The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [75]
THE GROWING IMPORTANCE OF TRUST
The idea of a form of “capital” that requires investment if it is to grow, and which is at the same time a form of wealth owned by society as a whole, achieves two things. It focuses attention on a long-term horizon, and it also links individual fortunes to those of the wider group. To many people this will feel like an intuitively appealing goal, not least as a useful corrective to the individualism guiding economic policymaking for the past two or three decades. Why, after all, has trust, or social capital, or institutions—whichever term is preferred—come to be so prominent in economics and other social sciences during the past decade or two?
Many readers might think it’s a matter of economics returning to the real world after a long diversion into an overly abstract and unrealistic realm. After all, it is surely only common sense that institutions and society affect how the economy performs. However, as I’ve argued elsewhere, economics has been caricatured and was never as unrealistic as critics claimed.12 The growing interest in the concept of social capital derives from a new salience of the role of social institutions and trust in trying to understand economic performance. The step change in the complexity of the economy resulting from new technologies has made economic performance significantly more dependent on the presence of social capital. Economies have always depended on trust, but a successful modern economy in which the division of labor has become very highly specialized and every individual depends on a large and complex network of other people in many countries is profoundly more dependent on high levels of trust.
New information technologies, from printing to the railways, the telegraph to the Internet, have (like new energy-related technologies and other examples of what the literature terms “general purpose” technologies) always resulted in profound social and economic changes. This comes about in many ways. The results are unpredictable and can take decades to achieve in full, but they are ultimately transformational. This was true of steam power, railways, and electrification. It is just as true now. The impact of satellite television in developing countries from the mid-1990s on the aspirations of hundreds of millions of viewers in village cafes differs in nature and form from the impact of massive computer power on the Western biotech industry. However, in both cases massively cheaper information processing and communication are changing the scope and nature of the ways people interact with others.
The reduction in the cost of processing and exchanging information has been utterly extraordinary. It has been driven by Moore’s Law—the doubling in computer power roughly every eighteen months.13 The decline in the cost of the technology has been the fastest and biggest in history. William Nordhaus has estimated that computing power has grown at a compound annual rate of more than 30 percent for a century, amounting to a real term decline in cost or increase in power of the order of one to five trillion times.14 The economic and social revolution currently under way due to the microprocessor and its successor technologies will prove to have an extraordinary impact on humanity.
Despite this, for a time in the late 1990s many economists were somewhat skeptical about the likely impact of ICTs. It took some years for any economic effects to show up in aggregate productivity figures. It was not widely appreciated that investment in technology has to be accompanied by much greater investment in organizational change—new ways of running the business, new working patterns, new types of relationship with suppliers. Economic historians offered the first insights into the need for accompanying investments. For example, Paul David drew an analogy with electrification, which required new types of factory building and investment in electric networks, before the economic impact was large and widespread.15 Nicholas Crafts pointed out that although the estimates