DEMATERIALISATION, TIME ALLOCATION, AND THE SERVICE ECONOMY
Mario Cogoy
Department of Economics - University of Trieste - Piazzale Europa 1 - 34127 - Trieste - Italy
Phone: ++39040-6767041 / Fax: ++39040-567543 - email:
Abstract
This paper investigates the role of human capital and knowledge-based services in determining the materials intensity, and therefore the environmental impacts of consumption. The model presented generates a stylised structural dynamics of the economy: a phase of growing materials throughput is superseded by a phase of dematerialisation and service-intensive consumption. It is assumed, that consumption is a time-requiring activity, and that knowledge-based services play an important role in shaping the material requirements of consumption. The accumulation of human capital can therefore enable consumers to substitute service-time for commodities as the economy develops. In this way, both the allocation of time and the material intensity of the life-process is endogenously determined in a dynamic model of economic development.
Keywords: Dematerialisation; Time Allocation; Consumption Activities; Human Capital; Service Economy
JEL Classification: D90; J22; O30; O40
- INTRODUCTION
In the present state of industrial societies, welfare is dependent on the production of considerable amounts of waste. Clearly, the environmental impacts of waste not only depend on its magnitude, but also on its chemical and toxicological composition, and on disposal technologies. It seems unlikely however, that socio-economic systems can for longer periods feed on abundant flows of energy and materials, which are ultimately transformed into waste, without causing considerable disruption to the environment. For this reason, environmental economists are presently not only concerned with the reduction of particular kinds of harmful pollutants, but also with the problem of reducing the overall energy and materials intensity of human activities. Dematerialisation of the economy has become therefore an important field of research (Ausubel/Sladovich, 1989; Bernardini/Galli, 1993; Quadrio-Curzio/Fortis/Zoboli, 1994; Vellinga/Berkhout/Gupta, 1998; Haake, 1999), and sustainable policies of economic development can meanwhile rely upon a vast literature on dematerialisation, showing that a considerable body of knowledge and technology is actually available (Ayres/Ayres, 1996; Weizsäcker/Lovins/Lovins, 1997; Schmidt-Bleek, 1997; Weizsäcker, 1998; Reijnders, 1998), which could be used in order to radically reduce materials and energy requirements, without impairing present levels of welfare.
The literature on dematerialisation is mostly concerned with relative materials intensity of economic activities1. Favourite examples often include such items as a comparison of the material content of an early ENIAC computer at Pennsylvania University with a modern laptop (Ayres/Ayres, 1996, p.9) or historical data on the steel content of an average car (Herman/Ardekani/Ausubel, 1989, p.59) or statistics on the requirements of selected raw-materials per dollar of output (Bernardini/Galli, 1993; Fortis, 1994). Such information, although interesting and important for analysing the internal structure of industrial processes, does not imply by itself that the economy is dematerialising in absolute terms. A reduction of materials and energy inputs per unit of output, or of consumption service (relative dematerialisation), will not necessarily lead to a global, or absolute, dematerialisation of the economy, if the gains in terms of ecological efficiency are neutralised by the overall effects of economic growth (De Bruyn, 1998). It is necessary to distinguish therefore between relativeand absolute dematerialisation, the first expression denoting a reduction in the flow of materials and energy per unit of output, or of consumption service, and the second denoting the final overall result, after the economy has dynamically adapted to the stimulus represented by the original increase in ecological efficiency. Since the overall impact of human activities on the environment depends on the absolute level of materials and energy flows mobilized by the economy, it is absolute, and not relative dematerialisation that contributes to sustainability, and it is therefore absolute dematerialisation that will be studied in the present paper in the framework of a dynamic model of the economy.
Different mechanisms leading to dematerialisation processes have been suggested in the literature, for example industrial ecology (Ayres/Simonis, 1994; Ayres/Ayres, 1996; Erkman, 1997; Fischer-Kowalski, 1998; Fischer-Kowalski/Hüttler, 1998), or eco-efficiency (Schmidt-Bleek, 1992, 1997; Weizsäcker/Lovins/Lovins, 1997; Reijnders, 1998; Weizsäcker, 1998). In this paper, I shall attempt to explore the possible role of human capital and consumption services on dematerialisation processes within the economy. The central assumption is, that knowledge not only increases efficiency in commodity production, but also in consumptive processes, in which life-enjoyment is extracted out of commodities and time (Becker, 1965; Michael/Becker, 1973). Consumption will be considered therefore as an activity, transforming commodities, consumptive knowledge, and service-time into time-dimensional enjoyment of life.
If time and commodities are substitutable in consumptive processes, and I shall assume that they are (Spreng, 1993), the proportion of time and commodities, used in consumptive processes will depend on their relative productivities in view of the life-enjoyment target of consumers. I also assume, that knowledge influences the relative productivity of time and commodities, and that the accumulation of knowledge privileges time in the form of knowledge-based consumptive services, as compared to commodities, at higher levels of the socio-technical evolution. In this way, a possibility of substitution of knowledge-intensive service-time for commodities, and therefore a possibility of dematerialisation, arises for advanced stages of the socio-economic system.
