Dematerialization and What It Means for the Economy — and Climate Change

CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.

The Industrial Era brought an unbelievable rise in human prosperity. As economies grew and standards of living climbed ever higher, forests were cleared, soil was stripped, and oceans were emptied.

When the United States celebrated the first Earth Day back in 1970, people were afraid the world would soon run out of food and other resources, burning it up like flash paper, gone forever.

But that seemingly unstoppable tide could be turning.

Today’s guest has been studying a surprising new trend of dematerialization. Thanks to new technologies and digitization, some national economies are managing to grow at the same time they use less material.

Now this coutertintuitive trend is not happening fast enough to stop the likes of climate change. But it offers some hope: that future economic prosperity may not damage the environment as badly as before.

As part of Covering Climate Now, a global collaboration of more than 220 news outlets to strengthen coverage of the climate story, we’re talking today with Andy McAfee.

He’s a principal research scientist at MIT and the cofounder of the Initiative on the Digital Economy there. And he’s the author of the book More from Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources–and What Happens Next. Andy, thanks for coming on the show.

ANDY MCAFEE: Hey, thanks for having me.

CURT NICKISCH: I called it counterintuitive. Can you please explain what’s happening? How can advanced economies but use fewer materials overall? What’s going on?

ANDY MCAFEE: Yeah and like you say, it’s deeply counterintuitive. I didn’t believe it the first time I heard about it. I kind of walked around with this unexamined assumption that as economies grow, as populations grow, of course, they use more materials from the earth. They use more resources. You need molecules to build an economy.

And I came across this wonderful essay written by Jesse Ausubel, called “The Return of Nature: How Technology Liberates the Environment.” And he made this point, and I thought that would be wonderful if it were true, but that actually can’t possibly be right. That’s not how growth works. And so I went to his sources. I double-checked and I came to the conclusion he was absolutely right.

And so I became super enthusiastic about this and wanted to understand it and try to explain it. Because it seems to me that this is a really profound change in our relationship with the planet that we all live on.

We had 200, almost 250 years of the industrial era which was a period of amazing growth and human population and human prosperity and economies. But wow, the industrial era was really tough on our planet. We took more from the earth year after year. We dug mines. We chopped down forests. We polluted. We killed all of the passenger pigeons. We almost killed all the buffalo and whales.

In some ways, this was a really tough chapter for the planet Earth and it looked like there was this tradeoff between our prosperity and the health of the planet. I don’t believe that tradeoff has to exist anymore because I think we’re demonstrating that we can grow economies, grow population, grow prosperity, improve the human condition while also taking better care of the Earth and treading more lightly on it.

CURT NICKISCH: Which is a profound idea because we all understand that business and its quest for efficiency and being more productive is on a path to using things better and more efficiently, but it still seems like it’s always a plus one, or a plus 0.75 endeavor. Right? Where you’re creating a new product to sell it, you may be using things more efficiently, but you’re still creating a new product and people are throwing out their old ones. But you’re saying this is actually turning to the point where we’re using, we’re using less material. We’re actually kind of reversing the trend and using, using less iron for instance. Using —

ANDY MCAFEE: Less nickel. Less gold. Less fertilizer. Less water for irrigation and less timber. Less paper. Less of just about all the, of the molecules. All the things that you build an economy out of.

And there’s an important distinction here. There are two kinds of less. There’s less per capita. In other words, less timber per American. And then there’s less timber year after year, by all Americans put together. Which is a much more profound phenomenon and that’s essentially saying that America’s, all Americans total footprint on the planet is shrinking over time. And that’s what is going on and that’s what I wrote More from Less about.

CURT NICKISCH: You’ve actually made predictions about where America’s consumption of certain materials is going to be in the next decade for instance.

ANDY MCAFEE: Well you could think that we’re maybe this absolute dematerialization thing is happening. It’s pretty clear in the evidence. But maybe it’s just kind of a temporary lull before our voracious appetites kick in again and cause us to dig more mines, chop down more forests, do all these things and take more from the Earth.

I don’t think that’s what’s happening and I don’t think that’s what’s going to happen. I think the downward trend in a lot of materials is going to continue and I think that we’ve already seen some plateaus. For example, total American energy use in 2018 was only a tick, I think about a quarter of a percent bigger than it was in 2007. The economy’s a lot bigger than it was in 2007, but yet our energy use has flatlined.

