NEW YORK – Reconciling global economic growth, especially in developing countries, with the intensifying constraints on global supplies of energy, food, land, and water is the great question of our time. Commodity prices are soaring worldwide, not only for headline items like food and energy, but for metals, arable land, fresh water, and other crucial inputs to growth, because increased demand is pushing up against limited global supplies. Worldwide economic growth is already slowing under the pressures of $135-per-barrel oil and grain prices that have more than doubled in the past year.
A new global growth strategy is needed to maintain global economic progress. The basic issue is that the world economy is now so large that it is hitting against limits never before experienced. There are 6.7 billion people, and the population continues to rise by around 75 million per year, notably in the world’s poorest countries. Annual output per person, adjusted for price levels in different parts of the world, averages around $10,000, implying total output of around $67 trillion.
There is, of course, an enormous gap between rich countries, at roughly $40,000 per person, and the poorest, at $1,000 per person or less. But many poor countries, most famously China and India, have achieved extraordinary economic growth in recent years by harnessing cutting-edge technologies. As a result, the world economy has been growing at around 5% per year in recent years. At that rate, the world economy would double in size in 14 years.
This is possible, however, only if the key growth inputs remain in ample supply, and if human-made climate change is counteracted. If the supply of vital inputs is constrained or the climate destabilized, prices will rise sharply, industrial production and consumer spending will fall, and world economic growth will slow, perhaps sharply.