Table of Contents
Long quotation from Prospect for Coal by E. F. Schumacher, published by the National Coal Board, London, April 1961. The most striking thing about modern industry is that it requires so much and accomplishes so little. Modern industry seems to be inefficient to a degree that surpasses one’s ordinary powers of imagination. Its inefficiency therefore remains unnoticed.
Industrially, the most advanced country today is undoubtedly the United States of America. With a population of about 207 million, it contains 5-6 per cent of mankind; with only about fifty- seven people per square mile – as against a world average of over seventy – and being situated wholly within the northern temperate zone, it ranks as one of the great sparsely populated areas of the world. It has been calculated that if the entire world population were put into the United States, its density of population would then be just about that of England now. This may be thought to be an ‘unfair’ comparison; but even if we take the United Kingdom as a whole, we find a population density that is more than ten times that of the United States (which means that the United States could accommodate more than half the present world population before it attained a density equal to that of the United Kingdom now), and there are many other industrialised countries where densities are even higher. Taking the whole of Europe, exclusive of the USSR, we find a population density of 2427 persons per square mile, or 4.25 times that of the United States. It cannot be said, therefore, that -relatively speaking – the United States is disadvantaged by having too many people and too little space.
Nor could it be said that the territory of the United States was poorly endowed with natural resources. On the contrary, in all human history no large territory has ever been opened up which has more excellent and wonderful resources, and, although much has been exploited and ruined since, this still remains true today.
All the same, the industrial system of the United States cannot subsist on internal resources alone and has therefore had to extend its tentacles right around the globe to secure its raw material supplies. For the 5-6 per cent of the world population which live in the United States require something of the order of forty per cent of the world’s primary resources to keep going. Whenever estimates are produced which relate to the next ten, twenty, or thirty years, the message that emerges is one of ever-increasing dependence of the United States economy on raw material and fuel supplies from outside the country. The National Petroleum Council, for instance, calculates that by 1985 the United States will have to cover fifty-seven percent of its total oil requirements from imports, which would then greatly exceed – at 800 million tons – the total oil imports which Western Europe and Japan currently obtain from the Middle East and Africa.
An industrial system which uses forty per cent of the world’s primary resources to supply less than six per cent of the world’s population could be called efficient only if it obtained strikingly successful results in terms of human happiness, well-being, culture, peace, and harmony. I do not need to dwell on the fact that the American system fails to do this, or that there are not the slightest prospects that it could do so if only it achieved a higher rate of growth of production, associated, as it must be, with an even greater call upon the world’s finite resources. Professor Waiter Heller, former Chairman of the US President’s Council of Aluminium Economic Advisers, no doubt reflected the opinion of the most Chromium modern economists when he expressed this view:
‘We need expansion to fulfil our nation’s aspirations. In a fully employed, high-growth economy you have a better chance to free public and private resources to fight the battle of land, air, water and noise pollution than in a low-growth economy. ‘I cannot conceive,’ he says, ‘a successful economy without growth.’ But if the United States’ economy cannot conceivably be successful without further rapid growth, and if that growth depends on being able to draw ever-increasing resources from the rest of the world, what about the other 94-4 per cent of mankind which are so far ‘behind’ America?
If a high-growth economy is needed to fight the battle against pollution, which itself appears to be the result of high growth, what hope is there of ever breaking out of this extraordinary circle? In any case, the question needs to be asked whether the earth’s resources are likely to be adequate for the further development of an industrial system that consumes so much and accomplishes so little.
