Escaping Satiation: The Demand Side of Economic Growth

200 Pages·2001·3.223 MB·English

by  Ulrich Witt (auth.), Prof. Dr. Ulrich Witt (eds.)

Escaping Satiation
The Demand Sideof Economic Growth
Springer-Verlag Berlin Heidelberg GmbH
Ulrich Witt
Editor
Escaping Satiation
The Demand Side of Economic Growth
With 17Figures
and 4 Tables
" Springer
Prof. Dr, Ulrich Witt
Max Planck Institute
for Research into Economic Systems
Evolutionary Economics Unit
Kahlaisehe Str. 10
07745Jena
Germany
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Escaping Satiation: The Demand Side of Economic Growth; with 4 Tables 1U1rich
Witt ed. - Berlin; Heidelberg; New York; Barcelona; Hong Kong; London:Milan;
Paris;Singapore;Tokyo:Springer. 2001
ISBN 978-3·642-07563-6 ISBN 978-3-662-04528-2(eBook)
DOll0.1007/978-3-662-04528-2
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Preface
The collection of papers presented in this special issue arose out of two events.
The first was the symposium "Escaping Satiation - Increasing Product Variety,
Preference Change and the Demand Side of Economic Growth" which was held
at the Max Planck Institute in Jena, Germany, in December 1997. The Fritz
ThyssenFoundationprovidedfinancialsupportforthisseminalsymposiumwhich
isgratefully acknowledged. WilhelmRuprecht wasofgreathelp inpreparing the
symposium and I would like to express my gratitude to hirn on this occasion.
Many stimulating exchanges with hirn over the past few years while he was a
research associate at the Institute working on long term changes in consumption
convinced meoftherelevance andimportanceofthis problemfor understanding
modem economic growth.Ialsoowethankstomanypeople whoencouraged me
to go ahead with the symposium, among them Stanley Metcalfe, Carl Christian
von Weizsäcker,and also Ehud Zuscovitch, whodied so unexpectedly last year.
The second event from which this volume benefittedwas a session on"Eco
nomic Growth - What Happens on the Demand Side" which I organized at the
American Economic Association Meeting in New York in January 1999. Here
again, the common theme of the participants was the much neglected demand
side phenomena related to, or constitutive of, the soaring economic growth of
the past few centuries. Even though a heavy snowstorm decimated the number
of speakers who actually appeared in New York,I am happy to have all written
contributions united in this volume.
Asusual,the editorial work on avolume likethis isnot aone-manjob.Who
could succeed as an editor without the good willand the patience of the authors
- Ihadtheprivilege toexperience bothalmostin abundanceandforthisIwould
like to say thank you to all of them. I take the opportunity to also thank all
the people who supported me in the editorial work, particularly my university
colleague Uwe Cantner who helped me in a very important way by organizing
a refereeing process and Inken Poßner who managed to keep track of all the
exchanges with authors, referees, and the publisher throughout the years.Should
this book not experience a growth in demand it is surely not the fault of the
above mentioned, but my own.
Jena, April 2001 Ulrich Witt
Contents
Consumption,demand, and economicgrowth
- an introduction
Ulrich Witt .
I. Economicgrowth
and the evolution ofpreferences
Cognition,imaginationand institutionsindemandcreation
Brian J.Loasby .................................................. 13
Learningtoconsume- Atheoryofwants and the growth ofdemand
Ulrich Witt 29
Consumption,preferences, andthe evolutionary agenda
J.S.Metcalfe .................................................... 43
Thedemandfordistinctionand the evolutionofthe prestige car
G.M.Peter Swann ................................................ 65
11. Qualitative change and the interactions
between demand and supply
Demand asafactorintheindustrialrevolution:
Ahistoricalnote
Joel Mokyr 85
VIII Contents
Knowledge,consumption,and endogenousgrowth
RichardN.Langlois 97
Variety,growth and demand
Pier Paol0 Saviotti................................................ 115
The economiccontributionofinformationtechnology:
Towards comparativeand userstudies
TimothyF.Bresnahanand Shane Greenstein ........................... 139
111. Thesatiationproblem
Satiationinan evolutionarymodel ofstructuraleconomicdynamics
Esben Sloth Andersen............................................. 165
Satiationinan internationaleconomy
JosefFalkinger .................................................. 187
List ofContributors 199
Consumption, demand, and economic growth
- an introduction
Ulrich Witt
MaxPlanckInstitute forResearch into EconomicSystems,KahlaiseheSir. 10,07745Jena,
Germany
"Nature's parsimony", as Ricardo once put it, has forced humans during their
evolution to find ways of satisfying their physical needs in consuming food
stuff, clothing, shelter, and, perhaps, in acquiring some remedy for aches and
illnesses. The technology that made this consumption feasible for a growing hu
