A stronger, cleaner, and fairer economy : Towards a new paradigm

©OECD

The current crisis is an opportunity to launch a new economic model, in which the environment, as a pillar of human welfare, must be central.

Cristina Narbona Ruiz

Spanish Ambassador to the OECD and former Minister of the Environment, Spain

 

In the past few months we have seen the emergence of the dire economic, social and environmental consequences of a system which privileges personal profit over the general interest, and greed and wastefulness over responsibility and prudence. This crisis must be tackled urgently, but by first understanding its deep roots and not yielding to the temptation of tending only to the more serious symptoms. All the analyses point to an over-dominant financial economy that generated astronomical profits for a tiny minority of the world population, and promoted excessive consumption and indebtedness. Meanwhile, social inequalities and the systematic destruction of the earth's ecosystems have escalated, helped along by a lack of regulation and insufficient public oversight. Public authorities have been too tolerant of speculation and tax avoidance, which run alongside pollution and the exhaustion of natural resources. And all of this in the name of a type of economic growth that, instead of increasing the well-being of all, actually threatens it for future generations.

The reality is that the economy has never been "autonomous" from ecology: all economic processes depend on ecological processes. The consequences of having ignored this reality have become tragically evident today. On the other hand, as some European countries in particular have repeatedly shown, higher and lasting levels of job creation and increasing well-being, alongside reinforced environmental and social requirements, are perfectly possible.

Since the mid-20th century our scientific understanding of the ecological risks posed by our economic model has increased. Since the 1990s there has been mounting evidence that global warming is the fall-out of economic growth. Climatic change is already on the political agenda of most countries, but so far, the effectiveness of existing policies has been minimal. Climate change is fuelling more frequent meteorological phenomena that are felt more severely by the populations of less developed countries.

Africa is the great paradox. Despite contributing only 4% to the world emissions of greenhouse gases, it suffers the worst consequences of climate change: longer lasting droughts, more frequent floods, growing desertification and biodiversity loss. The UN Intergovernmental Panel on Climate Change (IPCC) estimates that by 2020 more than 400 million Africans will be severely affected by global warming.

Beyond climate change, other environmental challenges are still far from being a priority for political action. The loss of biodiversity is an example, despite, for instance, the extinction of species essential for the production of foodstuffs. FAO data from 2007 shows that almost 80% of fishing grounds are already exhausted or on the brink of depletion due to overfishing. Pressure on biological resources also reduces our capacity for remedying illnesses and encourages the propagation of pests. Yet there are hardly any binding commitments to protect biodiversity at national and international levels.

Then there are threats to public health from air, water and ground pollution, particularly in the poorest countries and developing economies. One million people die each year in China solely from pollution-related causes. Scarcity of drinking water and inadequate treatment of sewage is the number one cause of disease in the world. Tackling these environmental dangers is important not just for ethical reasons. The OECD has been producing estimates on the economic cost of environmental inaction since 2004. Its methodology has since been adopted in World Bank reports (from 2006) and the well-known Stern Review on the Economics of Climate Change (2007).

All reports agree that, even from a strict economic approach that puts ethics aside, it is far less costly and therefore far more preferable to face up to environmental challenges sooner rather then later. In short, the present crisis must be seen as a manifestation of the lack of economic, environmental and social sustainability of our present economic model. The economy is fully dependent on ecology.

As French economist Jacques Généreux puts it, "economic laws" are "man-made laws", reflecting human priorities and institutions, whereas "natural laws", be they from biology or chemistry, cannot be circumvented by human action without entailing results that may even become irreversible.

Environment and human rights

Quite simply, overcoming the present downturn calls for a paradigm shift. This begins with ensuring accountability and the recognition of the right to a dignified life for all the citizens and future generations of the planet. Meeting environmental challenges is an indispensable precondition of human health, the quality of life and progress. Each and every human being is equally entitled to breathing unpolluted air, to have access to enough drinking water and to enjoy our natural habitat. Such rights are inextricably linked to the most fundamental right of all: the right to life. To quote two other notable French economists, Jean-Paul Fitoussi and Eloi Laurent, "environmental equality is the true key to sustainable development". It would be impossible to implement a "full equality of rights" to natural resources without first introducing sustainability criteria. For example, the right to food must be understood as an entitlement to an adequate calorific diet, but that should not automatically mean an unlimited right to an animal proteinrich diet, which may be both unhealthy and unsustainable environmentally, given methane emissions and intensive land and water usage. The same can be said about the right to use energy resources. Such fair principles must underpin a future agreement on the fight against climate change. 

The EU, following a suggestion by Spain among others, champions the gradual convergence of CO2 per capita emissions in order to introduce an element of justice that would make possible the involvement of developing countries in such an agreement. Following this approach, EcoEquity, composed of a group of researchers, has put forward a calculation method to distribute the effort required to mitigate climate change. The method takes into consideration the per capita emissions, total emissions accumulated since 1990, per capita income and the relative poverty level of each country. According to this approach, the commitments geared toward reducing greenhouse gases by 2020 would represent some 1.5% of the US GNP, 1.1% of the EU GNP, 0.7% of the Chinese GNP and only 0.08% of the GNP of all the developing countries combined.

This brings up another point for governments to focus on, which is how to measure progress. Up to now the GDP has been the primary indicator of "economic success" and even of social advancement, even though it does not take into account basic components of well-being, such as wealth distribution, environmental quality, gender equality and quality of public services. Alternatives to GDP have been suggested for many years, with a whole array of indicators devised since the 1990s, such as in the UN's Human Development Reports, and in the subsequent work by Nobel Laureate Amartya Sen. However, this analytical work has barely influenced real political debate, where GDP continues to hold sway today. Yet, if GDP is not an indicator of wellbeing -and the OECD itself has recognised its limitations-then it follows that the main goal of the dominant economic model is, alas, not the wellbeing of citizens either.

This must change. Selecting the "best possible well-being indicator", or specifically weighing up several indicators, must fall in line with the goals of public policies and people's own perceptions of their quality of life. The OECD is now playing a lead role in an international task force to improve the measurement of social progress. Early results will be made public in the course of 2009. In addition, the French government has also instituted a committee to pursue the same goal, headed by Joseph Stiglitz, together with Messrs Sen and Fitoussi.

Their common goal is to build a different outlook on our world by identifying those basic elements that are vital for happiness but whose significance has been relegated by the culture of the "consumer society".

Natural resources may be limited, but our imagination and determination in building a better world should know no bounds. Following on from the struggle for the rights of workers, women and minorities, this new struggle must urgently be pursued for the rights of all people to enjoy a better environment as a condition of a better quality of life. It is a struggle that OECD could do much to help us win.

 

References

Fitoussi J.P. and E. Laurent (2008), La Nouvelle Ecologie Politique, Seuil, Paris.

Généreux, J. (2005), Les vraies lois de l´économie, Seuil, Paris.

OECD (2001), The Well-being of Nations: The Role of Human and Social Capital, Paris.

Stiglitz, J. (2009), "Progress, what progress?" in OECD Observer No 272, March 2009, see

also www.oecdobserver.org/news/fullstory.php/aid/2793

 

© OECD Observer No 273 June 2009




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