Martin Wolf on the Implications of a Zero-Sum Future

Martin Wolf, the Financial Times’ highly regarded economics editor, looks at a fundamental and troubling issue in his latest article, “The dangers of living in a zero-sum world economy.”

From the Industrial Revolution onward, the world has enjoyed economic growth, producing rising living standards and making possible an extension of democracy (Wolf argues that the elites would not have tolerated the loss of their privileges had they not made considerable material gains). But resource constraints, particularly energy, and the need to combat global warming, may lead to a low-growth/no growth global economy which will lead to political stresses, “a world characterised by catastrophic conflict and brutal repression.”

In a short piece, it’s hard to do justice to as big an idea as Wolf advances, and he therefore leaves himself open to dispute. One of his big assumptions is that greater world prosperity leads to fewer wars:

Nuclear weapons and the rise of the developmental state have made war among great powers obsolete. It is no accident then that most of the conflicts on the planet have been civil wars in poor countries that had failed to build the domestic foundations of the positive-sum economy

Take out the bit about nuclear weapons, and you have the world view as of summer of 1914. Prosperity did not prevent two world wars with greater devastation than anything that had preceded it, precisely because industrialized economies can prosecute war on a grander, more deadly scale. And the role of nuclear weapons as deterrents is debatable. Jonathan Glover’s book Humanity, which looks into why the horrors of the 20th century came about, also dissects how the Russian missile crisis was averted. He attributes it to two factors: the recent publication of Barbara Tuchman’s The Guns of August, which made clear how World War I was the result of failed communications and rigid assumptions, and a half-day briefing the new President and his key lieutenants received on the horrors of nuclear war. In fact, a gripping passage reveals how Robert McNamara had to go to some lengths to rein in the Navy, which was overly eager to engage the Soviets.

Similarly, the US threat to use nuclear weapons against Iran is a dangerous bit of saber-rattling, and may encourage the use of tactical nuclear weapons, independent of the trajectory of world growth. We may also be near the tipping point where nuclear proliferation (which can likely only be delayed rather than halted) is a destabilizing force.

For rhetorical purposes, Wolf sets up two straw men: the optimists, who believe growth is an imperative and can continue, and the pessimists, who think growth must halt to save the environment (Wolf chastises those who think grappling with the new problems of distributing a static pie will lead to a better society; per above, he believes it will simply produce more fighting). While Wolf favors a compromise, he fails to acknowledge that we may lack a choice as far as growth is concerned. Jared Diamond, in his book Collapse: How Societies Choose to Fail or Succeed, looks at past cultures that have perished. Ecological mis-management, combined with failure to address the looming crisis, is the most common culprit. Diamond believes advanced civilization is currently facing a dozen potential train wrecks (did you know topsoil was on the list?), and failure to address all of them will lead to disintegration. So we may have fewer degrees of freedom than Wolf assumes.

While Wolf makes social and democratic progress sound tidier and more linear than it actually was (these battles were bloody and hard won), it is fair to say we’ve enjoyed considerable gains, despite the disruption. But we’ve poured much of our collective energy into material progress, rather than in figuring out how to get along and manage ourselves better. Biologist E.O. Wilson describes humans as “meat eating primates” and in many ways, we haven’t learned to surmount deeply rooted tribal impulses.

It has now become popular to let the private sector run in as untrammeled a fashion as possible, yet when things get tough, we turn to the government to act as arbiter and problem-solver (exhibit 1: the subprime crisis). The very skill our society has held in poor esteem, that of governing, is going to become increasingly vital.

From the Financial Times:

We live in a positive-sum world economy and have done so for about two centuries. This, I believe, is why democracy has become a political norm, empires have largely vanished, legal slavery and serfdom have disappeared and measures of well-being have risen almost everywhere. What then do I mean by a positive-sum economy? It is one in which everybody can become better off. It is one in which real incomes per head are able to rise indefinitely.

