Why Factories Aren't Efficient

Last week’s Archdruid Report post fielded a thoughtful response from peak oil blogger Sharon Astyk, who pointed out that what I was describing as America’s descent to Third World status could as well be called a future of “ordinary human poverty.” She’s quite right, of course. There’s nothing all that remarkable about the future ahead of us; it’s simply that the unparalleled abundance that our civilization bought by burning through half a billion years of stored sunlight in three short centuries has left most people in the industrial world clueless about the basic realities of human life in more ordinary times.

It’s this cluelessness that underlies so many enthusiastic discussions of a green future full of high technology and relative material abundance. Those discussions also rely on one of the dogmas of the modern religion of progress, the article of faith that the accumulation of technical knowledge was what gave the industrial world its three centuries of unparalleled wealth; since technical knowledge is still accumulating, the belief goes, we may expect more of the same in the future. Now in fact the primary factor that drove the rise of industrial civilization, and made possible the lavish lifestyles of the recent past, was the recklessness with which the earth’s fossil fuel reserves have been extracted and burnt over the last few centuries. The explosion of technical knowledge was a consequence of that, not a cause.

In what we might as well get used to calling the real world – that is, the world as it is when human societies don’t have such immense quantities of highly concentrated energy ready to hand that figuring out how to use it all becomes a major driver of economic change – the primary constraints on the production of wealth are hard natural limits on the annual production of energy resources and raw materials. Even after two billion years of evolutionary improvements, photosynthesis only converts about one percent of the solar energy falling on leaves into chemical energy that can be used for other purposes, and that only when other requirements – water, soil nutrients, and so on – are also on hand. Other than a little extra from wind and running water, that trickle of energy from photosynthesis is what a nonindustrial society has to work with; that’s what fuels the sum total of human and animal muscle that works the fields, digs the mines, wields the tools of every craft, and does everything else that produces wealth. This, in turn, is why most people in nonindustrial societies have so little; the available energy supply, and the other resources that can be extracted and used with that energy, are too limited to provide any more.

The same sort of limits apply to the contemporary Third World, though for different reasons. Here the problem is the assortment of colonial and neocolonial arrangements that drain most of the world’s wealth into the coffers of a handful of industrial nations, and leave the rest to tussle over the little that’s left. I’ve commented here before that the five percent of the world’s population that happens to live in the United States, for example, doesn’t get to use roughly a third of the world’s resources and industrial production because the rest of the world has no desire to use a fairer share themselves. Rather, our prosperity is maintained at their expense, and until recently – when the current imperial system began coming apart at the seams – any Third World country that objected too strenuously to that state of affairs could pretty much count on having its attitude adjusted by way of a coup d’etat or "color revolution" stage-managed by one or more of the powers of the industrial world, if not an old-fashioned invasion of the sort derided in Tom Lehrer’s ballad "Send the Marines."

One consequence of all this is that over the last century or so, a handful of insightful thinkers have tried to explore ways in which the cycle of exploitation and dependency can be broken. One of those was the maverick economist E.F. Schumacher, whose ideas have been central to quite a few of the posts here over the last year or so.

Though he had degrees from Oxford and taught for a while at Columbia University, Schumacher was not primarily an academic; he was the polar opposite of those ivory-tower economists who have done so much damage to the world in recent decades by insisting that their theories are the key to prosperity even when the facts argue forcefully for the opposite case. He spent most of his career working in the places where government and business overlap, helping to rebuild the German economy after the Second World War and then, for two decades, serving as chief economist for the British National Coal Board, at that time one of the world’s largest energy corporations. This was the background he brought to bear on the problems facing the Third World. Still, he drew some of his central ideas from a very different source: the largely neglected economic ideas of Gandhi.

(May I interrupt this post to address a pet peeve? The family name of the founder of modern India is spelled "Gandhi," not "Ghandi." It’s not that difficult to spell it right, any more than it’s hard to avoid writing "Abraham Lcinoln," say, or "Nelson Mdanela;" despite which, I recently got sent a review copy of a book referencing Gandhi – I won’t mention the publishers, to spare them the embarrassment – which misspelled the name on the top of every single page. If you need a mnemonic, just remember that the beginning of his name is spelled like "Gandalf," not like "ghastly." Thank you, and we now return you to your regularly scheduled Archdruid Report.)

A lot of Americans – even, ahem, those who can spell his name correctly – think of Mohandas K. Gandhi as a spiritual leader, which of course he was, and as a political figure, which of course he also was. It’s not as often remembered that he also spent quite a bit of time developing an economic theory appropriate to the challenges facing a newly independent India. His suggestion, to condense some very subtle thinking into too few words, was that a nation that had a vast labor force but very little money was wasting its time to invest that money in state-of-the-art industrial plants; instead, he suggested, the most effective approach was to equip that vast labor force with tools that would improve their productivity within the existing structures of resource supply, production and distribution. Instead of replacing India’s huge home-based spinning and weaving industries with factories, for example, and throwing millions of spinners and weavers out of work, he argued that the most effective use of India’s limited resources was to help those spinners and weavers upgrade their skills, spinning wheels, and looms, so they could produce more cloth at a lower price, continue to support themselves by their labor, and in the process make India self-sufficient in clothing production.

This sort of thinking flies in the face of nearly every mainstream economic theory since Adam Smith, granted. Since nearly every mainstream economic theory since Adam Smith has played a sizable role in landing the industrial world in its current mess, though, I’m not so sure this is a bad thing. Current economics dismisses Gandhi’s ideas on the grounds of their "inefficiency," but this has to be taken in context, "efficiency," in today’s economic jargon, means nothing more or less than efficiency in producing somebody a profit. As a way of keeping millions of people gainfully employed, stabilizing the economy of a desperately poor nation, and preventing its wealth from being siphoned overseas by predatory industrial nations, Gandhi’s proposal is arguably very efficient indeed – and this, in turn, was what brought it to the attention of E.F. Schumacher.

