Home > Uncategorized > Weekend Read – Regime change — Technology style

Weekend Read – Regime change — Technology style

from Peter Radford

I have mentioned many times here that one of the ways in which economics has ventured astray is in its selection of capital and labor as the core constituents of production.  These are, to me, political and not economic quantities.  They are, at best, an approximation of reality and the farther we venture from the origins of modern technologically driven economic development the less useful the approximation becomes.  This is because they draw a veil over the essence of what went on: the first great wave of industrialization — the first great technological regime to borrow a phrase from Nelson and Winter — was centered on the substitution of different sources of power to drive production.  It was the harnessing and application of new sources of energy that defined this first regime.  

For most of history the energy needed to do the work necessary for human subsistence came in an animate form.  Either human or animal muscle power provided the energy to convert the natural world into something useable by our ancestors in their quest for survival.  Through the course of millennia wind and water were also tamed to assist, but even so most work was done by muscle.  

It was natural, therefore, for the earliest economists to look on labor as a primary input to production.  Their error was that they did not think more deeply and look beyond the obvious.  Energy, not labor, was literally the motive force getting work done.  That humans provided much of that energy was a result of the ancestral technological regime about to be overthrown by the technological revolution wrought by the introduction of machinery and the more advanced sources of energy — steam being the iconic one — that swept to the fore in the late 1700s and early 1880s.  The industry revolution rode on a wave of new energy sources.  The attachment of machinery to those new sources allowed the entire framework of industrialization to blossom.  The factory, the re-arrangement of the workplace, and the new institutions needed to manage assembly and distribution on a large scale were all a consequence of the harnessing of energy to do work on a hitherto unimaginable scale.  Our modern world is a reflection of our success in developing and using new sources of energy to do work.

Economics was invented during the early years of this industrial flux in order to explain the consequences of what was going on.  It took onto itself the task of giving a formal explanation of the benefits of the application of energy to extract more work from what it took to be the fundamental inputs to production.  It was particularly interested in explaining that the movement of labor from older ways of production to newer ways of production was not a loss but a benefit.  To do that it developed an obsession with productivity and efficiency.  It is no coincidence that efficiency and maximization emerged as central objects of analysis for early economists.  Their scientific milieu was deeply infused with the contemporary work of physicists who were busily explaining those same concepts in the context of the modernization of physics.  Work, efficiency, and maximization were naturally attractive to economists as they tried to understand the emerging industrial economy.  The problem was, as I mentioned above, that they lost touch with energy as the prime input.  They focused instead on the political problem of the upheaval implied by the shifts in labor from the old ways to the new ways. 

This forgetting of the prime inputs bedeviled economics right through to its development of growth theory in the postwar years.  By sticking with the political or social constructs of capital and labor, neither of which are particularly precise, economics limited itself with the consequence that it had to accept a “plug” in its equations when explaining growth.  No combination or amount of either capital and labor could be devised to explain modern growth.  There was always a very large — absurdly large at times — residual that has become known as total factor productivity [TFP].  

I have always wondered why the emergence of TFP did not force economists to question the basic quantities they were dealing with.  Surely this should have been a moment to go back to the drawing board.  

Which brings us to the second great technological regime.  The regime change we are living through.

The first had been focused on energy.  The second has been focused on the other fundamental input into production: information.   

Having cracked the importance of motive power and its application to mechanization as a solution to the problem of increasing production from limited resources, in essence solving the infamous economic problem that has dogged humanity throughout history, we turned our attention to the less material input.  This was necessary because of the complexity introduced into the economy by successive waves of specialization, division of labor, and thus increased interdependency caused by industrial production on large scale.  Such complexity highlights knowledge, information, and organization as economically interesting entities.  Coordination of industrial processes became a problem of central focus in the practical world of production.  The softer technologies of management or information processing and their associated methods rose to the fore in the same way that the harder technologies of machinery and energy had risen in the first technological regime.  

