There’s No App for That

It's 2012. It's about time we had economic policies for a new kind of growth.

ERIC PIERMONT/AFP/Getty Images
ERIC PIERMONT/AFP/Getty Images
ERIC PIERMONT/AFP/Getty Images

Some things about our lives as consumers hardly ever change. We like new clothes, we enjoy a meal with friends, and we always seem to run out of toilet paper.  But the nature of our consumption is shifting in an unprecedented way, from tangible stuff to intangible experiences. This is probably a good thing, since essential commodities from copper to corn are getting scarce, and someday the very atoms that make up the universe may be as well. But if we're going to have new kinds of consumption, we'll need new policies to support them as well.

Some things about our lives as consumers hardly ever change. We like new clothes, we enjoy a meal with friends, and we always seem to run out of toilet paper.  But the nature of our consumption is shifting in an unprecedented way, from tangible stuff to intangible experiences. This is probably a good thing, since essential commodities from copper to corn are getting scarce, and someday the very atoms that make up the universe may be as well. But if we’re going to have new kinds of consumption, we’ll need new policies to support them as well.

Today a rising share of our consumption is made up of experiences: human interactions, fantasies, and creative moments. They sometimes take place in the real world, with face-to-face contact and other forms of communication facilitated by ever-improving technology. But increasingly, they happen in the virtual world, through the media of computers, television, cinema screens, video game systems, and even our own minds. We pay for some of these experiences directly, like the Angry Birds sequel, but others are supported by services and platforms we buy separately. For example, Twitter may be free to use, but your computer, your Internet service, and the electricity to run both of them are not.

The satisfaction we get from all of these experiences is an important part of our living standards. We get to share our interests, air our views, forge new relationships, receive recognition, and even live beyond the bounds of our physical existence. We can’t easily get that kind of satisfaction from plain old stuff.

There are other important differences from an economic point of view. First, producing new experiences usually requires a big upfront investment — it costs upwards of $10 million to create a video game these days — but offering an existing experience to an additional Angry Birds consumer has a very low cost. In addition, one consumer’s enjoyment of an experience doesn’t necessarily preclude or subtract from anyone else’s enjoyment; that’s not true for something like an apple or a library book. And finally, the satisfaction we obtain from experiences is non-comparable; you and I may both have a great time watching the new James Bond film, but for different reasons and in different ways. We can’t necessarily say whether you had a better time than I did.

This last distinction is especially important, because it opens the door to much higher levels of wellbeing. Economists have suggested that people earning more than a certain income may only be happier when their material living standards are higher than those of people around them. It’s easy to compare living standards by looking at people’s cars, houses, clothes, and the like, but it’s much harder to compare edification from experiences. The "keeping up with the Joneses" aspect of our lives may finally start to disappear as experiences make up a greater share of consumption.

This may sound like a "first world problem," but the number of rich countries is steadily increasing. Unfortunately, most of them still live with economic policies designed to promote the supply of and demand for more traditional products such as crops, fuels, and manufactured goods. To enjoy more experiences, we need different priorities.

Among the most important is keeping the marginal cost of adding new users small. To make a new experience available to the maximum number of people at low cost, our societies need better broadband and wireless service, more interoperability for different brands of mobile phones, and more energy-efficient devices. (And yes, we need better WiFi aservice on Amtrak.) These priorities are particularly relevant for experiences like massively multiplayer games, social networks, and other content-sharing platforms where the richness of the experience rises with the number of users.

We also need to understand more about human behavior, the design of experiential products, and the data science that underpins them. As in the case of new information technologies and energy sources, research in these areas has the properties of a public good. Discoveries such as holographic imaging, cybernetic connectivity, and brainwave processing may benefit all of our society, but no individual or company may have sufficient incentive, patience, or capital to undertake the needed research on its own. Governments around the world already give billions in grants for scientific research in biology, medicine, chemistry, and physics. Research into the mind and its links to the five senses could be just as important for enhancing society’s wellbeing.

Another requirement for the creation of new experiences is interaction with new content and ideas, which are drawn most easily from cultures outside our own. Greater mixing of cultures, through trade, travel, and migration, can plant the seeds for entire crops of new experiences; consider the West’s growing devotion to yoga, the worldwide success of Japanese horror films, or the popularity of Sufi poetry.

Yet lowering obstacles to the movement of people, goods, and services has lately been a low priority in the world’s most advanced economies. Negotiations at the World Trade Organization have all but petered out more than 11 years after the launch of the Doha Development Round of talks. Immigration has come under greater constraints in the past decade thanks to the war on terror in the United States, xenophobia in Europe, and parochialism in Asia. And the global economic downturn has led some political leaders to resort to protectionism and poisonous brands of nationalism. Reversing these tendencies would set the stage for a new wave of global growth in living standards.

These new priorities are especially urgent not just because of the scarcity of stuff that the world is facing, but also because of the current trend in its consumption: fewer products that can do more things. Today a watch, calendar, personal stereo, book, briefcase, landline telephone, and even wallet can all be replaced by one device. Yet this one device can carry and convey an infinite number of experiences, and so the scope for higher living standards is similarly unlimited. It’s time for economic policies to promote this new kind of growth. There’s no app for that — yet.

Daniel Altman is the owner of North Yard Analytics LLC, a sports data consulting firm, and an adjunct associate professor of economics at New York University’s Stern School of Business. Twitter: @altmandaniel
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