One of Schumacher’s particular talents was a gift for intellectual synthesis; his work is full of cogent insights that sum up a great deal of more specialized work and make it applicable to a wider range of circumstances. This is more or less what he did with Gandhi’s ideas. Schumacher argued that talk about "developing" the Third World typically neglected to deal with one of the most pragmatic issues of all – the cost of setting up workers with the tools they needed to work.

Take a moment to follow the logic. You are the president of the newly independent Republic of Imaginaria. You’ve got a population that’s not particularly well fed, clothed, and housed, and a fairly high unemployment rate; you’ve got a very modest budget for economic development; you’ve also got raw materials of various kinds, which could be used to feed, clothe, and house the Imaginarian people. Your foreign economic advisers, who not coincidentally come from the industrial nation that used to be your country’s imperial overlord, insist that your best option is to use your budget to build a big modern factory that will turn those raw materials into goods for export to their country by their merchants, giving your country cash income to buy goods from them, and in the process employ a few thousand Imaginarians as factory workers.

Not so fast, says Schumacher. If your goal is to feed, clothe, house, and employ the Imaginarian people, building a factory is a very inefficient way to go about it, because that approach requires a very large investment per worker employed. You can provide many more Imaginarians with productive jobs for the same amount of money, by turning to a technology that’s less expensive to build, maintain, and supply with energy and raw materials – say, by providing them with hand tools and workbenches instead of state-of-the-art fabrication equipment, and setting up supply chains that supply them with local raw materials instead of imports from abroad. The goods those workers produce may not be as valuable in the export market as what might come out of a factory, but that’s not necessarily a problem – remember, your main goal is to feed, clothe, and house Imaginarians, so maximizing production for domestic use is a better idea in the first place, since less of the value produced by those workers will be skimmed off by the middlemen who manage international trade. Furthermore, since you won’t have to to trade with overseas producers for as many of the necessities of life, your need for cash from overseas goes down, and you get an economy less vulnerable to foreign-exchange shocks into the bargain.

This was the basis for what Schumacher called "intermediate technology," and the younger generation of activist-inventors who followed in his footsteps called "appropriate technology." The idea was that relatively simple technologies, powered by locally available energy sources and drawing on locally available raw materials, could provide paying jobs and an improved standard of living for working people throughout the Third World. A lot of very productive thinking went into these projects, and there were some impressive success stories before the counterrevolution of the 1980s cut what little funding the movement had been able to find. Mind you, Schumacher’s thinking was never popular among economists or the business world, and it happened more than once that countries that tried to adopt such economic policies were treated to the sort of attitude adjustments mentioned above. Still, pay attention to those Third World nations that have succeeded in becoming relatively prosperous, and you’ll find that some version of Schumacher’s scheme played a significant role in helping them do that.

It’s when the same logic is applied to the industrial world, though, that Schumacher’s ideas become relevant to the project of this blog. If, as I’ve suggested, the United States (and, in due time, the rest of the world’s industrial nations) have begun a descent to Third World status, thinking designed for the Third World may be a good deal more applicable here and now than the conventional wisdom might suggest. It seems utterly improbable to me that the governments of today’s industrial powers will have the foresight, or for that matter the common sense, to realize that economic policies that deliberately increase the number of people earning a living might be a very good idea in an age of pervasive structural unemployment – or, for that matter, to glimpse the unraveling of the industrial age, and realize that within a finite amount of time, the choice will no longer be between high-tech and low-tech ways of manufacturing goods, but between low-tech ways and no way at all. Still, national governments are not the only players in the game.

What Schumacher proposed, in fact, is one of the missing pieces to the puzzle of economic relocalization. The economies of scale that made centralized mass production possible in recent decades were simply one more side effect of the vast amount of energy the industrial nations used up during that time. As fossil fuel depletion brings those excesses to an end, the energy and other resources needed to maintain centralized mass production will no longer be available, and what I’ve described above as the economics of the real world come into play. At that point, the question of how much it costs to equip a worker to do any given job becomes a central economic issue, because any resources that have to go to equipping that worker must be taken away from another productive use.

Now of course it’s true that the cost of equipping somebody to perform some economic function locally has already entered the relocalization movement in an informal way. What Rob Hopkins calls "the great reskilling" – the process by which individuals who have no productive skills outside a centralized industrial economy learn how to make and do things on their own – has had to take place within the tolerably strict constraints of what individuals can afford to buy in the way of tools and workspaces, since there isn’t exactly a torrent of grant money available for people who want to become blacksmiths, brewers, boatbuilders, or practitioners of other useful crafts.

It may be worth suggesting, though, that Schumacher’s logic might be worth applying directly to the relocalization project by those individuals and communities who are willing to put that project into practice. The less it costs in terms of energy and other resources to prepare a community to deal with one or more of its economic needs, after all, the more will be available for other projects. Equally, the more good ideas that can be garnered from the dusty pages of publications issued by Schumacher’s Intermediate Technology Development Group and its many equivalents, and put to work during the industrial world’s decline to Third World status, the more creativity can be spared for other challenges.

Yet there’s also a broader context here, which Schumacher addressed only indirectly, and which has only been hinted at in this post – the need to redefine our notions of economics to make sense in the real world, and above all, to respond to the most economically important of the laws of physics. Yes, those would be the laws of thermodynamics. We’ll talk more about this in next week’s post.