So here is a thought experiment. You have to choose between two options. The first option allows you to keep all the electronic technology invented up to 2002 which includes your laptop with a Windows 98 operating system loaded on it and an internet connection that allows you to log onto the internet to access websites. You are also allowed running water and access to indoor toilets as a part of this option, but you can’t use anything invented since 2002.
The second option allows you to keep everything invented in the last 10 years which means you can have access to Gmail, Facebook and Twitter through your iPad or iPhone or even a Samsung Galaxy or Blackberry for that matter. But you do not have access to running water and an indoor toilet. This means that every time you need water you will have to haul it up from your neighbourhood well. And going to toilet on a rainy night would mean going through a muddy pathway to the outhouse or a field near where you live.
Which option would you choose? This is a real no brainer. Everyone in their right minds would choose the first option and willingly give up on all the technology that has been developed in the last 10 years.
This thought experiment has been developed by Robert J Gordon, an American economist. And what is the point that he is trying to make? “I have posed this imaginary choice to several audiences in speeches, and the usual reaction is a guffaw, a chuckle, because the preference for Option A is so obvious. The audience realizes that it has been trapped into recognition that just one of the many late 19th century inventions is more important than the portable electronic devices of the past decade on which they have become so dependent,” writes Gordon in a recent research paper titled Is US Economic Growth Over? Faltering Innovation Confronts the Six Headwinds. (You can access the research paper here).
The broader point that Gordon is trying to make is that today’s so called “information revolution” looks rather puny and small, when you compare it to the game changing technologies that were invented over the last few centuries. And it is the invention and the subsequent exploitation of these technologies that have driven economic growth over the last few centuries.
As Martin Wolf writes in the Financial Times “The future is unknowable. But the past is revealing. The core of Prof Gordon’s argument is that growth is driven by the discovery and subsequent exploitation of specific technologies and – above all – by “general purpose technologies”, which transform life in ways both deep and broad.”
Gordon divides the invention and discovery of these technologies into three eras. As he writes “The first centered in 1750-1830 from the inventions of the steam engine and cotton gin through the early railroads and steamships, but much of the impact of railroads on the American economy came later between 1850 and 1900. At a minimum it took 150 years… to have its full range of effects.”
The second era was between 1870 and 1900 and according Gordon had the most impact. “Electric light and a workable internal combustion engine were invented in a three-month period in late 1879…The telephone, phonograph, and motion pictures were all invented in the 1880s. The benefits…included subsidiary and complementary inventions, from elevators, electric machinery and consumer appliances; to the motorcar, truck, and airplane; to highways, suburbs, and supermarkets; to sewers to carry the wastewater away,” writes Gordon.
The third era started when electronic mainframe computers began to replace routine and repetitive clerical work as early as 1960 and peaked with the advent of the internet in the mid 1990s.
Gordon argues that the second era had a higher impact on economy and society than the other two eras. “Motor power replaced animal power, across the board, removing animal waste from the roads and revolutionising speed. Running water replaced the manual hauling of water and domestic waste. Oil and gas replaced the hauling of coal and wood. Electric lights replaced candles. Electric appliances revolutionised communications, entertainment and, above all, domestic labour. Society industrialised and urbanised. Life expectancy soared,” writes Wolf in theFinancial Times.
These developments also liberated women from a lot of things that they had to previously do. As Gordon writes “The biggest inconvenience was the lack of running water. Every drop of water for laundry, cooking, and indoor chamber pots had to be hauled in by the housewife, and wastewater hauled out. The average North Carolina housewife in 1885 had to walk 148 miles per year while carrying 35 tons of water.5 Coal or wood for open-hearth fires had to be carried in and ashes had to be collected and carried out. There was no more important event that liberated women than the invention of running water and indoor plumbing, which happened in urban America between 1890 and 1930.”
These developments that happened in the late eighteenth and the early nineteenth century essentially changed the way the Western world lived. They have gradually been percolating to other parts of the world as well.
More than anything these development increased economic productivity leading to faster economic growth. The increase in per capita income in Great Britain was almost flat at 0.2% per year between 1300 and 1700. After this it marginally jumped but it was only after 1850 that this rate crossed 0.5% per year. And it crossed 1% a few years after 1900.
