Growth, elephants and outsourcing, or: abstractions

In Swedish / på svenska.

I’ve recently watched the May 23 installment of the Swedish TV show “Vetenskapens värld” (“The world of science”). It had a quite interesting section on the idiocy of believing in eternal economic growth. There were plenty of examples showing how economic growth isn’t exactly unproblematic, and towards the end there was some discussion on the possibility of abandoning the concept of growth altogether and stop staring fixedly on one or another one-dimensional measure, and whether said measure can be described by a smaller or larger number than last year. Before that, though, the show spent quite some time pondering this very one-dimensional measure and the various talking heads launched into more or less confused (or confusing) speculations. The Canadian “environmental economist” Peter Victor believes he’s “shown” – using computer models – that an economy without growth can putter along nicely. The Senior Economist of Swedish bank SEB, Klas Eklund, somewhat confusingly argues that growth certainly can go on for ever, but we may have to redefine it in that case, so that it doesn’t destroy the planet.

The reporter, Jens Ergon, presents the best summary, perhaps:

“What will be needed, in the end, to realize the dream of green growth is an almost total disconnection of the world economy from the environment. A technological leap of a kind never seen before.”

Total disconnection of the world economy from the environment. I had to rewind and write down this amazing statement. I can’t imagine a clearer illustration that the whole concept of “economy” is becoming utterly useless.

Thus, it’s time to start laying down some foundations. Let’s start by asking “what is growth?” Growth is usually understood as the difference between GDP in the year 2010, for example, and GDP in 2011, and so it’s a numerical quantity, a number, that should be as large as possible. We therefore cannot understand growth without understanding GDP. This is another numerical quantity, another number, which supposedly reflects the total economic activity in the country. This number is calculated by counting how much money has changed hands during the past year. There are, naturally, plenty of hidden traps and difficulties in this, such as adjusting for increasing or decreasing money supply (inflation or deflation), that technological development – especially in electronics – causes prices to fall or capacity to increase, and a host of other aspects. In one way or another a method has been found, and this yields the official gross domestic product. All’s well.

Before we can claim to understand growth fully, we must do some thinking about this idea, economic activity. One old example is the bicycle. If I buy a bike it’s counted in the GDP and if I then happen to fall off and get hurt, to the extent that I need medical care, it will be counted in GDP: medical care costs money. If I instead ride around happily, picking flowers, it will not be counted in GDP. Only that which drives money flows is counted in the GDP. So, everything that does not drive money flows will fall out of the picture. What doesn’t drive money flows?

Well, quite a lot! If I buy that bike and a pair of binoculars it adds to GDP, but if I then use all my spare time riding around and watching birds I won’t produce any GDP and there won’t be any growth for next year. (If I instead take pictures of the birds and blog about it it will probably drive GDP, since there’ll be a continuously increasing need for image storage capacity). The birds themselves have nothing to with GDP. If I read from my old childhood books for my own kids in the evening it won’t affect GDP (unless it’s winter and I have a light on, for which I buy electricity). A huge amount of human activity, and all non-human activity, has nothing whatsoever to do with GDP.

As we can see, GDP is a fairly limited measure, and therefore, so is growth. Everything that actually keeps us alive – plant photosynthesis, the silent toil of earthworms, the water cycle – is entirely invisible in the GDP measure. This is a problem, and it’s been explained by a lot of people.

I see, however, an even deeper problem in focusing on growth or GDP, whether we’re “critics” or “defendants”. This problem can’t be solved by redefining how we calculate GDP or by leaving the intense fixation on growth. The problem is that growth, GDP, even the idea of “the economic system” itself, is an abstraction. Money is an abstraction, an idea of “value” decoupled from its concrete ties. It doesn’t matter how many hours I’ve worked, how much computer code I’ve written, how much hair I’ve cut – my 100 SEK will last just as long in the store in any case. This idea is a truly amazing invention, and it’s at least as much of a fundamental requirement for modern industrial society as cheap oil, but like every good thing it can be taken too far.

Usually we talk about an economic “system”, which sounds like something we can describe with systems theory: a mathematically describable system of flows, stores, sources, feedbacks. We can certainly make such models, and thus we can quickly fall into one of the basic traps of systems theory. This is the trap of forgetting a fundamental truth:

The map is not the territory.

There is no economic system. What is, are individual human beings, with their limited but free wills, making choices based on dreams, fears, hopes, rational considerations, generosity and stinginess, malice, et cetera. Some of these choices drive monetary flows and these flows can be modelled as “the economic system”, but it’s not the interest rates that make people buy houses and not the banks who force people to borrow. The banks also consist of human beings who make more or less intelligent decisions.