And what I think is going to happen is that that total energy use is actually going to start going down, just like we saw with lots of other resources. And the main reason I believe that is just extremely simple. You highlighted businesses and their relentless quest for growth and their relentless quest for profit. That’s absolutely true. That’s at the heart of the capitalist system.

We need to keep in mind, businesses quest for higher profits is always a simultaneous quest for lower costs. A penny saved is a penny earned. And materials cost money. And what I think is going on is that in this era of amazing technologies, you have the computer, the network, the hardware, the software in this era of amazing technologies, we have this super widespread opportunity to swap out atoms for bits.

And because you don’t pay typically for each additional bit, companies are taking technology up on that offer over and over and over, in big ways and small ways, and that adds up.

CURT NICKISCH: Let’s dig into a couple of examples just so that we can really picture what’s happening. Let’s talk about timber that you mentioned. Why is the United States now using less timber than it used to?

ANDY MCAFEE: Well think about the things that we use timber for. We used to use timber in the 19th century for all kinds of things, including building ships and ship’s masts. Now, we pretty clearly don’t do that anymore. A lot less appreciated, we use immense amounts of timber to build railroads all across the country. Railroad ties were made out of wood for a long time, soaked in creosote. We actually don’t do that anymore. We make them out of concrete.

So, because of that substitution effect, and because of the fact that we just don’t make ships out of wood anymore, our total use of timber is I forget. I think it’s at least 20 percent, maybe 30 percent lower than it was in 1990, which was the year of peak timber in the United States.

Simultaneously, the year of peak paper in the United States was 1990, and I think we’re about 40 percent below right now that level of paper that we used in 1990. And the answer there is even easier for me to see. When was the last time you printed out maps to try to get from point A to point B? You don’t print out memos or documents nearly as much anymore because we look at screens, because we have maps on our, we have GPS systems on our smartphones.

And so, you could look at the paper generated earlier in the computer age, all that 11 x 17-inch fanfold paper, all the stuff we used to print out and think that the computer age would be bad for total paper use and for cutting down trees. That’s actually not true at all. It’s really good. It’s finally letting us get past peak paper.

An even crazier thing that I came across when I was researching the book, was that our total use of cardboard is basically about as big as it was in 1995. And I found that extremely hard to believe because of all the Amazon packages that show up outside my door most every day. But again, that’s the very visible phenomenon.

The much less visible phenomenon is the fact that Jeff Bezos realizes that I get zero value from that cardboard, so he and all of his colleagues are working to reduce the total amount of packaging material that you need to get, to get something to my front door.

So, there are all these efficiencies happening back farther in the supply chain and lots of innovation to make cardboard boxes lighter, less materials intensive. Again, because this stuff costs money. And it’s hard to believe, but all of those savings add up and they bring us to a point where our aggregate cardboard use is kind of where it was almost 25 years ago. It’s a crazy phenomenon.

CURT NICKISCH: Are we hitting peak paper in other countries and are we hitting peak paper, peak timber in developing nations that aren’t in a position to really muster the power of these technologies?

ANDY MCAFEE: I came across this research that said humanity as a whole, globally we probably hit peak paper in about 2013. So, total human use of paper is finally going down. For the other materials that you build an economy out of, I don’t think that’s the case. However, I can’t say that with 100 percent confidence because the data, the evidence just gets really spotty and much, much lower quality when you move from the United States to the entire world.

Globally, I don’t think humanity is at peak stuff yet because there are too many low-income countries that are rapidly growing, rapidly becoming more prosperous and you got to build an economy. Literally, you have to urbanize. You have to build infrastructure. That’s a materials-intensive process.

But one of the wild things I learned writing this book was that if you look at satellite imagery, about urbanization, as opposed to relying on countries to just give you a list of their cities and how many people live in them, those lists are really inconsistent. So, if you look at satellite imagery, we are an urbanized species as humans. And the great majority of us already live in an urban environment.

So, we’ve built up I think, a lot of the physical infrastructure that we’re going to need. We’ll need more. Nigeria is clearly going to need a lot more stuff because its population is going to grow so much in the decades ahead. But Nigeria is also not going to lay a copper telephone network like the currently rich world did in order to have telecommunications infrastructure.

