Ever greater impact, ever less benefit: high-tech capital’s mysterious lack of growth
Economists have long wondered why more efficient technologies increase human impact instead of reducing it. Computers were supposed to break the trend but seem to have intensified it instead. Yet outside the worlds of electronics, finance and business consultancy, economic growth has ceased. Meanwhile, inequality is the ‘elephant in the room’, which nobody likes to mention.
Technology evolves through the ever-more parsimonious use of resources: doing more and more with less and less. If that were the whole story, humanity’s environmental impact would now be tiny. Yet the complete opposite has happened, again and again, with dismal predictability.
The contradiction was first described by the British economist William Stanley Jevons in 1865, when he studied the way coal consumption rocketed after the replacement of Newcomen steam engines by the several-times-more-efficient engines devised by James Watt and Matthew Boulton, especially through the early 1800s. The ‘Jevons Paradox’ (often known nowadays as the ‘rebound effect’) has been observed again and again with every subsequent major technology. A 30-per-cent increase in fuel efficiency of US automobiles since 1980 didn’t lead to any decrease in fuel consumption. Mileages increased, and so did vehicle sizes and performance.1 In 2010, the economist Juliet Schor found that, since 1975:
Energy expended per dollar of GDP has been cut in half. But rather than falling, energy demand has increased, by roughly 40 per cent. Moreover, demand is rising fastest in those sectors that have had the biggest efficiency gains – transport and residential energy use. Refrigerator efficiency improved by 10 per cent, but the number of refrigerators in use rose 20 per cent. In aviation, fuel consumption per mile fell by more than 40 per cent, but total fuel use grew by 150 per cent because passenger miles rose. Vehicles are a similar story. And with soaring demand, we’ve had soaring emissions. Carbon dioxide from these two sectors has risen 40 per cent, twice the rate of the larger economy.2
It was assumed not long ago that electronics, computers and the internet offered a way out of the Jevons trap. What could be more parsimonious than electronic devices, whose performance seems to increase by almost logarithmic amounts, while their energy needs seem to fall at the same rate? Their components, moreover, get smaller and smaller every year and contain smaller amounts of materials. A well-known electronics writer and futurologist, Ray Kurzweil, once remarked that, if automobile progress had equalled that of electronics over the previous 50 years, ‘a car today would cost one hundredth of a cent and go faster than the speed of light’.3 The promise of a ‘weightless’ or ‘frictionless economy’ became an unchallenged orthodoxy. Respected economists urged large-scale investment in ICTs (Information and Communications Technologies) by businesses and governments.
Alas, Jevons rules here as well. As we will see below, the drive for smaller and smaller, faster and faster chips has been a largely self-defeating, runaway phenomenon that delivers only modest improvements in performance for the people who use them while imposing constant replacement costs on everyone who wants to ‘stay in the game’. Power-saving technologies (like lithium batteries, high-density chips, and tantalum capacitors) also consume greater amounts of energy in manufacture, as do the new techniques and chemistries required in the quest for smallness and speed (see Chapters 8 and 9). Computers have played a major part in accelerating human impacts.
‘KEEP YOUR NERVE’ OR ‘TOUGH IT OUT’
Two not-very-satisfying answers have been offered to this problem, both of which boil down to doing nothing about it, but for a choice of two reasons. The first is that we should live with the problem and trust that it will sort itself out. The second is that we should ‘carry on regardless’ on the principle that one cannot make an omelet without breaking eggs and, if we lose a few hundred species and change the climate, so what? Change is inevitable! We have to be hard-headed realists and commit all our energies to the fight, as ‘nature red in tooth and claw’ intended.
Juliet Schor has described how the latter approach has been justified in some quite detailed arguments by various mainstream economists. William Nordhaus, for example, argues essentially that since future generations will certainly be wealthier than we are, and will have much more efficient and powerful technologies, it is much better to leave any clean-up operations to them, and concentrate on producing the economic growth that will ensure their future wealth.4 ‘Biodiversity offsetting’ is a subtler version of the same logic: ancient woodlands, for example, are notionally replaced by larger numbers of new trees, planted in more convenient locations.5
The former ‘keep our nerve and it’ll sort itself out’ tendency has clung tenaciously to a theory published by the Ukrainian-American economist Simon Kuznets in 1953. Kuznets, a passionate anti-communist, recognized that inequality posed a serious moral threat to capitalism, but he thought he had found, by studying a number of economies over time, that although wealth inequality grew during the early stages of industrialization, it decreased thereafter; rising inequality was simply the birth pangs of a new age in which inequality would fall.
