An economist is a person who, when he finds something that works in practice, wonders if it will work in theory.
Our physical and institutional tools can work together to encourage the growth of wealth, but they can also work together to encourage the persistence of poverty. Today our poor are getting richer, but our rich are getting richer quicker. That happens partly because of ‘closure’ and ‘autopoiesis.’ The first refers to the way that some networks can become self-remaking. The second refers to the way that such networks can also sometimes become self-maintaining, thus perpetuating differences between them and other networks. Both swarm-physics behaviors lend some insight into our poverty traps, our differences in trade power, and what our near future mix of wealth and poverty might be like.
It’s 1990, in the Nile Delta, and she’s out at daybreak, heading for the nearest canal. A dead donkey, bloated in the morning sun, floats in the algae-scummed water. A man urinates into the canal as she dips her pail to get her family’s water. Back at home, she pours the water into a big earthenware jar, then she adds rose petals, alum, or fragrant seeds to give it a fresh smell. She waits while evaporation cools the water, which clears as its visible insolubles settle to the bottom. Then, ignorant of microbes, parasites, pesticides, heavy metals, and all other invisible insolubles, she’ll use that cool, fresh-smelling, pure-looking water to wash with, to cook with—and to drink.
At the time, half of us who died in Egypt were children under five. That was one of the highest child death rates on the planet. It was also mostly due to dirty water. Nor was Egypt alone. Around the world, over a billion of us lacked access to safe drinking water, and diseases caused by dirty water filled half the hospital beds in our poor countries. By 2012, such diseases still killed about 622,000 of our kids under five a year—about six every five minutes.
In Egypt, the problem was especially acute in the Nile Delta. The government, and the United States foreign aid agency it worked with, had thought the problem was simple: Babies were dying from dirty water, so pipe in chlorinated water. But wrap yourself in that villager’s abaya as she fetches water each morning. Nobody asked you about putting in pipes. Nobody owned them. They were public property, the government man had said. But months after his construction team left, a spigot broke and water flowed all day and all night. What is it to you? The government man had not asked your village elders to call a ka’eda and discuss the matter of the pipes before putting them in. So their upkeep is a problem for the government. You hear that spigots broke in other villages, too. Maybe that is why water no longer gushes as before. It is surely too little for you to wash clothes at the standpipe.
Besides, the government had not put in any concrete tubs, so how could you wash clothes there anyway? Your little ones could not bathe there, either. At the canal you could talk and laugh with your sisters and friends while washing clothes and dishes. Also, you all could watch over your little ones as they frolicked in the canal to make sure they were safe. Everyone was content and everything was done at once. But when you tried the pipe, you had to line up with the other village women. Long lines in the hot sun led to anger, then fights. Then when your husband brought the water buffalo in from the fields in the evening and heard that Faiza had slapped you, he went to fight with Farouk, her husband. You do not like the new pipes.
What is wrong with canal water, anyway? You asked your sisters, but all they knew was what the government radio and television programs said. None of you can read, so all you can do is look at the pictures in the pamphlets that the government man had handed out. In any case, you know what they say: Bad things live in canal water. But that cannot be. You have been drinking it all your life. All fellahin have. You would like to ask a nurse or doctor, but your village has none. The nearest one is four hours away, on foot. Only when the government sponsors a health drive do they visit your village—otherwise they mostly stay in the cities. You hear that wages are good there, and water is clean, even though it tastes funny. But your water is clean, too. And it doesn’t taste funny. You put alum and fragrant seeds in it. You would never give your babies dirty water to drink. So the government must be wrong.
But your youngest is sick, so you tried giving her the magic water. But your husband will not let you switch. It tastes of ‘chemicals,’ he says. The government must be secretly trying to reduce his sex drive, he says. Why else are there so many radio and TV programs about birth control? Besides, he says, everyone knows that Nile water makes men more potent. Each year the Nile brings miraculous life to the desert. It must do the same for all who drink it. That is obvious. Your mother and grandmother are also suspicious. They say that babies are often sick, and some just die. That is just how things are. They say that Allah made the canal to quench thirst. It has been Egypt’s water source since the days of the pharaohs. So how could it be bad for you?
You watch to see what the rich family does, but Ameera Ibrahim does not line up for pipe water. She has water running in her own kitchen. She even lives in a cement house, not a mud-brick one like everyone else. She tells you that canal water is dirty and pipe water is clean. She has her own pump and water tank and metered pipe. But then, she can afford it. Her husband, Haajj Mahmoud, has a bee hive and three cows. Plus, they have four sons in Cairo. Her eldest son is a taxi driver there, and he sends money home. Her first cousin’s son works in Saudi Arabia and he also has a good job. He has a university degree from Stanford—an important place, she says. She says he says that the piped water is better for her. Plus Haajj Mahmoud is the village imam. He washes with the piped water five times a day before prayer. She says he says that he wants to be as clean as possible before Allah. But even he prefers the taste of canal water treated with rose petals or fragrant seeds. In any case, in summer, water demand is high and the pipes run dry. A few days later, even his water tank empties. So in high summer everyone must still rely on the canal anyway. You do not understand what the government is up to. It seems to be wasting money and causing unrest for no reason. So you go back to the canal.
What went wrong here?
Perhaps the chief problem is that we don’t have enough schools? If more of us could read, we would understand about microbes and heavy metals and such, so we wouldn’t give our babies dirty water to drink. But schools mean teachers and buildings and books. Where’s the money to come from? Even if we had more schools, when would our kids find the time to attend them? They have so much to do on the farm just to eat. In the 1990s, an average Delta farm was around 2.5 acres, and average plot income was around $71 U.S. a month. That money had to support two adults with an average of 4.7 kids—not counting grandparents and cousins. Often, more than one family had to live in one small mud-brick house roofed with straw. To eat, many of us had to switch to illegal and water-needy but more lucrative crops. Or we had to somehow find space to add livestock to our tiny farms. Or we had to hire out our surplus child labor. Or sell our kids into near-slavery. Or sell a kidney to somebody in Kuwait. Or flee to Cairo or Alexandria and beg.
Perhaps the chief problem is that we don’t have more government water programs? If we got them, our babies would stop dying. But we’ve already tried something like that. In the 1960s our government worked with the Soviet Union to build the Aswan High Dam. The dam yielded 2.1 gigawatts, which spurred on industry and lit the countryside. That pulled many of us out of peasantry, stopped droughts and floods, and made year-round farming possible. But it also lowered downstream water levels. So richer farmers imported diesel pumps for wells. In the Delta, those wells drilled into coastal aquifers, so we got more water for our fields, but the water was saltier, so our crop yields fell. The dam also stopped the summer floods, which further reduced crop yields. So we used more fertilizer—but that meant more runoff water pollution. The dam also slowed nutrient flow into the Mediterranean. So our fisheries there nearly died. We then caught fish behind the dam—but we sent those fish north to Cairo in non-refrigerated trains, so any delays meant spoilage. The dam even throttled our housing industry since it stopped silt from flowing downriver with each flood. Most of our homes were made of mud brick, so with no new silt, making mud bricks began to use up nutrient-rich topsoil. Plus, the silt, with nowhere to go, is choking the dam. With no new investment money, at some point the dam will be useless.
Perhaps the chief problem is that we don’t have enough laws? If we were to pass laws both protecting and equably sharing our water supply, canal water would be cleaner and babies wouldn’t die. But we already have many such laws. For example, it’s illegal to farm water-needy crops, like sugarcane and farmed fish. We do it anyway because its profitable. In our villages, despite what the law says, we overuse pesticides through ignorance. That adds to water pollution. Meanwhile, in our cities, despite what the law says, we misuse treated water to wash cars, clean streets, and water gardens and parks. That adds to our water-famine. Our factories compound our problems by dumping industrial wastes into the Nile. Our police can’t enforce all the laws that we break (or that they themselves break), so more laws only make the problems worse.
Perhaps the chief problem is that we don’t have the right political system? If we hand our water-management problem to private firms, they could produce clean water, so our babies wouldn’t die. But we can’t easily privatize our water supply—and not because of our political system. Even before 1952, when we turned socialist, we had no body of property law to let even our government charge for water. Before socialism, what we had wasn’t capitalism—nor any other currently fashionable -ism; it was, basically, feudalism. Even with new agrarian laws passed in 1992 and put in place in 1997, our government still couldn’t charge for water. Our canals are uncovered and unmetered. Plus, many of our villages share them. Even were that not so, our government still couldn’t charge for water. Many of us couldn’t afford it, no matter the price. By 2008, more than half of us were still peasants, and over a fifth of us were below the world poverty line—$2 U.S. a day. Further, as late as 2009, our country was still a one-party state. (The 14 other parties had no real power.) Twenty-five government agencies spread over seven ministries were involved in water-quality monitoring. None of the fiefs talked to each other. Infighting among the supposed controllers tied the last knot in the tangle that is our water economics.
In sum, our problem isn’t simple to solve with more schools, or technology, or laws, or by switching to a different political system. Everything we need takes resources, which means more money.
But why might foreign companies and investment banks come to us? Yes, we could supply them with cheap and plentiful labor, but even by 2006, almost a third of us still couldn’t read, and more than half of us still weren’t urban, so our labor was mostly scattered and unskilled. With world population in the billions, manual labor was hardly scarce. Our power outages, flaky phones, unreliable water, and overcrowded hospitals weren’t especially inviting, either. Nor were our potholed roads, late trains, costly credit, and dated port facilities. Sometimes we could get money just because one set of foreigners hated another set of foreigners. But war is a dangerous game, as we last found out in 1967 and 1973.
