim that invention is unlike most other forms of human activity, economic or otherwise, because it is not limited by laws of diminishing returns but this is only true for a while and with real limits. In reality, the new invention which comes will tend to only raise the threshold need for more and bigger-scope inventions and more innovation, later on. This applies across the board.

FIRST INVENT AGRICULTURE
As we know, the present one-only model of innovation is industrial. Claims are made that invention can be packaged into "theme parks" and driven by Silicon Valley surroundings, like dinosaurs gambolling in Jurassic Park, but this is fantasy. When society and the economy morph into our present late stage urban industrial mould, or straitjacket, there is no way out: theme parks are not enough. Industrial invention is obligatory. Not only consumer goods need to be constantly restyled and upgraded, but basic things like food, water, energy, minerals and metals have to be produced and supplied, somehow.

Earth now supports 7 billion humans only because our ancestors invented agriculture -- and subsequent inventors improved it century after century. This was not an industrial invention at first but became so.  Improvement was measured mostly by quantity, and finally it was measured only by quantity. Today, using optimistically overvalued money units we can "measure" continuing agricultural progress, to be sure, but this does not hide the diminishing returns.

They are not only ecological stress, new virus diseases, GM and nanotech residues, radioactive materials and chemical wastes in food products, and long-term damage to things as basic to agriculture as soil quality and aquifer water reserves worldwide. On a simple quantity basis the production gains are also not enough. Not enough food is produced: UN FAO data shows about 950 million persons, nearly one-in-seven of today's world population suffers daily food shortage. Rather likely, these persons worry a lot less about climate change and the price of gasoline or their next designer electric car at $40k than the world's one-in-seven who live in OECD countries, who consume about one-half of the world's depleting resources and are getting worried about how to keep the party going.

Reinventing agriculture and food production, including short-fuze issues like saving the world's fish stocks and seabird species from a grisly wipeout, are at least as important as "reinventing energy", which Silicon Valley theme park innovators tried to do, and failed, but had a great time throwing other peoples cash out the window on near-instantly insolvent start ups.

Reinventing agriculture is a back-to-basics issues needing basic invention and innovation, very fast. The problem is this: the type of invention needed to save agriculture is not industrial, but this is our only innovation model - making the outlook even more cloudy for world food.

INVENTING NATURAL RESOURCES
The moment we talk about agriculture we talk about water and energy, and the environment: according to IBRD data, world agriculture takes 78% of all water consumed on the planet. While the energy needs of farming and fishing can seem small relative to industry, most OECD countries directly consume at least 3 barrels of oil a year for every single hectare (a square of 100 x 100 metres) of their farming land, which itself is shrinking every year due to factors like roadbuilding, urbanization and building theme parks. Deep sea fishing is the single most oil-intensive food production that exists - helping explain the price of fish. Through massive energy waste, this dinosaur-type industrial food production system accelerates the extermination of fish species and seabird species.

The diminishing returns are classic and massive: more and more energy is thrown at industrial type food production, but it produces less and less growth of annual output. We can of course go on  "measuring" flows of capital and markets for labor, in agribusiness as in other industries, and hope for an overlay of constant invention and change, but the underlay is a mass of hard-edged real world, physical, chemical, biological and other science factors making it obligatory to save natural resources.

Economics is obsessed with growth and recession, but these events surely don’t happen in a vacuum: while physics of the non-quantum type tells us mass and energy can be neither created nor destroyed, the environment and natural systems can surely be destroyed - but can't be created despite the cute research on recycling dinosaur ADN and implanting it in handy living species of today. Under any scenario, the Big Mac with a dinosaur meat pattie inside is a long, long way ahead.

Using unlimited human arrogance and its running dog partner called optimism, we can invent ersatz substitutes but their long-term survivability is as low as their real utility and productivity. We can call modern agribusiness a failed innovation on the simplest possible criteria - producing enough to feed the world. It tried and it failed. We have the proof. At least as bad, this failed industrial innovation brings long-term collateral damage to natural systems which we can't replace.

REINVENTING THE FUTURE
The need is simple: reinvent the economy which has morphed far away from being able to be repaired and fixed by regular-type industrial invention. Our economy is really more about waste and destruction than growth. Scientists report that around 55% - 80% of energy used in the US and other OECD countries is wasted. Roughly 40% of the food that is produced by destructive and unsustainable agribusiness is wasted, the game of "growth versus no growth" and "limits to growth" is mindwarp. The real problem is producing badly and using too much.

This diagnosis at first doesn't get us asking why financial invention or innovation did so much less than nothing to prevent the 1929 US-originated Wall Street crisis of financial capitalism, or its present avatars like the 2008 Lehman Bros and subprime crisis. But we can say that "next stage" economics is likely to set up firewalls against dysfunctional inventions that spread worldwide, waste massive amounts of resources and depress real innovation like a lead shroud.

What happened to growth is the same story as what happened to invention and innovation. Attempts at  creating invention-friendly environments, like the Spielberg theme park version of Silicon Valley, are almost always a failure. Policy makers and deciders have pulled all the levers they have, from lower tax rates, training grants, favourable zoning laws, research-and-development support and all the rest, but none of these really spark invention. What happens is that big corporations home in and hoover the grants while they launder any profits that escape through the web of economic inefficiency. Then they move on, leaving a wasteland behind.

The only solution is radical. The economy cannot harness the power of invention and needs replacing. Exactly how we do that will by simple force of necessity be high up the agenda in our future - if we want a future - making it more than just urgent to do something about the waste-based economy.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

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