The following sections present a model, based on the previous considerations. Section 2 describes stationary optima, and section 3 develops the full dynamic model. Section 4 concludes.
- STATIC ALLOCATION OF HUMAN CAPITAL AND TIME
In this paper I shall neglect the survival sector of the economy, and I shall assume that the target of consumption activities is to spend time in a pleasant way. I shall call this kind of pleasant time-expenditure: enjoyment time. In order to make time enjoyable, consumption activities require different kinds of inputs as: commodities, services and knowledge, and imply the choice of an effort level, i.e. a basic decision on how complex and expensive activities yielding a unit of enjoyment time have to be. Hiking requires, for example, less inputs per hour than sailing. Inputs must be paid for by working, and working requires time. If equal wages are assumed, a person choosing sailing will have to work longer, in order to pay for the inputs, and have therefore less time left for sailing, than a person choosing hiking. The choice of a level of effort can be interpreted as a choice of lifestyles, a higher level of effort corresponding to a more expensive lifestyle. I shall model aggregate social consumption activities therefore in the following way (for a more detailed discussion of this approach, cf. Cogoy, 1999a, 1999b):
(1)
where is enjoyment time, is the chosen level of effort (or an index of aggregate social lifestyles), are consumption goods, the fraction of disposable time allocated to consumption services (population and total disposable time are taken as constant, and total disposable time is normalized to 1), is human capital, and the fraction of human capital augmenting the efficiency of consumption services. is therefore knowledge-augmented service-time. is exogenously given in this section, and will be endogenously accumulated in the research sector of the economy in the full dynamic specification of the model presented in the next section.
Equation (1) is an aggregate description of the consumption sector of the economy and represents therefore the aggregate intensity of lifestyles in the overall economy. The equation states that, once lifestyles are chosen, a longer time of enjoyment () requires more inputs (commodities and/or knowledge augmented service time) in a similar way as an increase of physical output requires more inputs in the production sector. (1) can be interpreted therefore as a production function of enjoyment time, relative to a choice of lifestyles. In the production of enjoyment time, commodities, time, and knowledge are assumed to be substitutable (Spreng, 1993). The enjoyment production function has been taken to be Cobb-Douglas for simplicity, but, clearly, other specifications are also possible. The two productive factors are: commodities () and assisted service labour time (). This means, that technical progress in consumption is of “enhanced labour type”, where service labour is multiplied by a productivity factor equal to human capital available to service activities. Service labour is therefore skilled labour and encompasses all kinds of time-consuming activities (preparing, organising, cleaning, cooking, etc.), which are necessary for enjoyment, but are not reckoned to enjoyment themselves. If human capital accumulates, all other inputs remaining equal, consumers have the choice of either extending enjoyment time (which is only possible, if other types of time-expenditure are reduced), or of increasing the lifestyle-index of consumption.
Commodities are produced by labour and human capital only:
(2)
where is the portion of labour and the portion of human capital allocated to commodity production. is therefore knowledge-augmented production labour.
(1) and (2) imply that physical capital both in production and consumption is neglected. Since the dynamic model in section 3 is driven by the accumulation of human capital, the introduction of physical capital would not contribute additional insights to the model.
Obviously:
(3)
(4)
(4) is the time-budget constraint of the economy, implying that if we want to extend enjoyable time, we have to reduce the time allocated to production and/or to services.
I assume that consumers have preferences over enjoyment time and lifestyles, since both, a longer time spent in enjoyable activities, and more elaborate lifestyles contribute to welfare. I model preferences, therefore, as:
(5)
For a given endowment with human capital, an optimal allocation then solves:
(P1)
subject to (1) to (4).
First order conditions are:
(6)
(7)
(8)
(9)
(10)
Making use of (2 ), and (6) to (9), the consumption technology constraint (1) becomes:
(11)
where:
(12)
(10) and (11) yield the optimal values of and . (11 ) can be interpreted as a technological enjoyment-time/lifestyle-intensity transformation curve, yielding efficient points for given and .
Diagram 1
The relevant feature of this transformation curve in enjoyment-time/lifestyle-intensity space is its concavity. Consumers can efficiently trade enjoyment time against lifestyle-intensity along the transformation curve. Feasible consumers’ choices include two kinds of extreme options.
On the one hand, consumers can set and (implying ). This means, that consumers enjoy pure time, without making any use of commodities or services. I shall call this extreme option: the pure leisure case.
On the other hand, consumers can set and . This means, that consumer will accumulate commodities and services, but allocate no enjoyment time to their consumption activities, which will consist of “having” instead of “doing”. I shall call this second kind of extreme option: commodity hoarding.
Pure leisure and commodity hoarding are at any point in time technologically feasible options for consumers2. The reason, why consumers will not adopt these extreme, but feasible, options is based on consumer preferences, which must be such, as to rule out an optimal choice in one of the extreme points. For this reason, I shall now formulate conditions on consumer preferences generating an interior solution () for (P1).
I shall model preferences as:
(13)
Using the enjoyment/intensity transformation curve (11), utility can be expressed as a function of enjoyment time alone:
(14)
It is easy to see, that for , commodity hoarding () is the optimal option.