How long might such a world last, and what might happen if it ends? The debate on the connected issues of climate change and energy security raises these absolutely central questions. As I argued in a previous column (“Welcome to a world of runaway energy demand”, November 14, 2007), fossilised sunlight and ideas have been the twin drivers of the world economy. So nothing less is at stake than the world we inhabit, by which I mean its political and economic, as well as physical, nature.

According to Angus Maddison, the economic historian, humanity’s average real income per head has risen 10-fold since 1820.* Increases have also occurred almost everywhere, albeit to hugely divergent extents: US incomes per head have risen 23-fold and those of Africa merely four-fold. Moreover, huge improvements have happened, despite a more than six-fold increase in the world’s population.

It is an astonishing story with hugely desirable consequences. Clever use of commercial energy has immeasurably increased the range of goods and services available. It has also substantially reduced both our own drudgery and our dependence on that of others. Serfs and slaves need no longer satisfy the appetites of narrow elites. Women need no longer devote their lives to the demands of domesticity. Consistent rises in real incomes per head have transformed our economic lives.

What is less widely understood is that they have also transformed politics. A zero-sum economy leads, inevitably, to repression at home and plunder abroad. In traditional agrarian societies the surpluses extracted from the vast majority of peasants supported the relatively luxurious lifestyles of military, bureaucratic and noble elites. The only way to increase the prosperity of an entire people was to steal from another one. Some peoples made almost a business out of such plunder: the Roman republic was one example; the nomads of the Eurasian steppes, who reached their apogee of success under Genghis Khan and his successors, were another. The European conquerors of the 16th to 18th centuries were, arguably, a third. In a world of stagnant living standards the gains of one group came at the expense of equal, if not still bigger, losses for others. This, then, was a world of savage repression and brutal predation.

The move to the positive-sum economy transformed all this fundamentally, albeit far more slowly than it might have done. It just took time for people to realise how much had changed. Democratic politics became increasingly workable because it was feasible for everybody to become steadily better off. People fight to keep what they have more fiercely than to obtain what they do not have. This is the “endowment effect”. So, in the new positive-sum world, elites were willing to tolerate the enfranchisement of the masses. The fact that they no longer depended on forced labour made this shift easier still. Consensual politics, and so democracy, became the political norm.

Equally, a positive-sum global economy ought to end the permanent state of war that characterised the pre-modern world. In such an economy, internal development and external commerce offer better prospects for virtually everybody than does international conflict. While trade always offered the possibility of positive-sum exchange, as Adam Smith argued, the gains were small compared with what is offered today by the combination of peaceful internal development and expanding international trade. Unfortunately, it took almost two centuries after the “industrial revolution” for states to realise that neither war nor empire was a “game” worth playing.

Nuclear weapons and the rise of the developmental state have made war among great powers obsolete. It is no accident then that most of the conflicts on the planet have been civil wars in poor countries that had failed to build the domestic foundations of the positive-sum economy. But China and India have now achieved just that. Perhaps the most important single fact about the world we live in is that the leaderships of these two countries have staked their political legitimacy on domestic economic development and peaceful international commerce.

The age of the plunderer is past. Or is it? The biggest point about debates on climate change and energy supply is that they bring back the question of limits. If, for example, the entire planet emitted CO2 at the rate the US does today, global emissions would be almost five times greater. The same, roughly speaking, is true of energy use per head. This is why climate change and energy security are such geopolitically significant issues. For if there are limits to emissions, there may also be limits to growth. But if there are indeed limits to growth, the political underpinnings of our world fall apart. Intense distributional conflicts must then re-emerge – indeed, they are already emerging – within and among countries.

The response of many, notably environmentalists and people with socialist leanings, is to welcome such conflicts. These, they believe, are the birth-pangs of a just global society. I strongly disagree. It is far more likely to be a step towards a world characterised by catastrophic conflict and brutal repression. This is why I sympathise with the hostile response of classical liberals and libertarians to the very notion of such limits, since they view them as the death-knell of any hopes for domestic freedom and peaceful foreign relations.

