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Politics: The Eighty Percent Pay Cut

It's a well-known maxim that, in the final analysis, all politics are local. The political dimensions of peak oil are no exception to this rule; for that matter, the global politics surrounding the decline of American empire, the subject of last week's post, draw their force from everyday issues in the lives of 300 million Americans -- not to mention the six billion other human beings on this planet, most of whom must make do with less so that Americans can continue to live their unsustainably extravagant lifestyles.

It’s considered impolite to mention this last detail, of course. The mythology of progress treats it as a temporary state, and claims that someday or other, everyone in the world will be able to live like the affluent middle classes of the world's industrial nations. This faith is so widely held -- at least among those same affluent middle classes -- that few of its believers notice two awkward facts. The first is that the vast majority of the benefits of industrial civilization go to a tiny fraction of the world's population, while nearly all the costs are spread among everyone else. The second is that this state of affairs has persisted throughout the history of industrialism, and shows no signs of changing in the foreseeable future.

In his brilliant 2001 book The Power of the Machine, human ecologist Alf Hornborg argues that the disparities aren’t accidental. An industrial system concentrates resources in what Hornborg calls “centers of accumulation.” Those resources let the industrial system achieve economies of scale and concentrations of influence that distort economic exchanges in its favor. This allows it to gain control over more resources, allowing it to further expand production in a self-reinforcing cycle. The downside is that in a world of finite resources, what’s needed to build the industrial system must be taken from somewhere else, and the return to that “somewhere else” is less than what’s taken by at least the cost of building the industrial system. Thus the centers of accumulation accumulate by impoverishing other regions, classes, or economic sectors.

To see how this works, imagine two equally sized countries, Industria and Agraria, that trade only with each other and have preindustrial economies. One day, however, a rich man in Industria builds a shoe factory that produces as many shoes as the people of Industria can use. The resources demanded by that project equal those used by the local cobblers who used to make Industria's shoes, and any economic gain to Industria from the factory will likely be offset by the losses caused by putting the cobblers out of business. The chief difference is that the wealth once earned by thousands of cobblers now goes to one Industrial magnate, who pays his workers a fraction of what the cobblers once made. His accumulation is their impoverishment.

Then another rich Industrial builds a second shoe factory with equal capacity. Industria's shoe industry can now produce twice as many shoes per year as the Industrials need. This poses a major problem. If both factories produce shoes at full capacity, the law of supply and demand will cut the price of shoes in half, and each magnate will get only half the income the first one had all to himself. The same result follows if both factories work at half capacity. Either case makes it hard to maintain the concentration of resources that makes factories possible at all.

The magnates might hire an advertising firm to convince Industria's citizens that they all need dozens of pairs of new shoes every year, sell surplus shoes to the Industrial government, or make all their shoes so flimsy that every Industrial citizen needs a dozen pairs a year because each pair wears out in a month. All these expedients, though, simply shift the problem to the Industrial economy as a whole, since resources diverted into excess shoe manufacture aren't available for other needs. The solution that avoids this trap is selling excess shoes across the border in Agraria. The result is a net loss to Agraria and a net gain to Industria; Agrarian cobblers go out of business, and most of the money Agrarians spend on shoes goes to Industria instead of staying at home, turning the annual shoe budget of Agraria into a subsidy for the Industrial economy. Industria’s accumulation becomes Agraria’s impoverishment.

If Agraria then decides to build a shoe factory of its own, the project faces a welter of problems. The flow of wealth to Industria makes it harder for the Agrarian economy to gather the resources to build a factory, or maintain it once it’s built. Adding more shoe production brings an oversupply of shoes, launching price wars the Agrarian factory is more likely to lose. If Agraria erects trade barriers against Industrial shoe imports, it might be able to overcome these challenges, but Industria might not sit passively as a rival emerges on its doorstep. Its options range from bribery and manipulation, through economic warfare, to a military solution that makes Agraria a client state in an Industrial empire. The Industrial magnates might even choose to build their own factories in Agraria, especially if Industria’s economic boom makes it difficult to keep wages low there, since the profits from those factories will still come home to Industria. The result, one way or another, is Industrial prosperity built on the foundation of Agrarian impoverishment.