At least, as the French economist Thomas Piketty explains, Kuznets hoped that inequality would fall; he originally regarded his theory as ‘perhaps 5 per cent empirical information and 95 per cent speculation, some of it possibly tainted by wishful thinking’, but it was so enthusiastically received that he shed his doubts and the ‘Kuznets Curve’ soon gained the status of a natural law.6 It did indeed seem somewhat plausible in the US in Kuznets’ heyday (a period of lower inequality) and the theory earned him a Nobel Prize in 1971, but then, growing inequality returned to the US and its most closely linked economies.
The Kuznets Curve remains a powerfully attractive idea, however, with strong, intuitive appeal. There are many situations where ‘keep calm and carry on’ is a good rule and, latterly, it has been used to argue that economic growth will be good for the environment in the end. Rich economies seemed not long ago to have reduced their consumption of messier raw materials like iron ore and coal.7 Yet this, too, turned out to be an illusion: ‘offshoring’ of heavy industry had simply shifted consumption overseas. Jevons remains in control.
Gavin Bridge, a materials scientist from Manchester, points out that while emissions of the gas that causes acid rain, sulphur dioxide, and the particulates (from vehicle and generator-exhausts) that cause smog, decreased by 56 per cent in Europe and 37 per cent in the US between 1980 and 2000, Asia’s sulphur-dioxide emissions increased by 250 per cent over the same period: the time when the US and Europe ‘offshored’ so much of their manufacturing industry.
In 2011 a British climate researcher, Chris Goodall, thought he had spotted a ‘Kuznets transition’ in Britain: consumption of various key inputs seemed to have fallen slightly in the years before the crash of 2008. He particularly pointed to a reduction in the UK’s consumption of paper, which he attributed to the adoption of ‘more sustainable’ electronic technologies. Similar claims were made in 2014 by a British politician, Chris Huhne, in an article entitled ‘Don’t Fear Growth – It’s No Longer the Enemy of the Planet’.8
But, as Keele University’s Andrew Dobson promptly pointed out, the dream of ‘green growth’ is a complete illusion.9 It depends on ignoring costs that were ‘offshored’ when manufacturing was moved overseas, and the full cost of ‘clean’ technologies. Huhne used LED lights as an example (Light-Emitting Diodes). These need impressively little energy when you are using them, but manufacturing them takes large amounts of energy and materials: they are microchips, made by the same high-energy processes as computer chips (described in more detail below, in Chapter 9). They are a very good example of how energy consumption and environmental impacts have to a large extent merely been displaced. The idea of ‘green growth’ could be just another reincarnation of the old belief, like the belief in perpetual motion machines, that can have one’s cake and eat it.
Kuznets’ theory belongs with the faux-Darwinian mindset mentioned earlier, which pervades market thinking: all is well, natural forces are at work behind the scenes, and everything will work out fine if we allow things to take their course and don’t rock the boat. This has become a very strong theme where the more worrying impacts of new technology are concerned. The philosopher Slavoj Zizek calls it ‘millenarian apocalyptism’:
none of this suffering and mayhem matters – we are all moving on anyway, leaving it all behind. From the vantage point of our post-human future, all this will be seen as simply the detritus of the larval stage from which we have moved on.10
Which leaves the way clear for the sort of hard-core social Darwinism voiced – initially only in private but then more openly – by such figures as the economist Larry Summers who, in 1992, as Chief Economist to the World Bank, suggested in an internal memo that the Bank should encourage the export of dirty industries to poor countries:
A given amount of health-impairing pollution should be done in the country with the lowest cost… I think the economic logic behind dumping a load of toxic waste to the lowest-wage country is impeccable and we should face up to that.11
Summers may have meant this as some sort of thought experiment but, when it was leaked to The Economist, it was taken quite seriously. While expressing some distaste for the memo’s ‘crass’ style, The Economist opined that ‘on the economics his points are hard to answer’. Summers was subsequently made Secretary to the US Treasury and then President of Harvard. Apparently, ‘let them eat shit’ was far less damaging to one’s career at the dawn of the 21st century, than ‘let them eat cake’ was at the end of the 18th.
