Natural resources in a high-tech economy : Scarcity versus resourcefulness

Natural resources in a high-tech economy

Scarcity versus resourcefulness

The earth furnishes the means of wealth; but wealth cannot have any existence, unless through industry and labour which modifies, divides, connects and combines the various production of the soil, so as to render them fit for human consumption (Adam Smith, The Wealth of Nations, 1776).

Anthony Scott and Peter Pearse

The special contribution of land and Every now and then the world is warned that we are running out of natural resources to production and the distribution of wealth has been a prom-

essential natural resources. Sometimes the danger has been seen as

inent theme in two centuries of econo- impending global starvation, as expanding populations exhaust the mic doctrine. Economic thinkers since Adam Smith and Thomas Malthus have

world’s food production capacity. Often a particular country has been

argued that the limited supply of land threatened with depletion of some natural resource on which its

and resources will constrain economic economy depends, such as coal in the UK, timber in Canada, and oil in the USA. growth, and this idea recurs in modern

writing about the environment and the economy. History has not confirmed these predictions about inevitable scar- cities and their limits to growth. On the contrary, the output of food and primary resource materials has continued to grow and their relative prices, far from rising, have declined. The limits of nature’s endowment have been overcome by advancing technology which has increased supplies, broadened the range of substitute materials and reduced requirements for particular purposes. These continuing trends have important implications for economic policies of resource rich regions and countries.

The authors are with the Department of Forest Resources Management, Faculty of Forestry, MacMillan Building, 283-2357 Main Mall, Vancouver, BC, Canada V6T 124.

The authors benefited from the assistance of Mr Michael Cragg, from comments and suggestions from Nancy Olewiler and Mar- garet Slade, and from support provided by the Forest Economics and Policy Analysis Research Unit at the University of British Columbia.

A little over a decade ago the Club of Rome was confidently predicting a shortage of all raw materials by the mid-1980s.’ This boded well for the resource producing countries of Latin America and the Middle East, and they undertook huge investments on enormous borrowings. It boded well for Canada, too. But for the world as a whole shortages were predicted to become so desperate that they would limit economic growth and undermine the modern industrial economy.

What happened was precisely the opposite. If scarcity is reflected in high prices, raw materials became less scarce; prices of commodities other than oil began to soften in the late 1970s and then declined. If scarcity is reflected in meagre production, we are driven to the same opposite conclusion; production accelerated. World output of agricultural and natural resource products reached record levels in the last decade despite the decline in prices.

In spite of these reassuring developments, today’s new motto, popula- rized by the Brundtland Commission, is ‘sustainable development’, reflecting old anxieties about scarcity.* True, it is largely a concern about the environment; but an important element in it is fear about future supplies of natural resources, and whether our present rates of use can be ‘sustained’.

Economists cannot be held responsible for the predictions of the Club of Rome (or, probably, for those of the Brundtland Commission), but gloomy hypotheses about growing scarcity of natural resources have their own long history in economic doctrine, since well before Thomas

154 0301-4207/92/030154-13 0 1992 Butterworth-Heinemann Ltd

‘D.H. Meadows, D.L Meadows, J. Rander and W.W. Beehrens, The Limits to Growth, Universe Books, New York, 1972. ‘World Commission on Environment and Development, Our Common future (The Brundtland Report), United Nations, New York, 1987.

RESOURCES POLICY September 1992 155


Malthus argued that the limited productiveness of land would hold populations in check. However, two centuries of scholarly discourse and observation about these fundamentals has left economic theory some-

what vague and prognostications unconvincing. The whole subject is important for resource dependent regions in

western North America and elsewhere. Canada is a particularly illustra- tive example of a resource rich industrial economy whose economic hisotry has been a progression from one natural resource to another - fish, fur, timber, wheat, minerals and energy resources. In spite of costly governmental efforts to wean the economy from its dependence on hewing wood and drawing water, the natural resource industries maintain a more important place in Canada’s economy than in that of almost any other industrial country. The changing role of natural resources in the modern economy has implications that extend well beyond industrial prosperity to policies relating to economic development, international trade, taxing powers and regional development.

