The global economic crisis will be with us for a generation, not just a year or two, because it is really a transition to sustainability. The scarcity of primary commodities and damage from climate change in recent years contributed to the destabilization of the world economy that gave rise to the current crisis. Soaring food and fuel prices and major natural disasters played an important role in undermining financial markets, household purchasing power and even political stability.
Viewed in this way, an essential policy that developed and developing countries should pursue in overcoming the crisis is to build infrastructure suitable for the 21st century. This includes an efficient electricity grid fed by renewable energy; fiber and wireless networks that carry telephony and broadband Internet; water, irrigation and sewerage systems that efficiently use and recycle fresh water; urban and inter-city public transit systems; safer highways; and networks of protected natural areas that conserve biodiversity and the habitats of threatened species.
These investments are needed in the short term to offset the decline in worldwide consumption spending that underlies the global recession. More importantly, they are needed in the long term because a world crowded with 6.8 billion people (and rising) simply cannot sustain economic growth unless it adopts sustainable technologies that economize on scarce natural resources.
In practice, the global crisis means that sustainable investments are being curtailed rather than expanded in the developing world. As access to international bank loans, bond flotations and foreign direct investment is lost, infrastructure projects talked about in the past are now being shelved, threatening the political and economic stability of dozens of developing countries.
In fact, every part of the world has a huge backlog of vital infrastructure investments. It is time for a concerted global effort to bring those projects online. This is not easy to do. Most infrastructure investment requires public-sector leadership to forge partnerships with the private sector. Typically, the public sector must enter into contractual agreements with private firms not only to build the infrastructure, but also to operate it as a regulated monopoly or on a concession basis.
Governments generally lack the needed technical capacity to design such projects, opening up possibilities of favoritism and corruption when major contracts are awarded. Such charges are likely to be hurled at governments even when they are not true, though all too often they are.
Still, the backlog of such projects is now wreaking havoc with the world economy. The world’s major cities are clogged with traffic jams and pollution. The atmosphere is filling with greenhouse gases from heavy use of fossil fuels. Water scarcity is hitting virtually every major economic center, from North America to Europe, Africa, India and China.
Governments should thus strengthen their ministries of infrastructure (including power, roads, water and sanitation, and information and communication technologies), as well as their national development banks, so that they can properly design long-term infrastructure projects and programs. The ability to offset the crisis in a constructive manner through expanded public-private partnerships will determine the subsequent success of countries and regions. Interestingly, the US is about to create a National Infrastructure Bank for the first time.
Nevertheless, US and European economic advisers generally believe that a short, sharp stimulus will be enough to restore economic growth. This is wrong. What will be needed is an overhaul of the world economy toward sustainability.
Moreover, policymakers in the rich world believe that they can continue to neglect the developing world, or leave it to its fate in global markets. This is also a recipe for global failure, and even future conflict. Developed countries will have to do far more to help poor countries through the transition to sustainability. Whereas most of the “stimulus” legislation to date has been short-term and inward-looking, increased funding for sustainable infrastructure in poor countries would provide a powerful boost to rich-world economies.
Developed countries should agree to channel considerable savings to developing countries to finance the scale-up of sustainable investments. This can be done directly on a bilateral basis, for example, through long-term loans from developed countries’ export-credit agencies. It can also be done multilaterally by raising infrastructure investment flows from the World Bank and the regional development banks (including the Inter-American Development Bank, the European Investment Bank, the African Development Bank and the Asian Development Bank). Both channels should be used.
Developed countries also fail to recognize that without much greater financing of sustainable infrastructure in the developing world — especially sustainable power generation and transmission — a global agreement on climate change later this year, or any time soon, will be impossible. The rich world expects poor countries to restrict use of fossil fuels without any significant help in financing new and sustainable sources of energy. In almost all of the rich-country proposals about targets, limits, commitments and permits for greenhouse gases, there is hardly a word about helping poor countries to finance the transition to sustainable technologies.
The G-20 meeting in London next Thursday offers hope for a true global effort to repair the failing world economy. This is the time and place to launch the global drive toward sustainability. If we fail to meet the challenge, the global crisis will endanger the world for years to come.
Jeffrey D. Sachs is professor of economics and director of the Earth Institute at Columbia University.
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