So the entire concept of economic growth is a fairly recent trend if we look through history. As bestselling author and economist Tim Harford put it in a recent column “Economic growth is a modern invention: 20th-century growth rates were far higher than those in the 19th century, and pre-1750 growth rates were almost imperceptible by modern standards.” (You can read the complete here).
The economic impact of these inventions was so huge that it led to the assumption that economic growth will continue forever. As Gordon puts it “Economic growth has been regarded as a continuous process that will persist forever. But there was virtually no economic growth before 1750, suggesting that the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate.”
And it might very well come out to be true. The core of Gordon’s argument is that modern inventions are less impressive than those that happened more than 100 years back. “Attention in the past decade has focused not on labor-saving innovation, but rather on a succession of entertainment and communication devices that do the same things as we could do before, but now in smaller and more convenient packages. The iPod replaced the CD Walkman; the smartphone replaced the garden-variety “dumb” cellphone with functions that in part replaced desktop and laptop computers; and the iPad provided further competition with traditional personal computers. These innovations were enthusiastically adopted, but they provided new opportunities for consumption on the job and in leisure hours rather than a continuation of the historical tradition of replacing human labor with machines,” writes Gordon.
The phenomenon is not limited only to the last ten years. As Tim Harford told me in an interview I did for the Economic Times a little over one year back “If I wanted to fly to India, I would probably fly on the Boeing 747. The 747 was a plane that was developed in the late 1960s. The expectation of aviation experts is that the Boeing 747 will still be flying in the 2030s and 2040s and that gives it a nearly 100 year life span for its design. That is pretty remarkable if you compare what was flying in 1930s, the propeller aeroplanes. In the 1920s they didn’t think that it was possible for planes to fly at over 200 miles an hour. There was this tremendous progress and then it seems to have slowed down.”
The same seems to be true for medicines. “Look at medicine, look at drugs, antibiotics. Tremendous progress was made in antibiotics after 1945. But since 1980 it really slowed down. We haven’t had any major classes of antibiotics and people started to worry about antibiotic resistance. They wouldn’t be worried about antibiotic resistance if we thought we could create new antibiotics at will,” Harford added. (You can read the complete interview here).
So the basic point is that growth of economic productivity has petered out over the last few years because game changing inventions are a thing of the past. These game changing inventions changed the Western countries (i.e. the US and Europe) and helped them rise at a much faster rate than rest of the world. But that might have very well been a fluke of history.
William J Bonner, an economist and a bestselling author made a very interesting point in an interview I did with him a couple of years back. “It seems normal to us that a person born in Houston earns 10 times or 20 times as much per hour as a person born in Bombay. It has been that way for a long time. We have known nothing else in our lifetimes…in our parents’ lifetimes…or in the lives of our grandparents. But go back a bit further and you will find that through most of the time the human race was the human race, the fellow born in Bombay was just as rich…or even richer…than the fellow born in other places. A man’s labor produced about the same output, whether then man was in Tennessee or Timbuktu. We’re only aware of a single exception – the space of time beginning in the 18th century to the present…or a period of less than 0.2% of the human experience. During this time, and this time only, people in what we now call ‘developed’ countries spurted ahead.”
And why did they spurt ahead? “The biggest leap forward of all came in the 18th century, when Europeans found that they could get a lot more energy. Great advances in living standards have been driven by big increases in energy use. The really big boom came in the 19th century when we learned how to use the earth’s stored-up energy – in coal…and then in oil. GDP growth rates – which had been negligible for thousands of years – soared above 5%. Human population bulged too. European countries – and their colonies – were on the case first. The use of stored energy allowed them to spurt ahead of their competitors in Asia. Over the course of the 19th and 20th centuries, Europeans came to dominate the world,” said Bonner.
