Paul Krugman, our most recent Nobel Laureate in economics* has pointed out that while productivity isn't everything, in the long run it’s almost everything. As, on average, labour becomes more productive then for each hour of work there are more things made, meaning more things to share around. Rising productivity is thus the secret to rising living standards.
This simple and basic fact about our world (and yes, there are more complex versions of the idea to do with total factor productivity but let’s stay simple shall we?) makes this suggestion from the European Union one of the scarier ones I’ve seen even from that source.
Directive of the European Parliament and of the Council, establishing a framework for the setting of ecodesign requirements for products
This directive is the cornerstone of the Ecodesign process, and for good measure the European Parliament is proposing a more sweeping version than even the European Commission wants. Ecodesign was intended by the Commission to set minimum standards for 'energy-related' products, but Parliament wishes to remove this qualifier. Quite literally, they are suggesting that every product introduced into the European market is going to have to meet some set of ecodesign requirements. And they will have to be tested to make sure that they do in fact meet such requirements.
Hands up everyone who thinks that we’re going to get a reasonable and rational testing system? Hmm, OK, so that’s a no, is it? But But more importantly, it's likely to put a chill on innovation and productivity.
In essence, productivity rises through a mixture of invention and innovation. Invention produces the groundbreakers - electricity, the internet, personal computers, mobile phones. Innovation is usually defined as the incremental improvement of already extant inventions. We can observe that large companies can be pretty good at innovation. IBM most certainly was over the years, making processors that little bit faster, making memory that little bit larger each and every turn of the product cycle. But it was the Home Brew Club, Apple, and the raft of competitors that we’ve all forgotten that fired up the personal computer revolution. Even IBM's own PC was a small team of engineers and a soldering iron rather than a mainstream product for the company.
There’s a good reason for a reluctance to launch inventions on the part of major companies. If you have successfully colonised some corner of the market then you're really not going to be all that excited about promoting a product which is going to overturn that market and your position in it. So we usually see the inventions, the out-of-the-box ideas, coming from the upstarts, and the innovation coming from the established incumbents.
OK, and so what? Well, every time you put another layer of compliance, of asking for a licence, of having to have a product tested, you increase the advantages the large established companies have over the upstarts. For they have the money to pay for such rules and regulations and the two men in the garage do not, as Jobs and Wozniak did not. So, the price we would pay for insisting upon all new products meeting some ecodesign set of rules is that we’ll see less invention from those upstarts: leading, inevitably, to a slower rise in productivity than we would otherwise have seen. Thus making our children poorer.
You might recall a storm in the papers recently over how large plasma screens would be banned under new European rules - they tended not to mention the Ecodesign Directive, but that was what they meant. I agree, large plasma screens may or may not be a sign of rising living standards and using energy (or in fact, the emissions from creating the energy they use) as a reason for them to be potentially banned from the marketplace might not be all that terrible an idea.
The true tragedy though is one that we won’t actually see. There will of course be those who insist that a Pan European Office for the Ecodesign of Absolutely Everything (rather than the more limited current system of those things that use significant amounts of energy) will be a wonderful idea. That we should, indeed, consider the impact upon the environment of any and every new product before the plebs are allowed to play with it. There will be pointing to the things that should be forbidden, like those plasma screens and their emissions, and thus to the good that the regulations do. But as Frederic Bastiat** pointed out, the art of economics is in looking for what isn’t seen.
By slowing down invention through adding to the costs the inventors face, we’ll reduce the number of inventions that we plebs do actually get to play with. We won’t see the things we haven’t got, but that doesn’t change the fact that by reducing productivity growth we will make our children poorer than they otherwise would be.
Just as an example, does anyone think that such an Ecodesign Office would approve the internal combustion engine if it arrived now? The jetliner? Even the train?
*Yes, I know, its the Swedish Bank prize in honour of Alfred Nobel, not a real one, but I don’t care. ** A Frenchman who would have got the Nobel (see*) if he hadn’t died a century before they started.
Tim Worstall knows more about rare metals than most might think wise, and writes for himself at timworstall.com, and for The Business and the Adam Smith Institute, among others.