Restructuring development and growth for greater sustainability
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A wide range of recent ideas on long-term growth and sustainable development was introduced earlier in "Prospects and status of millennium development goals". The same theme is pursued further in this section, with a focus on restructuring to make development more sustainable. Growth is a major objective of almost all developing countries – especially the poorest ones. This promise cannot be fulfilled unless economic growth is sustained into the long term. The developing countries need to ensure that their endowments of natural resources are not taken for granted and squandered. If valuable resources such as air, forests, soil, and water are not protected, development is unlikely to be sustainable – not just for a few years, but for many decades. Furthermore, on the social side, it is imperative to reduce poverty, create employment, improve human skills and strengthen institutions.
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Harmonizing development with nature
Next, let us examine the alternative growth paths available, and the role of sustainomics principles in choosing options. Lovelock made a pioneering contribution with his Gaia hypothesis [1]. He proposed that the totality of life on Earth might be considered an integrated web which works together to create a favorable environment for survival. As a corollary, unregulated expansion of human activity might threaten the natural balance. In this spirit, Figure 2.3(a) shows how the socioeconomic subsystem or “anthroposphere” (solid rectangle) has always been embedded within a broader biogeophysical system or “biogeosphere” (large oval). National economies are inextricably linked to, and dependent on natural resources – since everyday goods and services are in fact derived from animate and inanimate resources that originate from the larger biogeosphere. We extract oil from the ground and timber from trees, and we freely use water and air. At the same time, such activities have continued to expel polluting waste into the environment, quite liberally. The broken line in Figure 2.3(a) symbolically shows that in many cases, the scale of human activity in the anthroposphere has increased to the point where it is now impinging on the underlying biogeophysical system (Chapter 3 (Restructuring development and growth for greater sustainability)). This is evident today, if we consider that forests are disappearing, water resources are being polluted, soils are being degraded, and even the global atmosphere is under threat. Consequently, the critical question involves how human society might contain or manage this problem of scale?
One traditional view that has caused confusion among leaders around the world is the assumption that concern for the environment is not necessarily good for economic activity. Thus, until recently the conventional wisdom held that it was not possible to have economic growth and a good environment at the same time, because they were mutually incompatible goals. However, the more modern viewpoint (embodied also in sustainomics), indicates that growth and environment are indeed complements. One key underlying assumption is that it is often possible to devise so-called ‘win-win’ policies, which lead to economic as well as environmental gains [2]. As illustrated earlier in Figure 2.3(a), the traditional approach to development would certainly lead to a situation where the economic system would impinge upon the boundaries of the ecosystem in a harmful manner. On the other hand, Figure 2.3(b) summarizes the modern approach that would allow us to have the same level of prosperity without severely damaging the environment. In this case, the oval outer curve is matched by an oval inner curve – where economic activities have been restructured in a way that is more harmonious with the ecosystem.
Changing the structure of growth
Another way of depicting the importance of changing the structure of development and growth is illustrated in Figure 2.4, which shows how environmental risk in a country (e.g., represented by greenhouse gas (GHG) emissions per capita) might vary with its level of development (e.g., measured by gross national product (GNP) per capita). One would expect carbon emissions to rise more rapidly during the early stages of development (along AB), and begin to level off only when per capita incomes are higher (along BC).
A typical developing country may be at a point such as B on the curve, and an industrialized nation at C. Ideally, industrial countries (exceeding safe limits) should increase environmental protection efforts and follow the future growth path CE. Munasinghe proposed the idea of developing countries adopting policies to “tunnel” through (along BDE), by learning from past experiences of the industrialized world – the tunnel would lie below the safe limit where environmental damage (like climate change or biodiversity loss) could become irreversible [3].