Even when foreign money does flow in, how likely is it to stay? Even foreign aid enters our country at one end, lines the pockets of a few of us in the middle, then flows out the other end. Plus, when charitable countries do choose to come here, it’s as if they come mostly to pay their own consultants and construction companies. Also, that foreign aid often comes with high-voltage strings attached. Such strings can cause, and have caused, riots and even uprisings. In 1977, at least 73 of us died, perhaps 800 of us were wounded, and around 2,000 of us were arrested.
Further, whether that foreign money is an aid, a loan, or an investment, it’s unlikely to benefit peasants in the countryside as much as civil servants in the cities. After all, who controls how the money gets spent? What are the chances that the Delta will get a reverse-osmosis water-purification plant when the same money could fund a civil service pay rise? Or a new government building in Cairo? Or a new shopping plaza in Alexandria? Or a new container-shipping quay in Port Said? Or more helicopters for the police? Or more tanks for the army?
However, around the world, tools continue to cheapen and spread, and in Egypt we’re now phase changing from unlettered to lettered, rural to urban, farm hand to factory hand. In 1952, our life expectancy at birth was 39 years. By 2005, it was 66 for men, 70 for women. By 2006, our economy was rising by 4.5 percent a year. Our numbers were also rising, but only by 1.75 percent a year. By then, many of our villages had clean water and electricity. More houses were concrete, and more of them had indoor pipes. Roads were getting paved. Clinics were spreading. So were schools.
The non-linear effect of all those new tools rose as they fitted together ecogenetically. More of us could go to school, then flee the villages for the cities—and send money back home. More men were letting their wives go to clinics. More women and girls were learning to read and then were out earning money. So 15 years on, the stigmergic results showed up in our birth rate. From 1990 to 2005 our birth rate per woman fell from 4.3 to 3.1 births. And our child death rate fell 68 percent—the biggest drop on the planet.
But that didn’t solve all our problems because the goal posts kept shifting. In the same time, richer countries got richer still, and they made more new stuff. Our tiny middle class wanted all those things. Our government heeded that demand because that same tiny middle class staffed its civil service, and populated its main engines of wealth—its biggest cities. So we kept chasing after things that we couldn’t yet make.
Thus, in Egypt our core problem is this: we don’t need this thing or that thing—we need everything, and all together. So our government must work on all our problems together, or risk being overthrown, which has happened before, and happened again in 2011. But replacing it won’t change our core problem. Our next government would face the same set of interlocking, separately insoluble problems.
That networking problem isn’t unique to us. Entomologists might recognize it as the kind of problem that all colonial insect species must have had to solve millions of years ago. For example, one kind of termite colony needs water, clay, wood, and fungus. To fetch water, it needs workers to dig down to the water table—which might be as much as six feet down. To feed those workers, it needs wood for its fungus farms. To fetch that wood, it needs more workers. To get all those workers, it needs lots of eggs. To maintain all those eggs, it needs nurseries. To keep that nursery air from getting too dry or stale—and thus killing the eggs—it needs an intricate web of ducts and tunnels. To build that web, it needs workers to form and stack clay, and so on. In short, to survive, the colony needs lots of operations. But those operations interrelate. For instance, making eggs gives it workers, which gives it ducts, which regulates oxygen and humidity, which lets eggs survive. It needs eggs to get workers, but it needs workers to keep eggs. It can function as a unit only because all its operations dovetail together. It’s thus self-remaking. Mathematicians might say that such a network has operational closure.
Such a network is a recursive machine. It has everything it needs to keep getting everything it needs. It regenerates itself because its parts regenerate all its operational parts fast enough and near enough for them to then regenerate all its parts in a closed loop. But Egypt, relative to richer countries and the things it wants, still doesn’t have that kind of closure. As of 2010, two in five of us there still lived on around $2 U.S. or less a day. About half of us still lived in the Delta. Most of us were still small-scale farmers. And, while the numbers were vastly lower than they were in 1990, many of our babies still died from dirty water.
The Properties of Property
For one of our countries to attain operational closure relative to the things that those of us there want, our tools must work together, but that’s easier for our physical tools than our institutional ones. Physical tools work the same way everywhere on the planet, but institutional ones—machines whose main parts are us—needn’t do so even though our poor countries have mostly the same legal and financial tools as our rich ones do, or at least such tools have the same names. Everywhere, we have laws, lawmakers, officials, judges, police. Everywhere, we have currency, banks, credit, insurance. But in our poor countries, some of those tools sometimes work about as well as props in a theater do.
First, the legal system. In several of our poor countries, many of us don’t bother with the law. In 2000 in Egypt, 92 percent of us owned real estate illegally and 88 percent of our firms worked illegally. Further, 92 percent of us in the cities, and 83 percent of us in the countryside, were off the books. Why?
In Egypt, buying state-owned non-farm land took 77 administrative steps spread over 31 different agencies. It could take up to 14 years. So why not squat? In 2007 in Argentina, court cases could sometimes drag on for over 20 years. So why try to sue? In 2009 in Zimbabwe, getting a construction permit took an average of 1,426 days (four years). In Cameroon, it was 426 days. In China, it was 336 days. In Angola, it was 328 days. (In contrast, in the United States, it was 40 days; in South Korea, it was 34 days.) So why bother starting a business legally?
But if so many of us are off the books, why would a country bother with all that red tape?
Our laws aren’t like laws of physics; we make them, and we can break them—because we enforce them (or not). Raising a barrier in public can be useful, especially if we can lower it in private—for a price. So any law can encourage legal distortions of all sorts, and not just bribery, extortion, patronage, cronyism, and theft. That can lead to two sets of rules: public rules for the many, and private rules for the few—the powerful, the moneyed, the connected (including family and friends). Nor is that new. In Athens about 2,600 years ago, Solon noted that laws, like cobwebs, catch flies, not hawks.
Any new license may attract many of us who wish to be the ones who sign it, stamp it, route it, file it. So red tape can aid our police, judges, officials, lawmakers, and rulers. It can also aid all the rest of us who matter, but, almost by definition, that needn’t include the poor. Thus, in 2005 in Delhi, over half of us who had a driver’s license got it without taking an exam. If we had to take one, over half of us would have failed. On average, licensed drivers there paid 2.5 times the legal licensing cost to various officials under the table. In 2010 in Afghanistan, almost a quarter of our national income—$2.5 billion U.S.—went to bribes, mainly to police, judges, and officials. That meant more competition for such jobs, despite the low salaries we offer for them. In our poor countries, many palms may be out, ready to be greased.
Even if we’re lawmakers who want to produce uniform laws, we have little feedback about which new law the country might need, or which are even working as intended, since not all are obeyed, or even enforced. So whether or not we wish to, we spit out a mass of new laws, few of which matter. Every new law merely raises the ratio between the number of laws and the number of enforced laws. As that ratio rises, more of us ignore more laws. Plus, more laws might just mean more chances for the rich or powerful to squeeze the poor.
Thus, in our poor countries, laws can multiply while lawlessness thrives. Hence, replacing a police officer, judge, official, lawmaker, or even ruler, might have no real effect. Revolution might be common, but pointless.
But what about our rich countries? There, legal costs can also be high. Thus, in 2014, France’s labor code was 3,600 pages long. Any company with 50 or more employees that just wanted to change its office furniture had to first support an employee committee then get their approval. Zut alors!
Legal codes bloat in rich lands just as they do in poor ones because there’s more pressure to add a law than to take one away. So, in a rich land, starting a business means dealing with many laws about health, safety, pensions, and so forth. If we’re very poor, that shuts us out, just as if we were in a poor land. But if we’re in the middle class, it needn’t matter as much. We’re rich enough to afford it. Plus, the middle class is large, so our lawmakers are more motivated to listen to it. (In many of our poor countries, there’s almost no middle class—just the very few very rich and the very many very poor.)
Also, in our rich countries, mass legal distortion in the political realm is hardly unknown. Oh wait, in several rich countries it’s open and legal and called lobbying. Creating rules, especially for legal or financial firms, only acts to focus those firms’ attention. If a lot of power or money is involved, they then devote resources to tailor, if not the laws, then the lawmakers, or officials, who interpret the laws.
Our lawmakers and official have no choice but to kowtow to our strongest lobbies, whether in a rich land or a poor land. Plus, the laws they write or interpret help them enjoy the perks of power. And when they leave office, they can often join the moneyed class—or return to join the ruling class. So office-holding can easily become a revolving door. That can even be why they compete for office in the first place, despite the relatively low salaries we offer for them. So in our rich countries, many palms may be out, ready to be greased—just later.
That can then have a knock-on effect on policing, particularly in finance. Thus, in 2013 the New York Police Department, which was responsible mostly for violent crime, had about 50,000 employees. That year, just one big U.S. bank in New York had over 50,000 employees. Another had over 32,000. Yet the Securities and Exchange Commission, which oversaw all U.S. stock markets—which is where the serious money is—and where such banks often trade—had only about 4,000 employees, and they were paid maybe a tenth as much as the bankers were. That’s like chihuahuas chasing cheetahs; what’re they going to do, even if they could catch one?
