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Enough of everything for everyone, forever?

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1975
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Bension Varon

The complicated concept of resource scarcity cannot be properly examined except in relative terms—that is, relative to time, need, and price. But the question of scarcity of natural resources is a vital one, relevant to the present and the future, and therefore it must be examined closely so that rational decisions may be made by policymakers round the world.

The realization of the finiteness of our globe in terms of mineral, land, and energy resources is upon us with all the attendant alarm and worry. The pervasiveness of its impact is not surprising. As issues evolve, our awareness of them becomes greater. We are made aware that the frontiers—with the exception of the oceans—are largely closed, that inventories of resources are now more accurate than ever, that there is global interdependence in terms of requirements and goals, and that planning for the future must take these factors into account.

The greatest concern over resource scarcity has been triggered by population growth. World population increased from about 750 million in 1770 to nearly 3.7 billion in 1970. The number of people added to the world population since the Industrial Revolution is probably ten times greater than the number added in the preceding 200 years. Unprecedented population levels will need to be supported in the future and they will put constant pressure on resources. At the same time, while exploring the universe, we have become painfully aware of the smallness of our world in relative terms, yet this world is all the “management experiment” granted us. Science and technology have been our most valuable management means, responding to and supplying ever-increasing requirements for ever-increasing numbers of people. Attempts at worldwide population control have not been very successful, so that progress—and our belief in it as the natural order of things—has been largely sustained by technology.

High Inventories

The resource picture for the world as a whole is not discouraging; inventories of most major resources are at least as high, by any count, as they were 20-30 years ago relative to projected requirements, and technology is expanding. Yet there is very real pessimism. This is more because of changed attitudes than of changed physical parameters. The widespread sense of insecurity is brought on in part by the realization that there are costs to be paid in terms of pollution and the quality of life, even for beneficial technological advances. And we are even seriously questioning whether human ingenuity can, in fact, keep in step with human reproduction and requirements. Furthermore, faith in the role of the price mechanism either for tempering demand or for bringing forth additional supplies has eroded; as a result, there is lessening reliance on the “invisible hand” to achieve economic efficiency in the market place.

The idea of equitable consumption of resources is central to the concern over their potential scarcity. Historically speaking, consumption has been uneven and largely inequitable, both within individual nations and among nations. Acute scarcities were faced through exclusion, with whole segments of society existing at bare subsistence levels and small, exclusive segments feasting at tables of plenty. But today, in an era of internationalism, when there is growing understanding of the true interdependence of nations, the idea of selective consumption is insupportable. Thus, the question of resource scarcity and what it means must ultimately be put in terms of how it relates to developed and developing countries rather than in general global terms.

The term “natural resources” refers to elements, products, or forces found by man in his natural environment which he may utilize for his own benefit. In this broad sense, the resources provided by nature include “natural products” such as minerals, forests, fish, and water and “amenities or situations,” such as waterfalls, waterways, natural harbors, and fertile soils, of current or potential economic or social value. The principal criterion is their present or future usability. Amenities are primarily nature’s handouts, although subject to modification as human needs dictate, while the rest of her treasures must be won through the application of capital, labor, technology, and constant search. “Nonrenewable natural resources” are those inorganic materials extracted from the earth that cannot be replenished within any period of time short enough to be of significance to human planning.

Although unquestionably supply problems of food and energy at present loom large too, the question of mineral raw materials needs to be examined carefully. The three groups of resources differ basically, for example, fuels are dissipated during consumption while land’s productivity is variable, and mineral raw materials are reusable to a large extent. Yet, the three categories are interrelated and reinforce one another: higher energy costs affect the cost of producing and processing many mineral raw materials and the availability and cost of fertilizers which further affect agricultural output. Higher import bills or higher investment requirements to fill the need for any one category of resources inevitably influence the capacity to obtain the others. But exaggeration of imminent shortages or the precise fixing of “grace periods” concerning minerals do not serve well to deal rationally with the minerals problem. What is needed is a proper perspective.

The growth of demand

Consumption of mineral fuels and raw materials on a large scale started with the Industrial Revolution, and the pace of consumption since then has been astounding. World consumption of all mineral commodities combined increased tenfold between 1750 and 1900, whereas, over the same period, population expanded by a factor of 2.2 and per capita consumption of all goods and services by 4.5. During the past 70 years, however, mineral consumption (including fuels) grew by a factor of about 12, population by 2.4, and per capita consumption by 5.3. Demand for mineral raw materials increased somewhat more (13-14 times) than demand for fuels (11-12 times) in the present century.

The trends for individual ores and metals vary widely and point up the dynamics of resource conservation and creation—something that does not emerge from the composite picture. For example, world consumption of pig iron between 1900 and 1970 increased 10-11 times, while steel production expanded by a factor of roughly 20, reflecting an increased use of scrap. Similarly, consumption of new copper rose 14 times, but use of copper metal increased 20 times, as the proportion of secondary (recycled) copper expanded from 10 per cent at the turn of the century to 35 per cent in 1970. The growth factor for zinc was 11.4, but that for lead only 4.5, again partly due to expanded scrap utilization, which rose from 8 per cent in 1910 to over 40 per cent (in the United States) at present.