The optimists believe that economic growth can and will continue. The pessimists believe either that it will not do so or that it must not if we are to avoid the destruction of the environment. I think we have to try to marry what makes sense in these opposing visions. It is vital for hopes of peace and freedom that we sustain the positive-sum world economy. But it is no less vital to tackle the environmental and resource challenges the economy has thrown up. This is going to be hard. The condition for success is successful investment in human ingenuity. Without it, dark days will come. That has never been truer than it is today.

*Contours of the World Economy, 1-2030 AD, Oxford University Press 2007

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  1. Sean Watson

    Martin Wolfs continued belief in the positive-sum world economy is in denial of the resource constraints we face.

    We are still totally dependent on our grain supply. As an agronomist working in China (and Asia generally) over the last 10 years, I can say from some experience that we are running out of soil and water, and yields are dropping. Yet the population keeps rising. Have you seen the grain price lately (its not all biofuels)?

    A good analysis of the future possibilities for our civilisations development are presented here Its sponsored by the Stockholm Enviroment Institute and the Tellus Institute.

    Martin Wolf can probably keep the plates spinning for a while yet, but our grandchildren may not thank him.

  2. Anonymous

    Somewhere this year or last I read of an ecological economist who calculated the resources required for all nations on Earth to live with the standard of living currently enjoyed by the U.S.
    What quantity of resources would it take? The equivalent of 4.5 Earths!
    I think positive-sum economics is a myth perpetuated by the optimistic, eternal growth crowd to avoid the redistribution of wealth this engenders. The purported positive-sum results are accounting fictions that fail to account for externalities and costs to future generations. We borrow from the future to live well today. The U.S.’s Ponzi finance has turned the world’s consumer of last resort into its greatest debtor.
    This brings me to a puzzle I have often wondered about but haven’t resolved. The First Law of Thermodynamics states matter and energy cannot be created nor destroyed, they only change form. Is there a similar law of wealth dynamics? Is every economy, no matter the scale, always zero-sum?
    The stock market is zero-sum (someone has to buy your shares to help you realize your gains. No new wealth is created. Even dividends come from the pockets of consumers). I’m unable to imagine how an economy would not be.

  3. Anonymous

    That…was a spectacularly poor article, with plenty of librul strawmen.

    It is also somewhat ignorant, I think purposefully of what makes the world go ’round today. The first world still makes *many* zero sum practices a priority in relation with the world.

    If they didn’t, we would not be able make so much of a living from value-added processes.

  4. Anonymous

    Wolf is dead right if only because he takes the opportunity to write about the dirty little secret, namely the optimistic myth that somehow we can grow forever and everyone is better off. I am no Luddite, but does the latest and greatest gadget mobile device with one more feature really advance the ball of civilization? Globalization is as much about plundering new markets – with the added obstacle that the new sovereigns have read the playbook and are pushing back with their own great walls of capital – as it is about redistribution. In the ideal world there would be no gating factors/regulations and Darwin would rule. That is unrealistic obviously and therefore there the parasitic will eventually consume the symbiotic resulting in exactly what Wolf alludes to: conflict. This is not only probably but possible. The United States is accelerating its own decline with the rapid move to monetize the family jewels as it tries to hold the line on its disappearing comparative and competitive advantages. We now know that much of the profitability of the financial complex was fleeting and yet that reality hasn’t filtered down to the people who own the houses. It would be interesting to do an economics study of the resource distortion created by the systemic changes in the financial markets over the past few decades. This would include the ridiculous pay packages across the spectrum of people and the value destruction resulting from the systemic leverage recapitalizations that manufactured much of the earnings growth that so justified multiple expansion. This crisis is of a magnitude not nearly recognized by the masses. We have asset inflation across our entire complex. There are very entrenched forces like the Fed, the Gov’t (baby boomers for the most part who will act out of self interest) and financiers who stand to protect the massive distortions for the greater good. if the entire complex isn’t bankrupt yet, it is insolvent. Seems to me all the ingredients are in place for major conflict.

