Invest to stop global warming, reduce poverty and induce structural change

Economic Times , Wednesday, January 09, 2013
Correspondent :
In the shadow of the euro crisis and US' fiscal cliff, it is easy to ignore the global economy's long-term problems . But, while we focus on immediate concerns, they continue to fester, and we overlook them at our peril.

The most serious is global warming. While the global economy's weak performance has led to a corresponding slowdown in the increase in carbon emissions, it amounts to only a short respite. And we are far behind the curve: because we have been so slow to respond to climate change, achieving the targeted limit of a 2° C rise in global temperature will require sharp reductions in emissions in the future.

Some suggest that, given the economic slowdown, we should put global warming on the back burner. On the contrary, retrofitting the global economy for climate change would help to restore aggregate demand and growth.

At the same time, the pace of technological progress and globalisation necessitates rapid structural changes in both developed and developing countries alike. Such changes can be traumatic, and markets often do not handle them well. Just as the Great Depression arose in part from the difficulties in moving from a rural, agrarian economy to an urban, manufacturing one, so today's problems arise partly from the need to move from manufacturing to services. New firms must be created, and modern financial markets are better at speculation and exploitation than they are at providing funds for new enterprises, especially small and mediumsize companies.

Moreover, making the transition requires investments in human capital that individuals often cannot afford. Among the services that people want are health and education, two sectors in which government naturally plays an important role (owing to inherent market imperfections in these sectors and concerns about equity).

Before the 2008 crisis, there was much talk of global imbalances, and the need for the trade-surplus countries, like Germany and China, to increase their consumption. That issue has not gone away; indeed, Germany's failure to address its chronic external surplus is part and parcel of the euro crisis. China's surplus, as a percentage of GDP, has fallen, but the long-term implications have yet to play out.

US' overall trade deficit will not disappear without a rise in domestic savings and a more fundamental change in global monetary arrangements. The former would exacerbate the country's slowdown, and neither change is in the cards. As China increases its consumption, it will not necessarily buy more goods from the US. In fact, it is more likely to increase consumption of non-traded goods — like healthcare and education — resulting in profound disturbances to the global supply chain, especially in countries that had been supplying the inputs to China's manufacturing exporters.

Finally, there is a worldwide crisis in inequality. The problem is not only that the top income groups are getting a larger share of the economic pie, but also that those in the middle are not sharing in economic growth, while in many countries, poverty is increasing . In the US, equality of opportunity has been exposed as a myth.

While the Great Recession has exacerbated these trends, they were apparent long before its onset. Indeed, I (and others ) have argued that growing inequality is one of the reasons for the economic slowdown, and is partly a consequence of the global economy's deep, ongoing structural changes.

An economic and political system that does not deliver for most citizens is one that is not sustainable in the long run. Eventually, faith in democracy and the market economy will erode

, and the legitimacy of existing institutions and arrangements will be called into question.

 
SOURCE : http://economictimes.indiatimes.com/opinion/comments-analysis/invest-to-stop-global-warming-reduce-poverty-and-induce-structural-change/articleshow/17947730.cms
 


Back to pevious page



The NetworkAbout Us  |  Our Partners  |  Concepts   
Resources :  Databases  |  Publications  |  Media Guide  |  Suggested Links
Happenings :  News  |  Events  |  Opinion Polls  |  Case Studies
Contact :  Guest Book  |  FAQs |  Email Us