The other side of the coin: How technological progress can help and hinder economic growth in individualised societies

Ines Stelk, Steven Bosworth, Dennis Snower 05 July 2016

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The consistent, and in many countries ubiquitous, trend towards individualism has become the object of wide-spread attention and societal debate. While a common consensus over the positive or negative implications of this cultural shift is yet to be reached, its existence, at least, cannot be denied.

The manifestations of this trend in our everyday lives are complex, painting a picture on the one hand of an unprecedented and rapid improvement in living standards and societal wealth, accompanied on the other hand by a materialism that has given rise to a general societal preoccupation with individualist concepts such as self-discovery, self-fulfilment, and self-actualisation. Emphasis is increasingly shifting away from the group to the self, leading to diminished collective identities and social cohesion, and shrinking social groups.

Today’s individualism pervades many facets of society – resulting in new cultural norms of smaller families, flexible work patterns, a changing societal demographic, alternative family and relationship constellations, larger family homes and less civic engagement (Putnam 2000). Younger generations’ increasing focus on individualistic traits and narcissism (Gentile et al. 2010, Stewart and Bernhardt 2010), as well as the increased use of more individualistic words and phrases in our language over the past 50 years (Twenge et al. 2012), offer powerful illustrations of how deeply engrained these changes are.

How did it get this far? While the omnipresence of social media and selfie sticks may seem like the symptom of a recent, more extreme wave of 21st century individualism, the shift from collectivism to individualism – from ‘us’ to ‘me’ – was in fact rising throughout the 20th century. Various factors are said to have played a role: the mid-20th century baby boomer generation, the move to white collar jobs (Grossmann and Varnum 2015), capitalist culture, a loss of time for caring activities, advertising, and, most recently, technological progress and the rapid digitalisation of everyday life.

Some research findings (e.g. Gorodnichenko et al. 2011) posit a positive link between individualist cultures and the rate of innovation and economic growth, making it tempting to focus on the direct benefits of individualism as spurred on particularly by current technological progress. However, it is important to consider the other side of the coin – how does technological progress and the associated cultural shift towards greater individualism affect human decision-making, and ultimately, the economy?

Cooperation versus competition

In a recent paper set out to answer this question, we examine how a shift in our cultural and social identities towards greater individualism, accelerated by technological progress, affects individual economic decision-making. We propose that a greater propensity towards individualism promotes competition, at the expense of caring activities. Given the negative externality effects of the former and the positive externality effects of the latter, such a shift carries important welfare implications for wider society.  

Behavioural motivations in balance

Individual decision-making is contingent upon a range of behavioural motivations, such as care, status-seeking, and self-interest, to name but a few. Contrary to assumptions made in standard neoclassical and behavioural economics, these motivations are neither necessarily consistent nor temporally stable, but rather which motivation is most strongly activated in any given moment depends on one’s social context and the wider social environment. For instance, we divide our social space into in- and out-groups, towards which we hold distinct motivations and consequentially behave differently. We are motivated to act more pro-socially and cooperative towards members of our in-group, whereas we compete and engage in positional rivalries and status-seeking behaviour with our out-group.

These distinct motivations hence produce distinct behavioural outputs – care-driven cooperation, status-driven competition, and self-interestedness – which we summarise in a simple utility model, consisting of the following elements:

  • An individual’s ‘caring utility’, derived from the effort put into fostering caring relationships with in-group members;
  • An individual’s ‘positional utility’, derived from competition with out-group strangers. Positional utility can be either pride-driven, i.e. derived from competing with lower-ability members of the out-group, or envy-driven, i.e. derived from competing with a higher-ability outsider. In both cases, one’s own derived utility is dependent on the actions and relative consumption of others;
  • An individual’s non-positional utility, motivated by self-interested wanting and derived simply from one’s own payoff.

Taken together, an individual’s utility is thus composed of the utility derived from caring in-group relationships, from competing with out-group members, and from one’s own payoff. Typically, we strike a balance between different motivations, such as status-seeking competition and caring cooperation. However, contextual factors may induce us to shift this balance by focusing more on either of these motivations. Technological progress forms one such external contextual factor.

The impact of technological progress

Technological advances typically go hand-in-hand with increased productivity levels. With more opportunity and a wider scope for positional competition, sensitivity to the gains from such competition also increases. There is thus a greater incentive to substitute status for caring relationships. The perceived pay-off from competing for material goods exceeds what we believe we can gain from social relationships. This greater sensitivity towards the gains from status-seeking is accompanied by less value being placed on caring relationships, and consequently smaller social in-groups – all three aspects of individualism.

