At the end of their article, Are Ideas Getting Harder to Find? (2020), Nicholas Bloom, et al. Begin to draw some conclusions, thus (p. 1134):
The evidence presented in this paper concerns the extent to which a constant level of research effort can generate constant exponential growth, either in the economy as a whole or within relatively narrow categories, such as a firm or a seed type or a health condition. We provide consistent evidence that the historical answer to this question is “no”: as summarized in Table 7, research productivity is declining at a substantial rate in virtually every place we look.
A bit later (p. 1138):
This analysis has implications for the growth models that economists use in our own research, like those cited in the introduction. The standard approach in recent years employs models that assume constant research productivity, in part because it is convenient and in part because the earlier literature has been interpreted as being inconclusive on the extent to which this is problematic. We believe the empirical work we have presented speaks clearly against this assumption. A first-order fact of growth empirics is that research productivity is falling sharply.
Future work in the growth literature should determine how best to understand this fact.
In my 2019 working paper in which I commented on this paper, Stagnation and Beyond: Economic growth and the cost of knowledge in a complex world, I argue that what they see as a decline in research productivity reflects the (unavoidably) increasing costs of obtaining knowledge about the world and then briefly outline that account of cultural ranks that David Hays and I have developed. It is my impression that the growth literature centers on the growth accompanying the Industrial Revolution, which is a reflection of Rank 3 modes of thought, in terms of our account. Perhaps the usual growth models, where “a constant level of research effort can generate constant exponential growth,” are valid for the conditions obtaining during the Industrial Revolution but fail because those conditions no longer obtain. We are moving into a different world which may well require different models.
That is to say, it is inappropriate to search for a growth model that is valid everywhere and always. There is no such thing. Rather different material and cultural circumstances require different models. Note that I am not proposing potentially hundreds or even tens of models. I am proposing only a handful, corresponding to the handful of cultural ranks we have proposed.
And that brings me to another excerpt from Hays’s The Evolution of Technology Through Four Cognitive Ranks (1993). This excerpt is the opening section of Chapter 6, “Investment; with a life-cycle cost analysis of one individual human being.” Hays uses the idea of the factory to characterize rank 3 economic production, though of course he realizes that agriculture continues and that there are rank 3 innovations other than the factory system. I follow this excerpt with a brief comment about the specific case studies Bloom et al. develop in their article.l
As I have mentioned before in this series of excerpts, Hays wrote the book for an online course in the 1990s and distributed the book to students on an MS-DOS disk – chosen by the school, I assume, as the least common denominator among personal computer operating systems. Thus it was written as a text file in a simple hypertext system. It was never published in hardcopy. I reproduce it below more or less as Hays created it, in a mono-spaced font.
Investment
Capital is a concept of rank 3, but investment in skill and land were necessary in ranks 1 and 2. Sapients who believe in the future will attempt to prevent the net worth of Earth from declining.
6.1. INVESTMENT
6.1.1. Stone Tools and Hides Require Skill
6.1.2. The Land
6.1.3. The Factory System
The main investment in rank 1 is the acquisition of lore. For rank 2, the improvement of land for agriculture requires large investment. In rank 3, capital is assembled to invest in the ensembles of machines that produce large quantities of goods – and to invest also in transportation, communication, urban systems, and education.
Day by day a person works and uses the fruits of his (or her) labor for subsistence (food, clothing, shelter), for ritual, for pleasure, and so on. Whatever the rank, if each day's consumption equals each day's income, there is no investment.
Investment is the conversion of a portion of income into capital. The purpose of investment is to increase expected future income. Consumption yields instant gratification; the investor has to postpone gratification. The future increment must be larger than the present decrement to justify investment. Maybe I will put aside a dollar a day this year, but I want to get back two dollars a day next year!
The theory of rank says that the nature of capital changes from rank to rank, according to the technology. Figure 6.1 contains a sort of chronology of investments.
6.1.1. Stone Tools and Hides Require Skill
Rank 1 lives by hunting and gathering. In fact, most people of rank 1 seem to live, or to have lived, mostly by gathering with occasional feasts when the hunters get lucky. Emphasis on hunting appears to be sexist; women do the bulk of gathering. What do rank 1 people have that they do not consume on the day they get it? Some weapon-tools, a little clothing made from hides, and very simple shelter. My impression is that they are willing to leave these things behind and make new ones. An igloo does not pin down an Eskimo as your home holds you.
