Depletion and Innovation: A Perpetual Balancing Act?

One of the fundamental debates about the future of the industrial way of life concerns the balance between resource depletion and technical innovation. Technological optimists claim that depletion will always be compensated by innovations that lead to more efficient use of resources (more output per unit of resource input), or by development of new resources. In this view, as a resource becomes scarce, prices signal that there are rewards to innovation. Innovators and entrepreneurs accordingly respond with novel technical solutions. Optimists believe that this will always be the case, and that sustainable resource use is therefore not an issue. Technological pessimists focus on absolute limits to resources in a finite world, on returns to investment, and on externalities such as pollution. In the history of the industrialized way of life, the optimists have so far been correct: Innovation has managed to keep pace with depletion, so that over the long run, the prices of many commodities have been constant. The factor overlooked in this debate is that innovation, like other forms of knowledge production, grows in complexity and costliness and produces diminishing returns. This presentation explores the productivity of innovation since the early 1970s to inquire whether our system of innovation can forever offset resource depletion, and even whether it can continue in its present form.