Friday, 10 February 2017

At the Edge (Chapter 1 of “The Golden Age“, version 0)

by Dirk Helbing (ETH Zurich/TU Delft)

Pdf can be downloaded here 

History books are full of examples about the disintegration of complex human societies. The highly developed Maya Civilization collapsed, and the Roman Empire gradually declined. Mesopotamia and Ancient Egypt were also known for thriving cultures, but this was a long time ago. Some declines of cultures had external origins, such as foreign invasions or environmental disasters. However, in many cases, societal transformations were caused by internal factors, namely a situation where the problem-solving approach of a society did not match its challenges anymore.

Two of the driving forces of societal transformation are population size and complexity. As population grows, a process of division of labour sets in. People will focus on offering products and services that they can more successfully produce than others, which in turn allows those to focus on their own talents. This process of specialization leads to increasing diversification and growing complexity. On the one hand, this tends to increase economic efficiency and prosperity, on the other hand it creates the challenge of coordination.

This diversification process has, in particular, caused a transition from primitive anarchic societies to feudalistic societies, which were ruled by nobility and kings in a top-down way. In a sense, they offered coordination, which created public benefits. The peak of centralized power was probably reached during the reign of Luis XIV. However, centralized autocratic control tends to restrain diversity, which obstructs innovation. Eventually, this makes autocratic systems dysfunctional, as they do not manage to keep up with environmental, cultural, demographic and technological change.

For example, when the steam engine was invented, this boosted productivity so much that no country could stay apart. The economic success of countries, which were exposed to military and economic competition, required entrepreneurial freedom. As the coordination by a king was limiting the economic development too much, the centralized control system collapsed and a decentralized approach emerged, driven by entrepreneurs.

But it did not end there. The early entrepreneurs did not care much about the environment and about workers either. As the industrialization progressed, entrepreneurs accumulated unprecedented wealth, while many workers lost their jobs and the basis of their existence. The inequality among people reached unprecedented levels, and many families struggled for their lives. As a consequence, the pitchforks were coming. The French revolution could not be stopped. It ended with a new societal framework based on liberty, equality, and solidarity (liberte, egalite, fraternite). In Austria and Germany, it took a world war until the emperors resigned.

Empirical data show that, throughout the world, transitions from autocratic to democratic regimes tend to occur when the gross national product per person, i.e. the economic development, crosses a certain critical threshold. Then, a system based on the division of power and broader participation results. Typically, this creates service societies, which are based on coordination and success principles such as administration, optimization, and globalization. Furthermore, legal regulations increase social and ecological standards such that growing economic efficiency does not produce too much unemployment. To cope with all the laws, new specialists are employed. Public schools and universities are established to deliver these specialists. In such a way, private, public, and environmental benefits become reasonably balanced, and prosperity spreads widely. By now, most people in developed countries enjoy a comfort of live that not even kings could have just a few centuries ago.

Of course, not everyone can live like a king. The Earth just does not have enough resources for this. And this is the problem we are running into – a problem that may actually decide about life and death. This problem is known since at least 1972, when Meadows and others published the book “The Limits to Growth”, a computer simulation study of exponential economic and population growth under conditions of limited resources. This study was commissioned by the Club of Rome and funded by the Volkswagen Foundation.

No matter what model parameters were chosen in the equations describing the world’s development, their computer simulations always ended in economic and population collapse. Their updated prediction is that economic collapse is just about to occur, while population collapse will start in 2030. By the end of this century, the world’s population would be largely diminished. In other words, if we ran our societies as before, billions of people would die. Was the world doomed?

Of course, the study was highly controversial. Many people did not want to hear this message, others started the environmental movement. Bill Clinton decided to commission another study, to get an independent point of view. This study, “Global 2000”, comprised more than 1000 pages. In essence, it came to the same conclusions: there would not be enough resources for everyone. As a consequence, a struggle for the world’s remaining resources set in. This triggered globalisation and wars to get access to those resources.

Many people did not bother to know why these wars were happening, why we had financial and economic crises, mass migration, and terrorism. However, if you think about it, it becomes clear that these problems have all one cause in common: our overuse of resources. Industrialized societies consume between 3.5 and 4.5 as much resources than what can be provided sustainably. This causes a scarcity of resources elsewhere and, hence, the conflicts and wars and mass migration and terrorism that we see throughout the world.