So rank 1 has almost no material capital; but it does have skill. The best over-simplification is probably that the rank 1 person's head is as full as yours or mine. Our knowledge is more specialized, and I assert that our knowledge is more abstract. One of us can teach video, one can repair automobiles, and so on; I can't teach video, and I suppose that only a few of us can. The rank 1 person is also a specialist, in a way that is not so obvious: The rank 1 person's concrete skills are specific to an environment, a climate, a range of vegetation and animal life, an area on a map.
But these skills are considerable, and take time to acquire. Little or none of them are acquired in situations comparable to schooling. Mostly the children watch adults, help, imitate, and play. No doubt they get some verbal guidance, orally since there is no writing. But not a great deal. The investment necessary to acquire skills is made in childhood. Children work less than adults, or at least less productively. A rank 1 society does not put its children to doing routine simple tasks and thus preclude their acquiring adult skills, as Britain did during the worst part of the Industrial Revolution. But at puberty the children must be ready to play adult roles. The rank 1 adult's skills are as fixed as our speech patterns. Few of us learn a second language after puberty with the exact speech patterns of a native speaker, and no one in rank 1 acquires a new skill after puberty.
6.1.2. The Land
Rank 2 lives by agriculture. A small part of the population (1% to 10%) lives by specialized craft: pottery, weaving, metal working, warfare, government, ritual. The rest are farmers. The major capital is therefore land. Those who occupy the most productive land live best. But the productivity of land is not fixed; a piece of land can be made more or less productive by human activity. Some ways of improving land are plowing, manuring, removing rocks and bushes or even trees, draining swamps, and applying water to dry land. These activities take a lot of work, and produce nothing for immediate consumption. The improvement of land is an investment.
Whereas I believe that much change in human life follows from the voracious appetite for experiences, I do not believe that plowing and manuring come that way. The standard theory says that population pressure forces investment in land improve- ments. The extra people have to be fed from the same land, so the land has to be made more productive. For the present, at least, I accept the standard theory. The first beginnings were in Egypt and Sumeria during the 4th millenium BC.
Contemporary peasants* lives on much the same plan as the first peasant. In Egypt, the life of the peasants, the Fellahin, has continued over nearly 6000 years without ever a collapse back to hunting and gathering. Europe adopted agriculture with the plow at a rapid pace in the beginning, and the Romans supervised farming on much of the continent. But a period of rank 1 life intervened, and farming had to be spread again after AD 1000. In India and East Asia also, there have been rises and declines. North America did not have the plow until Europeans brought it, so it was the Europeans who cut down the forests and plowed the grasslands.
Since the tasks of the farmer need tools that take time, skill, and material to make, tools become valuable investments. Plows, carts, animal harness, and sickles are examples. Storage containers, including clay pots or woven baskets and also stone barns, are equally a part of the peasant's capital.
Among many authors on intensification of agriculture, I recommend Boserup* without accepting all her conclusions.
Skill is as necessary to the people of rank 2 as it is to those of rank 1; children still watch adults to acquire the skills they will use later. Schools are rare. Plato may conduct an academy for a few Athenians who need never work or, perhaps, even fight. Where peasant villages live at rank 2 in a nation with some characteristics of rank 3, the central government may assign a schoolteacher to teach the rudiments of the national language and culture, but not to teach farming.
For the most part skills pass from parent to child and so the potter's child becomes a potter, the farmer's child a farmer. In early periods, this code is loosened only by the possibility of adoption; later, apprenticeship is invented as a kind of quasi-adoption. Specialized crafts are often practiced by itinerants, who live somewhat outside the societies they serve.
Another kind of investment made in rank 2 is the storage of grain for seeding next year's crop and for security against a poor harvest. Even the reservation of seed grain is investment. In a bad year, the farmer is acutely aware of postponing gratification: He and his family are hungry, but they must hold back now or starve next year.
And fallowing is also an investment. To leave a part of the land without a crop for a year, or for 25 years, is to postpone income. On much land, the methods of rank 2 devastate the soil. Left alone for a time, the soil restores itself. Over the long run, the land will yield better crops thanks to fallowing. And peasants*, who consider themselves temporary managers of the eternal land of their lineage, do not care if they die before the benefit can be taken; their descendants will have it.
In the end, land is the basic capital of rank 2. Tools and skills are oriented to improving the land and extracting crops from it.
6.1.3. The Factory System
Rank 3 has factories. If the movement toward rank 4 had not begun in the nineteenth century, it seems to me that application of industrial methods to farming would still have reduced the proportion of farmers and farm laborers in the population to about the same low level that we see today: Instead of 1% to 10% off the farm, we now have 1% to 10% ON the farm. Rank 3 needs most of the labor force in its factories.