For however, utility maximisation will yield an optimal interior solution for . In this case (14) is an inverted U-shaped curve with for and for . The unique peak of this inverted U-shaped curve can be found by deriving (14):
(15)
Setting , one obtains:
(16)
(16) has a unique interior solution, as shown by the diagram:
Diagram 2
where a = and b = .
For the above stated reasons, I shall assume in the following: . This means, that enjoyment time and lifestyle intensity are bad substitutes. This is quite a resonable assumption, since it implies, that consumers are only moderately disposed to trade enjoyment time against consumption intensity, and that they are not willing therefore to solve their maximisation problem by opting for commodity hoarding.
- A DYNAMIC MODEL OF HUMAN CAPITAL AND DEMATERIALISATION
I shall now proceed to extend the results of the preceding section to a dynamic model of an economy accumulating human capital and thus endogenously increasing its technological capabilities.
Since I am more concerned with the possible substitution between commodities and services, than with the ecological quality of commodities, I shall assume physical homogeneity of output through time. This means, that a fixed quantity of materials and energy is embodied in a unit of output, and that absolute dematerialisation is therefore only possible, if physical output declines. In traditional dynamic models, a decline in output with constant population is tantamount to a decline in welfare, but this is not necessarily the case, if consumption is conceived as an activity, and if commodities can be substituted by services in consumption activities.
In analogy to Lucas (1988), I assume that human capital is accumulated with the aid of skilled research labour:
(17)
where is the portion of time allocated to research.
The time-budget constraint becomes therefore:
(18)
(1), (2) and (3) also apply to the dynamic case.
Since , (17) implies that the sum of human capital in production and consumption acts as an externality in assisting labour in research.
Equation (17) is a rather simple means of introducing an engine of technical change into the model. Although the process of generation of technical change is certainly much more complex, than can be represented by (17), the choice of such a crude simplification is justified in the present context, since the focus of this paper is not so much on the complex texture of social interactions implied in the generation of technical progress, but rather on the effects of technical progress on the structure of time and on the flow of energy and materials supporting economic activities.
The central assumption I now make is that the parameter of the consumption technology depends on knowledge, and therefore on human capital:
(19)
The main idea is that, at a low level of knowledge, the relative productivity of commodities increases, since commodities can better suit the requirements of consumption activities of a lower degree of complexity (“commodification”, Manno, 19993). As knowledge accumulates, after a turning point, the relative productivity of skilled services rises to the detriment of commodities (“service economy”, Stahel, 1994). Examples of how an increase in knowledge, information and related services can better contribute to welfare than an increase in the endowment with commodities, include such items as: integrated transportation systems based on using instead of owning (Stahel, 1994), locally tailored energy supply systems, prevention oriented medical care, etc. Knowledge does not only pertain to the best way of producing things, but also to the best way of conceiving, organising, and planning social networks that contribute to a more intelligent use of things. For this reason, when society is already endowed with a satisfactory quantity of commodities, social and organisational know-how, mostly ignored in models of economic growth, becomes more productive than material goods in the satisfaction of human needs.
This idea can be captured by using a bell-shaped function for ψ(H), for example:
(20)
where has a maximum value equal to at a turning point, characterised by , and a lower bound . A larger value of corresponds to a “bell” with steeper sides. In this formulation, constant returns to scale in commodities and skilled service-labour are preserved for the production function of “enjoyment” at any point in time, but the relative productivity of commodities and skilled service-labour changes with the accumulation of human capital.
I assume, that the social planner is aware of (20) and that she knows therefore in advance how will change as the consequence of the accumulation of . An optimal path then solves:
(P2)
subject to (1), (2), (3), (17), (18) and (20). is the rate of discount.
First-order conditions are:
(21)
(22)
(23)
(24)
(25)
where is the shadow-price of human capital.
The transversality condition is:
(26)
First-order conditions, together with the constraints, determine the optimal dynamics of the system.
From (3), and (22) we get:
(27)
(28)
and from (18), and (23):
(29)
(30)
This means, that the relative shares of the productive and service use, both of labour and of human capital, are determined by the dynamics of .
(31)
Diagram 3
Eliminating , , , and , one gets:
(32)
(33)
(34)
(35)
where:
(36)
(37)
Taking time-derivatives of all variables, eliminating , and considering that:
(38)
(39)
one gets a dynamic system in , , , and :
(40)
(41)
(42)
It is now possible to study the dynamics of this economy, using phase-diagrams. (40) to (42), together with (33), (34), and (17) yield a system of 6 equations in 8 variables: , , , , and their time-derivatives. Setting the time-derivative of one variable equal to 0, the system yields loci of stationary points for that variable. The system cannot be solved explicitly, but commonly available software (e.g. the Solver tool in EXCEL®) can be used to compute stationary loci of the variables for given values of the parameters. I shall not discuss all possible outcomes, in dependence of various possible combinations of parameters, but only pick a particular set of values, which generates a stylised dynamics of : an increase of in a first phase, characterised by a low value of (“commodification”), and a second phase of absolute dematerialisation, after a critical value of has been reached (“service economy”). Such a set of values is, for example: .