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China, India and Malthus

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Today, Clark and Gardner discuss the increasing resource demands of developing nations. Previously, they debated government policies aimed at altering consumption habits, increasing food prices and the question of whether global trends in overall supply and demand portend a coming era of scarcity. They'll finish their Dust-Up tomorrow with a discussion on the future of green technology.

How we can preserve prosperityBy Gregory Clark
Gary,

Thomas Malthus warned in 1798 that population pressures would forever keep food and energy scarce and incomes low. In the 200 years since, world population has grown sevenfold, to 6.7 billion. Yet food and energy have become cheaper and more abundant. Malthus's dystopia, it seemed, belonged in history's junkyard.

But, suddenly, rapid growth in China and India and the consequent scramble for increasingly scarce resources has revived the Malthusian specter. By 2050, 9 billion people in a world where all have U.S. consumption standards would need eight times as much oil and five times as much food than the planet current uses. Is the future a world of $10-a-gallon gas and $20 Big Macs?

Two things allowed growth to occur from 1750 to 2000 with declining commodity prices. First, only a small fraction of the world grew rapidly. Living standards for 2 billion Indians and Chinese even by 1990, for example, barely exceeded pre-industrial levels. The West was alone in its voracious appetite for raw materials and energy. Second, fossil fuels cheaply substituted for land in agriculture by increasing crop yields.

But now, with much of the energy reserves of the West depleted, China and India will potentially also become frantic importers. The downward march of food and energy prices since 1800 has ended. Current high prices may presage a food-scarce/energy-scarce future.

What will happen depends on the race between technological improvement and growing demand. As I emphasized earlier, no one can predict which force will win. A "full world," Gary, may also be one of cheap and abundant commodities.

But suppose the worse. Suppose abundance is over. Must we fear that?

The answer is no. First, the share of modern U.S. consumption devoted to raw food and energy purchases is small: 1.4% for food raw materials, 7% for energy.

The U.S. economy can withstand enormous increases in food and energy costs with little damage because food and energy are even now so extravagantly cheap that most of both are squandered in uses of little value. In my town -- Davis, Calif. -- there is a traffic jam outside the main high school each morning as healthy teenagers are ferried by car or drive themselves a few miles to school. They are ferried from houses that are heated, air-conditioned and lighted, most of which rarely gets used by people.

Currently in the U.S., we consume the energy equivalent of six gallons of gas per person per day. Some rich countries manage on much less. The Danes, for example -- whose public policy mandates expensive energy -- use the equivalent of only three gallons of gas per person. The Danes are not suffering much from their missing three gallons a day. Reducing food consumption in our high-consumption society is equally easy: a bit more bread, a bit less steak.

Given that we can easily reduce consumption when costs go up, a permanent doubling of the prices of food and energy would reduce income by less than 6%. At current rates of economic growth, incomes would recover from such a shock in less than three years. After that, onward on our march to ever greater prosperity.

Gregory Clark is chairman of the economics department at UC Davis. His recent book is "A Farewell to Alms: A Brief Economic History of the World."


Prosper sustainably, or prove Malthus rightBy Gary Gardner
Greg,

Great post! (Translation: We largely agree). But there are other dimensions to consider, especially the impact of the rise of China and India on the rest of the world.

China and India account for nearly 40% of the world's population, and their economies are growing fast: China's at about 10% annually, India's somewhat slower. Never in history have so many people risen so far, so fast. They should be congratulated.

But consider the impact on global supplies of energy and food. If China and India were to consume oil at half the U.S. level per person -- about the current level in Japan -- they alone would need 100 million barrels per day. Today, the world consumes about 85 million barrels per day, and oil supplies are rapidly dwindling. Factor in the rest of the world's needs, and projected oil demand quickly challenges even optimistic estimates of future supply.

So there will be a reckoning. It may come in the form of war or sharply higher prices and economic contraction. Or it may be an intelligent reckoning, a conscious decision to move away from petroleum and toward alternative sources of energy.

Fear the rise of China and India? Not at all. Fear the world's response to their rise? Absolutely. Unless the U.S. and other nations get serious about conservation and alternative energy, there's plenty of reason to worry.

On the food front, China and India may well become major importers of grain, with serious consequences for other grain-importing nations. The two giants are farmland-poor, each with about one-third the grain-producing land per person of the U.S., area that will only shrink as populations expand. In fact, their grain area of between 600 and 650 square meters per person is now approaching the size at which Japan and Taiwan began to import grain heavily. Moreover, both countries have major water constraints that are already dampening production.

So both could turn to global markets in a big way. No problem for them; they have the funds to buy what they need. But if global grain stocks continue to be tight, what will happen to the poor who live in countries that cannot outbid new, wealthy importers?

The challenge is not just China and India, Greg. More than a quarter of the world's people now belong to a global consumer class -- people living at or above Europe's poverty level -- and nearly half are in developing countries. Good news for people who have long known deprivation, but an environmental challenge to the planet and a moral challenge for the prosperous West if, as I believe, this full world makes it difficult to accommodate high consumption for all. Western-driven economic activity over the last century has changed the climate, scalped forests, produced the first mass species extinction in 65 million years and emptied the oceans of once-common fish species. What will happen as the same model extends to the rest of the world?

What's needed is a new model of prosperity that meets people's needs within the boundaries set by nature. It's what we call sustainable development. Embrace it and we can bury Malthus for good. Ignore it and we'll find that Malthus was simply ahead of his time.

Gary Gardner is a senior researcher at the Worldwatch Institute, where he is also co-director of the report, "2008 State of the World: Innovations for a Global Economy."

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