Aside from the political and financial arenas, in our rich countries today the only other mass legal distortion has dwindled to cross-border bribery. That still commonly flows from our rich to our poor lands—especially for contracts involving oil, weapons, construction, and public works. For example, in 2008 Siemens paid over $1.6 billion U.S. to settle a cross-border bribery case. It had been accused of bribing officials in Argentina, Bangladesh, China, Germany, Iraq, Israel, Mexico, Nigeria, Russia, Venezuela, and Vietnam.
Within the borders of our rich countries, bribery is less common for our police, judges, and officials. They no longer need bribes as much as they do in our poor countries, perhaps because they’re already fairly well paid, and are well-respected. That wasn’t the case in centuries past, but our institutions have developed over time to make it harder for them to need bribes or take bribes—at least, not without getting caught with their hands in the cookie jar.
Finally, within our rich countries, petty legal distortions can still be common, especially in the big leagues. Take a big city. Suppose you’re building a billion-dollar apartment complex in Manhattan. To do so, you’re borrowing money, for which you must pay interest. Suppose that comes to $40,000 U.S. a day. You thus have 40,000 reasons not to let any problem delay you for even one day. So what do you do when one of the mayor’s senior aides casually mentions that the mayor’s office might accidentally lose your building request during the hectic run-up to re-election—oh, and by the way, did she mention that their campaign coffers could use a generous but completely voluntary contribution? Or when a zoning commissioner, thumbing through Manhattan’s 1,500-page zoning code, idly observes that there might be a problem with your rezoning request, then comments that a luxurious, rent-controlled apartment overlooking the park must be quite nice? Or when the local borough police chief mildly inquires how much you’ll be contributing to the police widows’ fund? Or when the head of the teamsters union notes that it would be a shame if his members were to misplace your construction deliveries? Or when a member of the local planning board wonders if your project might be right for a particular advertising agency, which she also just happens to own? Or when the head of the carpenter’s union asks whether you plan to hire his ten ‘nephews?’ Or when a city council member points out that her daughter just graduated and is looking for a job—perhaps in urban planning for billion-dollar apartment complexes? Then to blow off steam that night, you try to get a table at a high-end Manhattan restaurant. But you don’t want to wait a month. And the maitre d’ decides who gets seated.
That’s a lot of grease. But relative to a billion dollars, spreading it around won’t cripple you. Your cost of doing business might go up perhaps five percent. It won’t go up 50 percent. That even benefits you, in a way, because it helps keep out competition. Once you get in, it’s a very small club of developers.
On the other hand, if you’re building a small house or starting a small business in one of our poor countries, costs are small—but relatively high. Your extra-legal cost might go up not five percent but 50 percent. Anyone with any power at all can squeeze you.
Thus, in our rich lands we might have to bribe each other with large sums, but those sums are small compared to our overall costs. In our poor lands, we might have to do the reverse. Both cobwebs are for flies, not hawks.
That’s the legal side; how about the financial side?
Suppose you run a bank in a poor country and you have $200 million U.S. to invest. Who do you lend to? Ten borrowers who each want to borrow $20 million to start telecoms, TV stations, and housing projects? Or a million borrowers who each want to borrow $200 to buy a cow, a cell phone, or a sewing machine? Suppose you choose the latter. How do you manage a million borrowers? How many clerks would you have to hire? How do you find out who’ll pay back their loans? If they live in mud huts, what collateral could they promise? If they don’t pay, how would you collect? Will you hire thugs who’ll threaten to break their legs—or enslave their kids? What if they still don’t pay? Further, how will you even find them in the first place? Your bank is in a big city, but they may live in a shantytown on the outskirts, or in a small village in the hinterland. Can they even afford bus fare to the city? If there’s a bus, that is. Or maybe you could place an ad? But can they even read? They may have had to leave the village school young—if there’s a village school at all.
Nor might schooling alone help. In a rich country, merely living in a more educated city might increase incomes. In 2000 in the United States, wages for men aged between 25 and 55 in a metropolitan area rose by 7.8 percent as the proportion of adults with college degrees in that area rose by ten percent. But what’s the picture in a poor country? In the late 1960s in the favelas of Rio de Janiero, parents told their kids that if they didn’t stay in school they would end up as garbage collectors. In 2003 the city advertised 400 jobs. It stated that it would only consider applicants who had at least a high-school diploma. It got 12,000 applicants. What were the jobs? Garbage collectors. But options vary, even in rich lands. In 2011 in the United States, a fast-food giant advertised nationwide for 50,000 jobs, nearly all of them low-end. It got a million applications.
In a poor land, while options are limited if you’re male, they’re more limited if you’re female. Safety outside the home is more of a problem for you than for your brothers. Your family is also more likely to push you into domestic work early—its value is easy to see while the value of sending you to school is longer-term. You’re also more likely to be married off young. Your dowry can also be costly; and if you live in a city, your body can have rental value. Thus, often, you’re much more restricted than your brothers. In 2004 in Uttar Pradesh, most females had to ask permission just to leave the house; and nearly all married women there needed their husband’s permission to visit a clinic. Further, females, especially rural females, often have fewer wage-paying job offers than males do. That’s also true for inheritance and property ownership. In 2005 in Cameroon, women held less than ten percent of all land certificates. So if you’re female, being sent to school, or even just wanting to go to school, is less likely for you than your brothers. What’s the point? You’ll have no inheritance to manage, no wage-earning job to get. Thus, in 2009, of the 774 million of us who couldn’t read, nearly two-thirds were women.
In a poor country, whether you’re male or female, schooled or unschooled, money can be hard to come by, even if you own many things. The total value of those things might even be large, but that may not matter. High transaction costs mostly keep you out of the legal system, so your ownership of things mostly isn’t formal. It’s only what your neighbors say they are.
Who owns the land you squat on? No one knows. Who owns the house you live in? No one can say. Who owns the TV in that house? No one but you cares. Often, you own stuff only in the sense of: “This is mine because if you try to take it, I’ll try to hurt you.”
If you’re shut out of the legal system, you’re also shut out of the financial system, because your contracts are limited to informal and local ones. If you can’t legally own a house, you can’t get insurance for it. Nor can you get a mortgage on it. So you can’t leverage it to fund a business. Even if you do manage to start a business, your firm can’t sell stock, so others can’t indirectly fund your firm by betting on it. Nor can you have an idea and patent it as a revenue stream. Also, since you can’t own things, you can’t use them as collateral for loans. Nor can you use them as insurance for sickness, hard times, or old age.
So having many kids is vital. So is putting them to work early. Sending all of them to school is next-door to impossible. Then they grow up, legally owning no more than you did, so the synergetic cycle repeats.
Synergy isn’t your only problem. Stigmergy also works against you. If you can’t legally own things, how likely are you to try to add to their value? The government bulldozers could roll through your shantytown tomorrow morning. Or some thug with a gun could snatch your things tomorrow night. Only your gun prevents that—not the government’s guns, nor the market’s guns.
So if you’re poor in a poor land, what do you do? You can’t borrow the money to build billion-dollar apartment complexes. Instead, you sell sex. You join a gang. You repair shoes out of your house. You catch rats for your neighbors. You operate a rickshaw taxi. You sell food on the street. How likely are you to let strangers eat that food today but pay for it tomorrow? What’s the chance that strangers will help you expand your food cart in exchange for a share in tomorrow’s profits?
For you, everything must be here and now. Your bank is your mattress. Your credit card is the local shop or loan shark. Your insurance company is your offspring. Your police office is your burliest friend. Your political representative is the nearest priest, or the corner gangster. For you, only your neighborhood matters—not the government, not the market.
But what if you’re in one of our rich countries? Well, if you’re very poor you might be in much the same world. But if you’re in the middle class, you also own stuff in the sense of: “This is mine because my ownership of it is recorded in ledgers and computers in public places. If you take it, the state will try to hurt you.” Your ownership of stuff is tied into the state’s recording of it. Thus, you don’t merely own stuff. You own property.
Your government also changes. You’re tied, through your stuff, to the state. So you’re less likely to conspire against that state. Also, because property ownership is public, lawmakers have more feedback about what laws you want, and what you’re willing to put up with. There are many more of you, and you’re much richer, so they’re more scared of you, and so care more about what you think—or perhaps, what you can be manipulated into thinking. The market, too, has more feedback about you, just as you do about it. All parts of your nation’s network are nearer to operational closure because there are many more links between all those parts. Threats to the state are threats to your stuff—and, through your stuff, your whole way of life. You might even be willing to go to war to defend the state—or at least, to fund wars to defend the state. Revolution is rare.
To summarize: if we’re poor in a poor country we don’t live in an operationally closed world. We live in PovertyLand. Only the few—our lawmakers, our rich, and our cleverest gangsters—can lever our country’s legal and financial tools. So only they can enforce contracts, spread risk, and make large joint ventures. Only they can grow their wealth. The rest of us spend our lives knocking on a door that isn’t there. In such a network it doesn’t matter whose head sports the junta’s cap at the moment. Whenever election time rolls around, or whatever passes for elections, the wealthy—and the lawmakers, officials, judges, and police who service them—will talk up some grand new scheme or the other. But since we’re all forced to be complicit in mutual non-enforcement of public rules, all we can really do is scratch each other’s backs. Most of us have little reason to try to change the network forces that keep us where we are—and the few who do try are usually hammered down. It’s hard then to know why so many of us still bother to ask smirking foxes about missing chickens.
