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Teaching Notes (Strictly not for sale)

GEOG 302: Polarized Debate Dr Joseph Teye

HISTORY OF RESOURCE SCARCITY CONCERN

Widespread concern over the possibility of severe resource shortages in the world is

not a recent development. Malthus, in 1798, made pessimistic predictions on future

resource availability. He argued that since resources are limited, rapid population

increase would result in food shortages. According to Rees (1990), the immediate

precursor of most recent period of concern over resource shortages and environmental

problems was rapid depletion of metallic and energy mineral reserves during the

Second World War. In the United States and Europe there was a general concern over

the availability of those minerals for reconstruction and renewed industrial growth.

For instance, it was predicted in 1950 that World iron ore reserves would be depleted

in twenty years time.

However, the economic and technological response to the fear of resource scarcity

was swift. Massive investments were made in technologies to allow the extraction of

mineral deposits that were previously considered as economically unviable. Besides,

the level of exploration activity increased, with an upsurge of investment in

previously underexploited developing countries. These measures increased the

supplies of essential mineral resources. By the end of the 1950s, the immediate danger

of severe resource shortage was past. The 1960s, however, saw a renaissance of

academic and public interest in scarcity of natural resources. These fears were fuelled

by rapidly rising trend of natural resource use in the developed world. There was also

concern about the impact of waste products on the environment. A number of books

were published presenting doom-laden warnings about future resource scarcity and its

implications for economic development and the survival of mankind (see for instance,

Forrester, 1970). It was predicted that complete exhaustion of essential mineral stocks

would cause the total collapse of society during the early part of the twenty-first

century. The concern raised by these publications was fanned by the 1973 oil crisis,

which followed the Arab-Israeli war, and by the success of Organization of Petroleum

Exporting Countries (OPEC) in reducing oil supplies and achieving massive increase

in oil prices. Scarcity then became a political issue; the possibility that producer

nations could and would exercise political and economic power through withholding

essential minerals appeared as a major threat to the developed countries (Rees, 1990).

These scarcity concerns generated the polarized debate.

THE POLARIZED SCARCITY DEBATE

As hinted already, concern over the future supply of natural resources were not new.

There is no doubt that technological innovation has been able to prevent complete

physical exhaustion of essential stock resources. However, two important questions

still remain about future resource supplies. The first is: how long can technology

continue to act to prevent shortage of essential resources? The second question is: if a

physical exhaustion eventually sets in for particular natural material, can

technological, economic and social change act to reduce its resource significance?

Different judgements about the answers to these questions largely account for the

polarized debate over resource scarcity in the 1970s. I would like to discuss with you

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the arguments of two main schools of thought on future resource scarcity. These are

the pessimist school and the market optimists (Rees, 1990).

The Pessimistic School

The pessimists believe that resource scarcity in the near future is inevitable, since

stock resources are limited and human population continues to rise. Thus, their main

concern was rapid population increase and the associated increase in consumption. In

their view, therefore, economic development in the near future would be brought to a

halt by shortage of essential resources. On the basis of these arguments, they have

developed deterministic models to measure resource life. The most pessimistic

measure of stock resource life occurs when current proven reserves are taken as limit

of resource availability. As I explained already, the use of this concept presupposes

that no discoveries will take place and no technological and economic changes will

occur to convert conditional reserves into economically recoverable resources. The

life of each mineral resource can then be estimated by dividing current reserves by

present annual consumption to give the so-called static life index. Forrester (1970)

and Meadows et al (1972), for instance, calculated life expectancies of some stock

resources. It was predicted, in the 1970s, that reserves of most stock resources will be

exhausted within fifty years (Goldsmith et al. 1972). Oil and gas would have finished

by now.

It is obvious that these pessimistic views have not been supported by historical

developments. For instance, predictions made in 1950 that world iron ore deposits

would be completely depleted by 1970 have proved to be widely inaccurate; in fact by

that date enough reserves had been established to last for further 240 years at the then

current level of consumption. Thus, for most minerals, the rate at which new

discoveries and technological changes have added to proven reserves has exceeded or

at least kept pace with increases in consumption (Rees, 1990). From the preceding

discussion, it can be stated that though it is axiomatic that there must be a limit for

each individual resource stock, no one can predict when this limit will be reached.

