Table Of ContentThe Limits to Certainty
International Studies in the Service Economy
VOLUME 4
Series Editors:
Orio Giarini, The Geneva Association
Geza Feketekuty, USTR
Editorial Board:
Gary Akehurst, Touche Ross Management Consultants, London, UK
V.N. Balasubramanyam, University of Lancaster, Lancaster, UK
Jadish Bhagwati, Columbia University, New York, USA
Joel Bonamy, CEDES, EculJy, France
Tom Elfring, Erasmus University, Rotterdam, The Netherlands
Patrick Harker, Fishman-Davidson Center for the Study of the Service
Sector, Philadelphia, Pa., USA
Brian Hindley, The London School of Economics and Political Science,
London, UK
John H. Jackson, The University of Michigan, Ann Harbor, Mich., USA
Raymond Krommenacker, GAIT, Geneva, Switzerland
Richard Normann, SMG International AB, Stockholm, Sweden
Dorothy Riddle, Service Growth Consultants Inc., Halifax, N.S., Canada
Andre Sapir, Universite Libre de BruxelJes, BruxelJes, Belgium
Carlo Secchi, Universita Commerciale Luigi Bocconi, Milan, Italy
Jiri Skolka, Austrian Institute of Economic Research, Vienna, Austria
Richard Snape, Monash University, Melbourne, Vic., Australia
Robert Stern, The University of Michigan, Ann Arbor, Mich., USA
Ingo Walter, New York University, New York, USA
The titles published in this series are listed at the end of this volume.
The Limits to Certainty
2nd Revised Edition
by
ORIO GIARINI
and
WALT ER R. STAHEL
PROGRES,
Programme of Research on the Economics of Services,
Geneva, Switzerland
Preface by lIya Prigogine
Foreword by Alexander King
SPRINGER SCIENCE+BUSINESS MEDIA, B.V.
Library of Congress Cataloging-in-Publication Data
G i a r in i. Or iD.
The I imits to certainty I by Orio Giarini and Waiter R. Stahel. --
2nd rev. ed.
p. cm. -- <International studies in the service economy; v.
4)
Includes bibliographical references and index.
ISBN 978-94-010-4780-7 ISBN 978-94-011-1775-3 (eBook)
DOl 10.1007/978-94-011-1775-3
1. Service industries. 2. Uncertainty. 3. Risk. I. Stahel.
Waiter R. 11. Title. Ill. Series: International studies in the
service economy; 4.
HD9980.5.G52 1993
658.4--dc20 93-6703
ISBN 978-94-010-4780-7
Printed on acid-free paper
All Rights ReseNed
© 1993 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 1993
Softcover reprint of the hardcover 2nd edition 1993
No part of the material protected by this copyright notice may be reproduced or
utilized in any form or by any means, electronic or mechanical,
including photocopying, recording or by any information storage and
retrieval system, without written permission from the copyright owner.
TABLE OF CONTENTS
Acknowledgements xi
Preface by Ilya Prigogine xv
Foreword by Alexander King ix
List of figures xxi
Chapter 1. Introduction 1
1.1. In Search of Progress: From "The Limits to Growth"
To "The Limits to Certainty" 1
1.2. Three Major Issues in Reconstructing an Image of the Future 3
1.3. Uncertainty: the Condition for Reconstructing the Future 7
Notes Chapter 1 9
Chapter 2. The New Battleground for Risk-Taking:
The Service Economy 11
2.1. The Legacy of the Industrial Revolution 11
Leaving Heaven for a World of Scarcity 11
Producing Tools and Goods to Increase the Wealth
of Nations 12
The Monetarization of the Economy: Developing
Capitalism 15
The Utopia of Certainty 19
2.2. The Limits of the Industrial Revolution 23
Production is not Isolated from the Non-Monetarized
World 23
Production's Increasing Dependence on
"Non-Productive" Service Activities 26
The Pace of Discovery and Innovation versus the
Diminishing Returns of Production Factors:
the Long Cycles 29
The End of the Megacycle of the Industrial
Revolution 34
The New Dimension of Risk and Uncertainty 37
vi
2.3. The "Service" Economy 40
The Growth of Services in the Production of Wealth 40
The Growth of Industrialization within the Service or
Tertiary Sector 44
The Horizontal Integration of All Productive
Activities: the End of the Theory of the Three
Sectors of Economic Activity and the Limits to
Engel's Law 45
System Functioning: Complexity and Vulnerability 50
The Notion of Risk in the Industrial Revolution and
in the Service Economy - Moral Hazards and
Incentives 54
Tradability and Homogeneity of Services 60
Material and Immaterial Values in the Service
Economy - the Value of Education 64
2.4. Value and Time in the Service Economy: the Notion of
Utilization 65
The Product Cycle: from Raw Materials to Recycled
Materials 65
The Utilization Period, 69
Utilization-oriented Innovation - Some Examples 76
Waste, Obsolescence and Fashion 86
Coping with Time Duration and Uncertainty 91
2.5. Social Strategy in the Service Economy 97
Employment and Productive Occupation 97
The New Risk-Taker in Work: Women, the Younger
and the Elder 104
Negative Income Tax and Social Benefits 113
The "Four Pillar" Strategy for the Elderly 118
Selling Security or the Means for Facing Risks
and Uncertainties 120
Notes Chapter 2 125
vii
Chapter 3. Facing Social Uncertainty: Towards a New
Social Policy in the Service Economy 129
3.1. Basic Issues 129
The Blessing of an 'Ageing' Population 129
Flexible Employment 131
The Ability and Capacity to Work at any Age 132
Social Security, Savings and the 'Intergenerational'
Social Contract 133
What is the Fourth Pillar? 134
Implications of the Fourth Pillar for Enterprise
and for the Community 137
Towards a New Conception of 'Full' Employment 140
3.2. Towards the Fourth Pillar: Trends 141
Demography: the Ageing Population of Industrialised
Countries 141
Social Security: How to Finance Tomorrow's
Pensions? 148
Employment: What Jobs for Tomorrow? 150
Defining a Life Cycle for the Future 156
3.3. The Fourth Pillar in some GECD Countries:
From Evidence to Potential 157
Sweden and the Nordic countries 157
Denmark and Finland 161
Japan 161
The USA 166
France 170
UK 177
Germany 179
Notes Chapter 3 181
viii
Chapter 4. Producing the Wealth of Nations; the Risk
Takers and the Supply-side of the Economy.
