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How Do "Modern" Economies Really Work?

Conventional wisdom says the "Industrial Revolution" allowed humankind to excape the usual constraints on animal species. Afterward, humankind could support a much larger population, with almost all individuals escaping accidental death and living to natural old age.

But actions built on this assumption have mostly failed. The World Bank and the International Monetary Fund have made strenuous efforts ever since WWII to help countries "shift gears" to join the western economies and start enjoying their prosperity. But a sober evaluation tells us such efforts have almost completely failed. Egypt has been trying for almost a century to join the "modern world", but still hasn't made it. In most countries, economic modernization has spread only to the "westernized elite" in the major urban areas.

And even in the western countries, it isn't so clear that "modernization" is really a great benefit ...or even works all that well. Most western countries have such low birth rates they can't replace their own population, and are dependent on in-migration for growth. (Some cities especially concentrate this problem. San Francisco is one of the clearest examplars of a city mostly for young adults; it gave us the term "DINK" [Double Incomes, No Kids] a generation ago. The city's demographic structure has so few children and older people it couldn't possibly be self-sustaining.) Or think about what a high proportion of people around you moan loudly about their "work" and complain of too much stress. Or consider skyrocketing rates of alcoholism and mental illness.

The growth of economies of "western" countries is typically used as proof that modernization really does work. But growth of those economies before WWII may have been due mostly to expansion into the third world (i.e. colonialism) rather than integral factors. Although judged by GNP, the UK economy has grown fairly consistently since WWII, the experience of individuals in the UK has gyrated wildly; initially the UK's goal of joining the European Economic Community was seriously questioned because its economic situation seemed so dire. The most dynamic European economies seem to include a large portion of "cheating"; circumventing UN restrictions on nuclear or weapons technology seems to be a specialty of Germany; France's economy seems to rely significantly on selling weapons systems to third world countries, and there were serious questions about France's possible collusion with Saddam Hussein. Even the USA's economic preeminence may owe more to its heavy natural resource endowment and its very low population density than anything else.

Maybe rather than trying to figure out what's gone wrong in each case of stalled development, it's time to go back to square one and question the basic assumption. How do "modern economies" really work? Would they work without consuming fossil fuels? Would they still work if they encompassed the whole world, or do they only so long as lots of folks remain outside? Would they work without very significant levels of inequality?

(Often earlier economies were structured around harvesting the sun's energy biologically, and could be fully described by nothing more than the phrase "solar farming". What's the similarly simple description of how a modern, industrial economy really works?)

Population

How many people can exist on the earth? In environmentalists lingo, what is the "carrying capacity" of our world for homo sapiens?

The human population has grown and grown and grown through time from less than 10 thousand to over 6 billion. Ecologists seem to agree that when considering environmental degradation, human overpopulation is the number one problem. Population is the elephant in the room many pretend isn't there. Efforts at rational control are likely to be unsuccessful, so humans are likely to face the same "boom and bust" population cycles that many animals face.

Various calculations and estimates of carrying capacity differ a whole lot:

• Calculations based solely on current food production suggest the limit is somewhere under 10 billion.
• An energy limit of simply using all available solar energy via the net efficiency of agriculture (about 1%) to meet only minimal dietary needs gives the carrying capacity as 700 billion. (This is a ridiculous overestimate. It's not at all realistic to assume people will be happy to eat 2800 kCalories per day, but not have any appliances nor air conditioning nor even heating and never see a car or a train or an airplane.)
• A space limit of simply covering the whole landmass at the peak density of current cities gives the carrying capacity as over 500 billion. (This is also a ridiculous calculation. If cities covered every inch of the landscape, there would be no place for water and electricity to come from nor garbage and waste to go to.)
• Estimates by ecologists that consider all factors (not just one factor as in each of the previous calculations) vary from less than 1 billion to more than 4 billion.

