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By Aseem Shrivastava "India will also have to pay increased attention to its physical environment, such as the availability of the water supply, so that environmental crises do not impede long-term economic growth." -- Nobel Laureate Economist Joseph Stiglitz
in a recent interview with the International Herald Tribune http://blogs.iht.com/tribtalk/
business/globalization/?cat=7 Modern economic growth is an environmentally devastating phenomenon everywhere in the world. It disturbs the peace of deserts and forests, mountains and oceans everywhere, uprooting subsistence human communities from their traditional habitats in the process. Public consciousness of the environmental challenge is all too recent: less than half-a-century. Some would say that before the Stockholm Conference in 1972 it was virtually non-existent in the world outside the West. The emerging evidence on global flashpoints like climate change, rapid depletion of freshwater sources and the drying up of non-renewable sources of energy, to name only three deadly threats to human existence, is no longer possible to ignore, even (some would say especially) for a poor country. This has massive implications for countries like India and China which have set out on accelerated growth trajectories only recently. If the Kyoto Protocol on climate change gets ratified (as the best informed observers deem virtually a survival imperative for our species) eventually, it is not merely the rich world that will feel the pinch. Rapidly growing poor economies like India and China may be thwarted in their efforts even more. It may well turn out that the environmental crisis provides the binding constraint on growth in this part of the world. A Stern Warning "...The longer global warming is ignored the more intractable it becomes-a point made forcefully last week in a report issued by the British government. Unless the nations of the world come together to control emissions, the report said, we face the risk of "major disruptions to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. 
"The report's author, Sir Nicholas Stern, the head of Britain's Government Economic Service, is hardly a scaremonger. He combines a strong academic background-Cambridge, Oxford, and the London School of Economics-with practical experience. After the fall of Communism in Eastern Europe, he spent six years at the European Bank for Reconstruction and Development. From 2000 through 2003, he was the World Bank's Chief Economist. Last year, Gordon Brown, the Chancellor of the Exchequer, asked him to examine the economic consequences of climate change and make recommendations for what governments should do about it. The report Stern delivered, at six hundred pages, sets a new benchmark for policy discussion. "The Bush Administration and its ideological and corporate allies have downplayed the scientific evidence for global warming while complaining that taking on climate change in a major way would place too great a burden on the economy. Stern, who came to the subject fresh, dismisses these views. He says, "Climate change presents very serious global risks, and it demands an urgent global response." 
"At the launch presentation of his report, Stern pointed out that global warming is a textbook case of an 'externality', in which the prices people pay for gasoline, electric power, and other energy products don't reflect their true costs, among them the impact of greenhouse gases. 'Our emissions affect the lives of others,' he explained. 'When people do not pay for the consequences of their actions, we have market failure. This is the greatest market failure the world has seen. ' 
"There are a number of ways to deal with market failures, including taxes, regulation, and compulsory voucher schemes that force corporations and other organisations to pay for the negative side-effects of their activities, such as environmental pollution. Bringing carbon emissions under control is such a mammoth task, Stern says, that all these remedies will be needed. By 2050, for example, at least sixty per cent of global power capacity will have to come from non-carbon sources, such as wind farms, solar cells, and nuclear reactors; at the moment, the proportion is less than twenty-five per cent. 'Mitigation-taking strong action to reduce emissions-must be viewed as an investment,' the report says. 'If these investments are made wisely, the costs will be manageable, and there will be a wide range of opportunities for growth and development along the way.' 
"The figures that Stern and his team of researchers provide should be regarded as best guesses rather than precise forecasts, but they are instructive nonetheless. Stabilising greenhouse-gas emissions at somewhat above current levels by 2050 would cost about one per cent of the annual global gross domestic product, or about half a trillion dollars. That's a lot of money, but it's cheap compared with the costs we will eventually face if we do nothing-between five per cent and twenty per cent of annual world GDP, or as much as nine trillion dollars a year. (The GDP of the United States last year was twelve and a half trillion dollars.)" http://www.newyorker.com/talk/content/articles/061113ta_talk_cassidy |
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Because of the way economic growth is measured across the world, it fails to take into account both the depletion of natural capital and the output of pollutants. The focus is predominantly on short-run income-generating activity. This growth fetish is particularly accentuated in the context of India at the present point of time. If these two potentially large negatives (resource depletion and pollution) are included in the computation of GDP, the growth rate may turn out to be far lower than what it is claimed to be. By measuring something we indicate that it is important to us. By not taking into account something as important as environmental damage -- which may turn out to be decisive after the passage of some time -- we endanger our own future. Good policies can only be designed and implemented if the statistical basis for them is reasonably accurate. Some economists, like Arun Kumar of Jawaharlal Nehru University, question the very statistical basis of the publicly brandished growth and inflation figures for India. He argues, for instance, that India's growth rate is severely overestimated because, among many other things, it fails to correct for the displacement of traditional areas of economic activity - such as handicrafts - by the growth of organised industry. Likewise, inflation figures are severely underestimated because, among other things, they fail to take into account the inflation in the price of essential services like health, even though services account for well over half of the country's GDP. (See Arun Kumar 'Flawed Macro Statistics', in Alternative Economic Survey, India 2005-2006, Daanish Books, 2006) InfoChange News & Features, January 2007
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