man population changed considerably over time, particularly with the transition
from the hunter-gatherer societies to nomadic cattle breeding and more sophis
ticated agriculture. Where revenues exceeded what was necessary to satisfy the
physical needs, archeological artefacts show that consumption of artisan prod
ucts soon started for religious or aesthetic purposes, and that there was in some
piaces even conspicuous, sometimes wasteful, consumption for status signaling
reasons. Archeological findings also suggest consumption of services of other
human beings was rising, either to avoid the own physical effort of carrying
out the service or to enjoy a treatment or performance people were unable to
produce for themselves. However,it was only with the soaring growth of output
after the industrial revolution that consumption opportunities grossly exceeded
the physical needs and the consumption patterns they had dictated for thousands
of years.
The demand side of growth - Problems and stylized facts
Itis precisely with the taking off of an exponential growth path of per capita
income at the time of the industrial revolution that a puzzle emerges. Since the
physical needscannow increasingly be satiatedmore easilyin the way theyused
to be satisfied, how is it that consumption can increase to enable the expansion
of demand to keep pace with the expansion of supply? Iftraditional consump
tion habits lead to satiation, how could the increasing industrial production ever
be sold? Where does the additional demand come from? What additional con
sumptionistriggered,and how?Aretheseprocesses,andthedemand theycreate,
2 U.Will
unlimited, andcan theyalsoreliably backalleconomicgrowth tocome? Itseems
that all these questions are core problems of an economic theory that does not
confine itself to the mere attribution of scarce means to given ends (not to speak
ofthenormativequestion ofwhetherallthechangingconsumption isworthwhile,
which is bewildering particularly to the non-economists).
Obviously, the behavior of the consumers willing to purchase all the expo
nentially growing output has been changing in the process of economic growth,
as has the quality and composition of the products and services consumed. It
seems only natural to conjecture that, without all these changes, it might have
been impossible to escape the satiation of human demand - and thus to realize
continued economic growth. If so, the regularities in, and the driving forces be
hind, those changes need to be explained, a task that amounts to nothing less
thanasystematic analysisofthedemand sideofeconomic growth. Yet,asabrief
inspection of anytextbook shows, consumption and demand hardly playanyrole
in the modem theory of economic growth. Focus there is almost exclusively on
thelogicofcapital accumulation, roundabout production, differentforms oftech
nical change and - in the more recent "new economic growth theory" - the role
of knowledge in productivity increases, in short, on the supply side conditions
for economic growth.Consumption, interpreted as consumption expenditures, is
treated asadependentvariable:wherever agrowingproduction makesitfeasible,
consumption will rise.
Thebackground tothisviewisthebelief, widelyheldamongeconomists, that
human wants are simply insatiable. A naive belief, however, does not provide a
satisfactory scientificbasis.Nodoubt,technology,production, andsupplyarecru
cial for the economy's ability to grow.But there are equally relevant conditions
to be considered for the demand side. Unfortunately, this side of the story has
been so much neglected that little attention has even been paid to the empirical
factscharacterizing whathappens onthe demand sideintheprocess ofeconomic
growth. The debate on the "stylized facts" of economic growth (Kaldor, 1961)
has been exclusively supply-side oriented. Hence, it may be asked in which way
those stylized facts should be supplemented.
Afirstobservation thatcanbementioned hereconcems theincreasingvariety
ofdistinctproducts andservices thatareofferedtoconsumers. AsSaviotti(1996)
has shown, there are,on theone hand, products (like,e.g.fumiture) and services
(like, e.g.artistic performances) which were around in a basically identical form
hundred years aga - even though they may now be produced radically differ
ently- and which have been supplemented by an increasing range of diversified
substitutes with more or less sophisticated additions or variationsof features.On
the other hand, there are entirely new groups of products and services which
nobody could even have imagined a hundred years aga (e.g. the television set
or e-commerce). The flip side of the coin of the tremendous diversification and
multiplication of products and services that can be consumed is an enormous
increase in consumer knowledge and information that needs to be processed in
order to keep track of the multitude of consumption opportunities and to be able
to actually use products and services. This puts astrain on the consumers' time