By Richard Dobbs

The debate about climate change worldwide and in Korea is important but needs to be conducted with an eye on an equally important issue, namely a discussion around ensuring that the world has enough natural resources such as energy, food, water and materials. During most of the 20th century, the price of these resources fell ― supporting economic growth in the process. But the benign era that we have all grown up in, appears to be coming to an end. Urbanization and the emergence of 3 billion new middle class consumers in emerging markets is driving a step change in demand for resources, and at the same time forces such as a reduction in arable land and climate change is constricting supply.

Indeed, the last ten years have wiped out all of the price declines that occurred in the previous century. As the resource landscape shifts, the debate needs to expand from climate change to include ensuring that the global economy does not enter a new era of very high resource prices and volatility. Korean companies and the Government needs to align their natural resource discussions and actions with this imperative.

Now this concern has been raised before, but with hindsight the worries have proved unfounded. As far back as in 1798, Thomas Malthus suggested that the human population was growing too rapidly to be absorbed by the world’s available arable land, and that this would lead to famine.

His dire warnings did not come to fruition as the industrial revolution swept across Britain and then the rest of Europe and North America, breaking the link between the availability of land and economic development. Malthusian theories have enjoyed brief revivals, notably in the Club of Rome’s report on the limits to growth in the early 1970s. But the dominant thesis of the 20th century was that the market and technologic innovation would ride to the rescue by providing sufficient supply and productivity.

This thesis ― and hope ― has largely proved correct. Driven by a combination of technological progress and the discovery of ― and expansion into ― new low-cost sources of supply, the price of resources, as measured by McKinsey Global Institute’s commodities index fell by almost a half during the 20th century, when measured in real terms (see exhibit). This was an astonishing development given that the world’s population quadrupled in this era and global economic output expanded nearly 20-fold, resulting in a jump in demand for different resources of anywhere from 600 to 2,000 percent.

The rise in resource prices over the past decade suggests that we could be entering a different era. Indeed we do see that this could be different in five ways:

■ Three billion new middle-class consumers will emerge in the next 20 years. Incomes, particularly in Asia, are rising at an unprecedented scale and pace. As an example China’s economy is growing ten times faster than the UK did during its industrial revolution and with 100 times as many people.

■ Demand is soaring at a time when finding new sources of supply, and extracting them, is becoming increasingly challenging and expensive. Demand for many resources today has already moved to the limits of short-run supply curves where supply is increasingly inelastic—in other words, a point at which it is more difficult for supply to react quickly enough to meet rising demand. This means that even small shifts in demand can drive greater volatility.

■ Climate change is impacting availability of food and water. Rising temperatures, for instance, means less water availability and declining yields.

■ Resources are increasingly linked. The prices of different resources have become more closely correlated over the past 30 years. Demand for corn-based biofuels, for instance, could mean that the relatively stable food prices of the past are now liable to be as volatile as energy prices are today.

■ Growing concern on inequality might also require action. An estimated 1.3 billion people around the world still lack access to electricity and 2.7 billion people still rely on traditional biomass for cooking food. Unlike in the past, these people are now more visible and connected given improvements in communications technology, raising the issue of their inequality up the political scale.

When looking at how to meet these challenges, McKinsey Global Institute (MGI) research that we will publish next week has established that both an increase in natural resource supply and a step change in productivity of how we extract, convert, and use natural resources is needed to bridge potential resource constraints in the coming 20 years.

The good news is that MGI’s research has identified sufficient supply and productivity improvement opportunities to address these challenges. The question is therefore whether the market and political processes globally can implement the steps to deliver these opportunities sufficiently fast that we avoid a period of high resource prices and volatility.

Our analysis shows that opportunities are available to boost productivity that would meet up to 30 percent of demand for resources in 2030. This would require large amounts of capital investment, but the long-run benefits are very significant indeed.

We estimate the total value to society associated with these opportunities ― including the market value of resources saved ― to be around $2.9 trillion each and every year. Just 15 types of opportunity, from improving the energy efficiency of buildings to moving to more efficient irrigation, represent roughly 75 percent of this prize. There is an opportunity now to achieve the resource productivity revolution in line with what was achieved for labor productivity in the 20th century.

However boosting productivity alone will not be enough. Supply also needs to grow. Take the case of energy. Supply would still need to expand annually at a rate equivalent to 440 QBTU from 2010 to 2030. To put this in perspective, 1 QBTU is enough energy to power all of the cars, trucks, buildings, homes, infrastructure, and industry of New York State for more than three months.

Delivering this productivity and supply is a very large and complex agenda, and putting it into practice will be far from easy. On the basis of the periods when step changes were achieved historically, a key lever must be to use current higher prices to unleash the power of innovation.

However, governments around the world are doing the opposite ― dampening the impact of current high prices through subsidies. They need to unwind the more than $1 trillion of subsidies on resources including energy and water that today keep prices artificially low and encourage inefficient use of these commodities.

Getting prices right will go a long way to addressing this agenda, but more action is required to ensure the availability of sufficient capital, and to address market failures. Under any scenario, meeting the growing resource demands of the global economy over the next 20 will require for annual resource related investment to nearly double to $3.7 trillion in real terms from the level of investment today.

This will require action to overcome start-up challenges, reduce associated investment risks and strengthen private sector lending. This is as important an objective in reforming the banking and financial system as the actions required to prevent the last financial crisis. Addressing a lack of clear property rights (particularly in agriculture) will also be crucial.

Action is also needed to strengthen the long-term resilience of society to these challenges. This includes raising awareness of resource-related risks, creating appropriate safety nets to mitigate the impact of these risks on the poorest members of society, developing integrated institutional approaches to resource management and educating consumers and businesses to adapt their behavior to the realities of today’s resource-constrained world. The world can lead from Korea in some of this.

This agenda also presents opportunities and risks for Korean businesses, which I will come back to in my next column.

But it’s clear that resource-related trends will shape the competitive dynamics of a range of sectors in the two decades ahead. Companies need to place greater attention on resource-related issues in their business strategies, adopting a more joined-up approach toward understanding how resources might shape their profits, produce new growth opportunities, and put new stresses on their management of risk and regulation. With the right political support the global business community can deliver the supply and productivity revolution required to ensure that we don’t go into an era of high and volatile resource prices.

Richard Dobbs is a director at McKinsey & Company