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Nature and Wealth pp 101–122Cite as

Palgrave Macmillan

Structural Imbalance

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Abstract

As previous chapters have explored, there is a growing structural imbalance in the world economy, which has at its core a fundamental misalignment between our exploitation of nature and the creation of economic wealth. One aspect of this misalignment is that rich and large emerging market economies become carbon-dependent, whereas the majority of low and middle-income countries are resource-dependent. Another is the increasing dependence on exploiting more natural resources, such as fossil fuels, minerals, forests and non-renewable material use. But the most dramatic declines in recent decades have been in ecological capital — ecosystems such as wetlands, coral reefs, grasslands and freshwater systems that also provide valuable goods and services to economies. In addition, with greenhouse gas emissions continuing to grow, the Earth’s ability to absorb these emissions is diminishing.

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Notes

  1. Human capital may also be important for entrepreneurial success in an economy. See, for example, Jens M. Unger, et al. (2011) “Human Capital and Entrepreneurial Success: A Meta-analytical Review”, Journal of Business Venturing, 26: 341–358.

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  2. Much of the available information across countries of human capital investment is related to educational expenditures or levels of educational attainment. Ideally, one should also include health and training-related investments. However, measuring the latter contributions has proven to be fraught with difficulties and thus a challenge. See the Appendix to this chapter and the discussion in Gang Liu and Barbara Fraumeni (2014) “Human Capital Measurement: A Bird’s Eye View”, chapter 3 in United Nations University (UNU)-International Human Dimensions Programme (IHDP) on Global Environmental Change; and United Nations Environment Programme (UNEP) (2014) Inclusive Wealth Report 2014. Measuring Progress Toward Sustainability. Cambridge: Cambridge University Press, pp. 83–108.

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  3. Robert J. Barro and Jong Wha Lee (2013) “A New Data Set of Educational Attainment in the World, 1950–2010”, Journal of Development Economics, 104: 184–198.

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  4. This tradition stems from the Hecksher- Ohlin, or factor proportions, theory of how the comparative advantage of a country’s production, and thus its trade, is determined. Early developments of this theory stressed strongly that the primary factors key to determining the factor intensity of production and trade were the immobile endowments of an economy. For example, see Paul A. Samuelson (1948) “International Trade and the Explanation of Factor Prices”, The Economic Journal, 58: 163–184, p. 164: “The present note attempts to throw light on the matter under the simplifying assumptions most suited to the Ohlin analysis: two regions, say Europe and America, each endowed with different proportions of two perfectly immobile factors of production, say land and labor.” Similarly, Harry G. Johnson (1957) “Factor Endowments, International Trade and Factor Prices”, The Manchester School, 25: 270–283, p. 271 states: “… on the production side, technology and the supply of factors of production in each country are given (the latter implying that factors are immobile between countries).”

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  5. Adrian Wood (1994) “Give Hecksher and Ohlin a Chance!”, Welt wirtschaftliches Archiv. (Review of World Economy), 130: 20–49, 21–22. Note also that Samuelson (1948), op. cit., in his influential development of the factor proportions (Hecksher-Ohlin) theory of trade considered the “two perfectly immobile factors of production” to be “land and labor” and not capital.

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  6. See Chapter 2, The global integration of financial markets and its impact on the mobility of capital investments has been documented in Maurice Obstfeld and Alan M. Taylor (2004) Global Capital Markets: Integration, Crisis and Growth. Cambridge: Cambridge University Press;

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  7. on more recent trends see also Thomas Piketty (2014) Capital in the Twenty-First Century. Cambridge, MA: Harvard University Press.

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  8. For example, according to Jörg Mayer and Adrian Wood (2001) “South Asia’s Export Structure in a Comparative Perspective”, Oxford Development Studies, 29: 5–29, 7: “Both labour and skill are also internationally mobile to some extent. Only a small fraction of the world’s labour force is able to move among countries, but for some individual countries such mobility is important (and the remittances of their mobile workers are an important export). There is also a high degree of mobility among some of the world’s most skilled workers: those with the experience, know-how and contacts needed to produce and sell goods on world markets, which is what exporting is all about. As with capital, the international mobility of highly skilled workers means that their services can usually be obtained to develop the production of goods in which a country’s resources give it a comparative advantage, reinforcing the H-O pattern of trade. However, barriers to harnessing the skills of such workers — poor communications facilities or restrictions on direct foreign investment, for example — may impede the realization of a resource-based comparative advantage in particular countries and particular sectors.”

