If we play our cards right we could weave a new future for ourselves

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For this, my last column of the year, I am in optimistic mode.

(Don’t worry; normal service that is to say, lashings of gloom and doom about the immediate outlook will be resumed in the New Year.) Today, I want to discuss the prospects for long-term increases in productive capacity. This may seem arcane, but it isn’t. It holds the key to prospects for living standards and much else besides.

Not so long ago, it would have seemed incredible that this was up for discussion. My own generation, when we were young, didn’t entertain any doubts.

We regarded it as axiomatic that people would get much better off year after year. Yet most of economic history has been one long non-event, with living standards very nearly static from one decade to the next until about 1500.

Then came a series of changes that saw economic growth set in slowly at first but then gathering pace, culminating in what we call the Industrial (Santiago: INDUSTRIAL.SN - news) Revolution. In the decades after the Second World War, productivity and average living standards here grew by about 2pc per annum, and at broadly similar rates elsewhere in the west.

More recently, of course, living standards have been falling. And many people now feel gloomy about the future including some distinguished economists.

The gathering idea is that the last two or three hundred years have been an aberration and that we are returning to the prior state of mankind. So no American dream. In fact, no dream anywhere from Sorrento to Scunthorpe.

There are three broad strands to this pessimism. The first concerns the rise of Asia . On this subject, I despair of the chattering classes. They think of economic life as a game of winners and losers.

As far as relativities are concerned, it is, of course, true that as Asia goes up then we must go down. But not in regard to absolutes.

The fact that China et al are going to become more prosperous does not necessarily mean that we are going to become worse off. On the contrary, the growth of markets that their development promises, and the increased global specialisation that it makes possible, offer the prospect of increased prosperity.

The second source of pessimism concerns limited resources. Unfortunately, the resource that is most relevant here is the limited space for this column. Suffice it to say that I have never accepted the view that we are soon facing resource, or energy, crunch time.

The great 19th century economist William Jevons once forecast the end of industrial growth on the grounds that we would soon run out of coal. This set the scene for more than a century of bad forecasting by economists. We didn’t run out of coal. And anyway, it became of much less relevance. Fracking for shale gas is the latest manifestation of the tendency for human ingenuity and the abundance of the earth to trump the pessimists.

The third reason for pessimism is the idea that over the last two or three hundred years we have enjoyed a series of one-off technological inventions and discoveries the like of which cannot be repeated steam power and the internal combustion engine, electricity, air travel. By contrast, the recent equivalents hardly stand comparison. According to the sceptics, the internet is not much more than a way of distracting ourselves and endlessly recycling the banal, the indecent and the libellous.

Yet why should the wellsprings of human ingenuity have run dry or its effects now be of such little benefit? The fact that the statisticians cannot yet find much evidence of the benefits of recent technological advances is inconclusive. They would have been readily capable of missing the significance of Caxton’s printing press if they had bumped into it in the street.

By contrast, I can think of two good reasons why the pace of technological advance may be faster in future. Computers and their linking through the internet have wrought a revolution in the world of research and discovery. They have made technological advance easier to achieve and, because of quick and widespread dissemination, likely to have greater and more widespread impact.

Second, until recently, a huge proportion of mankind including people in the country that was the technological leader for much of human history, namely China was excluded from the mainstream. Now, by contrast, the Chinese, and billions of other people previously excluded, are fully connected.

It is easy to be pessimistic about our future. We are currently weighed down by acute difficulties about private and public sector indebtedness and the associated shortage of aggregate demand. This has spilled over into a profound pessimism about our medium-term economic future. That sort of pessimism is unjustified. Grim though the next few years look, if we play our cards right the next few decades could bring economic growth and improved living standards beyond our imagining.

Enjoy my optimism while you can. And enjoy your turkey while it lasts. Both are in limited supply.

Roger Bootle is managing director

of Capital Economics.

roger.bootle@capitaleconomics.com