Here is a brief excerpt from an article written by Stefan Heck and Matt Rogers for the McKinsey Quarterly, published by McKinsey & Company. The authors of the new book Resource Revolution argue that high resource prices are spurring innovations powerful enough to unlock a new phase of global economic growth.

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Will shortages of energy, materials, food, and water put the brakes on global growth? Far from it. By combining information technology with industrial technology, as well as through harnessing materials science and biotechnology, innovators are showing that it is possible to produce more with less and to access resources at far lower costs. In this video interview, former McKinsey director Stefan Heck and director Matt Rogers, co-athors of the new book Resource Revolution: How to Capture the Biggest Business Opportunity in a Century (New Harvest, April 2014), argue that to be successful, managers will need to think in new ways about products, services, and technologies. An edited transcript of their remarks follows.

Interview transcript

Stefan Heck: I am an optimist, because while we’re facing this unprecedented set of constraints—in food, in land, in energy, in water, all across the planet, with 6 billion people going to 9 billion people all consuming resources—that really just represents a challenge. It’s a challenge to humanity, a challenge to ingenuity, to innovation.

Matt Rogers: What you begin to see is the writing on the wall that, rather than this great threat to the global economy, what we’ve seen is a broad arc that really is now changing in the most fundamental way it has in a hundred years.

From crisis to opportunity

Matt Rogers: Starting in about 2005, we began to see a rapid run-up in energy prices, in gold prices, in copper, aluminum, steel prices—all driven by the realization that 2.5 billion people were going to enter the middle class and that there weren’t enough resources to go around. And that began to worry everyone, particularly around economic growth. How were you going to sustain economic growth when you have these kinds of commodity prices essentially slowing the economy down?

And it began to change around 2010, 2011, when all of a sudden we began to realize that, “Hey, this high resource price thing may in fact be the beginning of a massive opportunity rather than the biggest threat to the global economy. It might be the biggest opportunity we’ve seen in maybe a hundred years.”

What we began to see was a set of trends that were moving very, very fast, that were, in many cases, driven by the combination of industrial technology and information technology. The most striking one was the development of unconventional gas first, now unconventional oil, in the United States. This was something that no one saw coming.

In 2007, we were sure that the United States was going to be a massive importer of natural gas. We only had a few years left of natural gas, and we were going to have to bring it in from all over the world. And by 2011, we realized that the US was going to be the largest producer of natural gas in the world and had so much natural gas that we were going to start exporting it. In 5 years’ time, what usually takes 50 years to develop, in 5 years we all of a sudden were taken by surprise by this massive change.

At the same time, we saw solar prices going from $8/watt peak, down to $4/watt peak, down to $2.50/watt peak. That kind of change in the course of three or four years, again, took everyone by surprise. So two markets—the natural-gas market and the solar market—both growing at 20 percent plus per annum. In the energy world, we’re used to markets that grow at 3 percent per annum as being really fast. And now we have two massive markets growing at 20 percent per annum, driven by the same underlying technological fundamentals.

Stefan Heck: What’s important to realize is that the technologies we’re talking about changing in this way are really basic infrastructure technologies. And because of that, they have this spillover benefit for the productivity of the economy as a whole.

When we change the cost of a structure—in housing or an office—that has a knock-on effect on all these industries that use or take advantage of buildings. When we change the economics of the resources required for transportation and for movement of goods, every industry that ships anything anywhere in the world benefits from that.

When we virtualize a process to, instead of physically moving a good, turn it into a service delivered over your phone or over the Internet remotely, that, again, spreads to many, many industries, from elevators to automobiles to mining companies. They’re all now taking advantage of the fact that I can do things remotely. That’s why it’s very exciting. We’re just at the beginning, the inception point, of these new materials and new IT technologies beginning to affect many, many other industrial domains.

Matt Rogers: The bringing together of information technology with industrial technology, the application of biological technologies to resource problems, the use of new materials and nanoscale science to these industrial and resource-productivity challenges all of a sudden enables us to capture the kind of productivity growth that we need, and more—so that we can grow the economy while not actually increasing the demand for resources nearly as significantly, or while making the production of resources much cheaper than anyone expects.

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Here is a direct link to the complete article.

Stefan Heck is a consulting professor at Stanford University’s Precourt Institute for Energy and an alumnus of McKinsey’s Stamford office. Matt Rogers is a director in the San Francisco office.