Saeed, Khalid, "Limits to National Development:& Resources or Resource Allocation Processes?", 1986

THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 537

LIMITS TO NATIONAL DEVELOPMENT
RESOURCES OR RESOURCE ALLOCATION PROCESSES?

Khalid Saeed
Asian Institute of Technology
Bangkok, Thailand
September 1985

ABSTRACT

This paper re~examines the economic development problem and establishes
that organizational arrangements underlying resource use at the social,
political, and ecological levels, not shortage of resources per se, or their
inefficient employment, are responsible for creating conditions of
underdevelopment and for the failure of the well-intentioned economic
development efforts made in the past. Three levels of national
organization are examined: the social level which is concerned with the
production and distribution of income among various cross-sections of
society; the political level where decisions are made to allocate resources
to public welfare or to maintaining control over the public; and the
ecological level where a resource mix is selected for use on the basis
economic and technological considerations. The analysis is based on three
separate formal system dynamics models of the resource allocation
processes dealing with each of the three levels of national organization
discussed above. Appropriate institutional arrangements for fostering
sustained national growth are explored.

1. INTRODUCTION

Although there have been variations on this theme, the economic
development effort to date his mostly attributed the constraints on
national growth to a shortage of capital and other material resources and
their inefficient employment. Consequently, the economic development.
policy design has emphasised growth in renewable capital and the
introduction of modern technologies for improving efficiency of employment
of resources as well as increased exploitation of the natural resource base
[Lewis 1984]. The policies thus issued not only appeal to the moral
conscious of the governments concerned, they also call for large scale
interventions by these governments. This requires that the governments be
concerned with public welfare and that they exercise a high degree of
control over the national resources [Friedman 1978].
538 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

Unfortunately, in a number of cases, the past economic development effort.
has not only been unsuccessful, but has also led to the creation of a number
of social, political, and environmental catastrophes which have caused much
suffering to large groups of people. The social problems created include
worsening of income distribution and aggravation of poverty and hunger
(Griffin, 78); the political problems include an increase in despotism within
nations and worldwide expansion of military arsenal [Nabe 1983]; and the
environmental problems manifest themselves in the rapid depletion of the
natural resource base and the decaying quality of the physical environment
[Picardi 1976],

Apparently, these problems were created because the development effort
ignored existing social, political, and ecological arrangements of the
‘systems which were responsible for creating undesirable economic
conditions in the first place. As aresult, this effort was spent mostly on
working against the internal forces of the system without ever hitting at
the causes of the problems it attempted to alleviate. In this process, the
system forces responsible for the problems were further strengthened,
which contributed to the worsening of the survival conditions of the
populations affected.

This paper re-examines the economic development problem and establishes.
that organizational arrangements underlying resource use at the social,
political, and ecological levels, not shortage and inefficient use of
resources per se are responsible for creating conditions of
underdevelopment and for the failure of the well-intentioned economic
development efforts made in the past. Three levels of national organization
are examined: the social level which is concerned with the production and
distribution of income among various cross-sections of society; the
political level where decisions are made to allocate resources to public
welfare or to maintaining control over the public; and the ecological level
where a resource mix is selected for use based on economic and
technological conditions.

The analysis {s based on three separate formal system dynamics models of
the resource allocation processes dealing with each of the above three
levels of national organization. The sub-systems represented in these
models are parts of a hierarchy which determines survival conditions for
society. These models are further elaborated in Saeed 1985a, Saeed 198Sb,
and Saeed 1986. The technical details of these models are available from
the author on request. At the outset, the ultimate availability of resources
is determined by a process of Selection of resources from the ecosystem,
THE 1986 INTERNATIONAL CONFERENCE OF TRE SYSTEM DINAMICS SOCIETY. SEVILLA, UCTUBEN, 1900 SOD

while limits to improving the well-being of society arise, in the first
instance, from the working of the political system and are further
modulated by the working of the economic system which regulates
production, consumption, and income distribution dicisions.

2. THE ANATOMY OF LIMITS

The traditional perception of limits to improving the well-being of a
society, which is to view these in terms of resource inadequacy,
incorporates the fundamental implicit assumptions that the social system
being dealt with is static and that the condition of resource inadequacy
being experienced is given. When distributional aspects of resources are
also considered, the social classes which claim various shares of income
are taken as given, as if they came into existence by acts of fate. Figure |
shows an integeration of the various propositions which one comes across
in the literature striving to explain the poor economic conditions in the
developing countries.

