Living standards depend on levels of production
The wealth of nations and of its citizens depends exclusively on the amount of goods and services that they are able to produce, because since everything that is produced is eventually consumed, the more workers produce, the more they can increase their consumption either by using what they make or by trading their production for their heart's desire.
A good illustration of this relationship is the difference in living standards between the emerging world and the West. Workers in the emerging world produce significantly less goods and services than their Western counterparts because they have access to less tools. They often lack computers to calculate quicker or power drills to build better. Either way, even if they had these modern tools, electricity is in many instances so unstable that they would not be able to use them.
As a result, the average brickmaker who only uses a shovel may produce 50 bricks instead of the 5,000 he could make by using sophisticated machines. At the end of the day, he would only be able to purchase 50 bricks worth of goods, which does not even cover basic necessities such as medication, clothing or housing.
Rapid innovation is increasing productivity
Although it is borderline impossible to know if the pace of technological progress is accelerating, it is clear that there are important innovation coming down the pipeline. These breakthroughs such as robotics, artificial intelligence, and new materials are dramatically improving productivity and efficiency. At the same time, entrepreneurs living in remote communities are purchasing an increasing number of machines through growing online marketplaces, such as Alibaba, and are accessing off-grid renewable electricity.
Humans in an increasing number of nations, freed from the burden of finding food, shelter and other basic needs, are pursuing careers as thinkers and inventors. There has never been more scientists, engineers, and policy-makers dedicated full-time to solving humanity's biggest challenges. This amount of pure brain power makes me optimistic that there will be a steady stream of new technologies in the foreseeable future.
Although they will benefit society as a whole by introducing machines and methods to increase production (and consumption), as well as medical breakthroughs to allow for longer and healthier lives, their effects on individuals will be uncertain. For instance, many workers will loose their jobs, from fast food employees who might not be able compete with robots to highly skilled surgeons who might get replaced by less invasive nanotechnologies. Despite these individual loses, society will unequivocally benefit from a larger supply of hamburgers and safer health care.
These workers are likely to find new jobs since history has demonstrated multiple times that the economy has an incredible capacity to absorb displaced workers. The biggest of these changes in the composition of the labor force was the rapid disappearance of agriculture jobs. In 1900 40% of the American workforce was employed in agriculture. Thanks to machines that reduced the need for farmhand, this number fell to 1.9% by 2000. The displaced farmers were reabsorbed into the manufacturing and service sectors. Even more recently, we have lost entire job categories to technology such as switchboards operator, typists, ice-cutter or milkmen, while maintaining steady economic and employment growth.
Transfer of technology
Until the 1980's, the governments of developing countries worried about the transfer of industrial knowledge because Western companies, who had a monopoly on manufacturing and a grip on the supply chain, held enormous market power. Since then, the ability to purchase machines and sell goods online democratized manufacturing.
The economic emergence of developing countries is attributable to local entrepreneurs being able to easily purchase simple machines directly from manufacturers or through sites like Alibaba. As a result, cities from Kinshasa to Kuala Lumpur are employing armies of workers in newly opened micro-factories producing goods such as garments, packaged food, or furniture.
These products, which are typically consumed locally, lift citizens out of material poverty by increasing the supply of basic necessities. Going forward, the ability to produce in remote locations, whether they be in developed or emerging countries, will increase as the Internet spreads.
By far, the greatest economic challenge facing the world is access to electricity. According to the World Bank, 1.6 billion people, or a quarter of humanity, lives without electricity. This number excludes the billions of people who experience daily power outages.
Workers who do not have access to electricity literally work with dark-ages technology, and as a result can only have dark-ages levels of consumption. For instance, the main reason why incomes of villagers in Africa and India is so low is because they use primitive tools. Even without access to global markets, upgrading to the simplest power tools to farm, gather water, or build houses would increase the availability of consumption goods by many folds.
Electrification is so low in the emerging world, especially in rural areas, because it does not make business sense to build large networks to transport electricity to clients who can only afford to consume very little electricity. With the advent of cheap renewable and portable electricity such as solar, wind, and micro-hydroelectric plants private firms will increasingly find it profitable to supply electricity to overlooked clients. Combined with greater economic integration which makes it possible to easily purchase tools, electrification will transform whole regions.
Give them bread and circuses
The great Roman satirist, Juvenal, famously wrote in reference to the Roman practice of providing free wheat and entertainment for political gains:
"People who once upon a time handed out military command, high civil office, legions - everything now restrains itself and anxiously hopes for just two things: bread and circuses".
Roman politicians were keenly aware of what economists are just now discovering: high food prices can cause civil unrest and even revolutions.
For instance, the French Revolution was fueled by a dramatic rise in food prices. Following two crop failures in 1788 and 1789, the price of bread shot up by 88%. By July 14th, 1789, the citizens of Paris, who once endured without much resistance a life of misery at the hands of a royal court who steadily increased their taxes to maintain a life of opulence, overthrew and decapitated the royal couple. Other famous historical examples of revolutions that followed periods of steep increases in food prices include the fall of the Confederate States of America, the Russian Revolution, and the fall of the British Raj.
This relationship even applies today. A recent paper by University of Minnesota Economist, Dr. Marc Bellemare, shows that between 1990-2011 increases in food prices have led to a higher rate in social unrest. He notably identified two important periods of rising prices, in 2008 and 2010 when prices shot up by 51% and 40% respectively. The first crisis resulted in unrest in Africa, Latin America and Asia, while the second one fueled the Arab Spring.
Social unrest, aside from the loss of human lives, are extremely costly economically. In the short term, there is a fall of production as people stop working, either in protest or out of fear, and equipment is destroyed. In the long run, local and foreign entrepreneurs downsize their investment fearing that they may be ceased or destroyed in future upheavals. This decreases the supply of available goods and services, and as a result consumption and living standards.
Pressures on global food supplies
Among other issues, agriculture is facing the twin challenge of degrading aquifers and a changing climate.
Aquifers are natural underground water reservoirs. They are replenished by rain and glacier water flowing down from mountains, and are extensively used to irrigate fields. Unfortunately, they are rapidly being depleted in the world's most important agricultural regions.
Due to over-usage in the American mid-west, where over 30% of the world's cereals are produced, water levels are precipitously falling. In East Asia, the world's most populous region, high density, pollution and melting glaciers in the Himalayas are putting enormous pressure on aquifers. For instance, in India analysts estimate that in 20 years 60% of current groundwater sources will be in critical degradation. Meanwhile, in the Middle East, the world's most volatile region, mismanagement has allowed sea water to enter aquifers, making them unsuitable for agriculture.
Climate change may put further pressure on global food supply. The effect on crop yield from a warming climate and more atmospheric carbon is uncertain since heat and carbon typically promote for growth, but the likelihood of systematic and unpredictable crop failures will increase. Plants also have an internal calendar, and they start budding once a certain temperature or level of humidity is reached. Climate change might promote abnormally early growth in which case budding will occur before the last frost, or late growth, when crops might not have time to fully form and reproduce.
Due to rapid technological progress, economic integration and electrification we have the means to drastically reduce poverty by the end of the century. However, in order to maintain these economic advances, policy makers and engineers must find a way to protect agriculture from the twin challenge of degrading aquifers and climate change. Otherwise, civil unrest which are often associated with increases in food prices will reverse any gain.
By Kasole Nyembo