More and more voices are being heard today which claim that they are not. Perhaps the most prominent among these voices is that of a study group at the Massachusetts Institute of Technology which produced The Limits to Growth, a report for the Club of Rome’s project on the predicament of mankind. The report contains, among other material, an interesting table which shows the known global reserves; the number of years known global reserves will last at current global consumption rates; the number of years known global reserves will last with consumption continuing to grow exponentially; and the number of years they could meet growing consumption if they were five times larger than they are currently known to be: all this for nineteen non-renewable natural resources of vital importance to industrial societies. Of particular interest is the last column of the table which shows ‘US Consumption as % of World Total’. The figures are as follows:
Aluminium 42% Chromium 19% Coal 44% Cobalt 32% Copper 33% Gold 26 % Iron 28 % Lead 25 % Manganese 14% Mercury 24 % Molybdenum 40% Natural Gas 63% Nickel 38 % Petroleum 33 % Platinum Group 31% Silver 26% Tin 24% Tungsten 22% Zinc 26% In only one or two of these commodities is US production sufficient to cover US consumption. Having calculated when, under certain assumptions, each of these commodities will be exhausted, the authors give their general conclusion, cautiously, as follows:
Given present resource consumption rates and the projected increase in these rates, the great majority of the currently important non-renewable resources will be extremely costly 100 years from now. In fact, they do not believe that very much time is left before modern industry, ‘heavily dependent on a network of international agreements with the producing countries for the supply of raw materials’ might be faced with crises of unheard-of proportions,
Added to the difficult economic question of the fate of various industries as resource after resource becomes prohibitively expensive is the imponderable political question of the relationships between producer and consumer nations as the remaining resources become concentrated in more limited geographical areas. Recent nationalisation of South American mines and successful Middle Eastern pressures to raise oil prices suggest that the political question may arise long before the ultimate economic one. It was perhaps useful, but hardly essential, for the MIT group to make so many elaborate and hypothetical calculations. In the end, the group’s conclusions derive from its assumptions, and it does not require more than a simple act of insight to realise that infinite growth of material consumption in a finite world is an impossibility. Nor does it require the study of large numbers of commodities, of trends, feedback loops, system dynamics, and so forth, to come to the conclusion that time is short. Maybe it was useful to employ a computer for obtaining results which any intelligent person can reach with the help of a few calculations on the back of an envelope, because the modern world believes in computers and masses of facts, and it abhors simplicity. But it is always dangerous and normally self-defeating to try and cast out devils by Beelzebub, the prince of the devils.
For the modern industrial system is not gravely threatened by possible scarcities and high prices of most of the materials to which the MIT study devotes such ponderous attention. Who could say how much of these commodities there might be in the crust of the earth; how much will be extracted, by ever more ingenious methods, before it is meaningful to talk of global exhaustion; how much might be won from the oceans; and how much might be recycled? Necessity is indeed the mother of invention, and the inventiveness of industry, marvellously supported by modem science, is unlikely to be easily defeated on these fronts.
It would have been better for the furtherance of insight if the MIT team had concentrated its analysis on the one material factor the availability of which is the precondition of all others and which cannot be recycled -energy.
I have already alluded to the energy problem in some of the earlier chapters. It is impossible to get away from it. It is impossible to overemphasise its centrality. It might be said that energy is for the mechanical world what consciousness is for the human world. If energy fails, everything fails.
As long as there is enough primary energy – at tolerable prices – there is no reason to believe that bottlenecks in any other primary materials cannot be either broken or circumvented. On the other hand, a shortage of primary energy would mean that the demand for most other primary products would be so curtailed that a question of shortage with regard to them would be unlikely to arise.
Although these basic facts are perfectly obvious, they are not yet sufficiently appreciated. There is still a tendency, supported by the excessively quantitative orientation of modern economics, to treat the energy supply problem as just one problem alongside countless others – as indeed was done by the MIT team. The quantitative orientation is so bereft of qualitative understanding that even the quality of ‘orders of magnitude’ ceases to be appreciated. And this, in fact, is one of the main causes of the lack of realism with which the energy supply prospects of modern industrial society are generally discussed. It is said, for instance, that ‘coal is on the way out and will be replaced by oil’, and when it is pointed out that this would mean the speedy exhaustion of all proved and expected (i.e. yet-to-be-discovered) oil reserves, it is blandly asserted that ‘we are rapidly moving into the nuclear age’, so that there is no need to worry about anything, least of all about the conservation of fossil fuel resources. Countless are the learned studies, produced by national and international agencies, committees, research institutes, and so forth, which purport to demonstrate, with a vast array of subtle calculation, that the demand for western European coal is declining and will continue to decline so quickly that the only problem is how to get rid of coal miners fast enough. Instead of looking at the total situation, which has been and still is highly predictable, the authors of these studies almost invariably look at innumerable constituent parts of the total situation, none of which is separately predictable, since the parts cannot be understood unless the whole is understood.