If we wanted to change this, we would have to create a sustainable economy. It seems, however, we would have to give up on high standards of living – a message that does not win elections. So, people were kept happy with the old Roman principle of “bread and circuses”, while big business volunteered to solve the world’s problems in the meantime. The neoliberal approach demanded not put any obstacles into the way. Only then, problems could be solved efficiently…

Since then, the economic credo was that any problem, which would become big enough, would create incentives for engineers to solve it. In this way, any existential threat would be fixed sooner or later. In fact, many new technologies and business fields have been created – from nuclear fusion to fission, from wind to solar power, from biofuel production to genetically modified food. Scientific and technological progress has been remarkable, but the world’s problems are still unsolved. The energy and resource consumption per person have further increased. Soil is degrading and water gets scarce in many areas of the world. Side effects of new technologies create additional problems.

We should ask ourselves this question: “What if something is fundamentally wrong with this approach?” Albert Einstein said: “We can’t solve problems by using the same kind of thinking that created them.” So, what is our current approach? Basically, whenever there is a problem, a committee will try to identify all promising solutions and pick the one that appears to be the best. Today, this solution will often be identified with the use of Big Data and Artificial Intelligence. The optimum solution will then be “rolled out” globally. In many cases, this will be done by big international corporations. “Economies of scale”, i.e. additional gains in efficiency when producing huge amounts of products or services, seem to speak for monopolies. Free trade agreements promote large-scale solutions, implemented by global corporations.

This all sounds plausible. So, what could possibly be wrong with implementing an optimal solution worldwide? The issue is that this creates a lack of diversity, which makes the world more vulnerable to unexpected developments. It might also happen that the wrong goal function is chosen. For example, most of the world maximized profits rather than sustainability.

We must further be aware that any technological solution has side effects. Big solutions tend to cause big problems sooner or later. This can easily become a global threat. Modern pesticides are an example for this. The degradation of soil and water systems by industrial-scale agriculture is another one. Nuclear waste is a third one. Rolling out a single solution worldwide and over-standardization is actually the reason why so many problems have become of global scale. To make our world more resilient, it is necessary to return to more pluralistic and locally adapted solutions.

However, global vulnerability and too-big-to-fail problems are not the only issues we must worry about. Another one is the low innovation rate of most big companies. Innovation is slowed down by various factors: First, big businesses may not be exposed to the same degree of competition. For example, they often use patents to keep competitors at a distance, or they lobby for standards that favour their own products. Second, big companies tend to buy small innovative companies. In many cases, this is done just to take competitors out of the market or to keep them under control. Third, as diversity is the motor of innovation – lack of diversity decelerates innovation. It is, therefore, no wonder that we do not have enough and the right kinds of innovations to fix the world’s problems.

My claim is that we have ended up in trouble because the world was shaped by the ideas of only a few people. This has created a tunnel view. When the Limit to Growth study concluded that it was not enough to change the parameters to avoid future collapse, the right conclusion would have been that the system of equations – and the socio-economic system described by it – had to be changed in order to avert collapse. Instead of innovating the system, we have innovated within the existing system, which could not succeed. And, so, the efforts of the past decades have not been able to solve our problems.

Recently, politics has realized that things did not work out. They have brought the Paris Climate agreement on the way, and they are pushing now for open data, open science, open access, and open innovation. But is this enough to save us, and does it come on time?

Probably not. According to the updated Limit to Growth predictions, the economic collapse is expected any time now. In fact, the Pentagon has prepared for mass civil unrest. The level of inequality is now comparable to the times before the French revolution. Even though I do not mind people being rich, there is a much more fundamental problem that needs to be fixed. Namely, as the OECD, the World Economic Forum (WEF) and the International Monetary Fund (IMF) have stressed, the level of inequality is now so large that it obstructs further economic development. There is just not enough buying power to allow sufficiently many small and medium-sized companies to thrive.

If we want new ideas and business models to succeed, we must allow old companies to die, poor people to become rich, and rich people to become poor. Our current system, however, has been designed in such a way that those who are on top will almost ever stay on top. It has been shown that the richest families 600 years ago are still among the richest families today. While this increases the stability of our society, it undermines its resilience, i.e. its ability to adapt to changes. As a consequence, we are likely to see a big collapse rather than many small failures and successes, as it is needed for the evolution and progress of our society.

The tunnel view of our society becomes evident when reviewing developments in the past decades: while the principle of economic efficiency was once restricted to the economy, “utilitarian thinking” has eventually spread to many other sectors that had different goal functions before: this concerns public goods (for example, electricity and water production), the health system (which increasingly optimizes who gets certain treatments and who does not), politics (creating a “market-conform democracy”), science (increasingly having to engage with business and to deliver marketable ideas), religion (Easter, Christmas as consumer events), and culture (considering the arts market, for example). This has basically undermined the pluralistic value system and the separation of public and private spheres that a flourishing society needs.

