The Vollrath Debate
I am about to begin reading Dietrich Vollrath’s “Fully Grown — Why a Stagnant Economy Is a Sign of Success”
Before I embark I thought I would collect a few of my own observations to provide a framework for thinking about his thesis.
The big issues are those talked about by Baumol. For some reason I cannot avoid looking at current discussions about the slower rate of productivity growth without thinking of Baumol. We have moved from increasing productivity in agriculture through to doing the same in manufacturing and become used to the growth that such a journey can provide. We have used our machines to augment and then replace our own effort. The consequence has been monumental. We live within immense prosperity. The bounty of applying machinery has produced far more than we ever imagined possible.
Not only this, but the constant fear of an ever growing surplus of unemployed people has never arrived. The journey wasn’t simple or without stress. But it was worth it. And the true naysayers have all been wrong. We are better off.
As we think about what comes next we must also recall that this is all very recent history. Our rush into modern prosperity only began back in the late 1880s. DeLong and others would argue that it is only since 1870 that we have truly been on this path. In that context much of what we take as solid or traditional is actually only ephemeral and shallow rooted. Growth as we think of it today is an artifact of very recent modernity. We ought not take it as something permanent or lasting.
That, in turn, ought give us pause. Modern society and our current social arrangements might be more transient than we would wish. Our re-shaping of traditions is still underway. The journey is incomplete. What does stagnation imply for the rest of the journery?
That this modern cornucopia has come without costs is, of course, nonsense. Our environment is paying a heavy price. There might be limits to what we can do. Our issue is that we are addicted to prosperity. Advocates of slowing down are unable to explain how we de-escalate our progress without sacrificing the political progress that came along with that prosperity. After all, without greater prosperity the perspective that history provides is that we would plunge back into authoritarian living. Democratic freedom and expression are the products of abundance. Rich people don’t like sharing. Elites protect their position. There was a reason early economists assumed wages for the majority would tend towards subsistence. If we slow growth the tension that prosperity has reduced will return. Power will matter even more than usual. And the elite will prevail. Subsistence, but at a higher level, would also return as the norm for most.
This journey has taken us through two economics sectors. It has dumped us in the third. That is Baumol territory.
We know how to feed ourselves in abundance. We know how to mass produce the artifacts we enjoy. What about service? How do we provide services within a productivity driven framework? By definition we prize “service” as an unproductive activity. We cherish the one-on-one provision of those activities we cluster under the name of services. After all “personal service” is something we aspire to experience. How do we mass produce the personal experience in the same manner wemass produce food and physical things? Isn’t there a basic contradiction in the very idea?
So, as we become a much more service oriented economy, Baumol suggests we should expect slowing productivity gains and thus growth. A stagnant economy might just be the triumphant end point for our journey.
Perhaps artificial intelligence can help. But who gets to decide that? And are we capable of measuring its impact? Most of our measures of growth were developed in the heyday of mass production. They were intensely industrial in their origins and influence. Are they appropriate for the digital age?
The same can be said for our economic institutions. Our major business firms are all constructed along lines fit for an industrial age. They have not been re-invented for a digital age. One look at the so-called controversy created by work-at-home during the pandemic illustrates the gap between what is taken as “proper” organization and what is possible under a digital regime. The organization of work, indeed even the definition of work, needs to be re-evaluated. We have an abundance of buildings that housed industrial era activity. Do we really need them for digital activity?
This leads us to an even larger discussion. Society itself has been re-built to accommodate industry. Wasn’t that the entire issue that gave rise to economics and its variants in the 1800s? Whither society as the machines came to dominate activity? The degradation of life in those early periods of change produced provocative counterpoints as different as Marx and Polanyi. Where are our modern equivalents? Social reconstruction brought with it the political changes I noted above. Will democracy as we know it, child that it is of the industrial era, survive into the digital era?
A digital world is one of free-flowing information. Physical boundaries are irrelevant in such a context. Yet our boundaries appear important to us. How do we reconcile this? Globalization of production was to the benefit of the owners of the capital necessary in mass production. So we are currently re-evaluating its worth in light of the effects it had within our boundaries. We appear to be hesitant about further globalization. Yet a digital economy must surely be global. Information and digital experience seem impossible to prevent from flooding across borders. So is it simply economic institutions that need too be revamped for the future. Perhaps our political institutions do also.
This raises another important point: who gets to decide? Do we really want to leave the reconstruction of society in the hands of those who own the machines?
Which returns me to stagnation.
Unless we find a way to maintain growth in wealth by reinventing our services, we appear doomed to slower growth and thus political tension. In particular the perennial argument over the distribution of wealth will re-appear as the most potent driver of politics. The owners of machines are not to be trusted in such an argument. Perhaps that’s why they are racing to get ahead of our out-of-date political systems in the discussion over how power will be apportioned in future.
And we have already had a taste of what the rich actually feel about sharing power: the entire neoliberal reaction to the New Deal here in America tells you all you need to know. They hate sharing. They thus hate democracy and the redistribution it implies.
Oh, and where will economics fit in such a discussion? After all modern economics has been purged of history and power precisely to sanitize it and make it useful in defense of the status quo as determined by the powerful.
So, I suppose, that’s what I will be looking for in Vollrath’s book. How do we square democracy with stagnation? Where will power reside?
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Addendum:
I have seen some people define some areas of the service economy as being “low value”. This is an indicator of our problem. They are “low value” in the context of our attempt to increase productivity in mass production or agriculture. They are “low value” only in the sense that we cannot place a value on such a subjective phenomenon as the experience of watching a Shakespeare play. We can only value it in our current methodologies in terms of measurable things like prices of entry, wages to actors, costs of production etc. But is that a Shakespeare play’s true “value”? This is a perennial question. Measurability determines valuation. The digital era elevates the immeasurable. What does that mean for “value”? For the economy? For resource allocation? For economics itself?
We have a clue already in one of my favorite topics: total factor productivity. That’s the black box that allows us to reconcile the traditional inputs to growth with the observed outcomes. Information matters such more than economics takes into account. Information that is, not in terms of messaging, but in terms of design and technique. Information is in the way in which we get things done as well as in the way we talk about it.
Given a proper answer to this conundrum and perhaps we will not stagnate in a broader sense of “value” but only in the narrower sense of what we can measure. It’s a computational and definitional problem. Does that matter?