Such a tunnel also corresponds to a more economically optimal path, and resembles “turnpike” growth paths which appeared in past literature [4]. The highly peaked path ABCE could result from economic imperfections that make private decisions deviate from socially optimal ones. Corrective policies would help to reduce such divergences and permit movement through the tunnel BDE. Developing countries could thereby avoid severe environmental degradation along conventional development paths of industrial economies (ABCE). This approach is not concerned with the related issue of the existence of the so-called environmental Kuznets curve (EKC) for any single country or group of nations. Instead, “tunneling” focuses on identifying policies to delink environmental degradation and economic growth [5].
There are several ways to find such a policy “tunnel”:
- Actively seek ‘win-win’ policies that simultaneously yield both economically and environmentally (and socially) sustainable paths.
- Use complementary policies. Growth inducing economy-wide policies could combine with imperfections in the economy to cause environmental and social harm. Rather than halting economic growth, complementary measures may be used to remove such imperfections and thereby prevent excessive environmental and social harm. Such measures include, ex-ante environmental (and social) assessment of projects and policies, introducing remedies that eliminate imperfections (like policy distortions, market failures and institutional constraints), and strengthening capacity for environmental and social protection.
- Consider the fine-tuning of growth inducing economy-wide policies (e.g., altering their timing and sequencing), especially where severe environmental and social damage could occur.
It would be fruitful to encourage a more proactive approach whereby the developing countries could learn from the past experiences of the industrialized world – by adopting sustainable development strategies and climate change measures which would enable them to follow development paths such as BDE, as shown in the figure [6]. Thus, the emphasis is on identifying policies that will help delink carbon emissions and growth, with the curve in Figure 2.4 serving mainly as a useful metaphor or organizing framework for policy analysis.
This representation also illustrates the complementarity of the optimal and durable approaches discussed earlier. It has been shown that the higher path ABC in the figure, could be caused by economic imperfections which make private decisions deviate from socially optimal ones [7]. Thus the adoption of corrective policies that reduce such divergences from optimality and thereby reduce GHG emissions per unit of output, would facilitate movement along the lower path ABD. Concurrently, the durability viewpoint also suggests that flattening the peak of environmental damage (at C) would be especially desirable to avoid exceeding the safe limit or threshold representing dangerous accumulations of GHGs (shaded area in the figure).
Several authors have econometrically estimated the relationship between GHG emissions and per capita income using cross-country data and found curves with varying shapes and turning points [8]. One reported outcome is an inverted U-shape (called the environmental Kuznets curve or EKC) – like the curve ABCE in the figure. In this case, the path BDE (both more socially optimal and durable) could be viewed as a sustainable development ‘tunnel’ through the EKC [9].
In the above context, it would be fruitful to seek specific interventions that might help to make the crucial change in mindset, where the emphasis would be on the structure of development, rather than the magnitude of growth (conventionally measured). Policies that promote environmentally- and socially-friendly technologies, which use natural resource inputs more frugally and efficiently, reduce polluting emissions, and facilitate public participation in decision making, are important. One example is the information technology (IT) revolution, which might facilitate desirable restructuring from an environmental perspective, by making modern economies more services oriented, and shifting activities away from highly polluting and material-intensive types of manufacturing and extractive industries [10]. If properly managed, IT could also make development more socially sustainable, by improving access to information, increasing public participation in decision making, and empowering disadvantaged groups. The correct blend of market forces and regulatory safeguards are required.
Long term growth and sustainable development
We conclude the chapter with some recent ideas about growth and development. The three dimensions of the sustainable development triangle, are reflected in contemporary thinking on the fundamental determinants of the developmental status of countries. Some researchers have emphasized the economic engine of trade as the main driver of growth and development [11]. Others feel that natural environment, climate and location represented broadly by geography and resource endowments are the dominant influences that explain the difference between development and stagnation [12]. Finally, a third argument has been advanced that social forces are important in explaining wide income variations between rich and poor countries. They emphasize the role of institutions – i.e., how explicit and implicit behavioral norms govern social conduct, and ultimately determines economic behavior [13]. A more integrated viewpoint is provided by the concept of long-term co-evolution of socio-economic and ecological systems within a more complex adaptive system. Munasinghe, Sunkel and de Miguel provide a wide range of current ideas on the complex links between long-term growth and sustainable development, by leading researchers in the world [14].
