POPULATION'S EFFECTS ON TECHNOLOGY AND PRODUCTIVITY "Heavier than air flying machines are impossible". Lord Kelvin, the world's greatest physicist at the time, in 1895. "Man will not fly for fifty years", Wilbur Wright to Orville Wright, 1901. "There is not the slightest indication that [nuclear] energy will ever be obtainable. It would mean that the atom would have to be shattered at will". Albert Einstein, 1932. "The energy produced by the atom is a very poor kind of thing. Anyone who expects a source of power from the transformation of these atoms is talking moonshine", Ernest Rutherford, 1933, after being the first person to split the atom. CHAPTER 26: TABLE OF CONTENTS Better Idea Results in Drywall Installer Summary and Concluding Thoughts Afternote: On the Importance and Origins of Productive Knowledge The Gains From Knowledge Creation Spontaneous Knowledge Incentive-Responsive Knowledge The Beneficiaries of Gains in Knowledge Externalities Realized by Other Firms Consumer Benefits From the Externalities Process and Product Research Can We Be Sure That Knowledge Will Solve Our Problems? It is your mind that matters economically, as much as or more than your mouth or hands. The most important economic effect of population size and growth is the contribution of additional people to our stock of useful knowledge. And this contribution is great enough in the long run to overcome all the costs of population growth. This is a strong statement, but the evidence for it seems very strong. Many who deprecate the potential contribution of knowledge of additional people, and who would halt population growth, also make little allowance for mind-boggling discoveries yet to be made. They assume that what we now believe is impossible will always be so. Even great scientists (Lord Kelvin and Albert Einstein in the headnotes to this chapter, for example) frequently underestimate the possibilities for useful discoveries, especially in fields they themselves work on. (See chapter 2 for a discussion of experts' tendencies to discount new knowledge.) This does not imply that a higher standard of living requires additional discoveries. As discussed in chapter 11, we now have in our hands the knowledge to provide energy at constant or declining costs forever, and the knowhow to produce food in almost inexhaustible quantities (see chapter 6). All other natural resources become less important and a smaller part of the economy with every passing decade. But additional discoveries can certainly be welcome, if only because of the excitement of scientific adventure. Let us begin weighing the importance of new knowledge with this question: Why is the standard of living so much higher in the U.S. or Japan than in India or Mali? And why is the standard of living so much higher in the U.S. or Japan now than it was 200 years ago? The proximate cause is that the average worker in the U.S. and Japan now produces X times as much in market-value of goods and services per day as does the average worker in India or Mali, or as did the average worker in the U.S. or Japan 200 years ago, where X is the ratio of the standard of living now in the U.S. or Japan to the standard in India or Mali now, or in the U.S. or Japan then. Though that answer is almost definitional, it points us to the important next question. Just why does the average worker in the U.S. and Japan now produce so much more? Part of the answer is that she or he has a much larger and better supply of capital equipment to work with - more buildings and tools, and more efficient transportation. But that is only a minor factor; as proof, notice how fast West Germany and Japan were able to regain a high standard of living even after much of their capital was destroyed in World War II. (They had some economic help from the U.S. and the benefit of being restrained from spending on the military, but these factors were not crucial.) Another part of the difference between then and now (and between rich and poor countries) is due to economies of scope - the straightforward advantages of industry size and market size - which we shall consider in the next chapter. The most important difference between poor then and rich now, however, is that there is a much greater stock of technological know-how available now, which people are educated to learn and use. The technology and the schooling are intertwined; in both the U.S. and India now, unlike the U.S. 200 years ago, the knowledge is available in books in the library, but without schooling it cannot be adapted to local needs and put to work. The stock of industrial capital is also intertwined with knowledge and with education; the value of many of our capital goods such as computers and jet airplanes consists largely of the new knowledge that is built into them. And without educated workers, these chunks of capital could not be operated and hence would be worthless. The importance of technological knowledge emerged in two famous studies, one by Robert Solow and the other by Edward F. Denison. Using different methods, each calculated the extent to which the growth of physical capital and of the labor force could account for economic growth in the U.S. (Solow and Denison) and Europe (Denison). Both found that even after capital and labor are allowed for, much of the economic growth - the "residual" - cannot be explained well by any factor other than an improvement in the level of technological practice (including improved organizational methods). Economies of scope due to larger factory size do not appear to be very important in this context, though in larger and faster-growing industries the level of technology improves more rapidly than in smaller and slower-growing ones (more about this shortly). Of course, this improvement in productivity does not come for free; much of it is bought with investments in research and development (R & D). But that does not alter the importance of the gains in technological knowledge. Let's illustrate the growth in technical knowledge and skill with a few examples of its benefits: 1. In Roman times, the world's biggest amphitheaters could seat