The Price of Externalities: Georgescu Roegen Extravagance
Fast lane – Markets at the speed of technology
Tom Standage’s book “The Victorian Internet” describes how the mass of wired communications – the telegraph – changed the developing world – (http://www.amazon.co.uk/Victorian-Internet-Tom-Standage/dp/0753807033/ref=sr_1_1?s=books&ie=UTF8&qid=1347191394&sr=1-1).
As did Gutenberg’s printing press around 1450, the telegraph, the telephone, the fax, the mobile phone and now the internet and the world wide web continue to transform our ability to communicate and miscommunicate – instantaneously. There is no question that technological development races onwards. The human race has a special ability to make extraordinary progress in scientific research and understanding and in the application of that through engineering into products that transform the way we live.
The technological advance is propelled by the “marketplace” – where supply and demand perpetually force change.
Slow lane – Governance at the speed of bureaucracy
As we continue to make enormous gains in technology, our ability to keep up with the excesses of the market (market waste) is almost the opposite. It seems that we react late to technological advancement – delays that can cause inconvenience but also (at the extreme) loss of life.
Inconvenience: the UK awaits the Leveson Commission report into phone-hacking – the use of technology by certain newspapers to obtain salacious stories on (mainly) celebrities. Newspapers are closed, criminal prosecutions are under way and the possibility that press freedom will be curtailed.
Loss of life: the destruction of our environment through global warming (CO2 emissions and the potential for vast amounts of methane to be released by the rapidly melting glaciers) is a direct result of technology and manufacturing’s use of fossil fuels. It could prove just as damaging (or more) than the technology and development of weaponry that fuelled the two World Wars of the 20th Century.
The slow lane is inhabited by politicians and civil servants that exist in a variety of slow lane decision-making arenas. These could be democracies; they may be legalist governments such as China.
The slow lane is inhabited by the “mechanics of government” or “Market Governance Mechanisms” (MGM)– “governance”.
The tortoise and the hare
Since the development of governing institutions, those in government have continuously sought to control technology and its effects. From the control of counterfeiting (as in Newton’s day or now), developing health and safety standards, maintaining arms control, to reducing environmental degradation, people have put their faith in governments’ ability to manage the sweep of technology. Time after time, technology has been at the forefront and governance has been slow to catch up.
Aesop’s fable of the tortoise and the hare had the tortoise winning, but while the hare of technology can be tamed, it is continuously ahead of tortoise governance and, in the global economy we now inhabit, will extend that lead. It is only where governance is centralized and total (such as in Japan prior to the Treaty of Kanagawa in 1854 or where the government may be theistic such as with the Taliban) that the market is not allowed to exist at all and technology is starved.
As soon as market forces allow, the pace quickens. China is a recent example of a centralized, legalist state that remains in control but has opened up the marketplace – totalitarianism plus capitalism. Of course, the rise of technology is a serious threat to governance stability in China. This is exacerbated by world-wide communications technology that provides comparisons with the rest of the world to every region. This comparative data spreads the world on what is available and draws everyone to want the same – more products and the latest technology. The hare merely passes on the baton to the next hare.
In the same race?
The question of how Governance reacts to the market is being played out constantly. Whether it is the forlorn approach of international Governance to environmental issues or national Governance reaction to the internet or any number of other interactions, Governance and the governing seeks to manage technology and the effects of technology.
The rationale for Governance (and control) over technology is based on a mandate from the public (whether by vote via manifestos or on a perceived basis – as in China or a theistic basis or historic basis as in most of the Middle East). This mandate often runs against the market – and many, for example, Tea Party libertarians in the USA, believe that Government should play no part whatsoever in managing the market. They do not believe that Government has a role to play at all. This Ayn Rand view of the world, the most extreme market view of governance, believes that the “invisible hand” will provide the right result.
So, should technology be subject to control? Is this two-speed race real?
The answer has to be “yes” – but an acknowledgement that it is a race would be a start. Then, we may be able to establish some of the rules: rules which enable the development of products and technology while ensuring that the trade-offs that we have to endure are sufficient to allow us (and other life forms) to continue to survive.
Race to what?
The marketplace works best when there is an identifiable demand and an ability to supply. This is the basis upon which economics exists. The market, however, is but one aspect of our lives and the market cannot dictate whether a particular form of animal life is allowed to survive or whether desertification is made worse in Sudan, for example.
These are typical market externalities and the market appears to have no answer to such difficult outcomes. These are outside the market and the invisible hand assumes that they can be dealt with as externalities – and forgotten.