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  9. This relationship between the relative costs of inputs and the relative prices of goods is often referred to as the Stopler-Samuelson effect, after Wolfgang Stopler and Paul A. Samuelson (1941) “Protection and Real Wages”, Review of Economic Studies, 9: 58–73.

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  10. For example, Gavin Wright and Jesse Czelusta (2004) “Why Economies Slow: The Myth of the Resource Curse”, Challenge, 47(2): 6–38, p. 10 describe the expansion of the minerals endowment of the United States in the late 19th and early 20th centuries in the following manner: “On closer examination, the abundance of American mineral resources should not be seen as merely a fortunate natural endowment. It is more appropriately understood as a form of collective learning, a return on large-scale investments in exploration, transportation, geological knowledge, and the technologies of mineral extraction, refining, and utilization… In direct contrast to the notion of mineral deposits as a nonrenewable ‘resource endowment’ in fixed supply, new deposits were continually discovered, and production of nearly all major minerals continued to rise well into the twentieth century — for the country as a whole, if not for every mining area considered separately.”

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  11. The importance of international mobility of financial and reproducible capital for expanding the amount of land and natural resource supplies available for use by a primary-product exporting small open economy has been shown in economic models developed by Ronald Findlay (1995) Factor Proportions, Trade, and Growth. Cambridge, MA: MIT Press;

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  12. and Ronald Findlay and Mats Lundahal (1994) “Natural Resources, ‘Vent-For-Surplus’, and the Staples Theory”, in G. Meier (ed.), From Classical Economics to Development Economics: Essays in Honor of Hla Myint. New York: St. Martin’s Press, pp. 68–93. In these models, the relative natural resource abundant, small and open economy can expand its natural capital by allocating more reproducible capital for this purpose. As the domestic and international capital markets are fully integrated, the rate of return on this capital must equal the world interest rate for financial assets. The implication is that the economy will continue to expand its supplies of natural capital until the point of the additional returns for investing reproducible capital for such expansion just equals the world interest rate. Until that point occurs, the returns to investing financial and reproducible capital in expanding natural capital supplies exceeds the opportunity cost of investment (as represented by the world market rate of interest), and thus it is worthwhile to expand the supply of land and natural capital through such financial and reproducible capital investment.

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  13. Essentially, these models formalize the process of “frontier” (i.e., land and natural resource) expansion observed by Guido di Tella (1982) “The Economics of the Frontier”, in C. P. Kindleberger and G. di Tella (eds) Economics in the Long View. London: Macmillan, pp. 210–227. According to di Tella (1982, p. 212), realizing the potential economic gains from frontier expansion requires “a substantial migration of capital and people” to exploit the abundant land and resources, which can only occur if this exploitation results in a substantial “surplus”, or “abnormal” economic rent. This observation is the basis of di Tella’s disequilibrium abnormal rents hypothesis; i.e., since frontier expansion takes time, there must be “disequilibrium” periods in which abnormal rents (profits well in excess of costs) can be exploited to simulate further frontier investments. In other words, since frontier (i.e., natural capital) expansion takes time, there must be “disequilibrium” periods in which abnormal rents can be exploited to stimulate further frontier investments, and as a result, “the greater is the rent at the frontier the more intense will be the efforts to expand it, and the quicker will be the pace of expansion” (di Tella (1982), p. 217). It is this perspective on the role of investments in expanding natural capital supplies in relatively resource abundant economies that is also put forward here.

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  14. See, for example, Edward B. Barbier (2011) Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation. Cambridge and New York: Cambridge University Press;

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  17. Eric L. Jones (1988) Growth Recurring: Economic Change in World History. Clarendon Press, Oxford.

