Knowledge Gives Power

A subjective approach is necessary to discover the reason why humans develop what was hitherto undeveloped. They put to use something that was not used previously. They make more productive use of things that were used less productively before. This cannot happen without new knowledge, whose application appears as an innovation.

If one takes an objective approach, one looks at the stock of endowment of productive factors and inevitably sees the necessity of natural resources. Then one is compelled to look for natural laws (=mechanisms) to find a cause of development in some natural process. The objective approach, as found in the Malthusian theory of population, is doomed to failure on epistemic grounds. It is looking for something that does not exist (e.g. mechanism), and it is not looking for what exists (e.g. rational choice, creative freedom of choice).

Consider the following transitions, each qualified as an episode of development:

z from natural forager economy to the pastoral, z from pastoral to (traditional) agrarian; z from agrarian to (modern) industrial; and

z from industrial to post-industrial information economy.

For each transition, some new knowledge is both necessary and sufficient. The natural economy of the foragers (=gatherers and hunters) offers the smallest possible output per person. Humans are already more advanced than their primate cousins in the natural economy, by virtue of

their ability to make tools and use the energy of fire. But it is biological, and not economic development.

When they discovered that they could keep cattle and poultry to produce food for them far in excess of what would be forthcoming naturally, they made the first transition to the pastoral economy. They were now able to use hitherto unused grasslands, and get much enlarged supplies of meat, milk, egg, blood and even usable hides. Other primates simply never got the idea.

The second transition is from the pastoral to the agrarian. Already in the later stage of the pastoral economy, people must have made much greater use of fire to roast meat. The regular use of fire was a precondition to discover pottery, without which the transition to agriculture would be impossible. Humans are large-bodied animals that in a state of nature simply cannot take small grains as a regular source of food, especially if the grains are not readily edible. Knowledge of fire, pottery, and cooking was necessary to make the transition to grain consumption and production.

Seemingly, a primitive type of horticulture was invented by pastoral women, who were now less mobile than in forager eras. This was a new knowledge essential for the transition to agriculture. The floodplains had formerly not been used by humans, but they now became their chosen habitat.

The transition to agriculture completely severed the nomadic past from the sedentary life. People now must make houses and granaries, and raise standing armies to defend the crop land, the cattle, and granaries. It was a massive revolution with an explosion of new innovations in every field of human endeavor.

The next transition is to modern industrialization. Traditional agrarian economy already has industry, but it uses manual energy of man and beast. It uses simple manual tools. Modern industry uses natural energy to run complex machines. Modern industry is based on the use of natural energies that were not used before. Without the knowledge to make machines and harness natural energies, this transition could not occur.

The next transition is underway in the developed nations. In it, machines are run by other machines or mostly, by themselves, so that no human operator is needed. This comes from an explosion of knowledge about automation, which is linked to the use of 'information' in a mechanical sense.

The key theme is that in each transition, the driving force is new knowledge. It is embodied in two forms of capital. The human capital absorbs new knowledge to become more skilled. The physical capital absorbs new knowledge through new designs of machines and tools and methods.

None of the transitions are linked to natural resource. Indeed, one must agree that the stock of natural resource on a global scale is pretty much a constant throughout the several transitions. The change in human knowledge enables them to use hitherto unused resources. Without new knowledge, natural resources other than readily edible food are useless.

In each case, knowledge is both necessary and sufficient to lead to the transition. Knowledge that lets one increase value cannot be rationally wasted. That is why it is sufficient to entail transitions.

The objectivist approach does not see the necessary and sufficient role of new knowledge. It therefore cannot figure out why humans become richer and richer without any real increase in natural resources. The principal source of the trouble in the objectivist approach may be called the fallacy of unreachable boundary. The objectivist approach thinks that natural resources are necessary to produce material goods, and that the stock of such resources is fixed. It therefore worries that humans will be unable to produce more than what the available stock of natural resources can support. It finds that development is stalled at the boundary of natural resources.

The reality is that human beings use reason to avoid having to reach the boundary. So far, natural resource has not been a constraint. There is no reason to believe that it will ever become a constraint. Indeed, the post-industrial economy is already in retreat from the boundary, because natural resource has a negative impact on growth.

The first retreat from the boundary occurs by way of attaching a scarcity premium. For example, the planet has a small quantity of gold and it is simply not possible for every human to have a large amount of gold. But the market economy attaches a higher price to a more scarce object. The price of gold is so high that most people can simply live without it.

The point is not that gold is unnecessary, but that the necessity is curtailed by a rational approach to limit its use to avoid hitting the boundary. Virtually everything has a substitute. The humans are out to find them, and thus avoid hitting the boundary of any particular kind of natural resource.

