The Ingenuity Gap: Can Poor Countries Adapt to Resource Scarcity?

by Thomas Homer-Dixon


Endnotes

* The author is grateful for the comments of Ed Barbier, James Boyce, Peter Cebon, Paul Craig, Joshua Foster, Jack Goldstone, Jill Homer-Dixon, Ted Parson, Paul Romer, Michael Ross, Vaclav Smil, David Victor and Lyuba Zarsky.

1. See B.L. Turner et al., eds., The Earth As Transformed by Human Action: Global and Regional Changes in the Biosphere over the Past 300 Years (Cambridge, UK: Cambridge University Press with Clark University, 1990), p. 13.

2. Useful reviews can be found in Edward Barbier, Economics, Natural-Resource Scarcity and Development: Conventional and Alternative Views (London: Earthscan, 1989), and Julie Matthaei, "Rethinking Scarcity: Neoclassicism, NeoMalthusianism, and NeoMarxism," Review of Radical Political Economics, Vol. 16, No. 2/3 (1984), pp. 81-94.

3. Neoclassical economics is a body of theory grounded in 19th century marginal economics that emphasizes the relationship between factor prices and scarcity, the rational maximizing behavior of individuals in markets, the idea of a perfectly competitive economy in equilibrium, and the market's natural tendency towards full employment.

4. Clear statements of the neo-classical position are Harold Barnett and Chandler Morse, Scarcity and Growth: The Economics of Natural Resource Availability (Baltimore: Johns Hopkins Press for Resources for the Future, 1963); and V. Kerry Smith, ed., Scarcity and Growth Reconsidered (Baltimore: Johns Hopkins Press for Resources for the Future, 1979), especially chapter 2, J.E. Stiglitz, "A Neoclassical Analysis of the Economics of Natural Resources," pp. 36-66. There are many similarly optimistic, although not all strictly neoclassical, accounts of human capacity to adapt to population growth and land scarcity. See in particular Ester Boserup, The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure (Chicago: Aldine, 1965); Yujiro Hayami and Vernon Ruttan, Agricultural Development: An International Perspective (Baltimore: Johns Hopkins Press, 1971, 1985); and Mary Tiffen, Michael Mortimore, and Francis Gichuki, More People, Less Erosion: Environmental Recovery in Kenya (Chichester, United Kingdom: John Wiley, 1994).

5. See, for example, Frances Moore Lappe, Food First (London: Souvenir Press, 1980); Pier Blaikie, The Political Economy of Soil Erosion (London: Longman, 1985); James Boyce, Agrarian Impasse in Bengal: Institutional Constraints to Technological Change (Oxford, UK: Oxford University Press, 1987).

6. Julian Simon, The Ultimate Resource (Princeton: Princeton University Press, 1981); Julian Simon and Herman Kahn, eds., The Resourceful Earth: A Response to Global 2000 (Oxford, UK: Basil Blackwell, 1984); Paul and Anne Ehrlich, The Population Explosion (New York: Touchstone, 1991).

7. Useful reviews can be found in Paul Romer, "The Origins of Endogenous Growth," Journal of Economic Perspectives, Vol. 8, No. 1 (Winter 1994), pp. 3-22; and Elhanan Helpman, "Endogenous Macroeconomic Growth Theory," European Economic Review, Vol. 36, Nos. 2 and 3 (April 1992), pp. 237-267.

8. Robert Solow, "Technical Change and the Aggregate Production Function," Review of Economics and Statistics, Vol. 39 (1957), pp. 312-320.

9. For a survey, see Angus Maddison, "Growth and Slowdown in Advanced Capitalist Economies," Journal of Economic Literature, Vol. 25, No. 2 (June 1987), pp. 649-98.

10. Paul Romer, "Two Strategies for Economic Development: Using Ideas and Producing Ideas," World Bank, Proceedings of the World Bank Annual Conference on Development Economics, 1992 (World Bank, 1993), p. 64.

11. Non-rivalry is distinct from non-excludability. A good is non-excludable if access to it cannot be prevented. Romer notes that ideas may be partially excludable, through devices such as intellectual property rights or temporary monopolistic control of ideas through market power. A pure public good -- such as national defense -- is both non-rivalrous and non-excludable. For further details, see Richard Cornes and Todd Sandler, The Theory of Externalities, Public Goods, and Club Goods (Cambridge: Cambridge University Press, 1986).