Where Ignorant Armies Clash by Night
Lack of operational closure and lack of functioning institutional tools might help explain part of why poverty persists, but they can’t explain everything if only because they only apply to one of our countries at a time. That ignores international trade. And like cities, trade is one of our major levers of wealth, but it’s also one of our chief points of friction.
Take steel. In the United States from 1998 to 2001, 31 steel making companies went bust, largely because they could no longer make steel as cheaply as foreign steel makers could. In 2002, the country imposed a tariff on imported steel so that it cost more than domestic steel. The parts of the country with iron mines and steel factories liked that. But other parts without either, didn’t. Makers of cars, fridges, washing machines, and whatnot, had to pay more for steel. They thus either had to raise prices (leading to consumer unrest), or lose profit (leading to shareholder unrest), or shed jobs (leading to labor unrest). That year alone, such companies may have lost at least 15,000 jobs. Also, Brazil, Japan, Russia, Britain, France, Germany, China, South Korea, Taiwan, Turkey, Australia, and the Netherlands didn’t like the tariff, either. Some were upset that the United States would now buy less of their steel, thus triggering plant closings. Others feared that a river of cheap steel, priced out of the United States market, would slosh their way, drowning their own steel industries. All in all, the tariff seemed about to trigger a global trade war. The United States nixed it the next year.
We all trade. And all our countries risk trade war, if not shooting war, every time we raise any trade barrier. Yet we have lots of them. Why?
Suppose Iznojokistan and Yezidizania trade food and cars. One day, Iznojokistani car makers complain that Yezidizanian car makers are selling cars in Iznojokistan too cheaply. They call for a tariff on car imports. To we Iznojokistanis, that sounds good. Why support Yezidizanians? We want our cars to outsell theirs. That won’t just keep car jobs here, it would make us feel great. Buy local! But if you think that, you’ve fallen into my trap, 007.
Because if you’re an Iznojokistan farmer you make Yezidizanian cars, too. When you grow food, sell it for money, then use that money to buy Yezidizanian cars, it’s just as if you grew those cars in your fields. You converted your food into their cars. So raising the price of their cars in your country is the same as simply burning part of your own crops. The same goes for everyone else in Iznojokistan—we would all be forced to destroy some of our own work—unless we’re car makers.
Or again, suppose nearby farmers complain that faraway farmers are selling their food too cheaply. They call for a quota on foreign food. ‘Buy local!’ rings out. But if we fall for that, what we’re really doing isn’t just helping local farmers but also harming local car makers—because they, too, make foreign food in their factories, just as local farmers grow foreign cars in their fields. Imposing a quota on foreign food would harm everyone—except local farmers.
Raising local barriers to faraway goods and services often sounds like a good idea. That’s surely true if we’re a local group supplying variants of those same goods and services—but everyone else pays. Perhaps that’s hard to see because we usually distinguish between near and far—whether in distance, language, religion, origin, whatever. Near means known, which means understandable and perhaps predictable, and hence ‘good,’ while far perhaps isn’t. Also, perhaps it’s hard to see because money confuses us. We trade goods and services for other goods and services, not money. We can’t eat money or drive in it. Money merely simplifies our trades.
However, we have many local groups. So which ones are we most likely to aid? To simplify the arithmetic, suppose that just 1,000 of us live in a country, with ten of us farmers, and we’re arguing over a farm-subsidy bill. If passed, the bill would cost each of us $10. That money would then be evenly divided among the ten of us who are farmers. What might happen to that bill?
If we’re farmers and the bill passes, we would each lose $10 (in tax) but gain $1,000 (in subsidy). So we’re keen to start a lobby to promote our interests. If we’re willing to give that lobby much of our expected profit to fight for the bill, it could call on our ten votes, plus perhaps almost $10,000 (minus its cut). It then buys as many lawmakers (and officials) as it can with that money and that voting bloc. Those lawmakers would want to get into bed with powerful lobbies because that’s often how they get (and keep) their jobs—or where they go after their jobs.
If we aren’t farmers, though, we outnumber the farmers 99 to 1, so surely the bill would die? Nope. Aside from grumbling about new taxes, we probably wouldn’t start a lobby. What’s the point? If the new law passes, it would only cost us $10 each. Plus, fighting its passage would cost us something too—lobby dues, at least. Either way, we lose. Even if we decide to fight, how do we organize? Farmers are few—but they’re easy to find because they all care about farms. As non-farmers, we’re many—but we might care about car plants, stock markets, spotted owls. How likely are we to agree on anything? We probably would never even hear about the bill in the first place. So, likely, the 10 farmers get a megaphone, while the 990 non-farmers don’t.
But the farm lobby may still not win because, like a piglet jostling for teats, it would have to fight other lobbies for access to the public purse. To do so, it has to figure out some way to equate farmer well-being with non-farmer well-being. But that’s what advertisers are for. So some of the lobby’s money goes to the media, which puts some crusty farmer actors in front of us and hides or fuzzes anything that might bother us. Also, behind the scenes, the lobby might hire ex-leaders, or their families or friends, or any other kind of celeb, as shills.
So on top of the tax masquerade, comes another masquerade as lobbies compete, bidding against each other for our attention. And the richer we get as a nation, the more intense the competition.
Thus, in the United States, in 2008, while about 304 million of us lived there, the 25,000 of us who were cotton farmers got around $2 billion U.S. a year. Plus, until 2006, the state gave another $1.7 billion a year to companies to buy that cotton. So not only did the state support cotton, it even supported the buying of supported cotton. Similarly, from 1997 to 2006, corn farmers got over $5 billion a year in subsidies.
Of course, such subsidies do mean that cotton and corn is cheaper in the United States. But there, they also mean that fewer babies with meningitis get help. Fewer retirees with Alzheimer’s get help. Fewer infant industries get help. Around the planet, they also mean that we’re forcing the growth of cotton and corn in a land where they cost more to grow than elsewhere. And in many of our poor lands, cotton and corn growers have no other options. So more of our babies are starving to death because of those same subsidies.
But were the United States to remove those subsidies, wouldn’t its corn and cotton (and sugar and other) farmers die off? Well, maybe. But in New Zealand in 1984, the state had subsidized almost two-fifths of the average sheep and beef farmer’s gross income. The next year, a new government came to power and it cut almost all of that support. In five years the number of sheep fell 14 percent. The number of cattle also fell. So did land prices. About one in a hundred farmers went broke. However, farms then grew bigger. Farmers also bought new tools. The state also funded research to make farming less wasteful. By 2005 it was cheaper to raise a lamb in New Zealand, slaughter it, freeze it, then ship it 11,000 miles from Auckland to Felixstowe than it was to raise a lamb in Devon. Both New Zealand’s farm efficiency and its exports went up. Its economy as a whole changed to less industry, more farming and logging, and much more services.
So why do we have tariffs, quotas, subsidies, duties, excises, licensing rules, and all our other trade barriers? In all our countries, we blame them on other countries. They lead to hilarious phrases like “a level playing field,” when we usually desire anything but. Our leaders constantly promise to remove them—just as soon as our hated enemies, er, our trading partners, promise to do the same. But such barriers often have little to do with far away places; they’re a reflection of our own nearby competitions. They’re taxes on the many and handouts to the few. Of course, they usually masquerade as something else—and while they can sometimes be politically or militarily necessary, especially when adjustment costs might be high, they can generate a lot of other pretense, too. They can cost us more money than we need to spend. They can kill more of us than need to die. They can even risk outright war. We have lots of them perhaps because we don’t understand them, because we’re easy to fool, because we become set in our ways and don’t wish change, and because our strongest lobbies can afford the most expensive suits and the best advertising. But we also have them so that we can be booty takers, or protect ourselves against booty takers, or both. So, with all our confusions, misjudgments, and infighting, much of our trade tactics amount to a street fight pretending to be a court pavane. It’s a gigantic con game whose underbelly is all seams.
However, from 1980 to 2011, despite all our schemes and shams and swindles and scams, world trade more than quadrupled. Goods exports rose about seven percent a year, and services about eight percent a year. So, today, we more often trade goods and services—but we still sometimes trade bullets and bombs. And whenever we do, our clashing armies usually don’t even know what led to the bloodshed in the first place.
Swimming with Autopoietic Barracuda
Differences in operational closure, institutional tools, and trade power may combine to keep most of our poor countries poor and most of our rich countries rich.
Our international playground is much like any other playground, once there are no teachers around to spank. The kids sort themselves into packs by size, and... Hijinks Ensue. The big kids make the rules—with lawyers, guns, and money—and usually get their way, and whenever they don’t, they usually beat up on the little kids and steal their sweeties. Nothing about that is new—not for centuries, not for millennia. But since the 1800s, something is new, because while both sets of kids are growing now, the big kids keep getting bigger faster.
Take Egypt and Germany. In 2010, about 81 million of us lived in each country, so each had about the same number of brains and hands. Egypt is about three times bigger, but it’s really just one long river flowing through a desert. As for raw materials, Germany had more coal and potash, but Egypt had more oil and natural gas. Were all else equal, both countries might have been about equally rich. But bodies and land and resources aren’t all that matter. Egypt was only 43 percent urban (and likely won’t become half-urban until 2030), whereas Germany was almost 74 percent urban (it became half-urban around 1910). In Germany, every adult could read. In Egypt, 29 percent couldn’t. In Egypt, 40 percent of us were under, or just barely above, the world poverty line—$2 U.S. a day. In Germany, we couldn’t imagine such incomes. There, to be considered poor we had to earn less than €31 ($40 U.S.) a day, and only 15.6 percent of us were that poor, anyway.
