Issues Magazine

Sustainable Productivity: Options for a World Running out of Resources

By Ian A. Maxwell

The legacy of two historical megatrends – the industrial revolution and the Enlightenment – is another megatrend: the emerging crisis in the supply of humanity's key resources.

Recently I had the pleasure of sitting through a seminar given by former US Vice-President Al Gore in which he outlined the categories of challenges facing humans. Gore is a student of history, and he believes that while humans have always faced challenges, the enormity of the situation facing us today is unprecedented because our very existence on this planet is potentially under threat – and that this threat is of our own doing.

Since the beginning of recorded history, humans have struggled to improve their lifestyles. The ideal of most people has been freedom from hard labour, freedom from tyranny, and freedom from starvation. These are the basics. Additionally we have desired great health care and access to physical goods and regular entertainment. Advances in technological and social structure throughout the ages have, for a large fraction of the population in the West and many of the emerging economies, delivered many of these benefits.

People have responded to abundant riches by, initially at least, reproducing at an unprecedented rate and always by an ever-increasing per-capita consumption of energy and physical resources. When this is all summed up, we are enacting changes to our host planet, in terms of pollution and greenhouse gases, that threaten our very existence. The million dollar question is whether we have the social systems that will allow us to collectively act in response to the threat that we pose to ourselves.

The most important moment in our journey to this nexus was a prior megatrend, the industrial revolution, that started in the United Kingdom in the 17th century. Prior to the industrial revolution, people lived in a quasi steady-state with the biosphere that we call Earth. Compared with today, we were effectively just another animal living in continuous harmony with the planet, and most people lived what could be called “organic” lifestyles – that is, most people spent the majority of their waking hours in pure subsistence, which often involved agricultural activities primarily for individual consumption with only intermittent surplus produce. Before the industrial revolution, and compared with today, only a very small handful of people had the luxury of free time and also the affluence to consume excess resources in that free time.

The industrial revolution marked the beginning of machines that replaced human workers and removed us from the slavery of constant labour. These machines initially were designed to make more profit for their owners, but functionally what they did was substitute human labour for machine labour. Very quickly, however, the machines went beyond this and started producing products that did not previously exist. Slowly and surely, common people stopped continuous labouring and started having spare time, a degree of affluence and the means to consume purely for entertainment.

Alongside the industrial revolution was yet another prior megatrend: the intellectual Enlightenment. The Enlightenment fed off the industrial revolution and produced new social systems that slowly enabled the change from the rule of monarchs to the rule by democracy in various guises. Government systems emerged that, more or less, were responsible for and responsive to the affluence of the masses.

What was not recognised for some time following the industrial revolution and the Enlightenment was that the energy and other resources that were the enablers of newfound affluence were in fact finite resources. Initially, the number of people on the planet sharing in this affluence was so small, and the planet so vast, that it was inconceivable that the new machines would one day represent a threat to us all.

Alongside the industrial revolution, a new science – modern economics – evolved to both measure and model the growth in affluence. Early on in the development of modern economics, two important ideas were accepted as practically true, if not fully understood:

  • The new democratic governments understood that continued “growth” in their economies was needed to avoid painful recessions or depressions.
  • The key underlying requirement for continued growth was a constant improvement in “productivity”.

Productivity is described in many ways in economic theory. In its simplest form it is the number of units of time required to convert raw materials into a finished product. More complex definitions introduce other key inputs such as the efficient use of capital and the like.

For most of the period between the industrial revolution and today, raw materials have been considered to be in infinite supply. The access to raw materials was not considered in the definition of productivity, and hence it has been assumed that through the application of technology that productivity could increase forever. Obviously if we run out of raw materials this cannot be the case, because no matter how complex and beautiful our technology, we cannot use it without access to raw materials.