In this paper we trace some of the main threads of economic thought about the role of land and natural resources in economic development. We also look to some Canadian statistical evidence in order to draw inferences about the changing position of natural resources in the economy. In the latter part of the paper we suggest an alternative perspective on resources and their implications for economic and social

policy.

Resource scarcity in economic doctrine

Our perceptions of natural resources and their role in the economy are heavily influenced by the great economic theorists of the 18th and 19th centuries. Their doctrine has also influenced our public policies for managing natural resources. So it is worth reflecting on these classical theories, and the circumstances of time and place in which they originated, to help understand today’s conventional wisdom and its shortcomings.

Nature is the source of wealth

For present purposes, we want to draw attention to a few prominent themes in early economic theory. One of the oldest ideas is that land is the source of all wealth. This was the conclusion of the French physiocrats two centuries ago. To the rural population of 18th-century France it was hardly news that wealth came from production and that production was impossible without the soil. But the logic had apparently been lost on the king and his court, who had been preoccupied with inventing taxes, monopolies and tariffs to finance their luxuries. To their distress, they had found that the more they taxed the less revenue they received. To explain what was going wrong the physiocrats, under Dr Francois Quesnay, analysed where tax revenue, and ultimately wealth, came from. They developed a chart showing the interconnec- tions of various parts of the economy but, instead of showing the sectors taking in each other’s laundry like a modern input-output table, it showed the whole economy - the shopkeepers, tradesmen, servants, army and navy and court - as ultimately dependent on one sector: agriculture. Their clear, logical analysis showed that, by applying labour to land, peasants created wealth, and their profits or rentes flowed outward to all other sectors.


Figure 1. Primary resource produc-

tion in Canada since 1890.

Sources: 1870-l 926 MC. Urquhart, ‘New estimates of gross national product, Cana- da, 1870-1926: some implications for Canadian development’, in Natural Bureau of Economic Research, Long Term Fac- tors in American Economic Growth, Uni- versity of Chicago Press, Chicago, IL, 1984, pp 9-61; 19261960: M.C. Urquharl and K.A.H. Buckley, eds, Historical Sfatis- tics of Canada, Macmillan, Toronto, 1965; 1960 onwards: Statistics Canada, National Accounts, Income and Expenditure, Ottawa, various years.

156 RESOURCES POLICY September 1992

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Including agriculture

J 1880 1900 1920 1940 1960 lY80

The implications of this theory for the king’s fiscal policies followed logically; taxes on anything other than land would ultimately be passed on to land anyway, and in the process would impede commerce. But taxation is only of incidental interest here. More interesting is the physiocrats’ insistence that society must conform to nature. In social matters this led them to advocate that men be left to act naturally according to their own lights (giving rise to the expression laissez faire

and a continuing political debate about the mischief of controls and taxes on industry). To us the physiocrats’ theory is important for the pivotal role it assigns to land: its productivity, its responsiveness to cultivation, and its ownership.

Limited land limits growth

The followers of Adam Smith drew even stronger conclusions about land. They argued that the limited supply of land would restrict economic growth. Thomas Malthus, in the first edition of his famous essay on population, darkly predicted that unrestrained human reproduction, dependent for its sustenance on a fixed land base would, almost literally, eat society out of house and home. Malthus’ theory was that the efforts of an expanding population to produce food on a limited land base would suffer diminishing returns, and if reproduction was not checked through moral restraint it would be checked by famine, war and pestilence.

Our economic experience since Malthus wrote at the end of the 18th century does not offer much support for his theory. World population has increased more than fivefold, but our production has risen even faster, resulting in enormous improvements in the human condition. Statistics available for Canada for many decades provide no evidence of emerging Malthusian scarcity. Figure 1 shows the output of Canada’s primary resource industries over the last century, with and without agriculture. Here, primary resource production is the aggregate output in agriculture, logging, mining and fishing and trapping, defined by Statistics Canada. (It excludes the processing and milling industries that

Figure 2. Proportion of the Canadian labour force employed in primary resource industries since 1945.

