Satyajit Das: For growth to be sustainable, we must accept lower living standards

Midweek View: The economist Robert Gordon argues that the IT revolution created only a short-lived advance in productivity

A return to economic growth requires a return to real engineering rather than a reliance on financial engineering. This would reverse the trend to a position where the real economy simply supports trading and investment in claims on underlying resources.

But even a reversion to the real economy may not be able to address the stagnation of living standards. Traditional sources of growth include increasing population, sustainable and affordable resources, new markets, and improved productivity and innovation.

Environmental and resource constraints also limit the potential for large increases in population. With the world's population fast approaching 10 billion, agronomists estimate that food production will need to increase by 60 per cent to 100 per cent by 2050 to provide food for all, as well as more protein in the form of meat for the rapidly increasing middle classes of the developing world. But the amount of arable land has remained at around 3.4 billion acres for the last decade, and boosting crop yields has become harder.

Sustainable falls in the price of energy and other scarce resources are also difficult, and the scope for new markets is limited. Since 1989, most economies, with the exception of North Korea, have become integrated into the global trading system.

No major technological changes and innovations are not on the horizon. In his 2012 paper for the National Bureau of Economic Research, entitled Is US Economic Growth Over? Faltering Innovation Confronts the Six Headwinds, the economist Robert Gordon argues that the rapid growth and improvements in living standards achieved since 1750 were driven by three phases of industrial revolution: steam engines; electricity, internal combustion engines, modern communication, entertainment, petrol and chemical, and computing.

He finds that the second phase had the greatest impact on productivity and living standards. To the consternation of the i-generation, Mr Gordon argues that the third phase, while important, created only a short-lived improvement in productivity.

The replacement of repetitive low-value tasks by technology was undertaken primarily in the 1970s and 1980s. The third phase of industrial revolution did not fundamentally transform productivity, but rather improved existing technologies, enhancing capability, power and miniaturisation. Many recent innovations also centred on entertainment and communication devices.

Mr Gordon argues that many of the achievements are non-repeatable, citing higher life expectancy, urbanisation, better food production, clean water, sanitation, faster transportation, increased female participation in the work place, and temperature control to aid productivity in challenging climates.

In recent times, productivity increases, especially the change in output per unit of combined capital and labour, have slowed. Easy gains from outsourcing production to lower-cost jurisdictions or cutting back on staff have already been achieved.

Many new products and productivity measures reduce the number of workers needed, but employment and income levels are not significantly boosted. Given consumption makes up 60 to 70 per cent of economic activity in developed economies, the impact on growth is limited.

The prospect for innovation is also affected by educational levels and funding for research. Scientific research funding has declined in real terms in many nations. As a result, the focus has shifted away from uncertain but potentially ground-breaking research towards safer proposals likely to receive funding. Heavy investment in pure research and development in basic science, such as that undertaken by the Bell Labs and Xerox's Palo Alto Research Centre, is less prevalent today.

Innovation and productivity increases will remain important, but they may not be enough to restore growth to the stellar levels of the 20th century. The challenge now is to create more sustainable growth, replacing the debt-fuelled consumption and investment that has driven global economies for the last 30 years.

The problems we face are both old and new – improving crop yields; developing cheap, sustainable sources of energy; conserving oil, water and other scarce commodities; and using what we have more efficiently. Solving them will require an adjustment in expectations as we adapt to lower growth and lower living standards.

Satyajit Das is a former banker and the author of 'Traders, Guns & Money' and 'Extreme Money'

VIDEO
Life & Style
Father and son: Michael Williams with son Edmund
lifeAs his son’s bar mitzvah approaches, CofE-raised Michael Williams describes the unexpected joys he’s experienced in learning about his family’s other faith
Arts & Entertainment
Ian Anderson, the leader of British rock band Jethro Tull, (right) and British guitar player Martin Barre (left) perform on stage
musicJethro Tull frontman leads ‘prog rock’ revival
Sport
Gareth Bale dribbled from inside his own half and finished calmly late in the final to hand Real a 2-1 win at the Mestalla in Valencia
sport
Arts & Entertainment
Who laughs lass: Jenny Collier on stage
comedy... writes Jenny Collier, the comedian whose recent show was cancelled because there were 'too many women' on the bill
News
House proud: keeping up with the Joneses now extends to children's playhouses
newsLuxury playhouses now on the market for as much as £800
News
news
Life & Style
Stir it up: the writer gets a lichen masterclass from executive chef Vivek Singh of the Cinnamon restaurants
food + drinkLichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines
Extras
indybest
Arts & Entertainment
Ken Loach (left) and Mike Leigh who will be going head to head for one of cinema's most coveted prizes at this year's Cannes Film Festival
filmKen Loach and Mike Leigh to fight it out for the Palme d'Or
News
The academic, Annamaria Testa, has set out on her website a list of 300 English words that she says Italians ought to stop using
newsAcademic speaks out against 'Italianglo' - the use of English words in Italian language
Life & Style
tech
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics

Is sexual harassment a fact of gay life?

Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics
Moshi Monster creator Michael Acton Smith: The man behind a British success story

Moshi Monster creator Michael Acton Smith

Acton Smith launched a world of virtual creatures who took the real world by storm
Kim Jong-un's haircut: The Independent heads to Ealing to try out the dictator's do

Our journalist tries out Kim Jong-un's haircut

The North Korean embassy in London complained when M&M Hair Academy used Kim Jong-un's image in the window. Curious, Guy Pewsey heads to the hair salon and surrenders to the clippers