Was Malthus Right?

The 21st Century just may prove Thomas Malthus right. In 1798 he first predicted that population growth would outstrip the growth in arable land leading to widespread famine. This proved wrong because agricultural productivity increased rapidly. But according to a new article of the McKinsey Quarterly rapid population growth in the developing world will lead to unprecedented demand on natural resources:

Progressively cheaper natural resources underpinned 20th-century global economic growth. But the 21st century could be different. Indeed, over the past ten years, rapid economic development in emerging markets has wiped out all of the previous century’s declines in real commodity prices. And in the next two decades, up to three billion people (and their spending power) will be added to the global middle class. Is the world entering an era of sustained high resource prices, leading to increased economic, social, and geopolitical risk?

The global economic downturn has given us a little respit over the past few years at least in terms on reduced demand for goods. That’s only going to last so much longer. The authors point out that from 1980 to 2009 the global middle class increased by 700 million to 1.8 billion. But over the next 20 years that is expected to rise by 3 billion. This is the sort of change that makes Malthus turn over in his grave.

They have specific recommendations for business in the world of potentially more volatile commodity prices:

To thrive in an era of higher and more volatile resource prices, companies will need to pay greater attention to resource-related issues in their business strategies. The goal must be to improve a company’s understanding of how resources will affect profits, produce new opportunities for growth and disruptive innovation, create new risks, generate competitive asymmetries, and change the regulatory context.

That’s all well and good from a business perspective. There will always be winners and losers when it comes to the bottom line. Unfortunately, the planet absorbs many of the externalities of this increased resource use and the poorest people pay the biggest cost. We saw just a few years ago how increased demand for biofuels drove up the price of corn and soy beans. We are truly in an interconnected world, but not in a good way.


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