Efficiency is about rewarding winners, which pits all of us against each other in fierce competition and division. But we are not ready to give up on efficiency, believing that it bring us “more,” which automatically bring us happiness. But is this true? Discover the real face of the “more” delivered by the efficiency-first economy, which is actually unable to address people’s higher needs such as love, esteem or self-accomplishment.
Everyone would agree that we have been on track of a bullish pursuit for “more” today, and that we have been doing pretty well. The global GDP kept rising at a fast pace after WWII (though with some interruptions), and the Dow Jones hit its highest closing record in 2018. The average size of new houses in the US is now 2,600 square feet, up 200% from 1960. In 2017, people in North America had on average 8 connected devices, a number that is forecast to grow to 13 by 2021. We live in an era of tremendous affluence.
But instead of feeling excited about what we have, many are feeling uncertain, frustrated, angered and divided. And this is not the sentiment shared only within this country; people across the globe are feeling the same way. It is fair to think that our aggressive pursuit for “more” economic growth has finally started to cause stress fractures in our society. Such stresses are causing anxiety among people, who are now so polarized, blaming each other for putting our society in such a bad place. Extremists are on the rise everywhere, inciting people’s anger and frustration.
But wait a minute. Did we say that our world has become a bad place? But it is, actually, the most materially affluent world in our 100,000-year history, enabled by miraculously advanced technology, even though most of us have no idea how it works. How can the most materially affluent, technologically advanced society be a bad society rather than a great one? What is going on?
Extremists on both sides try to argue that the problems are created by their political opponents/enemies, but that doesn’t explain why such high level of frustration is shared by so many people across the world, who live under different political climates. The only factor that can explain a globally shared problem is a globally shared platform. And that is the economic system.
If you remember politics evolved because we needed some system to help us decide how to distribute finite resources among so many people who were entitled to them. Politics is primarily a mechanism to decide who gets “more,” who gets “less,” and what can be shared for what reason. If politics are on a shaky ground and today are dividing people so seriously, that should mean that the underlying resources are in trouble.
Looking back at the crucial points in history when “more” abruptly turned from its pinnacle to destruction, such as the end of 19th century to early 20th century, it was when the economy grew singularly and our material affluence surged, which inspired rapid population growth. The existing resources and supply-demand balance became overwhelmed, could not handle this abrupt expansion and became paralyzed.
So we need to look at our current status as to how ongoing economic growth has been helping population increase, and how that growth/increase are affecting resource supply.
Global GDP looks to have been on a robust growth trajectory after WWII. The rapid growth over the past several decades is especially the result of something the planet had never seen before: globalization. According to the United Nations, over the past decades, “globalization has greatly changed economies, societies and the natural environment and has made our world more interconnected than ever before…fueled by fast-paced changes in technology and the increased mobility of goods, services, capital and labour.” Things, people and information move and change at a mind-boggling pace and scale today, opening up new and extensive opportunities that are hard even to grasp at an individual level. “Globalization and increased economic interdependence have accompanied — and facilitated — rapid economic growth in many countries and regions, helping world GDP grow from around 50 trillion USD in 2000 to 75 trillion USD in 2016.” (United Nations. (2017). Globalization and interdependence)
When wabi-sabi emerged in Japan, a rapid economic expansion disturbed a system within one country and caused a civil war. When modern design embraced “less is more,” drastic outcome of the Industrial Revolution disturbed a multi-national/regional system and triggered world wars. Today, globalization is shaking the entire planet. We can only imagine how overwhelming the impact could be on our world. The U.N. article continues: “globalization has also presented significant challenges, including an uneven distribution of its benefits and costs.” One of the biggest complaints on globalization is that it has made the rich richer while making the non-rich poorer. “It is wonderful for managers, owners and investors, but hell on workers and nature.” So it would be fair to say that globalization is a double-edged sword with both positive and negative impacts. But how will the balance play out moving forward? Experts are not that optimistic.
The World Bank Group released a report “Global Economic Prospects – The Turning of the Tide?” in June 2018 (suggestive title indeed). It forecasts that “risks to the (economic) outlook are tilted to the downside, with some factors becoming more acute.” Financial market risks are especially of concern, because a sudden tightening of global financing conditions could be triggered by multiple factors, and the impact could be particularly severe in emerging/developing countries where debt levels have reached record highs. In addition to market uncertainties, “an escalation of trade restrictions among major economies…and heightened policy uncertainty and rising geopolitical tensions could also buffet activity.” The report predicts that the “materialization of these downside risks could lead to a sharper-than-expected global slowdown, which could represent a significant hurdle for many countries, especially for those that have not rebuilt fiscal buffers.”
Toward the end of 2018, the financial market started showing some volatility. Protectionism and geopolitical uncertainties are becoming visible in various parts of the world. Downside risks may actually be about to materialize, and in such a globalized society, even one shock will have a tremendous ripple effects throughout the planet.
