Mobilizing for a resource revolution

Over the next quarter century, the rise of three billion more middle-class consumers will strain natural resources.

Progressively cheaper natural resources underpinned 20th-century global economic growth. But the 21st century could be different. Indeed, over the past ten years, rapid economic development in emerging markets has wiped out all of the previous century’s declines in real commodity prices. And in the next two decades, up to three billion people (and their spending power) will be added to the global middle class. Is the world entering an era of sustained high resource prices, leading to increased economic, social, and geopolitical risk?

Similar questions have arisen in the past, but with hindsight the perceived risks proved unfounded. In 1798, land was at the center of such worries. In the famous Essay on the principle of population, Thomas Malthus fretted that rapid population growth would outstrip the world’s supply of arable land, producing widespread poverty and famine.  But his dire vision never came to pass. Instead, the agro-industrial revolution swept across Britain and then the rest of Europe and North America, breaking the link between the availability of land and economic development.

Malthusian theories have enjoyed brief revivals, notably in the Club of Rome’s report on the limits of growth, in the early 1970s. But a combination of technological progress, the discovery of (and expansion into) new low-cost sources of supply, and more productive ways of using it intervened. These developments pushed down—by almost half, in real terms—the price of an index of critical commodities (energy, food, steel, and water) during the 20th century. That reduction came despite demand for those resources growing as much as 20-fold during the period.

Market forces, and the innovation they spark, could ride to the rescue in the 21st century too. However, the size of today’s challenge should not be underestimated as we enter an era of unprecedented growth in emerging markets. Our recently completed research on the supply- and-demand outlook for energy, food, steel, and water suggests that without a step change in resource productivity and a technology-enhanced expansion of supply, the world could be entering an era of high and volatile resource prices. Nothing less than a resource revolution is needed.

Further reading: https://www.mckinsey.com/business-functions/sustainability/our-insights/mobilizing-for-a-resource-revolution