Again, we do not know whether the substance will still be considered as a resource

when its physical limit is reached.

The pessimists have been criticised for failing to recognise the fact that resources are

created by man. In theory, man has the capability to create substitutes to replace

scarce stock resources. By focusing so much on the limits of natural systems, the

pessimists have failed to recognise the ability of man to develop new technologies to

allow the extraction of sub-economic resources and or reuse some materials. In the

case of some metals, for instance, man has developed the technology to recycle them

and this means that those resources can be reused. Thus the static life index is

inappropriate because it wrongly assumes that there will be no discoveries and that

consumption will be static.

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Although they have been lambasted for many simplistic assumptions, some of the

arguments of the pessimists are still relevant. It is important to recognise that

mismanagement of resources can bring some problems to the world economy.

The Market Optimists

In contrast to the argument of the resource pessimists, the market optimists believe

that the market system would respond automatically to prevent severe resource

scarcity problems. They forwarded the market response model and the role of

substitution thesis to support their claim.

The Market Response Model

Scarcity

Extraction Costs Rise

Prices Rise

Demand Decrease Supply Increase

Figure 1: Market response model

Source: Rees (1990:39)

The market response model posits that in a perfectly working market economy the

price of any natural commodity which was becoming scarce would inevitably rise.

The increased production costs associated with diminishing returns would imply that

producers can only supply adequate quantity of the commodity if price rises. Price

would, therefore, rise until supply and demand were again in equilibrium. Such price

rises would set in train a whole series of demand, technological and supply responses

Increase use of substitutes,

Greater economy in use,

More recycling

Increased viability of

known deposits

INNOVATIONS

Development of new

substitutes,

Development of improved

conservation methods,

Improved recycling

techniques

Search for new deposits,

Development of methods to

increase the output from

known sources

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(figure 1). First, demand decreases as users turn to cheaper substitutes, or introduce

economy and conservative measures. In the case of metals, increasing recycling also

leads to decrease in demand. Second, both the price rise and fears of severe resource

shortage provide an incentive for innovation. The resulting technological innovations

are likely to increase the availability and decrease the cost of substitutes. The

technological innovations would also lead to improve conservation methods and the

use of improved recycling techniques. These changes will then feedback through the

price mechanism to control demands and so reduce pressure on the originally scarce

commodity. Third, the price rise will make it economic to extract hitherto unviable

deposits (conditional reserves), encourage the search for more resource deposits and

promote development of new extraction technologies to increase effective yields from

known deposits. In a nutshell, this model assumes that physical resource scarcity will

be controlled by market forces.

The Role of Substitution

Apart from the market response argument, the optimists further explained that by

relying on substitutes, society will be able to reduce demand for a resource that is

becoming scarce. If this occurs, then scarcity will not affect living standards or

economic growth. Thus, they have assumed that no individual stock resource

commodity is absolutely essential; substitutes exist or will be found to replace it. Rees

(1990) has listed the following forms of substitution in this context. First, direct

substitution occurs when one resource commodity takes over the role of another.

The same mineral can sometimes be extracted from different sources. When the

traditionally used source material resource becomes scarce, attempts may be made to

develop technologies to allow extraction from alternative sources. For example, fears

that bauxite would become scarce in the near future have encouraged research into

techniques for extracting aluminium from non-bauxite ores, such as carbonaceous

shales and kaolin clays. Similarly, one mineral could be directly replaced by other

materials in some of its end-uses. For instance, stainless steel, aluminium and plastics

are all substitutes for copper. You may be aware that aluminium has already taken

over the high-voltage transmission line market. Plastic piping has also replaced

copper for many household plumbing purposes. Again, although copper was the

common metal used for manufacturing kitchen pans in the past, aluminium and

stainless steel are now widely used to produce such pans.

A second form of substitution occurs when the need for specific resource products

or services is reduced by substitution of technology and capital for the resource.

To use the copper example again, the need for undersea transmission cables, a

hitherto major copper end-use, has significantly declined with the development of

microwave technologies and communication satellites. Measures to improve the

efficiency with which a specific resource is used can also have significant effects on

consumption. For instance, the Ghana government has been advising households to

reduce their energy consumption by investing in energy-saving bulbs and appliances.