I’m pretty sure Nigerians are not going to buy as many cars per capita as Americans did as they were becoming prosperous; not going to build as many coal plants because technology has involved, evolved. So, I don’t, I’m not saying we’re globally at peak stuff. I’m saying we might be surprised at how quickly we get there because the countries that are becoming more prosperous today, are going to follow a very different technology path, a very different materials path than the United States and other currently rich countries did.

CURT NICKISCH: This dematerialization trend, moving away from peak is also happening in agriculture for instance. You think the U.S. for example, is going to farm less land in the future but still produce more food?

ANDY MCAFEE: And the reason I’m so confident about that is that’s exactly what we’ve been doing. One of the wildest graphs that I drew when I was writing the book, and it’s in the book, is a graft of total U.S. crop tonnage. And we’re an agricultural juggernaut and our total tonnage of crops goes up year after year. And included in that graph also, is total fertilizer use for all U.S. agriculture, total water use, and total land use. And all of those are now going down, sometimes by quite a lot.

So, it’s, I still find it kind of a crazy phenomenon, but we are very, very clearly getting more from less of all the inputs to growing a crop, except sunlight. Fertilizer, water, and land while we’re getting more crops out year after year.

So, this is a very, very broad phenomenon. The USGS tracks, I believe, 72 different materials. I think all, but six-ish of them are now on a downward trend. The biggest exception is actually plastics, but there’s something interesting going on there as well. Overall plastics consumption used to grow even more quickly than the economy did. Plastics are super useful. We use them all over the place. Now, plastics use is still increasing, but it’s increasing more slowly than the overall economy is. So, we’re already hitting relative dematerialization with plastics. I don’t know when exactly, but we’re going to hit peak plastics, even as our economy grows and we’re going to start using less of it, I believe.

CURT NICKISCH: Here’s the question though, is that trend towards the materialization fast enough because we are at a time when we see the rising temperatures and we see environmental changes that are happening at a worrying pace that even with this growth, even with population growth, you can see how dematerialization these technological trends are helping. But are they helping enough? Will they move quickly enough to actually make a difference?

ANDY MCAFEE: Decarbonization is not happening quickly enough. It’s happening in the rich world. It’s not happening in the lower-income world. And in general, it is absolutely not happening quickly enough.

And the way to think about it is, think about a bathtub and we’ve got a tap, we’ve got a faucet that puts water in the bathtub and we got a drain that takes water out of the bathtub. That bathtub is the earth’s atmosphere. The drain is how quickly carbon leaves the atmosphere. The faucet is how quickly we’re putting it in. The problem is that drain is actually not operating very quickly. The carbon that we put in hangs around in the atmosphere for decades or centuries.

So, we have to shut down the faucet even more quickly than we might think, and if we can find ways to increase the speed of the draining. But we’re not doing it quickly enough. And my huge frustration is that we know the playbook. If we were actually interested in decarbonizing our economies, we know the playbook for doing it. We’re just doing a lousy job of following it.

CURT NICKISCH: What you’ve outlined is really exciting and promising and gives a lot of hope, but it also shows the limits of those trends. It’s just they’re not on a timeline at least in certain arenas to really help us reverse course, or make the kind of progress that as a society we’re looking for. What are the elements of regulation and government and incentives that you think are necessary to turn that faucet down and open the drain hole?

ANDY MCAFEE: Yeah. And once you start thinking about greenhouse gases as pollution, for me everything just kind of falls into place and the issues become a lot clearer. Because pollution as every Econ 101 student learns is not a thing that markets solve by themselves. If it’s costless to pollute, businesses will pollute, no matter what their corporate annual report says or the CEO says in his speech.

If you want to solve pollution you can either forbid it, and we’ve done that in some cases – you cannot dump waste at sea in America for example. Or, you can make it expensive. And there’s this wonderful combination of economic ideas and policy ideas that led to, for example, the cap and trade program or sulfur dioxide pollution and other kinds of pollution in the United States. When we look at what happened, it’s amazing with that program.

Pollution levels went down. The air in America is so much cleaner than it was 50 years ago and it went down at a much lower total cost-to-industry than was initially expected. Because we set up a cap and trade program. We established a market for pollution. So, if I want to pollute a lot, I buy the right from you to go do that. That sounds really kind of weird and bad. It works like a charm at reducing pollution levels quickly and at a lower cost than a lot of us would have originally thought.