This second technological regime — the one we have been living in for some time now— has become one in which the study of knowledge and information are vital to continued development.  TFP is, in large part, a reflection of this shift in emphasis.  Our emphasis is increasingly on technique and on various ways to combine sources and kinds of information to create and manage products.  Yes, we continue to automate work to extract ever greater productivity from the material world, but our more immediate emphasis is on extracting greater value from the information that we have in abundance around us.  

But we are still new to this problem and much of our theory is inherited from the first technology regime.  In particular our understanding of economics is still rooted in those ideas of efficiency and maximization which, themselves, were presented as solutions to scarcity.  Inducing greater production from scarce resources requires some notion of a closed system that can be “maximized”.  However distant this idea is from reality it has uses when resources are scarce.  So does the more modern notion of a firm which is a method of closure around a set of processes.  At its most basic scarcity itself provides a closure to the system being maximized.  That condition no longer exists in an information based economy.  Information is boundless and is not reduced through use.  Increasing not diminishing returns dominate.  Connectivity matters more than isolating processes for discrete management.  Networks are paramount.  The information content of our products is increasing as information technology makes complexity more tractable to exploitation.  Production has always been implicitly algorithmic.  Now it is explicitly so.  

In an odd way this reverses one of the core values of management.

In an industrial process where most value is created by emphasizing predictable, replicable, and scale, what I call primary knowledge [PK] dominates.  Indeed the entire purpose of a business firm is to turn discovery or innovation into predictable activity.  In my schema the knowledge needed to innovate, adapt, or discover is secondary [SK].  This schema differs from that based on Michael Polanyi’s description of tacit and explicit knowledge.  My focus is on the management process.  Secure and successful exploitation of discovery depends on being able to translate the SK based adaptations into PK based routines that can be replicated en masse.  Efficiency is based on the more effective application of PK.  In contemporary wording: PK is the code of production.  

The problem with PK, or any code, is that its utility depends on its context.  Just like any supremely efficient entity its efficiency is simply a reflection of the system within which it emerged or was created.  Change the context and the erstwhile efficiency may suddenly become a hindrance.  PK or any code can become obsolete quickly.  To use Schumpeter’s insight: creativity, by changing the context, destroys what was once an efficient solution to a problem.  Creative destruction eliminates successful adaptations.  It does not eliminate poor adaptations because they have been eliminated already by their successful competitors.  Creativity is a threat to the successful not to the failed.  Novelty turns success into failure inevitably.

Which, if we think about it for a while, produces a conundrum:  to be successful in a rapidly changing context we need to be less efficient.  We need redundancy.  We need to be adaptable.  So instead of building successful processes by translating discovery into manageable predictability [i.e. an SK to PK orientation]; we reverse things.  We need to abandon a search for efficiency, we need to accept generalization in order to search for novelty.  We must forgo the predictable and manage discovery based upon a framework that changes constantly [I.e a PK to SK orientation].  

Meanwhile if the foregoing holds any truth at all it is that we have conquered the economic problem.  We have overcome nature’s most immediate threats to our subsistence.  Industrialization was a success.  Now we must clean up its unintended consequences.  But the threat of famine no longer hangs over us all in the way it once did.  Our issues are now political: how do we manage the abundance so that we all share in it?

Which brings to mind Keynes’ somewhat pessimistic view of how we are likely to deal with abundance.  In his wonderful short essay “Economic Possibilities for our Grandchildren” which struck an optimistic tone with respect to our ability to overcome the economic problem, he cautioned us.  He told us that we already have a glimpse of how humanity might deal with abundance.  After all the wealthy live in such a world already.  They are, in his words, our advance guard in such a world of excess.  And they aren’t doing very well.  His words from 1930 …

“To judge from the behavior and the achievements of the wealthy classes today in any quarter of the world, the outlook is very depressing!  For these are, so to speak, our advance guard — those who are spying out the promised land for the rest of us and pitching their camp there.  For they have most of them failed disastrously, so it seems to me — those who have an independent income but no associations or duties or ties — to solve the problem, which has been set them.”