  5. dnn

    From a purely human-centric perspective, an argument can be made that we are all better off, or at least a majority of humanity. But when looked at from a biological and ecological perspective, one has to note that loss of biological diversity, climate change, water pollution and limited access to sanitation, to name but a few examples, the picture isn’t so good.

    Over many decades we have witnessed the swing from emphasis on markets to government corrections, and back again. Out of this more and more is expected of governments to intervene to address the consequences of an emphasis on market forces. Thus, pressures build on the legitimacy of said government efforts as the economic outcomes become increasingly tied to government programs. We are left, then, with what Jurgen Habermas has termed a legitimation crisis.

  6. Anonymous

    Never underestimate the power of game-changing technological advances. In particular, much of the promise of biotech is yet to be realized.

    For instance, new developments in synthetic biology hold out the promise of cheap biofuel.

    Over the long term, the sky’s the limit. Could we engineer nitrogen-fixing capability into all of our crops? Or really let your imagination loose for the even longer term. Forget compact fluorescent lightbulbs or light-emitting diodes… if we could someday develop genetically-engineered owls’ eyes or night-vision retinal implants, then lighting itself would become obsolete, and we’d save almost 20% of current energy use.

    Ever-faster computing power (Moore’s law) and internet connectivity will also buy us a lot, not just in terms of greater efficiency and productivity, but also design capability and collaborative works (grid computing, Wikipedia-like projects).

    I think the human race in one way or another will make it. But there will be “interesting” times and many unthinkably bad individual outcomes.

  7. Tom

    Currently it seams that the human population is acting like bacteria in a jar. Population grows ever faster until the food source is depleted and a massive die off ensues.
    The only difference between humans and bacteria is that we can (in theory at least) choose to slow our population growth. It’s ironic that people are fighting the legal system right now to win the right to die on their own terms. How long until “death before dementia” becomes a mandate?

  8. Anonymous

    Well, Martin is either fully unaware of those particular and historically delimited social relations of production and REproduction called capitalism or desires a new term.

    The ‘positive sum’ economy was in fact the rise of industrial capitalism and its subsumption of merchant and usury capital, both of which were zero sum.

    Or he may be confused about the differences between what is called expanded reproduction and simple reproduction…

    Whatever the case, with its assignment of energy sources as deterministic, the article completely misses the well studied multi-century transition from production for use to production based in and on production for sale (generalizing commodity relations), transformation of labor into a commodity (development of free wage labor) and change in property relationships (legal political guarantee of private property) without which the purchaser of the commodity labor power could not effectively own the product of that which he paid for, a product embodying exactly that surplus value* which, through the real market, transforms into private profit and ability to expand accumulation, i.e. growth, which is not nor can ever logically be a consequence of circulation; the market is absolutely required by capital but cannot create.

    Advancement in mass and quality of means of production and greater productivity has been based in the competitive interactions of individual businesses, which has not been competition for competition’s sake but the struggle by each to maximize its particular profit. IOW, energy and tech developments have been consequences and then causes. Still, what transpires at the micro level does not necessarily replicate at the macro, as the competitive/expansionary drive also brings systemic or macro overinvestment, overaccumulation, falling avg rate of profit, crises, every one of which makes clear that the limits to capital are not exogenous but capitalist relations themselves.

    Attempts to perpetuate these relations takes us further into absolute global limits and greater retrogression. The opposite is really possible.

    *based on the should be self-evident fact that there is a difference between the total new value created by the commodity labour power, and its own value, its own reproduction costs, and a difference which is the very basis of profit within the capital system. All else is merely ‘profit’ of circulation.

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