The Earth is full and over the past ten years increasing demand from emerging markets has erased all the resource-price declines of the last century.
A new report from McKinsey says three key trends look set to make this situation more difficult and more volatile:
- people in developing nations are looking to increase their standards of living, more than doubling the size of the world’s “middle class” by 2030
- resources (including food) are becoming harder and more expensive to obtain, and
- a global market can swiftly transfer price shocks (and shortages) from one country to another
McKinsey says that the challenge can be met through a combination of expanding supply and improving productivity in extraction, conversion and use.
A reduction in use is not considered, but looks inevitable given:
i) the Earth is finite — increasing rates of extraction cannot be sustained forever
ii) our life-support ecosystem is already struggling, “additional efforts would be required to address climate change”, and the proposed increases in supply would exacerbate a worsening situation
iii) of the identified productivity improvements, “only 20 percent are readily achievable and about 40 percent are difficult to capture, facing many barriers to their implementation”
In other words: “increasing supply is difficult and will worsen the situation”, and “even the currently-required productivity improvements are impracticable”.
The summary points out that “Of course, if resource prices were to increase significantly, market forces would naturally drive greater resource productivity”, but it fails to mention that not everybody would be able to keep pace with these price rises.
In summary it looks likely that not all the three billion people expected to join the global middle class over the next 20 years will be able to do so. And some of the existing members will find they can not afford it either.
The alternative is a change of paradigm: first to consume less, and second to learn to manage and increase the resources of the natural world, instead of simply finding more ‘productive’ ways to extract them.
McKinsey & Company / McKinsey Global Institute:
“Resource Revolution: Meeting the world’s energy, materials, food, and water needs”, November 2011