a few - maybe even a score or two - of thousands of people to watch a sport or entertainment. In 1990, an average of 577 million people watched on television each of the 52 World Cup soccer matches; a total of perhaps 2.7 billion - half the world's population - watched at least one match. Not only was that enjoyable entertainment for a multitude, but for shut-ins and those in a hospital bed, games on television can be a blessed diversion from pain (a miracle I once experienced, for which I am still most grateful). If sports and theater do not excite you, consider music. Instead of at most hundreds or thousands who could listen to a soloist or orchestra a few centuries ago - and had to pay high prices - millions and even billions can listen on radio, records, and tape, all at prices that the poorest farmers in the world can now afford. And great performances of the 20th century will continue to be heard in future centuries and millennia, which today's performers appreciate. 2. Not much more than one century ago - after more than 50 centuries of recorded history and hundreds of centuries of unrecorded history - for the first time people had something better than firelight or an oil lamp to break the darkness after dusk. And the absence of electricity continued almost into the second half of the 20th century for substantial portions of the population of even the richest country in the world - much of rural Kentucky, for example. Now all of us Americans take Edison's gift for granted, and the rest of the world is rapidly being wired up. 3. Less than two centuries ago there appeared the first land transportation that did not depend entirely on animal muscles. Now we complain about the ubiquity of cars. The increased maximum speed of human transportation in shown in Figure 26-1. And the increased capacity to move food rapidly and cheaply is the cause of the extraordinary reduction in famine deaths worldwide (other than those due to stupid and/or murderous governments; see chapter 00). Whereas in all the centuries of human history until the 1800s, commercial overland movement of foodstuff beyond a few score miles was usually impossible, canals, then railroads, and now also roads and trucks put foods from every part of the world on your plate every day. Fig 26-1[trans - in Atack folder?] 4. Until the past two centuries the richest potentate could not purchase any anesthetic other than alcohol to provide surcease from the hellish pains of medical and dental operations, and of diseases such as cancer, nor was there any relief for women in childbirth who wanted another option besides deep breathing. What new invention in the future could match the discovery of anesthetics? Yes, we now regret the abuse of various painkillers due to low price (legal or illegal), but this marks a shift from the economic problem of boosting productivity of physical goods to other challenges for humanity. 5. The increased availability of raw materials (including food and energy), as measured by their prices relative to the price of labor, is detailed in chapters 1, 5, and 11. Increased production of food per unit of land is detailed in chapter 6. And productivity in all these activities is likely to increase indefinitely. For example, we read every day of such new processes as bacteria eating dissolved low-quality gold ore, and releasing the gold from the dirt, and of plants taking in nuclear waste to speed the disposal problem (chapter 00). 6. Increased speed of computation is a well-documented story. Typically, [I]n the early 1940s, Nicholas Fattu was the leader of a team at the University of Minnesota...on some statistical calculations involving large matrices...He brought about ten people together in a room each of whom was given a Monroematic desk calculator. These people worked full-time for ten months in a coordinated way, carrying out the computations and cross-checking each other's results as they went along. About twenty years later...Professor Fattu redid the calculations on an IBM 704 in twenty minutes. Nowadays, Fattu's calculation can be done in a fraction of a second on even a desk computer. The speed of calculation has multiplied by a factor of about ten every seven years over these decades, with no limit in sight. Here is an experience of my own: In the early 1970s I did a simulation of the price behavior of two competing firms. My work required tens of thousands of dollars of computer time, hour after hour in the middle of the night using the university mainframe computer, which required constant attendance by technicians. The printed output was so voluminous that it overflowed an entire small storeroom, and I had nowhere to save it... Now in the 1990s Carlos Puig and I have returned to that work but extended it to three firms, which requires much more extensive calculations. The work is done by letting the computer chug along by itself during the night, on an ordinary desk computer that sells for much less the cost of one hour of work on the old mainframe. And the entire output can be put onto a few one-dollar floppy disks, and sent by mail in a small envelope. 7. The future gains in productivity that technology has already created are plainly before us. Orbiting space laboratories with conditions of zero gravity already can produce protein crystals that are "much larger and provided much better structural data than those grown on Earth under identical conditions." Growing new human tissues and body parts in space also seems feasible. And new possibilities of human gene therapy as well as genetic transformations of plant and animal life are reported every day. Among all these gains in our standard of living, only personal services have not been greatly reduced in price by increased productivity - prostitution being the sharpest example (though modern transportation and communication facilitate even this transaction). What is the role of population size and growth in the astonishing advance of human know-how? The source of these improvements in productivity is the human mind, and a human mind is seldom found apart from a human body. And because improvements - their invention and their adoption - come from people, the amount of improvement plainly depends on the number of people available to use their minds. This is an old idea, going back at least as far as William Petty in 1682. As for the Arts of Delight and Ornament, they are best promoted by the greatest number of emulators. And it is more likely that one ingenious curious man may rather be found among 4 million than 400 persons....And for the propagation and improvement of useful learning, the same may be said concerning it as above-said concerning...the Arts of Delight and Ornaments. More recently, this benefit of population size has been urged upon us by Simon Kuznets. In contrast, many of the doomsters completely omit from consideration the possibility that, all else equal, more people implies more knowledge and greater productivity. One wrote, for example, "It is difficult to see how any further growth in world population could enhance the quality of human existence. On the other hand, one can readily envisage ways in which further population increments will diminish our well-being." It is suggestive, even if the fact cannot be considered solid statistical evidence, that in ancient times high civilizations - that is, civilizations marked by such advances as the discovery of metals and the methods of working with them - did not appear in Australia or in pre-Columbian North America, where populations were few in number and sparsely distributed, in contrast to Europe, Asia, and even South America. Along about here the question often arises: If more people cause faster discovery of new knowledge, how come populous China and India are not the most advanced countries of all? Quite obviously, China and India do not produce as much new knowledge as the U.S. right now, because China and India are relatively poor, and hence they are able to educate relatively fewer people. (It is instructive that despite its poverty, India has one of the largest scientific communities in the world - just because it has such a large population. Put differently, would you bet on Sweden or Holland, say, against Great Britain or Russia, or even India, to produce the great discoveries that will make nuclear fusion practical?) Then you note that today's rich countries were also poor at one time, and ask: why did not China and India get rich long ago? More than two centuries ago, David Hume explained clearly why China fell behind Europe. "[I]t is impossible for the arts and sciences to arise, at first, among any people unless that people enjoy the blessing of a free government...An unlimited despotism...effectually puts a stop to all improvements, and keeps men from attaining...knowledge." Hume then explained why freedom is necessary: "Though a republic should be barbarous, it necessarily, by an infallible operation gives rise to LAW, even before mankind have made any considerable advances in the other sciences. From law arises security: From security curiousity: And from curiousity knowledge." Hume then explained why Europe advanced and China did not: "Nothing is more favorable to the rise of politeness and learning [by which he meant the development of the sciences], than a number of neighbouring and independent states, connected together by commerce and policy". His reason why a Europe of independent states should forge ahead in technology and economic development was the braking "which such limited territories give both to power and authority." Hume said it over and over again: "[T]he divisions into small states are favourable to learning, by stopping the progress of authority as well as that of power." He contrasted the progress in Europe with the lack of it in China, which was "one vast empire, speaking one language, governed by one law...This seems to be one natural reason, why the sciences have made so slow a progress in that mighty empire." Hume's analysis of this (and all other topics in political economy), made in the 1760s and 1770s, has proven right across the board. In the past decade economic historians have come to agree that the institutional and cultural nature of societies is crucial. More specifically, the extent to which individuals are free to pursue economic opportunity, and the extent to which there is protection for the property they purchase and create for both production and consumption, together with the presence of diversity and competition at all levels, seem to make an enormous difference in the propensity of people to develop and innovate. Shepard B. Clough discussed the importance for the "development of civilization" of a social and political organization which will permit individuals to realize their total potential as contributors to civilization. What is implied here is that in a system where social taboos or political restrictions prevent large segments of a culture's population from engaging in types of activity which add most to civilization, the culture cannot attain the highest degree of civilization of which it is capable. Thus the caste system in India, restrictions on choice of occupation in medieval Europe, and the anti-Semitic laws of Nazi Germany curtailed the civilizing process. This factor seems to be the best explanation of the "European miracle," to use Jones's term, in comparison to the recent centuries' histories of India and China. And it seems to explain why Hong Kong and Singapore are doing so well, and Africa is doing so poorly, right now. That is, the modern explanation of why Europe forged ahead with the industrial revolution but China did not is exactly as Hume said: The competition fostered by independence allowed people considerable freedom from monarchs and bureaucracy. This afforded them economic opportunity to use their talents, make advances, and profit from their efforts. The mode of economic-political organization influences the speed of development of new discoveries and new applications at all levels. Communism in China prevents entrepreneurs from putting jitneys on the road to compete with publicly-owned buses (so does regulation in most U.S. cities), and hence innovation is prevented. But even