To give only one example, an elaborate study by the European Coal and Steel Community, undertaken in 1960-1, provided precise quantitative answers to virtually every question anyone might have wished to ask about fuel and energy in the Common Market countries up to 1975. I had occasion to review this report shortly after publication, and it may not be out of place to quote a few passages from this review’:
It may seem astonishing enough that anyone should be able to predict the development of miners’ wages and productivity in his own country fifteen years ahead: it is even more astonishing to find him predicting the prices and transatlantic freight rates of American coal. A certain quality of US coal, we are told, will cost “about 14-50.” the report says, should be taken as meaning “anything between 15-25”, a margin of uncertainty of 24 and $25 per ton for new contracts concluded in October 1970!)
Similarly, the price of fuel oil will be something of the order of $17-19 per ton, while estimates of various kinds are given for natural gas and nuclear energy. Being in the possession of these (and many other) “facts”, the authors find it an easy matter to calculate how much of the Community’s coal production will be competitive in 1970, and the answer is “about 125 million, i.e. a little over half the present production”, ‘It is fashionable today to assume that any figures about the future are better than none. To produce figures about the unknown, the current method is to make a guess about something or other – called an “assumption” – and to derive an estimate from it by subtle calculation. The estimate is then presented as the result of scientific reasoning, something far superior to mere guesswork. This is a pernicious practice which can only lead to the most colossal planning errors, because it offers a bogus answer where, in fact, an entrepreneurial judgment is required.
‘The study here under review employs a vast array of arbitrary assumptions, which are then, as it were, put into a calculating machine to produce a “scientific” result. It would have been cheaper, and indeed more honest, simply to assume the result’
As it happened, the ‘pernicious practice’ did maximise the planning errors; the capacity of the western European coal industry was virtually cut down to half its former size, not only in the Community but in Britain as well. Between 1960 and 1970 the dependence on fuel imports of the European Community grew from thirty per cent to over sixty per cent and that of the United Kingdom, from twenty-five per cent to forty-four per cent. Although it was perfectly possible to foresee the total situation that would have to be met during the 1970s and thereafter, the governments of western Europe, supported by the great majority of economists, deliberately destroyed nearly half of their coal industries, as if coal was nothing but one of innumerable marketable commodities, to be produced as long as it was profitable to do so and to be scrapped as soon as production ceased to be profitable. The question of what was to take the place of indigenous coal supplies in the long term was answered by assurances that there would be abundant supplies of other fuels at low prices ‘for the foreseeable future’, these assurances being based on nothing other than wishful thinking.
It is not as if there was – or is now – a lack of information, or that the policy-makers happened to have overlooked important facts. No, there was perfectly adequate knowledge of the current situation and there were perfectly reasonable and realistic estimates of future trends. But the policymakers were incapable of drawing correct conclusions from what they knew to be true. The arguments of those who pointed to the likelihood of severe energy shortages in the foreseeable future were not taken up and refuted by counter-arguments but simply derided or ignored. It did not require a great deal of insight to realise that, whatever the long term future of nuclear energy might be, the fate of world industry during the remainder of this century would be determined primarily by oil. What could be said about oil prospects a decade or so ago? I quote from a lecture delivered in April 1961.