Today, significant attention is rightly being paid to greenhouse gases and the risk they pose to our environment. However, in principle we already have the tools in place to address this issue. Renewable energy is already a reality and within a few years it will be very possible to generate all our energy needs without burning fossil fuels. The current challenge that we face is more about political will in our various societies and the ability to get cross-national agreements on actions that we have to take.

I think that we will manage to address these issues, and that the transition to green energy will be achieved before the damage is too dire, much as we achieved with the removal of ozone-destroying gases. However, our descendants will live with the consequences of our laggardness.

Once the greenhouse gas situation has been dealt with we will have resolved the issue of diminishing fossil fuel energy resources. However, I believe that our attention will then be drawn very quickly towards an emerging megatrend, namely the issue of other diminishing resources. Already many key resources are reported to have a limited life expectancy. Examples include rare earth minerals, noble gases, forests, phosphorus (as used in agricultural fertiliser) and many others.

Broadly speaking the resources that have identified peak production or peak availability, after which supply diminishes year by year, can be categorised as follows: raw materials for industry, energy resources, biodiversity resources (animals and plants), habitable environments and life-giving resources (e.g. water and oxygen).

In each of these categories are major resource inputs well past peak supply. Together with a growing world population and a growing fraction of that population living in affluence, the inevitable outcome is the need for major changes, enabled by government-mandated management of resources, or a crunch point where we suddenly and quite horrifically run out of certain resources, forever.

It has often been stated that the greatest risk to world peace is access to water resources. Nobody knows for sure whether this is really the case, but the scenario used to justify this argument is easy to understand. If a country does not have access to water for its citizens (e.g. due to pollution of its own water resources or drying up of rainfall) then it may have no choice but to take the supply of a neighbouring country, often by means of armed invasion.

The same sort of scenario can be imagined for any of the key resource categories, and a first-order hypothesis is that the only means to avoid armed conflict, resulting from diminishing resources, might be to manage the transition to reduced resources very carefully using cross-national governmental controls, much like we are attempting with climate change action.

A key focus of any such international action would be to reduce the rate of the reduction of key resources, so they remain available for critical applications, noting that much of the current consumption of resources is certainly not focused on critical applications. In fact we are still “wasting” many of our resources; the production of sub-standard and short lifetime manufactured goods from Asia is one obvious example.

Another implicit hypothesis of many observers of this space is that the markets will not self-correct in time to allow for the transition to a more sensible use of resources. However, a countering view is that governments are even far less likely to be able to respond, especially if government action requires cross-national cooperation. Currently, national self-interest of various governments is delaying action on climate control measures, but if analysed carefully this national intransigence is a result of self-interested market groups in each country. At the end of the analysis it is hard to say which is more “at fault” – the profit-makers in an economy or the law-makers.

Today there is not a single Western economy whose government is managing their economy based on a definition of productivity that considers the finite supply of raw materials. In fact, what we saw in the wake of the global financial crisis was panic action by most governments to stimulate their economies in order to keep them in positive growth figures, or at the very least to minimise the recession they were about to have.

This continued growth in consumption is required in all Western economies. Without this, business confidence is lost, the financial sector overreacts, credit freezes, jobs are lost and people suffer. In any representative political system the pain of unemployment and relative poverty is sufficiently influential to drive political action. Hence most governments will do all they can to keep their economies in positive growth.

The requirement to reduce consumption per capita, in order to reduce the consumption of our diminishing resources, will most likely take us into an environment of continued negative economic growth. The big question therefore is: how do we reduce consumption per capita without ruining our economies in the process? The alternative is that, when we run out of key resources, our economies will go into recession anyway and probably in a nasty and uncontrollable fashion. Before the situation gets too dire, it’s probably best that we think hard about this conundrum and come up with a transition plan or two.

The role of government in the modern era is not to “run” countries. Modern economies are so complex and large that they pretty much run themselves. Governments, alongside other institutions such as the legal systems, the public service, corporate sector organisations, the central banks and the like, play around at the edges where changes have to be made, on behalf of all the citizens and other interest groups, in response to changes in the human, natural and political environments. Making changes that fast-forward our ability to adapt to diminishing resources is a key example of where government does have a role in taking leadership on behalf of the people it represents.