And perhaps now that boom phase is now behind them. As Bonner put it “Trains were invented 200 years ago. Automobiles were invented 100 years ago. Aeroplanes came on the scene soon after. Electricity – fired by coal, oil…and later, atomic power – made a big change too. But all the major breakthroughs date back to a century or more. Even atomic power was pioneered a half century ago. Since then, improvements have been incremental…with diminishing rates of return from innovations. The Internet did nothing to change that. It was not a ‘game changer.’ The game is the same as it has been since the steam engine was first developed.” (You can read the complete interview here).
To conclude, let me quote Martin Wolf “This was the world of the American dream and American exceptionalism. Now innovation is slow and economic catch-up fast. The elites of the high-income countries quite like this new world. The rest of their population likes it vastly less. Get used to this. It will not change.”
The piece originally appeared on www.firstpost.com on October 4, 2012. http://www.firstpost.com/economy/ipad-or-running-water-todays-tech-is-no-patch-on-the-past-478789.html)
(Vivek Kaul is a writer. He can be reached at [email protected])
Buried somewhere in the Reserve Bank of India‘s first quarter review of monetary policy released yesterday is the following paragraph:
The stickiness in inflation, despite the significant growth slowdown, was largely on account of high primary food inflation, which was in double-digits during Q1 of 2012-13 due to an unusual spike in vegetable prices and sustained high inflation in protein items.
In simple English what this means is that despite economic growth slowing down inflation continued to remain high because of high food inflation. The Reserve Bank of India (RBI) has not seen the last of food inflation and there are several reasons why food inflation will continue to remain high in the days to come.
Below average rainfall: The immediate reason for the food prices continuing to remain is the below average rainfall this monsoon season. As the RBI said in the first quarter review of monetary policy:
During the ongoing monsoon season, rainfall up to July 25, 2012 was 22 per cent below its long period average (LPA). The Reserve Bank’s production weighted rainfall index (PWRI) showed an even higher deficit of 24 per cent. Further, the distribution of rainfall was very uneven, with the North-West region registering the highest deficit of about 39 per cent of LPA. If the rainfall deficiency persists, agricultural production could be adversely impacted.
The availability of water can make a huge difference to the agricultural output in India. Areas fed by canals form only around 40% of the total arable land in India. The remaining 60% are dependent on rains. With deficient rains this year the current khareef crop is likely to be impacted with production not being enough to meet demand. This will lead to food prices going up in the days to come.
Rural India is eating better: The various social schemes being run by the current United Progressive Alliance (UPA) government have put more money into the hands of rural India. The income of rural India has more than doubled in the last five years. One thing that seems to have happened because of this is that people are eating better than before. Economists are of the opinion that as income of people rises above the subsistence level of $1000 per year, a substantial portion of the new money is spent on food. People eat more and better quality food. At the same time they also move from cereal based diets to more protein based diets. In major parts of the world this means that people start consuming more meat. But India has a lot of vegetarians and hence consumption of other high protein food items like dal, milk and other dairy based products has gone up, pushing their prices up. This is likely to continue in the months and years to come given the social commitment of the current UPA government. If the proposed Right to Food Act goes through you could see a further increase in food prices.
The Japan syndrome: As a densely populated country industrialises, the area under agriculture tends to go down. This phenomenon was first observed in Japan, and has since then been observed in South Korea, Taiwan, and very recently China. As Lester R Brown points out in Outgrowing the Earth: The Food Security Challenge in an Age of Falling Water Tables and Rising Temperatures “First, as a country industrialises and modernises cropland is used for industrial and residential development. As automobile ownership spreads, the construction of roads, highways, and parking lots…takes valuable land away from agriculture…. Secondly as rapid industrialisation pulls labour out of the countryside, it often leads to less double cropping, a practice that depends on quickly harvesting one grain crop once its ripe and immediately preparing the seedbed for the next crop…Third, as incomes rise, diets diversify, generating demand for more fruits and vegetables. This in turn leads farmers to shift land from grain to these more profitable high-value crops.”