But Germany was once poor. So why might such differences matter in the long run? Can’t Egypt just do now whatever Germany did back then?
By 1850, Britain was half-urban and was the world’s sole superpower while Germany was poor, weak, and rural. It wasn’t yet even a nation, but rather several small states. And they were all jealous of each other. Constant petty wars had impoverished the land, which, unlike Britain, had neither colonies, nor good coal, nor shipping, nor rich soil, nor a climate favorable to farming. Besides, it had but one good harbor, communications in its interior were bad, and its internal trade was weak. Many in Britain thought that Germany would forever be poor and weak and rural.
By 1871, though, Germany had unified and had won a big war against Austria, then France. Its industry then began to explode, as did its numbers, cities, shipping, navy, and trade. However in 1876 its goods, compared to those made in Britain (and the United States), were still routinely called “cheap and nasty.” (Something also said, almost a century later, in both Britain and the United States, about goods from Japan.) By 1896, though, worries about Germany were rising in Britain, where a popular booklet noted that “A gigantic commercial State is arising to menace our prosperity, and contend with us for the trade of the world.” (Something also said in the United States, around a century later, about Japan.) But even as late as 1898, a popular magazine article in Britain summarized Germany thus: “These people have no manners, and their customs are beastly.”
By 1910, though, Germany had caught up. It had done so mostly by investing in its people.
It pumped money into schools, tools, infrastructure, and research more quickly and more deeply than Britain did, and it applied the results more rapidly and more widely than Britain did. It also started doing bizarre things—like encouraging links between schools and industries, and looking for sheer merit instead of asking who your parents were. Plus, it could start with the best tools and ideas available at the time, whereas Britain continued on its hit-or-miss way. Further, Britain already had a lot, so it was slower to change even when it invented new things. For instance, aniline dyes—then chemicals based on them—grew into a huge industry in Germany, not Britain, even though Britain blundered into the first one.
Britain was smug; Germany was hungry. Germany didn’t have Britain’s huge coal resources, huge industrial head start, huge military might, nor its huge empire. Nor did it have the huge resources of the United States, nor the head start on mass production there. So it put effort into the only things it might one day have—skilled hands and trained brains.
But if that worked for Germany back then, why couldn’t it have worked for Egypt 60 years ago? Or why can’t it work for Egypt today? Between Britain and Germany, an urbanization head start of a little over two generations—60 or so years—made little difference. But between Germany and Egypt, a head start of a little under five generations—120 or so years—seems to have made a big difference (at least so far). Why?
Partly that’s because of location and geopolitics. Germany, although once poor, was in Europe. Egypt, although once a power, became a political football. That had all sorts of consequences. But perhaps, too, it’s partly because of differences in operational closure, institutional tools, and trade power.
After the start of our industrial phase change, many of the resources that Egypt needed to build its recursive industrial machine Germany also needed to keep its recursive industrial machine running. And today, Germany routinely outguns Egypt for many of those resources, so they tend to flow uphill—from less to more. Just as big cities tend to get bigger just because they already are big, industrial concentrations tend to increase rather than decrease.
Like Germany in the 1850s, Egypt has much of what it needs to become a rich country, namely: its people. But so does every other country on the planet. For any of our groups to make more than just more people we first need a certain range of interlocking skills. But some skills are rarer than others. Worldwide, many more of us can make carpets than can make cars. So, if, like Germany, we export cars and import carpets, we increase demand for the high-skilled and decrease demand for the low-skilled. However, if, like Egypt, we import cars and export carpets, we do the reverse. So both countries—even if neither plans it, wants it, or even notices it—work together to drive high skill from Egypt, which may have only a little, to Germany, which may have a lot. It’s as if they both have one-way doors at their borders marked ‘Skilled People Only,’ except that Germany’s door leads in while Egypt’s door leads out.
In Egypt, for us to make machines a part of our toolbox, we need planning for production by the machines, equipment to maintain the machines, experts to setup the machines—oh, and the machines. So to start with, we need lots of engineers. To get them, we need good schools. For those, we need good teachers. For them, we need good salaries. For those, we need an extensive toolbox. For that, we need trained engineers. So to get engineers, we first need engineers, just as a termite colony needs workers to get more workers. Also, even if we train up lots of engineers, they can vote with their feet more easily than the rest of us can. They will flee to richer countries unless we provide good jobs and good schools and good lives for them and their families. (Or armed guards at the border, but that leads to other problems.) The same goes for scientists, technicians, mathematicians, academics, and doctors. For instance, from 1998 to 2000, around 15,000 doctors in our Arabic-speaking lands emigrated. Similarly, in 2008 as doctors in the Philippines many of us were retraining as nurses, even though nurses made much less. As nurses, but not doctors, we could then emigrate to the United States—and make four times as much. Thus, our brains needn’t go where they might make the most difference. Often, brains go where they can make the most difference for the most money.
Well, no problem, in Egypt instead of growing engineers and building machines, which takes a while anyway, especially if we’re starting from scratch with peasants and dirt, we can just lease both from abroad, and we can do that by borrowing money to kick-start our machine infrastructure. Standard economics texts say that money will flow from our rich lands to our poor lands, seeking higher returns. Except, oops, while that did happen—back in the 1800s, when industry was spreading to Europe’s transplants—it’s not happening now. In 1990, 88 percent of all our privately controlled money everywhere on the planet flowed to, not from, the richest 20 percent of the planet. Just one percent went to the poorest 20 percent of the planet. Of that, by 2004 most of the investment went to Angola, Equatorial Guinea, and Sudan. But then, they’re resource rich—particularly in oil and natural gas. The money went there not to aid industry but to extract resources. Even money in our poor lands tends to flow to our rich lands—for example, from China to the United States. It doesn’t matter if profits might be higher in high-risk countries, if investors never get those profits in the first place. Thus, our money needn’t go where it might make the highest profit. Often, money goes where it can make the highest profit at the lowest risk.
Well, no problem, in Egypt we can borrow money by lowering our investment risk, and we can do that by raising our incomes with trade. Standard economics texts say that our poor lands will use their masses of cheap, unskilled labor to make labor-intensive things—mostly food and clothes. (From 1999 to 2001, cloth and clothing made up between 50 and 90 percent of our goods exports from Bangladesh, Sri Lanka, Pakistan, Cambodia, and Laos.) Rich countries will then be forced out of making food and clothes. Well, that did happen for a while—but, oops, it mostly isn’t happening as much anymore. Trade barriers block the flow. For instance, in 2000, the European Union had at least 10,794 tariffs protecting its farms (and factories), even though out of a population of 451 million it only had seven million farmers. Thus, until at least 2007, the European Union, by requiring that camels be milked mechanically, in essence banned camel cheese from Mauritania—one of the poorest countries in the world. On average, exports from our poor countries faced tariffs about twice as high as those that our rich countries faced. For example, from 1974 to 2004 our rich countries forced a trade agreement on our poor countries that limited cloth exports. That 30-year agreement alone may have cost our poor countries $40 billion U.S. a year. It also cost them perhaps 27 million jobs a year. Roughly speaking, and averaging over all sectors, world trade barriers are lowest just where our rich countries are strongest, namely: in mass-produced goods. Thus, our trade needn’t go where it might be most productive. Often, trade goes where it can most easily be forced to go.
Well, no problem, in Egypt we can protect ourselves from trade loss with red tape. In 2002, some trade barriers in our poor countries were on average between two and three times higher than those in our rich ones. But, oops, that didn’t quite work. For example, in Brazil in 1977 we tried to nurture our infant computer industry by keeping out foreign computers. But then, the computers we made lagged three to five years behind foreign ones; plus, they cost so much that smuggling became the norm. By 1992 we gave up. Similarly, in India in 1947, to encourage local industry, we raised huge tariffs on imports. Everything from buying a car to getting a phone to importing a computer needed a permit. That worked for a while (in the 1950s), just as it had worked for a while in Russia (in the 1920s). But, as Britain discovered in the 1970s, nationalizing an industry might save it for a while, but that can easily turn into an indirect dole. By 1990 in India our sole car company, Hindustan Motors, made fewer than 20,000 cars a year—about two an hour. Meanwhile, Toyota, which had started the same year, made five million a year—about 36,000 an hour. In India we had protected our firms, but we had also cut ourselves off from global trade, tools, practices, and money. Also, global prices could no longer signal to us what to do. We thus had little feedback about which state policies or industrial practices might work best. Plus, our industries weren’t under pressure to compete. And our economy was smothered in red tape and our legal system was riddled with distortions. By 1991, we were facing bankruptcy. Watching the Soviet Union collapse while China took off, we started tearing up some of our red tape. By 2000, we started to take off, yet by 2010 we were still largely politically closed compared to rich countries. Political closure is a weak substitute for operational closure.
So Germany wins and Egypt loses.
Regardless of how many angry government statistics we hoot at each other, Egypt loses if only because Germany phased changed into industry early enough to maintain its vast lead.
