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FEATURE: CDKN seeks your views on green growth – join the debate

In an exclusive CDKN discussion series, our Executive Chair Simon Maxwell is seeking your views on what green growth means for developing countries. Simon has put together ten propositions on green growth, and will be answering your questions and comments on two of these propositions each week for the next five weeks. Visit Ten observations on climate change and growth to read the paper in full.

The impact of climate change on growth, and the impact of growth on climate change, are much debated. Growth optimists argue that green growth options will make it possible for economies to expand, while preventing irreversible global warming. Growth pessimists say this is unachievable, adding that we consume too much, and should accept lower growth rates.

But from the perspective of developing countries, continued growth seems to be an imperative if the Millennium Development Goals are to be met. Developing country governments’ main concern is that measures taken to combat climate change, might dampen growth prospects. Yet fast-growing developing economies are increasingly contributing to climate change: what should be done?

Much of the current debate focuses on mitigation and adaptation, important components of climate-related policy. At CDKN, we add a third dimension, development.  Climate compatible development is development that minimises the harm caused by climate impacts, while maximising the many human development opportunities presented by a low- emissions, more resilient future.

Here are the first two propositions for debate:

1.   Growth does matter for poor countries – even though most poverty is not in the poorest countries

It is self-evident that very poor countries with very high levels of poverty will need to grow, if basic human needs are to be met. Take Burundi, where 81% of the population lives on less than $US1.25 a day, and where national per capita income is only $US1.04 per day. No redistribution from rich to poor within the country could eliminate poverty.

That is an extreme example, and it is notable that 72% of the poor now live in what are formally described as middle income countries, including China, India, Nigeria and Pakistan. Do those countries need to grow, or could they solve the poverty problem through redistribution?

Martin Ravallion at the World Bank has explored this question. He concludes that ‘the marginal tax rates (MTRs) needed to fill the poverty gap for the international poverty line of $1.25 a day are clearly prohibitive (marginal tax rates of 100% or more) for the majority of countries with consumption per capita under $2,000 per year at 2005 PPP. Even covering half the poverty gap would require prohibitive MTRs in the majority of poor countries. Yet amongst better-off developing countries—over $4,000 per year (say)—the marginal tax rates needed for substantial pro-poor redistribution are very small—less than 1% on average, and under 6% in all cases.

According to the figures published in the World Development Report 2010, 35 or so countries had per capita income of below $US 2000, including Bangladesh, Cambodia, Haiti, and many countries in Africa; and about 20 lay between $US 2000 and $US 4000, including India, Indonesia and Pakistan. For all these countries, accounting for the bulk of the world’s poor, there should be no doubt that growth is a priority.

China and some others lie above the $US 4000 threshold, but for all countries, reducing core poverty is only the first step on the development path. Convergence with rich countries makes quite other demands, and raises other questions, to which we shall come.

Simon argues that all countries should see reducing core poverty as only the first step on the development path – growth will be vital in the long term. Do you agree, and what does this mean for the fight against climate change? Let us know in the comments box below.

2.       Climate change is one driver, but the measures taken to tackle climate change will also have effects on growth

Climate change will impact directly on growth, as the Stern Review and many other reports have found. Most of the impacts will be negative. Heat and water stress will affect crop productivity. Glacier melt will reduce the potential for irrigation. Extreme climatic events will disrupt livelihoods and damage productive infrastructure. One rule-of-thumb estimate is that each one-degree rise in temperature above the optimum during the growing season leads to a 10% decline in grain yields.

At the same time, measures taken to tackle climate change can also have an effect on growth, at least in the short term. A carbon tax, for example, might increase production and transport costs, and could result in an increase in prices, reducing demand and real income. A carbon tax regime could affect foreign direct investment and trade flows to a country, positively or negatively. Carbon labeling of products could have positive or negative effects on a country’s trade prospects, depending on consumer demand (and hence market opportunities) for carbon labeling  in overseas markets, as well as the skills transfers in place to operationalise such opportunities.

Simon suggests that climate change policies will have an impact on trade, capital flows, development finance, technology and growth, positive and negative. These possibilities are detailed in Appendix 1  of the paper Ten observations on climate change and growth  Do you agree that developing countries are likely to experience such impacts? Please share your views in the comments box below.

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8 responses to “FEATURE: CDKN seeks your views on green growth – join the debate”

  1. Regarding the proposition that: ‘Growth does matter for poor countries – even though most poverty is not in the poorest countries’, I agree with Simon. The only challenge here is what he means by reducing poverty first and what the (cumulative and long-term) implications this can mean. Poverty reduction could mean anything for many developing, and middle income economies (that are not Annex 1 countries), including investments that may mean increased use of resources, intended and unintended CO2 upsurge and effects on fragile lands.

    I therefore think that we need to redefine poverty reduction in ‘our times’ which is uniformly appreciated and strictly followed by all, if this proposition is work.

  2. Okechi Dominic Azuwike says:

    Developing countries do not have institutional framework, developed markets and structures to connect to emerging externalities of climate change in the market place. Most times the problem of developing economies is not the volume of ‘good’ coming in but its distribution which is highly challenged by their very poorly developed democratic cultures.

  3. Thanks for your comments, Kimbowa Richard and Okechi Dominic Azuwike – and thanks especially for being the first to kick off this discusssion! You both emphasise the importance of growth being ‘pro-poor’ or ‘inclusive’, which is completely correct, and also climate compatible, in the sense of not initiating a further round of destructive climate change. Neither is an easy ‘ask’, as we will see in later rounds of the debate – especially, as Okechi points out, when the domestic politics are not especially favourable to the poor, let alone the climate. Have you seen the work David Booth is leading on African politics at ODI, and the new IDS Bulletin published for his programme on ‘going with the grain’ of African institutions? Worth a read.

