History’s Great Decouplings

More than 2 million years ago humans started to use stone tools for hunting, carving meat and other tasks.  This may have been the first major decoupling in human history.  It was the decoupling of productivity from body strength and dexterity.  Executing certain manual tasks was no longer strictly dependent on physical strength.  Even physically weak human beings could carry out work that exceeded the capacity of their bodies.

When we trace the human history, we discover many instances of decoupling that in some cases meant the passage from one level of civilization to another, more sophisticated, more complex and also freer of certain limitations.  This does not mean that all cases of decoupling produced only beneficial outcomes.  But influential they were.  Looking through such decoupling events is another way to study human history.  Over time, I have kept notes on decoupling cases I found important and below I present a list with the caveat there may be more which I might have missed.

At some point humans leaving in cold climates discovered they could freeze meat and consume it later.  That was the decoupling between the time food was produced (by hunting and collection) and the time it was consumed.  The refrigerator industry is a decoupling-enabling industry. 

Around six thousand years ago, humans domesticated horses, donkeys and oxen and started to use them to move themselves and material belongings.  The invention of the wheeled cart further facilitated the transport of people and goods.  These innovations decoupled distance and load of movement from the strength and endurance of human legs.

The Chinese used smoke signals and ancient Romans used carrier pigeons to communicate information over long distances.  This was the decoupling of information communication from hearing and sight distance.  The telegraph, the telephone and the internet are the modern facilitators of that decoupling.

The historical record shows that about four thousand years ago someone in Mesopotamia entered into a borrowing-lending arrangement with another party and, thus, credit was born.  That meant, today’s consumption was no longer limited to today’s income.  And, thus, the decoupling of consumption from income gave birth to finance.  The human capacity to delay gratification (which by the way seems to exceed that of other animals) is behind that trade of present consumption for future consumption with interest being the sweetener. 

Using projectiles, like spears and stones, in human battles decoupled the distance of combatants from the effectiveness of their weapons.  Body-to-body fighting was no longer necessary.  Modern warfare has advanced this decoupling to its maximum extent thanks to inter-continental missiles.

The invention of agriculture brought a division of labor and hierarchy of power that changed the terms of meeting human needs.  Whereas hunter-gatherer societies strove to meet all member needs out of the common production of food, agricultural societies introduced compensation arrangements in which the link between meeting basic needs and group responsibility to this end was broken.  Thus, we entered the modern period of institutional scarcity where wages often fall short of the means necessary to afford basic goods.  Call it the decoupling of wages from affordability.

The advent of large-scale manufacturing brought by capitalism intensified the decoupling between ownership of labor and ownership of capital.  Workers would be now compensated at a fixed rate (wages) whereas capital owners would be compensated at a variable rate by claiming the final surplus or profit.  Just as the decoupling of managers and owners created conflicts of interest, the decoupling of labor and capital created conflicts of interest between wage-earners and profit-earners.   In the United States, the expression Great Decoupling refers to the divergence of productivity gains from the much smaller growth of wages after 1972.

The invention of the stock corporation in the 17th century decoupled ownership of a business from its management.  This decoupling is now studied under the purview of agency theory, that is, how managers, acting as agents (i.e., representatives) of the owners, make business decisions that ultimately affect the economic interests of owners and how conflicts of interest can be managed.

Another interesting decoupling happened in the exchange of goods and the evolution of impersonal markets.  Thanks to the development of trust among strangers and the disciplinary power of law or custom, market transactions were decoupled from kinship and intragroup ties.  This enabled markets to expand beyond tribes and localities and become national and transnational.

In the environmental sphere, we now talk of the decoupling of environmental impact from economic activity and growth.  This means we are moving (or try to move) toward modes of production and economic activity which are neutral on the environment.

Finally, the most radical decoupling will be the separation of brain functions from the physical body thanks to Artificial Intelligence.  Robotic brains will think outside the human body.  Even more radical will be the development of artificial consciousness residing outside the human body.  These prospects, of course, open possibilities we need to carefully examine before we adopt them.

As we look into the future, one thing is certain.  The human curiosity, inventiveness and adaptation to environmental challenges will usher many more pathbreaking decoupling ideas and events.  It’s all part of our destiny thanks to our big brains, the product of cooked food made possible by fire, which also decoupled night from darkness about a million or more years ago.

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Author: George Papaioannou

Distinguished Professor Emeritus (Finance), Hofstra University, USA. Author of Underwriting and the New Issues Market. Former Vice Dean, Zarb School of Business, Hofstra University. Board Director, Jovia Financial Federal Credit Union.

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