Resource Productivity

In one of our class sessions, Professor Hurd read a passage from the book “Small Is Beautiful” that decried the fact that corporations and modern man wrongly sees resources as income items when indeed they are capital items (example argument: profits from a petroleum manufacturing company should not be simply celebrated [record dividends] and spent away [because it is actually an expense of limited, irreplaceable natural resource, which took millions of years to form], but must be invested in finding, scaling, commercializing new forms of renewable energy sources, methods).

Over the last century or so – the period of industrialization, we have been concentrating on and making huge improvements in labor and capital productivity, and all the while developing and advancing technologies, methods toward exploiting natural resources. Naturally or coincidentally, and fortunately or unfortunately, the volatility and increase in cost of natural resources (e.g. from a fundamental resource industry: the average real cost per oil well has doubled over the past decade, according to MGI Report referenced here) in addition to learning more about our carbon footprint, impact on climate change are pushing corporations, individuals to realize and take a look at resource productivity.

While resource productivity can provide structural cost advantages & differentiation in market place (e.g. Interface carpet company [TED video below]) and alleviate the problems (according to MGI Report referenced here, resource productivity improvements available would meet nearly 30 percent of demand for resources in 2030), that in itself cannot solve the bigger problems such as global warming, resource poverty in the face of exploding global population and economic growth. Ironically, the solution to bigger and so far intractable problems is likely to be technological advancements – the factor that accelerated and set us on the ever-accelerating path of collision course (to paraphrase the theme from the hitherto referred book “Small is Beautiful”). Another important element in the solution-equation is politics (in other words, the philosophical battle of economic growth vs. conservation, jobs vs. environmental protection). While it could be naïve to rest our hopes completely on technology (for political factor too), I believe that in the long run the technology can definitely change the tide by bringing in new jobs, economic growth while conserving and protecting the resource and environment. I would like to emphasize on “long run” because in the short-run even funding, subsidizing those technological advancements (case in point: solar energy and politically its poster-child Solyndra) could become a political battle. One more important element is the human behavior. To start with, not disincentivizing beneficial behaviors (which could sometimes include regulatory roadblocks), and measures such as sending right price signals to the market (cutting subsidies that masks the real cost and value, charging for externalities [e.g. carbon tax]), educating businesses and general public on resource-constraints and creating awareness.

So, Technology – A Panacea?

That does not seem so, when indeed many of the problems we face are resultant of technological innovations as mentioned earlier. So, may be, call this “Downside of Technology”? In the name of resource productivity (or, not) technology at times takes us into unchartered territories, as in the cases of genetically modified (GMO) food and Fracking (Hydraulic Fracturing for shale gas extraction). Thinking much about it (starve impoverished children vs. feeding them with GMO grains; frack to your heart’s content [providing jobs in a tough economy] vs. rely more on those foreign oil [the profits from that could purportedly be used against US interests]), I don’t see a simple answer. May be this is for another blog post! 😉

Conclusion:

Reading the book “Small is Beautiful” made me sad as I saw the outlook as gloom and doom (resource as income item vs. capital item; GNP vs. GNH). And, reading the 30,000-feet view McKi nsey report (which brought together the reality [of resource dependence, rising resource prices] and hard business case [i.e. common sense] & solutions, approach) I’m happy that the converging point of sorts is being realized and acted upon, though that might not have been soon and enough.

References:

Book: Small is Beautiful – E.F. Schumacher

http://www.mckinsey.com/insights/mgi/research/natural_resources/resource_revolution

Interface Carpet Company – TED Video: www.ted.com/talks/ray_anderson_on_the_business_logic_of_sustainability.html

It will be unjust to go without mentioning “Carbon Efficient City” and our class discussions as a major source and inspiration for my thinking and writing this article.

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