The Race of Growth vs. Innovation

The average American consumes about 11,000 watts of electric power a day in order to enjoy the usual amenities of everyday life. Of these, only about 90 watts of energy (or 2,000 calories) are needed for an average human body to keep going each day.  This means that all this excess energy consumption is the result of 10,000 years that took us from the introduction of farming to our current modern life.  Most of this energy demand has been generated the last two centuries after the dawn of the Industrial Revolution.  Of course, demand has to be matched by supply which has primarily come from hydrocarbons and increasingly now from renewables.

The industrial revolution marked a significant jump in energy consumption as well as prolific waves of new wants and needs that require energy to be sustained.  The industrial revolution also accelerated the urbanization of human populations as large waves of rural people migrated to cities where the factories and major commercial activities were located.  As a result of this urbanization process, 80% of the global population now lives in cities. 

So, an important question emerges: how does energy demand scale with city size?  That is, how energy demand grows as city population increases, and what causes this energy demand.  These are some of the questions Geoffrey West, a theoretical physicist at the Santa Fe Institute, answers in his book SCALE: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies.  I wrote out the whole title to convey the broad scope of the scaling phenomenon that West attempts to present to us.

Before he tackles the energy demand and supply of cities, West establishes the scaling laws that govern biological organisms, like mammals.  Thus, for example, the metabolic rate (energy needed to keep an organism going) grows at a slower rate relative to body size.  That means, an animal with double the size of another animal needs less energy to charge its cells.  In formal language, the metabolic rate scales (grows) sub-linearly with body size. Cities resemble biological organisms because they are conglomerations of people who need energy and thus have to create supply mechanisms for the energy to flow around, as blood does in a body. West has found that the infrastructure (roads, gas stations, electric, gas and water lines) of cities around the world grows by about 85% when city population doubles.  That means physical infrastructure scales (grows) sub-linearly with city size.  But in contrast to biological organisms, cities require more and more energy as they grow bigger, meaning that their energy needs (the metabolic rate) of cities grows super-linearly with city size.

West explains that the energy demands of cities come from the socioeconomic activity of a city.  Examples of socioeconomic metrics are wages, the GDP, innovations (given by number of patents), and number of professional people.  Measured by these metrics, socioeconomic activity expands 15% faster than city populations, that is in a super-linear fashion.  This is possible because cities produce more social capital that engenders more interactions, more ideas, and more output.  Unfortunately, some negative metrics, like crime and diseases, also rise faster than urban populations.  The super-linear scaling of socioeconomic activity with city size implies that energy needs also more than double each time city population doubles and that explains the tremendous energy consumption of the last two centuries.

As I alluded in a previous post, human activities get progressively greater in volume and complexity requiring more energy to sustain them.   More formally, West argues that unbounded or open-ended growth of socioeconomic activity eventually leads to what futurists call singularity.  That is, the point of time our energy demand overtakes our energy supply, thus, creating an energy deficit that leads to the collapse of the system.  The only way to avoid a singularity is to generate new supplies of energy or alternatively shift to another way of life.  That is, either way, we need to reestablish a balance between energy demand and energy supply.  This is how we have avoided a collapse of human life (or civilization) up until now.  We have done it with continuous innovations that either result in more efficient use of energy or the extraction of more energy out of its various sources.   Fertilizers, for example, produced great efficiencies in food production to meet the needs of fast-growing populations around the globe. 

There is, however, another bigger catch according to West.  Over time, socioeconomic activity grows in a super-exponential manner that brings the energy deficit (or singularity) faster and faster upon us.  This requires that the pace of innovation quickens as we move from one possible singularity to the next.  It’s like switching from one fast lane to a faster one to stay ahead of the singularity that is chasing us.  Another way to put it is to say that the time interval between pathbreaking innovations has to be shorter and shorter.  The question then is: can we do this and if yes what gives?

A recent article in the New York Times had the title What Happened to All of Science’s Big Breakthroughs?  The sub-title was even more worrisome: “There has been a steady drop in disruptive feats since 1945, according to new research.”  The fact is we have moved quickly from the computer to the internet and now to Artificial Intelligence.  Can we though sustain this pace of technological innovations and even more importantly accelerate it?  I think an honest answer is: we simply do not know.

A corollary question we need to consider is whether our human nature is wired to adjust to new patterns of life at an ever-faster rate within a lifetime.  Our current state of maladjustment to just one new reality, that of social media, is a clear warning of the looming dangers.   But AI enthusiasts tell us not to despair.  The reason is they rely on another singularity that may be a solution to our problem.  That’s when our bodies and brains will be augmented by genetic alteration, nanotechnology, and AI to become hybrid cyborgs no longer bound by the constraints of biology and I would add of the limitations of human psychology.  That will be the emergence of a new species, the Transhuman. 

Of course, there is another path that can slow down the growth of the socioeconomic Behemoth.   This is the adjustment to a slower pace of life, the slower creation of new wants, adopting the moderation of satisficing in place of the hyperbolic maximizing.  The current state of the world suggests though that the proverbial horse of unstoppable growth may already be out of the barn.

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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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