We all get caught up in the day-to-day activities of work and life but have you really stopped to think about how extraordinary your life is? Don’t worry, I’m not about to do one of those self-help/motivational rants but I do want to make the point that we may be in the middle of a economic development bubble if we don’t address the biggest innovation challenge that is confronting all of us.
The long-term growth in world GDP per capita is a confronting chart. I first saw this in Eric Beinhocker’s book “The Origin of Wealth”. Really, nothing happened until the 18th century and then there has been an increasing rate of GDP growth that really takes off with the industrial revolution. This is the chart from “Origin of Wealth”.
We are living in extraordinary times and it’s very easy to take this development for granted. As Beinhocker puts it even more succinctly:
…over 97 percent of humanity’s wealth was created in just the last 0.01 percent of our history. As the economic historian David Landes describes it, “the Englishman of 1750 was closer in material things to Caesar’s legionanaires than to his own great-grand children.”
The trouble with this rate of growth is that it is both amazing and disconcerting at the same time. If I showed a curve like that to a finance colleague they might say that it looks like a market bubble. If I think back to the ecology classes in my science degree it looks like the population curve of a species that goes through boom and bust cycles.
Since the 18th century this growth has been underpinned by the use of finite fossil fuels, particularly coal and oil. There is a very close relationship between GDP and energy consumption and while economies are slowly becoming less energy intensive, this relationship is largely intact. The biggest innovation challenge of all is decoupling fossil fuel consumption from GDP growth. Food and water might be constraints to growth as well but these can be overcome with energy.
Energy Consumption and Economic Growth (The Economist)
The first energy crunch in the middle of the 17th century was due to the loss of forests around cities that provided wood. The winners were the nations and towns that could find and extract coal to power development.
The winners of the next energy crunch may not be the nations that own resources. Instead, it will be the innovators who can restructure economies to break the relationship between fossil fuel consumption and economic development.
