Economic Recovery? No. Economic Transformation? Absolutely

The State of the Planet is an important conference March 25, in New York City hosted by the Earth Institute, of Columbia University. The Earth Institute is one of the rare organizations that actually understands the interconnection between the environment, the economy, and society; their research is eye-opening. This year's conference, held every two years, is apparently going to center around the core issues of "climate change, poverty and economic recovery". The first two agenda items, climate change and poverty, make absolute sense in the context of sustainable development but what about "economic recovery"?

Morally, there is nothing about the old economic system that should be continued into the next decade of the 21st century. If the global economy was to be 'recovered' in the state it was before the recession began, we would also be returning to a very destructive and polarizing development model that has been anything but sustainable.The process of unchallenged economic growth was the greatest driver of man-made ecological disaster in world history. Rapid economic development which, technocrats would like to return to, has also actually generated poverty in much of the Third World. The old neo-liberal model of economic growth was excluding an increasingly large proportion of poor farmers from access to use of the land, modern technology and then driving peasants into deprived shanty towns with no economic opportunity.

Conventional economists have not yet conceded that the most recent process of economic growth was inherently unsustainable and had disastrous ecological and human consequences . Even the most progressive theoreticians are only calling for minor regulatory reforms of the banking industry, and market-oriented carbon trading schemes. However, we will never move toward the path of sustainable development until we address our severe dependence on private sector investment or capital in the production process. Because our society is reliant on private investors to create new jobs and consumer goods, the will to act on global warming and extreme poverty is restricted to the narrow bottom-lines and cost-cutting strategies of big business rather than human compassion and reason. Private investors, who have the financial resources we believe we need to change course, refuse to pour their money into any venture from which they cannot gain short-term economic profits; this is true regardless of the potentially apocalyptic ramifications later down the road.

The alternative is to work toward a new cooperative economic model where production is motivated by the drive for scientific discovery and compassion for both other human beings and the natural environment. When the conventional economists say economic recovery ,we should demand economic transformation, and remind them of the creative destruction the last 30 years of "growth" brought us. Future generations will judge us with outrage if we do not.

A Pro-Poor Approach to Reducing Carbon Emissions

This post is one in a series of debates between myself and Alexander Hurst of the Hurst Critique. http://www.hurstcritique.com/ In this first post I explain that while carbon emission cuts in the long-term are necessary, developing countries should be prioritizing poverty eradication and sustainable economic growth with their public investment dollars.

Environmentalists and political commentators in the US recently went into a tizzy when India’s Environment Minister, Jairam Ramesh, told the United States’ Secretary of State, Hillary Clinton, that he refused to submit to pressure from the U.S. to lower carbon emissions.The United States is among a host of other rich countries that want to see a coordinated strategy to cut global greenhouse gasses that are contributing to the un-natural warming of our planet. India, like China believes that any significant reduction would impede their attempts at high-speed economic growth---a necessary aspect of poverty eradication.

Of course there is indisputable evidence that global warming is a threat to all countries rich or poor, but scientists agree that the impact of climate change will not be shared equally among actors. Poorer developing countries will bare the larger brunt of a warming process that was almost exclusively generated by pollution in richer nations over the last 200 years. It is unrealistic for industrialized countries to expect poor nations to commit to excessively broad carbon emissions reduction proposals. In this part of the world it is poverty eradication, not an impending environmental catastrophe that is the spending priority for governments.

Global Poverty is the Planets Greatest Catastrophe

The future catastrophic effects of global warming have gotten prime time coverage in the western press, and rightly so. Even though there remain a few skeptics on the lunatic fringes, the majority of political actors in the US, Europe, Japan and Australia accept the consensus of scientists that an epic environmental crisis lies ahead.

There is however, a tinge of euro-centrism among many environmental advocates and politicians that is troubling. There is virtually no political action or debate about the silent killers of poverty, hunger, and disease that kill millions of people right now, (not some uknown date in the distant future). The massive amount of death taking place in the poorest regions of the planet are lucky to gain any public audience in the dominant media.

• 25,000 children die every day around the world.
• 10.6 million died in 2003 before they reached the age of 5 (same as children population in France, Germany, Greece and Italy)
• 2.2 million children die each year because they are not immunized
• 1.4 million die each year from lack of access to safe drinking water and adequate sanitation
• Each year, more than 8 million people around the world die because they are too poor to stay alive.
• Every year there are 350–500 million cases of malaria, with 1 million fatalities: Africa accounts for 90 percent of malarial deaths and African children account for over 80 percent of malaria victims worldwide.
• Some 1.1 billion people in developing countries have inadequate access to water, and 2.6 billion lack basic sanitation. (source)
  

These are just a few statics that underscore the catastrophic effects of global poverty around the world. What these numbers do not highlight however is that it was the rapid economic growth of the United States and Europe over the last two centuries that contributed to massive improvements of social services and living standards. For example the life expectancy of a US male at the beginning of the 20th century was 48 years old. By the end of the century, that number had increased to 74.