Creating a new factory is for us the most familiar kind of investment. Someone has to pay for the land, the building, the power source, the machines, and the raw materials. All that money has to be taken out of day-to-day consumption. If you want to start a factory, however, you had better set aside a large part of your capital for the costs of organization. You will need an architect, an engineer, purchasing agents, a hiring office, and trainers; also sales people.
Mumford calls human organization the "megamachine", and thinks of it as a model for all mechanical devices. Even if he is right, the rank 3 organization is as different from that of rank 2 as the rank 3 machine is different from the rank 2 tool. The number of persons organized may not be greater, but the number of kinds of jobs to be done is greater by far, and the bulk of activity is performed in larger organizations even if the maximum size of organization is not greater. (If you count the armed forces of the United Nations in World War II as a single organization of rank 3, then it is surely larger than any that came before, so the maximum also goes up.)
Rank 3 capital, then, is organization of material and human parts to produce goods.
See Beniger and Noble in AMERBIBL*, as well as almost any general history of modern technology or any economist.
Education is necessary in rank 3. Obviously factories require engineers, technicians, and supervisors. But even the assembly-line worker has to be able to understand complicated oral instructions. The rank 3 worker cannot acquire a skill by apprenticeship and exercise it for a lifetime; change is too fast.
To change jobs during one's working lifetime may be necessitated by progress and is possible if most training is generic. (Gellner* pp. 32-33)
The moral is that we have stronger reason to improve education than most observers realize (but see Montagu*.)
Rank 4 capital, I think, will turn out to be information. Working skills, land, and factories will still have value. But rank 3 tends to its farming in a rather casual way; of the flux of money in rank 3, only a tiny fraction goes to the improvement of land. When rank 4 is fully established (if it ever is), only a tiny fraction of the whole flow of funds will go to the im- provement of factories. Only a tiny fraction of labor will be applied to farming and manufacture, since robots will do most of the work.
Information is not merely capital; it is second-order capital. The purpose of investment is to increase productivity of land and labor; the economic purpose of information is to increase the effect of investment. Mokyr calls his book The Lever of Riches, emphasizing that "technological creativity was at the very base of the rise of the West" (p. vii AMERBIBL* ; see also my review). I suggest that technological creativity is the root of all increase in productivity, from the beginning; but rankshift changes the nature of information, and the effect of the shift from rank 2 to rank 3 is what Mokyr is thinking about.
We do not live in a rank 4 world; we may have to go through dark ages before rank 4 comes, as Europe did between the fall of Rome and the Renaissance. Rank 4 may never come. But if it does, I speculate, the transformation will be as profound as the one that began in Florence around 1400. What we know as work will almost disappear; human effort will still be applied to research and development so as to improve economic systems; but perhaps more effort will go into emotional growth and maintenance, and into the understanding and improvement of social relationships, from friendship and family to global community.
Factories of a Rank 4 kind
Bloom et al, developed three case studies in their article, Are Ideas Getting Harder to Find? – semiconductor development and production, drug discovery, and development of new seed types to increase crop yields. I made specific remarks about the first two cases in my working paper, Stagnation and Beyond: Economic growth and the cost of knowledge in a complex world. I introduced Hays’s account of innovation to suggest that different growth models apply at different cultural ranks. Where do these studies fall in that account?
In my introduction I suggested that exponential growth as a function of a linear growth in research characterizes the Rank 3 mode, which Hays captured with the idea of the factory. Semiconductor production is surely factory production, but it doesn’t exhibit the specified relationship between research and productivity. I would suggest that it may be a factory, but it is not a Rank 3 factory. It is a Rank 4 factory.
I suggest that that is not mere semantics. It is one thing to produce, say, more toasters by introducing new models and increasing the size of the factory. That will require some changes in tooling, but not a new system of production. Increasing the transistor count per unit area involves more than changes in tooling. Often enough it involves the introduction of new processes, in effect, requiring new system of production.
I suspect that a similar argument can be made for drug discovery production, which certainly involves factory production even if drug production facilities aren’t prototypical factories. And I suggest the same for the development of new seed lines. Just as agriculture (Rank 2) doesn’t disappear in a Rank 3 world, but is transformed by it, often radically, so factory production doesn’t disappear with the emergence of Rank 4 modes of thought. Rather, it develops in new ways. And those new ways require a different model of productivity.
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