# The Hidden Foundation of Modern Economy: Physical Materials From data centers to steel, the economy is more physical than we assume - **Source:** [McKinsey Insights](https://www.mckinsey.com/insights) - **Published:** 2026-09-02 - **Topic:** [Business](https://brifing.si/c/business) - **Original article:** - **On Brifing:** https://brifing.si/s/9f82906b-7ccb-42e2-b8c5-0c1a0da403b2 ## The economy isn't an invisible network While modern economy is often associated with digitization and abstract financial systems, it fundamentally relies on physical materials. Data centers cannot function without copper wiring. Smartphone production requires rare earth metals. This tangible reality reveals the physical world underlying economic growth that we tend to overlook. ## Material dependency from agriculture to tech Every sector depends on raw materials, from basic food items like tomatoes to industrial products like steel. For instance, producing a single semiconductor chip consumes over 16kg of fossil fuels. Agriculture cannot sustain food production without phosphate resources. This dependency also creates economic vulnerabilities we can't ignore. ## The critical role of global supply chains When the Ever Given blocked the Suez Canal in 2021, it disrupted 12% of global trade. This incident demonstrated how crucial material supply chains are. China's magnesium production shortages brought European auto industry to a standstill. These supply networks form the invisible backbone of modern economic activity across continents. ## Material crises shake economies The Ukraine war disrupted wheat and fertilizer supplies in 2022, causing global food prices to spike by 20%. Similarly, lithium price increases drove up EV costs. Material bottlenecks have become key inflation drivers. Such events repeatedly prove the fundamental importance of physical economy components we often take for granted. ## Even data centers are physical realities Though cloud computing seems 'virtual,' data centers consume over 200 terawatt-hours annually - matching some nations' total energy use. Servers also require massive water volumes for cooling. The digital economy cannot hide its dependence on physical resources, challenging common perceptions of dematerialization. ## Hidden environmental costs Producing one smartphone consumes 70kg of natural resources. Steel production accounts for 7% of global CO2 emissions. These invisible costs of economic growth now dominate sustainability debates. Material efficiency has transitioned from optional to essential, forcing industries to redesign production models. ## Strategic material competition intensifies The US and EU remain 80-90% dependent on China for critical minerals. A global race is underway for lithium, cobalt and rare earth elements. When China restricted graphite exports in 2023, battery production faltered worldwide. Material access has become a national security priority, reshaping geopolitical strategies. ## Need for new economic paradigms Circular economy models aim to reduce material dependency. The European Green Deal plans 50% raw material reduction by 2030. Companies now prioritize supply chain resilience. Economic models ignoring physical realities prove unsustainable, demanding fundamental redesigns of production and consumption systems. ## Sources covering this story - https://www.mckinsey.com/mgi/our-research/a-century-of-plenty/podcast/why-progress-is-more-physical-than-we-think — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._