Sources: Aggregate Productivity Mea- sures (Cat. 14-20), Statistics Canada, Ottawa, various years.



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1945 1950 1955 1960 1965 1970 1975 1980 1985

manufacture these raw materials.) Clearly, the growth in output of food and other natural resources has not slowed; it has increased at an

accelerating rate. Malthus assumed that the supply of agricultural land was fixed, as if it

were an island of fertile soil, an understandable assumption while writing in lonely Britain at war with Napoleonic France. Malthus himself later corrected this assumption. But in many fields influenced by his work, from evolutionary biology to ecology and medicine, writers continued to anayse animal and human populations using the original Malthusian assumption of absolute scarcity of land. Today it is reflected in the facile metaphor of the world economy as a ‘spaceship’.

The theory leading to the conclusion that the fixed supply of land limits economic growth was soon put on a whole new footing with the recognition that nature provides lands of varying quality; sites differ in fertility, proximity to markets and other characteristics. The brilliant David Ricardo used this simple insight as the foundation of a theory to show that an expanding competitive economy could always turn to lower-quality land. Back on the best land, high rents make savings possible, leading to capital formation, higher labour productivity and economic growth. The growing economy, needing more food, would utilize land of progressively lower quality, pushing out the extensive margin or frontier of settlement. In this theory the supply of productive land is limited only in the sense of ‘Ricardian’ scarcity, or relative scarcity of land of the best quality. This seemed a reasonable view of the 19th-century economy; while European nations grew, agriculture expanded too, first on marginal land at home, then abroad.

Ricardo’s theory recognizes that as an expanding population presses on to poorer and poorer land it will take more and more labour to produce food. Expanding food production will therefore require a progressively larger proportion of the labour force, driving up the cost of food correspondingly.

Again, the Canadian experience offers scant support even for Ricardo’s modified version of scarcity. Figure 2 shows that the proportion of our labour force employed in agriculture and the natural



k Excluding agriculture

Figure 3. Primary resource production as percentage of total production since 1870.

3There are a few exceptions: Adam Smith and David Ricardo discussed mines and the depletion of minerals, and Alfred Mar- shall considered fishing (but not depletion of fish stocks). %ee, for example, Anthony Scott, The Economics of Conservation, University of Toronto Press, Toronto, 1955.

resources industries, far from increasing, has fallen over the years. And this declining fraction of our labour force has not only maintained production of primary products but expanded it substantially (as indicated in Figure 1).

We have therefore been able to devote an ever increasing proportion of our effort to the production of other things. Figure 3 shows that primary production excluding agriculture has accounted for a fairly constant percentage of Canada’s gross domestic product since 1870; with agriculture included, it shows a marked decline.

Using resources depletes them

The classical economists had little to say about natural resources other than land, and they ignored the problem of depletion of minerals and other non-renewable resources and the need to replenish them even in a stationary state.” They pictured the progress of mining like that of agriculture; as one mine petered out the producers would move to another of slightly lower grade. Only one great English theorist, Stanley Jevons, analysed the consequences of depletion of Britain’s coal. His conclusion, that Britain would eventually settle into a sort of low-energy stationary economy dependent on imported coal, created a sensation at the time. But the subject was not worked into the political economy of the Victorian age.

The issue was raised again by the US conservation movement early in this century. The conservationists feared that progress would end because the rapacious present generation would cheat the next of its needed natural resources. Like the physiocrats a century earlier the conservationists held that man should ride with nature, not assault it. But unlike the physiocrats they produced no rigorous analysis. Their preachings about allocation over time relied instead on imprecise metaphors about duty, conscience and stewardship. Some economists suggested for them that society was discounting posterity’s welfare at an excessive rate, but this abstract notion did not appeal to the conservation romantics and activists.’