It seems very hard, however, to imagine a world containing iPhones that does not take that kind of attitude to other people’s health. It is part of the ‘no pain, no gain’ mentality that was ground into the Western mind centuries ago. But what if the pain no longer yields any gain?
WHY COMPUTERS HAVE GROWN NOTHING BUT THEMSELVES
Computerization was supposed to have been a ‘third industrial revolution’, the previous two having been driven by steam, from the late 1700s, and by electricity, from the 1890s: periods of furious economic growth that changed the quality of people’s lives in radical ways. Yet, despite the spectacular growth in the numbers of computers, especially from the 1980s onwards, conventional economic growth has been conspicuously weak or absent from the wealthy countries’ economies over that period. Two economists, Robert Solow (winner of the 1987 Nobel economics prize for his pioneering work on the analysis of economic growth) and Robert Gordon have repeatedly found that the only substantial economic growth since the emergence of the computer industries has been in the computer industries themselves.
Admittedly, economic growth is not a good measure of a population’s well-being. It reflects the amount of financial transactions in an economy, which may merely indicate that life has become more expensive, without increasing anyone’s material well-being (for example, people may have to travel further to work, or there is more crime, leading to higher insurance premiums and more sales of burglar alarms, and so on). All the same, and especially if we use growth as a measure, you would expect the massive computerization of the past 30 years to have made a positive difference to the figures.
Instead, since the 1980s, economists of all persuasions have been puzzled by the sluggish growth of the richer economies. The literature on this puzzle almost forms a discipline in its own right.12
In 1987, Robert Solow stated that ‘we can see the computer age everywhere but in the productivity statistics’. Henceforth, this was known as ‘Solow’s paradox’.13
Robert Gordon has spent the past 30 years analyzing the impacts of different waves of innovation on economic growth, unemployment and the material conditions of people’s lives, and he has repeatedly found an extraordinary failure of ICT industries to have much positive effect.
Gordon found that in the mid/late 1990s there was an impressive-looking spurt of growth in the US economy which might have been attributed to ICTs, but, on closer inspection, he found that it affected just 12 per cent of economic output: the sectors dominated by computer equipment and peripherals, and the kinds of consumer durables that had been given a new lease of life by electronics. In other words, the ICT-related boom, such as it was, was confined largely to sales of ICTs, which ‘raises the question of how far the New Economy actually reaches into the remaining 88 per cent of economic activity’.14
Turning to investment rates, these too seemed to have experienced an upswing – yet, again, much of the investment was in computers and computer peripherals, which depreciate rapidly. (And why do they depreciate so rapidly? There is no Law of Nature decreeing that they should!). In 2012 Gordon wrote:
Invention since 2000 has centered on entertainment and communication devices that are smaller, smarter and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it.15
The computer-assisted boom in financial services did not deceive Gordon: ‘If computers truly raised the output of these intermediate industries in unmeasured ways, then the benefits should show up in the output of final goods… Yet this spillover from intermediate to final goods industries is just what cannot be found in the official data.’
The point was made when the financial boom collapsed in 2008, revealing a shrunken underlying economy. The financial boom’s real effect turned out, in the end, to have been to redistribute wealth to the richest one per cent, whose share of US income had risen from 12 to 25 per cent, and share of US wealth from 33 to 40 per cent, in the quarter century to 2011.
Similar effects were found elsewhere, especially in more unequal countries, like the UK. A 2011 study by Manchester University Centre for Research on Socio-Cultural Change (CRESC) found that the financial sector’s contribution to the economy had been largely illusory.16 During the boom years of 2002-8 it contributed only £193 billion in tax (compared to £378 billion by Britain’s emaciated manufacturing sector) and employed around one million (mostly low-paid office and call-center workers) compared with two million in manufacturing. In 2007, the height of the boom, around 40 per cent of its lending went straight into property and a further 25 per cent went to financial intermediaries (who probably also put the lion’s share into property). Of the remaining 35 per cent, very little found its way into productive enterprise.
A feature of the computerization boom not mentioned by these critical economists (but which looms very large among computer professionals) is the enormous and largely unproductive cost imposed on computer users by the need for continual changes to software. These are partly the consequence of the sub-optimal route computer development has taken (as we will see in coming chapters) and range from the regular ‘tax’ levied on users via the need to upgrade their systems (mainly so that they can carry on doing what they did previously), to security scares (stemming from the inherent vulnerability of highly hierarchical systems – as US national security whistleblower Edward Snowden pointed out in 2013) to multi-billion dollar write-offs when software projects fail.
