Summary
Technological progress in energy, digitization and automation structurally lowers the marginal costs of production. Yet this increasing abundance does not automatically translate into broader prosperity or existential security. This article argues that the explanation lies in institutional friction: economic institutions were designed for a world of scarcity, while productive technologies are moving toward abundance. In line with insights from endogenous growth theory, institutional economics and political economy, it is concluded that not technology, but institutional recalibration will be the determining factor in future welfare distribution.
1. The Paradox of Abundance
In virtually all sectors, production costs decline due to technological advancement. Renewable energy has marginal costs approaching zero; digital goods are almost costlessly reproducible; automation reduces labor costs. Yet many households experience increasing insecurity regarding income, work and access to essential services.
This paradox — growing production capacity combined with perceived scarcity — suggests that economic problems are shifting from the production sphere to the institutional sphere. The question is no longer primarily how we produce more, but how we organize production, access and income distribution.
2. Technological Dynamics and Falling Marginal Costs
Endogenous growth theory, as developed by Paul Romer, emphasizes that knowledge is a non-rival good: one person’s use does not limit another’s. Digital technology dramatically amplifies this property. Software, algorithms and data can be reproduced at virtually zero marginal cost.
Economic historian Joel Mokyr highlights the importance of knowledge accumulation as the engine of long-term growth. What is new today is the scale and speed at which knowledge now spreads.
Furthermore, automation reduces the contribution of human labor in production processes. Where labor was traditionally a scarce factor of production, capital- and technology-intensive systems increasingly take over tasks. This has direct implications for wage formation and income distribution.
3. Institutional Inertia
Although productive technology is changing, institutions largely remain based on scarcity-oriented thinking.
According to Ronald Coase, institutions and firms exist to lower transaction costs. Yet digital technology drastically reduces these costs. Still, legal and organizational structures often remain unchanged.
Daron Acemoglu and James A. Robinson emphasize in their work the importance of inclusive versus extractive institutions. When technological progress occurs within institutions that promote the concentration of economic power, abundance does not lead to broad prosperity, but to increased inequality.
Today’s economic order shows features of what might be called institutional “lock-in”: property rights, labor market structures and fiscal systems are tuned to an industrial economy where labor was the dominant production factor.
4. New Scarcity: Access and Power
In a world of increasing abundance, scarcity shifts from physical goods to access and coordination. Digital platforms create network effects that concentrate market power. Economic value lies less in physical production and more in control over infrastructure, data and standards.
Here we see a shift from classical production scarcity toward institutional scarcity: those who have access to networks, algorithms or capital determine the distribution of returns. Market forms change, but concentration of economic power can increase.
5. Labor, Income and Decoupling
When technology replaces or augments labor at falling cost, the traditional coupling between labor and income comes under pressure. Historically, productivity growth led to higher wages. But with capital-intensive technologies, a growing share of returns flows to capital owners.
This raises a central policy question: how do we organize income security in an economy where human labor becomes relatively less important?
The search is for institutional innovations ranging from redistribution mechanisms to new forms of collective ownership of productive infrastructure.
6. Historical Analogy
The transition from agrarian to industrial societies was accompanied by fundamental institutional reforms: labor law, social security and public infrastructure. Without these reforms, industrial productivity growth would not have translated into broad increases in welfare.
Today we may be in a similar transition phase. Technological abundance requires an institutional framework that organizes access, not just production.
Conclusion
The core economic challenge shifts from production to organization. Technology creates abundant possibilities; institutions determine who benefits from them.
If institutions do not adapt, abundance will be accompanied by rising inequality and perceived scarcity. If institutions adapt, technological abundance can translate into broad welfare gains.
The economy of the twenty-first century therefore demands less technological acceleration — which is already underway — and more institutional innovation.
References
- Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail.
- Coase, R. (1937). The Nature of the Firm.
- Mokyr, J. (2002). The Gifts of Athena.
- Romer, P. (1990). Endogenous Technological Change, Journal of Political Economy.