The economics of allocation over time waited until Harold Hotelling


5Haro1d Hotelling, ‘The economics of exhaustible resources’, Journal of Political Economy, Vol39, 1931, pp 137-I 78. See also A.D. Scott, ‘The theory of the mine under conditions of certainty’, in Mason Gaffney, ed, Extractive Resources and Taxation, University of Wisconsin Press, Madison, WI, 1967.



took up the question in the 1930s. He gave a precise theoretical answer to the question of how fast an economy would use up its initial stock of resources, given population growth and constancy of incomes, costs, technology and so on.’ Resources would be depleted at a declining rate, and their price would rise at a rate equal to their owners’ opportunity

rate of interest. I-lotelling’s theory supports the notion that the rate of decline in

resource supply is managed by producers, rather than simply imposed by nature, and is in this sense a social phenomenon. It also connects with a conclusion of the Ricardian theory of scarcity which is too often forgotten; that is, as particular raw materials and foods became scarcer, their prices rise, signalling to everyone that this is happening. Producers and consumers get advance warning that their commodities are becoming scarce, and rising prices invite them, and others, to profit from ways to ameliorate or reverse the trend.

This signalling and learning process is forgotten by apocalyptic and millennarian prophets who, foreseeing scarcity, imagine that it will suddenly catch us unprepared. The scientists who designed the simula- tion models for the Club of Rome seemed to think that their curves of supply and demand would unroll independently like two jet-planes in a fog, colliding unexpectedly and killing all aboard. This kind of scenario may be helpful in understanding how some non-traded product like a radioactive cloud could change the world permanently, overnight. But for scarce traded goods from natural resources, the economic system gives us plenty of warning. The question is whether we can rise to the occasion.

In any event, we are not attempting to deal here with environmental problems, worrisome though they are. Rather, we are concerned about land and industrial raw materials and their scarcity in production.

Scarcity concentrutes wealth

Ricardo’s theory led to the conclusion that growth could not continue indefinitely. Something like Malthusian stagnation must eventually occur, though it would come about quite differently from Malthus’ chaotic process. Instead of starvation, conflict and disease limiting population, production of food on progressively poorer land would take more and more labour until it would not pay to bring yet poorer land into cultivation. The population would then be held in check by a food trap, and the economy would become stationary. The concept of an eventual stationary state, arrived at by one route or another, was one in which all 19th-century scholars believed, as had the millennarian philosophers and most of the other economic, religious and political thinkers that preceded them.

Classical economists agreed on other important matters as well. Like their physiocratic forerunners they all placed land at the centre of their economic models, and treated land as the primary input in production. Their concept of land scarcity varied, as noted, but it was always an important restraint on growth.

They all agreed, as well, that the ownership of land was a primary determinant of the distribution of wealth, and that the increasing scarcity of land would give owners an expanding share of the national income. They found it convenient to divide the economy into primary and secondary sectors, each supplying the other. As long as land and food were plentiful, food would be cheap relative to manufactured


goods. But as both grew, food production would run into land scarcity and diminishing returns to labour, and so would grow more slowly than manufactured goods. As a result, the terms of trade would shift in favour of suppliers in the primary sector.

In theories about international trade, this meant that nations spe- cializing in primary production would benefit more from economic growth. In theories about the distribution of national wealth, it meant that the landowning class would be progressively enriched.

Our historical data do not support this conclusion either. We find no general increase in the real price of primary resource commodities relative to the real price of manufactured goods. On the contrary, the decline in certain commodity prices relative to the proces of manufactured goods during the last 15 years has a good deal to do with the trade deficit of the USA, the surplus of Japan, and the heavy foreign indebtedness of some less developed countries.

The idea that landowners would capture an increasing share of the growing national income at the expense of consumers, workers and capitalists was agreed upon by economists wide apart on the political and theoretical spectrums. David Ricardo, a landlord himself, con- cluded this as did, in their turn, John Stuart Mill, Leon Walras, Alfred Marshall and A.C. Pigou.