The Dynamics of Disequilibrium 185
4.1. Producing 185
Life as a Production System 185
The Conditions of Supply: Uncertainty and Risk 187
Risk and Responsibility 191
Supply in Classical Economics 194
The Prosumer, Services Supply (Externalizing
Process, Self Services, Spin-Offs) 195
4.2. Production Cycles 197
Crises and Deflation in the Industrial Revolution 197
The Great Expansion of the Industrial Revolution and
the Role of Demand 200
The New Supply Bottlenecks of the 70's and Inflation:
Quantitative and Qualitative Rigidities 204
4.3. The Role of Demand 207
Supply and Demand in a Static "Perfect" Equilibrium 207
Demand as a Selection Mechanism 210
4.4. Equilibrium vs Non-Equilibrium 212
Economics between Certainty and Uncertainty,
between Static and Real Time: Reference to the
Paradigms of Natural Science 212
From Newton to Prigogine: Equilibrium as a Goal or
"Attractor" in a Far-From-Equilibrium System 217
4.5. Accounting for Value in the Service Economy 220
Measuring Value in the Industrial Revolution: the
Monetarized Flow 220
Old and New Shortcomings: Wealth and Riches, the
Paradox of Relative Prices, Deducted Value, and
Non-Accounted Value 224
"The Bath-tub" system: Measuring Results through
Indicators 228
ix
4.6. The Problem of Demarcation in Economics 231
Opening-up the Boundaries of Economics:
beyond Production (Services), beyond Time
(Uncertainty, Risk), beyond Monetarization
(The Environment); Complexity and Uncertainty 231
Redefining New Boundaries for Action 234
The Role of the Market System 236
Notes Chapter 4 239
Chapter 5. At the Roots of Uncertainty 243
5.1. Risk, Uncertainty and the Individual 243
Perception of Risk 243
The Certainty of Misery - the Misery of Certainty
(Nihilism) 251
5.2. A Dialogue: Founding the Secretariat for Uncertainty 256
Centre for Reflection on Uncertainty - Draft
Declaration 262
Notes Chapter 5 264
Bibliography 265
xii
economic growth that had been successfully developed by the
Industrial Revolution over a period of 200 years. This earlier
report went on to propose that, as much in practice as in theory,
new economic growth would in future need to integrate ecological
as well as economic factors and would entail a reappraisal of the
notion of economic value. This shift in economic thinking
paralleled a trend, emerging at a more fundamental philosophical
level, which rejects determinism in favour of indeterminism. The
traditional deterministic - and essentially negative -perception of
risk and uncertainty as reflecting "imperfect knowledge" which it
is science's business to remedy is now giving way to a positive
connotation which views risk and uncertainty increasingly as
constituting new areas of challenge.
The starting point for the project which led to the present book
was a meeting by the "Risk Institute Project Group" held in Paris
in 1986; among the participants were Raymond Barre, Andre
Danzin, Montague March, Fabio Padoa, Richard Piani, Edward
Ploman, Ilya Prigogine, Jean-Pierre Ritter, Alvin Toeffler and
Orio Giarini.
The next step was the foundation of PROGRES (Programme
of Research on the Economics of Services) in Geneva in 1987.
The ideas proposed in the 1980 report to the Club of Rome had in
the meantime matured and it had become clear that the present
economic situation was not merely "post-industrial", anymore
than the Industrial Revolution had been merely a "post-agrarian"
economic phenomenon. Given that the key to economic progress
has always been a matter of a better allocation of resources, and
that the majority of resources are available today in the form of
service activities, the next intellectual step was to admit that for
measuring and exploiting such resources, one needed a theoretical
frame of reference based on the notions of risk and uncertainty,
rather than on the deterministic values derived from a traditional
economic system assumed to be in "perfect (certain) equilibrium".
Delivering a service inevitably involves a performance in real
time, and, thus, the business of evaluating services will neces
sarily have to do with probabilities. This can be compared to
fixing the "price" of an insurance policy, i.e. assessing the proba
bility and cost of future events. A situation of equilibrium is only
one possibility among others and depends, as Ilya Prigogine
would say, on "bifurcations". This is why "The Limits to Certain
ty" are also about the economic foundation of the "Service Econo-
