Impact of Resource Depletion on the Economy

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* Article: Are we entering the age of involuntary degrowth? Promethean technologies and declining returns of innovation. By Mauro Bonaiuti. Journal of Cleaner Production, February 2017

URL = http://www.sciencedirect.com/science/article/pii/S0959652617304225?via%3Dihub


Abstract

  • Georgescu-Roegen’s Promethean Technology as causes of expansion phases.

• Diminishing Marginal Returns as explanation of the decline of complex societies.

• Diminishing Returns of innovation estimated using TFP data (1750–2015).

• The inability of the ICT revolution (IR3) to counteract the IR2 downswing.

• Data on TFP confirm the “Great Wave” hypothesis.

  • Any reflections on an eventual transition towards a degrowth society have to take into account the current crisis in the dominant system and question whether the latter will be able to grow again or not. In order for the latter to happen, the role played by technological innovation is crucial. This paper starts by reconsidering Georgescu-Roegen’s definition of Promethean Techniques and Tainter’s principle of Declining Marginal Returns, with the aim of providing – within the common framework of the theory of complex systems - a sound theoretical basis for the analysis of the rise and fall of complex societies. The main purpose is to verify whether, after the last Promethean revolution, a “Great Wave” emerged or not. The second part of the paper presents an initial investigation into this hypothesis, using Total Factor Productivity growth as an indicator of (marginal) returns on innovation (1750–2015). Despite the limitations implicit in the use of this indicator, data show three cycles of innovation, corresponding to the first, second and third industrial revolutions, but of different magnitude and duration. In particular, the whole cycle that began with the first industrial revolution in England around 1750, reached a peak in the U.S. in the nineteen-thirties and later declined, following a trend that basically confirms the Great Wave hypothesis. Even recent innovations resulting from the ICT revolution, however considerable, do not seem capable of counteracting this long-term trend. Data on returns on innovation seem, therefore, to be coherent with evidence provided by research in other fields (energy, mineral resources, agriculture, health, education and scientific research), showing that advanced capitalist societies have entered a phase of declining marginal returns - or involuntary degrowth - with possible major effects on the system’s capacity to maintain its present institutional framework.}


Discussion

Nafeez Ahmed::

"Exactly how big the impact of resource depletion on the economy might be, can be gauged from a separate study by Professor Mauro Bonauiti of the Department of Economics and Statistics at the University of Turin.


His new paper published in February in the Journal of Cleaner Production assesses data on technological innovations and productivity growth. He concludes that:

- “… advanced capitalist societies have entered a phase of declining marginal returns — or involuntary degrowth — with possible major effects on the system’s capacity to maintain its present institutional framework.”


Bonauiti draws on anthropologist Joseph Tainter’s work on the growth and collapse of civilizations. Tainter’s seminal work, The Collapse of Complex Societies, showed that the very growth in complexity driving a civilization’s expansion, generates complex new problems requiring further complexity to solve them.

Axiom: Complex civilizations tend to accelerate the use of resources, while diminishing the quantity of resources available for the civilization’s continued expansion — because they are continually being invested in solving the new problems generated by increasing complexity. The result is that complex societies tend to reach a threshold of growth, after which returns diminish to such an extent that the complexification of the society can no longer be sustained, leading to its collapse or regression.

Bonauiti builds on Tainter’s framework and applies it to new data on ‘Total Factor Productivity’ to assess correlations between the growth and weakening in productivity, industrial revolutions, and the implications for continued economic growth.

The benefits that a certain society obtains from its own investments in complexity “do not increase indefinitely”, he writes. “Once a certain threshold has been reached (T0), the social organisation as a whole will enter a phase of declining marginal returns, that is to say, a critical phase, which, if ignored, may lead to the collapse of the whole system.”

This threshold appears to have been reached by Europe, Japan and the US before the early 1970s, he argues.

Insight: The US economy, he shows, appears to have reached “the peak in productivity in the 1930s, the same period in which the EROI of fossil fuels reached an extraordinary value of about 100.”

Of course, Court and Fizaine quantify the exact value of this peak EROI differently using a new methodology, but they agree that the peak occurred roughly around this period.

The US and other advanced economies are currently tapering off the end of what Bonauiti calls the ‘third industrial revolution’ (IR3), in information communications technologies (ICT). This was, however, the shortest and weakest industrial revolution from a productivity standpoint, with its productivity “evaporating” after just eight years." (https://medium.com/insurge-intelligence/the-new-economic-science-of-capitalisms-slow-burn-energy-collapse-d07344fab6be)