12. Paul Romer, "Endogenous Technological Change," Journal of Political Economy, Vol. 98, No. 5, pt. 2 (1990), pp. S74-S75.

13. Ibid., p. S75.

14. Romer, "Two Strategies," p. 71.

15. Although various authors, in particular Julian Simon, have discussed the importance of ingenuity in human responses to scarcity, it has never been defined or applied with the precision attempted in this article.

16. What counts as a practical problem needing to be solved -- and therefore what counts as ingenuity -- is partly determined by cultural context. But there are limits to this cultural plasticity, because certain requirements for ingenuity are common to all cultures -- all humans, for instance, have basic needs for food, water and shelter.

17. Using a chemistry set metaphor, he represents a given mixture of chemicals -- his analogue to an "idea" -- by a bit string of 0s and 1s. A position in the string is assigned to each substance in the chemistry set. The position shows 1 if the substance is included in the mixture and 0 if it is not. Romer, "Two Strategies," pp. 9-10.

18. The importance of small ideas is stressed by Romer in "Two Strategies," p. 69-70.

19. Pierre Crosson and Jock Anderson, "Trends in Global Agriculture," paper given at a NATO Advanced Research Workshop on Climate Change and World Food Security, University of Oxford, England, July 11-15, 1993, p. 17.

20. For similar arguments on how social institutions shape a society's capacity for technological development, see Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, Mass.: Belknap Press, 1962); Moses Abramovitz, "Catching Up, Forging Ahead, and Falling Behind," Journal of Economic History, Vol. 46, No. 2 (June 1986), pp. 386-406; and Bjorn Johnson, "Institutional Learning," in Bengt-Ake Lundvall, National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning (London: Pinter, 1992), pp. 23-44. On the general relationship between institutions and economic growth, see Douglass North, Institutions, Institutional Change and Economic Performance (Cambridge, England: Cambridge University Press, 1990).

21. Surprisingly, people often are perplexed by this claim that something can be both an input and output of the economic system. However, a moment's reflection shows this is the case for many goods. Physical and human capital, for example, are both inputs and outputs: an economy needs factories to produce the components for further factories, and engineers to train engineers.

22. See Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge, UK: Cambridge University Press, 1990).

23. "The word technology invokes images of manufacturing, but most economic activity takes place outside of factories. Ideas include the innumerable insights about packaging, marketing, distribution, inventory control, payments systems, information systems, transactions processing, quality control, and worker motivation that are all used in the creation of economic value in a modern economy." Paul Romer, "Idea Gaps and Object Gaps in Economic Development," Journal of Monetary Economics, Vol. 32 (1993), p. 544.

24. I assume that there is a rough consensus within society on what constitutes social welfare, although the consensus may change across societies and over time. Economists acknowledge that it is both hard to specify exactly what counts as individual welfare and hard to aggregate individual welfares to arrive at a measure for the whole society. See Amartya Sen, Resources, Values and Development (Harvard University Press, 1984), especially chapter 13 on "Rights and Capabilities," pp. 307-324.

25. Society's actual demand for ingenuity, in contrast, depends on its price. Often, ingenuity's price is the wage to the human capital that generates it; examples include the salary paid to an engineer and the remuneration to a consulting firm. Sometimes ingenuity is bought directly, as when a fee is paid for a license to manufacture a patented product.

26. Everett Rogers' The Diffusion of Innovation (New York: Free Press, 1983, 3rd edition) is the classic treatment of the second stage.

27. This general claim, while reasonable for heuristic purposes, needs several qualifications. First, some renewable resources -- like agricultural soils, the climate and the stratospheric ozone layer -- mainly provide economic services not goods. In the case of excludable renewables that provide services, like agricultural land, the resource is not so much "consumed" as "used" (although there is some consumption of the nutrient stock in the soil); the ratio, in this case, is better stated as total cropland used to total potential cropland available. In the case of non-excludable renewables that provide services, like the ozone layer, the sink or absorptive capacity of the resource is often degraded by human activity, and the appropriate ratio might be the total emissions (of CFCs, for example) to total absorptive capacity.

Second, it is notoriously hard to define, in any objective way, the total quantity of a resource available for consumption or use (the denominator of the ratio). Renewable resources are characterized by both a stock and a flow; resource availability, therefore, depends on whether one regards the underlying stock as available for consumption. Also, the stated reserves of a resource tend to be affected by the resource's price, since the higher the price the greater the incentive to obtain the resource. And, finally, technical ingenuity changes both the availability of resources (through more efficient extraction technologies, for instance) and the definition of what is, and what is not, a useful resource.

