Isobel Coleman

Democracy in Development

Coleman maps the intersections between political reform, economic growth, and U.S. policy in the developing world.

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A Resource Revolution

by Isobel Coleman
November 22, 2011

An Iranian taxi driver pays for fuel at petrol station in northwestern Tehran in December 2010 directly before subsidies were cut (Morteza Nikoubazl/Courtesy Reuters).

Was Malthus right? The world’s population crossed the seven billion mark earlier this month, and seems set to add another billion people in the next twelve years. Moreover, with a rapidly expanding global middle class (some three billion could join its ranks over the next two decades), consumption around the world continues to climb. No surprise that there is increasing concern about whether the planet’s resources can possibly meet human demand. A new report published today by McKinsey & Company, Resource Revolution: Meeting the world’s energy, materials, food and water needs, provides a relatively sanguine answer to the Malthusian question. The report argues that “resource productivity improvements, using existing technology, could satisfy 30 percent of demand in 2030.” The authors acknowledge that capturing the necessary productivity improvements won’t be easy, and critically, will require significant new capital. They also argue for the removal of subsidies that keep prices artificially low and encourage inefficiency.

Reducing subsidies in any country is politically difficult; voters don’t like giving up benefits like subsidized gasoline or electricity. When they don’t have the vote, people have been known to riot over the withdrawal of food and energy subsidies. (Remember the 1977 bread riots in Cairo? When Sadat tried to rescind food subsidiesmore than 160 people died and the government was badly shaken.) The Iranians had better luck this spring in reducing their terribly expensive gas subsidies. They announced the plan long in advance, and credited everyone’s (rich or poor) bank account with approximately $45 per month to soften the transition. The IMF praised the program, and there was little domestic resistance. Reducing subsidies is difficult, but not impossible, especially when safety nets are carefully constructed.

Improved water management is another area of enormous opportunity. So much water is wasted today on agriculture in unsustainable areas, or unsustainable crops, or just through inefficient processes. In Yemen, for example, more than half of its increasingly scarce water supply goes to growing qat, a plant that Yemenis chew for a buzz. Subsidized cotton production in desert conditions in Central Asia has likewise done tons of damage. Resource Revolution is a good reminder that meeting the resource challenges of the 21st century is not impossible, but requires sensible policies and doable, although difficult, changes in behavior.

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