As our economy has grown almost exponentially, the world population has also been increasing at a staggering rate. It had taken all of human history until around 1800 for the world population to reach one billion, the second billion was achieved in only 130 years (1930), the third billion in 30 years (1960), the fourth billion in 15 years (1974), and the fifth billion in only 13 years (1987). There are 7.7 billion on Earth today, and it’s projected to reach 9 billion by 2050.
According to the United Nations Population Fund (UNPF), “the huge growth in the world population over the past two centuries is largely the result of advances in modern medicines and improvements in living standards.” So the population grew because our economy improved living conditions significantly. The UNPF expects that the population will continue to grow for decades to come. “This is the result of ‘population momentum’: Because of improved survival rates and past high fertility levels, there are more women of reproductive age today.” The momentum will “have far-reaching implications. They affect economic development, employment, income distribution, poverty and social protections.”
So today, 7.7 billion people are collectively producing/consuming about 80 trillion USD worth of goods and services, and there is no sign that population growth will slow down any time soon. How is such enormous scale of human activities impacting the supply of resources?
Humans have come long way (especially over the last two centuries) to create an interconnected world that hosts 7.7 billion people who engage in various activities, relying on natural resources. How are resources, many of which are not renewable, sustaining (or not sustaining) themselves? In 2013, the McKinsey Global Institute released a report titled “Resource Revolution: Tracking global commodity markets.” The report states that “trends in resource prices have changed abruptly and decisively since the turn of the century.” This was a big shift over the last several decades, as McKinsey observes, and we saw steady decrease in commodity prices thanks to productivity/efficiency gains enabled by technological advancement. However, “since 2000, average resource prices have more than doubled. Over the past 13 years, the average annual volatility of resource prices has been almost three times what it was in the 1990s. This new era of high, rising, and volatile resource prices has been characterized by many observers as a resource price ‘super-cycle.’” The report further points out that “there appears to be increasing evidence of a more structural supply issue that is driving longer-term volatility. Supply appears to be progressively less able to adjust rapidly to changes in demand because new reserves are more challenging and expensive to access.”
It is worth noting that the commodity market slowed down and returned to a bearish mode after 2013: we are not seeing skyrocketing commodity prices as of 2018. Does it mean that the “commodity super-cycle” is already dead and there are no more risks? The answer may be “yes” for the short-term, but given the cyclical nature of production booms and the fact that the population is still growing at a mesmerizing pace, it will be reasonable to assume that prices will start rising again at some point. Plus, each product is facing unique emerging complications that are causing producers to struggle. Take chocolate. The global demand for chocolate has been soaring, boosted by rapid growth in the Chinese and Indian markets. However, cocoa growers are having hard time catching up. Cocoa is a sensitive plant that can grow only in mild, humid rainforest conditions, which limits the majority of cocoa production in politically unstable West African countries. Challenging business/labor/investment conditions in those regions alone are huge bottlenecks, yet climate change is adding another layer of disturbance: as the weather gets hotter and dryer, farmers are forced to move their plots to higher ground – only until new plots will become too hot and dry. If it’s not enough, cocoa trees are also prone to disease and pests, which are currently affecting more than 30% of the total production. Experts are warming the risk of a “chocapocalypse” – cocoa trees could be extinct in 40 years.
Will it be just chocapocalypse, or foodapocalypse, or real shortages in everything, a threat that is looming on the horizon? Andrew Winston, an expert on business and sustainability, sums up the daunting situation we may be facing in his book “The Big Pivot.” “Some smart people calmly pronounced that the world may only be able to support a couple billion people. But how exactly would we go from 9 billion to 2 billion? A lottery wouldn’t work – it’s not likely that 7 billion people will voluntarily check out. Perhaps the shortages would provoke a brutish, Hobbesian war for resources.”
Isn’t it what happened during previous “less is more” periods, albeit at a much smaller scale?
We’ll never know exactly how many people Earth could sustain in a healthy manner but at least we can understand how the combination of current economic/population growth and consumption of resources is affecting our society. Consulting giant Price Waterhouse Coopers (PwC) tracks “global megatrends,” which are “macroeconomic and geostrategic forces that are shaping the world and our collective futures in profound way” that will have “profound and disruptive effects on the defense and security environments in which…nations must operate. This will require more agile and accountable approaches…to mitigate risk. For some countries, being able to anticipate and adapt to the megatrends will be a matter of national survival.” That sound pretty alarming, because if we don’t make the right decisions, our very survival could be in question.
And here are the five consequential megatrends that are shaking the equilibrium of the current system, causing stress fractures in our society as we speak:
Global megatrends show us that the current balance of resource distribution – the overall landscape where “more” of them goes and where “less” ends up – is drastically changing now. The advantages of “developed” countries are shrinking. Young people rush to big cities, and older people are left in rural areas. Technology is advancing, but extreme weather conditions such as flooding and drought are also increasing, damaging our assets. Amid such environmental change, 7.7 billion people are involved in a global race for contracting amount of resources. Remembering how destructive previous world wars were; it is mind-boggling to try to picture what would happen next if we collectively fail to make right decisions. And as a matter of fact, experts are already warning of the next economic downturn. What if we found ourselves in 1928 today?