This is a simplified – some would doubtless say oversimplified – version of Hornborg’s carefully reasoned argument. He shows that from the standpoint of human ecology, what’s significant about industrialism is not its relation to technology, or even its dependence on fossil fuels, but its role as a means of creating inequalities of wealth and access to resources between classes, regions, and nations. “Industria” and “Agraria” have different names in the contemporary world, of course: on an international level, they are the industrial nations and the rest of the world; within the United States, they are the coastal urban regions and the impoverished hinterland; within individual communities, they are the investing (that is, middle and upper) classes on the one hand, and the working class on the other. In each case, the industrial system concentrates wealth and access to resources in one at the expense of the other.

This is not the way today’s economists and social theorists like to look at industrialism, to be sure. From their point of view, industrial production yields so much abundance that, in the words of a common cliché, the rising tide of wealth lifts all boats. This assumption requires a second look, though. Leave aside the fact that this abundance is actually the result of burning through the earth’s finite fossil fuel deposits at a reckless rate; in point of historical fact, does the tide of industrialism actually benefit everyone? As Hornborg points out, it does nothing of the kind. Leave out situations where political factors forced redistribution of wealth, such as the New Deal in 1930s America, and the rise of industrial economies produce more disparities in wealth and more impoverishment, not less.

All this is the roundabout but necessary background to understanding one of the most important and least mentioned factors governing local, regional, and national politics at the dawn of the age of peak oil. Among the core factors supporting business as usual in today’s world are unequal exchanges that funnel wealth from the rest of the world to the industrial nations, especially the United States. Those patterns are hardwired into the global economy in the form of wage, price, and interest differentials, and they enable people in the industrial world – again, especially in the United States – to use far more than their share of the world’s resources.

Petroleum, as the most important natural resource in the global economy today, makes a rough but workable surrogate for the entire pattern of unequal access. Right now the United States uses a little over 20 million barrels of oil a day, or about 25% of global production. The US accounts for a little less than 5% of the world’s population. If everyone on the globe had equal access to petroleum, the 5% who are Americans would use around 5% of the world’s oil, or around 20% of what they use today. And the other 80%? That’s a rough first approximation of how much of America’s lifestyle is paid for by impoverishing the rest of the world.

Again, this is not how today’s economists and social theorists prefer to look at the matter. They hold that Americans have simply reached the resource-intensive lifestyle ahead of everyone else, who will eventually all be using resources at an American rate. In a world of finite resources on the brink of peak oil, this is empty fantasy, but let that pass for the moment. Why is the distribution so asymmetrical now? It can hardly be said that the rest of the world has no use or desire for the oil Americans waste so profligately, and the willingness of people elsewhere to work hard and save – supposedly the foundations of prosperity in a capitalist system – far exceeds that of Americans. What keeps people elsewhere from having access to an equal share of oil? Systematic patterns of unequal exchange, hardwired into the global economy.

The dependence of the American standard of living on these patterns of unequal exchange goes far, I think, to explain the remarkable meekness of the political left in this country over the last few decades. It’s one thing to talk about bringing fairness and justice into the world economy, and quite another to face up to the consequences. Again, oil makes a rough but workable surrogate for wealth as a whole. If the United States were to abandon the patterns of unequal exchange that support its current standards of living, its citizens would face something like an 80% reduction in wealth and access to resources.

Put that in everyday terms and the political implications are hard to miss. Imagine that a candidate for public office launched her campaign with a speech announcing that if she were elected, everyone in the country would suffer a permanent 80% pay cut, while prices, interest rates, and outstanding debt would remain as they were before the cut took effect. The pay cut would bite deeper with each passing year, too, to make up for the effects of resource depletion. How many people would vote for such a platform? Would you?

This, in a nutshell, is why no useful response to the current global predicament will come from within the political systems of the world’s industrial countries. Where such a response might come from, and what forms it might take, will be the theme of next week’s post.

Editorial Notes: Eighth of a nine-part series.

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