Just as the lSth-century physiocrats found allies among the land hungry French peasantry, the rent theorests of the 19th century found vigorous support from a new political fringe, whose cause was galvan- ized by Henry George. George, a self-taught US writer and politician, practically invented ‘the land question’ as a social issue with his best-selling book in 1880.6

George picked up the idea that land rent would capture an increasing proportion of the national income and went on to prescribe what should be done about it. He saw landowners as passive, parasitical speculators at best. Increasing rent resulted from the expanding needs of everyone else, and since it was not earned by landowners, they had no moral claim to it.

Because land rent is due to the pressure of society as a whole, it belonged to the people. George therefore proposed that land be nationalized or, at least, taxes on private land rents should be high enough to finance government so that taxes on manufactured goods and incomes earned by working and producing things could be removed.

George’s single-tax policy caught the imagination of philosophers like Shaw and socialists like Woodsworth, and thrilled US populists. His ideas helped shape property taxes and zoning laws in western US states and Canada. And they undoubtedly influenced early decisions to maintain public ownership of land and natural resources.

The Henry George theme recurs periodically in political life, as during the energy crisis of the 1970s. The scarcity of oil contrived by foreigners raised its price and the income and wealth of resource owners through no effort on their part. In many cases the owners were governments, and the debate about the distribution of rents became a debate about the powers of different levels of government to tax and levy royalties. In Canada, the private owners of extraction rights were mainly foreign corporations, and undoubtedly the determination to

‘Henry George, Progress and fovefty, capture rents and assert ownership arose from the same instincts that

Appleton, New York, 1880, reprinted by fuelled Henry George’s campaign a century earlier.

Modern Library, New York, 1930. For our present purpose George is important for his version of



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1860 1880 1900 1920 1940 1960 1980 2000

Aluminium -“‘I: 1880 1900 1920 1940 1960 1980 2000

1920 1930 1940 1950 1960 1970 1980

Figure 4. Real price of four primary resource products since 1870.

Sources: Ft. Manthy, Natural Resource Commodities: A Century of Statistics, Johns Hopkins Press, Baltimore, MD, 1987; N. Potter and F. Christy, Trends in Natural Resource Commodities: Statistics of Prices, Output, Consumption, Foreign Trade and Employment in the United States 787&1957, Johns Hopkins Press, Baltimore, MD, 1962; Updates: Non-Ferrous Metal Data (American Bureau of Metal Statistics yearbook); Metal Weeks Annual, various years; Metallstatistik from Metallgesellschaft AG, Frankfurt-am-Main.

Ricardian scarcity. He believed passionately in economic growth, which he saw as the product of human ingenuity and effort. The role of land was less dynamic, but the withdrawal by speculating landlords of land made valuable by social development created an artificial scarcity that threatened progress.’ He regarded this not so much as a production problem as a problem of unequal distribution of wealth, heavy taxation, poverty, injustice and strife. In his preoccupation with the evil of landowners capturing the rents, resulting from economic growth, George missed the importance of accumulating capital to support the growth itself.

Undoing scarcity

Our brief excursion into the history of economic doctrine reveals how early notions of fixed supplies of land and resources were modified,

7Henry George was primarily concerned giving way to the idea that growing demands will spread them over about speculators in urban land and their space and time. But in all this theory we are left with the inevitability of accumulation of rents. He put less emphasis on the scarcity of agricultural land,

growing scarcity.

perhaps because at the time the American It is difficult to find evidence of growing scarcity, however. Figure 4 West was opening up. shows the long-term trends in the real price of some of our major



natural resource commodities. These fluctuating data are taken from a variety of US and other sources, but they are sufficient to demonstrate that there is no general pattern of rising prices, even though the

production of these commodities has been expanding. If our experience is that, in fact, resources used in ever-increasing quantities are not

becoming scarce, we have a fundamental new intellectual problem. Explanation of how scarcity is mitigated is not enough; we need an explanation of how scarcity is avoided altogether.

The key to this explanation, we suggest, lies in two related processes that were ignored by the early theorists; augmentation of the supply of scarce land and resources through investment, and amelioration of demands on them through substitution and technical change.