All economic activity arises out of acting human beings. A large part of the current business of the financial system certainly does take place inside computers only, but don’t forget that computer systems and computer software don’t fall out of the sky (anyone who’s ever programmed should realize this easily). It’s still individuals acting.

Our “system” – our model of the system – may work for a while, but if the real actors – the people – start playing another game, acting out another story, dreaming different dreams, well, then our model is fit for the trash heap.

Almost all discussion and debate on “the economy” and “growth” stays within the conceptual “system”, at the model stage, and considers the world as if it really consisted of economic transactions. This view ignores that we do so much more than what we do in economic terms. The discussion stays very abstract, far removed from concrete reality, and that’s when we may see strange statements such as “an almost total disconnection of the world economy from the environment” or claims that we must “rebuild ” the economic system for sustainable growth. If we had, in fact, built an economic system we might rebuild it, but we haven’t. The economy, GDP and growth arises out of our ways of thought, our ideas of the future and our actions. That’s where we must start, not in the abstraction.

This is very difficult, since abstraction is one of the real “megatrends” of the 21st century (it’s been going on for far longer, of course – with great force since at least the 17th century). Examples are abundant.

After the growth report in “Vetenskapens värld” there was a report on elephants, which was just as interesting. Elephants have been observed, in South Africa, trying to mate with and then kill rhinos. The reporter, Martin Widman, spoke to an American psychologist, Gay Bradshaw, who compared the elephants’ behaviour with that of humans who’ve been subject to violent trauma. It turned out that the elephants involved in these cases had experienced severe trauma as little elephants when park rangers, twenty years ago, had culled older elephants and relocated the younger ones in some herds, in an attempt to reduce conflict between elephants and farmers. Since elephants are social animals, being raised by a group of females until their 14th year or so, this herd break-up led to psychological problems. Apparently, Bradshaw’s theories are controversial – she’s being accused of anthropomorphism – but that’s not so interesting in this context.

What’s interesting is this idea of splitting elephants herds and killing the older animals. It’s very clear that the elephant was considered an animal with big ears and a trunk. An animal that can be easily (relatively speaking) moved and then the problem goes away. The elephant as part of a larger context was not considered.

A schoolbook example of runaway abstraction.

Another example comes from an article in The Economist on May 14. Wage inflation in China relative to that in the US, together with currency changes, has begun to erase the economical advantage of outsourcing. As energy prices keep rising and we’ve seen several examples of vulnerable long-distance supply chains, some American companies have stopped offshoring jobs and have even begun, in a small scale, to return jobs to the US.

As you may be aware, outsourcing has been one of the defining themes in business during the last few decades – moving production, development and support functions as far away as possible, in the belief that things will be better because they are cheaper. This is another example of abstractions at work. The corporate board that can imagine moving parts of the business across the world is a board that imagines the corporation as a collection of parts with clear interfaces. The factory can be cut out and shipped off, and the plastic stuff (or the cars) will still arrive – as long as the other “processes” in the business keep humming and “deliver” their “deliverables” to the factory.

In reality, a corporation consists of a collection of people doing things, of course, and a vast amount of these things are not included in the corporate budget and not visible in the annual report. Still, without them, there’d be no business. This leads to what everyone who’s seen outsourcing up close will recognise: it gets tricker than imagined – every sort of unforeseen problem crops up, there are delays, cost overruns and all sorts of trouble. Usually this gets sorted out with time, but it’s another symptom of excessive abstraction. The business is viewed as a bunch of abstractions working with other abstractions to create yet more abstractions. “Processes”, “functions”, “products”, “services”. These are all extremely useful abstractions – until they take over and decisions start being made on the basis of abstractions with no connection to the complex reality.

The examples I’ve chosen don’t matter. Much of everything we do today is abstract work, work in a world of pure intellect. If you work in an academic setting or in IT it’s fully possible to live your entire life in a thought-bubble with no attachment to any concrete reality. Almost all our reality is mediated and thus shaped by the abstract thought-models.

This is one of our main problem today: getting back to concrete reality. Our science, economy, entertainment, mostly exists inside this conceptual hall of mirrors, and looking outside it isn’t easy.

You may have gotten the impression that I consider abstraction and thinking to be evil, but that’s not it. Our world will necessarily be made up of both concrete and abstract concepts and phenomena, but we’ve gone so far in the one direction that we’ve lost sight of the other. From my point of view, all discussions of how “growth” can be made sustainable, or if it can, are rather uninteresting since they still stay inside that hall of mirrors. We can’t do much about this until we begin to try to get out of the concept cage and regain our connection to concrete reality.

To prevent any possible confusion: I’m not arguing that science is bad, or anything like that. The scientific method remains our best method, by far, for acquiring knowledge of physical reality. It’s not quite as good, however, if we start confusing the abstract models of reality that we make with the actual reality.

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