The Economic Model is Defunct: We Need to Ditch It
by Andrew Simms in The Guardian
by Andrew Simms in The Guardian
What is development? To many conventional economists it has been China, though not without irony. Its export-led development model and advantage in all economic sectors created its superpower status, and left it accounting for the vast majority of those lifted out of extre.me poverty globally.
But there’s a problem with the model. “Beijing is not a liveable city,” said the city’s mayor, Wang Anshun, recently. The price of rapid industrialisation and urbanisation has been pollution: air not fit to breathe, and visitor numbers declining – a sort of anti-development. It’s a crisis echoed in India where recent research estimated pollution caused the collective loss of 2.1bn life years.
Knowing it has a problem, India announced a plan to double coal taxes to pay for clean, renewable energy alternatives. In China premier Li Keqiang announced a lower economic growth target, a much harder line on environmental safeguardsand a reduced dependence on energy intensive manufacturing for export. China plans to reduce energy use per unit of GDP by 3.1% in 2015 and has a longer-term ambition for the middle of the century to cap coal use at half of total energy consumption.
But lower growth still means growth at 7%. At that rate, the Chinese economy, already the world’s second largest, will double in size in 10 years. To underline an obvious but often overlooked fact, in terms of climate change, it doesn’t matter how much you improve the energy intensity of your economy if the economy itself grows by a higher factor. Emissions still rise. This is the current picture globally.
Relative efficiency improvements by some nations, such as the UK can also flatter to deceive, because they don’t account for how economies that become more service-driven tend to export their emissions along with their manufacturing.China is relatively resource poor. To fuel its extraordinary growth and exports, since the early 1970s it has needed more natural resources than its own ecosystems can provide.
Per person, China’s ecological footprint is more than double what its own land, fisheries and forests can provide.Carbon emissions are a big part of that footprint too, even though a significant proportion are accounted for by producing goods ultimately consumed elsewhere. And here’s the challenge. Tens of millions in China still live below the absolute poverty line of $1.25 a day, and the nation has relied on a model of export-led resource intensive development to tackle that. Something which itself relies on a model of the world’s existing wealthy and over-consuming people buying still more of their exports.
That, in turn, puts more pressure on the land and forests of Africa, other parts of Asia and Latin America, as China scours the world for resources. Take China out of the global poverty reduction equation, however, and you’re left with substantially less progress. Now, the costs of China’s approach, both at home and abroad, are forcing a rethink. But the whole world is part of the model pointing to the need for systemic change.
Later this year the world will agree to a new set of global goals on sustainable development to replace the millennium development goals (MDGs).
Among many other goals these will include commitments to end poverty in all its forms everywhere, prevent dangerous climate change, and to promote sustained and sustainable economic growth. But, with the current economic models, are these goals remotely compatible? A new paper in the journal World Economic Review shows the global economy on a wildly unequal trajectory that makes this not just unlikely, but absurd. Updating and further developing our joint research of 2006, David Woodward reveals how the share of the world’s poorest in economic growth shrank over three decades from 1980.
Those living below $1.25 and $2 per day have been getting an ever smaller slice of a growing cake. That means, paradoxically, the world’s already wealthy must consume disproportionately more to raise the incomes of the poorest.
As a result, ending poverty under the current model is slow, inefficient and runs into practical, planetary problems. The scale of the global economy is already pushing us into ecological overshoot.
Woodward calculates that because of the gap between rich and poor, on current trends, to get everyone in the world to at least the fairly miserable, $1.25 per day absolute poverty line, would still take another 100 years. It would also require a global economy about 10 times the size of the overburdening one we have already. Worldwide, average per capita income would need to be $100,000.
For meaningful progress – getting everyone on to $5 per day, which is more in keeping with meeting basic needs – would take two centuries and require GDP per person of $1m. It’s why Woodward called his paper ‘Incrementum ad Absurdum,’and why he comments, understatedly, “We cannot realistically hope to achieve this through existing instruments of development policy.”
To assume such a course of action is viable requires both magical thinking and being in denial about how the economy is still allowed to operate. Just last month alone the boss of oil company BP took a 25% pay rise while company salaries werefrozen, and the chief of Barclays bank took £5.5m in pay while the bank was in the process of cutting 19,000 jobs. Economic decisions ranging from airport expansion to tropical deforestation are justified for their contribution to development – however self-serving on the part of the developer.
But it is becoming fashionable to argue that the climate debate should not be loaded with the broader ambitions of progressive politics, to get a better deal for the poor and the marginalised. But what if these two issues are genuinely hard-wired? The world is signing-up to end all poverty. The physics of planetary boundaries means in global aggregate terms we need to consume less. So, to stay the right side of environmental thresholds, a radical shift in distribution to favour the poorest becomes the only way to reconcile the twin challenges of halting catastrophic climatic upheaval and ‘ending poverty’.
While the citizens of New Delhi and Beijing choke through smogs to get to work each day, we now have to peer through the veils of defunct development models to find a different, better collective future.