Exploitation

a Iowestimnent
Ressources ——_ agg

+
Usable Resources «———nefficiencies in —— Ho?

Utilization ‘Teohasiegica

+
Resources available <———Resources Allocated — Merelisntion
for public use toControl ¢

Hetribative

+ ae
Resources available toe i -
Resources Siphoned (no 7 noes

Major Cross-section of Public Away by Elite Classes

+
Resource Adequacy <—________ Po on —___—. Popaletion
Contre?
+
Economic Well-being

Figure 1: Static Views on Economic Development and interventionist.
Policies
540 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

According to these, the poor economic conditions arise in the first instance
from inadequacy of resources which is attributed to many factors. The most
widely discussed of these are are as follows: high population growth rates
which increase population to levels for which available resources are ©
inadequate; the inequalities of income distribution which allow a large
portion of the resources to be siphoned away from the majority by small
elite classes; the large government spending on maintaining law and order;
the inefficient utilization of resources caused by employing obsolete and
wasteful technologies; and an inherent inadequacy in the absolute level of
resources available to the society.

When this static view of the problem is accepted, many policies to alleviate
the resource shortage problem may emerge. Indeed, many policy intruments
have been proposed and implemented in the developing countries for
improving their economic conditions over the past few decades. These
policy instruments and their targets are also shown in Figure 1. Absolute
shortage of resources was to be overcome by increasing investment,
increasing exploitation of the resource base, and obtaining foreign
assistance. Inefficient utilization of resources was to be cured through
adopting modern technologies. The governments of the developing countries
were advised to keep their “non-development expenditure” low and to step
up development activity. To correct income inequalities the governments, in
some instances, took over private assets for purposes of redistribution or
direct control. Large population control organizations were formed to
implement birth control.

Acommon feature of these policies was the large scale government
intervention they required despite the much touted truism about keeping
“non-development spending” low. Thus, the role of the government and the
amount of resources allocated to constructing and operating instruments of
control increased concomitantly with the implementation of these policies.
The inefficacy of the development effort conducted on the above lines is
also quite widely recognised {Saeed 1982a].

Population growth has continued at an ever increasing rate in spite of the
concerted efforts to control it. Income inequalities have become worse,
while the share of government spending in the total national budget has
risen considerably in most developing countries [Griffin 1978, Ball 1983}.
There has possibly been some improvement in the efficiency of utilization
caused by the introduction of new technologies, and an increase in the
absolute amount of usable resources, but the benefit appears to have been
more than cancelled out by the factors mentioned above [Griffin 1977].
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 941

Apparently, the static view of the problem adopted is quite inadequate to
serve as a basis for policy design when it is quite widely recognised that
social systems that have to be dealt with are dynamic and consist of actors
(social as well as ecological) responding to the ever-changing pressures
that shape their roles [Forrester 1971].

A society is nourished by the interplay of three imprtant organizational
subsystems: The societal subsystem which, together with technological
choices and economic:jaws determines how available resources are
transformed and exchanged among various social groups; the governmental
management subsystem, which determines broad allocation of national
resources to producing througput for the members of the society and to
exercising control over them to assure smooth functioning; and the resource
‘subsystem, whose physics determine the ultimate conditions of survival
{Miller 1982]. The interplay of these systems is illustrated in Figure 2. For
continued sustenance of the society, these three subsystems must work in
complete harmony. Deviations in the goals of the three can often be
accommodated in the short run, but at a cost which is borne in the future.
The limits to the increase in the welfare of a soctety arise from how these
goals are determined through the resource allocation processes, not from
the absolute quantity of resources in the system and their efficient
utilization.

The following sections of this paper are concerned with understanding the
resource allocation processes involved in the working of the above
‘subsystems and their implications for the design of policies for improving
welfare. The three subsystems are treated separately for pedagogic
Feasons, although, these should be viewed simultaneously for purposes of
policy design.