So look, if we were really serious about dealing with greenhouse gas emissions, we treat them like pollution. We would establish either a cap and trade program for them, or Bill Nordhaus won the Nobel Prize last year in part because he advocated a carbon tax, super straight forward. Make that pollution expensive.

The twist and I love this twist, is to make it a revenue-neutral carbon tax. And the idea there is that if you don’t trust the government to spend that tax collected money effectively, great. Just treat the government as a pass-through and filter all the money that you collect from the carbon tax, just ladder it really quickly back to actual individuals. And in particular, probably lower-income individuals and families. Give them a carbon dividend every year.

And then raise the price over time so that businesses run away from it even more quickly, but while they have time to adjust. This is an elegant idea. It’s a relatively straight forward idea. It will work. I’m very, very confident. We have so far just lacked the political will in most parts of the world to actually put in place a, either a cap and trade program or a carbon tax with sufficient teeth. And if we were really serious about solving climate change, that’s kind of the first thing that we would do.

CURT NICKISCH: So, just to put a point on this, the really promising trends there in commerce and technology, and you have a lot of hope that some of these are going to stack on themselves and accelerate, but it still making a difference in stemming climate change, or addressing other environmental concerns, really comes down to business and government decisions in your view.

ANDY MCAFEE: And primarily policy decisions. Primarily government decisions. In the book, I talk about the four horsemen of the optimist. And when all four of these horsemen are riding together, I kind of expect most of our big environmental problems to get solved. And those four horsemen come in two pairs.

The first one is the combination of capitalism – in other words, intense competition and contested markets with technological progress. And when you have those two together, I think our prosperity is going to go up while our resource use goes down. Now, I don’t think those two horsemen are sufficient to solve pollution and they’re not the whole story for taking care of creatures that we share the planet with, protecting other species.

To do those two really important things we need the other two horsemen which are responsive government and public awareness. We only really started to decrease pollution and to put these really effective regulations in place once Earth Day happened and once people became aware that we had this amazing planet and we were kind of screwing it up.

CURT NICKISCH: Now, some of those four horsemen are present, right, in certain places. That’s where you get some of these examples. Other countries don’t really have the same roster together. But I’m curious, what you feel like businesses role is in this because we do have a lot of multinational corporations that are riding around the world, right? And I just wonder if you think businesses have a role in helping with this problem of being responsive and also raising awareness?

ANDY MCAFEE: I think businesses have a huge role to play because most of our carbon emissions come from the private sector. And what makes me a little bit optimistic and again, I am not trying to portray myself as an optimist about climate change or a utopian and say, don’t worry, we’re going to fix this thing. We need more action than we’re getting now.

But some of the green shoots out there come from the fact that businesses really want to be seen as doing the right thing. Increasingly they want to be seen as doing the right thing on this really important issue of climate change. So, a number of the big tech firms are already carbon neutral with the cloud products that they roll out. A lot of other companies in the transportation sector have announced plans to be carbon neutral by some point in the future.

Some of those are press releases. Some of them are actually more than that because whether or not it keeps the CEO up at night, that CEO knows that it’s going to become increasingly difficult for her to sell her products to people and for her to attract and retain talent if that, if her company is being seen as this old smokestack-y kind of dinosaur that’s screwing up the planet. People around the world are becoming more aware, more adamant about this issue. So, that’s the horsemen of public awareness riding again. And again, I’m not saying it’s happening quickly enough. It is not. But I do like this trend where businesses are forced, not just to issue a press release, but to change their practices because of public awareness and public pressure around climate change.

CURT NICKISCH: When you look ahead, technologies are impossible to predict right? So, I just wonder if you feel like the trends are moving in a good direction or we’ll hit another plateau and this dematerialization trend will flatten out again?

ANDY MCAFEE: Flatten out, or even reverse, right?

CURT NICKISCH: Yeah, yeah.

ANDY MCAFEE: I don’t think that’s what’s going to happen. And the reason I say that is that those first two horsemen, capitalism and tech progress, are riding around the world, I believe quicker than they ever have before. In the year 2000, there were about 12 mobile phone subscriptions for every 100 people on the planet. Less than 20 years later, there are more mobile phone subscriptions than there are human beings on the planet.