All these illustrate that demand reductions can be achieved without declining living

standards.

A third form of substitution involves the increased use of recycled materials at the

expense of the freshly mined product. For a number of metals, recycled old scrap

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already serves significant proportion of the final market. For example, local welders

in Ghana make use of various forms of scrap metals rather than fresh ones.

Another form of substitution occurs when lifestyle or demand changes alter the mix

of final goods and services. Individuals and governments can make choices about

what stock resources to use and these lifestyle changes can be used to reduce the

consumption of a resource that is becoming scarce. For instance, as price of cement is

increasing tremendously, Ghanaians are being advised to use bricks instead of blocks.

If this advice is taken by estate developers, then the demand for the raw materials

used to make cement will fall.

From the above, it is clear that the substitution thesis posits that resource scarcity will

not set in because substitutes will be found to replace scarce resources. The challenge

here is that it may not be easy to get very good substitutes for some essential

resources, such as water and air. In the presentation that follows, I will take you

through some of the other challenges to optimism.

Challenges to Optimism

Market imperfections

The market optimists have based their postulations on a perfectly competitive market,

comprising of firms acting in a rational way to maximise profits. Such a market is also

characterised by free exit and entry so that no single producer has monopoly over

the supply of the goods and services. The system must also be free from intervention

by governments. It assumed that these conditions will produce the demand,

technological and supply responses needed to allocate resources optimally over time

and space. Given that such conditions do not exist in the real world, physical resource

scarcity problems may arise.

Critics have also argued that the market optimists have failed to consider how market

uncertainties could lead to overexploitation of resources, thereby creating shortages in

the short-run. The argument here is that since prices of some resource products have

been volatile, some producers may decide to reduce their uncertainty about future

incomes by increasing current output at known price levels. This may lead to over-

exploitation of natural resources, thereby leading to scarcity in the future. It is also

argued that some private producers may increase current output for fears that

substitutes could be developed later to reduce prices in future. These factors may lead

to the rapid exhaustion of known reserves. The same factors may prevent companies

from investing heavily in exploration and the development of new supply sources.

One way of dealing with these problems will be for the state to take over resource

exploitation. However, there is no evidence that matters would improve if resource

development is taken out of private hands and into public control. In democratic

states, for example, the need to seek re-election tends to enhance the perceived short-

term income and trade advantages of rapid exploitation. Countries under military

regime equally need a lot of funds to buy military equipments and also to maintain

their neo-patrimonial networks and thereby remain in power (Teye, 2008). All these

will force the governments to over- exploit resources (see, Grianger and Konteh,

2007). Besides, as export income is needed in developing countries, many poor

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countries may exploit more resources today, and this will affect future supplies. For

instance, Ghana depends heavily on gold. The need for funds to promote development

means that the government will find it difficult to control exploitation.

Resource Security

Even if it is assumed that despite the imperfections, market forces will still act to

avoid worldwide physical scarcity problems, difficulties may still arise in some

countries because of the uneven spatial distribution of resources. The market system

will not necessarily ensure that consumer demands are met in each individual country

by the development of indigenous resources. Individual countries may also temporary

experience shortages because they are unable to import the required materials.

Developing countries may lack the financial resource to import enough resource

products. For instance, in the year 2008, many poor countries including Ghana were

seriously affected by the rapid rise in prices of petroleum products. In Ghana, the

government had to respond by cutting budgetary allocation to ministries. Here, there

were adequate oil reserves in some countries, but poor countries could not import

them. Developed countries could also face resource security problems. They may be

affected by political upheavals in their supply areas or by trade embargoes. Thus,

there are possibilities of at least temporary shortages in some countries, arising from

trade restrictions or war.

Economic exhaustion

The argument here is that as resource deposits become scarce they are more

physically difficult to mine. This causes supply costs to rise. The producer may then

need to receive progressively higher prices for each unit of output in order to cover

the production costs. But as price increases so fewer and fewer consumers will be able

or willing to purchase the mineral. In this case, no production can take place at prices

that consumers are willing to pay for the commodity. This is termed economic

exhaustion, and it occurs much more rapidly than even physical exhaustion.

