Our brainy friend Charles Hugh Smith posted this chilling essay about the “limits to growth” mankind faces in this century at his essential Of Two Minds blog. As he points out, the innovations of recent decades have more often than not served to destroy jobs, not create them. (I can’t source this because someone told me this conversationally, but apparently there is one factory, owned by Samsung, that manufactures nearly all of the world’s supply of a certain size HD flatscreen (not the entire TV, just the screen). The factory, I was told, employs fewer than twenty workers! Keep that in mind as you read the following).
The common feature of the transformative technologies of the 20th and 21st centuries is that they were one-offs that cannot be duplicated.
What if the engines of global growth that worked for 65 years (since 1945) have not just stalled but broken down? The primary “engines” have been productivity gains from industrialization, real estate development and expansion of consumption based on the continual expansion of debt and leverage—in short-hand, financialization.
The Status Quo around the globe has responded to the obvious endgame of financialization (the 2008 financial crisis) by doing more of what has failed: expanding credit and leverage, flooding the global economy with liquidity (money available for borrowing), credits and subsidies for real estate development and a near-religious belief in “the next industrial revolution” that will spark rapid growth in employment, profits and productivity.
“The usual suspects” for the next engine of growth include nanotechnology, biotechnology, unconventional energy and Digital Fabrication, i.e. 3-D printing and desktop foundries. But are any of these capable of not just replacing jobs and revenues in existing industries, but creating more jobs and expanding revenues and profits?
There is a growing literature on this very topic, as many start questioning the quasi-religious faith that there will “always” be another driver of growth, i.e. the expansion of wealth, profit, employment and assets.
The Status Quo dares not even entertain this question because the only way to service the fast-rising mountain of debt that is sustaining the Status Quo is to “grow our way out of debt,” i.e. expand the real economy faster than debt.
The past 250 years has been one long “proof” that we can indeed “grow our way out of debt” because the low-hanging fruit of industrialization and cheap, abundant energy enabled wealth to be created at a faster pace than debt.
Clueless Keynesians mock those questioning the possibility that the low-hanging fruit has been plucked by noting that doomsdayers were actively decrying the ballooning debt of the British Empire in the mid-1700s. We all know how that story ended: what looked like crushingly massive debt in 1780 was reduced to a trivial sum by the rapid expansion of industrialization.
But suppose the end of cheap, abundant energy (replaced by abundant, costly energy) and the Internet spells the end of centralized models of growth? What if all the innovation currently bubbling away only produces marginal returns?
Take biotechnology for example. Those with little actual knowledge of biotech are quick to latch onto the potential for genetic engineered medications, biofuels, etc. What they don’t ask is if these technologies can scale up while costs decline, i.e. the computer technology model where everything progressively gets cheaper and more powerful.
Biofuels may have promise, but it still takes “old fashioned” energy to collect the feedstock, and it is a non-trivial task to keep micro-organisms alive on the scale that would be needed to produce a useful amount of liquid fuels, i.e. a few million barrels every day. Some processes may not scale up, and others may not see any significant reduction in fuel costs once the full input costs are calculated.
Genetic engineering also may not scale up—it may be limited by key barriers of individual patient complexity and by intrinsic costs that do not drop enough to make a difference.
Consider the diseases that have almost been eradicated—polio, for example—and the lifestyle diseases such as diabesity. The wave of diseases that were eradicated were caused by bacteria or viruses: a vaccine or agent that disabled or killed the bacteria/virus wiped out the disease.
Diabesity, cancer and heart disease are not caused by a single virus or bacteria. The “one med/vaccine works for all” model has failed and will always fail because diabesity and other lifestyle diseases have multiple, non-linear causes that are beyond the reach of a single “solution.” These diseases may well be tied to epigenetic factors, for example, the interaction of “junk DNA” with environmental stresses that extend back into the individual genome.
What we face is the confusion of symptoms and effects with causes. Lowering cholesterol is not the “magic bullet” many hoped for, and neither was hormone therapy.
In the technology sector, it is clear that the Internet is destroying entire sectors of employment. The jobs that have been lost for good have not been replaced by jobs created by the Internet, nor is there any credible evidence to support this hope: automated software continues chewing up one industry after another, and the politically protected fiefdoms of healthcare (sickcare), education and government have yet to taste the whip of real innovation.
Rather than add jobs, we will lose tens of millions of jobs as faster-better-cheaper breaches the walls of these massive politically protected fiefdoms.
Healthcare spending is clearly in terminal marginal return: our collective health continues to decline in key metrics even as spending doubles, triples and quadruples. The same can be said of defense, education and many other industries.
Sectors such as agriculture have already seen employment decline by 98% even as production rose; there are still improvements in agriculture (robotic milking machine, for example) but the low-hanging fruit in agriculture as well as in medicine, education, etc. have all been picked.
The next wave of innovation will destroy protected profit centers and employment; even the Armed Forces are not immune, as the “ships of the future” will have relatively small crews and robotic drones will replace high-cost, high-employment weapons systems.
The semi-magical belief that technological innovation will create wealth in such quantities that all other problems become solvable may well be false. We may have entered an era of marginal returns, where innovations destroy jobs, wealth, assets and debt—the very foundations of “growth.”
I have begun to speculate about a future where energy might be abundant but few can afford to consume much: money and income may be scarcer than energy.
The one innovation that might energize an entirely new field of employment is digital fabrication, the decentralization and distribution of production. But this will also creatively destroy jobs dependent on the present supply chain.
National governments have over-promised entitlements to their citizens on a vast scale, and the current “solution” to the mismatch of promises to national surplus is to borrow monumental sums to fund the promises. If innovations actually shrinks employment, incomes and wealth, then the base for taxes and debt will quickly shrink to the point that the debt is unserviceable. The Status Quo will collapse financially, even if energy and labor are both abundant.
Consider END OF GROWTH - six headwinds: demography, education, inequality, globalization, energy/environment, and the overhang of consumer and government debt. (via Zero Hedge)
The point made in this lengthy essay is a powerful one: the common feature of the transformative technologies of the 20th and 21st centuries is that they could only happen once. They are one-offs that cannot be duplicated. Doing more of what has failed will only set up a grander failure as returns on all our debt-based “investments” become ever more marginal and the return on increasing complexity drops into negative territory. Once complexity yields negative returns, the systems that depend on complexity quickly destabilize and implode.
Read more
No More Industrial Revolutions?
The Collapse of Complex Business Models
This is a cross-post from Charles Hugh Smith’s Of Two Minds blog. You should bookmark it and read him daily. Charles Hugh Smith’s newest book is Why Things Are Falling Apart and What We Can Do About It
, you can actually see a little bit of the tiny, crowded, one room space where Paul Laffoley not only worked, but slept, for decades, his head down at his desk ala “Howard Roarke” in The Fountainhead. The reason you don’t see even more is that we had a shot with a depth of about 4 feet, I was practically sitting on Paul’s lap for the interview.
, the three-part series covers the lives and work of Friedrich Nietzsche, Martin Heidegger and Jean-Paul Sartre. Although biographies, the overall theme was an exploration of the philosophy of Existentialism, as developed by these radical European thinkers.
and “Outer Spaceways Incorporated.”