‘To say anything about the long-term prospects of crude oil availability is made invidious by the fact that some thirty or fifty years ago somebody may have predicted that oil supplies would give out quite soon, and, look at it, they didn’t. A surprising number of people seem to imagine that by pointing to erroneous predictions made by somebody or other a long time ago they have somehow established that oil will never give out no matter how fast is the growth of the annual take. With regard to future oil supplies, as with regard to atomic energy, many people manage to assume a position of limitless optimism, quite impervious to reason.
‘I prefer to base myself on information coming from the oil people themselves. They are not saying that oil will shortly give out; on the contrary, they are saying that very much more oil is still to be found than has been found to date and that the world’s oil reserves, recoverable at a reasonable cost, may well amount to something of the order of 200,000 million tons, that is about 200 times the current annual take. We know that the so-called “proved” oil reserves stand at present at about 40,000 million tons; and we certainly do not fall into the elementary error of thinking that that is all the oil there is likely to be. No, we are quite happy to believe that the almost unimaginably large amount of a further 160,000 million tons of oil will be discovered during the next few decades. Why almost unimaginable? Because, for instance, the great recent discovery of large oil deposits in the Sahara (which has induced many people to believe that the future prospects of oil have been fundamentally changed thereby) would hardly affect this figure one way or another. Present opinion of the experts appears to be that the Saharan oil fields may ultimately yield as much as 1,000 million tons. This is an impressive figure when held, let us say, against the present annual oil requirements of France; but it is quite insignificant as a contribution to the 160,000 million tons which we assume will be discovered in the foreseeable future. That is why I said “almost unimaginable”, because 160 such discoveries as that of Saharan oil are indeed difficult to imagine. All the same, let us assume that they can be made and will be made.
‘It looks therefore as if proved oil reserves should be enough for forty years and total oil reserves for 200 years – at the current rate of consumption. Unfortunately, however, the rate of consumption is not stable but has a long history of growth at a rate of six or seven per cent a year. Indeed, if this growth stopped from now on, there could be no question of oil displacing coal; and everybody appears to be quite confident that the growth of oil – we are speaking on a world scale – will continue at the established rate. Industrialisation is spreading right across the world and is being carried forward mainly by the power of oil. Does anybody assume that this process would suddenly cease? If not, it might be worth our while to consider, purely arithmetically, how long it could continue.
‘What I propose to make now is not a prediction but simply an exploratory calculation or, as the engineers might call it, a feasibility study. A growth rate of seven per cent means doubling in ten years. In 1970, therefore, world oil consumption might be at the rate of 2,000 million tons per annum. (In the event, it amounted to 2,3-73 million tons.) The amount taken during the decade would be roughly 15,000 million tons. To maintain proved reserves at 40,000 million tons new proving during the decade would have to amount to about 15,000 million tons. Proved reserves, which are at present forty times annual take, would then be only twenty times, the annual take having doubled. There would be nothing inherently absurd or impossible in such a development. Ten years, however, is a very short time when we are dealing with problems of fuel supply. So let us look at the following ten years leading up to about 1980.
If oil consumption continued to grow at roughly seven per cent per annum, it would rise to about 4,000 million tons a year in 1980. The total take during this second decade would be roughly 30,000 million tons. If the “life’’ of proved reserves were to be maintained at twenty years – and few people would care to engage in big investments without being able to look to at least twenty years for writing them off- it would not suffice merely to replace the take of 30,000 million tons: it would be necessary to end up with proved reserves at 80,000 million tons (twenty times 4,000). New discoveries during that second decade would therefore have to amount to not less than 70,000 million tons. Such a figure, I suggest, already looks pretty fantastic. What is more, by that time we would have used up about 45,000 million tons out of our original 200,000 million tons total. The remaining 155,000 million tons, discovered and not- yet-discovered, would allow a continuation of the 1980 rate of consumption for less than forty years. No further arithmetical demonstration is needed to make us realise that a continuation of rapid growth beyond 1980 would then be virtually impossible.