3, RESOURCE ALLOCATION IN THE SOCIETAL SUBSYSTEM

The developing country economies are predominantly rural while they also
appear to have a dualist structure consisting of a worker hiring or
land-leasing capitalist sector and a self-employed peasant sector. It has
also been observed that all workers, whether self-employed in tilling their
‘own or rented land or employed as wage-workers, are members of a
homogeneous socio-economic group with a common interest, which is to
maximize consumption. This group also appears to be the sole supplier of
labor in the economy if the small number of working capitalists is
neglected. On the other hand, the capitalist sector strives to maximize
542 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

profit while it is also the sole wage-employer in the economy (Bardhan

1973),
E
@
| | # | p (RESOURCES

© LisFor ECONOM!
INpLACE j* | 3 JACTIVITY
MATERIAL 8
RESOURCES| | &

a Pe

a

a

@ TP ror conTROL

WASTE
RESOURCES

wT

LEGERD FOR DECISION PROCESSES REPRESENTED

E - ECONOMIC PROCESSES
WN - NATURE RELATED PROCESSES:

T - TECHNOLOGICAL PROCESSES

Figure 2: The Interplay of Subsystems Providing Nourishment to
Society

The main accumulations and flows of a system dynamics model
incorporating this dualist structure are shown in Figures 3 and 4 which,
respectively, fllustrate how production factors are allocated between the
two sectors of the economy and how the income of the economy is
distributed. The changes in the quantities of the production factors owned
or employed by each sector are governed by the decisions of the producers
and the consumers of output and by the suppliers of the production factors
acting rationally according to their respective motivations within the roles
defined for them by the system. The value of production is shared by the
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 343

households on the basis of the quantity of the production factors they
contribute and the factor prices they can.bargain for.

Lond owes
by catvators

Lond owned
by cophasts

Lond wncer |_ V7 a |

oa ae
a Seca
@) Lond
] Rorat
Worklorce: (Workforce)
a. |Migration:
Rote, [Rate
ian ES Sse
©) Workers ©) Copia:

Figure 3: Allocation of Production Factors to Various Production Modes in

an Agrarian System
544 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

yay 1
aia captelat curate cute |
seven Secats tom recat from i
Eonsampton {Sis ofceeta ai of mete eS ion
rater

Figure 4: Disbursement of Income in an Agrarian System
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 545

The capacity allocated to production of food cereals depends on the demand
for food generated by the population less food imports or food aid. Prices
of output and production factors are endogeneously determined and, in turn,
affect both production and consumption decisions, although, food
consumption per capita is relatively inelastic. Food adequacy is determined
by the supply of food calories relative to their demand, and in turn,
influences birth and death rates. Income share of the workers, less any
investment needed to maintain self-employment divided by the total
workforce, determines average consumption per worker, which is the basis
for negotiating wage rates. ‘Wage rate affects people's standard of living.
An improvement in the standard of living reduces both birth and death rates.

Such a system has an internal tendency towards concentration of resources
in the capitalist sector which arises out of a goal of the system being to
employ resources in the most efficient way while the ownership of those
resources can only be in the hands of the sector which is the most capable
financialy. If land can potentially be farmed by owner-cultivators,
share~croppers and wage-workers, the presence of any wage-employment.
‘opportunities of fering wages equal to income in self-employment
depresses the saving rate of the self-employed. In the long run, this also
decreases their ability to own land, which decreases their share of income
and hence the wage they can demand.

A decrease in ownership of resources by the self-employed, in the face of a
decrease in wage-employment opportunities which is caused by high labor
costs, also increases demand for renting, which raises rents. This not only
makes it profitable for the capitalist sector to invest in resources for
renting them out, it also gives additional financial edge to this sector over
the peasant sector whose savings continue to decline as its rent burden
rises. Thus, even when capitalist farming is eliminated due to the high cost
of wage-labor, resource ownership by the capitalist sector expands. In the
resulting end equilibrium, the major share of the resources is owned by the
capitalist sector and only a minor share by the self-employed while the
major mode of production is share-cropping. This result is borne out by the
pervasive occurrence of resource concentration experienced in most
developing countries.

‘When the assumption of a fixed economy is relaxed and birth rate and life
expectancy are assumed to be influenced by food adequacy and income level,
population change in this system is not significant, although, it is
characterised by a high birth rate and a low life expectancy. This is shown
in the simulation of Figure S in which population growth assumptions were
546 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

introduced after the system settled down with its charateristic resource
concentration. The stagnant scenario created describes stagnant economies:
of the poor countries before they engaged in serious development effort. It
should be noted that the poor living conditions in this system (low wage
rate, low food supply per capita, low iife expectancy) arise not from an
absolute shortage of resources but from the processes that determine their
modes of employment and ownership.

