Labour And Materials The Potential For Substitution

The EU White Paper observed candidly that Western economies 'over-consume Nature and under-consume people'. The substitution of labour by capital which has characterised the process of industrialisation 'has been accompanied by a continued increase in the use of energy and raw materials, leading to an over-exploitation of environmental resources', claimed the authors.

Intuitively, the obvious solution to this problem is to try and reverse the direction of substitution. Suppose we accept that the substitution of capital for labour has reduced much of the manual drudgery of our predecessors. Let us admit that the pursuit of increased labour productivities has powered the expansion of the industrial economy— with the help of an expanding demand base. Even so, can we not now say that enough is enough? If we have substituted a profligate use of materials for full employment, might not material efficiency help us to regain full employment? Could we not at least slow down the industrial machines relentless progress towards the disenfranchisement of labour?

This, implicitly, is what the EU White Paper calls for. The authors argue specifically for an increase in the employment content of growth. And here is a strategy which finds many points of contact with preventive environmental management. In certain cases, the reduction in material throughput makes explicit demands on labour—for instance, to carry out improved maintenance and repair work on the factory floor. This suggests at least a possibility that firms could simultaneously increase their workforce, reduce their pollution and maintain their profitability.

What is true of the industrial process is equally true of the cycles of production and consumption which constitute the economic process. A major plank of the preventive environmental strategy (Chapter 4 again) is to improve materials utilisation through reuse, repair and reconditioning, remanufacture and recycling. This strategy—if effective—would make extensive reductions in the extraction and processing of raw materials. Reduced activity in the primary industrial sectors would mean the loss of some jobs in those sectors. An important part of government policy will be to find ways of compensating the losers and minimising the social impacts associated with economic change. But the improved utilisation of resources would tend to increase activity levels in manufacturing industry and in the service sector. In particular, there would be an increased need for skilled maintenance and repair work. A whole new sector of industry directed towards remanufacturing could also emerge.

The employment effect of this new manufacturing and service demand is reinforced by the relative materials and labour intensities of the different industrial sectors. Primary materials processing is energy- and pollution-intensive, but relatively low in labour intensity. By contrast, the manufacturing, service and repair sectors have low material requirements and high labour requirements. Once again, preventive environmental management offers the prospect of increasing labour intensity and reducing materials intensity at the same time.

Several important reservations should be made at this point. First, the economic viability of this reverse substitution of labour for materials is crucially dependent on the relative prices of labour and materials. This is why the strategy of ecological tax reform described in the previous chapter is important. A shift in the basis of taxation away from labour and towards the use and disposal of materials offers the possibility of double dividends: reduced pollution and increased employment. And even though such a policy is clearly interventionist, it intervenes in a manner that even the most committed free-market politician might agree with: the removal of distorting taxes and subsidies to improve the efficiency of the market.

If dematerialisation of the economy is to be successful, however, suppliers of material goods can only look forward to reduced material throughput. Nor is it obvious that they can offset reductions in physical output by increases in product prices. One of the main economic effects of dematerialisation will be to increase the supply of materials over demand, and—by the classic economic argument—to deflate material prices. Although governments could offset this deflationary effect by progressively increasing the level of materials taxes, this would only make matters worse for materials suppliers, who see none of the revenue from these taxes, and only experience a perpetually depressed demand for their products.11 Demand saturation would then lead them into exactly the spiral of unemployment, underinvestment and recession so feared by modern governments. So the revision of profitability (see Chapter 7) envisaged under the new service economy again reveals its importance.

Finally, however, we return to the problem of limits. At best these strategies buy us time. Ultimately economic growth must lead us towards increased material throughput, in spite of efficiency improvements, and we are left face to face with the same problem. So let us revisit it from another perspective.

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