Captial accumulation and augmentation of resources

Consider the following syllogism:

0 Increasing scarcity of land and resources leads to accumulation of capital.

0 Capital can substitute for land and resources in production, and investment can augment them.x

0 Therefore scarcity may generate the capital needed to offset the advance of scarcity itself.

Victorian economists, from Karl Marx to Henry George, were clear about the first premise, for they deplored the accumulation of wealth by landowners. But the landowners were regarded only as the privileged governing and spending class, playing an unproductive role in the economy. The theorists did not seem to recognize that the piling up of rent would lead to accumulations of capital that could be used to enhance production and replace or augment land and resources.’

In fact, this happened. An increasing stock of man-made capital was made available to supplement scarce resources. Some was used to drain, irrigate and improve land at home; some went to assist development of agriculture in the USA, Australia and Canada; some was invested in canals and railroads to connect remote resources to markets. In effect, the rent from old land created new land and resources.

Robert Solow, in 1974, provided a theory to explain how economic growth could continue and consumption could be maintained through capital accumulation and investment.“’ More recently, John Hartwick has established the theoretical possibility that with growing resource scarcity, rising rents invested in substitute capital goods could be enough to stretch our resource supplies and to maintain consumption indefinitely.”

‘For a detailed discussion of these princi- Another way in which capital can augment natural resources is

riles.. see OD cif. Ref 4. through investment in knowledge, especially through exploration. This, I I

‘In this they departed from Smith and too, was ignored by the classical economists; just as thev gave short some of his followers, who had worried that the piling up of rent would augment the

shrift to the problem of depletion, they seemed content to assume all

spending of the wealthy on unproductive land and resources were known. They said surprisingly little about the services and luxuries instead of on capital. “Robert Solow, ‘Intergenerational equity

great discoveries in their time of iron, lead, zinc and precious metals at

and exhaustible resources’, Review of home and abroad.

Economic Studies. Vol 41. 1974. oo 29 Today, investment in exploration and discovery is well recognized by 45.

,,

economists as a means of augmenting sum3lies of natural resources. It is “John Hartwick, ‘Intergenerational equity

v II

and the investing of rents from exhaustible now so well integrated into the theory of mining and petroleum

resources’, American Economic Review, development that the reserves of these so-called non-renewable Vol 67, 1977, pp 972-974. resources can no longer be regarded as fixed in an economic or social



sense; they depend on investment in exploration. A consequence of this is that Hotelling’s prediction of rising mineral prices, which assumed a

fixed stock, has to be qualified.

Technical change

The most serious flaw in the traditional approach to scarcity is its disregard for technical change. Living in the industrial revolution, the classical economists certainly recognized invention and the advance of technology; but these were seen as means of making labour go further, adding to profits, and assisting capital accumulation, not as means of augmenting land and resources. Their implication was that although inventions were beneficial in many ways, they tended to advance rather

than postpone the inevitable scarcity. Thus the early theorists assumed that the technology of production in

agriculture and other primary industries was fixed, ignoring the substitu- tability among labour, capital and natural materials. They also assumed that the demand for raw materials by the consuming industries was

unchanging. These assumptions were drastically wrong, as we can see in the

revolution of our agricultural and natural resource industries over the last century. In the first place, we have been able to change the way we produce things to economize on whatever inputs become scarce and expensive. We have substituted so much physical and human capital for labour and land that Victorian farmers would hardly recognize our food production processes, with all their mechanization, genetic improve- ment and technical efficiency. Similarly, advancing technology in the production of all primary products has enabled us, in effect, to increase the natural resource base. To make copper, Victorian miners needed ore of at least 5% richness, but we can make the same product, at lower cost, from ore with only a tenth of that concentration.

Researchers at Resources for the Future have found that the long- term price of most primary commodities is declining, because supply

is growing faster than the demand. And supply, they argue, is growing because of advancing technology that enables us to extract the same product from heterogenous natural resources of progressively lower quality.12

In the second place, the final demand for particular natural resources keeps changing as advancing technology gives us more opportunities to substitute one for another. For fuel, we have shifted from wood to coal to petroleum to falling water to uranium and a host of ‘unconventional’ sources. For constructing buildings we have replaced wood with steel and aluminium, and with materials like glass and concrete made from ubiquitous natural substances.