‘This, then, is the result of our “feasibility study”: if there is any truth at all in the estimates of total oil reserves which have been published by the leading oil geologists, there can be no doubt that the oil industry will be able to sustain its established rate of growth for another ten years; there is considerable doubt whether it will be able to do so for twenty years; and there is almost a certainty that it will not be able to continue rapid growth beyond 1980. In that year, or rather around that time, world oil consumption would be greater than ever before and proved oil reserves, in absolute amount, would also be the highest ever. There is no suggestion that the world would have reached the end of its oil resources; but it would have reached the end of oil growth. As a matter of interest, I might add that this very point appears to have been reached already today with natural gas in the United States. It has reached its ail-time high; but the relation of current take to remaining reserves is such that it may now be impossible fur it to grow any further.
‘As far as Britain is concerned – a highly industrialised country with a high rate of oil consumption but without indigenous supplies – the oil crisis will come, not when all the world’s oil is exhausted, but when world oil supplies cease to expand, If this point is reached, as our exploratory calculation would suggest that it might, in about twenty years’ time, when industrialisation will have spread right across the globe and the underdeveloped countries have had their appetite for a higher standard of living thoroughly whetted, although still finding themselves in dire poverty, what else could be the result but an intense struggle for oil supplies, even a violent struggle, in which any country with large needs and negligible indigenous supplies will find itself in a very weak position.
‘You can elaborate the exploratory calculation if you wish, varying the basic assumptions by as much as fifty per cent: you will find that the results do not become significantly different. If you wish to be very optimistic, you may find that the point of maximum growth may not be reached by 1980 but a few years later. What does it matter? We, or our children, will merely be a few years older.
‘All this means that the National Coal Board has one over- riding task and responsibility, being the trustees of the nation’s coal reserves: to be able to supply plenty of coal when the world-wide scramble for oil comes. This would not be possible if it permitted the industry, or a substantial part of the
industry, to be liquidated because of the present glut and cheapness of oil, a glut which is due to all sorts of temporary causes….
‘What, then, will be the position of coal in, say, 1980? All indications are that the demand for coal in this country will then be larger than it is now. There will still be plenty of oil. but not necessarily enough to meet all requirements. There may be a world-wide scramble for oil, reflected possibly in greatly enhanced oil prices. We must all hope that the National Coal Board will be able to steer the industry safely through the difficult years that lie ahead, maintaining as well as possible its power to produce efficiently something of the order of 200 million tons of coal a year. Even if from time to time it may look as if less coal and more imported oil were cheaper or more convenient for certain users or for the economy as a whole, it is the longer-term prospect that must rule national fuel policy. And this longer-term prospect must be seen against such worldwide developments as population growth and industrialisation. The indications are that by the 1980s we shall have a world population at least one-third bigger than now and a level of world industrial production at least two-and-a-half times as high as today, with fuel use more than doubled. To permit a doubling of total fuel consumption it will be necessary to increase oil fourfold: to double hydro-electricity: to maintain natural gas production at least at the present level; to obtain a substantial (though still modest) contribution from nuclear energy, and to get roughly twenty per cent more coal than now. No doubt, many things will happen during the next twenty years which we cannot foresee today. Some may increase the need for coal and some may decrease it. Policy cannot be based on the unforeseen or unforeseeable. If we base present policy on what can be foreseen at present, it will be a policy of conservation for the coal industry, not of liquidation….
These warnings, and many others uttered throughout the 1960s, did not merely remain unheeded but were treated with derision and contempt – until the general fuel supplies scare of 1970. Every new discovery of oil, or of natural gas, whether in the Sahara, in the Netherlands, in the North Sea, or in Alaska, was hailed as a major event which ‘fundamentally changed all future prospects’, as if the type of analysis given above had not already assumed that enormous new discoveries would be made every year. The main criticism that can today be made of the exploratory calculations of 1961 is that all the figures are slightly understated. Events have moved even faster than I expected ten or twelve years ago.