One may point to the necessity of food. Surely, people cannot stay alive without food. The answer is that the available cultivable land is able to feed as many as 60 billion people, 10 times the current population, provided that the best practice is used.

In reality, less than half of the perfectly cultivable land is in use, and less than one-third of the land in use employs best practice. There is simply no chance that the human population will ever reach anywhere near 60 billion. Indeed, they may never reach even 15 billion. The reason again is that industrial development compels people to raise fewer children than in the agrarian economy.

The evidence is crystal clear: every developed country, without exception, has a fertility rate below replacement (See Chesnais 1992) With economic development, the developing nations must inevitably reduce fertility. The cost of raising children with skills necessary for their employment in post-industrial society compels low fertility.

The objectivist approach also fails to ponder the mystery of life. Without a natural abundance of air, water, and food, animals that must have these elements could not evolve and survive at all. One also must look at the natural reproductive strategy. The large bodied animals use the strategy of raising a few long-lived large-sized offspring while the small bodied creatures lay large number of eggs for small-sized short- lived ones.

The so-called k-strategy of reproduction of a small number of children is a clear natural mechanism to retreat from the boundary. Added to this is human reason. The natural human fertility rate is about 12.4 children per mother. Long before modern contraceptives were available, human fertility was less than 1/3 to ½ of the natural fertility. (See Chesnais 1992). With modern contraception, people are reducing fertility rates below replacement.

Although it is natural for agrarian and pre-agrarian communities to have both high fertility and high mortality, the rapid spread of antibiotics etc has suddenly reduced mortality and led to very fast expansion of population. But the retreat is already at work. Developing nations are showing spectacularly rapid declines in fertility. Singapore achieved a fertility reduction in 30 years which France took more than 230 years to achieve. Even Bangladesh has achieved a very fast decline, despite being a rural country.

Parity-specific birth control is ordinarily irrational under traditional agriculture. In such an economy, the cost of raising a human child is not

much more than the cost of raising a calf. Given the high mortality rate, a low fertility would lead to extinction. In short, there is a rational approach to prevent an animal population from hitting the boundary.

Among humans, there is conscious cultural process to avoid hitting the boundary. Economic processes reinforce the cultural forces of retreat. Urban dwellers actually violate religious codes to adopt birth control measures.

The irrelevance of natural resource is an analytical proposition. Unless it becomes a constraint, it is irrelevant in a theory of development. However, the somewhat pervert case of natural resource becoming an impediment to growth must be explained. This is a special case only for post-industrial economy.

The cost of labor is very high in a post-industrial economy. It is dominated by an immense variety of services. Most material production is done by automated machines of enormous productivity. In this situation, the collection of natural resources scattered far away from each other imposes a labor cost so high that it actually reduces the value of total output.

Consider a very simple example even from a pre-industrial economy like Bangladesh. A small sample taken by this author in 2000 showed that fisherman use natural resource of the Titas river to earn about 55 taka a day, while the same person could earn as much as 115 taka a day by giving rickshaw rides to city folks in the nearby city. Urban buyers tend to arrive at the fish market in rickshaws, and take a rickshaw ride back home. If they wanted, they could walk to and from the bazaar and spend the same money to buy more fish, but they ride the rickshaw.

In this case, the allocation of labor to the gathering of natural resource (=fishing) imposes a net loss of productivity compared to the alternative use of the labor in providing services (=driving rickshaws). An objectivist disregards human preferences and thinks about the natural need to eat fish rather than waste income on frivolous rickshaw rides.

6.4.2.2 Waiting

The next subjective element in the development process involves waiting. It is the foundation of capital accumulation. People may decide to work today, but not consume the output. One waits by building human and physical capital. The fisherman may spend time making a net. An urban clerk's son may spend a decade or more to learn skills before

joining the labor force. The objectivist approach ignores this waiting. It instead complains that people are destroying the future by overconsuming now.

Capital is a reproduced means of production by virtue of waiting. The objectivist view overlooks this essential factor. Instead, it wants to see natural resource, which is irrelevant. The emphasis has moved away from the verb 'invest' to the verb 'sustain'.

The element of expectation is crucial in organizing a reallocation of labor and capital. The fisherman eventually discovers an opportunity to use labor to drive a rickshaw for higher income. He overcomes the resistance of tradition, gives up the ancestral profession and abode to go to the town to become a rickshaw driver. This cannot happen if one does not expect the demand for rickshaw rides to persist. Expectation affects the waiting behind the capital formation.