The overall effect of this substitution is a declining natural resource content in the things we produce and consume.- The number of telephone messages that can be carried with a few kilograms of modern fibreglass cable would require a ton of traditional copper wire. The raw material content is high-technology products like semiconductor micro- chips is very small compared with more traditional products. One study estimates that the raw material required for a given unit of output has been declining by 1.25% per year, compounded, since the turn of the century. I3 Observers such as Peter Drucker have described the result as ‘uncoupling’: the primary resource sectors, once the key to economic expansion, have become irrelevant to explanations of most economic

‘*H J Barnett and C. Morse, Scarcity and Gro’Gh: The Economics of Natural Re- sources, Johns Hopkins Press, Baltimore, MD, 1963. See also Margaret Slade, Pricing of Metals, Centre for Resource Studies, Queen’s .University, Kingston, Ontario, 1988. 13David Sapsford, Real Primary Resource Prices: An Analysis of Long-run Move- ment, IMF internal memorandum (unpub- lished) cited in Peter Drucker, ‘The changed world economy’, foreign Affairs, 1986, pp 768-791.



events.14 We doubt that this can yet be said of energy, but it is surely true of many resources once regarded as staples.

In the third place, we keep changing the products we produce from our natural resources. Land is continuously reassigned, from pasture to cultivation to urbanization to waste and back again. New crops of livestock, fruits and vegetables, and new ways of producing them, come and go and are replaced with something else.

The same is true of forestry; as Harold Innis has observed, the forests of North America were first valued for fuel, then naval spars, then lumber and finally paper. The experts on forest resources were first found in the British Admiralty, later in the construction industry, then in the newspaper business and today in chemicals. Similarly, oil wells once valued for lighting fluid, later fuelled automobiles, and now supply a petrochemical industry. And mines opened up for gold and silver are reworked for radioactive metals and alloys for making steel; even the tailings are assayed again. The land stays in place, but its natural assets keep getting valued for different characteristics, for use in new products and new markets.”

Adapting needs to nature’s supply

Once it is seen that natural resources can yield materials that are valuable for changing and changeable purposes, it is a short step to recognizing a world where both buyers and sellers are using technology to build bridges between what is available and what is needed. This may be the key to a better theory about land and natural resources in a high-tech economy.

Landlords and resource owners are always looking for the most profitable uses of their resources. What they have to sell is a variety of sites and materials having characteristics that can be combined in a range of productive processes. They are dealing with a passing parade of buyers who are constantly looking for better and cheaper ways of producing and packaging the final products demanded by consumers. Their interest is not in particular raw materials but on technical characteristics like tensile strength, combustibility, conductivity, heat resistance, weight bearing capability and so on, which are obtainable from a range of natural and artificial sources.

In this model, technology is the library that provides all the linkages between the products that consumers demand and the characteristics of materials needed to produce them. But technology is not stationary, of course; it is a continuing accumulation of knowledge, sometimes merely an extension of existing technology and occasionally an imaginative leap that presents completely new opportunities.

-/bid. “Anthony Scott, ‘The development of the extractive industries’, Canadian Journal of

raw material need can be satisfied from the expanding range of sources

Economics and Political Science, Vol 28, and the invention of new combinations of new resources. The ultimate

No 1, 1962, pp 7C-87. resource is innovation.

The final result of this may be that all land and all resources can be used, at some cost, for almost any final use. There are millions of sources of material with the needed characteristics, and millions of final uses. The number of essentially different characteristics needed is much fewer, and diminishing as manufacturers try to reduce their needs to their essentials. Owners of old resources looking for new markets must try to supply them at lower cost than new sources, as demanders search for their requirements among an ever widening panorama of sources.