Third, while per capita resource consumption is rising very rapidly in most developing countries, the 1970s saw a reversal of this trend in industrialized countries. Per capita consumption (and in some cases total consumption) of basic industrial materials -- such as steel, cement, aluminum, and paper -- began to decline, although the drop remains small compared to the growth this century. See Eric Larson, et al., "Beyond the Era of Materials," Scientific American, Vol. 254, No. 6 (June 1986), pp. 34-41.

28. Many analysts use similar concepts. Daly and Cobb, for example, discuss the "optimal scale" of the global economy in relationship to the planet's resource base, see Herman Daly and John Cobb, For the Common Good: Redirecting the Economy Toward Community, the Environment, and a Sustainable Future (Boston: Beacon Press, 1989), pp. 143-147. See also "Physical Indicators," section 19.2, in David Pearce and Kerry Turner, Economics of Natural Resources and the Environment (Baltimore: Johns Hopkins, 1990), pp. 290-295; and Paul Raskin, Evan Hansen and Robert Margolis, Water and Sustainability: A Global Outlook (Boston: Stockholm Environment Institute, 1994), pp. 12-13.

29. On the cod fishery, see Leslie Harris, Independent Review of the State of the Northern Cod Stock, prepared by the Northern Cod Review Panel, submitted to the Honourable Thomas Siddon, Minister of Fisheries and Oceans (Ottawa, Canada: Department of Fisheries and Oceans, 1990); on Middle East water shortages, see House of Representatives, Committee on Foreign Affairs, Subcommittee on Europe and the Middle East, testimony on "The Middle East in the 1990s: Middle East Water Issues," June 26, 1990; and on Chinese cropland loss, see Vaclav Smil, China's Environmental Crisis: An Inquiry into the Limits of National Development (Armonk, NY: M.E. Sharpe, 1993).

30. On West African forests, see World Resources Institute, World Resources 1992-93 (New York: Oxford University Press, 1992), p. 119; and on Antarctic fisheries, World Resources Institute, World Resources 1990-91 (New York: Oxford University Press, 1990), p. 193.

31. Economists generally contend that scarcities of renewables and non-renewables pose similar economic problems and consequently stimulate similar conservation, substitution, and innovation effects. To the extent that economists do acknowledge a difference, it is in the cause of scarcity: renewables are more often "open access," and they therefore tend to be depleted or degraded more quickly and with less effect on market prices.

32. In contrast, the loss of a body of a nonrenewable resource like iron ore has no ramifications within the ecological system. The ore's increased scarcity, by itself, will not affect surrounding renewable and non-renewable resources, because a body of ore is ecologically inactive. Of course, the extraction process -- which may involve heavy equipment, explosives, and chemicals -- can damage renewables like local rivers and forests.

33. Robert Chen and Myron Fiering, Climate Change in the Context of Multiple Environmental Threats, Research Report RR-89-1, World Hunger Program, Brown University (March 1989).

34. A common example is the collapse of the Peruvian anchovy fishery in the 1970s. On nonlinearities in ecological systems, see Donald Ludwig, Ray Hilborn, and Carl Walters, "Uncertainty, Resource Exploitation, and Conservation: Lessons from History," Science, Vol. 260, No. 5104 (2 April 1993), pp. 17 and 36.

35. Charles Perrow, "Complexity, Coupling, and Catastrophe," chapter 3 in Normal Accidents: Living with High-Risk Technologies (New York: Basic, 1984), pp. 62-100.

36. Horizontal management operates at a single level of social organization like the level of villages or nation-states; vertical management cuts across these levels, integrating, for example, the village, national, and biospheric levels.

37. "Such a society would be characterized by great efficiency in resource use, very diverse energy and materials sources and pathways through the system, a very large number of types of system components (i.e. occupations), and a rich variety of internal control mechanisms." Kenneth Watt and Paul Craig, "System Stability Principles," Systems Research, Vol. 3, No. 4 (1986), p. 197.

38. Attempts to optimize system performance produce complexity, as do attempts to deal with the negative consequences of previous increases in complexity. See Brian Arthur, "Why Do Things Become More Complex?", Scientific American, Vol. 268, No. 5 (May 1993), p. 144.

