Our Ideas

North America continues to see weak economic growth. Europe? Well, who knows how that story is going to end? At this point, outside of Germany, the economy is on life support.

So, when you think of growth in the global economy, your thoughts are likely turn to the so-called BRIC countries (Brazil, Russia, India and China). No wonder; they are growing mightily at rates from five percent to well north of 10 percent.

But while they grab all the headlines, the BRIC countries only represent a slice of the growth that is happening in emerging economies. Indeed, Turkey, Indonesia, Vietnam, Mexico and Peru are growing at similarly impressive rates.

For years, politicians, stock markets, analysts and business people have been obsessed with economic growth. It’s ingrained in the capitalist model. Grow or die. It’s a pretty binary equation.

However, a couple of recent reports by the McKinsey Global Institute (McKinsey’s business and economics research firm) and the World Bank are helping bring the challenges of this relentless pursuit of growth into greater focus. In short, “you ain’t seen nothin’ yet.”

The rise of the consuming class

According to McKinsey’s report called Urban world: Cities and the rise of the consuming class, consumption in emerging markets will account for $30 trillion US within 15 years, more than double the $12 trillion it represented in 2010. Looked at another way, 70 percent of global growth over that timeframe will take place in those emerging economies.

McKinsey calls it “the biggest growth opportunity in the history of capitalism.”  To put that in perspective, it’s 1,000 times the scale of what happened with the British Industrial Revolution.

All of this growth is moving millions of people up the income ladder.  Current estimates are that 70 million people are joining the ranks of the middle class each year – more than 2.5 billion people in your lifetime.

The impacts of growth

That’s great for those climbing the ladder. However, the associated rise in demand for all types of goods will generate enormous repercussions. Not convinced? Look at the impacts of China’s recent growth on everything from air and water quality (bad and getting worse) to global commodity prices (up significantly) and shifts in geopolitical power. (For more on the impacts of rising incomes globally, see my previous post about global food challenges).

Remember the dramatic power blackout in India this summer? I do; it occurred on a brutally hot day here, when it’s unbearable without a fan or air conditioning.

The blackout took place, in part, because the Indian electricity system can’t keep up with the annual 10 percent growth in demand. China’s been more successful in that regard but they’ve commissioned two new coal-fired power plants each week just to keep up.

The opportunities in emerging economies are not lost on the multinational brands you love (or hate). Indeed, after manufacturing products in these low cost jurisdictions for years, they now view them as growth markets. Fast food companies, luxury brands and carmakers, have already recognised the potential. Other sectors like retail, packaged goods and health care providers are also arriving in significant numbers. The party is just getting started.

Rethinking the relationship between growth and the environment

That said, we have to be careful, of course, not to criticise developing countries for their growth in consumption. After all, they simply want the conveniences and creature comforts that developed countries have enjoyed for decades.

However, we do need to acknowledge one major difference. Developed countries followed an industrialisation model The Economist calls a “grow first, clean up later” approach.

For example, just 50 years ago, London was blanketed in toxic fog caused by coal burning. Meanwhile 40 years ago, the Cuyahoga River in Ohio was so polluted it caught fire. Since then, developed countries have spent billions of taxpayers’ money, cleaning up the messes caused by economic growth. What’s more, many of the costs to biodiversity and other ecosystem services have not yet, and likely never will be, calculated. Neither have the health-related consequences.

Emerging economies simply can’t afford to take this approach. As The Economist puts it, “This will put more stress on the environment in ways that will curtail growth. That would leave a lot of people poor and polluted – the worst of all possible worlds. Avoiding such an outcome is a problem for today, not tomorrow.”

Chandran Nair, the founder of the Hong Kong-based Global Institute for Tomorrow and author of the book, “Consumptiononmics”, agrees with The Economist and says that if Asia doesn’t help find solutions to resource-constraint issues, it will “quite possibly ensure at best a deeply unpleasant future, and at worst the demise predicted in the forecasts of a far hotter planet made by scientists.”

He goes on to say that, “In the wake of the global financial crisis, Asia’s leaders have an opportunity and obligation to send out a different message – that measures to halt global warming and other pressing ecological concerns … have to be a priority.” In other words, Asia (and other developing countries) have to reject the consumption-led growth model.

“Green growth” as an alternate model

That means emerging economies need to find ways of balancing economic growth and concern for the environment. Sensible policies need to be developed now to ensure that development is green from the get-go, not retrofitted after the fact.

Fortunately, the concept of “green growth” is gaining ground. The World Bank recently released a report called “Inclusive Green Growth” to help popularise the concept.  The central idea behind green growth is that the environment is another form of capital. And, like all capital, it should be accounted for, invested in, used efficiently and increased in value.

Suffice it to say, this idea is controversial. Many worry that the core tenets of green growth will be coopted or exploited by people who try to wrap the status quo in a green cloak. Their solution? Cut consumption.

Others think green growth means being beholden to western standards – a continued form of imperialism and exploitation.

It’s complicated.

However, we don’t have the luxury of time to pontificate or argue about nuances. Like it or not, we need to get serious about figuring ways to simultaneously raise incomes across the globe, reduce impacts on the environment, and foster quality of life for everyone.

Easily enough said. So, what needs to be done?

________________________________________________________________________________

Some ideas to make progress

Here are five steps:

1. Put more effort into valuing the environment and standardising the principles behind “natural capital accounting”. That will provide the certainty that business needs to embrace the concept.
2. Encourage policies and projects – like green buildings and energy efficient technologies – that deliver environmental and commercial benefits. Just a one percent increase in building costs invested in efficiency features can reduce energy and water use by 20 percent.
3. Educate and encourage the business sector to adopt the tenets of green growth – out of self-interest. One-third of companies now acknowledge the risks that climate change presents to their business. We need to drive that point home even further.
4. Use the market to internalise environmental externalities. If enterprises are required to account for the full costs of their operations, they are likely to be more conscious in their use of natural resources.
5. Reduce subsidies that encourage environmentally harmful practices like the overuse of fossil fuels and water. For example, India subsidises diesel fuel to the point that it costs 50 percent less than petrol, a major burden to the national treasury while encouraging the continued use of diesel generators.

What you can do

In the meantime, if you, like me, are too impatient to wait for the rest of the world to get its act together, then consider the following:

• Resist the urge – even a little bit – to buy more stuff.  Ask yourself, do I really need this? How long will it last? What will it cost me to maintain it? (A shirt that can only be dry cleaned costs each time you wear it, not to mention the environmental and health impacts of most dry cleaning solutions.)

• If I need it, do I have to buy it? Increasingly, there are new models emerging for paying for the use of products only as you use them. Car sharing, bike sharing and formal wear sharing are three great examples. And, if I need to buy it, does it need to be new? Or will a gently used one do?

• Are my investments part of the problem or the solution? Surprisingly, many people who are passionate for the environment don’t realise that companies with poor environmental and social practices are lurking in their investment portfolio. Fortunately, there are a number of tools and products available today that deliver strong financial returns and let you sleep at night.

We all want our children to have a better life than we do. It’s time that we show them the way by adopting a new approach to development that is not reliant on a consumption-based model.

Can you buy that?

_____

Junxion’s Peter ter Weeme works on projects forwarding environmental and social sustainability around the globe. A key focus, Peter has more than 15 years experience working on renewable energy and energy conservation, and community development issues.