The upward trends for the traditional minerals were checked by the introduction of new raw materials, chiefly aluminum and nickel, which are counted among the most important in modern industrial production. Aluminum consumption rose from negligible quantities in 1900 to 10 million tons in 1970, and nickel consumption jumped from a similar base in 1900 to nearly 600,000 tons in 1970. Apart from new metals, the dynamic change in growth patterns was also wrought by a thirtyfold increase in the use of alloying metals such as chro-mite, manganese, molybdenum, tungsten, and cobalt, as the direct result of advances in metallurgy.

Consumption growth slowing

Apart from recycling, there are already signs—historically verified and theoretically anticipated—that consumption of most minerals is now growing at a decelerating rate, and considerably slower than the gross national product (GNP) in the United States and other industrialized countries, as saturation levels are being approached. The interaction of income growth, structural change, and accumulation of “stock” (capital goods in service) in these countries is bringing about a decline in the “intensity of use” (requirements per unit of GNP) of most minerals. There are, of course, exceptions, such as aluminum, fluorspar, and certain alloys, which are either continuously displacing other metals or go into highly dynamic industrial end-uses, such as aviation, refrigeration, and pollution control; but these exceptions do not invalidate the general statement. Yet, there is basis for concern, for the consumption base of the world is so very large now that even moderate rates of growth can create an intolerable strain on the world’s total resource base over the long run.

This concern is based on assumptions of predetermined needs according to present patterns and fixed resources according to present knowledge. But need is relative. It can be modified by changes in tastes, relative prices, and in the material composition of goods. For example, nickel is used to manufacture stainless steel; stainless steel to manufacture bumpers; bumpers go on cars; cars are needed for transportation. While under the present system and technology of production each input at each stage would be conceived of as representing a “need,” in reality they represent nothing more than derived demand which can be met with alternative inputs (cobalt instead of nickel, rubber instead of stainless steel). More significantly, the end product, the private car, represents a choice about transportation, rather than a need.

Therefore, a deceleration in the growth of demand can be brought about in a variety of ways, by a variety of factors, and changes in what we commonly mean by “way of life” need not have negative connotations.

The supply base

Reserves for a large number of minerals have increased tremendously over recent decades, despite massive consumption: reserves of copper have risen by 3.5 times since 1935; of bauxite 7 times since 1950; of iron ore 11 times, potash 23 times, and chromite 6-7 times since the late 1940s; and while reserves of lead and tin are relatively small, their projected reserve lives—20 years—are still the same as they were 40-50 years ago. Furthermore, “potential resources” exceed reserves (ores that can be economically mined at present) quite significantly in many cases, and their inventories have increased also.

Obviously, some minerals such as silver, tin, and zinc are scarcer than others. But their trends are not independent of other concurrent developments. Because of advances in understanding and altering the molecular structure and composition of minerals, the range of combinations for using metals is ever expanding. Consequently, in terms of utilization, the total resource base does not have fixed boundaries. Its physical limits, too, are being expanded at present with the exploration and anticipated exploitation of the ocean beds’ vast mineral resources. In this sense, the oceans are a true frontier whose potential yields may be so vast as to make it impossible at this stage of development to assess definitively their ultimate impact upon the total supply picture.

Costs and prices

Even where ore grade deteriorated in metal content, no hard historical evidence of sharply rising costs is to be found. For example, while the metal content of copper ore is estimated to have declined from 8 per cent in the sixteenth century to less than 1 per cent (in the United States) at present, copper costs declined from about $10 a pound four centuries ago to approximately 30 cents a pound around 1940 and have risen only moderately since then. Therefore, one can state that the surge in metal prices in 1973/74 (now reversed), had little to do with the sheer physical depletion of natural resources. In fact, buoyant demand, disruptions of supplies, problems at the processing end, currency adjustments, and speculation contributed to the price hike. While the cost-push factor for exploration and mining has been operative till now, in the future reserve depletion, by itself, will be only one of the factors determining the long-term level of prices. Other factors will include the stance taken by producing countries, technological change, antipollution, and land conservation measures, energy costs, and finally policy decisions affecting the pace, distribution, and productivity of global investment in exploration and mining as well as in processing.

The scarcity scare

Yet, the worry persists: How long into the future can resource expansion and technological advances proceed with prices remaining within tolerable levels in relation to consumption and development goals? Attempts have been made to define the situation, the most famous being the study on the “Limits to Growth,” (March 1972) sponsored by the Club of Rome and conducted by a team of systems analysts from the Massachusetts Institute of Technology headed by Professor Dennis L. Meadows. This study lacked truth in packaging: the team postulated as fixed those variables and relationships which in fact cannot be taken as fixed. While this was increasingly understood after initial excitement over the MIT study had subsided, the advent of the energy crisis revived doubts and fostered a feeling of insecurity about all natural resources. There is, however, a post-energy-crisis view expressed by Mr. M. Claude Guillemin, Director of the national geological service of France, in an interview in 1974. When asked if the world is on the “eve of catastrophe” with regard to natural resource availabilities, Mr. Guillemin replied: “In the case of energy resources, perhaps. In other mineral resources, surely not.” Referring to the now famous “water lily in a pond” illustration of the dynamics of exponential growth in the MIT study, he stated that the illustration is “mathematically correct, but biologically false,” since if there are too many lilies in a pond, there will be also other organisms which will attack them and block their exponential growth. He went on to liken economic reaction to biological reaction, highlighting the opportunities for conservation and especially the difference between oil and other minerals in terms of reusability—”a copper bar, for example, can exist eternally.” (“La Fin du Gachis” (The End of Waste), L’Express (Paris), April 22-28, 1974.)