Computer project failures are rarely reported when they happen to commercial firms but the costs filter through onto the bottom lines nonetheless, and thence into the GDP figures, where they contribute to the perception of economic growth. They are reported, however, when they happen in the public sector, where they give the impression of public-sector profligacy or incompetence. In 1994 the US Federal Aviation Administration wrote off $2.6 billion on a failed air-traffic-control software project, and the IEEE article in which that is reported carries a list of about 50 similar disasters from previous years, warning that ‘the problem only gets worse as IT grows ubiquitous’.17 In 2010 the British National Health Service had to write off £10 billion for an undelivered system for managing patients’ records18, and one could fill the next page or two with similar catastrophes and similar price tags.
The point in emphasizing the scale of these public-sector losses is that they are only a tiny sliver of the overall problem: as Thomas Piketty pointed out in Capital in the Twenty-First Century, the public sector is now a far tinier fraction of the total economy than even many economists realize.19 To appreciate the full social cost of this hidden hemorrhage of wealth we would need to multiply the public-sector losses 50- or even 100-fold (and perhaps more, as public services are privatized or part-privatized by outsourcing to private firms, whose internal affairs are hidden behind commercial confidentiality clauses). Ideally, we should then add the consequential costs ranging from lost production to the mounting cost of risk-management services and insurance.
In 2009 the Standish research group reported that, across the entire US economy, only 32 per cent of computer projects were being delivered on time and on budget, while 44 per cent were running ‘late, over budget, and/or with less than the required features and functions and 24 per cent [were] cancelled prior to completion or delivered and never used.’20
The overwhelming majority of these costs are inflicted on large, centralized organizations by other large, centralized organizations, in a world increasingly dominated by large, centralized organizations. We can see this from the rise of management consultancy as a sector of the economy, and of firms that provide it, such as McKinseys, and firms that previously only provided accountancy services such as PricewaterhouseCoopers, DeLoitte, KPMG, Ernst and Young, and Accenture (known as Arthur Andersen Consulting before its implication in the Enron scandal of 2001). They are the work of a very small elite of wealthy, powerful men (and a few women) who deal only with other wealthy, powerful men and women, making huge promises to each other on complicated matters that they cannot claim to understand.
INEQUALITY: THE ELEPHANT IN THE ROOM
The problem is not that such consultants are stupid, or necessarily crooked, but that the elevated positions they occupy mean they cannot afford to appear anything less than totally in command of the situation and confident of its outcome. This is a general, institutional problem of inegalitarian economies, and an extremely intractable one – as economist and psychologist Daniel Kahneman showed (with particular reference to the 2007/8 financial crisis) in his book Thinking, Fast and Slow.21 The human mind’s obdurate tendency to overconfidence becomes a major liability for humanity when the decision-making is delegated to tiny numbers of highly privileged minds.
It is not just a problem of elites. Everybody in an unequal society is precarious, so nobody can afford to be entirely honest. Those who have a lot, have a lot to lose; those who have little can easily lose everything. Before any effort can go into producing things, or caring for others, or just enjoying oneself, one must make sure one’s economic position is secure, by whatever means that entails. Resources and ideas must be deployed primarily to defend positions of power or safety. This is an iron law that even the most philanthropic entrepreneur must obey, or perish. To compound the problem, the climate of mutual watchfulness makes it impolite to discuss the inequality that animates the system. Making any kind of plan becomes like trying to discuss travel options between Italy and France, without mentioning the Alps.
The medical evidence that led to the discovery that inequality per se makes us ill, derives precisely from the strain of coping with these social gradients, which our physical bodies must deal with despite powerful social conventions prohibiting their discussion. It’s as if, instead of helpful gradient warnings, the road signs here all said:
‘Pay no attention to this cliff. Maximum penalty, death!’
Despite the attention that has been given to books like The Spirit Level,22 we are a long way from having an open discussion of inequality, unless the conversation is kept to a very general, almost abstract level. If anyone doubts this, they should try striking up a conversation with their employer about his salary, pension, investments, family wealth, and where he sends his children to school and why… better still, invite yourself around to his house to chat about these things with a colleague or two. (This may not seem such a massively challenging prospect to someone who has lived in Denmark or Sweden.)