Our second technology regime, this Digital era, is where we solve this problem.  So far, judging by the continued excessive focus of digital technologies on yet more automation and thus production of more wealth for the wealthy, we are not doing very well.  Keynes was right in his judgement.

Addendum:

That we have solved the economic problem is reflected in the amount of human labor we allocate to the production of basic or subsistence material.  Industrialization or mechanization allowed the massive reduction of humanity involved in food production.  Then it allowed the equally massive reduction in the numbers of  people involved in the production of the more material aspects of modern life.  These shifts of labor first from agriculture to industry, and then from industry to “service” are a triumph of technology.  It is no wonder that we give science and technology a prime place in our current worldview.  Whether they stay there will depend on their usefulness in solving the post-scarcity issues that afflict us.  Perhaps it is an irony that we turn to technology to solve the environmental degradation that technology produced as we sought to break free from nature’s grip.  Nature surely has a way to remind us that we have always to take it into account!  After all the threat is not to nature, but to us.

Nor ought it surprise us that in a post-scarcity world social and political issues emerge as those that are most in need of urgent attention. We have enough.  Now we need to resolve who shares in that abundance.  What use is technology in resolving that problem?  Especially when, as in recent times, far from being a force for democratic unity, certain technologies seem all too easily to undermine the solidarity we need to live in a world of shared affluence.

  1. Ken Zimmerman
    May 8, 2021 at 8:45 am

    The relationship between anthropology and economics has often been a belligerent one, particularly since the dominance of neoliberal theory. In this era civilization is often 6thought of as an economy by these theorists. They have pushed widespread efforts to change culture, particularly in English speaking countries in directions consistent with this and the other ‘assumptions’ of neoliberal theory. Anthropologists, drawing on a variety of theories and methods, have offered alternative visions of the economy’s past, present and future.

    Despite the focus on historical change and cultural forced transformation, there are some abiding questions at the intersection of economics and anthropology. Is the economists’ aspiration to place human affairs on a rational footing an agenda worthy of anthropologists’ participation or just a bad dream? Since economics is a product of western civilization – and of the English-speaking peoples in particular – is any claim to universality bound to be ethnocentric? If capitalism is an economic configuration of recent origin, could markets and money be said to be human universals? Can markets be made more effectively democratic, with the unequal voting power of big money somehow neutralized? Can private and public interests be reconciled in economic organization or will the individualism of homo economicus inevitably prevail? Should the economy be isolated as an object of study or is it better to stress how economic relations are embedded in society and culture in general?

    In The Great Transformation (1944), Polanyi brought a radical critique of modern capitalism to bear on his moment in history. We too must start from the world we live in, if we are to apply the vast, but evolving intellectual resources of anthropology to a subject that is of vital concern to everyone. Ours is a very different world from when Polanyi so confidently predicted the demise of the market model of economy. Yet the power and influence of market capitalism and dismantling of state provisions since the 1980s furnishes plentiful material for Polanyi’s thesis that the neglect of social interests must eventually generate a political backlash and a retreat from market fundamentalism. After all humans invented sociality more than 100,000 years ago to meet their need for survival. Market capitalism is a direct threat to sociality and thus to human survival. The world may now be emerging from the period of neoliberal hegemony, with obvious potential consequences for the project known as ‘economic anthropology’. The ongoing globalization of capital – its spread to Japan, China, India, Brazil, Russia and elsewhere after centuries of western monopoly – is also bound to affect our understanding of economy. The absolute dominance of market logic, at least in the form devised by neoliberal economists, may be coming to an end. Then, not only will Polanyi’s ideas receive more favorable attention, as they already have in some quarters, but the urgent need to review the institutional basis of economy may stimulate anthropologists to renewed efforts.

