I’ve wondered how to best explain the advantages of the Diagonal Economy in confronting energy descent. I think that reference to an old post addressing “anti-economies ” is perhaps the best framework. There, I discussed the classical sources of economic efficiency: economy of scale and economy of place.
Both economies of place and scale will be impacted by the phenomenon of energy descent—the idea that there will be increasingly less surplus energy available to society going forward. While I am very confident that this will be the case, it’s necessary to recognize that there are those who don’t think this will be true—or at least that this won’t be a significant force going forward because we’ll have plenty of energy available from renewable or other sources. Some even think that technologies like thin-film-solar will make energy “too cheap to meter.” While I think this is highly unlikely, it’s also important to accept that this is a possibility—to think otherwise (or to think that it’s an inevitability of technological innovation) is an inherently faith-based position.
I’ve critiqued this “viridian vision” previously here and here . This post operates on the assumption that society does undergo energy descent, and to the extent that assumption is mistaken then the conclusions reached in this post will be incorrect. However, even if this assumption is faulty, the general concept of the Diagonal Economy is not necessarily flawed because there are several other forces supporting its adoption that I will address in coming posts. Now, on to a discussion of the impact of energy descent:
Economy of place, the first of the two classical “economies,” is the concept that some things are more efficiently done in certain places--to use the classic example, it would be just plain silly for to try to grow grapes for Port in dreary England when they grow so nicely in Portugal. Lumber is more ripe for the logging in Oregon than it is in Kansas, etc.
Of course, when it comes to physical products, economy of place is facilitated by affordability of transportation. It still made sense to grow grapes in Portugal when the only way to get them to England was via sail. This effect was less powerful, however, because of the comparatively higher cost of transport via sail (though wind is free, the overall cost of transport by sail was more than modern transport by containerized freighter). Many items that are transported between continents on a routine basis today were produced locally in the past because of the then higher cost, or slower speed, of transport. But the oil age, with its cheap and rapid transport options, has fundamentally re-shaped our economy around extreme economies of place. This will change as oil and other sources of energy for transport (potentially even for the energy for transport of information over the internet) become increasingly expensive. As economy of scale is less decisive a grantor of fitness in our ongoing economic evolution, we’ll see more localized industry gain on its centralized predecessors. This won’t necessarily mean a return to the same look and feel of past localization—too much as changed to think we’ll simply revert to the 18th century. As the saying goes, history doesn’t repeat itself, but it rhymes.
Economy of scale is the concept that it is more efficient to do lots of one thing rather than trying to do a little of everything. You can specialize and stratify and apply all kinds of economic terminology, but the bottom line is that if all you do all day is draw out wire into pins (to take Smith’s classic example), you're going to get pretty good at it. But if you only had to draw out wire into a pin when you need one (can't remember the last time that happened to me), you will probably be very slow and inefficient in their manufacture. This is economy of scale--and it applies, for obvious reasons, even better to things like microprocessors and flu vaccines than push pins.
As with economy of place, the leverage available through pursuit of economies of scale will change under energy descent. To some extent, economy of scale is facilitated by cheap transportation fueled by cheap energy. Of course, economy of scale also facilitates specialization, which can lead to economies of production under certain circumstances. While not strictly a prerequisite to reaping economies of scale, centralization is a common symptom of such efforts. It’s possible to leverage distributed networks of highly specialized functions to achieve economies of scale (something especially compatible with the Diagonal Economy, and that I will cover later), but this is not yet commonplace. As a result, economies of scale tend to require cheap energy for transportation to meet three needs: 1) to get workers to a physically centralized location where they can perform specialized tasks, 2) to transport physical goods to this specialized location, and 3) to redistribute the resulting physical product to its end user. It’s also worth addressing one more symptom of economies of scale: the information-processing burden of hierarchy, or what Robert Anton Wilson called the SNAFU principle. Economies of scale are usually (though, importantly, not necessarily) the result of hierarchal structures—corporations, governments, religions, etc. Because control (both of process and output) is often a requirement of those who design such institutions, hierarchal structure is a necessity. However, with such hierarchal structure comes an increased information-processing burden as the top must communicate through several relays to the bottom, and vice versa. This tendency, while individually important, is relevant here because it can exacerbate the importance of cheap energy/cheap transportation to economies of scale because hierarchies tend to require more people—and hence greater centralization and more transportation to and from—as a result of this information-processing burden. The truism that hierarchy tends to result from a need or desire for control—of inputs, outputs, process, etc.—also suggest that hierarchies can be avoided by forfeiting control over these parts of an economic process.
Like economies of place, the result of energy descent will be that economies of scale provide less comparative advantage than it did in the past. This will be particularly true where economies of scale require physical centralization and where it depends on hierarchal control structures. Therefore, as a result of energy descent, we’ll see two trends: away from physical centralization, and away from hierarchal control structures. Here in particular, because of both available communications technology and the conscious understanding of modern communication possibilities like P2P and open-source, the future will not be a simple reversion to the past. Instead, there will be great comparative opportunity to structures that develop a way to leverage economies of scale without depending on physical centralization or hierarchy. The Diagonal Economy is specifically conceived with this possibility in mind—open-source information processing, the development of platform-based manufacturing, and other concepts that I will discuss in more detail later.
I think it might be useful to envision the spectrum of economic possibilities along two axes: degree of hierarchy and degree of physical centralization. The result of the declining importance of economy of place and economy of scale presents a potential bifurcation point on the resulting graph of our future economic path(s). If you accept that, on one axis, the scale and centralization of our economy will recede due to energy descent, then I argue that the variable axis is the degree of hierarchy within our economy.
Less centralization and scale but more hierarchy than present looks like a form of neo-feudalism to me. I certainly don’t mean that this will be a regression to jousting and castles, but rather that we’ll see an increasing disparity in standard of living among an increasingly stratified local political and economic structure. For matters of ontogeny and optimizing the median standard of living, this is the less desirable option. However, as this option may prove the best option (both in absolutes and comparatively) for current elites, I would not be surprised if there is a significant push in this general direction. I think that, absent active pursuit of the alternative outlined below, the natural tendency under energy descent will be for our current structure to “erode” into some kind of a neo-feudalism with less centralization but more hierarchal stratification.
The alternative—less centralization, less scale, and less hierarchy—is what I envision as the Diagonal Economy. This is my preferred vision of the future, but not one in which I am especially confident. While I think this option will be the most effective in maximizing the absolute median standard of living in an environment of energy descent, it will be a challenge to implement because, as I just pointed out, there will be little incentive for existing elites to choose this path.
Finally, the third option of less centralization and scale but about the same amount of hierarchy seems unlikely. This option is the analog to the viridian vision of the future as a land of renewable plenty! Considering that this framework accepts declining surplus energy due to energy descent, the existing economic structure will simply be untenable. As pointed out above in the discussions of economies of place and scale, if energy for transportation is less available then we must reduce centralization. Existing levels of hierarchy that made sense under existing levels of centralization will no longer be tenable—the overall economic product per person available will decline along side energy, requiring either more hierarchy to enforce a greater stratification or no providing enough economic incentive to those at the top of the hierarchy to justify its costs. While I have argued that a flatter structure with much less information processing burden may also provide high quality of life to its constituents, it does so specifically because of the avoided cost of hierarchy. Instead of the status quo, then, It is my guess that we will either see an intensified but localized hierarchy (neo-feudalism) or a dissipation of hierarchy itself (the Diagonal Economy). Finally, for those who do not actively pursue the Diagonal Economy option, the existing political and economic terrain will all but mandate a neo-feudal future.