Carrying capacity for humans obviously depends on what culture we're talking about. When Europeans first came to the Americas the indigenous population thought of the land as full, whereas the new people thought of that same land as empty. Some future cultural shift may dramatically raise the carrying capacity again. But should we count on it? Should we plan based on the densest culture we know of even while much of the world doesn't share that culture? Are calculations based on the Davos culture valid for the entire world including all the third world countries?

Land Use

Feeding everyone in the world is a significant problem. So I'd expect good farmland would be at a premium.

But in fact more and more flattish smooth fertile land in the U.S. is being taken over by housing. I've seen "development" displacing groves of orange trees in California and New Mexico. What I remember from childhood as a large productive valley a little south east of Sea-Tac airport between Seattle and Tacoma in Washington is now all houses with garages and yards and streets. Many localities give special tax breaks to land for agricultural use.

Why is land in this country more valuable for housing than for food? Are the economic valuations we place on things here in the U.S. just plain out of whack? Or do our values inside the U.S. diverge from worldwide values that obtain elsewhere (i.e. the U.S. is a subset)? Or is there some other explanation?

Urbanization

The human population is more concentrated into cities than ever before in history. One place this trend toward urbanization is evident is in former colonies, which tend to have one large city per country.

All these people eat a lot, and the food has to be paid for some how. So I'd expect the people that live in a city to be quite economically "productive."

But for many of these people the simple daily logistics of shelter and transportation are so difficult they take up most of the time, leaving little or nothing for "economic productivity."

Obviously many individuals judge in the small they are better off economically living in a city than in a rural area. But what about judging cities in the large as part of an economic system? Are they economically productive enough overall to justify the fact that they exist? Does the sum of individual judgments always comprise a good system judgment?

Historical Change

Some see each succeeding wave of civilization as having a higher carrying capacity. In other words when two different ways of organizing humans compete, the way that supports a higher human population will usually win.

But what's next? Charles A. Kupchan in his book The End of the American Era presents the following table of historical eras. The big question is what goes in the blanks?

Era →		Nomadic (before 8000BC)	Early Agriculture (8000BC-3000BC)	Agriculture (3000BC-1700AD)	Industrial (1700-2000)	Digital (2000-????)
Mode of Production →		Hunting, Gathering	Hunting, Horticulture	Cultivation	Industrial Capitalism	Digital Capitalism
Dominant Institution of Governance →		Band	Tribe, Chiefdom	Kingdom, Coercive State	Democratic Republic	???
Dominant Institution of Communal Identity →		Animism	Nature Worship	Organized Religion	Nationalism	???

Does Demographic Expansion Imply Cultural Dominance?

Is it really true that when two different ways of organizing humans compete, the way that supports a higher human population wins?

Niall Ferguson's book on the British Empire says the single biggest factor in the British empire was the fecundity of the British population. Several countries in Europe are worried that demographic reduction means economic decline. France is worried that it will simply cease to exist in its current form because it will be overrun by the children of guest workers and political refugees within a couple more generations.

At the same time environmentalists wring their hands about overpopulation and make it clear human population is their number one problem. China wound up with a one child policy (partly in abeyance now and never completely enforced in rural areas) for decades, even though Mao initially rejected the idea vehemently.

The book Guns, Germs, and Steel by Jared Diamond suggests that whenever two cultures come into conflict the one with the higher population density wins. Similar ideas are expressed in the book Conquests and Cultures by Thomas Sowell. But how can it be true both that

1. population growth is required for economic and political growth and innovation, and
2. further population growth is bad and the entire earth environment is being stretched?

World Government?

For generations many in the west have had an automatic negative response to the idea of world government, but over time the reasons have been forgotten. Maybe there didn't seem to be any real need. Maybe the idea seemed over-zealous. Maybe it smacked of extending bureaucracy just for the sake of extending it. In any case the prospect probably sounded like a naked power grab.