An obvious starting point would be to identify the current status of all key resources in the context of prioritising our action plans. After a priority list has been constructed, an audit would identify the critical applications of limited resources, and also the “trivial” applications.

It would make sense to focus diminishing resources into critical applications and pass laws or tax schemes that disincentivise the use of diminishing resources on trivial applications. Another key action will be the focus of funding for science and engineering to find alternatives for the resource inputs that are in limited supply, especially for the so-called critical applications. An example might be a cost-effective synthetic replacement for phosphate rock as an input for the production of agricultural fertiliser. Alternatively the focus of science and engineering can be alternatives to the applications that previously needed these resource inputs; in the fertiliser example this might encompass efforts to reduce the costs of, and increase yields for, “fertiliser-free” cropping systems.

At each stage of these action plans there would need to be cross-national governmental agreement because there is not much point for any single country to act alone.

As already stated, our economies presently operate on the assumption that there needs to be positive growth, year by year, otherwise there will be “troubles”. However, the requirement to reduce the consumption per capita will most likely take us into an environment of negative economic growth. Today it is not understood how this would be achieved while maintaining stability in our economies.

Negative growth would mean massive unemployment for many but continued employment for others. The problem is that the response of many businesses to a recession or a depression is to make people redundant rather than reducing the salaries or the amount of hours worked by their employees. The reason for this is that there is a high overhead cost per employee that is not related to their work hours but solely to do with conformance to a myriad of government regulations. These can be and should be removed, allowing the required paradigm shift to take place more easily. Governments need to focus their policies on full employment but not necessarily on continued growth in economies or salaries.

Another role of government in a controlled transition to a negative growth environment is the eradication of monopoly pricing. When there is less wealth in an economy, prices naturally drop due to supply and demand forces unless cartels are in place that act to keep prices high and margins even higher. Unless prices drop naturally in a negative growth scenario, the impact on many people will be unnecessarily harsh.

The incumbent economic driving force for continued growth is underpinned by continued growth in consumption. Most of this growth in consumption in the West is leisure-time consumption. Early in the 20th century the economist John Maynard Keynes predicted that the developed world would be moving towards an era of abundance. He saw two options: “we would consume ever more goods or we could enjoy more leisure”. He never imagined that we would merge the latter into the former. Back then “leisure” meant a break from manual labour, doing very little and consuming nothing other than our own time. Today leisure time is all about consuming as much as we can.

The obvious option for reduced consumption is yet another of the emerging megatrends: “virtual reality”. The more we can spend our leisure time in virtual computer environments (assuming they run on renewable energy) then the less real resources we will consume. This Matrix-like vision might not appeal to all, but it may be one of the few options we have to live peacefully on this planet. If we look around at the world today – with our smartphones, tablets, laptops, high power gaming computers, 3D goggles for computers, TV and cinema, massive online gaming, social networking and the like – I think it can be argued that we are well on the way to virtual reality. The key measure of this transition is the fraction of waking hours spent looking at a display of one sort or another. For many people this is well over 50% already! That is a lot of time spent not consuming anything other than energy, hopefully renewable. So the next time someone tries to make you feel guilty about living in your virtual bubble you can comfort yourself that you are doing what you can to save the planet.

If we do transition to a virtual reality world we can also redefine the definition of economic growth. When most of our time is spent in a virtual world there is absolutely nothing stopping us creating virtual consumption of virtual raw materials in that world where virtual productivity continues to grow. By such means we can create a world of continuous positive growth, mostly untroubled by what is going in the “real” world. In the development of massive online social network games (e.g. Happy Farm) and online currencies (e.g. Bitcoin) we have already seen the harbinger of these developments.

*See http://au.linkedin.com/in/maxwellian