  4. Fouad Khan says:

    Nobody who continues to tout the significance of “growth” in a debate about climate change, should be taken seriously anymore.

    Climate change –and its conjoined evil twin, peak oil- are crises that threaten human civilization, if not the very survival of human species on earth. Workaday solutions to problems of such cataclysmic magnitudes are bound to fail. We need to give up antiquated ideas of how change is affected in human societies… ideas such that the only two options for improving people’s lives are either growth or income-redistribution and that “market-friendlier governments” are somehow naturally the wiser ones.

    Climate change preparedness for middle income and poor countries must incorporate massive infrastructure and development investments, investments in water resources and education, investments in health and agriculture. While for middle income and poorer nations, this kind of development may manifest as modest three to four percent growth on the spreadsheets, the idea is to forget about that number and to realize its absolute irrelevance in preparation for the changes that wait us. Building more efficient and robust water resources systems may not show up as economic growth in the final rundown, or it may. The point is to ensure water availability and to reduce water related disasters, whether or not there is financial-close, is completely insignificant.

    More importantly, all societies in the world must focus on becoming more independent of the global supply chain and on nurturing local economies. This means shunning the cult-forces of market fundamentalism. For countries like Pakistan this should translate into subsidies for the farming communities and provision of indigenous energy resources such as natural gas, at the lowest rates possible to burgeoning local industry. None of that translates into growth in the traditional sense. It may be called fractal, or lateral growth, but its purpose is not to jack up the GDP, but to develop robust, not necessarily efficient, but ROBUST societies.

    Any preparation for climate change will take some iconoclasm, and one of the first idols we ought to knock down, is the idol of growth.

    No, growth does not matter. Not for rich countries, not for middle income ones, not even for the poorest.

    • Kenneth Odero says:

      Agreed. While ‘growth’ could be important, the rates and types of growth proposed for countries most at risk due to a variable climate comes nowhere near to the scale required to increase their resilience. That the impacts of climate change on African countries will be seismic hardly in dispute, so why not develop hydo-power at Inga Dam, building smart grids using abundant African labour (lots of training opportunities if required skills are in short supply, which would do a significant dent on unemployment) to connect all production and commercial nodes on the continent to ensure access to renewable energy? Then we can get into the serious business of producing steel on the continent to drive the process of building sustainable cities and a 21st Century infrastructure capable of ensuring human security for the more than 1billion population.

  5. Hi Simon

    Your propositions make sense individually, but I suspect that the real challenge lies in finding and implementing the right trade-offs between them rather than letting those trade offs emerge from processes in which power still lies predominantly with vested interests. I’m not sure your ‘proposition 9’ goes far enough! Getting the right trade -offs will require strong leadership independent of vested interests. Where will that come from and what roiles do we all nbeed to play to get there?

    So for instance if growth needs to be pro-poor (and I’d agree strongly that it does) is this compatible with some of your other propositions eg that low carbon growth is possible and that it needs to be based on leveraging more private sector funding?

    Conundrums and trade offs abound. We are exploring some ideas within the Fairtrade system, to match the needs of private sector with opportunities for pro-poor, low carbon growth. There is certainly untapped potential, but my suspicion is that ‘win-wins’ may only take us so far, and getting beyond win-wins is extremely challenging unless the wider context shifts substantially.

  6. Fractal growth, eh, Fouad Khan? Nice phrase. I’m sympathetic to growth sceptics, but you haven’t answered my point about the need to raise incomes in the poorest countries if basic human development needs are to be met. Should we argue for much greater redistribution from rich to poor countries? And is that a realistic option, I wonder? As to self-sufficiency, I’m not so sure. In the days when I used to work on cash crops as the route out of poverty for poor farmers, I used to describe those who hold your position as following an ‘allotment algorithm’ – where everyone is responsible for their own needs. I guess I think that is a sure way to misery, at household but also national level. But we’ll come to that debate when we reach propositon 10. Anyway, thanks for your contribution.

    Toby Qantrill, yes, a lot of this is about leadership, and willingness to confront difficult trade-offs. Look at the difficulty we have in the UK when oil prices rise and motorists have to pay more. What i think leaders have to do is constantly keep climate change in the public eye, and win hearts as well as minds. Let’s debate that when we come to the relevant proposition.

  7. Fouad Khan says:

    There is NO NEED to raise income.

    There is a need to stabilize robust local food supplies.

    There is a need to develop reliable clean drinking water supplies that are not wasteful.

    There is a need to ensure basic education for children and rudimentary healthcare for all.

    But there is no need to raise incomes. All of the above can be achieved in societies at any level of relative wealth, without really focusing on the question of income. In fact, the entire monetary system in our times has become so hyper-complex, so completely detached from the physical realities of resource distribution, so utterly subservient to those already in possession of wealth and power and so undeniably unsustainable that focusing on increasing income actually hinders the process of adaptation to climate change and peak-oil, for both high and low income countries.

    In high income countries, the best example of this decoupling between finance and physical realities is the housing bubble. In low income countries the best example is the corn-biofuel fiasco. In both cases, there was a rise in income, but both were colossally, criminally stupid examples of resource mis-allocation and exploitation of the poor by the rich. The invisible hand of the market, turns out, is not only invisible, it is blind.

    You are right, this should be debated after proposition 10, but I must clarify, my position is not for the individual household to be self-sufficient, but for individual societies to be as self-sufficient in provision of fundamental human needs -food, water, education, health- as possible. Think loosely connected city states. This, for me, is not a policy choice. It’s simply what our circumstances dictate us to adapt to.

    But your inability to look at the problem after divorcing income considerations is understandable. You are an economist. Only this is not an economics problem. Economists should sit this one out I think.