39. These constraints include time lags governing the mitigation of scarcity, like the time needed for a new forest to grow, for a new technology to be disseminated, or for cultural change to take place. Physical law influences the elasticity of substitution of ingenuity for a given resource; if the elasticity is low, then a large amount of ingenuity is needed to compensate for a small increase in the resource's scarcity. The second law of thermodynamics has received particular attention. As Dyke notes, the law "defines a space of possibilities for us, and does so rather tightly." See C. Dyke, "Cities as Dissipative Structures," in Bruce Weber, David Depew and James Smith, eds., Entropy, Information, and Evolution: New Perspectives on Physical and Biological Evolution (Cambridge, Mass.: MIT Press, 1988), pp. 355-368.

40. Jacob Schmookler suggests, for example, that "the S-shaped long-run growth curve for individual industries, in which output tends to grow at a declining percentage rate, usually reflects demand, not supply, conditions." The growth curve reflects the declining marginal utility of production, rather than its increasing marginal cost. Jacob Schmookler, Invention and Economic Growth (Cambridge, Mass.: Harvard University Press, 1966), p. 204.

41. Jan Fagerberg, "Technology and International Differences in Growth Rates," Journal of Economic Literature, Vol. 32 (September 1994), p. 1149.

42. Hayami and Ruttan, Agricultural Development.

43. Ruttan and Hayami, "Toward a Theory of Induced Institutional Innovation," The Journal of Development Studies, Vol. 20. No. 4 (July 1984), pp. 203-223.

44. Ester Boserup, The Conditions of Agricultural Growth; and Boserup, Economic and Demographic Relationships in Development. Ester Boserup: Essays Selected and Introduced by T. Paul Schultz (Baltimore, Maryland: Johns Hopkins University Press, 1990). Such arguments have a long history: see, for instance, the extract from the 1928 book by Eugene Dupreel, Population et Progres, in Population and Development Review, Vol. 8, No. 4 (December 1982), pp. 821-828.

45. Julian Simon, The Ultimate Resource.

46. Mary Tiffen et al., More People, Less Erosion.

47. David Feeny, "The Demand for and Supply of Institutional Arrangements," in Rethinking Institutional Analysis and Development: Issues, Alternatives, and Choices, eds. Vincent Ostrom, David Feeny, and Hartmut Picht (San Francisco: International Center for Economic Growth, 1988), pp. 159-209.

48. For a technical discussion, see Partha Dasgupta and Karl-Goran Maler, Poverty, Institutions, and the Environmental Resource Base, World Bank Environment Paper Number 9 (Washington, D.C.: World Bank, 1994), pp. 22-30.

49. Some renewables, such as forests, have physical characteristics that permit the application of clear property rights; nonetheless, they are often open access because of historical norms and laws governing their exploitation.

50. Romer thus contends that "we must recognize that ideas are economic goods that are unlike conventional private goods, and that markets are inherently less successful at producing and transmitting them than they are with private goods." Romer, "Two Strategies, p. 89, see also p. 87."

51. The role of the state in establishing the conditions for markets has long been noted; of particular importance is Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957), pp. 139-140.

52. Peter Evans, "The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change," in The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State, eds. Stephan Haggard and Robert Kaufman (Princeton, New Jersey: Princeton University Press, 1992), p. 141 and 148.

53. Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven, CT: Yale University Press, 1982, pp. 17-74 and 165-172.

54. Bargaining costs are lower within small groups; group homogeneity tends to be higher, which reduces disputes over the nature of the collective good sought; the need for selective incentives is lower because collective benefits are shared by fewer members; and small groups can provide "social" selective incentives, such as ostracism and respect.

55. Olson, Rise and Decline, p. 165.

56. Ibid., p. 44.

57. Many analysts emphasize how narrow coalitions impede sustainable economic development and adaptation to resource scarcity. See David Reed's review of the World Bank's World Development Report 1992 in International Environmental Affairs, Vol. 4, No. 4 (Fall 1992), pp. 367-371. See also and Elinor Ostrom, Larry Schroeder, Susan Wynne, Institutional Incentives and Sustainable Development: Infrastructure Policies in Perspective (Boulder, Colorado: Westview, 1993); Ludwig et al., "Uncertainty, Resource Exploitation, and Conservation"; and Vernon Ruttan, "Institutional Innovation and Agricultural Development," World Development, Vol. 17, No. 9 (1989), pp. 1375-1387, especially 1384-1385.

