The Case for Type 2 Growth

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Lately, capitalism and technology have gotten a bad reputation.

Climate change, mental health problems, geopolitical issues — all cited as consequences of carbon emissions, social media, and the increasingly powerful military weapons.

But before we all become doomsayers, we should consider the improvements technology has brought to quality of life across the globe.

Whether or not technology is to blame for the problems the world faces today, it’s the only thing that can solve them. And if we give it a chance, it will.

Our economic system relies on growth, and how we think about growth matters.

A brief history of anti-technologists

Anti-technological attitudes have been around for centuries. Oftentimes, you’ll hear these people called “Luddites,” which were a radical group of textile workers in England in the early 1800s.

Fearing that time spent learning their craft would go to waste and their jobs would be replaced by machines, the Luddites made it their goal to destroy those machines.

While in hindsight the Luddites look a little crazy, they were probably justified in their beliefs at that time, given they had no knowledge of what the future would look like in this new technology-dominated world.

It’s easy to draw parallels from the 19th century Luddites to those who oppose technology today. Modern-day Luddites resist technological change for all sorts of reasons — whether it be for environmental concerns, anti-globalization, fear of artificial intelligence, or just distrust for capitalism generally.

While technology is partially responsible for some of the world’s biggest problems, we must remember that technological change as we know it today is a pretty new concept.

Take this visual, for example, and you’ll notice that most of it really only gets going around 1800. Prior to 1800, there weren’t many major leaps in technology (and nothing like we’ve seen in the past 100 years).

From the years 0 to 1800, we saw the introduction of paper, windmills, gunpowder, glasses, the printing press, the microscope, and the steam engine.

But in just the 200 years that followed, we saw the camera, the telegraph, the telephone, electric lights, automobiles, airplanes, synthetic fertilizers, TVs, antibiotics, nuclear weapons, computers, rocket ships, the internet, space stations, smartphones, CRISPR gene editing technology, and the early forms of AI.

It’s crazy — there were people who lived to see the first human flight and the first man on the moon (just 66 years later!) in their lifetime.

Without technology, none of the innovations mentioned above would exist.

As with anything new, there are always unintended consequences. That’s just the nature of the world we live in — we humans have a hard time predicting the future, and it’s difficult to imagine risks we’ve never seen before.

Consider the alternative to innovation

While the transition from an agrarian to an industrialized society was powered in large part by fossil fuels, which brought its own unintended consequences, think about the alternative.

Prior to the 1800s, energy was the key constraint on standard of living. People burned wood for warmth and cooking. But when it was discovered that coal produced 4x the energy as the same amount of wood, and it was cheaper to produce and easier to distribute, the quality of life for most of the world improved. Life got significantly better by not having to chop down trees to power everything.

As oil emerged as the preferred energy source, it enabled many of the technological breakthroughs of the last 150 years — it pushed out the constraints on energy and cost.

And while, sure, fossil fuels came with unintended side effects, technology itself — science — is what allowed us to even measure and become aware of those consequences.

With technology, people find more free time. And when used well, free time enables people to create and do amazing things.

Anti-technologists argue that technology caused consumerism and that it harms nature through endless “growth” that’s required to maintain that system. So what exactly is growth?

What is “growth”?

Breaking down growth, or increases in production, there are two types of growth — growth in quantity (Type 1) and growth in quality (Type 2).

When we talk about traditional consumerism, we’re really talking about Type 1 growth — producing more stuff.

But there’s also a second type of growth. Type 2 growth involves evolution — producing better quality stuff. Better outputs with the same inputs.

“Growth” is really just about using the same inputs to produce more and better outputs.

In the early 1900s, Type 1 growth might have been producing as many cars as possible, since the market size was just about anyone alive. The quality of these cars improved later, but for a period of time, producing as many as possible, given the constraints of cost and time, was all that really mattered.

Eventually, as owning a car became commonplace, new growth had to come in the form of better cars (Type 2 growth), and the limiting factors became things like fuel efficiency, speed, style, and other preferences needed to compete with other carmakers.

Over time, technology pushes the constraints down until they no longer exist — until new constraints emerge. From simply producing cars as quickly and cheaply as possible, to producing more fuel-efficient, better quality cars.

The Type 1 vs. Type 2 framework applies to our own personal work, as well.

Type 1 work is “busy work,” getting as many things done as possible.

