Resource accounting

To avoid becoming just another rhetorical phrase, the idea of a Nexus to be managed must be translated into a concrete and measurable reality. Yet, many who talk about it mistakenly take it for granted, when in reality it does not yet exist. Today it represents, rather, an aspiration: that of building a system capable of managing complex intersectoral relationships, which is a goal as necessary as it is difficult to achieve.

The limitations of national accounting—in particular the methods used to calculate Gross Domestic Product (GDP) and the intersectoral matrices developed by Wassily Leontief based on it—make it very difficult to translate this approach into concrete and truly operational measures.

At the end of the second millennium, it was easy for Alan Greenspan, then chairman of the Federal Reserve, to argue that the amount of material goods required for production had decreased. This argument helped redefine measures of productivity and sustain two major speculative bubbles.

Today, it seems just as simple to identify water, energy, and food as strategic goods and call for their more rational management. Each time, it seems like the right—even urgent—choice. Yet, even this aspiration risks remaining little more than a list of emergencies, bottlenecks, and constraints that hinder the overall production of economic and social goods.

The Nexus as an aspiration 

There is still a lack of real understanding of the interconnections between the essential goods of the real economy—water, energy, raw materials, food—and the rest of the economic system: labor, political choices, businesses, and production processes. So far, the topic has often been left to experts in international politics or geopolitics, or, at best, to specialists in individual industrial sectors. The result is a succession of alarms and suggestive analyses, but lacking a comprehensive assessment: there is a shortage of integrated estimates, reliable indicators of price and quantity, and tools capable of truly measuring the links between the various factors.

The case of rare earths is emblematic. In Italy, there is no ministry or so-called expert that fails to emphasize their strategic role for production chains. Yet the lists compiled so far prove to be of little use: effective for fueling alarm, much less so for building a serious plan.

The same applies to the Strait of Hormuz. We know that its closure creates market tensions, affecting not only oil quantities and prices but also those of fertilizers. More attentive observers note that it even affects the production of helium, which is indispensable for silicon circuits and thus for automotive electronics. Even in this case, however, the analysis remains at a preliminary level, of little use for concrete action, because it lacks any real measurement capacity. What is missing is a truly economic calculation integrating resource availability, prices, and technologies.

The limits of GDP 

A Leontief matrix—the statistical tool that comes closest to representing the complexity of the water-food-energy nexus—describes a system in which the products of each sector become intermediate inputs for the others. In a closed system, the model also includes the consumption necessary for workers’ subsistence, in addition to the production needs of various industries.

In both closed and open systems, these flows concern not only physical quantities of goods—water, energy, food—but also the way in which these quantities are valued through prices and redistributed along the production chain according to specific technological coefficients.

This is where the central crux of the Nexus emerges, often overlooked even in geopolitical analyses: the problem concerns not only the physical availability of oil, water, or wheat, but the way these elements combine within an economic system governed by relative prices and technological levels. Without considering these two factors within intersectoral flows, the simple analysis of physical quantities loses much of its meaning.

Indeed, these interact with the entire system of relative prices, unlike non-basic goods. In other words, handbags, fashion, and tourism are examples of non-basic, luxury goods. They do not fall within the crucial nexus of interrelation. And yet they are treated by GDP in the same way as government spending, as if they were on a par with everything else. Hence yet another tangle of problems. Historically, solutions have only been found in exceptional circumstances, namely in wartime.

Another crucial aspect concerns the role of what are known as “basic goods.” From Piero Sraffa we know that, within a Leontief matrix, there are goods that are indispensable to the production of all other goods: energy, water, raw materials, essential infrastructure. These goods affect the entire system of relative prices and determine the balance of the economy as a whole. In contrast, “non-basic” goods—luxury goods or non-essential consumer items, such as fashion, a handbag, or parts of the tourism industry—do not have the same systemic effect. Yet, in GDP calculations, these goods are treated in the same way as strategic production or essential public spending. This gives rise to a further theoretical and political issue: not all forms of production carry the same weight in the material stability of an economic system, even if they are measured in the same way by traditional indicators.

Lessons from the war economy 

Historically, concrete examples of conscious management of these interdependencies have occurred primarily under exceptional conditions, such as during wartime. In the United States, during World War II, military planning was not based on GDP, but on a comprehensive coordination of industrial contracts, leaving it to companies to organize their own production networks.

Even more radical was the model adopted by Nazi Germany, through planning led first by engineer Fritz Todt and then by Albert Speer. It was a system based on administered prices, technological constraints defined by engineers, and continuous collection of production data. This model of industrial integration was extremely efficient from an organizational standpoint, and enabled Germany to maintain high production capacity until the end of the conflict.

Avoiding rhetoric and truly addressing the issue of the Nexus means going beyond abstract appeals to humanitarianism, on which it is easy for everyone to agree without, however, having a concrete impact on reality. Rather, it means recognizing the limitations of the tools with which we measure the economy today, starting with GDP, and building planning capabilities based on real data, concrete industrial sectors, and physical infrastructure.

This requires coordination and planning bodies at the national level, capable of integrating technical, industrial, and logistical expertise: engineers, technologists, geographers, and specialists in production and industrial accounting. National accounting, as it is structured today, appears insufficient to represent the real interdependencies between water, energy, food, and production systems. In many cases, however, it is large corporations, multinationals, or organized networks of SMEs that already possess planning and coordination tools better suited to the needs of an economy based on strategic interrelationships.

The allocation of resources 

Ultimately, the central problem is always the same: allocation. Every economic system must decide how to distribute quantities, prices, and technologies among essential and non-essential goods, between what ensures the material stability of society and what belongs to the sphere of discretionary consumption. Water, electricity, wheat, and energy infrastructure cannot be treated as ordinary goods, because the entire balance of the system depends on them.

The Nexus, therefore, is not merely a theoretical or geopolitical issue. It is a problem of economic organization, accounting capacity, and political choice. Talking about interdependencies is relatively simple; it is much harder to build concrete tools to measure, coordinate, and manage them. And here a risk also emerges: that rhetoric ends up replacing reality, shaping abstract and ideological planning structures rather than ones based on actual data and constraints. The history of the twentieth century—from the war economy to experiences with centralized planning—shows how these dynamics can produce profoundly different outcomes, for better or for worse.

For this reason, contemplating the Nexus means grappling not only with an environmental or geopolitical issue, but with an eminently economic problem: understanding how to measure, coordinate, and make sustainable the material interdependencies upon which contemporary societies are built.