Roger Bootle, 20:28, Sunday 28 August 2011 With consumer incomes under continued pressure and the outlook grim, this seems an odd time to consider the long-term growth of living standards.But summer is my excuse, and the time to muse on a matter of no immediate relevance but great long-term importance namely why most things tend to get better. The continued improvement in living standards that has occurred since the Industrial Revolution has had two underlying sources: the gradual accumulation of capital, built up from savings out of income, and the continued advance of “technology” i.e. know-how, which has enabled us to produce more with a given amount of labour input. These two factors have allowed wages and salaries to increase faster than prices and hence real incomes to rise. Sometimes progress involved making something new; sometimes it involved learning how to make the same thing more cheaply; sometimes it involved learning to make the same thing better. And all the while, as real incomes increased, people often wanted not so much more of a product, but rather a better quality version of the same thing. Accordingly, the period of enrichment has involved not just increased quantities, but increased quality as well. The motor-car is a good example. The modern car performs the same function as cars of 40 years ago. Yet comfort and capability have been transformed. Such improvement has not been universal, though. In the post-war period, the quality of some basic foodstuffs declined as the technology of food production out-ran people’s appetite for better quality. Coffee, bread and beer all deteriorated as the real stuff was superseded by the mass-produced, cheaper, ersatz variety. It might be tempting to believe that this inferior stuff was foisted upon unwilling consumers by a producers’ conspiracy, but consumers rejoiced in the low prices that new production and distribution techniques made possible. Interestingly, though, there has recently been an about-turn. Good coffee, bread and beer are again commonplace. I think this is largely a matter of incomes. People are now able to afford the better, more authentic versions. Yet improvement in living standards is not bound to continue. Many people now believe that it is threatened by the prospective exhaustion of the earth’s supply of key raw materials, especially fossil fuels, and the tendency for their prices to be bid up inexorably as a result of the enrichment of formerly poor countries. These threats are real enough, but they are not the whole story. People come into this world not only with mouths but also with brains. And once you are beyond mere subsistence, it is brainpower which provides food and clothing. The sheer number of brains is not all that matters, though. At least as important is how well they are trained, and how well they are inter-connected. There are two factors here which give hope for the future. The first is the very development of Asia which instils such widespread fear. For most of human history, China has been at the forefront of technological development. But not during the last 200 years. Instead, economic development was driven pretty much entirely by advances made in Europe (Chicago Options: ^REURTRUSD – news) and more recently, the US and Japan (NYSE: MCO – news) . Now, though, there are already fields where China and India are starting to lead. In future, this will become more common and their contribution to the total of human knowledge will increase. This will include knowledge about how to discover and retrieve raw materials, to develop substitutes, and to economise on the use of scarce materials in production processes. The second factor is the nature of the latest great technological leap by mankind, namely the internet. My suspicion has long been that although its initial benefits were over-hyped, its real contribution will only be seen in the spread and development of the next technological advance. For the internet is a knowledge storage, retrieval, dissemination and discovery machine. Its (Paris: FR0010370163 – news) effect should be to speed up technological progress. Of course, there are downsides to technological development. Indeed, computers have been responsible for one area where things have got worse, namely the level of service from banks, utilities, and government departments in fact anything involving the inter-action between human beings and organisations. Computer technology has enabled organisations to replace people with bits of software. The result may be cheaper, but it isn’t better. The fact that your letter can be answered by a computer means that so often you receive a standard non-reply, bursting with information, but none of it applying to you. All this could change too perhaps mirroring what happened to coffee, bread and beer. As they get richer, more customers will be prepared to pay the higher prices involved in real service, and organisations will realise the competitive advantage to be gained from providing people to interact with customers. Don’t worry, this is quite enough inveterate long-term optimism from me. Normal service will be resumed next week.