We have increasingly squeezed our beautiful, multi-faceted, pluralistic, multi-dimensional world into a one-dimensional system ruled by money. In such a “utilitarian” system, the value and power of a person or institution is determined only by its wealth. This approach is perfect to create a strictly hierarchical system, in which money makes the world go ‘round. However, this is not a system in which the best ideas win. Instead, the one who owns more money can determine what will happen. This creates a system of winners and losers – in fact, many losers and very few winners. In other word, the system does not work for everybody. It has worked for the developed world, as long as there was an abundance of resources. But now, resources are getting short…

Would we have reduced our consumption of non-renewable resources by 3 percent each year, we would have a sustainable economy by now. Unfortunately, we have not drawn the right conclusions from the Limits to Growth study in the 1970ies. And so, many people get to feel shortages now. During the last economic crisis, tens of millions have lost their jobs and are kept at the existential minimum since then. While one would think that this would reduce the consumption of resources, it turns out that the economy has not become more sustainable than in the 1970ies – on the contrary! The world’s consumption of resources is bigger than ever. The entire strategy to optimize the world has failed, and thus the system of today will break into pieces sooner or later.

However, rather than mobilising the power of ideas of everyone to find solutions that we need, people are being distracted from the state of the world – by public and social media, by entertainment, fake news and games. We are made to believe that it is just a matter of time until the economic situation will improve again and full employment will return. The truth is far from this. In many European countries, youth unemployment is already above 50 percent, and Artificial Intelligence is about to cause another wave of automation. Experts believe that many of today’s tasks will be performed by intelligent algorithms and machines in a couple of years.

Even though there are no exact numbers, our societies will probably have to reinvent half of the economy in just two or three decades, if we want to have jobs for all and a sustainable, low-carbon economy by 2030, as the United Nations demand. The sustainability goals of the UN Agenda 2030 would, of course, be easy to reach, if a billion people or more happened to die. Therefore, an optimisation approach implies serious moral dilemmas. Just imagine to live in a world in which it became acceptable to kill people to save the planet. Then, all sorts of terrible things would happen…
The real hard challenge is to reach sustainability without a population collapse. However, I personally believe we should not be desperate, as there is a solution, which I will explain in the later chapters of this book. So far, however, there is no evidence that the necessary decisions to implement this solution have been made. Instead, another kind of system is on the way, a dystopian eco-totalitarism. This brings us to a crossroads. If things ought to end well, our lives will have to change – we have to decide for a new path.

Why is it not possible to continue as before? This is not only because resources would get short, but also because of today’s money system. As discussed at the World Economic Forum in Davos, there are many signs that capitalism 1.0 – the capitalism we know it – will not work much longer. Inequality and unemployment have reached a critical level, which makes societies break apart.

It is also concerning that economic growth has been poor for almost a decade now. This sounds like good news to those who demand de-growth, but it is actually not, because today’s capitalism needs growth to pay back loans, on which most investments are based, plus the interest rates. As interest rates for debts are higher than interest rates for savings, the overall debt level in the world tends to increase. This is certainly true for public debts, which kept increasing for decades. And so it is just a matter of time until some countries cannot carry the burden of their debts anymore. In order to delay their bankruptcy, interest rates have been pushed below zero, which however threatens the savings of ordinary people.

What is worse: zero and negative interest rates blind the “eye of capitalism”. Traditionally, the competition for higher turnouts (dividends, interest rates) has driven the successful allocation of capital. However, if loans are cheap or taking loans becomes a means to make money, capital will increasingly misallocated. Low or negative interest rates are also an existential threat for life insurances and pension funds. However, if the central banks raise the interest rates again, as they have indicated, then it is likely that many home owners, banks, companies and even countries will go bankrupt. Unfortunately, governments will not anymore be able to absorb the problem by increasing their debts. This time, the financial system will collapse, if we do not push the reset button.

By that time, however, most assets will be in the hands of just a few people. As I mentioned before, 8 people currently own as much as the poorest 50 percent of this planet. If one considers that the Federal Reserve (FED) is privately owned and the European Central Bank is also private in part (as are most other central banks around the world), it becomes clear that most of the world is owned by just a few families. The Quantitative Easing programs, which has created trillions of new dollars and Euros to keep the world economy from collapsing, has largely accelerated this concentration of wealth.
Today, the money system is designed in such a way that the central banks and their owners earn money, when governments or banks need loans. In other words, the worse our countries are doing and the more debts they are making, the more is the world owned by just a few people. This implies some crucial questions: “Is this reasonable, is it fair, or is it at least useful? If our countries are owned by a few super-rich individuals, are we still free? And what are their plans with this world?” 

(Comments and inputs to are welcome!)

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