Resource Scarcity: McKinsey Predicts that Technology will Prevail

Doomsayers are predicting a future world of conflict, high prices and haggling over the world’s limited resources as another 2.5 billion people from the developing world prepare to join the current group of 2 billion middle class people.  Is it possible to sustain a middle-class lifestyle for all of these people?

Reid Hoffman writes that  all these new middle-classers will want “skyscrapers to live in and super-stores to shop in. They are going to want smartphones, cars, flank steaks, air conditioning, pet clothing, Disneyland vacations, and probably some throw pillows…  For many observers, this unprecedented economic growth foretells a Malthusian meltdown. In this scenario, skyrocketing demand for scarce natural resources will lead to unchecked carbon emissions, water wars, massive deforestation, $100 Big Macs for the rich and cricket-meat Bug Macs for everyone else.”

Former McKinsey director Stefan Heck and director Matt Rogers took on the question of resource scarcity to see if this gloomy scenario is likely to pan out.  They found that same technology that has enabled a new wave of middle classers to improve their lives will also solve or at least alleviate or postpone the problems of resource scarcity.

Rogers said that “starting in about 2005, we began to see a rapid run-up in energy prices, in gold prices, in copper, aluminum, steel prices… And then  it began to change around 2010, 2011, when all of a sudden we began to realize that, ‘Hey, this high resource price thing may in fact be the beginning of a massive opportunity rather than the biggest threat to the global economy. It might be the biggest opportunity we’ve seen in maybe a hundred years.'”

Recent advances in technology have had impressive results.  One of the most startling has been the introduction of new techniques in the production of oil and gas.  The US was on the path to become a massive importer of these resources, but has flipped the whole equation, becoming an exporter.  Similarly, solar prices have dropped from $8/watt to $2.50/watt over the last three to four years, and automobile gas efficiencies continue to improve.

While new technologies are great, their effect will radically change the way companies do business, and that change can be hard.  Rogers said that businesses will need to “be able to see things coming from wholly different directions. You have to see your neighboring industry showing up in your industry. You have to see trends that are coming at you at 20 percent per annum change rather than 2 percent or 3 percent per annum change. You have to be able to do substitution of materials very fast so that you avoid the high-risk ones and you capture much lower-risk ones. You have to create these kinds of circular chains where you can recycle a lot of the material that you produce so that it doesn’t cost you nearly as much. For example, ‘I need to bring software and embed it into my hardware.'”