Living Standards and Capitalism in Relation to the Biosphere
Chapter 1: Living Standards, Technological Progress, Capitalism and the Biosphere
Learning Outcomes
Understanding how living standards are measured.
Comprehending the evolution of living standards over time.
Identifying reasons for sustained increases in living standards.
Analyzing technological progress.
Examining capitalism and its implications.
Exploring the relationship between economic activity and the biosphere.
Outline
How do we measure living standards?
How have living standards evolved over time?
How can we explain the observed changes in living standards?
3.1 Industrial Revolution
3.2 Malthusian model
3.3 Capitalism
3.4 Varieties of capitalismThe economy and the biosphere
1. How Do We Measure Living Standards?
Historical Context:
Initial differences in living standards across regions were minimal.
Notable exploration by Ibn Battuta (1304–1368) revealed the abundance of resources, e.g., rice in the Indian subcontinent when Europe was suffering from the bubonic plague.
In the past, living standards across regions were relatively flat, with minimal economic disparity.
Socioeconomic Disparities:
Significant contrasts existed between different social classes: feudal lords vs. serfs; royalty vs. subjects; enslaved individuals vs. owners.
One’s social and economic prospects heavily depended on parental status.
Evolution of Measurement:
Living standards measurements have advanced from anecdotal observations by explorers to quantifiable data analyzed by various professionals including statisticians, historians, economists, and computer scientists.
Economists employ data to better understand and improve living standards.
GDP Per Capita as a Measure:
Definition: Gross Domestic Product (GDP) is the market value of final goods and services produced in an economy over a period.
It excludes intermediate goods to avoid double counting (e.g., wood sold is not counted twice).
Example:
GDP of Belgium in 2023 was $632 billion.
To find GDP per capita:
ext{GDP per capita} = rac{ ext{GDP}}{ ext{Total population}} = rac{632,000,000,000}{11,712,893} ext{ (approx.)}
ightarrow 54,000 ext{ dollars/person}.
Utility & Limitations of GDP:
Informative aspects:
High GDP indicates substantial production of necessities and luxuries.
Correlation exists between GDP per capita, life expectancy, and individual satisfaction.
Limitations:
Fails to account for inequality among individuals.
Overlooks depletion of natural resources.
Life Satisfaction Analysis:
There exists a correlation between GDP per capita and life satisfaction, indicating wealth's impact on subjective well-being.
Data Source: Penn World Table 6.2; Gallup World Poll.
Graphical representation indicates a relationship with life satisfaction derived from GDP per person at Purchasing Power Parity (PPP).
Non-Monetary Aspects of Well-Being:
Important factors overlooked by GDP include:
Quality of social and environmental contexts (e.g., safety, friendships, clean environment).
Availability of leisure time.
Value of household-produced goods/services (e.g., meals, childcare).
Inequality Example:
Consider a group of 100 with fair GDP, all producing €5,000.
Total GDP remains the same even when productivity levels differ across segments altering social structures and inequalities.
Environmental Considerations:
Overlooked by GDP: environmental detriments due to economic activity.
Example: Cutting down forests increases GDP but diminishes quality of life and environmental benefits.
2. How Have Living Standards Evolved Over Time?
Historical Overview:
Example: GDP trends indicate consistent growth forming a ‘hockey stick’ pattern where initial stagnation transitions to rapid growth post-Industrial Revolution.
Historical data reflects significant divergence of GDP across countries during various periods (e.g., Britain, Japan, Italy).
Another visualization highlights global GDP per capita growth from 1757 to 2018.
Implications of ‘Hockey Stick’ Pattern:
Historical consistent non-growth shifted to sustained growth, revealing increases in living standards over time, leading to wider gaps between countries.
Current Living Standards Analysis:
Notable income disparities remain evident worldwide, as demonstrated by average daily incomes across various countries, revealing stark differences in living conditions.
3. How Can We Explain the Observed Changes in Living Standards?
3.1 The Industrial Revolution and the Upward Kinks in the GDP Hockey Sticks
Key Definition:
Industrial Revolution: A transformative period starting in Britain during the 18th century characterized by technological advances moving from agricultural economies to industrialized economies.
Technological Progress:
Defined as advancements that enable the same or greater output with diminished resources.
Post-Revolution Dynamics:
Rapid progression post- Industrial Revolution, especially in information processing and digital communications.
Significant increases in global internet users exemplifying broader technological accessibility and economic growth opportunity.
3.2 The Malthusian Model and the Flat Part of the GDP Hockey Sticks
Malthusian Concept:
Introduced by Thomas Malthus in 1798. Suggests that technological advancements do not significantly raise living standards due to counterbalancing population growth.
Model Representation:
Simplified representation indicates reliance on labor and land for agricultural output. An observed diminishing average product of labor indicates stagnated living standards.
Predictions of Malthus's Model:
Improvements in technology do not provide sustainable uplift in living standards if they lead to population growth outpacing resource improvements, reinforcing Malthus’s Law as a sobering economic observation.
3.3 Capitalism, Technology and Economic Growth
Defining Capitalism:
An economic system rooted in private property, markets, and firms—subject to specific institutions regulating social interactions and economic transactions.
Characterization of Capitalism:
Distinct from centrally planned economies where the government controls production and distribution processes and slave economies reliant on coerced labor.
Institutional Characteristics of Capitalism:
Private Property:
Right of ownership enabling individuals to control their resources and decide their utilization (e.g., sale, disposal).
Markets:
Mechanisms for buying and selling goods/services, emphasizing voluntary and reciprocal exchanges that drive economic efficiency.
Firms:
Organizational structure for production focused on profit maximization; rely on labor supply, capital, and market engagement for operational success.
Mechanisms Enhancing Living Standards through Capitalism:
Accelerates:
Technological advancements, due to competitive pressures within markets.
Specialization of labor, enhancing productivity.
Flexibility, allowing firms to adapt operations and workforce efficiently.
Transition Analysis:
Shift from agriculture to industrialization post-Industrial Revolution, confirming that the capitalist model significantly improved living standards.
3.4 Varieties of Capitalism and Living Standards
Analysis of diverse capitalist frameworks and their impacts on living standards.
Noteworthy dependencies include secure private property, competitive markets, regulatory institutions, and legal systems.
4. The Economy and the Biosphere
Economics Intersection with Ecology:
Economic interactions are rooted in natural environmental management, including production and consumption implications for the biosphere.
Consequences of Economic Activity on Biosphere:
Patterns of CO2 Emissions demonstrate correlations with GDP growth, reflecting the environmental costs of economic expansion.
Presentation of climate change consequences, such as melting ice caps and rising sea levels, necessitating ethical considerations in economic practices.