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It's the end of 'industry as usual', so what next?



Amid the intense debate about global warming, one of the claims by those claiming dropping fossil fuels will mean a much lower standard of living for ordinary people is definitely false. The evidence is overwhelming that the industrial-era systems, including the methods of energy provision, are running out of steam.

Darrel Bricker and John Ibbitson's Empty Planet: The Shock of Global Population DeclineThis is hardly a new idea: the management thinker Peter Drucker was writing about the transformation in his book The Post-capitalist Society in 1993. But the stagnation is now becoming critical. Most of the world, including Australia, has reached a point of debt-saturation, even China. This is why interest rates are close to zero in most of the developed world. Once debt reaches a certain point, no-one wants to borrow any more and the whole system grinds to a halt (as Japan has demonstrated for the last 29 years).

What is needed — and this is why those arguing for the status quo are part of the problem — is new types of goods and services. Ask yourself the question: what new products have emerged in the last 30 years? There have been great gains in computer power, but that is an enabler, it is not really a new product. There may be a few new types of services connected with the internet. But for the most part the new demand is simply an updated version of something that already existed.

Mobile phones are just telephones that can be moved around. A refrigerator may be connected to the Internet-of-Things, but it is still just a refrigerator. Cars may run on electric power, but they are still just automobiles. Computer tablets may allow you to watch videos online, but it is still basically television.

Creating new products, especially sustainable ones such as solar power, is a way to catalyse the 'creative destruction' — a phrase coined by the Austrian economist Joseph Schumpeter (a friend of Drucker's father) — that is so loved by the political right, largely because it is a useful pretext to drive down workers' wages. That should only be the start. Unless radically new products are created, things perhaps not even envisaged now, then the industrial system will get slower and more stressed.

It is unavoidable for another reason: plummeting fertility rates around the world. Industrial systems rely on demand remaining robust, especially as the methods of supply become more and more efficient. But as Darrel Bricker and John Ibbitson describe in Empty Planet: The Shock of Global Population Decline, those new, young consumers will not be coming through.

Global fertility is now half the level it was in the 1960s, and the decline is accelerating as the world's population becomes more urbanised. A fertility rate of 2.1 is required to keep population stable. China's rate is only 1.5, India's is now at 2.1 (these two countries account for two fifths of the world's population). Fertility has fallen sharply in Europe; in Spain it is 1.4 and Italy 1.5 (the Italian government is aiming to give parcels of state-held agricultural land for 20 years to parents who give birth to a third child between 2019 and 2021). Japan's rate is 1.44. Australia's is 1.8 and Singapore's is an extraordinary 1.14.


"For the last decade or so the can has been kicked down the street because the financial sector, especially banks, have been allowed to create various asset bubbles underpinned by debt. That game is now up."


There are some countries or regions that are still growing: Indonesia's fertility rate is 2.36, while sub-Saharan Africa is 2.5. But overall, you can forget about strong consumer demand in the future. The impact on the aggregate global population will be delayed because people now live longer. Bricker and Ibbitson believe it will peak at nine billion mid-century then start falling (not the 11 billion predicted by the UN). But older people do not consume as much. Everything points to decline; it is the end of 'industry as usual'.

For the last decade or so the can has been kicked down the street because the financial sector, especially banks, have been allowed to create various asset bubbles underpinned by debt. That game is now up.

So here is a suggestion, which I admit is absurdly naive and has very little likelihood of ever occurring. At the next global financial crisis, when the financial systems of the developed economies hit the wall and questions about what we want our monetary system to do for us become a matter of survival, why not devise a transactional system that is not just geared towards the consumption of goods and services, but also involves monetary exchanges for social goods, such as sustainable production, or civic benefit?

To give some idea of what might be possible, consider emissions trading. This starts from the assumption that reducing carbon emissions is a social good, and the aim (despite some flawed execution) is to create a monetary benefit from doing so. It is universally accepted that pollution should be reduced and we need to stop despoiling the planet — to do so is a social good. So we could devise a financial system that rewards pollution reduction and encourages corporations to stop profiting from waste and obsolescence.

Or we might decide it is a social good to increase the fertility rate, as the Italian government has, and devise a financial system that rewards that. All this is speculative, of course, but if it is remembered that money is something we create, not a force of nature, then it is perfectly possible to shape what it does differently.

The Australian economist Nicholas Gruen uses the term 'public goods', arguing they are in the very fabric of what we call free markets: 'Social institutions evolve from the ceaseless repetition of patterns in individual small scale interactions like conversations — language and culture. Each is an emergent public good. Yet, though it is a general and freely available resource for all, rather than being provided by government, we all build it.'

There is a joke that accountants know the cost of everything and the value of nothing. How about a monetary system which is not just about price, but also social value?



David JamesDavid James is the managing editor of businessadvantagepng.com. He has a PhD in English literature and is author of the musical comedy The Bard Bites Back, which is about Shakespeare's ghost.

Topic tags: David James, capitalism, sustainability



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Existing comments

We measure economic health with Gross Domestic Product which increases positively for such negative outputs as pollution but does not account for volunteer labour to clean up the mess - go figure! Australia has become dependant on developers building for our growing migrant population - the building industry presents a huge impost on our environment yet if migrant numbers drop it will deflate our economy because property prices will crash and available paid jobs will vanish bringing down a cascade of supporting businesses. I agree that we need to redefine economic values and change modelling and evaluation to reflect real contributions to true societal good. This should include a new fiscal benefit for carers and volunteers and creative artists.

Anna | 25 November 2019  

We've just gone through a series of debates on decriminalising abortion. Yet few conservatives seem to consider the other option in terms of protecting the unborn - that is, incentives that reward those who bring a child to term. I wonder how many women might be dissuaded from abortion with the right financial incentives - even if they don't decide to raise the child themselves. If people really want to be pro-life, then we should be willing to consider the sorts of things David suggests here.

Michael McVeigh | 25 November 2019  

Interesting article as always. I am reminded of Rutger Bregman’s idea of ‘free money’, that is to say all are given enough money to live on decently without having to work for it and then have the freedom to choose what they will do.

Steve Sinn | 25 November 2019  

A very thought provoking essay, David. What economists and financial wizards don't factor in is the Earth's ability to withstand the imposts we are putting on it various systems. The increase in unusual and destructive weather and climate events are like the canary in the coal mine, warning us something is now seriously out of wack with the earth's climate, which in turn is impacting the living environment.At a local level I am observing the die back and death of the hardy eucalyptus woodlands around Canberra . Street trees are also dying in our suburbs. No doubt the extreme heatwave of last Summer, added to the worst drought for at least a century, may be the cause. Maybe all linked to human induced Climate Change Getting back to the economy, it's time that economists, financial planners, regulators, such as the Reserve Bank and Governments, Federal and State, started thinking outside the box and planning for a completely new economic system to replace the Neo liberalism Capitalism which is on its last legs. I am not very optimistic though, that we will adjust in time!

Gavin | 25 November 2019  

Sounds like a great idea, however, there is one tiny little elephant in the room that you are all ignoring: BUREAUCRACY. More and more bureaucrats will be appointed to administer the system and determine: (a) what social good is deemed suitable for a reward: (b) what reward is determined sufficient for any given social good: (c) the major problem, how do the bureaucrats not run over budget considering most of the budget will go towards paying them. Good luck with all that.

Brian Leeming | 26 November 2019