Even today, soothsayers are still at work suggesting that there is no problem. During the 1960s, it was the oil companies who were the main dispensers of bland assurances, although the figures they provided totally disproved their case. Now, after nearly half the capacity and much more than half the workable reserves of the western European coal industries have been destroyed, they have changed their tune. It used to be said that OPEC – the Organisation of Petroleum Exporting Countries – would never amount to anything, because Arabs could never agree with each other, let alone with non-Arabs: today it is clear that OPEC is the greatest cartel-monopoly the world has ever seen. It used to be said that the oil exporting countries depended on the oil importing countries just as much as the latter depended on the former; today it is clear that this is based on nothing but wishful thinking, because the need of the oil consumers is so great and their demand so inelastic that the oil exporting countries, acting in unison, can in fact raise their revenues by the simple device of curtailing output. There are still people who say that if oil prices rose too much (whatever that may mean) oil would price itself out of the market: but it is perfectly obvious that there is no ready substitute for oil to take its place on a quantitatively significant scale, so that oil, in fact, cannot price itself out of the market.
The oil producing countries, meanwhile, are beginning to realise that money alone cannot build new sources of livelihood for their populations. To build them needs, in addition to money, immense efforts and a great deal of time. Oil is a ‘wasting asset’, and the faster it is allowed to waste, the shorter is the time available for the development of a new basis of economic existence. The conclusions are obvious: it is in the real longer-term interest of both the oil exporting and the oil importing countries that the ’life-span’ of oil should be prolonged as much as possible. The former need time to develop alternative sources of livelihood and the latter need time to adjust their oil-dependent economies to a situation – which is absolutely certain to arise within the lifetime of most people living today – when oil will be scarce and very dear. The greatest danger to both is a continuation of rapid growth in oil production and consumption throughout the world. Catastrophic developments on the oil front could be avoided only if the basic harmony of the long-term interests of both groups of countries came to be fully realised and concerted action were taken to stabilise and gradually reduce the annual Bow of oil into consumption.
As far as the oil importing countries are concerned, the problem is obviously most serious for western Europe and Japan. These two areas are in danger of becoming the ‘residuary legatees’ for oil imports. No elaborate computer studies are required to establish this stark fact. Until quite recently, western Europe lived in the comfortable illusion that ‘we are entering the age of limit- less, cheap energy’ and famous scientists, among others, gave it as their considered opinion that in future ’energy will be a drug on the market’. The British White Paper on Fuel Policy, issued in November 1967, proclaimed that
‘The discovery of natural gas in the North Sea is a major event in the evolution of Britain’s energy supplies. It follows closely upon the coming of age of nuclear power as a potential major source of energy. Together, these two development will lead to fundamental changes in the pattern of energy demand and supply in the coming years.’
Five years later, all that needs to be said is that Britain is more dependent on imported oil than ever before. A report presented to the Secretary of State for the Environment in February 1972, introduces its chapter on energy with the words:
‘There is deep-seated unease revealed by the evidence sent to us about the future energy resources, both for this country and for the world as a whole. Assessments vary about the length of time that will elapse before fossil fuels are exhausted, but it is increasingly recognised that their life is limited and satisfactory alternatives must be found. The huge incipient needs of developing countries, the increases in population, the rate at which some sources of energy are being used up without much apparent thought of the consequences, the belief that future resources will be available only at ever-increasing economic cost and the hazards which nuclear power may bring in its train are all factors which contribute to the growing concern.’ ‘It is a pity that the ‘growing concern’ did not show itself in the 1960s, during which nearly half the British coal industry was abandoned as ‘uneconomic’ – and, once abandoned, it is virtually lost for ever – and it is astonishing that, despite ‘growing concern’, there is continuing pressure from highly influential quarters to go on with pit closures for ’economic’ reasons.
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