The benefits of increased oil prices

By Dingli Shen | January 22, 2008

Human ingenuity will ultimately wean the world off of fossil fuels, and the rising cost of oil will inspire that ingenuity sooner rather than later.

With the price of oil continuing to rise, hitting $100 per barrel recently, it logically follows
that developing countries such as China are at the biggest disadvantage, as an ever-expanding
Chinese economy creates an ever-expanding need for oil, which, given the rapid increase in prices,
ends up costing China a considerable amount of money.

But while energy certainly plays a role in a nation’s economic health, it’s not the only factor
that affects a domestic economy, and in my opinion, it might not even be the most important factor.
(Though intertwined, food security might be more crucial to a nation’s economy than energy
security.) The proof is in the experiences of many previously poor countries. For instance, while
China possesses abundant natural resources, the Chinese government’s political decision to open the
economy was a significant driver in the country developing at such an impressive pace.

The world’s rich countries offer similar stories. These states weren’t born rich; they worked
hard to attain their wealth–although some of this wealth is stained by the actions these countries
took during the colonial era. Take Japan, an energy-poor country with few land-based natural
resources, as an example. The ambitious island state once aspired to achieve power through
aggression, but only was able to achieve it through hard work, investment in education and
technology, and a security alliance that limits its military spending. As such, despite World War
II and the damage it brought to major Japanese cities such as Hiroshima, Nagasaki, and Tokyo, Japan
has been able to economically outperform other countries blessed with many more natural

Of course, imported energy certainly helped propel Japan’s success. But Tokyo also attaches a
strong importance to energy conservation. If China could achieve similar energy efficiency, Beijing
would turn itself into a net energy-export country. There are some advances on this front in China,
where sustainability is now a buzzword when the country’s environment, energy needs, and public
health is discussed.

As Japan demonstrates, people and the policy they create make the most significant difference.
Therefore, every country can create a policy that encourages investment in its populace to develop
technologies that lead to its betterment. Similarly, every country should learn from Japan about
how to save energy.

The rising cost of oil forces us to reflect upon our lifestyles and the ways in which countries
develop. Beginning with efficiency, countries should implement laws that regulate the ways in which
energy is used, more heavily taxing those individuals who use an unsustainable amount of energy,
while encouraging and nurturing the use of new technologies and manufacturing standards that place
a premium on energy efficiency. In this regard, surging oil prices might actually help alter
Chinese development policies, forcing the government to act more responsibly and avoid the
environmental damage cheap energy can create.

Thus, we shouldn’t view high oil prices as a threat. It’s simply a challenge that requires new,
enlightened thinking–less luxury, more sustainability and responsibility, and enhanced global
cooperation. In short, we need to adapt to a new life. Those who can manage this adaptation will
survive and flourish. Especially for China, the increased cost of oil is the right pressure at the
right time, providing Beijing with the perfect opportunity to change its development policies now
to ensure it will thrive for decades to come.

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