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Reconciling global economic growth, especially in
developing countries, with the intensifying
constraints on global supplies of energy, food,
land, and water is the great question of our time.
Commodity prices are soaring worldwide, not only for
headline items like food and energy, but also for
metals, arable land, fresh water, and other crucial
inputs to growth, because increased demand is
pushing up against limited global supplies.
Worldwide economic growth is already slowing under
the pressures of 147-dollar-per-barrel oil and grain
prices that have more than doubled in the past year.
A
new global growth strategy is needed to maintain
global economic progress. The basic issue is that
the world economy is now so large that it is hitting
against limits never before experienced. There are
6.7 billion people, and the population continues to
rise by around 75 million per year, notably in the
world's poorest countries. Annual output per person,
adjusted for price levels in different parts of the
world, averages around 10,000 dollars, implying
total output of around 67 trillion dollars.
There is, of course, an enormous gap between rich
countries, at roughly 40,000 dollars per person, and
the poorest, at 1,000 dollars per person or less.
But many poor countries, most famously China and
India, have achieved extraordinary economic growth
in recent years by harnessing cutting-edge
technologies. As a result, the world economy has
been growing at around five per cent per year in
recent years. At that rate, the world economy would
double in size in 14 years.
This is possible, however, only if the key growth
inputs remain in ample supply, and if human-made
climate change is counteracted. If the supply of
vital inputs is constrained, or the climate
destabilized, prices will rise sharply, industrial
production and consumer spending will fall, and
world economic growth will slow, perhaps sharply.
Many free-market ideologues ridicule the idea that
natural resource constraints will now cause a
significant slowdown in global growth. They say that
fears of "running out of resources," notably food
and energy, have been with us for 200 years, and we
never succumbed. Indeed, output has continued to
rise much faster than population.
This view has some truth. Better technologies have
allowed the world economy to continue to grow,
despite tough resource constraints in the past. But
simplistic free-market optimism is misplaced for at
least four reasons.
History has already shown how resource constraints
can hinder global economic growth. After the upward
jump in energy prices in 1973, annual global growth
fell from roughly five per cent between 1960 and
1973 to around three per cent between 1973 and 1989.
The world economy is vastly larger than in the past,
so that demand for key commodities and energy inputs
is also vastly larger.
We have already used up many of the low-cost options
that were once available. Low-cost oil is rapidly
being depleted. The same is true for ground water.
Land is also increasingly scarce.
Finally, our past technological triumphs did not
actually conserve natural resources, but instead
enabled humanity to mine and use these resources at
a lower overall cost, thereby hastening their
depletion.
Looking ahead, the world economy will need to
introduce alternative technologies that conserve
energy, water, and land, or that enable us to use
new forms of renewable energy (such as solar and
wind power) at much lower cost than today. Many such
technologies exist, and even better technologies can
be developed. One key problem is that the
alternative technologies are often more expensive
than the resource-depleting technologies now in
use.
For example, farmers around the world could reduce
their water use dramatically by switching from
conventional irrigation to drip irrigation, which
uses a series of tubes to deliver water directly to
each plant while preserving or raising crop yields.
Yet the investment in drip irrigation is generally
more expensive than less-efficient irrigation
methods. Poor farmers may lack the capital to invest
in it, or may lack the incentive to do so if water
is taken directly from publicly available sources,
or if the government is subsidizing its use.
Similar examples abound. With greater investments,
it will be possible to raise farm yields, lower
energy use to heat and cool buildings, achieve
greater fuel efficiency for cars, and more. With new
investments in research and development, still
further improvements in technologies can be
achieved. Yet investments in new resource-saving
technologies are not being made at a sufficient
scale, because market signals do not give the right
incentives, and because governments are not yet
cooperating adequately to develop and spread their
use.
If we continue on our current course - leaving fate
to the markets, and leaving governments to compete
with each other over scarce oil and food - global
growth will slow under the pressures of resource
constraints. But if the world cooperates on the
research, development, demonstration, and diffusion
of resource-saving technologies and renewable energy
sources, we will be able to continue to achieve
rapid economic progress.
A
good place to start would be the climate-change
negotiations, now underway. The rich world should
commit to financing a massive programme of
technology development - renewable energy,
fuel-efficient cars, and green buildings - and to a
programme of technology transfer to developing
countries. Such a commitment would also give crucial
confidence to poor countries that climate-change
control will not become a barrier to long-term
economic development.
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