Growth and sustainability
Opschoor explores the negative relationships between economic growth and environmental sustainability, while proposing institutional and moral reforms to promote sustainable development [15]. Norgaard illustrates some basic problems with rapid growth, discusses some myths concerning economic growth, and finally outlines an agenda based on ecological economics to go beyond growth and globalization [16]. Hinterberger and Luks deal with competitiveness (economic development), employment (social development), and dematerialization (environmental sustainability) in a rapidly globalizing world [17]. A fourth ‘corner’ is added to the sustainable development triangle (institutions – which was embedded within the social dimension in Figure 2.1) – forming a pyramid. Ocampo advocates consolidation of strong institutions for sustainable development in Latin America and the Caribbean, and argues that price reforms are less effective than technical change [18].
General analytical frameworks
Daly shows how traditional marginal analysis in microeconomics, which fails to internalize environmental and social externalities, will lead to overestimation of macroeconomic gross national product (GNP) [19]. Globalization is pushed by powerful transnational corporations to weaken the nation state, leading to uneconomic growth, increased population, greater inequality, increased unemployment and environmental harm. Sachs seeks to integrate development (economic), human rights (social) and environment [20]. He disputes the usefulness of valuing [[ecosystem]s], since it may promote unbalanced agreements on intellectual property rights, and the unsustainable privatization of all natural capital and ecosystem services. Because ecological economics addresses social issues inadequately, a new discipline is proposed, along the lines of sustainomics. Naredo argues that even recent valuation methods such as the pollution analysis, life-cycle analysis and the new System of National Accounts (SNA) are inadequate for sustainable development, because they mainly incorporate the monetary values but not the underlying physical information [21]. He proposes a complementary approach that would allow more accurate calculations of the physical cost of recovering mineral resources from the Earth’s crust.
Modeling applications
Kadekodi and Agarwal show that the shape of the Environmental Kuznets Curve (EKC) depends upon the capital intensity of the energy-based natural resource-using sectors, during the process of economic development [22] (see "Restructuring development and growth for greater sustainability"). Factor price changes that favor labor-intensive goods will affect the shape of the curve. Tsigas et al. use a modified global, applied general equilibrium model to suggest that trade liberalization in the Western Hemisphere coupled with harmonization of environmental policy will benefit all countries, although environmental quality may decline in Mexico and Brazil [23]. Batabyal et al. explain how developing countries (DCs) have attempted to improve their balance of payment positions and develop manufacturing industries, by actively following a policy of encouraging import-substituting industrialization [24]. Brazil, Mexico, Pakistan and the Philippines have used the infant industry argument to apply trade policies that systematically protect the manufacturing sectors. Baer and Templet use the Greenhouse Limitation Equity Assessment Model (GLEAM) to analyze global climate mitigation policies [25]. They conclude that per capita allocations of greenhouse gas emissions permits produce the greatest average welfare levels – with feasible emission scenarios that stabilize carbon dioxide (CO2) at less than twice pre-industrial levels. Hansen compares the merits of five different methods for estimating the capital consumption of non-renewable resource rents, and shows how the discount rate, depletion period, and depletion path influence the outcome [26]. Neumayer criticizes the World Bank “genuine savings” method, which appears to show that many Sub-Saharan, North African, Middle Eastern and other countries have failed to pass the test of weak sustainability [27] (see "Economic, social, and environmental elements of development"). These results are reversed if the alternative El Serafy method is used, with a relatively low discount rate of 4 percent. The genuine savings concept is unreliable because it depends on a dynamic optimization framework, whereas most economies develop along non-optimal paths.
Notes (Restructuring development and growth for greater sustainability)
Further Reading
- Munasinghe, M. 1995a. ‘Making growth more sustainable’, Ecological Economics, Vol. 15, pp.121–4.
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