Ernst Hobma: The difference between Nick and nickel

April 2, 2024

^{This column was originally written in Dutch. This is an English translation.}

By Ernst Hobma, Economic Researcher at Triodos Investment Management

Our economy continues to grow and therefore consumes more and more labor (Nick) and raw materials (nickel). In both cases we are reaching the limits of what is possible.

As far as Nick is concerned, the working population is shrinking in almost all Western countries, meaning that we cannot count on more and more labor in the coming decades.

When it comes to nickel, we mine many more raw materials than sustainably possible, which means we cannot count on more and more raw materials in the coming decades.

But one limit is not the same as the other. Whereas we recognize the problem with labor and are discussing how we can deal with scarcity, when it comes to raw materials we count on magical innovation.

Limits to growth

Suppose a factory makes batteries for electric cars. Coincidentally, everyone who works there is called Nick and nickel is needed for every battery. If you want to make more batteries every year and nothing else changes, you need more Nick and more nickel every year. If every Nick is already working in your factory at some point and there is no more nickel for sale, you have a number of options.

You can try to stretch the offer. For example, by extending Nick's working hours or hiring people named Steven. You cannot extend the working time for nickel, but you can try to reuse nickel from old batteries.

You can also try to teach Nick to work faster, for example through specialization, which will make him more productive. You can then make more batteries with the same amount of Nick. You can also research a way to use a little less nickel per battery. This increases the productivity of nickel.

If you cannot expand the range and become more productive quickly, you will not be able to make more batteries. It then makes sense to ration and think about what you would prefer to use your batteries for. Before you think I'm obsessed with batteries, batteries represent the global economy, and both Nickel and Nickel are in short supply right now.

The demographic crisis

In labor there is talk of a 'demographic crisis'. For example, Klaas Knot and Larry Fink recently commented on the (upcoming) tightness on the labor market, given demographic developments.

Solutions are sought in all the above directions. The stretch is no longer that great. The labor supply has already been expanded by raising the retirement age. Many people actually no longer want to work and migration is politically sensitive. We try to deal with employees efficiently, by training them well and automating them where possible, but labor productivity is still growing only very slowly. Logically, it is therefore suggested that we may simply have to make more choices: where do we prefer to use the limited available hands?

The raw materials crisis

Meanwhile, the global economy consumes far more raw materials than is sustainable in the long term. This is scientifically crystal clear and is seen by, for example, the UN as 'imperative' for sustainable development. To avert ecological crises, raw material use will have to shrink. That is a much more urgent challenge than the labor demand. And just like labor, resource use is quite similar to economic activity: more economic growth means more resource use and more demand for workers.

Extracting more material is not sustainable, reuse is not happening, and so far the data gives no reason to think that productivity will increase quickly. Analogous to labor, you would expect that the question of what we want to spend raw materials on would be intensively discussed.

Nothing could be further from the truth. With raw materials, we expect that productivity will go through revolutionary developments in the near future. It has never happened before and the problem is worsening while we wait, yet combining shrinking raw material use with a growing economy is a core goal of, for example, the European Green Deal. Apparently innovation can do magic now.

Why is there a difference?

So that is the difference between Nick and nickel? I don't know exactly why we deal so differently with scarce labor than with scarce raw materials. The challenge in terms of raw materials may be so great that we collectively find it too exciting to look this animal in the mouth. For example, the UN – the organization that believes that raw material use must be reduced for sustainable development – ​​recently calculated that if we all do our best, we can reasonably limit the growth in material demand.

As far as I am concerned, it is a pessimistic conclusion, but published as good news by the UN. Perhaps the unrealistic conclusion is actually a coping mechanism?

Lack of discipline is another explanation. Where labor is actually physically scarce, sustainable use of materials also requires a degree of collective self-discipline. But whether it is due to fear or a lack of discipline: counting on rapid innovation is certainly not realistic.