challenges.  These include new impacts on ecological functions from creation of non natural 

wastes and pollutants.  These new environmental impacts will be associated with rapidly 

increasing population densities that threaten the assimilative capacities of the environment. 

1.2.3 Industrialization  

Human economies transform natural resources into food and materials using labor and man 

made or manufactured capital (e.g., machines, tools, factories, transportation infrastructure).  

Developing countries, such as Indonesia, rely heavily on natural resources exploitation to 

increase general standards of living, more so than the developed nations with greater stocks of 

man made capital.  However, developing countries rely heavily on the natural resources 

exploitation and raw imports from less developed, resources rich countries.  Higher availability 

of man made capital enables increased levels of substitution between natural and manufactured 

capital leading towards industrialization.  Industrialization thus provides a different pathway for 

an economy to absorb labor and produce economic growth that is less dependent on exports of 

raw natural resources.  In effect, industrialization provides a means to increase the benefits of 

growth and to improve equity and sustainability.  The degree of efficiency determines the scale 

of benefits industrial programs can achieve.  

The incentive to industrialize an economy occurs when society faces scarcity of natural 

resources.  The scarcity of exploitable resources limits growth potential and places associated 

development targets at risk.  The combination of a fixed supply of natural resources with a 

rapidly growing workforce requires an economy, previously dominated by agricultural 

production, to diversify and thus provide more employment opportunities. Without diversification, 

economic growth and improvements to income distribution will not occur.  A sustainable growth 

pathway in an economy with a rapidly expanding population and a fixed supply of natural 

resources necessitates a smaller unit of natural resources per unit of output to maintain 

economic growth.  With increasing resources scarcity, productive activities need to combine 

labor resources with capital and technology rather than with land and natural resources to 

achieve these growth targets. 

The reproducible nature of man made capital enables an almost limitless supply of man made 

capital.  Therefore, while economies dependent on natural resources can run out of investment 

capital, industrial based economies are less constrained and allow development to continue.  

Additional benefits arise from the use of man made capital, providing a far more flexible mix of 

input combinations of labor and capital.  Within an industrial economy, levels of productivity per 

unit of labor can be increased more than within a natural resources dependent economy.  The 

addition of too many units of land and natural resources to a unit of labor will result in declining 

labor productivity and incomes.   

Economic development and growth are still dependent on utilization of the natural resources 

capital base for development of manufactured capital, goods and services.  Whereas land is 

fixed and natural resources are costly to transport, machines and technology are often highly 

portable.  The portability of technology makes them a highly tradable commodity, enabling them 

to be imported in early stages of development.  This would be followed by a period of local 

production once skills and capacity are developed.  Within a developing economy, man made 

capital is movable to new frontiers when and if comparative advantages exist in such locations.   

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