These externalities, or market anomalies, are where non-market forces reside. Much of this is the responsibility of market governance; some of it is charitable work or non-market, voluntary activities. However, technology is primarily (at least in the 21st Century) market driven (as opposed to driven by government spending on defence, which brought into play technological advances in the 19th and 20th Centuries).
The race that technology exists to fight is one of material “progress” (advances in health care, biotechnology and the like are within this area) where there is a defined demand.
Governance is then required to sweep up behind in ensuring that the advances or changes in technology are suitable or genuinely advantageous.
Of course, as Georgescu Roegen (a leading economist) stated in 1975: “Perhaps the destiny of man is to have a short but fiery, exciting, and extravagant life rather than a long, uneventful, and vegetative existence.”
Intersection: market and governance
At present, the governance of technological externalities problem is two-fold:
(1) Each nation works out its own response to changes – often many years behind the change itself
(2) There are serious world-wide technological implications – changes that impact regions and the world – not just nations.
The problems get bigger as the intersection of the marketplace and governance is mainly concerned with economics, not externalities. Yet, this may be the biggest problem concerning mankind. Working out how to properly manage the interaction between the marketplace and governance in terms of market externalities while allowing for competition (the essence of the market and the progenitor of technological change) may well be the biggest challenge we have. If capitalism is the norm – and through this the market economy – what role has governance of the market – nationally and internationally?
Can institutions that are already in place (such as the WTO or UN Conferences on the Environment or IAEA or any number of international institutions that operate today (see: http://www.genevainternational.org/pages/en/55;International_Organisations) keep up with the market whilst enabling or at least allowing the best of what the market does to flourish?
Is it even possible for the market – now on a global scale – to be centrally managed to the extent that externalities that we all pay for in terms of health and safety and maybe inter-generational catastrophes of the future can be in any meaningful way properly be taken into account?
Or, are there self-organizing principles that guide human evolution and probably guide our economic and technological progress which work and negate the need for any central institutions?
An Olympian Challenge
To repeat: the governance of market externalities may well be the major challenge that mankind has to bear.
Already, we may be dangerously close to bequeathing future generations with a challenge that may be unwinnable.
Whether it is genetic engineering, or nuclear warheads, or CO2 emissions or whatever, the global challenge is to admit that the challenge is a real one and that the market, left to its own devices, is unlikely to deliver the desired results in a timeframe that will allow life to continue to prosper – the Georgescu Roegen extravagance
Libertarians argue that we will ensure that technology and the market will find the solutions – a hope for the best approach that they believe will get us out of the Georgescu Roegen extravagance.
However, the danger that the challenge will be beyond the capability of the marketplace is large enough for us to consider the consequences of failure. The fact that we can obtain information quickly and internationally does not help unless we can use the information and make decisions quickly. Governance mechanisms are the opposite. It now looks increasingly like 19th Century institutions are incapable of addressing the negatives that the marketplace throws up – unpriced externalities Maybe the only way to solve the problems of the marketplace is through using technology and self-organization on a local basis so that externalities are assessed and redressed as appropriate.
This means that the role of international organizations would be to assist the process. Instead of not-for-profits like Witness (http://www.witness.org/) acting on their own to provide assistance to local groups (“See it, film it, change it”) it would be the role of large national and international institutions to enable local groups through technology. Markets are self-organizing but have created a degree of externality that is seriously and adversely impacting societies throughout the world. International governmental organizations are failing to come to terms with this. So, the role of national and international institutions has to be to equip and enable local groups – through finance and law changes but on a vast international scale.
Just like companies and government work together to develop the markets, so governments and NGO’s /local groups should be working to develop externality solutions (with the companies wherever possible) but on an international basis.
Research is ongoing such as at http://shapingsustainablemarkets.iied.org/ and sustainability in business is now a constant theme in best in class organizations. Those such a CIMA (Chartered Institute of Management Accountants – www.cimaglobal.com) have adopted sustainability and the role of senior management in delivering this for some time. Sustainability is the central mantra of organizations like Tomorrow’s Company (http://www.tomorrowscompany.com/) and the whole CSR movement.
But, just like microeconomics and macroeconomics never come together, so the business by business approach and the international institutional approaches never seem to gel.
Witness provides a great example of the ability of self-organization – governments, local, regional, national and international should now be harnessing the technologies to equip civil society to the same on a scale never before seen. Every national government should have an Externalities Minister – where such market problems are evaluated in total, practical help is provided to civil society to address the problems and genuine dialogue established with business. Governance and the markets would then be in the same race.