The reality is that it will not be possible to sustain high growth in the coming years without environmental care.
The universal drive for higher incomes in the face of mounting environmental destruction has heightened the expressed tension between fast growth and environmental protection. The perception of a trade-off between the two goals rests on the view often held — wrongly — that environmental protection, not environmental degradation, is the obstacle to rapid growth. The reality, however, is that it will not be possible to sustain high growth in the coming years without environmental care.
The reason is that we are facing a twin crisis — economic and environmental — and the two are highly interlinked. The spike in food prices, the second in three years, signals in good measure, pressures on production that are exacerbated by the deleterious effects of environmental devastation and climate change. While some may set aside the global risks of climate change as being distant, recent extreme weather events point to changes that may already be upon us.
To be clear, sustained growth has been the most powerful means to reduce poverty, especially in China, India and elsewhere in Asia. China's growth averaged 10 per cent yearly for the past 25 years, lifting some 400 million people out of poverty. Developing countries need to grow a great deal: their average incomes are one-sixth that of rich nations.
That said, climate change presents the greatest threat to sustaining high growth. In the past 100 years, the world economy expanded sevenfold, the global population increased from 1.6 billion to 6.5 billion and the world lost half of its tropical forests. Consequently, atmospheric carbon dioxide levels are now 385 parts per million (ppm) and rising fast. This is close to the 450 ppm threshold beyond which it may be impossible to achieve the Cancun-agreed goal of limiting global temperature rise to 2° Celsius.
Natural disasters on the rise
National economies are already seeing the effects of climate on local agriculture. Natural disasters are on the rise: remarkably it is the hydro-meteorological events, not the geological ones that have shot up, suggesting the ominous link to global warming. The proximate reason for the doubling of wheat prices over the past year is the collapse of production in the former Soviet Union and elsewhere linked to unprecedented heat waves and floods.
The economic costs, including the losses caused by air pollution, water contamination and solid wastes as well as deforestation are estimated to amount to some three per cent of GNP in China as well as India, Argentina, Turkey and elsewhere. Strikingly, prevention is often far cheaper than cure — whether it's curbing industrial pollution, arresting deforestation or reinforcing structures in disaster-prone areas. Why then don't governments and businesses universally favour environmental safeguards?
One reason is that when it comes to the global aspects, no country, rich or poor, has the economic motivation or the political will to confront them alone. That's because only a part of the benefits accrue to those taking action, while others can grab a free ride. And even when the gains are local, they may only appear after politicians leave office.
Second, the split between what's good for society and what drives private interest is perpetuated as many policy and business leaders still do not view the environment as integral to the growth agenda. Mainstream economics has not been helpful in this regard. Most economic projections still assume that high growth can proceed independently of environmental action.
Third, policy often worsens the situation by encouraging the waste of natural resources. Growth models are silent on subsidies purportedly used to speed growth — farm subsidies of some $150 billion a year and subsidies to fossil fuels of $650 billion a year worldwide — that encourage energy intensity, emissions and waste. Cutting these subsidies would increase economic efficiency and improve the prospects for growth.
If high growth is to continue — be it in Brazil, China, India, or elsewhere — we need to fundamentally correct the calculus that environmental protection hampers economic growth. Economics can be highly influential in this respect. But mainstream economics must reverse its past advice and indicate that the drive for higher incomes can succeed only by including — not excluding — environmental care in growth policies.
(Vinod Thomas is the director-general of the Independent Evaluation Group of the World Bank. The views expressed here are his alone.)