at the micro-level, that is, in units much smaller than nations, economic organization matters. The miners of Cornwall, who have been digging since the Roman occupation, evolved an unusual market system of decentralized decision-making and developed great skill in geology because of it. This skill enabled them to dominate mining on four continents in the 19th century. The system was as follows: Their system of mining, based on `tribute', was perhaps unique in maintaining both production and morale in an industry historically riven by conflict. By this system the mine managers, called captains, marked out the various areas down the mine, and fixed for each one a price per ton for the ore recovered from it. The miners bid for the areas they considered would be most rewarding, and worked them for two months, fixing their own hours and working arrangements. They received no wages, but at the end of the period they received the agreed percentage of the value of the ore they had brought up. The `tributers' among the miners, who did the selection of the places to work, had to become, in effect, practising geologists. They ac quired an unrivalled knowledge of ore bodies and ways of mining them most efficiently. It was this knowledge and experience which made Cornish miners welcome everywhere they went... Please note that "technological advance" as used in these examples most definitely does not mean only "science." Scientific geniuses - if that term is meaningful - are just one part of the knowledge process. Much technological advance comes from people who are neither well-educated nor well-paid - the dispatcher who develops a slightly better way of deploying the taxis in her ten-taxi fleet, the shipper who discovers that garbage cans make excellent cheap containers, the supermarket manager who finds a way to display more merchandise in a given space, the supermarket clerk who finds a quicker way to wrap the meat, the market researcher in the supermarket chain who experiments and finds more efficient and cheaper means of advertising the store's prices and sale items, and so on. Here is an example, from a local Illinois paper, of inventions coming from "ordinary" people. BETTER IDEA RESULTS IN DRYWALL INSTALLER Two area men have combined their respective good ideas to come up with a better idea. William Vircks of Villa Grove and Harold Propst of 2802 E. California Ave., U, have developed an electric motor-driven drywall installer called "Board Ease." Vircks received the original patent on the machine in 1969, but the model was hand-cranked, not motorized. He said the original machine, which was designed to lift the drywall or ceiling material up and hold it there, was built by his father. Vircks said his father built the first model, but it "stood for years in the corner" until he began tinkering with it. He sold about 100 machines throughout the Midwest, and one of the buyers was Propst, a professional drywaller. Propst bought the machine several years ago and developed the motor and electric controls for his own machine. The two men got together last spring through a mutual friend and combined their ideas, and they now hope to market the machine through a national company. Vircks, who works at Tuscola's USI plant, says he's been working on the machine for 12 to 13 years and hopes he'll soon be getting a return on his investment. Of course, Cornish miners and U.S. drywall installers are just examples - not exceptional, but typical of human minds. The "quality circle" movement in manufacturing, following the Japanese and Swedish leads, is a formalization of the process by which people on production lines can contribute their ideas, based on their day-to-day learning on the job, to improving the production process. The Wall Street Journal, June 6, 92]. The need for additional producers of knowledge is manifest. Nobel prize winner Hans Bethe tells us that the future cost and availability of nuclear power - and hence the cost and availability of energy generally - would be a rosier prospect if the population of scientific workers were larger. Talking specifically about nuclear fusion, Bethe said, "Money is not the limiting factor.... Progress is limited rather by the availability of highly trained workers." Students of organizational behavior also tell us that, all else being equal, the larger an organization's resources in number of people and amount of money, the more innovations it will come up with. "If any one group of variables may be said to stand out among all others as empirically determined correlates of innovation, it is the group of interrelated factors indicating size, wealth, or the availability of resources." A variety of investigators "all conclude that organizational size and wealth are among the strongest predictors of innovation in the sense of readiness to adopt new patterns of behavior." There have been many more discoveries and a faster rate of productivity growth in the past century than in previous centuries, when there were fewer people alive. True, 10,000 years ago there wasn't much knowledge to build new ideas upon. But seen differently, it should have been all the easier 10,000 years ago to find important improvements, because so much still lay undiscovered. Progress surely was agonizingly slow in prehistory, however; for example, whereas we read of new metal and plastic materials almost every week, it was centuries or millennia between the discovery and use of, say, copper and iron. It makes sense that if there had been a larger population in earlier times, the pace of increase in technological practice would have been faster. In fact, that is exactly what happened in Britain from the 1500s to the 1800s. The number of agricultural patents filed, and the number of books on agriculture published, were larger when population was larger, and also when the price of food was higher (which is also a result of recent population growth). Population growth spurs the adoption of existing technology as well as the invention of new technology. This has been well documented in agriculture 12/9/2 page # \ultres \tchar26 February 9, 1994