A negative reaction to the idea of world government is also common in the developing world. But their reason is completely different; two separate lines of argument have come to the same conclusion, and it's too easy to confuse them. Many understand world government to mean hegemony of western financial institutions over the entire world, and are understandably displeased by the idea.

But the world has changed an awful lot in the past few generations, and there are now powerful reasons to reconsider some sort of world government. Communication easily goes much farther much faster. Imagine describing to your great-grandparents the idea of picking up the phone and dialing 011 (followed by more digits) and hearing someone speak a different language. Environmental actions can have ripple effects half a world away. Towing giant icebergs south to supply fresh water might change the climate of Siberia. Huge uncontrolled forest fires in one country have created so much smoke they darkened the sky in other countries. Industrialization in the northern hemisphere may have caused the breakup of huge swaths of sea ice in Antarctica. Economic effects can stretch over the whole world. When the president of Maylaysia blamed the financial woes of the Asian contagion in his country on currency traders in other countries, many said his reasoning was incorrect but almost nobody said that economic actions couldn't have effects that fast that far away. Agricultural policies in Europe have measurable impact on life in Africa.

How will we decide how many people should live on the earth? How will we decide how they should be distributed? How will we enforce those decisions? National boundaries don't seem very relevant to the problem of world over-population.

Perhaps the biggest problem surrounding the idea of world government is the huge potential for corruption. So much power concentrated in one spot can't help but be greatly abused.

A second problem surrounding the idea of world government is that it might select the wrong people. The people who would thrive in an easily imaginable kind of world government would be expert bureaucratic infighters and fundraisers. But are those the people we want for world leaders?

So what are our options for making world wide decisions? Something like the UN (United Nations)? A greatly expanded NGO (Non Governmental Organization)? A parliament like in the EU (European Union) but larger? Something grown out of the WTO (World Trade Organization)? Or something else?

Run Government Like A Business With An MBA President?

Perhaps our government should be run more like a business. Perhaps it's only sensible for our politicians to have studied at business schools. Our corporations are quite successful, and maybe it's sensible to try to transplant some of that success to our government.

Our government could be more of a purpose-driven organization and less of a bureaucracy. A sharper focus on "goals" and "milestones" might be a good thing.

And it seems obvious our government would be improved by cost-consciousness and cost-cutting. The same sort of attention to the bottom line that helps our corporations could help our government too.

Unfortunately the analogy can easily be carried much further. The plastic "staged" PR face of many corporations would discourage citizen involvement in our government even further. And "rigged" stockholder meetings could have their counterpart in "rigged" elections.

"Turf wars" are all too common in business. Surely we'd prefer not to have even more of them in our government too. In the response to Hurricane Katrina in New Orleans, questions of the org chart and who's in charge occupied the fore. This aspect of business may not be appropriate to our government.

And one of the commonplaces of current business strategy is that underlings should be given unqualified support (until they can be quietly shuffled out). That modus conflicts sharply with the history of politics in our country and can all too easily make it seem that government officials are not and will not be held accountable. A quest for "loyalty" all too easily shades over into "patronage." (Time Magazine's How Many More Mike Browns Are Out There? presents a view of the cronyism in the Bush administration.)

In the business world, some(?) accountability is provided by having to report to a board of directors and by watching the stock price. But so far in government, similar accountability is sorely lacking. The only thing that can carry the message that we're going off the rails is a universal outpouring of disgust. That can't happen easily or frequently enough to provide the feedback needed for mid-course corrections.

Positing a country is just like a company led to hoping we could simply replace the top layer of the regime in Iraq, and the bureaucracy and the military would continue to run the country. Simply replacing the CEO can indeed redirect a company, but as we now know trying to simply replace the president of Iraq (the "decapitation" strategy) didn't work out very well. Overgeneralized MBA thinking can be dangerously misleading.

The response to Hurricane Katrina under George Bush was another serious test of our "MBA Presidency" experiment. The "MBA Presidency" is certainly not a slam-dunk.

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