Friday, January 04, 2008

Tectonic Shift: Jared Diamond's Take

This is part of the ongoing series on the currently ensuing Tectonic Shift. We have been discussing how globalization and technology are leading to a balancing of wages as:

1. competitive pressures push developed world wages down, and
2. people in the developing world are being employed more productively.

The thesis is that this should lead to an increase in demand for basic necessities which are highly valued, such as food and energy. Meanwhile, more conspicuous types of consumption might start coming under pressure.

Robert Reich from The Work of Nations added:

The economic well-being of Americans no longer depends on the profitability of the corporations they own, or the prowess of their industries, but on the value they add to the global economy through their skills and insight. This is because today capital and goods can flow nearly uninhibited. So, corporations seek to invest where the skills they require can be attained for the lowest cost.

So, routine and repetitive labor services will face the most competition, while those who have built up education and human capital will be best able to protect an individual's standard of living.

Today, there has been some added insight on the matter from Jared Diamond, author of Guns, Germs and Steel, in his article - What's Your Consumption Factor? (hat tip Shai)

The estimated one billion people who live in developed countries have a relative per capita consumption rate of 32. Most of the world’s other 5.5 billion people constitute the developing world, with relative per capita consumption rates below 32, mostly down toward 1.

The population especially of the developing world is growing, and some people remain fixated on this. They note that populations of countries like Kenya are growing rapidly, and they say that’s a big problem. Yes, it is a problem for Kenya’s more than 30 million people, but it’s not a burden on the whole world, because Kenyans consume so little. (Their relative per capita rate is 1.) A real problem for the world is that each of us 300 million Americans consumes as much as 32 Kenyans. With 10 times the population, the United States consumes 320 times more resources than Kenya does.
Among the developing countries that are seeking to increase per capita consumption rates at home, China stands out. It has the world’s fastest growing economy, and there are 1.3 billion Chinese, four times the United States population. The world is already running out of resources, and it will do so even sooner if China achieves American-level consumption rates. Already, China is competing with us for oil and metals on world markets.
The only approach that China and other developing countries will accept is to aim to make consumption rates and living standards more equal around the world. But the world doesn’t have enough resources to allow for raising China’s consumption rates, let alone those of the rest of the world, to our levels. Does this mean we’re headed for disaster?

No, we could have a stable outcome in which all countries converge on consumption rates considerably below the current highest levels. Americans might object: there is no way we would sacrifice our living standards for the benefit of people in the rest of the world. Nevertheless, whether we get there willingly or not, we shall soon have lower consumption rates, because our present rates are unsustainable.

Real sacrifice wouldn’t be required, however, because living standards are not tightly coupled to consumption rates. Much American consumption is wasteful and contributes little or nothing to quality of life. For example, per capita oil consumption in Western Europe is about half of ours, yet Western Europe’s standard of living is higher by any reasonable criterion, including life expectancy, health, infant mortality, access to medical care, financial security after retirement, vacation time, quality of public schools and support for the arts. Ask yourself whether Americans’ wasteful use of gasoline contributes positively to any of those measures.

The world has only so much natural resources and increased demand has already caused the cost of basic commodities to soar (i.e. food, oil, metals, etc.). If the worldwide growth in living standards is going to continue, we need to see a more efficient use of the world's natural resources.

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