In this vision of the raw material world ‘scarcity’ is ephemeral. Any


16For recent examples, see The Premier’s Council, Competing in the New Global Economy, Toronto, 1988; Peter Morici, Meeting the Competitive Challenge: Canada and the United States in the Global Economy, Canadian-American Committee (sponsored by the CD. Howe Institute, Toronto, and the National Plan- ning Association, Washington), 1988; and Melissa Clark-Jones, A Staple State: Canadian Industrial Resources in Co/d War, Toronto, University of Toronto Press, 1987.


At least, our observations about historical trends in resource scarcity seem to fit more comfortably in this model than that of the classical theorists. Yet in a fundamental way it brings us full circle back to the physiocrats (the technocrats of the physical environment). Man must conform to nature. The critical difference is that the mainspring of production in our model is not land but technology. It is technology that enables us to adapt to nature, matching our needs to whatever is available. And it is scientific and technological advance that provides the insurance for plentiful raw material for whatever future consumers may want. This suggests that science and technology may be the key to harmonizing the economy with the natural environment in our current search for sustainable development.

Some implications for R&D

If this is an accurate view of the world, we should be less worried about running out of natural resources than about how to enhance their value. Resource rich economies should be concerned about maintaining their ability to produce things from natural resources that have the technical characteristics needed by the world’s rapidly evolving economy, and about being able to produce them at lower cost than substitutes.

Regions and countries generously endowed with natural resources

ought to abandon the popular notion that the world will beat a path to their door. Less obviously, but more importantly, they should abandon the idea that to realize the benefit of their natural resources all they need to do is act like passive landlords who only collect the rent. This perception of the role of landlords is deeply rooted in economic doctrine, as we have noted. And the simplistic view that this is the appropriate role of landlords is probably encouraged in North America by the fact that the landlords are often governments, while it is to the private sector that we look for initiatives in developing and producing things.

To get the most out of natural resources we must husband them,

cultivate the markets for them, and develop production technologies and products that will keep them in strong demand in global markets. This calls for a modern version of reinvesting the rents to expand and develop natural resources. It means developing and using modern technology to find new resources, augment stocks and make them accessible, extract and process them with ever increasing skill and improve the products produced from them. It means investing in our knowledge about them and in our ability to manage and use them efficiently.

This implies a different emphasis for research and development from

what is often advocated. People in resource dependent regions are frequently told that they must grow out of this dependency and into more sophisticated economic activity. Canadians are repeatedly advised, by the Science Council of Canada among others, that they are excessively dependent on the old natural resource industries, which use crude technology and afford limited opportunity in the modern economic environment. The suggestion is that we have neglected research and development in secondary and tertiary industries, and that we must correct this in order to maintain our competitive position in the world.16

This argument ignores the opportunities for research and development in our natural resources and their associated industries. We have

RESOURCES POLICY September 1992


already noted the history of advances in these areas, and it is clearly mistaken to assume that today’s exploration, development, management and production of natural resources depends on low technology. Moreover, the opportunities today for further applications of high technology to the resources sectors are limitless.

It also ignores the special advantage of resource rich regions in an increasingly global economic environment. Research and technological developments in most fields becomes international knowledge which is highly transferable from one country to another, and those who employ it are highly opportunistic in their choice of location. Innovations in medicine, aviation, robotics and artificial intelligence, regardless of where they originate, are carried around the world to be used wherever it is most advantageous. It is hard to predict who will benefit from investments in new technology in most fields, because it drifts world- wide. Correspondingly, our producers benefit from technology developed elsewhere.

The unique characteristic of land and natural resources is that they stay in place. So the benefits of research and technology applied to them are not footloose; they accrue to the resource owners, with their particular geographical interest.

This is not to say, of course, that research in other fields is less useful; indeed, its transferability enhances its value to mankind as a whole. But for resource dependent societies and their governments, which often have a proprietary interest in the resources as well as a responsibility for economic policy generally, it is important to recognize a special priority in maintaining an advanced capability in natural resources production. This implies a corresponding priority to natural resources and resource industries in the governmental research and development effort.


Documents

Natural resources in a high-tech economy : Scarcity versus resourcefulness