58. Olson, Rise and Decline, p. 62.

59. Scarcity also causes a diversion of ingenuity to serve the interests of narrow coalitions; thus, even if society's total supply of ingenuity does not decrease, the supply of ingenuity for public institution-building can go down.

60. Feeny, "The Demand for and Supply of Institutional Arrangements," p. 169-170. Douglass North and Robert Thomas, The Rise of the Western World: A New Economic History (Cambridge, UK: Cambridge University Press, 1973), pp. 69-70.

61. Ruttan and Hayami, "Toward a Theory of Induced Institutional Innovation," p. 213; Feeny, "The Demand for and Supply of Institutional Arrangements," p. 167.

62. Richard Kessler, Rebellion and Repression in the Philippines (New Haven: Yale University Press, 1989), p. 18.

63. George Guthrie, ed., Six Perspectives on the Philippines (Manilla: Bookmark, 1968), p. 79.

64. See, for example, Albert Hirschman, "Against Parsimony: Three Easy Ways of Complicating Some Categories of Economic Discourse," chapter 6 in Rival Views of Market Society, and Other Recent Essays (Cambridge, Mass.: Harvard University Press, 1992), pp. 153-157; Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy (Princeton, NJ: Princeton University Press, 1993); and Charles Sabel, "Studied Trust: Building New Forms of Cooperation in a Volatile Economy," in Industrial Districts and Local Economic Regeneration, eds. F. Pyke and W. Sengenberger (Geneva: International Institute for Labor Studies, 1992), pp. 215-250.

65. Clifford Geertz, Agricultural Involution: The Process of Ecological Change in Indonesia (Berkeley: University of California Press, 1963), pp. 96-100.

66. North and Thomas, The Rise of the Western World, pp. 98-99.

67. Atul Kohli, "The Political Economy of Development Strategies: Comparative Perspectives on the Role of the State," Comparative Politics, Vol. 19, No. 2 (January 1987), p. 242.

68. "The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings." Olson, Rise and Decline, p. 73.

69. Gene Grossman and Elhanan Helpman, Innovation and Growth in the Global Economy (Cambridge, Mass.: MIT, 1991).

70. Robert Repetto, "Population, Resources, Environment: An Uncertain Future," Population Bulletin, Vol. 42, No. 2 (July 1987), p. 37.

71. United Nations Development Program, Human Development Report, 1992 (New York: Oxford, 1992), p. 57.

72. "An Unwelcome Export Success," Nature, Vol. 366, No. 6456 (16 December, 1993), p. 618.

73. For a review, see Langdon Winner, "Complexity and the Limits of Human Understanding," in Todd LaPorte, ed., Organized Social Complexity: Challenge to Politics and Policy (Princeton: Princeton University Press, 1975), pp. 40-76.

74. Michael Manning and David Rejeski, "Sustainable Development and Risk: A Fit?", paper presented to conference on Comparative Risk and Priority Setting of Air Pollution Issues, Keystone, Colorado, June 7-11, 1993. See also E.O. Wilson, "Is Humanity Suicidal?", New York Times Magazine, May 30, 1993, p. 29.

75. Derek de Solla Price, Little Science, Big Science . . . and Beyond (New York: Columbia, 1986), p. 82.

76. For example, research shows a historically consistent interval of 20 to 40 years for substitutions involving metals. Robert Gordon, et al., Toward a New Iron Age?: Quantitative Modeling of Resource Exhaustion (Cambridge, Mass.: Harvard University Press, 1987), p. 65.

77. Watt and Craig, "System Stability Principles," p. 199.

78. Robert Wright, "The Experiment that Failed: Why Soviet Science Collapsed," The New Republic (October 28, 1991), pp. 20-25; and Sergei Kapitza, "Antiscience Trends in the USSR," Scientific American, Vol. 265, No. 2 (August 1991), pp. 32-38.

79. See Thomas Homer-Dixon, "On the Threshold: Environmental Changes As Causes of Acute Conflict," International Security, Vol. 16, No. 2 (Fall 1991), pp. 76-116; and Homer-Dixon, "Environmental Scarcities and Violent Conflict: Evidence from Cases," International Security, Vol. 19, No. 1 (Summer 1994), pp. 5-40.



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