The long term welfare goal of this system remains quite unaffected by the
standard recipes outlined in Figure 1. Introduction of modern technologies
increases production and population growth simultaneously while changing
the predominant mode of production from share-cropping to commercial
farming but keeping resource adequacy for the major cross-sections of the
public unchanged. Population control policies increase the scope for
population growth, thus increasing the pressures that these policies have to
fight against. Radical redistribution policies are quickly off-set by the
internal forces of the system. Extending technological and financial
assistance to the poor only makes the share-cropping mode more attractive
than commercial farming, keeping resource distribution unchanged. The
details of the simulations leading to above inferences are discussed in
Saeed 1982b and Saeed 1985a.

Since the internal tendency of a system arises from the powerful feedbacks
which dominate the behavior of its actors, the efficacy of a policy depends
on how effectively it changes the relative strengths of those feedbacks.
Figure 6 shows the important feedbacks in the in the societal subsystem.
Positive feedbacks, which are self-reinforcing and negative feedbacks,
which are self-correcting, are shown separately.

It will be noticed that price is not the only market-clearing mechanism in
the system which strives to balance supply and demand. Population changes,
which are driven by adequacy of food calories and living standards, also
strive to achieve this balance. The internal forces attempting a balance are,
thus, embodied in four negative feedback loops, only two of which are
recognized in the models treating population exogeneously. The remaining
two negative feedback loops make it difficult for the system to move away
from an internal goal of equilibrating at low levels of wages, food adequacy,
and life expectancy. The positive feedback loops, which are coupled with
these negative feedback loops, only speed up the process of adjustment.
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 547

‘CAND OWNED AND CULTIVATED BY

* eee el, |
TaND OWED BY CAPITALISTS,
‘SHARE-CROPPED BY PEASANTS.

ira

PRICE, INDEX

chien | ia ae tn

ee

BIRTH RATE.

Figure S: Stagnant Behavior of the System in the Absence of Development
Effort
548 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

Unless the internal goals of the system are changed, any direct effort to
increase food supply, change population, or help the poor will be resisted by
the forces embodied in the feedback loops of Figure 6, although, these
policies may create temporary gains. The internal goals of the system may
be influenced only by changing income shares of the workers and the
ambient cereal food consumption per capita, which emerge as promising
entry points for directing efforts to counter-poverty and hunger.

Policies for raising incomes of the poor have been discussed in detail in
Saeed 1982b. These policies, at the ouset, call for a change in the
ownership pattern that should allow workers to obtain a larger share of the
total income of the economy, which also enhances their wage bargaining
position. This, however, may not be achieved through radical means since
current ownership patterns are also the result of the system's internal
tendency.

On the other hand, if the cost of being an absentee owner of the resources is
increased through fiscal measures such as a heavy tax on unearned income
(rents, profits), resources which cannot be employed efficiently under the
commercial system are offered for’sale to the self-employed sector.
Purchase of these resources by the self-employed raises the entitlement of
the worker households to the income of the economy, which increases their
opportunity cost of supplying wage labor to the capitalist sector. This
raises wage rate, which makes commercial farming even more
uneconomical. Such changes spiral in the long run into transfer of a
‘substantial amount of resources to the self-employed sector. Provision of
technological, organizational, and financial assistance to small farmers
accelerates this process, although without the fiscal measures which
increase the cost of being an absentee owner, such assistance only results
ina change in the cropping pattern.

This policy package will, however, not limit the rise in population, because,
even though a higher standard of living has a limiting influence on birth
rate, the temporary abundance of cereal food calories offsets this influence.
Furthermore, life expectancy rises on account of a better living standard.
The quality of life improves because of these changes. There is, however,
little change in the trend of cereal food available per capita since the food
consumption pattern continues to be economical and extra food production
only leads to population growth. Thus, vulnarability to food shortages is not
overcome.
THE 1986 INTERNATIONAL CONFERENCE OF TRE SYSTEM DINAMICS SOCIETY. SEVILLA, OCiOBER, 1966 549

+ Living

sida
oe
ES taney
Vor 2 (aca are a wher
() conpensstion of Compensation(-) -
ey itera LC
tsk a ;
ey ae pee
wre bee
Ss [ates +
Va jee IR re
Food Grain Grain Graig Grain
gel Seba Ee
ite %
Ww Expectancy (+) (-) Food.
cme
tency

+ Food “Grain

fond Grain recap

Supply

_ —_
‘Supply

Inportant Positive Feedbacks Important Negative Feedbacks

Figure 6: Dominant Feedback Loops in the System
550 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

Since the population goal of the system seems to be partly determined by
food availability, a higher level of ambient per capita cereal consumption
would limit population in the long run for a given level of cereal production.
This policy essentially translates into shifting to obtaining food calories
from animal proteins instead of cereals, which will limit availability of
edible food calories for a given level of cereal production. The writings on
hunger often dub this method of generating food calories as uneconomical or
even decadent and moralize against it. However, it should be borne in mind
that the objective of the policy is not to achieve efficiency in production of
edible food calories in the short run, but to provide food security in the long
run.

