10.3: Understanding Resource Scarcity

So far, I have been using fishery and petroleum examples as if they were the same type of resource, but they actually represent two very different types: renewable and non-renewable, respectively. The petroleum that we take from the ground is not being replaced (at least not in a time scale relevant to human aspirations), and non-renewable resources like petroleum, no matter how slowly we use them, will eventually run out. ^[1] Thus renewable resources are resources that can be consumed at a rate that allows them to be replenished as quickly as they are consumed. For example, as long as people do not catch fish at a rate faster than the fish can reproduce, then the fishery is renewable and can be sustained indefinitely. Therefore, sustainably managing one’s natural resources requires reducing one’s dependence on non-renewable resources and limiting the exploitation of renewable resources to a level correspondent to the resource’s ability to replenish itself.

However, many economists argue that the scarcity of a resource should not be defined in material terms. Within neoclassical economics, still the dominant model among economists today, one views scarcity in terms of prices and costs. Material scarcity is only one of many factors affecting price. For example, if a natural resource becomes materially scarce, it becomes more difficult to obtain. One must drill deeper for less oil or fish longer for fewer fish. As a result, the costs associated with obtaining the resource (time, fuel, etc.) will increase, which will lead to an increase in the price of that resource. As that price increases, new economic possibilities emerge. For example, substitution of other, relatively cheaper resources becomes more attractive. From this perspective, as available petroleum deposits decline, the increased price of oil should simply provide a greater incentive to pursue other energy sources more aggressively. ^[2] Therefore, in a neoclassical economic sense, the material scarcity of a resource simply indicates a transition to something newer and perhaps better.

This traditional economic view of scarcity assumes infinite substitutability. That is, for material scarcity to have the rather minor effect on an economic system that many economists suggest, an alternative resource must always be available as a substitute for a materially scarce resource. Neoclassical economists place much confidence in the ability of future technological innovations to ensure that alternative resources are indeed always available when needed. Ecological economists do not view infinite substitutability as a valid assumption. More specifically, ecological economists argue that the limited supply of natural resources will and should place constraints on economic systems.

Neoclassical economists can indeed point to numerous technological innovations that have helped us to address potential resource shortages. The ‘green revolution’ in the mid-20^th century has often been cited as a quintessential example of how preconceived limits can dissolve in the face of new technology. In the 1960s many believed that Thomas Malthus’ prediction (150 years earlier) that human population would eventually grow beyond its ability to feed itself was finally coming true. These fears, however, subsided as new agricultural techniques (including use of pesticides, irrigation, inorganic fertilizers, and new varieties of grains) greatly increased agricultural output. By the 1970s, instead of the predicted famine, food prices remained stable or even decreased.

Now, however, we can see that these agricultural gains came with a price. First, agricultural biodiversity decreased significantly. High agricultural diversity is seen by many as an effective hedge against agricultural collapse for the same reasons that bankers recommend a diversified investment portfolio. In a diverse agro-industry, if something happens to one crop (e.g. disease), other strains are still available. With the green revolution, however, farmers favoured the new varieties that responded best to heavy fertilizer loads. The fertilizer itself became a non-renewable resource, produced using an energy intensive process that requires natural gas as a raw material. Water demands by agriculture also increased greatly, creating a strain on water resources, and given the projected shortages of both fossil fuels and water, many are already calling for more sustainable agricultural methods. And finally, pesticides, while useful for increasing crop production, have in many cases resulted in environmental degradation and ecosystem failure, and have become a threat to human health.

In short, while the green revolution successfully staved off the impending food shortages of the 1960s, it led to a number of unsustainable practices that continue to today. Moreover, the high rates of population growth mean that we will once again be faced with a need for a green revolution, and this time it cannot depend upon fossil fuels. Certainly, technical innovation will play a major role in how we address contemporary resource challenges, but technical innovation does not imply a world without limits and learning to live within those limits will require far more than a technical solution. Managing limited resources requires managing our own behaviour, but as we shall see, living within our limits has proven to be an extraordinarily difficult task. ^[3]