    Market capitalism is thus not just a system for organizing energy and information. It is an existential threat to human survival. To paraphrase Polanyi, humanity either destroys its Frankenstein market capitalism or dies at its hand.

  2. Robert Locke
    May 8, 2021 at 11:01 am

    Peter, ever hear of protoindusteializatio or agricultural revolution that was land management not technologicallybased. There is a lot of nontechnological history you slight.

    • Robert Locke
      May 8, 2021 at 11:11 am

      The concept of proto-industrialization became an influential one in economic history in the 1970s and 1980s. The term refers to a system of rural manufacture that was intermediate between autarchic feudal production and modern urban factory production. Variously described as rural manufacturing, domestic manufacture, cottage industry, and a “putting-out” system, it was a dispersed system of production that used traditional methods of production and extensive low-paid rural labor to produce goods for the market, both domestic and international. Unlike modern capitalist manufacturing, proto-industrialization did not depend on rising labor productivity as a source of higher profits; instead, merchants increased the scale of their businesses by extending production to additional households and workers.

      One of the first to use the term was Franklin Mendels in 1970 (link), who applied the concept to extra-urban manufacturing in Flanders in the eighteenth century. Peter Kriedte, Hans Medick, and Jurgen Schlumbohm’s Industrialization Before Industrialization provided an extensive historical and theoretical treatment of the phenomenon in 1977.
      It has long been known that industrial commodity production in the countryside for large inter-regional and international markets was of considerable importance during the formative period of capitalism. (1)
      What are the chief economic characteristics of a stylized proto-industrialization system of production?
      Rural labor, often sideline activities beside agricultural work
      Production for a market, often through urban-based merchants
      Extremely low returns to labor — squeezed labor
      Low technology, very low rate of technological change
      Extensive rather than intensive growth
      In order for rural industry to develop on a large scale in a region, several factors needed to be present: extensive demand for manufactured goods by concentrated populations and developed patterns of trade; a concentration of merchant wealth; and a population of under-employed rural householders who could be recruited into sideline manufacturing employment. Peter Kriedte explained the regional pattern of emergence of proto-industrialization in terms of the different forms of power possessed by lords in different parts of Europe:

  3. May 9, 2021 at 3:49 am

    Thanks for this Peter. It helps an outsider penetrate the weird world of mainstream economics.
    The very terms Land, Labor and Capital speak to me of thinking that has not progressed beyond the feudal world.
    Acknowledging the comments above, it is still clearly better to include energy and information than to just leave them out.
    Steve Keen has taken a step in this direction by making goth labor and capital functions of energy.
    Keen, Steve & Ayres, Robert U. & Standish, Russell, 2019. “A Note on the Role of Energy in Production,” Ecological Economics, Elsevier, vol. 157(C), pages 40-46.

  4. Gerald Holtham
    May 12, 2021 at 5:12 pm

    The essential problem comes because economic theory has assumed a strong separability between purely economic processes and the physical processes with which they are intertwined. The economic production function does not measure gross output but value added – the difference in the price of the finished product and the price of any unimproved raw materials used in its production. Of course to make bread you need cereals and energy. But we don’t measure output in bread loaves, we measure it as the difference in the market value of bread and the market value of seed-corn. Usable energy as an input is itself the result of an economic process which converts wind, wave or hydrocarbon deposit into fuel or electricity. Economics was concerned only, guess what, with the economics of doing that, not the physics involved. Although the economics depends on the physics that was taken for granted and the economic issues analysed in their own terms.
    When the climate was unaffected by human activity that may or may not have been a defensible procedure. Now that protecting the biosphere becomes an urgent requirement we have to consider the physical requirements and consequences of economic processes. The separability assumption won’t do.
    We should beware the tyranny of words too. Technology we are told caused a problem so how can it solve it. The steam engine was “technology”, wind-power relies on “technology” jet travel relies on technology and so does the Zoom conference. Using the word encourages us to think we are talking about a thing but actually we are talking about a host of diverse things. There is no contradiction there.

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