Figure 7 shows a simulation which incorporates a high tax on unearned
income and the technological, organizational, and fiscal measures discussed
above, together with a higher per capita cereal consumption. The results
are quite appealing. The birth rate is reduced, and life expectancy and wage
rate rise considerably. Increases in population are limited as extra cereal
production is used up in generating edible calories uneconomically instead
of facilitating population growth.

Thus, food cereal production per capita approaches a much higher level and a
large slack is created between the cereal food calories produced and edible
calories actually consumed, which reduces food vulnerability since in the
event of a shortage people can always resort to more economical sources of
caloric intake.

An uneconomical food consumption policy, in addittion to limiting growth in
births, also raises the demand for cereals, and through prices, the level of
their production. When ownership is transfered to the working households,
the additional income from increased production is accrued to these
households which adds to the opportunity cost of labor in the
self-employment sector, thus pushing up further compensation demanded for
wage-employment. A higher wage rate, in turn, further raises living
standards which further limits births and raises life expectancy.

An effect similar to that of uneconomical food consumption can possibly be
achieved by exporting surplus food. However, in that case, the endogenous
availability of food calories would become dependent on the export market
for food over which the society has little control. Shocks in the export
market would mean that excess calories are absorbed at home and fuel
indigenous population growth. As a consequence, the ability to export food
would soon atrophy.
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 551

{LAND OWNED AND CULTIVATED
[A BY SELF-BIPLOYED PEASANTS

tbe

LAND OWNED BY CAPITALISTS,
SHARE-CROPPED BY PEASANTS
—

TEAND UNDER COMMERCIAL, FARMS.

Fn ospuparaneminmnn,

Figure 7: System Behavior with the Proposed Policy Package
552 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

4. RESOURCE ALLOCATION AND STATE INTERVENTION

If human society could be managed through a disciplinary regimen alone, it
would be quite easy to design idealistic social policies and implement them
through a political system which is vested with sufficient authority. This
would, however, entail severely limiting individual freedom which people
value highly.

Most of the development policies suggested to date have called for large
scale government intervention which requires expanding the role of
government. In fact, a “strong” government is viewed by many as a sine qua
‘non for successfully implementing a development plan. Unfortunatelv. 2
government which may assume a powerful interventionist role may not
always be expected to be concerned with public interest. Instead, it may
mainly occupy itself with preserving autocratic control for which it may
freely use the resources of the society. According to Popper:

“.« Interventionism is therefore extremely dangerous. This is not a
decisive argument against it; state power must always remain a
dangerous though necessary evil. But it should be a warning that if
we relax our watchfulness, and if we do not strengthen our
democratic institutions while giving more power to the state by
interventionist ‘planning’, then we may loose our freedom. And if
freedom is lost, everything is lost, including ‘planning’. For why
should plans for the welfare of the people be carried out if people
have no power to enforce them? (sic).” {Popper 1977]

We can, perhaps, moralize endlessly about how a government should allocate
national resources, Its actual priorities will depend on the pressures it faces
in its role. If it perceives a threat to its power, its concerns for maintaining
control may over-ride its concerns for public welfare. Consequently, only a
small proportion of resources may get allocated to developmental activities
and a resource shortage may be experienced even when the level of total
available resources is quite high, Detailed discussion on modelling this issue
may be found in Saeed 1982c and Saeed 1986. Figure 8 shows a simplified
picture of how a government will allocate resources to welfare and control
activities depending on the pressures it faces.

An increase in the total resources of the system also raises the need for
expanding contro! as some of the resources must be used to upgrade the
system organization. Thus, some increase in control fs inevitable when
economic growth occurs. However, the proportion of total resources
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 553

allocated to economic activities depends not only on total available resources
but also on the government's commitment to delivering welfare as well as its
perception of the need for control. The former is kept alive by the concerns
about welfare expressed by the public. The latter is determined by acts of
dissidence experienced.

