A WEEK IN ECONOMICS (03/09/13 – 02/09/13) SUSTAINING SUSTAINABLE DEVELOPMENT

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Week-in-Economics

Global warming is a topic that elicits strong emotions. The deniers vituperatively mock the horrified who worry that the current levels of global productivity is destroying the environment making the world less inhabitable for future generations. A report in the recent National Geographic provides a daunting picture of rising sea levels caused by melting glaciers. The author predicts that 136 large coastal cities will be submerged by the end of this century, with 40 million people at risk of displacement or death and $3 trillion assets at risk.

The deniers confidently argue that we are in-fact seeing a cooling of the environment: changes in temperature are to do with the earth’s natural changes rather than human intervention. For the climate change deniers, the millions in investment diverted to the green technology is inefficient and wasteful.

This debate is not going to be resolved any time soon given the uncertainties involved. For non-experts, their opinions will be less empirical, more emotional. Science can be right about many things; wrong on others so beliefs will sway.

For policy makers, allocating resources is an ongoing concern, and efficiency and optimality is imperative. While they may be non-experts, their decisions have to be as close to accurate and correct as is feasible. But in assessing information, lobbying can play a key role in persuasion. So in most developed countries, the climate change affirmers and deniers are pitted against each other in convincing government. Millions are spent to push forward their point of view.

But away from the intrigues of Capitol Hill or Westminster, and the correct opinion on global warming, a broader topic that should be considered is sustainability. Global warming is a problem due to increased resource extraction to cater for a growing world population. Undoubtedly, most of the resources are being funnelled to the developed countries. To provide the impoverished with the same standard of living, with affordable food, electricity, shelter, and luxuries, the world’s resources would be unable to sustain.

Rising energy and food costs along with sticky wages suggest that without a new way of transacting or thinking on economic relationships, the trickle-down effect of productivity will be limited. There will be an imbalance in development. Even sustainable development for emerging markets is proving to be detrimental to resource extraction.  A recent report by National Academy of Sciences shows that  three times as many raw materials are used to process and export traded goods than are used in their manufacture. This has far reaching consequence on other aspects of the environment such as forestry and water.

Climate change, if true, is a macro problem, which will have an effect on micro elements such as sea levels, scenic beauty, water quality (rising temperatures will affect the life of underwater creatures and fauna) pastures (rising temperatures mean less rain causing droughts), forestry, etc. However, these micro elements are already being affected by the level of resource extraction being conducted. This is undeniable.

Hence, sustainable development is growing in importance because the immediate consequences are far more evident and the deprivations are tragically stark. In an interconnected world, and the global collaboration needed for trade (for instance, a car built in Germany would need iron ore from China, plastic from France, rubber from US, etc), each entity in the process and the end consumption bares a responsibility in the way the world’s resources are being used.

The more resources extracted, the less resources for future generations. Rising oil prices, in part, reflect the growing scarcity of oil, although the USA is sitting on large reserves of shale gas, which would reduce US dependence on other countries. But at some point in time even shale gas will be in limited supply. The world cannot ignore future generations, just because it will not have impact in their own life time. Therefore, sustainability is profoundly important.

Today, sustainable development is a concern for scientists and innovators. Encouragingly, there are scientists, engineers and entrepreneurs along with established companies that are thinking and investing in these areas. For instance Coke has teamed up with Dean Kamen, inventor of the segway, to produce the Slingshot, a water purification machine that requires little energy to work. It is hoped the machine will be distributed to rural, impoverished areas, where water supplies have been spoiled by factories. There is a business case to be made for major western corporations assisting the development of poorer countries.

To get to this point, there had to be a global change in thinking and philosophy. Factory based capitalism is not sustainable, and its impact on people and the environment has been negative. With conscientious individuals and increased lobbying, sustainable development has embedded itself in the conscience of people. Celebrities and sport stars have played a role in changing thinking. The Ellen McArthur Foundation, whose eponym was a long distance yachtswoman that sailed around the world, has been promoting the ideas of Walter Stahel who has written on the circular economy. Here, the resources used are not wasted, but used again, so in the end there is no ‘end’.

Thinking about the economy has to move away from profit maximisation and towards resource maximisation with concern for the environment. The cotton loom kick started the industrial revolution; it is time for a new revolution, and one that is sustainable.  While global warming remains a contentious topic, using the earth’s resources to accommodate its inhabitants without destroying the environment should be a concern for all businesses.

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