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  18. Maurice Obstfeld and Alan M. Taylor (2004) Global Capital Markets: Integration, Crisis and Growth. Cambridge: Cambridge University Press;

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  19. Patrick K. O’Brien (1997) “Intercontinental Trade and the Development of the Third World since the Industrial Revolution”, Journal of World History, 8(1): 75–133;

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  20. Kevin H. O’Rourke and Jeffrey G. Williamson (1999) Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy. Cambridge, MA: MIT Press;

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  21. Lloyd G. Reynolds (1985) Economic Growth in the Third World, 1850–1980. New Haven, CT: Yale University Press;

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  22. John C. Weaver (2003) The Great Land Rush and the Making of the Modern World, 1650 –1900. Montreal: McGill-Queen’s University Press;

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  23. Jeffrey G. Williamson (2006) Globalization and the Poor Periphery Before 1950. Cambridge, MA: MIT Press.

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  24. See, for example, Richard M. Auty (2001) Resource Abundance and Economic Development. Oxford: Clarendon Press;

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  25. Richard M. Auty (2007) “Natural Resources, Capital Accumulation and the Resource Curse”, Ecological Economics, 61(4): 600–610; Barbier (2011), op. cit., chapter 9;

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  27. Kenneth M. Chomitz, with P. Buys, et al. (2007) At Loggerheads? Agricultural Expansion, Poverty Reduction, and Environment in the Tropical Forests. Washington DC: The World Bank;

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  29. Ronald Findlay and Mats Lundahl (1999) “Resource-Led Growth — A Long-Term Perspective: The Relevance of the 1870–1914. Experience for Today’s Developing Economies”, UNU/WIDER Working Paper No. 162. Helsinki: World Institute for Development Economics Research;

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  30. H. K. Gibbs, et al. (2010) “Tropical Forests were the Primary Sources of New Agricultural Lands in the 1980s and 1990s”, Proceedings of the National Academy of Sciences, 107: 16732–16737;

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  31. Jonathon Isham, et al. (2005) “The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth”, World Bank Economic Review, 19(2): 141–174;

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  32. Terry L. Karl (1997) The Paradox of Plenty: Oil Booms and Petro-States. Berkeley: University of California Press;

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  33. Eric F. Lambin and Patrick Meyfroidt (2011) “Global Land Use Change, Economic Globalization, and the Looming Land Scarcity”, Proceedings of the National Academy of Sciences, 108: 3465–3472;

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  34. Thomas K. Rudel (2007) “Changing Agents of Deforestation: From State-initiated to Enterprise Driven Process, 1970–2000”, Land Use Policy, 24: 35–41;

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  35. and Sven Wunder (2003) Oil Wealth and the Fate of the Forest: A Comparative Study of Eight Tropical Countries. London: Routledge.

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  36. This biased effect on production of an increase in supply in one factor endowment is often referred to as the Rybczynski effect after T. M. Rybczynski (1955) “Factor Endowments and Relative Commodity Prices”, Economica, 22: 336–341.

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  37. See, for example, T. Aronsson and K.-G. Löfgren (1996) “Social accounting and welfare measurement in a growth model with human capital”, Scandinavian Journal of Economics, 98: 185–201;

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  38. Kenneth J. Arrow, et al. (2012) “Sustainability and the Measurement of Wealth”, Environment and Development Economics, 17: 317–353;

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  39. Partha S. Dasgupta (2009) “The Welfare Economic Theory of Green National Accounts”, Environmental and Resource Economics, 42: 3–38;

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  40. Kirk Hamilton and M. Clemens (1999) “Genuine savings rates in developing countries”, World Bank Economic Review, 13: 333–356;

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  41. John M. Hartwick (1990) “Natural resources, national accounting and economic depreciation”, Journal of Public Economics, 43: 291–304;

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  42. and United Nations University (UNU)-International Human Dimensions Programme (IHDP) on Global Environmental Change and United Nations Environment Programme (UNEP) (2014) Inclusive Wealth Report 2014. Measuring Progress Toward Sustainability. Cambridge: Cambridge University Press.

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  43. This perspective on human capital is usually attributed to T. W. Schultz (1961) “Investment in Human Capital”, American Economic Review, 51: 1–17.

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  1. University of Wyoming, USA

    Edward B. Barbier

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© 2015 Edward B. Barbier

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Barbier, E.B. (2015). Structural Imbalance. In: Nature and Wealth. Palgrave Macmillan, London. https://doi.org/10.1057/9781137403391_6

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