The public concerns for welfare surface only if adequate civil liberties exist
and the public is able to register its protests freely. In the absence of civil
liberties, unventilated protests breed dissidence. The public concerns are
inversely proportional to the amount of welfare delivered, which depends on
the resources allocated to the economic activities. This forms a major
negative feedback loop which {is potentially unstable.

Weltires——»——-— Fearon

TN +
i
Nw
“ly "| Resources
Potentiel if
Public Liberties aa
Protests \ 4 aan

+
ON patie +
Protests
a

Government's
* , Commitment to
Deliver Welfare

Figure 8: Resource Allocation Pressures Experienced by a Government

Arise in dissidence also calls for increasing allocations to control activities.
This, on the one hand, increases control which results in suppression of civil
liberties, and on the other, in reducing resources available for economic
activities. Reduction in civil liberties limits public protests while reduction
in economic resources limits welfare. These two mechanisms acting
‘simultaneously create further unventilated protests that breed more
dissidence. The positive feedback loops thus formed add to the instability of
the negative feedback loop explained earlier.
554 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

When this system fs disturbed by stepping up the economic growth rate, it
begins to oscillate attempting to settle in to an equilibrium that is much
lower than that which is warranted by the available resources. This is shown
in the simulation of Figure 9 (a), The limits to further growth appear when
resources allocated away from the economic activities for the purpose of
maintaining control become large enough for their net rate of growth to fall

short of their rate of expenditure.
i 8
2833
Bs33
gece
8X3
| | Relative Controt T ivit Liberties

| Civil Liberties

Economic Economic
Resources Resources
1 i
a 80 100 6 30 700
——> Time ——> Time
(a) Growth ond Instalbility with ({b) Growth with Unlimited Civil Liberties

Control Affecting Civil Liberties

Figure 9: Behavior of the Governmental Resource Al location System
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 555

These limits cannot be alleviated by further increasing the economic growth
rate or even bringing in new resources through foreign aid. However, when
the interventionist role of the government is modified so as to limit its
freedom to reduce civil liberties, the same rate of economic growth yields
continuing increases in resources and welfare. The simulation of Figure 9 (b)
illustrates this. It may be noted that contrary to the prevalent truisms about
economic growth being aided by the presence of a “strong” government that
exercises a high level of control (Benoit 1978], limiting the power of the
government so that it is unable to suppress civil liberties appears to be
important for sustaining economic growth, although, a positive correlation
exists between the economic growth and the growth in control.

5. RESOURCE SELECTION, TECHNOLOGY, AND THE ECOSYSTEM

At the level of the resource ecosystem, the assessments of the availability of
material resources are found in two conflicting paradigms: the neo-classical
economic theory, and the tenets of environmental movement. The former
assessment assumes an unlimited future technological capability to utilize
materials found on earth, and an almost unlimited supply of these, and
attempts to maximize the present value of the ones which can be exploited
using current technologies [Nordhaus 1979]. The environmental movement is
very concerned about the finiteness of the resource base and about the
technological limitations to its exploitation, and advocates conservation,
often irrespective of the societal sacrifices entailed [Meadows 1971]. The
two models are internally quite consistent but they appear to incorporate
bounded information sets which have little overlap. Hence they fssue
conflicting judgements about the physical limititations of the resource
system neither of which is truly valid.

The resource ecosystem of the earth is a subsystem within the universe
which derives its energic inputs from the the sun. Theresource ecosystem, in
turn, maintains an environment from which human society obtains its energic
inputs [Miller 1982). For all practical purposes, the energic inputs from the
‘sun to the earth's ecosystem can be assumed to remain constant over the
entropic life of the sun. However, the energic inputs obtained by human
society from the ecosystem will vary depending on the demands made on it
and on its ability to deliver. The amount of materials actually obtained from
the ecosystem at any time may be different from its sustained ability to
deliver since the former depends on the cumulative stock at any time and the
latter on nature's ability to regenerate. With the help of the energic inputs it
receives from the'sun, the ecosystem is quite capable of regenerating
556 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY, SEVILLA, OCTOBER, 1986

resources from spent form to a usable form. In fact, given enough time,
almost all the earth's resources spent over a certain period of time could be
regenerated.

