A Hierarchy of Economic Needs

The Economic Hierarchy

When thinking about the transition between economies, from Agricultural to Industrial to Knowledge, a common misunderstanding is that 100% of any national economy is one of the three. In fact, national economies will encompass all three types in differing amounts, and it can be considered to be a hierarchy of economic evolution. The credit crunch is collapsing this pyramid from the top down. To fix it, do we need to work back up?

Revolutions

The Agricultural Economy began with several phases of the Agricultural Revolution. The first phase was known as the Neolithic Revolution and was the societal change from hunter-gatherers to agriculture, about 10,000 years ago. This transformed adopting peoples from small, nomadic tribes where everyone was required to find food, to sedentary societies based around ownership of land. The resulting surplus of food from agriculture and massive increase in population created much of the foundation of what we refer to as civilization. Since not everyone had to find food now, it enabled a number of societal roles and jobs that would have not have been as possible before, from governing, to justice, to scholars.

In Britain, a second agricultural revolution between the 17th and 19th Centuries led to a massive increase in agricultural productivity and, consequently, output. Just as with the first revolution, the increase in food enabled significant population growth and meant a significant amount of workers no longer needed to work in the fields.

The Agricultural Economy was one of a broadly stable GDP per capita. It’s basis was agricultural good, from food and crops. It was not until mercantilism gave way to modern capitalism at the same time as the Industrial Revolution was spurring production that production exceeded population for the first time, globally.

As the cottage industries that grew up to service a new demand for clothes were turned into factories, and various technological advances (such as steam power) led to the most profound societal change in human history to date with the Industrial Revolution.

As rural societies evolved into urban societies, mass-production was created, and the corporation emerged, much of the foundations of modern daily life, from the workplace to the school, were created.

That is not to say that agriculture disappeared, although the amount of people engaged in agriculture certainly declined, and advances in technologies such as refrigeration led to the decline of much of British agriculture, and therefore the increase of international agriculture.

The economic growth (and occasional crashes) was spurred by the mass-production of products, such as the car. Yet lying underneath the global industrial economy was still a global agricultural economy. This can be seen best in the US, where the 1920s saw an expansion in the American agricultural economy, even though the Industrial Revolution had already begun nearly 80 years previously. Some countries had a larger agricultural economy and others had a larger industrial economy.

In the last decades, the invention of the computer and the world wide web has arguable led to another great revolution, this time the Information Revolution. It is, perhaps, too early to define the correct terms, and it will be for the historians to decide. The concept, however, is that instead of mass-producing products, increasing amounts of economic activity is based on services, and mass-production has evolved into mass-customization. This has been termed the post-industrial economy, the information economy, and the knowledge economy.

The web has fuelled this growth, enabling instant global communication, the globalization of business and a multitude of jobs, products and services that could never have been anticipated one hundred years ago, from customer experience consultants to Facebook.

Yet again, the global knowledge economy is underpinned by a global industrial economy, and again with a global agricultural economy. The global is important here, because it concerns the national impact of the global credit crunch.

Put broadly and crudely, knowledge workers require a different set of skills to do their jobs than industrial workers. Tom Peters calls it “head work” replacing “hand work”.

Friedman’s The World Is Flat discusses in depth the national changes in the US between different economies in the information age, with industrial economy jobs increasingly being automated, outsourced or offshored to other countries such as China and India, and agricultural economy jobs long since having been exported. This increasingly leaves knowledge jobs as the major available source of work for American workers, and the US education system is still focussed primarily on preparing the majority of people for industrial economy jobs. This is not dissimilar to the situation in the UK, or in other Western Europe countries.

Moreover, China and India, experiencing massive economic growth due to their own industrial revolutions and their ability to deliver industrial jobs cheaper, are seeking to move into knowledge economy too. Friedman notes:

“Whatever American lacks in preparing its kids with strong fundamentals in maths and science, it makes up by encouraging its best students to be independent, creative thinkers. Even the Chinese will tell you that up to now they have been good at making the next new thing, and copying the next new thing, but not imagining the next new thing. That may be about to change, though.”

We can imagine all three states of the global economy as a pyramid, agriculture being the foundation for industry, which supports knowledge. Nationally, when the foundations proportionally decrease and the top level proportionally increases, there is a much greater wealth, but also a much greater instability.

Instability and the Credit Crunch

Orson Scott Card imagines this unwinding from the agricultural foundations up in Pastwatch, a fiction book set well into the future when our ecosystem has been too damaged to sustain food production. One character notes:

“there simply won’t be food enough to maintain the present population, or even a major fraction of it. You can’t keep up the industrial economy without an agricultural base that produces far more food than is needed just to sustain the food producers. So industry starts collapsing. Now there are fewer tractors. Now the fertilizer factories produce less, and less of what they do produce can get distributed because transportation can’t be maintained. Food production falls even further… Less land in production, more deaths, therefore less industry and lower food production.”

That is not, yet, our current problem. We live in a time based on the principle of economic growth, often at the cost of ecological sustainability. The New Scientist said it best:

Consuming less may be the single biggest thing you can do to save carbon emissions, and yet no one dares to mention it. Because if we did, it would threaten economic growth, the very thing that is causing the problem in the first place.

…This is the logic of free-market capitalism: the economy must grow continuously or face an unpalatable collapse. With the environmental situation reaching crisis point, however, it is time to stop pretending that mindlessly chasing economic growth is compatible with sustainability. We need something more robust than a comfort blanket to protect us from the damage we are wreaking on the planet. Figuring out an alternative to this doomed model is now a priority before a global recession, an unstable climate, or a combination of the two forces itself upon us.

The global recession, it appears, is on its way. What is interesting is that it has very much been caused by trading upon imaginary assets, as a very enlightening and scary series of diagrams in The Guardian recently showed. The value of developed economies peaked at $290 trillion compared with global GDP of $55 trillion, using electronic and paper money secured against global central banks gold reserves of only $0.845 trillion. All the money has, very literally, disappeared from the global system.

First to be affected, it seems, is the knowledge economy. Critical services will survive, but luxury ones may disappear. Countries with a very heavy dependence on knowledge economy businesses are the ones to suffer first, particularly those who depended on all the imaginary money, such as Iceland or Great Britain.

Most current focus is on stimulating the industrial economy, protecting jobs in factories, creating infrastructure, and encouraging high street spending.

In the 1930s, however, the New Deal programme, which aimed to pull the US out of its Great Depression, focussed primarily not on the industrial economy but on the agricultural economy, to stimulate growth from the ground up. Historians are divided as to the successes of the New Deal, and it was ultimately World War II that resurrected the US economy.

For us, now, recognising that we have an economic hierarchy is important for a number of reasons. In terms of stimulus, we need to define as nations where our priorities lie in stimulus programmes, and to ensure at least that we are creating a more stable platform for national economies. Do we need to work at stablising the agricultural economy again, then the industrial economy, then the knowledge economy? And how can we managed this with increased international interaction?

Underpinning this is a bigger issue: if true economic sustainability, as opposed to sustained economic growth, is the way forward, asthe New Scientist proposes, then we need to begin asking the same difficult questions of capitalism that Adam Smith posed about mercantilism in the Wealth of Nations.