Even given that it was done through destructive fossil fuels, Sustainable economic growth and poverty reduction in richer nations saved millions of lives over the last century. This same trend is taking place in emerging countries today. Public resources should be used to continue this progress and sustain it by reducing dependence on fossil fuels responsibly and in phases. More on this later on.

Global Poverty Worsens the Impact of Climate Change

Keep in mind that scientists agree that even if we were to act today to curb carbon emissions, the damage we have done so far is already irreversible. Developing countries are suffering the effects of climate change including increasing cases of drought, water scarcity, desertification and flooding right now. Poverty leaves millions of people vulnerable to these changes and they are more likely to see their livelihoods threatened by the effects. The political, and social turmoil caused by these environmental shocks could destabilize entire countries or significant regions. Global warming has increased the costs of being poor like never before and now for countries like India, lifting people out of poverty is vital to protecting them from its impacts. The spending priorities in developing countries must work toward containing the human suffering caused by climate change using public resources to reduce poverty and protect poor families particularly in rural areas.

Research and Development Takes Time

Today, there are thousands of new technologies being developed which would replace the carbon emitters we rely on. However, these replacements are far from being capable of supplanting current energy technologies. Countries like India and China are making key investments in alternative sources of energy that will allow them to continue reducing poverty over the long-term including solar, hydro, nuclear, and wind. But like in the United States this process will take time and money, both of which put poor developing countries at a disadvantage. Developing countries face a host of financial constraints that mean that they must use the public resources that they do have wisely. While research and development is essential, a responsible strategy to sustain poverty reduction and growth while phasing out carbon emitters is more viable. This was one of the major concerns of the Indian government in consultations with the US.

A Pro-Poor Strategy to Fight Global Warming

There are good intentions why the US would like to see developing countries commit to a broad declaration in support of carbon reductions over a period of decades. If developing countries follow the same path as the western world and Japan, we would need several additional planet earths to contain all of the waste. However, there are a series of challenges facing poor countries today that absolutely cannot be put off---these include the effects of western generated climate changes. The most important question in my opinion is where the governments in developing countries can get the highest-value return for their public investment dollars? The US would be wise to assist developing countries in reaching those spending priorities to free up resources in places like India, China or South Africa to phase out dirty energy altogether. As cleaner technologies and capabilities emerge, poorer countries are likely to make the switch---Brazil and China have already become leaders in the field of alternative energy. What we do know for sure, is that millions of people will die in the years to come if we do nothing to reverse the scourge of global poverty in the world. But don't count on the dominant media or the politicians to admit it.

Why is Obama Recycling Africa's "Good Governance" Myth?

I was originally excited to watch President Obama's first speech in sub-Saharan Africa but after a few sentences of the written transcript I realized any hope of equal partnerships between the administration and African governments on development issues is highly unlikely. In addition to many others, one particular passage caught my eye and I think it summarizes the general attitude and tone of his message. Speaking in regards to his brand of "transformational change" in Africa he commented,

"This progress may lack the drama of 20th century liberation struggles, but make no mistake: It will ultimately be more significant. For just as it is important to emerge from the control of other nations, it is even more important to build one's own nation...This is a new moment of great promise. Only this time, we've learned that it will not be giants like Nkrumah and Kenyatta who will determine Africa's future. Instead, it will be you — the men and women in Ghana's parliament — the people you represent."

Obama's speech to the Ghanaian parliament was clearly designed to counter the growing influence of Chinese investment in Africa via defining America's leadership role in the continent as a mentor for its allied countries around the concept of "good governance". There are several issues surrounding the use of the ambiguous term "good governance", as often thrown around by western governments and NGO's (Tanzanian scholar Issa G. Shivji gives one of the most damaging critiques of the paternalism lying underneath the phrase here) but the elusive definition of the phrase is not the focus of this post.

President Obama's insistence on "good governance" and persistent criticisms of "strongmen" in Africa was sadly misplaced. The reality is sustainable economic growth in the continent is actually stymied by weak leadership, not the inverse. Historical weaknesses of African leadership (and institutions) is one of the lasting legacies of European colonialism in the continent. As discussed in a paper sponsored by the World Bank Commission on Growth and Development, it is the lack of effective, consistent, and visionary leadership in Africa that prevents it from moving beyond its current state in the political economy. Author Benjamin Mkapa laments the political and economic reality that African leaders have often lacked preparation, and financial resources to bring their visions to life, leaving governments weak and incapable of responding to crises.

