Intermediate Economy

That part of the economy which consists of forms of production and other activities which, though necessary, do not directly provide the goods and services which consumers actually want and need. That is, the intermediate economy does tasks which have to be done just to keep things going, to enable the civic society to exist on its very large scale: goods transport, sewage, landfill sites, electricity grids, social workers, police and prisons, regulation and policy-making, inspectors, bureaucrats, parking wardens, and the large and growing task of protecting and repairing the environment. And it includes the remedial economy—the social services, special education, geriatric care, things which are added to the economy’s commitments as expectations change, as the stresses and casualties of large-scale anonymous living call for attention, and as families and communities become less willing and able to provide that care.

As intensification develops, the need for these infrastructures and commitments increases, but should the size of the economy begin to fall, the intermediate tasks remain as pressing as ever. Either for practical reasons (keeping sewage and waste disposal systems going) or in response to expectations (care, for instance, for those whose lives entirely depend on it), the intermediate economy remains unchallenged and unchanged as resources decline. There is a ratchet effect: it grows smoothly in response to economic growth, and as governments give it priority for the funds that growth makes available; but any decline is in the teeth of opposition, and may in the end be catastrophic.

The intermediate economy exists in various forms in every large civic society; it is the signature of large scale. The big intermediate economy of the industrial age is not a way of making life in giant cities better, it is a way of making it possible. It is a necessity—a regrettable necessity; the goods and services of the intermediate economy deliver no joy in their own right: we need these things to enable us to get by.

Or: things we don’t want but have to have

“Intermediate” is used here in a different sense from that which is current in economics, where intermediate goods are “partly finished goods which form inputs to another firm’s production processes and are used up in that process”.I67

Lean Logic uses “intermediate economy” and “intermediate goods” in the sense given by E.J. Mishan in the 1970s, who pointed out that much of what we actually buy as consumers consists of things which we would just as soon do without, but which are really just part of the toil and trouble of being a citizen:I68

A large proportion of the goods that enter into estimates of national income . . . are not, in fact, finished goods, or goods ‘wanted for their own sake’, as they ought to be. Rather they are intermediate goods . . . There is, as always, some uncertainty about where the line should be drawn . . . .I69

Mishan lists goods and services of many kinds which could be understood as “intermediate” more accurately than “final”: defence, law and order, travel (both business and leisure), education (most of which is preparation for jobs), media information, healthcare (treating the effects of congestion and urban life), vacations (recovering from the work of running the industrial machine), institutional lubricants (banks, employment agencies).

Another example is “defensive expenditure”: “the purchase or provision of goods and services, such as ambulances and burglar alarms, which are intended to offset harm rather than positively enhance well-being”.I70

The most obvious example of a regrettable necessity is the transport of goods: it is a necessity, given the large-scale economy and population, which require long, complicated supply chains to deliver energy, nutrients and materials, and to dispose of waste. But there is nothing in the actual process of transport which adds to the quality of the goods or to the flavour of the food: our hearts do not leap with delight at the sight of an articulated truck; we just put up with it. Yet this is where the bulk of demand for energy and resources comes from. The intermediate economy is the price of size; the large scale of the economy both requires the big infrastructures, and makes them possible. It is the product, and the enabler, of growth.

The civic societies of the past—such as the highly-evolved, elaborate Roman civilisation—relied on growth, too, and for most of the same reasons. They had to become more productive, not just to keep pace with the needs of their increasing populations, but to build their intermediate economies. So they intensified, producing more output per capita (per person). But that output was used to develop the intrinsically-undesired intermediate economy so that, in terms of their ability to sustain per capita well-being, their economies became increasingly inefficient. This is the Intensification Paradox: intensification inevitably leads to declining efficiency.

Meanwhile productivity improvements generate growth; and the growing economy requires extended infrastructures; and extended infrastructures must be paid for with further productivity improvements. Those improvements in turn produce further growth which requires further expansion in the infrastructures. . . . This cycle of growth—leading to dependence on a voracious intermediate economy—has been integral to all civic societies.I71

One trick for achieving the spectacular productivity improvements that all this calls for is the specialisation (division) of labour, and for an illustration of how effective that can be in producing growth, here is Adam Smith (1723–1790) on the subject, with the manufacture of nails and pins as his example. Division of the labour of pin-making, splitting up the task into eighteen parts, each done by one worker, makes it possible for each worker to make . . .

. . . four thousand eight hundred pins in a day. But if they had all wrought separately and independently and without any of them having been educated to this peculiar business, they could certainly not have made twenty, perhaps not one pin in a day.I72

Pottery offers another example. Start with a society of subsistence farmers, some of whom feel they could do with a few more mugs for the family breakfast. They could make potters wheels, get hold of some clay, practise making a few pots, and try firing them in the bread oven. In fact, they realise that it would be better to get Aelfrith in the next village to make them, because he has a wheel and kiln already set up, and he knows what he is doing. The anthropologist and mathematician Colin Renfrew agrees:

A craftsman (potter) could produce far more of his product and of a far better quality than could five farmers each devoting one-fifth of his time to making the same product.I73

This makes for a more elaborate and complex system, but . . .