“unlike the food situation, pressure on raw materials resources will not come from population growth in developing countries”

Scenarios that venture into the indefinite future have little application to viable planning periods and to mechanisms of management as we now know them. For our own planning time frame, 30 years at best, the more pressing question centers on the distribution of both consumption and production of raw materials between rich nations and poor nations, and the problem of scarcity that arises in this relationship.

The distribution problem

Developing countries consume less than 10 per cent of the world’s annual output of mineral raw materials. Yet, they produce 33 per cent of the total output and possess 40 per cent of all known reserves. Through exports, which account for four fifths of their output, they supply 50 per cent of the domestic requirements of industrialized nations (both market oriented and centrally planned economies) and 70 per cent of their import requirements. While these figures point up the producer-consumer dichotomy, they are in keeping with the obvious link between development and raw material based production. Underconsumption of raw materials of such proportions on the part of the developing countries reflects their severe underdevelopment.

A simple calculation based on available forecasts covering the next 25-30 years reveals that of the increment in anticipated world raw materials consumption, over half would result from increased per capita consumption in industrialized nations (both market oriented and centrally planned economies); one fifth from additional population growth in these countries; at most a quarter (but probably much less) from increased per capita consumption in developing countries; and only 5-10 per cent from population growth in these countries. Unlike the food situation, pressure on raw materials resources will not come from population growth in developing countries—that popular alarm factor in all equations describing the future. Therefore, despite some narrowing of the gap, a child born in an industrialized country stands to consume on the average at least 10 times more mineral raw materials in the year 2000 than a child born in a developing country. In light of this, and because they control 40 per cent of world mineral reserves, it is not surprising that developing nations resist diagnoses and implications of the problem of scarcity from the point of view of present large consumers.

There has been talk recently of the possibility that the dichotomy between the have and have-not nations might result in new pricing policies for raw materials. Developing countries hardly have to demonstrate their urgent need for additional revenues. But it is not farfetched to suggest that the notion that their raw materials deserve higher prices is also based on the concept of scarcity per se. To be aware of potential resource scarcities is one thing; it would be a mistake, however, to infer that so loose a contingency ought to be somehow reflected in current prices, which would mean differentiating between the importance and longevities of individual resources on the basis of subjective and imprecise knowledge.

LDCs complaint

Developing countries, in essence, are complaining less about prices and more about their level of underdevelopment. At the heart of their argument is the proposition that they were denied opportunities as well as the means, such as technology, capital, and market access to develop on all levels.

To illustrate one aspect of the basic problem, the value of developing countries’ current mineral output is about 30 per cent of the market value of the finished products. And this refers only to the processed, metal ingot stage, not to the manufactured end products. High profits (and external economies) come from processing, since value can be increased by as much as four times through semiprocessing and by as much as 20 times through full processing up to the metal bar stage. If the entire current mineral output of developing countries were to be processed up to this stage, the value of their aggregate output could be as much as $10-12 billion higher. This is not to suggest that no progress has been made toward the local processing of minerals, nor that processing should be pursued without regard to comparative advantage or investment priorities. This illustration does portray the difficulties that arise when only one or two sectors of an economy grow, having little feedback effect on the economy as a whole which lacks enough internal strength or external support to respond quickly to the initial stimulus. And it symbolizes the difference in the stages of development between the developing and developed countries, which, in turn, affects their trade relationship.

The economic benefits of trade have long been understood and amply demonstrated. In the postwar era trade has been recognized as a valuable avenue for promoting peaceful political relations by such nations as the United States and the Soviet Union, the Federal Republic of Germany and the German Democratic Republic, Japan, and the People’s Republic of China. Nations must now take fuller advantage of trade as the handiest tool for bridging the gap between the haves and have-nots, on the one hand, and for assuring efficient global exploitation and utilization of resources, on the other. However, despite decades of publicized commitment to free and expanded trade, trade remains highly sensitive to blackmail, manipulation, and pressure from special interest groups.

The answer

Where does all this leave us? Without a categorical answer to the original question. On a manageable scale of assessment there seem to be no major or insurmountable long-term problems of scarcity of industrial raw materials if we count advances in resource creation and utilization, and the application of every management tool, such as planning, technology, trade, and conservation. Making large allowances for human ingenuity in dealing with problems that are recognized to be important is perhaps an act of faith, but not of blind faith. We know we have a global problem on our hands. The faith that we can handle resource management well will gain substance only if the world demonstrates that it can deal with the pressing problem of narrowing the gap between the rich and the poor countries.

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