In Egypt, simply adding some money, or some trained people, or some machines, roads, schools, or whatever, is like pouring water into a leaky cup. Each thing will slowly slip away without the others. But in lands with all those things already working together, each separate thing doesn’t just stay, it attracts every other thing from outside.
So in terms of network productivity, moving from one place to another can be like gaining a (small) superpower—not just because of the surrounding mass-producing machines and infrastructure and schooling levels and record keeping on the farms and factories and offices, but also in schools and hospitals, and in the police, judiciary, bureaucracy, and legislature, all set within a nation that is already more than half-urban. Thousands of institutions mesh with millions of firms, billions of machines, and trillions of spare parts, not to mention millions of urbanites educated to fit into, and maintain, and expand that huge network.
If such a place ever comes to exist, talent and money, and other industrial resources, would tend to flow not downhill, but uphill toward it, thus perpetuating its trade power, which works to perpetuate it, perhaps even without it using weapons to fetch them.
Of course, that’s a shaky argument with lots of pieces about a complicated topic, so maybe it’s rubbish, but if that kind of complex networking might indeed develop for some of our groups, it might not be unique to us. Some systems biologists say that every biological cell is autopoietic (‘self-maintaining’). First, its network of molecules needs to be so complex that it remakes itself (it’s self-remaking; that is, it has operational closure). But that wouldn’t matter if the cell didn’t also keep its network together with a skin, which is itself part of the cell’s network because that skin is made of molecules, and the cell’s network keeps remaking those molecules and stitching them into the cell’s skin to thus preserve that skin, and thus the cell as a whole (thus it’s self-containing). But even that wouldn’t matter if its skin didn’t also have pumps to suck in the resources it needs and push out the wastes it produces (thus it’s self-sustaining). Those three things together—the cell’s network, plus its skin, plus its pumps—lets it both control and make use of what’s sucked in and what’s pushed out, thus moving stuff uphill. So it’s self-remaking, self-containing, and self-sustaining; which, in a sense, gives it ‘trade power’ against its surroundings. Thus a cell isn’t merely its self-remaking network; it’s also its self-containing skin and its self-sustaining pumps. Because of a cell’s three parts, when surrounded by enough resources, it acts so as to preserve itself. It’s a self-maintaining network.
If that applies to us then our industrial phase change has turned most of our poorer countries into minnows swimming with barracuda. Even were the barracuda to care about anything but themselves, their mere existence limits how fast the minnows can themselves turn into barracuda. Resource leakage from the barracuda is low but from the minnows it’s high. They aren’t yet autopoietic. There’s always blood in the water.
Since the start of our industrial phase change, differences in autopoiesis have likely given our currently rich lands many economic advantages over our currently poor lands. (That’s not counting military advantages.) But that may be about to change in some ways, and perhaps in our near future, because the populations of several of our presently rich countries are both shrinking and aging. Only that of the United States just barely isn’t—because it props up its falling birth rate with immigration, which has been rising there since the 1940s. Even so, in 2010, its birth rate per woman was 2.06, which was below replacement level (which is 2.1). South Korea’s, at 1.23, was the fourth lowest on the planet.
Also, in our rich countries, more of us are living longer. In 1900 in the United States, only four percent of us there were over-65. In 2000, more than 12 percent were. In Japan, 22 percent of us were—the highest proportion of old compared to young in the world. Italy and Germany were similar. Many eurozone countries are nearing that stage.
The richer we get, the less we breed and the longer we live. With many fewer young, and many more old, the ratio of workers to dependents has changed. In 1950, the United States had 16.5 wage-earners to every beneficiary—which included the very young, very old, sick, disabled, and jobless. By 2010, that ratio had dropped to 2.9 to 1. Other rich countries were similar. So, many of them were bribing women to have more babies, but birth rates kept falling anyway.
By about 2030 to 2040, our presently rich world’s most recent baby boom—those born between 1946 and 1964—won’t be working; but we also won’t be dead. We’ll be retired. We also won’t be making many babies. Nor, probably, will our children, nor grandchildren.
The baby boom is turning into a fogy boom.
But if autopoiesis really does describe something important about today’s rich countries, and if the reaction network that one of them depends on starts running out of one of its chief parts—namely, its workforce—its whole network could begin to fall apart.
Nor are only our rich countries aging. They’re merely on the leading edge of our global phase change. In 1950, our world average was around five kids per woman—but our rich countries had small families and long lives, while our poor countries had big families and short lives. However in 60 years, the world average halved, which cut that difference. So by 2010, the bulk of us, including China and India, were where our presently rich countries were in 1950.
But while our species is aging, our global workforce—those aged between 15 and 59—is rising. It will keep rising until around 2045. Yet while it’s rising globally, it isn’t rising in our presently rich lands. For instance, within Europe, Germany is a power. It’s Europe’s biggest economy, its largest exporter, and its most populous nation. However, if current trends continue, by 2050 eight million fewer of us might be alive there. Similarly, Italy might have around 12 million fewer of us, and Russia might have 20 million fewer. Who, or perhaps what, is going to be running all the farms and factories and offices?
Also, in 2007, the United States was the richest nation on the planet. There, our economy was around $12 trillion. But our unfunded liabilities amounted to about $53 trillion. By 2011 that had only grown—with a little over half the debt owed at home. The rest was owed to countries like China, Saudi Arabia, Britain, and Japan. What happens if, over the coming decades, any of them lose confidence?
Japan is another special case. There, our state borrows hugely, albeit mostly only internally. We do so because in 1990 a massive bubble burst and we fell into a long deflationary spiral. Firms—loaded down with massive amounts of bad assets—paid down debt rather than raising wages or investing in the future. So households—with incomes stagnant or dwindling—and prices falling, spent less and less. Thus, banks—even when they offered free money (by setting interest rates to zero)—got few takers. There was no point borrowing, for there was little new to invest in, and neither prices nor wages were rising. So prices kept falling, autocatalytically. As our economy deflated, innovation was low and investment was slow. Our government, to try to jump-start the economic engine, borrowed hugely. By 2013 we owned nearly all our government’s debt, and, we were satisfied with low interest rates. However, many of us are old now, and as we retire, we’ll likely stop buying government bonds. We’ll also likely sell what bonds we have. The state, to raise money, may then have to go to foreign bond markets. If so, those markets, to cover the risk of default, will likely want higher interest rates, which would lead to even higher debt loads.
Something similar might even happen to China, which by 2014 was the world’s second biggest economy. There, our income per person grew twenty-one-fold from 1970 to 2010. We’ve been getting richer using export-led industries—much as Japan did from the 1950s to the 1970s, and South Korea from the 1970s to the 1990s. But in 2010 our income per person was still only a fifth the average of that of a rich country. Also, we’re aging because of a family planning policy started in the 1970s. By the 2030s, we might turn into a giant version of Japan—perhaps even including exploding (and maybe one day unmanageable) internal debt.
In China, we made those choices after suffering hard blows—among others, in the 1960s perhaps 30 million of us had starved to death. So we want to keep our exportable goods and services cheap. To do that, we want to keep our currency weak. So we use it to buy dollars and pounds and euros and yen—not to then buy foreign consumables, but mostly to keep (earning very little interest). Plus, to keep our currency weak, we need to keep down our imports, so we want to keep our wages low. We can do so as long as ever more of us flood into our exploding cities every year, just as happened in the 1800s in Britain and the United States. The result? Low interest rates around the globe—for decades. So even when the rich world is still deep in debt, money can still be cheap to borrow.
But the flow of cheap labor in China (and elsewhere), and thus cheap money, can’t go on forever. Similarly, if workforces in our rich countries fall, debt might well rise.
Of course, in our rich lands the debt merry-go-round could continue to swing—but only for as long as each generation produces not just as much as but more than, the last one.
Maybe our aging, shrinking, debt-ridden, rich countries will find a way to make mass immigration politically acceptable again—but that’s a hard ball to bounce because it can amount to demographic suicide. So maybe fertility will rise for older females as new tools make that first possible, then not only easier but attractive? Or maybe new robots will fill the labor gap? Or maybe metaconcerts will farm out mental production so that firms there won’t need as much staff on their own soil? Or, least likely of all, maybe biotech will come up with some pill to make 60-year-olds work like 16-year-olds? Maybe, maybe, maybe.
More likely, though, at least some of our currently rich but indebted countries will simply fall further in debt as their workforces fall. They seem more likely to try to borrow ever more to keep the lights on. To cover that, global interest rates would then rise. With cheap money ever harder to find, investment would then fall. Jobloss would then rise.
If so, troubled states will likely try to avoid serious pain in lots of different ways—freezing wages, raising taxes, raising retirement ages, reducing benefits, reducing healthcare payouts, squeezing pensions, privatizing public services, nationalizing private assets, curtailing foreign investment, taxing mortgage or stock market loans and other asset speculation, and so on.
That might work. But such bandaids are themselves painful, and the doctor won’t have as many lollipops to give the kids after sticking the needle in. Also, money is no longer as stuck behind borders; so if put under enough stress it will simply flee. Skill is nearing the same state. The rich have the same fleetness of foot, taking many of their resources with them.
Troubled states may also try to reduce incomes, which would reduce total spending. That, too, might work. But if spending falls too fast that cuts demand, which reduces jobs, which further reduces incomes, which further reduces demand, which drives down industry, which drives up the need for more credit, which drives up interest rates. So if such remedies aren’t put in place carefully and in time, they themselves could blow up.