Type 2 work is slower, deep work, focused on quality over volume.

Whether it be individually, socially, or institutionally, we’ve tended to favor Type 1 growth for as long as we can remember.

Don’t believe me? Just think — how do you get paid? For many of us, it’s by the hour or the amount of time worked, rather than what we actually produce. To measure the productivity of a factory, we count the number of widgets it produces and sells in a given year (with little regard for the quality of those widgets or what they actually do).

More is generally better, but simply counting widgets ignores the fact that the quality of these widgets has improved over time. Think about TVs — bigger, lighter, better audio & display. TVs have gotten smart. They’re no longer bulky boxes with antennas that feed us 3 news stations. We can stream just about anything, from anywhere, wirelessly, in an experience that feels immersive. TVs use less energy and have gotten more affordable.

This is real value, but it’s not accounted for in Type 1 growth. All we see is the number of TVs sold per year, which doesn’t tell us anything about how good they are.

We are at a pivotal turning point in the world where we must produce better, slowly rather than more, rapidly.

The challenge with Type 2 growth

The tricky thing about Type 2 growth is that it’s difficult to measure. The improvements we’ve made in the quality of the things we produce is only really obvious in hindsight, and as the marginal cost of creating more physical stuff continues to decline, the percentage of GDP attributed to “services” continues to grow, which is harder to measure.

For most of human history, it made sense to favor Type 1 growth because Type 2 growth didn’t really exist.

But once the rate of innovation skyrocketed in the early 1800s, everything changed.

More information captured, more communication, more inventions, more tools, more food, more people, more brains, more ideas, more inventions — the virtuous cycle of innovation.

Type 2 growth exploded, and with it, life got significantly better. While all of this happened, population also exploded. This part is worth emphasizing — increased standard of living has only ever occurred alongside increases in population.

BUT we’ve never (at least according to our knowledge of human history) had increases in living standards alongside a declining population.

The declining population situation

Current estimates expect the human population to peak in the 2080s and then slowly decline in subsequent years.

When the population is only going up, more of everything (Type 1 growth) is sufficient. But when population stagnates (and even starts to decline), we will already have “enough stuff,” and we will start to need “better stuff”.

Fewer people means fewer customers, which means smaller markets, which means fewer workers. And an aging population means these workers will be older, on average.

Zoom out to the broader societal level, and Type 2 growth includes intangibles as well — things like our values, rights, and laws. Freedom, justice, wisdom, opportunity. We can improve all of these things without needing more stuff, and theoretically they can grow infinitely. Better outputs, same inputs.

But what about physical world problems, like climate change?

Sure, advancements in industrialization polluted the air, destroyed parts of the environment, and have had a range of other negative impacts.

But we’ve “grown” as humas with our understanding of these impacts. We’ve learned the importance of the natural world’s relation to our lives, the beauty of it, and the harm that innovation has caused. After all, there’s no such thing as a free lunch.

That said, we’re now making new technology that is more aligned with nature. Just look at places like Scandinavian countries, Singapore, or New Zealand — we’re already starting to make more and better with less. On the energy front, producing more and better outputs with less and better inputs.

We’ve made advancements in alternative energy sources, electric transportation, urban farming, and all sorts of Type 2 growth.

While these are only temporary solutions, advancements in nuclear fusion power (the viable long-term answer) will enable us to have clean energy available at practically zero marginal cost, and potentially within our lifetime.

We have a long way to go before implementing these technologies at scale, but if we reach that point, it will prove that human advancement is in fact compatible with the natural world.

So back to a question we posed before — what’s the alternative? Without technology and capitalism, we have a society of doomsayers and Luddites. We stop all technology and pause where we are. We put an end to innovation and all live happily ever after as the world goes up in flames. The end of the human spirit.

Most technology, no matter how bad the negatives might seem, are net-positive on society (or at least they’re too new to determine their impact one way or the other). We have to remember that technological change as we know it today is fairly new, and we’ve only scratched the surface of what it might look like extended into the future.

Markets need regulation only to keep them fair, open to opportunities for new entrants, and fertile grounds for innovation to prosper.

As our understanding of the world improves, our goals change. Technology improves our ability to better understand the world and set the right goals.

Given enough time, through innovation and entrepreneurship, when problems arise, solutions are invented. Without tech advancements, we wouldn’t be aware of many of these problems in the first place.

Stasis is death. Change is life.

-Owen

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