. . . it is very sound strategy for a society to maximise specialisation through the agency of a central redistributive organisation. In this way it is possible, through economies of scale, to support a very much larger population than would be the case if each individual family or village had to be largely self-supporting, producing all the commodities which it used.I75

It is hard to argue with that. But try following through the implications: you get all the pots you need, but you get a whole lot of other things which you hadn’t bargained for too (see “A Story of Pots” sidebar). Before you know where you are, you have built up a big civilisation with ox-drawn wagons trundling along the road, or fleets of cargo ships crossing the Mediterranean, or rivers of articulated trucks bashing down motorways, or forests felled for timber, or an industrial civilisation created to serve and be served by coalmines—and all you really wanted was enough mugs to go round for the family breakfast. Progress comes encumbered with a storm of regrettable necessities.I76

Complication builds from an innocent start.

1.        more pots

2.   → more transport

3.   → transport infrastructures

4.   → more tax to pay for the roads

5.   → more bureaucracy to raise the tax

6.   → more jobs available in towns

7.   → larger towns

8.   → dislocation of rural social structures

9.   → relaxation of sexual rules

10. → higher population

11. → greater need for food and resources

12. → military power and conquest

13. → flow of wealth into a growing society

14. → more pots . . .I74

So, we get the spiral of growth—and the Intensification Paradox—where individual productivity improves, but the total quantity of goods and services needed grows so much that more work is needed to keep one person alive—that is, more work per capita of population. And there is more to it than that—for now a ratchet effect clicks in. If (to stay with the pots), by the time the society has got to stage 14, the structures of transport, administration and power were to fail, it could not simply go back to the safety of stage 1: it would soon find itself in a much worse position—perhaps with no pots at all, and not much else either.

And intrinsic to all this is a change in the pattern of land use—the way in which a society uses its space and understands the meaning of ‘place’. If all the pots (and other goods) are to be made full-time by a few people, instead of just occasionally by every household, it obviously makes sense (as suggested in the pot sequence) for people to live fairly close together. And the greater the degree of specialisation, the more the population moves from small dispersed settlements to become concentrated in towns: there is agglomeration. As civic societies evolve, they develop both the ability and the need to concentrate production and population in large-scale urban economies.I77

Moreover, the larger the town, the larger the area of land on which it depends—and the more charismatic and decisive must the government be to hold the whole system together; notably, to raise taxes to pay for all the infrastructures and to defend them against other states on a similar path of expansion. Then the ratchet effect clicks in again: since the population is concentrating in towns, it has to build up its specialisms, its transport, its bureaucracy and its dependence on imports: there is nowhere else for growth and intensification to go except upwards.


. . . or downwards, of course. And if we take a long view of the archaeological record, we see that, while the pattern is sometimes one of civic societies being destroyed by some external force—environmental, climatic or military—there is a deeper sequence at work as well. As settlements become ever more large, elaborate, materially voracious and tightly-connected, they have less of the flexibility needed to respond to events and change, less resilience, and need their complex support systems to be in full working order, all the time. The depletion of capital and critical assets—especially water, forests and fertile soil—and the measures taken in response, which themselves depend on ever-increasing quantities of those scarce assets, deepen the state’s inefficiency to the point at which any action it takes makes matters worse. By the time it becomes clear that the state itself is part of the problem, it is on the way to collapse.I78

It tends to happen quickly. Although the additional stresses on any day may be not especially greater than those of the day before, the accumulation may reach the cusp at which suddenly the ground falls away. The mathematical models of this tipping-point for the late stage of a civic society are the calculus-equivalent of a football rolling idly towards the edge of a cliff: it may even be slowing or coming to rest at the moment at which suddenly it . . . shifts into a new paradigm.I79

After the failure of the market, our intermediate economy will rapidly deconstruct and cease to be available to provide essential services. The collapse will mean, in effect, a breakdown in distribution systems for food, waste disposal and running water, in police services and civic order. The Lean Economy is a concept of recovery and resilience, rebuilding an enduring political economy on a scale matched to the assets and options actually available to it. What many people want to achieve now by reducing consumption in the interests of rescuing the planet will be accomplished quickly, but unkindly.

With a reduced population and smaller settlements, requiring no elaborate intermediate economy, the state is brought back into equilibrium with its—now much impoverished—environment. But, because of their smaller scale, the communities of the future will be less complicated, with a correspondingly reduced intermediate economy. They will have elegance. Our civic society, like its predecessors, will break up. Travelling light, being able to get by without the vast intermediate economy, is the key to the Wheel of Life. Localisation is about making a virtue out of this necessity. Transition is about starting the process now.


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David Fleming
Dr David Fleming (2 January 1940 – 29 November 2010) was an economist, historian and writer, based in London. He was among the first to reveal the possibility of peak oil's approach and invented the influential TEQs scheme, designed to address this and climate change. He was also a significant figure in the development of the UK Green Party, the Transition Towns movement and the New Economics Foundation, as well as a Chairman of the Soil Association. His wide-ranging independent analysis culminated in two critically acclaimed books, Lean Logic and Surviving the Future. A film about his perspective and legacy - The Sequel: What Will Follow Our Troubled Civilisation? - was released in 2019, directed by BAFTA-winning director Peter Armstrong. For more information, including on Lean Logic, click the little globe below!

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