In sum, the fogy boom will likely mean fewer (human) workers, which might mean no or slow income growth, which might mean rising deficits, and thus a slowing ability to pay down debt, and a rising need for more debt. So, likely, we shall try to borrow money on the beaches, we shall borrow on the landing grounds, we shall borrow in the fields and in the streets, we shall borrow in the hills; we shall never repay the principal.
Of course, debt, even large debt, needn’t mean poverty. Debt needn’t much matter had the loans funded long-term assets—schools, infrastructure, machinery, research and development. Debt need only be a problem when it mainly funds consumption or speculation. What matters is current debt relative to future income. Growth hides or even erases debt; dearth worsens it.
Debt also needn’t much matter if at least one big player can be a creditor. That has happened before. To fight what would become a World War, Britain and France had borrowed heavily from the United States. But on war’s end, they couldn’t repay; they were broke. Yet they were demanding huge amounts of Germany, but it, too, was broke. France also owed huge amounts to Britain, and was owed huge amounts by Russia; and Britain was owed huge amounts by Italy and Russia, and others. Russia defaulted, and since everyone was broke, they all refused to pay unless Germany paid them. However the United States then lent money to Germany, which started paying back Britain and France, which started paying back the United States. That got the merry-go-round swinging again—until the Great Depression, and world trade slumped by almost two-thirds, and Germany defaulted, and started arming for what was to become another World War.
Shrinking numbers from low fertility needn’t be a problem, either, were we to plan for it early enough—but we never do. It’s even been a worry before: France in the 1870s, Germany and Russia in the 1930s, Britain, Sweden, Romania, and elsewhere later in the century.
Ditto for increasing age. That’s been rising since 1900, first in Britain, then elsewhere.
So none of the three problems are new. But all three together make for a special problem, especially for Japan, but also for several eurozone countries, since they can’t cheapen their exports merely by devaluing their currencies. So they will have to cut wages, or cut spending, or redistribute wealth, or all three. (Or leave the eurozone entirely.)
By 2030 or so, if not long before, many of our currently rich but indebted and increasingly fogy countries are likely to be groping around for quick fixes. If such a nation can no longer borrow cheaply, and can’t squeeze its people any more, then its only ways out, short of war, would be to either inflate or devalue its currency—so as to weaken its currency and thus export its way out of debt. Some states may even default.
If we do get that far along, we could look back to past scary times: Germany in the 1920s, the United States in the 1930s, Britain in the 1950s, Japan in the 1990s. But even that may not help because we would also have to contend with the fogy boom.
Whatever happens, our global bond markets are nearly certain to go mad for a time because they’ll fear that a piece of paper with lots of pretty curlicues printed on it that used to look valuable may be turning into a piece of paper that just stands for more pieces of paper. Interest rates would then likely spike to cover the newly perceived risk. Also, in a haze of investment uncertainty, currencies would likely jitter around for quite a while. Further, as some currencies fall, others can only rise relative to them, which would bring pain to their countries, because that would make their exports more expensive, which would drive them to depreciate to compete, which would drive all of us closer to global currency war. But whether we fall into that pit or not, with foreign exchange suddenly wobbly, global trade would then likely slump. It won’t matter if many countries are still making a lot of stuff if many other countries can’t afford that stuff. It also won’t matter if many of our countries still have many workers, if those workers don’t have enough jobs. Thus, widespread recession, perhaps even depression, may follow. As global markets shrink, jobloss would rise. So around the globe we might then start screaming our usual mantra when times get hard: ‘Buy local!’ If so, trade barriers would rise as we all slam shut our borders, join gangs with interesting-looking armbands, beat up immigrants—or any other easily identified groups—and raise shields to repel Romulan attack. And that particular road we’ve been down before. The last time around, it led to world war. The last one ended with nukes. If there’s another, it may start with them. Baby Boom. Fogy Boom. Boom boom?
Utopia Dead Ahead
Given our national differences in operational closure and autopoiesis, and our current fogy boom and debt imbalances, is utopia dead ahead? Or is it dead, ahead?
Over the last 12 millennia, we’ve changed many limits on what we can think and do and be. But we’ve always lived with limits: limits on our food and resources, our brawn and guile, our options and health. Could we one day get so rich that such limits vanish? Will future economists beg in the streets while the rest of us lounge about on comfy sofas as comely robots feed us peeled grapes grown in dirt-cheap home food machines?
Start with jobs. Will our future tools—perhaps, self-building robots—let us all retire at birth, even if some of us get to retire on larger incomes than others?
Take the United States. So far, among all our countries, its job market has changed the most. During our phase change into industry there, farms emptied as we fled into factories. Then, many of us fretted that soon we would have nothing to eat because we would all be making goods. Foreigners would control the food supply. That never happened—or hasn’t yet, anyway. Our farms emptied because our new factories could give us higher rewards. Meanwhile, fewer farm hands made more and cheaper food than before. New machines leveraged farm labor, and cheaper transport helped us divide more of our labor. For example, from 1930 to 2000, the share of national income due to growing stuff fell from 7.7 percent to 0.7 percent.
Similarly, and later on, factories emptied as we fled into offices. Then, many of us fretted that soon we would have nothing to own because we would all be pushing paper. Foreigners would control the goods supply. That never happened—or hasn’t yet, anyway. Our factories emptied because our new offices could give us higher rewards. Meanwhile, fewer factory hands made more and cheaper goods than before. New machines leveraged factory labor, and cheaper transport helped us divide more of our labor. For example, from 1953 to 2005, the share of national income due to making stuff fell from 30 percent to 12 percent.
However, the United States was still a food and goods powerhouse, although its global share of both has been falling from its peak around 1950. But that’s not because it’s getting worse at growing things or making things. At the end of World War II, most other rich countries had been bombed flat and were starving, so it alone produced about half of all our food and goods, whereas by 2010 it only produced around a fifth. Its income from growing things and making things rose in absolute terms, but shrank in relative terms as its income from servicing things rose. Its slice of the global pie shrank as the pie got bigger.
The same shrinking and shifting that happened with growing things and making things is now happening with doing things in offices. And, of course, many of us in our rich lands are fretting that soon we’ll have no good office jobs because foreigners will push all the best paper. Well, maybe that will happen, but at least some of that work is leaving rich lands simply because both our computers and our global networking are cheapening. Over time, few of us in rich lands will have permanent office jobs, any more than permanent factory jobs or permanent farm jobs. Many of those jobs will have moved to our machines or to our poorer countries. But then, in time, even our poorest countries will have cheap tools that can do most of the job. So, in the long run, even in our poor lands, office jobs will fall there, too, and we’ll all have to find something else to do with our time.
In any country and any job sector, the number of jobs that the country needs in that sector keeps shrinking and shifting as we figure out how to make cheaper and more useful machines, and as matter- and data-flow gets cheaper and easier so that we can divide yet more labor and so that supply chains can get longer and longer. As that country’s toolbox and trade network takes over more of that sector’s labor, wages rise and profits fall until toolbox investment shifts to a new sector—or a new country.
So as the United States or Britain or Germany prices itself out of some labor market (whether in growing or making or servicing), investment shifts to Mexico or South Korea or Taiwan. With labor cheaper there, investment there rises. But only until labor there costs too much—either because wages rise too much, or because its working-age population falls too much as it gets richer, or because its currency becomes too valued. As each country prices itself out of a sector’s labor market, investment shifts to China, India, Bangladesh, Vietnam, Indonesia.... But even that search for the next labor bottom is short term. In the long term, ever cheaper machines take over the entire sector. Then it won’t matter where those machines are.
Machines aren’t coming. They’re here. Owners like them, even when they start off as more cumbersome options than us. Yes, they may be stupid and limited and expensive, but every year they can do more. They don’t get paid, they can’t talk back, and they won’t form unions. And, yes, they make mistakes—and when they do, they’re often hilariously, and enormously, and sometimes fatally, wrong. But usually that’s rare, and doesn’t repeat—unlike our mistakes. None of that is new. Every owner, whether landowner or factory owner or office owner, has always wanted rich and silly customers yet cheap and servile workers. However, before robots came, those workers were also the customers, or formed the economic base of the customers. Today, though, more and more owners can get workers that are ever cheapening and spreading and linking up, all over the planet. What happens when the customer base collapses because too many are on the dole?
In 2006, 6.7 billion of us were alive, with 4.6 billion working age. Of those, about two-thirds were in the workforce (that is, either at work or looking for work). Of those, just 45 percent were still farmers. Plus, within those at work, 38.7 percent were farmers, 21.3 percent were in industry, and 40 percent were in services. So, for the first time in history, fewer of us on the planet were on the farm than in service.
As a species, not only are we fleeing the farm, we’re now avoiding the factory on our way out.
Further, in our richest countries, as of 2011, of those who worked, up to eight in ten of us neither grew edible things nor did we make physical things. We serviced each other—in education, law, finance, government, transport, retail, health, media, amusement.
Around the globe, as machines drive us out of all other jobs, perhaps that’s our final future: directly servicing each other.
We’ll long reward any job to do with personal contact and personal service—sex and nursing, teaching and sermonizing, selling and amusing, campaigning and judging, contracting and enforcing. Politicians and preachers and police and prostitutes will long have jobs.