And the world is interconnected for the first time with powerful devices the smartphones that people in low-income countries have are about as powerful as the first smartphones that you and I had. So, technology is spreading around the world really, really quickly and that means that the people who have those devices, they think of the things they’re not going to buy. They’re not going to buy film cameras. They’re not going to buy camcorders. They’re not going to buy alarm clocks. They’re not going to buy answering machines.

That pile of stuff is actually a big heavy pile of stuff that we used to have to exploit the earth to generate. That’s not what’s going to happen in the future. And those people are going to be getting transportation options via their phones. The technology means that there’re logistic networks. Their trucks and their planes and whatnot are not going to drive around mostly empty, most of the time. They’re actually going to have very high yield and high efficiency.

So, I want to be clear. I am not a utopian. We have real challenges ahead of us, but I think that this particular challenge of dematerializing our growth and our consumption, I’m really confident this is going to continue.

CURT NICKISCH: I have another question for you. And I ask this because I have a 22-month-old and I think a lot about

ANDY MCAFEE: Congratulations.

CURT NICKISCH: Oh yeah, thank you. I think a lot about the world that I grew up in and I think about the world that she’s going to live in. I mean you’re at this interesting place because you’re an economist and you also study the digital economy and you’re thinking about the future. What would you recommend to somebody who is just setting out on their career or an education and they are looking at all the different places where they could live a meaningful life and make a difference in this global challenge? Whether it’s government and policy or whether it’s in technology and science, where do you feel we need more people and what would you recommend to somebody who is trying to figure out the path that they can make a big difference in?

ANDY MCAFEE: The first thing to say is that I think it’s a little bit early for your 22-month-old to be thinking about their career.

CURT NICKISCH: She’s not. Trust me.

ANDY MCAFEE: That’s a precocious kid. I get this question all the time. And I feel like a big part of the reason I get it from parents of children of all ages, is that we are absolutely heading into a time of great change and a really uncertain time. And that’s inherently unsettling for a lot of people and the stability that a lot of us felt when we were growing up, I actually think you’re correct that it’s not going to be there and that we’re creating a very, very different world. And what, how do you go make a positive impact in that world?

Look, I would say, just think about this broad trend of dematerialization, of doing more with less, of treading more lightly on the planet, and there are all kinds of ways you can participate in that trend. Another one of the wild things I learned writing the book is that aluminum cans used to be about five times, four or five times heavier than they are now. Just your beer can or your soda can weighed a lot more.

And beverage companies and packaging companies worked really hard in reducing that weight because the consumer doesn’t value it. All I want is my beer, and that aluminum costs money. So, you can think about it as corporate greed, which it is. At the same time, the cumulative savings are 100s of thousands of tons of aluminum.

So, by participating in that process, go be a packaging engineer. Go work on CAD/CAM software. Go work on this super broad trend of digitizing our world because then you’re also working on dematerializing our world, on treading more lightly on this beautiful planet that we all live on, and if you’re an aware and informed citizen, you can help steer governments and companies in the right direction here.

I think there’re tons of ways to be really, really positively involved citizen and consumer here. And yeah, you should probably also think about using, having experiences instead of things. The research is pretty overwhelming that more things actually don’t make us very happy. They don’t make us very satisfied. Go have beautiful experiences.

Jesse Ausubel who I mentioned before, I respect his work a great deal, has this great phrase. He says we need to make nature worthless. And what he means by that is we need to make it economically worthless. So, what if that trees over there. I don’t have any desire to chop it down. I can’t make a buck off it. Let me go sit under it and talk to somebody or read a book. So, he’s not saying nature is worthless. He’s saying let’s make its economic value low as quickly as possible. Amen to that.

CURT NICKISCH: Andy, thanks so much for coming on the show and talking about this.

ANDY MCAFEE: Hey this has been great. Thanks for having me.

CURT NICKISCH: That’s Andy McAfee. He’s a principal research scientist at MIT. He also, along with Erik Brynjolfsson is the cofounder of the Initiative on the Digitally Economy at MIT and he’s the author of the book More from Less: The Surprising Story of How We Learn to Prosper Using Fewer Resources—and What Happens Next.

This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Adam Buchholz is our audio product manager. Thanks for listening to the HBR IdeaCast. I’m Curt Nickisch.