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

As human population and material consumption increase in coming decades, scarcities of natural resources will increase in some regions. Will societies be able to adapt? The present article builds on three key insights derived, in part, from “new growth theory” in economics. First, ideas are a factor of economic production; second, not only can ideas for new technologies contribute to production, so can ideas for new and reformed institutions; and, third, the generation and dissemination of productive ideas is endogenous, not just to the economic system, but also to the broader social system that includes a society’s politics and culture. The article argues, therefore, that to understand the determinants of social adaptation to scarcity, analysts should focus on the society’s ability to supply enough ideas, or “ingenuity.” As scarcity worsens, some poor societies will face a widening “ingenuity gap” between their need for and their supply of ingenuity. Most importantly, their supply of social ingenuity (in the form of new and reformed institutions) will be vulnerable to stresses generated by the very scarcities the ingenuity is needed to solve. Scarcity often causes intense rivalries among interest groups and elite factions that impede the development and delivery of institutional solutions to resource problems. A society with a serious and chronic ingenuity gap will face declining social well-being and perhaps civil turmoil.

The earth’s current human population of 5.7 billion is growing by 1.6 percent a year. On a global average, real economic product per capita is also growing at 1.5 percent a year. These increases combine to boost the globe’s total economic product by about 3 percent annually. Extrapolation therefore suggests that today’s global product of US$25 trillion will exceed $50 trillion in today’s dollars by 2020.

A large portion of this doubling of world product, should it occur, will be achieved through increased consumption of the planet’s natural resources, including non-renewables like petroleum and ores, and renewables like cropland, forests, fresh water and fisheries. Already, we are causing major changes in these resources: “transformed, managed, and utilized ecosystems constitute about half of the ice-free earth; human-mobilized material and energy flows rival those of nature.” Such changes are certain to grow in magnitude, because of the rapidly increasing scale of economic activity.

Increased resource consumption can cause resource scarcities, and scarcities impose costs on societies. But experts debate the severity of future scarcities and human capacity to adapt to them. There are three main positions in this debate. Neo-Malthusians, who are often biologists or ecologists, claim that finite natural resources place strict limits on the growth of human population and consumption; if these limits are exceeded, poverty and social breakdown result. Many neoclassical economists, in contrast, say that there need be few, if any, strict limits to human population, consumption and prosperity. Properly functioning economic institutions, especially markets, provide incentives to encourage conservation, resource substitution, the development of new sources of scarce resources, and technological innovation. Finally, analysts whom I call “distributionists” acknowledge that there may be resource limits to human population growth, but for them the real problem is the maldistribution of resources and wealth. Poverty and inequality, in their view, are the cause not the consequence of high population growth rates and practices that deplete resources.

This three-cornered debate has become sterile. In most popular accounts, the protagonists are arch-optimists like Julian Simon, who believe that scarcities pose no bounds to human prosperity, and arch-pessimists like Paul Ehrlich, who argue that the human population is already far too large for the earth’s resource base. Although these bitter exchanges accomplish little, the paradigms underpinning the three positions have great influence. In particular, the neoclassical view guides the responses of the World Bank and other multilateral development agencies to resource problems in poor countries; and it informs commentary in influential business-oriented newspapers, magazines and books.

Neoclassical economists stress the extraordinary ability of human beings to surmount scarcity and improve their lot. The dominant trend over the past two centuries, they point out, has not been rising resource scarcity but increasing aggregate wealth. In other words, they note that most important resources have become less scarce, at least in economic terms. By this view, if we want to judge whether human beings can prosper in the future, we should ask two questions: what factors determine wealth production and will these factors allow human beings to surmount future scarcities as they have often done in the past?

For decades, economists have heatedly discussed the first question. In this article I build on insights derived, in part, from the research of an increasingly influential group of theorists in this discussion. Their work is variously called “new economic growth theory” or “endogenous growth theory.” They argue that ideas, as embodied in new technologies, are a factor of economic production in addition to capital, labor and land. Ideas have independent productive power. They also argue that productive ideas are not exogenously given to economic actors but are, at least in part, endogenously generated by the actors and the economic system.

In this article I adopt and extend both these arguments. I contend that technological ideas are not the only productive ideas; just as important are ideas about social organization, especially about reforming and building institutions. And I argue that the generation and dissemination of productive ideas is endogenous not just to the economic system but also to the broader social system that includes a society’s politics and culture.