However, while many of our future service jobs might be new, and while many of them might be fascinating and fulfilling and rewarding and such, how many of them will be? And to where shall we flee if machines pursue us even there? Into art? Into crime?
As ever more of us clump into service, and as our transport and communication tools keep cheapening and spreading, our highest-paying jobs everywhere—not just in our richest countries—may well grow more creative, but also more transient. Perhaps they’ll also grow ever more personal, and ever more machine-aided, and ever more dependent on networking with others in metaconcerts, which over time may spread around the globe.
Rather than one lifetime job in one place, more and more of us may have many, concurrent, and ever changing short-term jobs in many ‘places’—or rather in one place standing in for many places. But if our job tenures shorten, and our number of parallel jobs multiply, then our attachment to any one job will likely weaken. And that might well mean more economic instability, not just for us, but also our firms, cities, countries, regions.
For instance, retirement packages may grow less sizable or less reliable—or both. After all, why sink a lot of money into someone you may be about to replace tomorrow? Thus, firms might shift further away from long-term investment toward the shorter term. That might be one way to get the ready money they’ll need to hire the best of us for the shortest times to thus maximize profit and prepare to compete with each other.
Further, if more and more of us may be competing across the globe for more and more such jobs, then to do them we’ll likely need ever higher-intensity training in ever shorter bursts. Likely, too, fewer and fewer of us may be able to afford, or keep up with, continual retraining. What if each year of steady high-paying work first takes a year of costly and difficult training?
Also, just as we compete for jobs, our cities compete for us—as tax payers—and they compete for firms—for tax income. Our firms also compete for cities—and us. Our countries, and even whole regions, also compete for firms and even whole industries.
In short, at bottom, the stability of all our systems, not just our economic ones, depends on the relative slowness of job change. What happens if that evaporates?
If our tools keep cheapening and spreading, which seems likely, at some point many of us may not be able to keep shifting what we do fast enough to keep up. And that’s assuming that our ever more short-sighted pursuit of jam today rather than jam tomorrow doesn’t topple our entire global system. The likely result would be serious disruption, then the usual marches, riots, trade wars, then perhaps even shooting war.
Many things that many of us in the rich world today take for granted: minimum wage, unemployment insurance, health insurance, pensions—aren’t inalienable rights; they’re contracts that we negotiated, and only recently. Retirement, the weekend, eight-hour workdays—those are contracts, too, and are even more recent. All of them are reactions to a large middle class, which is a result of mass production, which is part of the vast production phase change that we’re still going through. Adding in more food, and longer lives, and more mastery of disease, as those contracts and those tools and that knowledge grew and spread, our poorer countries tried to ape our increasingly rich countries—but couldn’t afford all the goodies, and unrest followed. As our global middle class grows, that will likely change. But now, before everything has time to fully spread and fully stabilize, things are changing again. We always want things we can’t yet have.
For what becomes of job security in all those professions in which anyone anywhere can do roughly the same job? Also, if many jobs themselves splinter into separate pieces—bundles of short-term and long-term contracts scattered around the planet, what happens then? What happens when the whole idea of a job-for-life ends for good? What happens to cities when much of their income comes from firms that, someday, might move in a few months, or weeks—or maybe even days? What becomes of countries when their tax rate is set not by them but by ever more unstable cycles of global demand and supply? What happens to careers when neither we, nor our companies, nor our cities, nor even our countries can guarantee decades-long employment in any one job?
Then, if income security becomes unheard of, what happens to mating and baby-making and schooling? Regardless of what happens to our jobs, our kids will still need many years before their labor is worth much. How many will we bear and how will we raise them when, as their parents, we can’t rely on steady income for even a decade? And what will those kids do if they can’t afford, or can’t finish, a desirable education, yet have to compete, not just with each other in one city, or one nation, but with the whole world?
Also, we’ll all still age, become decrepit, and need care. What happens to nursing and retiring? Could we all turn into government workers and live on a disguised dole? Then what if speedups continue past that point so that no one has any kind of stable job for even a decade? Will we go back to being servants? Or perhaps we’ll try some form of indentured servitude again? Or perhaps even disguised slavery? Or will many of us simply stop having children entirely?
Finally, as any job or career or degree or university or firm or city or nation grows more desirable, others can only grow less so. Someone always has to walk behind the elephant with a shovel.
So our future may be filled with more work, not less—and more competition, not less—and more uncertainty, not less. Some of us will always be rewarded more than others, with the few earning far more than the many. It doesn’t matter at what scale—whether persons, schools, firms, cities, countries, or regions. Scarcity—and thus competition, and thus work, and thus money, and thus an economy—is inescapable.
Unlike foraging or farming, our industrial phase change may be an unstable state for us. Maybe it’s a temporary stage we have to go through before we get to the next stable state after farming (if there is one). Maybe that’s one where we, aided by our machines, are of direct service to each other. As our recursive production engine becomes increasingly mental, and entirely global, likely it will more and more become one grid. As it does, we’ll be both increasingly able to, and driven to replace ourselves with our machines wherever we can.
In 2005, the richest fifth of us, about 22 percent, made up around 1.4 billion of us. That fifth got at least 75 percent of all our goods and services. It also got at least 75 percent of all our energy. Our poorest fifth got about 1.5 percent of each. So, in round terms, our richest fifth was about 50 times richer than our poorest fifth. And our richest tenth was about 100 times richer than our poorest tenth. By 2010, our skew had grown.
In 2006, babies born in Japan could expect to live 82.6 years while in Swaziland they could expect to live 39.6 years. Each day, dripping taps in our rich countries wasted more clean water than over a billion of us got that day. In our rich countries, kids didn’t die for want of clean water. In our poor ones, they could, and did. In our rich countries, girls weren’t kept home from school just so that they could trudge to the nearest canal or stream for the family’s water. In poor ones, they could be, and were. In some of our countries our kids were too fat while in others they were starving to death. In some of our countries they were cosseted until adulthood—and beyond. In others, they were put to work at six or seven mining garbage dumps.
From 1970 to 2010, our income per person doubled, but child labor wasn’t dead, nor even was outright slavery. Like our drug trade and our arms trade, our slave trade exists not just because we’re willing to sell what we can, but also because we’re willing to buy what we want. Whereas arms flow from our rich lands to our poor ones, slaves (and drugs) flow the other way. Traffic streams from Central and Eastern Europe and Russia to Western Europe and North America. It also runs from China, Korea, Malaysia, Indonesia, the Philippines, and Thailand to Japan, Australia, Western Europe, and North America. Chattel slavery—legal ownership of our bodies—is now mostly dead, but debt slavery lives on, especially for women and children. Sex slavery for women and girls, and some boys, also lives on. In 2007, counting all forms of bondage, perhaps 12 to 27 million of us were still slaves, and somewhere between 30,000 and over 100,000 were in the United States.
Today, factories are spreading like acne across the face of the planet. Mad urban growth spurts are straining long-established networks of international trade. Both trade and industry are growing like fungus in a closet. Just as once happened in places like Britain and the United States, then in places like Japan and South Korea, so now in China and India; except that before it was millions of us fleeing the farm for the city and now it’s hundreds of millions of us. That’s why, in 2010, our species was more than half-urban. That’s where Britain was in 1850, Germany in 1910, the United States in 1920, Japan in 1935, South Korea in 1977, China in 2011. In 2010, over one and a half billion of us were rich enough to be urban, literate, and in the world’s middle class (that is, earning $10 U.S. a day or more), and about one billion of those were in the old rich parts of the world. By 2030, though, perhaps over eight billion of us will be alive, but almost five billion of us might well be that rich.
Our species is entering industrial adolescence, a time of imbalances. Given time, whatever our present imbalances, we will compensate as we adjust to the new incentives. But will we have enough time before the next change? In the long run, whatever our newest tools will be, as they cheapen and spread, and as our trade volume rises, while our jobs will change, likely, many of us will still work—or rather, try to find work—at least unless we, perhaps, find some way to break the link between a job and an income.
In sum: We’re all getting richer, but we can’t all be rich. We don’t wage economic war because we’re divided; we’re divided because we wage economic war. Much of our politics—within families, neighborhoods, firms, cities, countries, or regions, as well as between them—amounts to constant, but heavily disguised, economic war. No matter what our future tools and trades give us, we will continue to wage that war. We will also continue it no matter how we try to erase distinctions between ourselves. Thus poverty has always been with us, and will always be with us, because it’s a moving target. It has nothing to do with who has what, but who wants what. Wealth means having options that others want but can’t have because something is always scarce. Even if every physical thing were somehow to become free, some of us would still compete over having some particular new thing first, or over having whatever the trendiest combinations of those things are. Thus, even if all houses cost nothing we would still fight over having the one with the most room, or the best view, or the most nearby shops, or the lowest bandwidth latencies, or whatever. And that’s just things. To have such things, they first have to be thought up, then designed, then built, and that’s unlikely to ever be free, even if we get machines to do some of that. Then there’s us; we will always compete over access to whomever we choose to see as irreplaceable. Thus our future poor might well have far more physical comfort than even our rich do today. Over half a million of our babies may no longer die of dirty water each year. Over 12 million of us may no longer be slaves. Over 800 million of us may no longer starve. But we won’t see that as wealth. Our future rich will, by definition, still have things that we all want but can’t have.