Economy & Energy
  Year  I  - No 5
Nov/Dec 1997

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Editoração Eletrônic
Tuesday, 22 July 2003


 Omar Campos Ferreira

English Version:
Frida Eidelman

Modern economical theory considers four independent production factors: capital K, labor L, energy E and raw material M. Given the production value Y, there are numerous quartets of those variables that satisfy the equation Y = f (K,L,E,M). The set of values generally chosen is the one that minimizes cost.

Of the four factors, E and M are entirely free from the economical point of view, since they are natural resources subject to the laws of Mass/Energy Conservation and Entropy. The other two factors allow for a certain degree of arbitrariness.

Along the history of economy, the production factors had variable importance. At the beginning , the capital , denoting set of utensils, tools, buildings etc., used in production, had little importance and energy was supplied by man himself, by domesticated animals or that existing in nature (water falls, winds, etc.). Since consumption was low and the products were little or not elaborated, production satisfied the needs and allowed for investments in the form of work and time available for creativity, from which resulted the invention and improvement of utensils (club, spear, ax, etc.). As consumption grew in volume and became more complex, grew the importance of capital in the mercantilist economy, and it already presented a significant importance in production.

The discovery of transforming heat into work , with the invention of the steam machine, altered profoundly the values of the production factors because it freed the cadence of production from the rhythm of Nature. With the evolution of the machines, production became more and more dependent on the stored energy of fossil fuels, formed in other geological eras , instead of solar energy which supported the primitive economy.

Productivity growth promoted the capital stock increase, since consumption was still modest when compared to the present pattern. The discovery of electricity and the way to produce it in a commercial scale and the internal combustion motor, using petroleum products, enhanced the mechanism of capital feedback. A new mode of capital, the technology, representing the stock of knowledge necessary for the production of goods and services, came to be considered recently in economical analysis.

The path of technology development produced several effects:

  • substituted human energy by other forms, modifying the labor concept, as a production factor (labor was to be evaluated by the capacity of learning new techniques and by production management);
  • created new ways of production almost entirely artificial, except for the need of energy and raw material;
  • shaped the social organization mainly aiming at production and consumption;
  • generated great confidence on the human capacity to solve the problems created by production itself, such as the environmental and social unbalance of the present and the growing scarcity of raw material.

Admitting that the production equation may be satisfied by different set of values of the production factors is tantamount to recognize the existence of interchangeability among them. Therefore, if raw material is scarce, the larger use of one or all the other factors should compensate that effect. However, it is obvious that there are minimum values of each factor to make production possible. In the last decades, one notices the growth in using technology in production (automation, computer science, etc.) with what the progressive exhaustion of natural resources was compensated. So, the expected price increase of raw material and energy which would be the natural consequence of decrease of these resources is not happening. For example, after the petroleum price chock in the seventies, the international price of this fuel decreased. A recent article in Newsweek , reproduced in Gazeta Mercantil in November 10 indicates new price decreases due to new prospecting methods in floating platforms, oriented by satellites and other innovations.

If everything is fine with technology, how can one explain the economical difficulties in our time? The financial market has presented grave instabilities, unemployment is generalized, energy supply worries those responsible for planning. Has technological development come to a halt?

Unemployment should receive special care from governments. However there is a passive acceptance of the problem as if it were a fatality. It should be remembered that Marx previewed the collapse of capitalism as a consequence of the unequal income distribution between capital and labor. If there is consumption depression, production should also decrease, unless the privileged class could consume all production which seems impossible. Therefore, should the market unbalance persists, the system will go bankrupt. Incidentally, the present stock market crisis, according to generalized interpretations , caused by speculative capitals suggests that Marx was correct. The subjacent questions are: why there are speculative capitals ? have these capitals economical any real value (ballast?) or are they "computer" capital ?

As to energy supply , in spite of the fact that petroleum is responsible for 1/3 of the energy consumed in the world and that the conventional oil reserve is half of the original one, few economists take this fact in consideration, confirming the excessive confidence on technology to solve the problem when it appears. However, even taking into account the inflection point in the population curve and the change in the structure of the economy, in which industry is loosing its participation to services, the most competent analyses such as that of the World Energy Council ( "Energy for Tomorrow’s World", 1993), indicate that about 2/3 of the remaining conventional oil in 1990 will be consumed until 2020. This situation is clearly one of exhaustion of the best quality oil. It would only remain reserves of heavy oil, natural bitumen and schist oil, whose extraction and refining costs could be comparable to the present costs of conventional oil if there will be a significant development of the appropriate technology for those resources. It is clear that if there are no limits for the technology, any production problem will be solved as long as part of the existing resources are destined to finance the new technology. So, petroleum could not be explored up to its exhaustion otherwise a new energy resource and the corresponding energy converter must be introduced.

We can imagine that natural gas, which can use the same petroleum converters ( steam machine and internal combustion motor) will be the new resource. But natural gas has not the energy advantages of petroleum, even though it is environmentally more acceptable ( 24% less CO2 per liberated calorie and less CO emission in motors) but its energy density (energy /volume) is one thousand smaller than that of oil, gas transport is more expensive, which possibly explains its slow penetration in the market. In internal combustion motor, gas renders smaller power density (kW/l) due to the deficient cylinder loading ( the cylinder volume is filled with gas and air instead of gasoline or alcohol, both liquid, and air) and for the larger air / fuel ratio needed by gas. Besides these arguments, natural gas reserves, originally 10% larger than that of petroleum is already reduced to 75%. If we consider the sum of the remaining gas and oil reserves to be about 290 Gtoe , we conclude that these hydrocarbons can supply the projected demand during 4 or 5 decades.

As to nuclear energy, which can supply 170 Gtoe through thermal reactors ( of the type that are now in commercial use) or 8,400 Gtoe through fast breeder reactors, and to zero the emission of greenhouse gases, the present situation is of stagnation. The installation of PWR or HWR type reactors has not reached the projections made twenty years ago and the French fast breeder program was suspended and only the Japanese fast breeder remained. In Europe there is popular restriction to the use of nuclear energy as a consequence of the Tree Mile Island and Chernobyl accidents, in Japan the Tokai Mura reprocessing installation has suffered radioactive elements leakage accidents, which must also provoke reaction against nuclear energy, in a lesser scale than the European due to political and strategic reasons ( Japan has less energy options than Europe). In any way, even if the technological, environmental and popular rejection problems are solved, nuclear energy would continue to be capital intensive what would increase the present unbalance among the production factors. Besides that, it would be available only in large energy blocks unless a new revolutionary solution for accumulating electric energy or under another form is found.

With the cards lying on the table, it seems that technological development is reaching the saturation level. In the case of the internal combustion motor, where this development is measured through its thermal efficiency, the development has reached its final one third ( the maximum efficiency would be 53% and the average efficiency already reached is 38%).

If the technological development will not solve the production constraints, the alternative will be to reduce consumption, which is already being made via unemployment (open or concealed) which causes the mentioned unbalance in the market. If unemployment persists, it is possible that capitalism will became decadent and will be substituted by another social-economical organization more suitable for the situation of less abundance that is foreseen.