As technology advances and society moves towards greater individualism, we may thus choose to dedicate a greater amount of our time fulfilling our needs for status rather than investing this time into caring social relationships - we begin to gain only at each other’s expense.

Welfare implications

Technological advance therefore acts as one of the drivers of greater individualism and draws focus on status-seeking at the expense of caring relationships. From our analysis, two important implications for societal welfare emerge in particular.

  • The impact of technological progress falls on market activities, not caring relationships

Evidence shows that the productivity-enhancing effect of technological advances tends to fall predominantly on market activities, such as the production of goods and services, as opposed to non-market activities, such as caring relationships. In contrast to caring relationships, where investment takes a similar amount of time today as it did a century ago, the design, production and distribution of goods and services has experienced significant technology-driven productivity improvements. By impacting mainly our market activities and drive for status rather than our social relationships, technological progress thus particularly drives individualism.

  • Technological progress leads to a cascade of social demotions

Conventional wisdom suggests that social welfare remains unchanged by greater status-seeking, as gains in pride when advancing on the social ladder equate with losses from previously felt envy. Our analysis challenges this view and examines the social welfare effects from both caring relationships and positional competition individually.

The observation that social welfare from caring relationships declines as in-groups become smaller is straightforward. In relation to increased status-seeking and positional competition on the other hand, we find that greater individualism leads to numerous associated ripple effects. Specifically, individualisation and the reduced value placed on social relationships over time leads to a cascade of social demotions down the ladder of status. Initially, the top-status in-group shrinks, progressively, lower-status groups then follow. At each step of this individualisation process, where in-groups become progressively smaller, there will be so-called ‘demotees’, who move down the social ladder into the next group, as well as so-called ‘incumbents’ who manage to maintain their social status.

However, a greater level of individualism and smaller in-groups mean that a larger number of demotes will move down the social ranks. Demotees’ increased envy due to having moved down outweighs incumbents’ reduced envy. At the same time, some incumbents’ welfare gains from increased pride may exceed demotees’ welfare losses from reduced pride. However, we show that these pride gains are outweighed by the reduction in care and increases in envy on average.

Greater individualism thus brings with it a clear welfare loss – not just from the deterioration of social relationships but also from a more disadvantaged position of the demotees – those forced to move down the social ladder.

The other side of the coin – the negative indirect effects of technological progress must be weighed against its direct positive effects

Our analysis sheds light on how technological progress and the associated shift towards individualisation impacts human behavioural motivation and economic behaviour. Technological progress impacts the existing balance between cooperation and competition by promoting individualisation, positional competition at the expense of care, and market activities at the expense of non-market ones. The indirect negative welfare implications of technological progress may thus weigh against the positive direct impact of technological innovation.

What’s more, greater status-seeking raises incentives for innovation in the production of status goods, leading to an increasingly self-reinforcing individualisation process. Technological advances may thus enhance a process that exacerbates the negative externality effects of status-seeking while the positive externalities of bonding social capital are lost.

References

Gentile, B, J M Twenge, and W K Campbell (2010), “Birth cohort differences in self-esteem, 1988–2008: A cross-temporal meta-analysis”, Review of General Psychology, 14 (3), 261.

Gorodnichenko, Y, and G Roland (2011), “Individualism, innovation, and long-run growth”, Proceedings of the National Academy of Sciences, 108 (4), 21316-21319

Grossmann, I, and M E W Varnum (2015), “Social structure, infectious diseases, disasters, secularism, and cultural change in America”, Psychological Science, 26 (3), 311-324

Putnam, R D (2000), “Bowling alone: America’s declining social capital”, in Culture and Politics, Palgrave Macmillan US

Snower, D J, and S J Bosworth (2016), “Identity-driven cooperation versus competition”, The American Economic Review, 106 (5), 420-424

Stewart, K D, and P C Bernhardt (2010), “Comparing Millennials to pre-1987 students and with one another”, North American Journal of Psychology, 12 (3), 579-602

Twenge, J M, W K Campbell, and B Gentile (2012), “Increases in individualistic words and phrases in American books, 1960–2008”, PloS one, 7 (7), e40181

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Topics:  Productivity and Innovation

Tags:  individualism, economic growth, technology, utility

Institute for Government

Postdoctoral researcher, Institute for the World Economy, Kiel

President of Kiel Institute for World Economics and CEPR Research Fellow

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