It looks like our aggressive journey for economic growth is coming to a critical turning point. But what can we do at a personal level? It’s daunting, but maybe we can start by identifying the true culprit that is “making our society such a bad place.” It is accelerating serious divisions in our society by swaying us into participating in unnecessary races for “more.” And by the way, that culprit does not wear red nor blue. It’s everyone’s frenemy.
Economic system is the foundation of our society because access to resources determines our fate. However it’s difficult to feel its “personality” because it doesn’t have a representative face like a president who delivers the State of the Union and issues executive orders. Even when the aggressive global economy dominates the entire world today, and nothing and no one can escape from being assessed on its economic value or given a price tag, we don’t really know who is accelerating it so furiously. So we have to look very carefully: who is putting price tags on everything, everywhere in the world? It’s efficiency. It the powerful gatekeeper and kingmaker of the system, and the faceless ruler of the global economy. Whether natural resource or human resource, you are asked to perform your tasks as efficiently as possible. If you are efficient, you win. If you are declared inefficient, you are out.
Globalization and efficiency go hand in hand, because efficiency standards are the best method to identify the most promising resources no matter where they are located. Whether results are measured based on a price, specification or on a score, they can make any contest transparent and globally open, regardless of unique local/individual history, culture or practices. In today’s world, small mon-and-pop retailers are on the verge of extinction in the face of Wal-mart and Amazon. A telemarketing company in the U.S. competes with its competitors in India. An independent soybean farmer in Kentucky has to endure increasing pressure from large-scale Brazilian or Chinese agribusiness giants. If you apply for an engineering job that can be performed in any language, chances are, the employer is also interviewing highly qualified candidates on the other side of the globe. It is as if all of us are thrown into a big, single bowl as potential resources and spun fast, driven by the engine called efficiency. The engine speeds up; the spin is accelerated centrifugal force that can pick out really strong winners, and spin the rest outward. The usual winners are large capital, competitive people with fabulous resumes and/or state-of-the-art technology. They are allowed to stay at the center of the system so that the resources and investments can be concentrated on them.
Competition is performed at each place and each level in a society, and increasing numbers of people are spun outward as they try to climb up the social ladder. Of course, competition itself is nothing new: people always compete, creating winners and losers. What’s new today is its scope, magnitude and the uniformness of the rules/judgments. Until pretty recently, the competition was rather at a national or regional level and retained local uniqueness because countries functioned as regulatory/physical barriers and protected domestic producers/workers from the fierce global competition. If you were in a winning region, you were able to access the benefits of the centrifugal force, securing a stable job that allowed you to support your family and make your life comfortable and enjoyable. That’s when you felt the politics in your country were working well.
However, as globalization accelerated and competition became so fierce on every front, we now have to deal with it on an individual level. It is as if each one of us is forced to compete in World Cup qualifiers on a daily basis. You need to send in 30 resumes to get one interview, and when you finally get a job, your employer may decide to close the office and relocate the operation to the Philippines. Even if you are an experienced, caring and skilled worker, you may be replaced by a heartless machine that doesn’t care about customers but can process 50 times faster than you can. Your children will need to earn really good grades, be accomplished athletes AND the chair of a youth charitable group to get into a decent college (and you are on the hook for an eye-popping amount of tuition!).
Due to a variety of “efficiency-first” scenarios, your future/win is no longer guaranteed, no matter where you are and what you do. More and more people are spun outward, farther and farther from the center of the economic stage.
If it wasn’t enough, the centrifugal force has become so strong that it has driven nature from the economic center to the farthest corner, only to let it deteriorate. Just like many of us are feeling exhausted from fierce competition, natural resources are squeezed like a lemon, making our future even more uncertain.
The efficiency-first economy helped globalization prosper, but it’s also accelerating its negative side effects by only picking and rewarding winners and ignoring the rest. Whether it was among individuals, communities, resources or countries, efficiency has been actively on a mission in every part of the world, drawing merciless and decisive lines among people/things, even when they didn’t ask for such brutal judgements. Rich and poor. Winners and non-winners (even in 5 year olds’ sport teams). Urban areas (thriving with higher education and better jobs) and rural communities (declining and shrinking). State-of-the-art technology and traditional craftsmanship. New developments and historical/natural preserves. Whenever there is efficiency, there are divisions, causing severe tension and fractures along the lines created by a countless number of ranking methods.
To be efficient or not to be, that is the question.
Economic growth was meant to bring affluence to society and make people happier. It is clear that the globalized, efficient-first economy has accomplished the first goal. But what about the second? What is efficiency really delivering to us? Is it worth severe social divisions?