This is a long term phenomenon which is clearly playing out in India right now. Just drive around towards the outer limits of the city you live in and you will realize that what was once agricultural land has been taken over to build malls, apartments, offices etc. This leaves less area to grow vegetables, cereals and other crops, pushing up their prices in turn. Depleting aquifers: A huge amount of increase in the irrigation of crops across the gangetic plane, India’s agricultural heartland have substantially depleted the aquifers or the underground water tables. As a report by DWS Investments points out “Dramatic increases in the irrigation of crops across northern India have substantially depleted the region’s groundwater. Between April 2002 and August 2008, aquifers lost a total of more than 54 cubic kilometers per year. That decrease in groundwater is even more than double the capacity of India’s largest reservoir.”
While this data is around four years old there is no reason to believe that the situation could have improved in the last four years. It could only have got worse. This is something that Brown agrees with in his book Outgrowing the Earth. He writes “the extensive overpumping of aquifers in India will deprive farmers of irrigation water and will also reduce grain production”.
Climate change also threatens food security: As the following table points out Indian agriculture has very low productivity when it comes to other parts of the world. Even Bangladesh does better than us when it comes to producing rice.
Comparing productivity of Indian agriculture with the world (kg/ha)
Country Paddy Country Wheat Country Maize
World 4,223 World 2,829 World 5,010
Bangladesh 4,012 China 4,608 Agentina 7,666
Brazil 3,826 Egypt 6,478 Canada 8,511
China 6,422 France 6,256 China 5,151
India 3,303 India 2,704 India 2,440
Indonesia 4,705 Italy 3,568 Italy 9,144
Japan 6,511 Spain 3,470 Turkey 6,838
USA 8,092 United Kingdom0 7,225 USA 9,458
Source: Agriculture Statistics at a Glance /Kotak GameChanger Report
Even this production is threatened now because of rising global temperature which beyond a certain point tends to reduce the amount of crop produced. As Lester Brown told me in an interview I did for the Daily News and Analysis (DNA) a few years back “For each degree celsius rise in temperature above the norm during the growing season, farmers can expect a 10% decline in wheat, rice, and corn yields. Since 1970, the earth’s average surface temperature has increased by 0.6 degrees Celsius, or roughly 1 degree Fahrenheit.”
As the earth’s temperature rises it has led to glaciers melting. “Nowhere is this of more concern than in Asia. It is the ice melt from glaciers in the Himalayas and on the Tibetan plateau that sustain the major rivers of India and China, and the irrigation systems that depend on them, during the dry season. In Asia, both wheat and rice fields depend on this water. China is the world’s leading wheat producer. India is No 2 (The US is third.) These two countries also dominate the world rice harvest. Whatever happens to the wheat and rice harvests in these two population giants will affect food prices everywhere. Indeed, the projected melting of the glaciers on which these two countries depend presents the most massive threat to food security humanity has ever faced,” said Brown.
Cars and people are competing for grains: As the price of oil keeps going up, the world has started to look for alternate sources of fuel to run cars and other forms of transport around the world. One such fuel is ethanol which is made from corn and sugarcane in different parts of the world. In Brazil, a lot of cars run on ethanol, which is produced using sugarcane. So if oil prices go up, ethanol becomes more viable as an alternate fuel. And this pushes up the price of ethanol input, i.e. sugarcane. With lesser sugarcane available to produce sugar, the price of sugar also goes up. The United States uses corn to make ethanol. So oil prices going up leads to corn prices going up as well. As Brown put it “If the fuel value of grain exceeds its food value, the market will simply move the commodity into the energy economy. If the price of oil jumps to $100 a barrel, the price of grain will follow it upward. If oil goes to $200, grain will follow. From an agricultural vantage point, the world’s appetite for crop-based fuels is insatiable. The grain required to fill an SUV’s 25-gallon tank with ethanol just once will feed one person for a whole year. If the entire US grain harvest were to be converted to ethanol, it would satisfy at most 18% of US auto fuel needs.”
Given these reasons the food prices are likely to remain high in the months and years to come. And the Reserve Bank of India can fiddle around with the interest rates as much as it wants to, but there is no way it can control food prices.
(The article originally appeared on www.firstpost.com on August 2,2012. http://www.firstpost.com/economy/why-food-prices-will-continue-to-rise-in-the-coming-years-400532.html)
(Vivek Kaul is a writer and can be reached at [email protected])