Conversely, the powerful are able to use their lofty perches to scrutinize the personal affairs of those below them in more and yet more intimate detail. Then, because lofty perches are not legitimate subjects of discussion, they are free to play the equality card when it suits them, demanding equal rights, for example, to use their money to support the causes they believe in. (This was the basis of the 2010 ‘Citizens United’ case, in which wealthy rightwingers successfully argued that restrictions on private political donations discriminated against them.)
The barriers to discussion are endemic, structural, and become stronger as inequality increases. Rapid increases in private wealth in India, for example, have been accompanied by deterioration in tax data23 – perhaps as a result of increasingly effective lobbying against what the super-rich see as intrusive enquiry. In an earlier period of intensifying inequality, the late 1890s, proposals by the French government to gather data on personal wealth were denounced as ‘inquisitorial’24, and similar language has become familiar again among the neoliberal elite in the US and UK.
Commercial confidentiality and property rights of more and more kinds are increasingly strongly enforced (as discussed later, in Chapter 8) and backed by the powers of nation states and international treaties. When state protection of sensitive information is insufficient, firms and wealthy individuals can move their wealth and affairs to tax havens, which no nation state so far has dared seriously to challenge – with the interesting consequence that up to 10 per cent of the world’s wealth cannot now be accounted for. According to official statistics, rich countries are in ‘asset deficit’: fewer of their assets are owned by residents than by foreigners. Logically, this should mean that poorer countries are in asset surplus, yet they, too, are in deficit. Piketty comments: ‘It seems, in other words, that Earth must be owned by Mars’.25
1 John Bellamy Foster, Brett Clark & Richard York, ‘Capitalism and the Curse of Energy Efficiency’, Monthly Review 62, 6, Nov 2010.
2 J Schor, Plenitude, Scribe Publications, 2010.
3 Giles Slade, Made to Break, Harvard University Press, 2006, p 197.
4 Schor, op cit, pp 78-9.
5 George Monbiot, ‘Reframing the Planet’, 22 April 2014, nin.tl/MonbiotApr2014
6 Thomas Piketty, Capital in the Twenty-First Century, Harvard University Press, 2014, pp 11-26 and notes p 581.
7 T Jackson, Prosperity without Growth, Earthscan, 2009.
8 Chris Huhne, ‘Don’t Fear Growth – It’s No Longer the Enemy of the Planet,’ The Guardian, 24 Aug 2014, nin.tl/Huhne2014
9 Andrew Dobson, ‘Debunking Chris Huhne’s Paean to Growth’, The Guardian, 28 Aug 2014 nin.tl/Dobson2014.
10 Slavoj Zizek, First as Tragedy, Then As Farce, Verso, 2009, p 94.
11 SA Marglin, The Dismal Science, Harvard University Press, 2008, p 37.
12 For example: Steven J Landefeld & Barbara M Fraumeni, Measuring the New Economy in the United States, 2001, nin.tl/1RjBotF; Martin N Bailey & Robert L Lawrence, ‘Do We Have a New Economy?’ paper presented at the annual meeting of the Allied Social Science Association, 5 Jan 2001, and in American Economic Review (May 2001); and Karl Whelan, ‘Computers, Obsolescence, and Productivity,’ Federal Reserve Board, Feb 2000.
13 Robert J Gordon, ‘Does the “New Economy” Measure up to the Great Inventions of the Past?’ Journal of Economic Perspectives 14, no 4 (Fall 2000): 49–74.
14 Ibid.
15 Robert J Gordon, ‘Is US Economic Growth Over?’, NBER Working Paper, Aug 2012.
16 Ewald Engelen, Julie Froud, Sukhdev Johal, Adam Leaver & Karel Williams, After the Great Complacence, Oxford University Press, 2011.
17 Robert N Charette, ‘Why Software Fails’, IEEE Spectrum, 2 Sep 2005, nin.tl/softwarefails
18 Rajeev Syal, ‘Abandoned NHS IT System Has Cost £10bn so Far’, The Guardian, 18 Sep 2013, nin.tl/NHSITsystem
19 Piketty, op cit, p 48.
20 ‘Project Failures Rise – Study Shows’, nin.tl/projectfailures Accessed 12 Sep 2014.
21 Daniel Kahneman, Thinking Fast and Slow, Farrar, Strauss & Giroux, 2011.
22 Richard Wilkinson and Kate Pickett, The Spirit Level, Penguin, 2009.
23 Piketty, op cit, p 329.
24 Ibid, p 636, note 23.
25 Ibid, p 465.