Austerity versus the march of technology – an economist’s perspective

Catch-up growth

This is indeed the normal prescription – it is known as “catch-up growth”. We know how to do certain things, they are not using that knowledge, and they would be richer if they did as we do. But the process of becoming richer ourselves is slower.

Poor places can grow at 7% or 8% a year, as Bangladesh and even Ethiopia are doing currently – something the UK has never managed. For all that the Industrial Revolution started here, the UK has always been at the outer edge of the technological envelope. We have been making it up as we go along, that is, rather than being able to observe somewhere much richer than we are and the lightbulb moment being to copy them.

A possible example is a recent complaint about baby banks. Based along the lines of food banks, we richer people drop off used baby stuff to be picked up by less well-off people. We can, as is being complained about, consider all this just another example of the disgusting nature of Tory austerity. Or we might, as an economist, consider this as a new technological approach to an old problem.

How do we swap things around? A pencil sketch of economic history would have us doing so within the family – a division of labour into hunters and gatherers, perhaps. Over time, the group we swap with gets larger – to a clan, a village perhaps, or the area around a market town, and so on, until we reach the current global division of production and consumption. Various types of our technology have to be invented along the way – transport systems, communication methods, money, legal systems allowing impersonal exchange, and so on.

Hand-me-downs

So what’s with the baby bank? Hand-me-downs have always existed outside the confines of the very rich indeed. Prams, for one example, quite obviously have a year or two’s use per child. Back in the days of greater fertility, the one pram might stay in just the one family, or move among the female members of an extended one.

Choose your historical moment for this, but living memory would have the intermediation of ads in newsagents’ windows or local newspapers, for the passing on of such an essential piece of capital equipment for the raising of a child.

In modern times, it’s down to many fewer children per woman, or greater population mobility fraying those extended families, perhaps. But it is also down to new types of our technology. One of the current apps being promoted heavily is Shpock – the self-styled “boot sale app” – which is perhaps a paid market version of Freecycle, or an electronic version of the newsagent’s window, depending on your perspective. One of the ads particularly shows how that pram is sold on after the 2.4 kids have been weaned.

 So we still have that always extant market in passing on the hand-me-downs, we’re just using a different tool to do it, namely the mobile phone and some cute code.

To the economist, this is economic growth. Not just that we are monetising what previously happened for free, but because we are achieving our task – the allocation of resources – in a more efficient manner. We have discovered a new method which is better. That is another reason why rich-country economic growth is so slow, because it’s difficult to cast around for a more efficient method.

Economics or austerity?

At which point, we come to something more political, possibly more controversial. Consider those food banks already mentioned. Are they, as with the baby banks, just a new method of dealing with an old problem, an old activity?

No one who lived through the 1980s is going to say that the welfare state has always delivered adequate money on time to those who need it. So, is the rise of the Trussell Trust and the like because here is a new and more efficient method of solving that old hunger problem? Or is it all an outcome of Tory austerity and neo-liberalism?

The answer is entirely up to you. It is, however, a useful way of illustrating how the economist views technology. Yes, any and every method of doing something is a technology. Economic growth happens when we either move to a more efficient method of doing what we’ve always done, or find we can do new things over and above those age-old activities.

But the technology isn’t quite what we all think it is. To the economist, what we do is make the tools that allow the technology itself. Because tech is the method of doing something, not the things we use to do it.

Shpock is definitely a technology, as is Freecycle. Baby banks might also be one, rather than a reflection of the ills of our society. Food banks? Well, it’s up to you.