[Crossposted on
Bopnews.]
I've been thinking a great deal about the 22nd Century, for the simple reason that we are now at the end of the age of petroleum, and over the course of the next generation, we will be experiencing a change in our political economy as important as the change from coal to oil was.
There are going to be four great challenges that dominate this century, which must be met and managed, or the result will spiral into war, depression and disaster. We have not been facing these challenges, simply because there has been a pervasive belief that if we just engaged in "business as usual", everything could be fixed.
It won't. It can't and we shouldn't morn the death of the era of big heavy pyramid organizations anyway.
1. The End of Extraction
Ancient Egypt was a gift of the Nile - it flooded, bringing with it fertile sediments from the interior, and a year's supply of water - people farmed that fertile area, and lived well. It produced a surplus enormous enough to build pyramids and a great civilization. Over time the surplus grew less as the population grew higher. The reason the pyramids were built early, is that later on, that effort went into conquest and maintaining a larger population and economy.
Extraction - going back to hunter/gatherer days - has always been good work if you can get it. Those that win the hunter gatherer wars have a supply of resources and living standards that those that don't can only envy. There are only two big problems: one is that the population that can be supported on pure extraction is much smaller, and second, you have to live on the edge - extraction is prone to boom and bust.
The 20th century is the gift of another river - a river of oil that has been flowing out of the ground. Oil is so much better than its alternatives, and so much easier to get that it made the painful task of moving away from coal a positive pleasure. The 19th century is the century of pressure and movement of coal and steam.
However, with the end of the Cold War, there has been a vast explosion of demand to enter the affluent life style. The death of totalitarianism has made it so that those imprisoned within it now reach out for a better life.
This means that while it took 50 years for half of the gains from oil extraction to be realized by the West for less than a billion people, it will take less than half that time to grab all of the gains for what is left. In less than a generation, there will be no cheap oil.
But oil is just the beginning, in almost every other area of natural resource, the easy extraction is almost over. This includes mineral wealth, and it includes arable land and water. With 2 billion people set to enter the affluent economy in this next generation, and 2 billion after it, we would have to find three new Saudi Arabias just to supply the oil, and another two Great Lakes to supply the water. Needless to say, it is very doubtful that either is going to happen.
2. The Collapse of Corporate-Capitalist Socialism
Because the late 20th century was a struggle over the control of extraction, the West developed a military to defend territory. It was important to keep oil out of the hands of the Soviet Union and China, because oil is, as noted, so useful that even a bad system staked to enough oil will win against any system that doesn't have enough. Kuwait has a higher per capita GDP than the US. No one is arguing that their system is "superior", except perhaps a few people who drive the latest in car bombs.
This military apparatus was adverse to disruptions in supply, as was the large corporate apparatus in general. More over, because extraction was the great win of an economy - whether it was land, oil or labor - large structures would win out, because they could use economies of scale in gettinga access to resources, and in building capital to exploit them. Bigger was better.
This meant that they were willing to hand out much larger compensation packages than the corporations of a half a century before. It was realized that strikes and labor turbulence were more costly than the pay increases. Shooting at ones customers, is bad for business.
Thus was born corporate-capitalist socialism. Large corporations bought peace in return for pensions, health insurance and other benefits. As with many other things, they gave benefits rather than pay, because they could "sell" the benefits. That is, they could get the health insurance for less than the individual could, and therefore the worker felt he was getting a better deal by taking the insurance. The difference was, basically, profit, for the corporations.
With the death of extraction will come the death of the physical military as the means of protecting extraction. More over, it is already clear that large militaries can't provide security in the world we live in now. With the death of extraction, means a flood of people into the affluent system. With the death of extraction, in short, comes the end of the reliable labor shortage which drove higher living standards.
Since unreliable, or less reliable, labor is now acceptable, and there is a great deal more of it available in China, India and other nations eager to enter the affluent life style, corporations no longer have the incentive. But what is worse is that many of the "benefits" are not subject to international competition. Thus corporations no longer can use their cost advantage - globalization in our era - to provide health insurance much more cheaply. They no longer have a big arbitrage advantage in terms of pensions: because in 1950, they could invest in stocks, and ordinary people could not.
These trends mean that corporations are going to dump providing benefits, because they can get labor that doesn't want them, and they are no longer in the position of making as much profit from them.
3. The Death of Information
For the last 50 years, information has been king. Whether it was code cracking and the atomic bomb, information about where the oil was, or knowing what the government was going to push next - one of the surest roads to victory was having the inside edge.
But information is based on the first two things - one is extraction, in particular knowing what was going to get extracted next - and the other is that there are large, relatively less nimble, organizations that control the economy. Thus it was possible for small players to engage in a land rush, and hope the big players would buy them out.
This was also seen by slowly rising volatility in equity markets, and in the vast focus on the "information economy". In a longer term way, it was why the education system tried to identify "IQ", because we needed vast human computers to process data into information. And it was worth spending half the effort of the economy to find the next big edge.
With the death of extraction, that means there are fewer 20 dollar bills lying on the sidewalk to find. That means that what we are going to see over the course of the next generation is a mass layoff of information workers. In fact, this trend has been going on for a generation, only we didn't think of it that way. The first crush was for government information workers - "bureaucrats". This wasn't noticed as much, because at that moment private corporations were hiring information workers, and so what happened is that people who, once upon a time, would have been in academia or government, ended up programming computers.
But now, paradoxically, two trends are permanent. One is that information processing - both computers and people - is getting incredibly cheap. The other is that the value of the information is getting less and less. There's not only an infoglut now, there is also info-exhaustion.
That means that every 100,000 dollar a year programmer in the US, is an endangered species.
That means that every trading desk on Wall Street is an endangered species.
That means that just about everyone in the developed world, other than the very rich, is going to have to find something else to do, because it is the information worker whose time is so valuable that he is willing to pay for all the "conveniences" of post-modern life, from restaurants that sell chicken McPuckets to other "time saving" services.
4. The Labor Arbitrage Ocean
This is the culminating reality. The one that keeps Chinese party leaders up at night, just as much as it worries everyone whose job is going to China. You see, while it is possible to push 300 million of China's 1.2 billion into the affluent life style with current supplies of energy and resources, and probably about 150 million of India's 1 billion, there it stops.
There will still be a wave, an ocean wave, of cheap labor. And already people in Shanghai are worried about what happens when the interior wants jobs. This ocean of labor doesn't stop there, there are hundreds of millions more in Africa and South Asia.
Since we can no longer just "extract our way to enough economic growth", labor arbitrage is a long term, multi-generational reality. Since the large organizations that were used to generate economies of scale are at their limits - we can't simply allow consolidation to reduce costs enough to employ them all.
Summary
The four great challenges subsume many of the problems people are worried about more explicitly, because the problems we are worried about are the leading edges of these great challenges. But the impulse will be to "shuffle deck chairs on the Titanic" - fix one problem by breaking something else. For example, Social Security's future short falls come from the end of extraction and from labor arbitrage - there will be lower wages in the future in the US, because of the reduced gains from extraction and arbitrage, and therefore less to pay pensions with.
We could "fix" this by simply lowering benefits, but that breaks the labor arbitrage problem even more - because that lost money was also demand for services. More poor old people means fewer jobs for people to sell to old people, which means lower wages, which means an even worse Social Security problem, and loss of economies of scale, and therefore even higher costs.
These four great challenges have to be met by four great realizations.
On that, more on Monday.
