Less is more: a quiet evolution
by George Hatjoullis
(Something I wrote in June 2009 strikes me as still relevant today so I reproduce it here for a wider audience.)
Listening to politicians, economists and other commentators one could be forgiven for thinking that the only issue in dispute is how long it will take for the global economy to return to normal. The recession will be severe and painful but normal service will, eventually, be resumed. Regulatory frameworks will need adjustment but the basic model will prevail; free markets regulated to prevent the worst excesses. There is as yet no concern about a mass movement towards socialized production similar to the concerns that prevailed in the 1930s.
In part this may be because the countries that embraced socialized production now embrace regulated market structures. Socialized production has hardly been a success! However, one important change may be emerging in the social psyche that needs careful monitoring; the attitude to greed. The Thatcher/ Regan era can be characterised as ‘greed-is-good’. Unfettered greed is no longer regarded as good. It is becoming apparent to the most apathetic citizen that unfettered greed plus opportunity will result in unseemly and dangerous excesses. Moreover, it is implicitly and intuitively grasped that the inclination to such excesses is not specific to individuals but rather that it is the outcome of the elevation of greed as a social virtue and the opportunity to excel in this respect.
The population of the UK may be amongst the first to make the aesthetic switch. The experience of parliament systematically and unapologetically abusing the system of expense claims will have had a profound impact, coming as it does hard on the heels of the banking crisis and the excesses of bankers. Given the widespread nature of the abuse it is hard to associate the cause with individual failings. Intuitively, it is obvious that the combination of certain social values and opportunity will typically corrupt. It is unlikely that the solution will be perceived to be simply a move to socialize the means of production. It is more likely that there will be a change in social values, which may have fundamental implications for the economic activity.
A wave of aestheticism
The corollary of greed is materialism and conspicuous consumption. This has driven a live-now-pay-later culture and fuelled the expansion of debt. One possible development will be the elevation of aestheticism as a social norm. Less will be seen as more and quality will replace quantity as a sign of social grace. The willingness to take on debt may diminish. The implication for an economic system that measures health on the basis of GDP is self-evident and profound. These aesthetic values have lived within the system for a long time but have been overwhelmed by the status of greed. The conditions are now in place for a quiet evolution. Less-is-more could become a new social value. The response to climate change provides a useful illustration as to how this change may evolve.
The economics of climate change
There is no doubt that the earth’s climate is subject to dramatic change. The long history of the earth reveals much evidence in this respect. Given this long history one needs to be careful about asserting that the human species, which has been around for a mere augenblick, has caused the present experience of change. The willingness of the populace to accept this assertion probably relates more to the collective need for control than a proper understanding of scientific evidence or confidence in the community of scientists. If we caused climate change then we can halt it and perhaps un-cause it by appropriate action. For the purpose of economics the truth of the matter is irrelevant. If the people believe that humans have caused climate change then the consequent behavioural changes will have profound economic consequences. More important these changes will positively interact with the implications of the rise of aestheticism.
The main social construct for promoting a response to climate change has been the carbon footprint. Individuals are exhorted to minimise their carbon footprint. All material possessions require the expenditure of energy in production and transport, so less-is-more in this respect. Taken to the logical extreme, the socially laudable economic behaviour is thus to minimise consumption. This is the opposite of the conventional economic medicine prescribed for recession! The carbon footprint construct dovetails neatly into a move towards greater aestheticism.
A second consequence of the carbon footprint construct is protectionism. It is quite the most protectionist measure to emerge for some time without one word of protest! To the extent that energy expenditure is proportionate to transport distance then minimising the carbon footprint implies buying local. Add to this the likely chauvinistic assumption that environmental standards are likely to be higher at home and the exhortation to buy local is complete. Once again, protectionism is not part of the conventional medicine prescribed for recession.
New technology and structural change
Human society is adept at developing new technologies. However, the adoption of such technologies requires particular social conditions. The conditions for the adoption of energy (in particular carbon based) expenditure minimising technologies seem rather propitious. The potential surprise will be in how quickly such technologies are adopted and the problems arising from the consequent structural change.
The motorcar industry is one most obviously in line for major changes. Petrol engine efficiency has been increasing since the days of the first oil price shock. However, the rate of achieved reduction in MPG has been slowed by the increased weight of cars resulting from new gadgets and safety features. Moreover, the car remains one of the most popular forms of conspicuous consumption so the number of large, petrol guzzling, vehicles does not seem to have diminished. The ubiquitous 4×4 making the school run is a case in point.
The introduction of hybrid and alternative fuel cars has been slow and the gains in terms of lower carbon dioxide emissions unspectacular. The electric car is an ambiguous development depending how the electricity is generated and the available cars are small and quirky. In practice the status of the car as a social symbol or signifier holds the key to the next phase of development for the car industry.
The weight and performance of the car inevitably remain key variables in fuel consumption. In terms of conventional technologies lower petrol consumption requires less heavy, lower performance cars. For this to be achieved consumers must elevate the social value of such cars versus the high status petrol guzzlers. The slow evolution from greed-is-good to less-is-more is very relevant to this development.
The car industry is thus likely to experience a move to smaller lower performance cars not simply because the price of petrol is high but as a consequence of changing social values. The incentive to introduce new technologies involving lighter materials (less steel) and different modes of power generation (e.g. compressed air!) will be high. The structural impact on conventional industries such as refining, steel production etc may be problematic coming at a time of cyclical recession.
Alternative sources of energy
The concern about climate change may also accelerate and, in the case of nuclear power, renew enthusiasm for alternative energy sources. Clearly there is not as much gain from developing electric cars if that electricity is generated by combusting oil or burning coal. Technologies for harnessing wind and solar power are becoming accessible even to the individual. Solar panels exist that enable individuals to power household electricity consumption and potentially sell electricity to the grid. The cost of producing, installing and maintaining such panels is the key to the economic considerations that will influence decisions to install. However, economies of scale are evident so it is likely that the introduction of panels will at some critical point become self-reinforcing. Governments can influence this process through grants and loans and are politically motivated to do so in a context in which climate change grabs the voter’s imagination.
One important feature of these alternative energy sources is the low marginal cost of production. The waves, wind and sun do not charge. Nuclear power lasts a very long time, arguably too long! Under competitive conditions price is linked to marginal cost so an era of cheap electricity may be not be far off. The availability of cheap electricity will reinforce the other forces behind a move away from carbon fuel based technologies. Emperor oil can be seen to go the way of king coal in the not too distant future.
Structural change inevitably involves winners and losers. In the short-term the impact of such change tends to depress economic activity. Losers have no choice but to cut back consumption but winners may at first merely treat gains as a windfall and not increase consumption. In the medium to longer-term such change can be expected to be positive. It is difficult to see a scenario dominated by cheap electricity as anything but positive. However, the main concern is the immediate impact of steady structural change mapped on a very severe cyclical downturn. The recovery may take longer than many assume.
The immediate economic implications, though of concern, may be small compared to the wider geopolitical significance. If oil is downgraded to a secondary source of energy the impact on specific nation states will be very severe. Moreover, the focus of western foreign policy will shift, as the need to secure oil supplies will diminish. However, this is a different discussion.