Scarcity and the great transformation

Of  the most damaging temptations in contemporary policymaking is the belief that every major global change requires a radical rethink of priorities and approaches. These claims normally reveal more about their advocates than the underlying matters at hand. Much of what will happen in the future has parallels with what has happened in the past. Moreover, certain mechanisms help societies adjust to trend shifts and shocks, be they technological, man-made, or natural.

Among the most important such mechanisms are prices, which tend to move to bring the needs of buyers and sellers closer together. Scarcity – that is, being on the side of the market where there are fewer rivals – is often desirable. By and large, whether an Ethiopian farmer or an investment banker in New York City, being on the ‘short’ side of the market is where the rewards are.

However, desirable market positions rarely occur by accident. For better or for worse, deliberate steps can be taken to limit individuals and firms from competition. Seen another way, firms understand they must prevent their goods or services from becoming “commodities”; that is, easily substitutable for a rival’s offerings. And so, immigration policy is often controversial, precisely because the local rivals to new migrants object to these policies.

Private or public steps to induce scarcity will be as a attractive policy in the twenty-first century as it has been in previous times. Even so, the real challenge is not to create some temporary advantage driven by short∞term scarcity, but to remain in a setting where there are few rivals and plenty of payers. Entry by rivals reduces the benefits of scarcity and will be resisted whatever its source. What does this approach imply for analysing global transformations?

Winners and losers
When trying to figure out who wins and who loses from a major global change it is important to ask how its implementation markedly alters the number of rivals in contests, market settings, and the like. China’s entry into the world economy has effectively added 300-400 million persons into the lower end of the global labour market, and offers the promise of adding many more. Those people chase – initially at least – the same employers with obvious consequences for wage levels. A resulting shift from wages to profits is the result.

Likewise, who has gained from the spread of information technology? Initially it was principally those whose existing skills combined with IT to make them even more productive. Since those skills can be learned and tens of millions of well-trained students enter the job market every year, it should not be a surprise that not everyone has held onto the IT wage premium. Scarcity both raises the returns of some activities in the short run and can create the seeds of their destruction in the long run.

New circumstances do not always call for new thought. We should have more faith in our predecessors, many of whom developed sophisticated concepts – such as scarcity and its determinants – that can be applied in many different settings in the modern age. The real challenge is to understand what societal developments go beyond our existing toolkit.

About the author
Simon J. Evenett is Professor of International Trade and Economic Development and Academic Director MBA programme at the University of St.Gallen. {simon.evenett@unisg.ch}