Thus, the survival of human society depends not on the life of the universe but.
‘on the balancing of the consumption and regeneration of resources. If all
resources are converted into the spent form and their regeneration takes a
few million years, human society may not live to see the regenerated
resources, while the universe lives on. It may also be recognized that the
Classification of resources between the renewable and non-renewable
categories is quite arbitrary. This is because resources are only transformed
between usable and spent forms depending on usage and regeneration rates,
and the only difference between the two categories is the length of their
Tegeneration time constant, which is very long for non-fenewable resources.

Therefore, from the point of view of their position in the ecosystem, the
resources of the world could be placed in four categories. These are: 1)
Usable Resources, which can be expended using currently available
technologies; 2) Exploitable Resources, which become usable after they have
been exploited; 3) Potentially Usable Undiscovered Resources, which would
later become exploitable; and 4) Spent Resources, which must be regenerated
by the ecosystem to become potentially usable or which are recycled by man
to be directly placed in the usable category again. Figure 10 shows these
categories and how resources move between them. Figure 11 shows a
comparison of the different expenditure patterns corresponding to different.
assumptions made about the technology, which determines the resource
package selected from the environment and the quantity recycled, when the
demand profile is a simple trend.

The pattern associated with the pessimistic view results from the
assumption that the regeneration time is infintely long and that there is no
possiblility of recyching or reclassifying spent resources. These assumptions:
allow a temporary increase in expenditure when demand rises, but this is
followed by a catastrophic decline when usable, exploitable, and potentially
exploitable resource inventories decline. At the other extreme is the pattern
representing the optimistic view which results from the assumption that
‘spent resources may always be reclassified as exploitable ones when demand
rises. These two patterns respectively incorporate implicit assumptions of
the technological progress made by the environmental and the neo-classical
economic models of resource use.
THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986 557

eereot of ZT an

fn

TIME TO WV. J. %,
errecr -{ resource 5. "nane
a pe AVAILABILITY,
ERA ate
Ena
exes TRe
é ATE

ue

USABLE
RESOURCES

RESOURCE

COVERAGE
"TM
xuR
EXPLOITARLE a
AESOURCES seth
Soe |necrcune RESOURCES ara
ay.-on | RATE -
Diss H Ay. RESOURCE
obvERY i AVAILABILITY
wd :
' : t
PorenTiaLty ' 1 ka
USABLE ' time 10
| _nesources aa 1 Bloor
H || RESOURCE AV,
i Zs,

(_ rsnac\ Fraction srewr
RESOURCES
ay, RECLASSIFIED

{HDD NORMAL DISCOVERY
DeLay

Figure 10: The Resource Eco-system
558 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY, SEVILLA, OCTOBER, 1986

30.
Exogenous ZA
Demand Function ‘Optimist View
25.0] LE
Z Voriable Regeneration Time
LZ Based pr Rate of Use
200 =
Use of Fast Renewable
Resources
Regeneration Time 50 Yrs
15.0]
Liberal Recyoling
Expenditure Rate Soeey
100

0.0 62.5 125.0 (78.5 250.0

Figure 11: Behavior of the Resource System with Different Resource
Selection and Consumption Policies

In between these lie the patterns corresponding to the revisionist views
calling for recycling and for use of fast renewable resources. These
strategies result in some increases in the inventory of usable resources and
thus help to alleviate a catastrophic decline in their expenditure rate,
although, they are unable to match an ever increasing demand trend.
Recycling, which cannot be divorced from existing production technologies, is
THE 1900 INTERNATIONAL CONFERENCE UF TRE SYSTEM DINAMICS SUUIETY. SEVILLA, UCTUBER, 1Y86 SOD

limited to a fraction of the current rate of expenditure. Thus, it can have only
a small impact. When usage is confined to fast renewable resources only, the
expenditure rate is limited by the quantity and the frequency of resources in
circulation. Thus, limiting usage to a narrow group of fast renewable
resources may not necessarily allow society to take full advantage of the
potential of the resource environment.

When human society is seen as an open system which receives its energic
inputs from its resource environment, both the throughput and the boundary
interaction with the environment appear to be important issues for the
reliable functioning of society. Thus, any sensible criteria for resource use
must place emphasis on continued reselection of energic inputs from the
environment in such a way that both the development of society and the
‘sustenance of its environment are assured [Katz and Kahn 1978].

