Making demand for commodities sustainable

InvestmentEurope’s deputy editor James Norris reviews two books exploring the exploitation of natural resources: Edward Barbier’s book Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation, and David Murrin’s Breaking the Code of History

A stream of reports about increased consumption of the growing middle classes of China and India, and extreme weather conditions affecting crop yields, only go to confirm what market traders and fund managers have long known – that commodities are increasing in value because demand is  outstripping supply.

This reality has triggered numerous fund launches hitting the sector. It has also spawned a growing number of books on the subject. Resource economists have found that their previously unfashionable niche area now sits within the context of sustainable development and global warming, an
erea attracting fierce debate.

Edward Barbier says mankind’s voracious appetite for fossil fuel energy and raw materials and the resulting environmental degradation and pollution is causing global warming, ecological scarcity and energy insecurity.

But history shows that an economic strategy fostering incentives and innovation in response to scarcity has occurred successfully many times before, and those economies that have invested in the transformation first have emerged as leaders in those sectors.

Barbier, who has worked as an adviser to the UN, the World Bank and other organisations, says China, South Korea and other Asian economies are setting an example by pushing their policies on green and clean energy investments and technologies. China has invested one third of its fiscal stimulus during the recent recession on green measures. As a result, it is now the leading global producer of solar cells, wind turbines, energy-saving lights, and solar water heaters, is aiming to be the world market leader in fuel efficient cars, and is experimenting with green pricing measures and regulations.

The West should take note, suggests Barbier. However, it would be unfair to claim that the West does not understand the need for alternative sources of energy as an essential response to energy scarcity. But for the global financial crisis, investment in cleantech industries and measures to cut back on the carbon footprint would be proceeding apace. What the West does not have is the benefit of China’s huge foreign exchange reserves.

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