Economic exhaustion will bring about scarcity of the resource on the market.

Thus, the market forces are rather likely to accelerate the onset of exhaustion since

deposits are almost inevitably economically exhausted long before they are physically

worked out. For instance, the coalmines closed in Britain since the 1960s still contain

coal but given current market conditions, it can only be sold at prices below

production costs.

Environmental Change

The market optimists have also not considered environmental problems that will rise

if even market processes were indeed able to prevent physical exhaustion of stock

resources and were allowed to do so unchecked by government activity. As you may

be aware, resource extraction involves disruption to vegetation, soils and drainage

patterns as well as water pollution. For instance, the exploitation of gold partly

account for deforestation, soil degradation and water pollution in mining communities

in Ghana (Teye, 2005). These environmental problems are already pervasive in many

developing countries, and it is believed that the problem will get worse if market

forces are allowed to allocate resources. For most minerals, the degree of

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environmental damage increases as lower-grade deposits are worked and the scale of

operations increase.

There are two implications of environmental concerns here. First, environmental rules

may be employed to check exploitation. Second, the government may ignore the

environmental impacts of resource extraction. Both steps can create resource

shortages. Strict enforcement of environmental laws could affect the extraction and

supply of some mineral resources. This may cause scarcity problems. This scenario

sometimes occurs in some developed countries where environmental groups may raise

concerns to stop production. For instance, opposition to oil developments in the

United States did hold up the construction of the Trans-Alaskan pipeline and curbed

production in the continental shelf area of the South-Eastern USA (Manners, 1981).

Similarly, pollution control regulations have imposed additional costs on resource

producers in some countries such as US and Japan. On the other hand the government

may ignore environmental concerns of stock resource extraction. This means that

more pressures will be placed on the absorptive capacity of the environment and

therefore on the availability of environmental quality resources.

Flow Resource Scarcity

Whilst one can argue that in the foreseeable future, economic development will not be

brought to a catastrophic halt as a result of stock resource scarcity, it is not possible to

be so sanguine about the continued availability of environmental resources. This is

because the economic system does not contain mechanisms which can reduce

depletion or degradation of flow or renewable resources such as water and forests.

Thus, flow resource scarcity and degradation may be more pressing problems than

stock resource exhaustion. Indeed, market forces and technological advancement have

not acted to reduce pressure on renewable resources as they have in the stock resource

case (Dasgupta 1982). Rapid population growth, high industrial output and mankinds

quest for higher standards of living have all combined to increase the rate of

environmental change. Indeed, man has negatively modified several aspects of the

natural environment. For instance, the use of fossil fuels is a major cause of air

pollution which threatens the very existence of man. In addition, changes in

agriculture designed to increase output such as the use of pesticides and fertilizers

have all affected landscape quality, and reduced diversity of flora and fauna. Water

bodies have also been heavily polluted by human activities.

It is important to mention that many of the problems of flow resource depletion and

degradation are exacerbated because these resources are often common property or

common pool resources. This implies that the resources cannot be owned

exclusively by any one person or a private company. For instance, no one can say that

he/she exclusively owns the river Volta. In other words, resources such as fish, water

and air extend indivisibly over very large areas; as a result, no single user can control

the supply, regulate the number of other users or the quantity they use. Therefore, it is

common for overuse to occur in the short run, with the danger of long-run depletion

(Rees, 1990). Hardins thesis, The Tragedy of the Commons, was one of the earliest

writings that captured this problem of managing common pool resources. He likens

common property resources to a finite pasture that is opened to all herdsmen in an

area. He then argued that each rational herdsman will want to increase the number of

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his animals to get more income. This will consequently lead to the degradation of the

common pasture (Hardin, 1968). The implication of Hardins thesis is that when a

group of people are in a situation where they could mutually benefit, if all adopted a

rule of restrained use of a common resource (such as water, forest etc), they are not

likely to do so (unless they are coerced by an external force) because each person

fears that even if he/she adopts conservative methods, others will use the resource

indiscriminately. This behaviour of the users could lead to the depletion of the

common pool resource (hence the tragedy of the commons).