I am indebted to a very intersting article in the Australian Financial Review (Financial Times supplement) from Oct 2nd 2012 by Martin Wolf based on a research paper from Prof. Robert Gordon of the Northwestern University in the US.
Essentially the article proposes that the long term view of global economic activity since the industrial revolution in 1700 in England can be divided into 3 broad periods, of which only the second had real rapid economic growth and growth of productivity.
2./ 1850 – 1950. The Age of Power
3./ 1950 + (to 2050?) Age in Information and
Most of the strongest economic growth was in the second stage – driven by science and discoveries up to 1900 then commercialised over the following decades.
More importantly the quantum leap in standard of living occurred in the 2nd stage that cannot be repeated again in areas such as:
- The rate of life expectancy. This grew 3 times as fast in the period 1900 – 1950, compared to the period 1950 – 2000.
- Urbanisation and improvements in civic sanitary management 1850 -1950.
(sewerage, water quality, removing horses and animal waste from the roads, collpase of child mortality rates)
- Vast implementation of labour saving inventions through electricity and electric appliances – at home and in work. The speed of travel as well showed a quantum leap, from the horse to the jet plane.
By contrast almost everything we take for granted was invented or developed by 1950 and despite the upsurge in computers and knowldge, the rate of growth has subisded over the past 20 years as the benefits of the pre 1950′s and some post 1950′s developments rippled through the economies and petered out.
Since then there have been many improvements but not the same quantum leaps in economic growth and its benefits. Product improvements such as large flat screen TVs do not add the same bang for your buck as the original invention 50 years earlier.
Prof. Gordon suggests you consider what has been invented since 1970 that you would want to swap for a pre 1950 development. Would you swap ipads and facebook for clean water and proper sewerage disposal?
We are now living through a narrow set of innovations in technology, but this does not automatically translate into economic growth that can lift large portions of the population out of low income categories if they are already living in a western develeoped nation. Only the top echelon can float above the ebb and flow of the receding tide of economic growth.
The emerging markets may still urbanise and catch up to first world economies by replicating the path already trodden by the west and that will be where most economic growth occurs at a global level and reduction in poverty.
My own thoughts on all the above are as follows:
If you look at Europe now and the flagging US as well you see established western countries struggling to maintain economic growth of a meaningful size that can sustain full employment and a sense of purpose for the lower echelons of society. The wealthy by contrast, can consolidate their positions despite the low growth economy by managing their lifestyle in a way that conserves their income which may be invested elsewhere.
We have seen in the last two decades the end of the job for life society in the west. The rise of unemployment of people who are over 50, retrenched and struggling to get full time work. They become marginalised and only obtain part time work. Casual employment has risen substantailly in all major western countries while at the same time people are pushed into early retirement and lower incomes. This is part of the fraying of the developed western society and also the decent into a low growth, low return economy and society.
The ramifications of this are that economic growth and its benefits maybe in the slow lane for many developed western nations which are also ageing and showing signs of strain as a result. Government handouts to the disdvantaged will be curtailed and the gap between the haves and the have nots increased. The problems now in Greece are an extreme example of the worst case outcome.
What you should consider is how you make allowances for this in your own personal conusmption and investments for the future.
This may become the new normal for decades.
The original article can be found here, please copy paste into your browser.