The resource ecosystem of the earth contains a very large variety of
‘substances from which we can obtain materials for our consumption. Ideally,
we ought to select a resource mix from our environment whose aggregate
regeneration rate matches our consumption. When consumption rises,
resources with a shorter renewal time should be added to the package in use
and those with a longer renewal time dropped. The remaining plot in Figure
11 illustrates implications of such a policy. As the stock of usable resources
is depleted, more and more materials with a shorter regeneration time are
introduced, which increases the aggregate rate of circulation of materials
through the regeneration cycle of the resource ecosystem. Consequently, the
stock of spent resources is more rapidly converted into the stock of usable
resources. Thus, it becomes possible to sustain a higher expenditure rate.
Periods of minor shortages may still be experienced, but these shortages also
provide the driving force for the resource reselection process.

An ultimate limit dictated by the absolute amount of resources in the
ecosystem and the maximum speed at which these can be circulated would
still exist and perhaps some measure for moving towards a steagy state
economy would be in order if this limit is approached [Daly 1974]. There is,
however, persuasive evidence to suggest that considerable slack exists
between this ultimate limit and the current levels of consumption, provided
we are able to take advantage of the variety in the resource base [Brooks and
Andrews 1973, Ravelle 1973]. The immediate need, therefore, is to facilitate
technological developments which may allow for the substitution of
resources, which have a long regeneration time constant and which are
currently being rapidly exhausted, with those which are in abundant supply
and which also have a shorter regeneration time constant.
560 THE 1986 INTERNATIONAL CONFERENCE OF THE SYSTEM DINAMICS SOCIETY. SEVILLA, OCTOBER, 1986

Realizing the above pattern of resource selection would require some form of
government intervention despite its undesirability. The alternative to direct
intervention fs to delegate to a government only the power to influence
mechanisms of choice through indirect means, such as fiscal measures. From
the point of view of obtaining quick and precise results, this form of
intervention may be less effective than direct intervention, although it may
also limit the government to assuming a dysfuctional role in relation to
power. In fact, indirect intervention has been widely advocated and practiced
in many democratically run countries over the past few decades.
Unfortunately, it has been based on somewhat simplistic models of economics
and hence it has been rather ineffective [Zucker 1985).

In spite of these failures, this author is of the view that indirect intervention
continues to be an appropriate form of corrective action that should be
undertaken for influencing resource use, provided this action is based on a
comprehensive understanding of the resource system. Perhaps, it would be
appropriate to set up Natural Resource Boards at the national level that would
continuously monitor the consumption and regeneration status of the natural
resources and design a severence tax structure to assure that resource mix in
use is continuously adjusted towards achieving a balance between
consumption and regeneration rates [Page 1977]. This process can be further
‘speeded up if the proceeds from this tax are used to subsidize the cost of
appropriate, though uneconomical, resources and to support technological
developments viiat should facilitate substitution.

6. CONCLUSION

This paper has examined social, political, and ecological processes that limit
resources available to a society for improving its welfare. The limits
experienced are attributed not to an absolute shortage of resources but to the
resource allocation processes which are active at the various levels of the
hierarchy of the system.

At the social level, the resource allocation processes appear to create
large-scale income inequalities which maintain the majority of population at
subsistence level. These processes are also quite capable of resisting most.
well-intentioned policies aimed at re-allocating resources and income. Since
these policies require large scale intervention from the governments of the
developing countries, having a strong and independent government is often
considered important for successfully implementing any development
activity. Some of the empirical studies conducted on this subject, in fact,
have gone to considerable lengths to establish that a correlation exists
between the presence of a strong government and the success of the
development effort.

The political performance of the developing countries where extensive
development effort has been undertaken, however, clearly presents the other
side of the picture. By and large, the governments of these countries appear
to divert a major share of the resources to building up the military and the
infrastructure fer internal security. Thus, even though the absolute amount
of resources at the disposal of a country may be substantial, only a small
fraction of these is devoted to improving public well-being. Furthermore, the
people of many of these countries have seen worst of human misery, not for
Jack of resources, but due to the political violence which erupts quite
frequently, inspite of their governments’ efforts to suppress dissident
activity.

Finally, the ultimate source of nourishment of a society is its material
resources which are transformed, through government actions and societal
relationships, into useful throughput. The governmental and societal actions
taken in pursuit of technological and material progress may bring about some
affluence in the short run, although they may also result in indiscriminate
consumption of the source of nourishment if the physics of the resource
ecosystem are not taken into account. In the long run, it is this physics which
sustains society.

Any planning for the improving welfare of a society, if it is to be successful,
must take into consideration these resource allocation processes.

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