Markets and capitalist incentives have great strengths in promoting economic efficiency, growth and innovation; and, as Ben Friedman of Harvard University argued persuasively in his 2006 book The Moral Consequences of Growth, economic growth is good for open and democratic societies. However, markets and capitalist incentives have clear weaknesses in ensuring stability, equity and sustainability, which can adversely affect political and social cohesion.
Obviously, abandoning market-capitalist systems, and implicitly growth, is not really an option. Collectively, we have little choice but to try to adapt the system to changing technological and global conditions in order to achieve stability, equity (in terms of opportunity and outcomes alike) and sustainability. Of these three imperatives, sustainability may be the most complex and challenging.
For many people, sustainability is associated with finite natural resources and the environment. The global economy will probably triple in size in the next quarter-century, largely owing to growth in developing countries as they catch up to developed-country incomes and adopt similar consumption patterns. Thus, there is a well-founded fear that the planet’s natural resources (broadly defined) and recuperative capacities will not withstand the pressure.
To some, this logic leads to the conclusion that growth is the problem, and that less growth is the solution. However, in developing countries, where only sustained growth can lift people out of poverty, limiting it cannot be the answer. The alternative is to change the growth model in order to lighten the impact of higher levels of economic activity on natural resources and the environment.
However, there is no existing alternative to which we can all switch. Changing the growth model means inventing a new one over time, step-by-step, from complementary parts. The two key ingredients seem to be education and values. Everyone, not just policymakers, needs to understand the consequences of our individual and collective choices. We need to be aware for example, that population growth and rising consumption levels have intergenerational consequences, and that how we conduct ourselves will affect the lifestyles and opportunities of our children and grandchildren.
Thus far, the quality of our choices has been unimpressive, reflecting little sensitivity to sustainability and the impact of our choices on future generations. As a result, many developed countries have built up dangerously large public debts and even larger non-debt liabilities, owing to unsustainable growth patterns.
Most of us, I believe, do not knowingly make choices that adversely affect future generations. So perhaps incomplete knowledge of the consequences of our choices is responsible. Moreover, an unfunded liability path, once taken, is hard to leave, because at the point of departure, some generation is paying for past commitments and at least beginning to fund future ones. That seems unfair, because it is.
Most people might agree that living beyond our means in the aggregate, via unfunded social services and insurance, or disproportionate use of resources, imposes a burden on our offspring. However, we might still fail to reach agreement on who should pay for funding these programs, or for reducing our consumption of resources. Too often, it is easier to deal with the distributional problem by shifting the burden to those who are not present and who are insufficiently represented by those who are.
Education and values are the foundation of sound individual and, ultimately, collective choices. Without them, the incentives and policies that economists rightly argue are needed to increase energy efficiency, limit carbon emissions, economize on water usage and much more will lack support and fail in the democratic decision-making process.
If sustainability is to triumph, it must be predominantly a bottom-up process. Environmentalists are right to focus on education and individual choices, even when their policy proposals are not always on target. Education and values will drive local innovation, alter lifestyles and shift social norms. They will also affect business behavior via choices by customers and employees, including business leaders. Thus, they are essential components of the formulas needed to pursue sustainable patterns of growth.
But, while education and values are necessary, they clearly are not sufficient. Complementary national policies and international agreements will require careful scientific and economic analysis and thoughtful choices. The need for burden-sharing, particularly between advanced and developing countries, will not magically disappear. Climate-change risks, though serious, should not be mistaken for the entire sustainability agenda.
There are clear steps that can be taken. Appropriate regulation and sufficiently long time horizons can make structures of all kinds much more energy-efficient, without imposing burdensome costs. In a similar way, transportation can become less energy-intensive without restricting mobility. Some of these shifts might be subject to international coordination, in order to avoid adverse competitive consequences, whether real or perceived.
However, too much coordination can be a bad thing. That is why climate-change negotiations are shifting from the misguided objective of seeking risky 50-year commitments to binding carbon-emissions targets to focusing on parallel, step-by-step processes, including higher energy efficiency, better urban planning, improved transportation systems and on learning as we go. Likewise, businesses and industries that are heavy water users will simply develop new technologies and thrive in the face of scarcity.
Progress has been helped by growing awareness in populous Asia — and in developing countries generally — that sustainability is the key to achieving their longer-term growth objectives. This perspective perhaps comes more naturally in an environment of rapid growth, because their growth models require continual review and adaptation to be sustainable.
Over time, values shift as knowledge is acquired and disseminated. Policies aimed at sustainability are likely to follow. What is unknown is whether we will reach that point fast enough to avoid major disruptions, or even potential conflict.
Michael Spence, a Nobel laureate in economics, is professor of economics at New York University’s Stern School of Business and a distinguished visiting fellow at the Council on Foreign Relations.
Copyright: Project Syndicate
Could Asia be on the verge of a new wave of nuclear proliferation? A look back at the early history of the North Atlantic Treaty Organization (NATO), which recently celebrated its 75th anniversary, illuminates some reasons for concern in the Indo-Pacific today. US Secretary of Defense Lloyd Austin recently described NATO as “the most powerful and successful alliance in history,” but the organization’s early years were not without challenges. At its inception, the signing of the North Atlantic Treaty marked a sea change in American strategic thinking. The United States had been intent on withdrawing from Europe in the years following
My wife and I spent the week in the interior of Taiwan where Shuyuan spent her childhood. In that town there is a street that functions as an open farmer’s market. Walk along that street, as Shuyuan did yesterday, and it is next to impossible to come home empty-handed. Some mangoes that looked vaguely like others we had seen around here ended up on our table. Shuyuan told how she had bought them from a little old farmer woman from the countryside who said the mangoes were from a very old tree she had on her property. The big surprise
The issue of China’s overcapacity has drawn greater global attention recently, with US Secretary of the Treasury Janet Yellen urging Beijing to address its excess production in key industries during her visit to China last week. Meanwhile in Brussels, European Commission President Ursula von der Leyen last week said that Europe must have a tough talk with China on its perceived overcapacity and unfair trade practices. The remarks by Yellen and Von der Leyen come as China’s economy is undergoing a painful transition. Beijing is trying to steer the world’s second-largest economy out of a COVID-19 slump, the property crisis and
As former president Ma Ying-jeou (馬英九) wrapped up his visit to the People’s Republic of China, he received his share of attention. Certainly, the trip must be seen within the full context of Ma’s life, that is, his eight-year presidency, the Sunflower movement and his failed Economic Cooperation Framework Agreement, as well as his eight years as Taipei mayor with its posturing, accusations of money laundering, and ups and downs. Through all that, basic questions stand out: “What drives Ma? What is his end game?” Having observed and commented on Ma for decades, it is all ironically reminiscent of former US president Harry