Monday, June 27, 2016

Are we travelling on a sustainable development path?

Global development as a universal objective to improve people’s social and economic wellbeing is a relatively recent concept.

It was first embodied in the United Nations Charter, signed in San Francisco 71 years ago this week, which stated: “the United Nations shall promote higher standards of living, full employment, and conditions of economic and social progress and development.” In time, at least among practicing economists in academia and policymakers in government, “development” came to be seen as improved economic opportunity through the accumulation of capital and rising productivity.

The implicit assumption here was that economic growth would lead to rising living standards, increases in life expectancy, reduced mortality, and a reduction in the incidence of poverty.

And so, between 1950 and 2014, as world GDP per capita expanded at an annual average rate of 2.1 percent, this trend was associated with a remarkable evolution in three key indicators of human welfare. In the half-century between 1960 and 2014, infant mortality fell from 121 to 34 per 1000 live births; average life expectancy at birth rose from 52 to 71 years, a 36 percent increase which is nothing short of spectacular; and adult illiteracy fell from 53 to 16 percent. Equally impressive was the sharp drop in the incidence of poverty: data show that between 1990 and 2015 the number of people living in extreme poverty fell from about 2 billion to slightly over 700 million.

In parallel to the encouraging trends in development, a growing number of economists and scientists began to ask if the processes and policies underlying our development path were sustainable. Among environmentalists, in particular, the focus has been on climate change, biodiversity loss and pollution. That the earth has self-correcting mechanisms, that the physical processes underpinning changes in the environment have huge inertia, has not hidden the growing consensus in the scientific community that current trends are not sustainable.

Let me suggest several examples: global carbon dioxide emissions from fossil fuels have sharply accelerated over the last several decades, reflecting a quickening in the pace of growth of the global economy, a sharp rise in energy consumption in China and the weakening of natural carbon sinks, such as forests and seas. Not surprisingly, large volumes of the Arctic ice have melted along with parts of the Greenland glaciers contributing to a rise in sea levels. Satellite observations of the Arctic ice cap show a significant reduction in the ice cover, with a record reduction in 2012 to less than half the area typically occupied four decades ago. In 1996, the volume of ice melted in Greenland was 92 cubic kilometres. By 2005, this figure had risen to 221 cubic kilometres and the latest figures show 373 cubic kilometres per year.

Even when world economic growth came to a halt in 2009 because of the global financial crisis, these perturbing trends were not reversed, as world economic growth quickly resumed. But even beyond purely environmental concerns, there are other forces at work which are already having a major impact on our system’s institutional underpinnings, and which have been at the center of the progress achieved during the past half century. Key among these are population growth and the corresponding pressures on resources. According to the International Energy Agency, energy demand will grow by a third by 2035, reflecting the addition of some 2 billion people to the world's population and the corresponding needs for housing, transportation, heating, illumination, food production, waste disposal, and the push for sustained increases in the standards of living. Because the mothers that will bear these 2 billion children are already alive today, this expected increase in the world’s population—barring some unexpected calamity—will materialize and will be largely concentrated in urban environments in developing countries.

Beyond the inevitable pressures on resources, rapid population growth in the next couple of decades will lead to a broad range of challenges for governments, businesses, and civil society. For instance, in the Middle East and North Africa, high fertility rates and the highest rates of population growth in the world will put enormous strains on labor markets. These countries already suffer from the highest rates of unemployment in the world.  Simply to prevent these rates from rising further it will be necessary to create well over 100 million new jobs within the next decade and a half, an extremely tall order. The failure to do so has already led to political and social instability in the region. In sharp contrast, the populations of countries such as Italy, Russia, Japan, and others in the industrial world will continue to shrink, a demographic trend which, in turn, will put huge pressures on public finances.

Powerful demonstration effects are also at work: the spread of instant communication and the Internet have led billions of people in China, India, Latin America, and other parts of the developing world to aspire to lifestyles and patterns of consumption similar to those prevailing in the industrial world. Furthermore, these populations are often unwilling to postpone such aspirations and increasingly expect their governments to deliver rising levels of prosperity, implicitly pushing for a more equitable distribution of the world’s resources.

As if these demand pressures were not enough, there are emerging supply constraints as well. World cereal production per person has been on a downward trend since the late 1980s. It is estimated that by 2025 the number of people living in regions with absolute water scarcity will have risen to some 1.8 billion. Climate change, soil erosion, and overfishing are expected to dampen food production and will put upward pressures on food prices.

As a result, the fundamental development question which we now face is how to reconcile the legitimate aspirations of citizens in developing countries to recreate for themselves the high living standards that they see in the developed world, with all the challenges of an economic system and a global environment under severe stress as a result of the pressures put on it by the meteoric economic growth of the post-war years?

In my next blog, I will explore some practical answers to this fundamental question of whether we can sustain our current development pathway.