4/6/2003

KUFM / KGPR

T. M. Power

If You Don’t Grow It, Do You Have to Mine It?

A Critique of the “Material Flow” View of the Economy

Spokespersons for our natural resource industries are fond of pointing out that their industries, agriculture, mineral extraction, and forest products, hold a unique position in the overall economy: Without their products, almost no other economic activity would be possible. Those industries provide the basic building blocks for every single other industry, or so we are told. The bumper sticker version of this is that “if you can’t grow it, you have to mine it.”

This proposition lays the basis for another regular criticism of those who seek to protect the environment against the impacts of the badly designed natural resource development: Since we all use minerals, wood products, food and fiber, we are in no position to criticize those who produce these basic necessities since natural resource production is taking place only in response to our and others’ demands. It is, we are told, hypocritical to both consume these products and criticize the environmental impacts associated with their production.

This line of argument is build around what might be called a “material flow” view of the economy. It asserts that if we want certain things, like to remain alive with a reasonable standard of living, we need a continuous flow of certain quantities of natural resources. Any limitation on the production of those natural resources, because they are absolutely needed by the economy, can only damage the economy and leave us poorer if not threaten our very existence.

Although this view of the economy appears to have a hard-nosed plausibility to it, it is actually an anti-economic view that completely ignores how commercial markets and entrepreneurs actually behave. Consider just one example: the assertion that declines in timber harvest from federal sources either reduce our standard of living or simply shift damage to some other forest location.

Neither of these need be true in a market economy. As one source of supply for wood fiber shrinks, the price of wood fiber rises, as do the prices of products produced from wood fiber. Those price increases stimulate a long and complex series of commercial market adjustments that tend to eliminate the impacts of the original reduction in federal timber harvest. These offsetting adjustments include all of the following:

i. The higher prices provide an incentive to increase harvests on other timberlands within the region. As a result, harvests on private timberlands have risen.

ii. Higher local prices also lead to the diversion of wood fiber supplies towards the local market. This leads to reduced exports and increased imports of raw logs. The result in our region has been that the export of unprocessed logs from the Pacific Northwest to Asia fell 80% in the 1990s.

iii. Higher prices provide incentives to develop new sources of supply both within and outside the region. As a result, private investments are made in more intensively managing private forest lands: Abandoned farmland in the South can produce a commercial tree in 10-20 years rather than the 30-50 years in the PNW. Within the South an intensively managed plantation can have timber productivity 14 times greater than a natural forest. As a result, the same quantity of wood fiber could be produced on just a fifth of the land currently being used for wood fiber production.

iv. The higher prices provide incentives to more fully utilize the existing harvest of wood fiber by using smaller trees and trees that are more costly to process and by reducing the waste of fiber in the woods and in the mill. The result: an almost 40% increase in lumber and paper production per cubic foot of round wood harvested over the last 50 years.

v. The higher prices also provide incentives to use recycled wood fiber and lumber mill residues in other forest products industries. This led to a near doubling of the rate of reuse of paper products over the last ten years.

vi. The higher prices also lead to a reduction in the quantity of forest products consumed. A one percent increase in forest product prices leads to a one percent decrease in consumption.

vii. Higher wood products prices support the development of new wood products that are less wood fiber intensive: New structural products use 35 to 50 percent less wood fiber. Boards use 40% of the log; engineered products such as Parallam and Timberstrand use 75% of the log.

viii. Higher wood product prices encourage the substitution of non-wood products for wood products, for instance the use recycled steel for wood and the use non-wood fiber for paper production.

It is in these complex and productively offsetting ways that the economy actually works. When one source of raw material supply becomes less attractive or unavailable, we do not simply replace it with the same thing, nor do we give up and go without. We find another, usually better way, of satisfying the same need. Often the result is a better product, a lower price, and less environmental damage. That is because the primary inputs into our economy are not raw materials but human ingenuity, technology, hard work, and productive institutions.