"I believe that Africa’s trajectory of development would have been very different
and much more positive had the departing colonial powers behaved differently,
including treating Africans with greater respect; helping them to train and build
capacity of independence leaders and administrators; helping to build strong
institutions to deal with the challenges that the new countries faced rather than
trying to perpetuate institutions intended to promote, sustain, and defend
Western economic and political interests; and giving the new governments space
and the wherewithal to realize the vision and dreams they had for their newly
independent countries."

Mkapa also lists 10 issues he believes are essential for leadership in Africa "if the continent is to make greater headway in growth, development, and poverty reduction". There are even some lessons that can be learned from some of Africa's emergent post-colonial leaders like Julius Nyere of Tanzania.

President Obama was quite dismissive of the fact that the colonial legacy in Africa is in fact enduring, as newly independent countries like Ghana inherited the political and economic institutions of their former colonizers. For all of their faults, former leaders like Kwame Nkrumah and Julius Nyere can not be blamed for Africa's lack of growth and poverty reduction today--nor for that matter even corrupt autocrats in 2009.

As in any other continent, democracy is an important goal for every African government to ascribe. However, the rhetoric about democratic governance in Africa overlooks the fact that many of the most authoritarian regimes around the world today post the highest growth- rates and have been more effective in eradicating poverty than so called democratic ones i.e. China. Maybe objective observers should be less concerned about whether they are "good" in some abstract normative sense, so much as they are effective. If the Obama administration's foreign policy resembles anything close to the lecture he gave the government of Ghana you can expect to see more of this.

Preventing Jobless "Prosperity" in the American Mid-West

American Mid-West Dreams of Prosperity

As policy-makers throughout the mid-western United States look to rebound from decades of capital flight and de-industrialization, prosperity is the mantra of the day. Propserity is a new policy buzz word, which apparently means more tax revenues for government expenditures, and reversal of the population decline in many dying former industrial centers. The hope is that a series of economic reforms can attract Fortune 500 companies back into the region. Last week's infamous flight of NCR from Dayton, Ohio underscores the trend of major companies leaving the mid-west region to cut costs, taking thousands of jobs along with them. With capital flight has come a sustained cycle of joblessness, and it's correlating effects on economic security.

There is a growing consensus in policy debates that the future of economic growth in the region must refocus on former industrial cities like Dayton, Ohio. State governments are looking to spend unprecedented amounts of federal money to stimulate their economies through productivity growth. The logic holds that high-speed economic growth will benefit everyone and attract talented and skilled workers from other areas.

The percentage of productivity growth each year, has become an ever more important indicator for policy-makers during the current recession. But does greater productivity growth necessarily mean more equal opportunity for everyone? And to what ends are policy-makers willing to go to attract Fortune 500 companies into their districts?

Capital or Labor Intensive Industries

For the record, economic growth does not necessarily equal more jobs. The likelihood of more economic growth equaling greater economic opportunity and decent work for current or future residents depends largely on what kinds of industries come into the mid-western cities; capital or labor intensive.

Investopedia, a digital company of Forbes magazine defines a capital intensive industry as

A business process or an industry that requires large amounts of money and other financial resources to produce a good or service. A business is considered capital intensive based on the ratio of the capital required to the amount of labor that is required.

The opposite of capital intensive industries are labor intensive industries which are defined by the same source as

A process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods/services; the higher the proportion of labor costs required, the more labor intensive the business.

Intuitively, the more labor intensive the industry, the more jobs created. But there are profitable reasons in the short-term for why Fortune 500 companies would choose to invest in a more capital intensive industry. Less workers mean fewer costs, and labor replacing technologies won't demand a living wage, a pension, or healthcare insurance for a family of four---a human being will.

Getting Growth Right

The strategy of many Fortune 500 companies is to increase the ratio of capital to labor, thereby avoiding the burden of paying labor costs. Policy-makers who care anything about creating pathways out of poverty for the poor and decent work for middle-class families should be doing the exact opposite, increase the ratio of labor to capital. The increasingly narrow bottom-lines of Fortune 500 companies, are not the same as those of public servants---or at least they shouldn't be.

The point is that policy-makers should be debating about what kinds of industries they want in their communities rather than competing for individual companies. A piecemeal approach to economic growth and prosperity will leave mid-western states weak and vulnerable to a few short-term bottom-lines; capital flows can easily reverse direction. Through responsible regional and state industrial policy, mid-western policy-makers can attract and sustain the kind of economic growth that will bring decent jobs and opportunity for all.

Admittedly, pulling this task off is easier said than done, but the first step is realizing the current approach is doomed to fail. A real economic growth strategy should be a job creation strategy first.