The Weekend Essay: The Economic Growth-Climate Change ConundrumPublished by MAC on 2019-06-14
The author of this piece is a retired Indian army officer. He has engaged in the following critique both from a domestic, and global, perspective.
The Economic Growth - Climate Change Conundrum
Is it the end of the road? Is this a way ahead?
11 June 2019
In the years immediately preceding World War II, Winston Churchill is quoted as having said: “The era of procrastination, of half-measures, of soothing expedients, of delays, is coming to its close … … in its place we are entering a period of consequences”.
World War II, purported to be a war to end all wars, ended in 1945 after USA dropped two nuclear bombs on Japan. It did not end wars, but it did have huge consequences, evidence of which is unfolding even today. Perhaps the greatest single consequence is the combination of growth of money and banking systems, rampant exploitation of natural resources, and the parallel growth of production-consumption-pollution of all sorts. This is turn has spawned environmental and ecological consequences at planetary scale, with accompanying existential threats.
Finance, debt, economic growth, inequality
A major fallout of World War II was the formation in July 1944 of the Bretton Woods institutions – the International Monetary Fund (IMF), the International Bank of Reconstruction and Development (IBRD), and the General Agreement on Tariff & Trade (GATT). They created the financial order of the post-War world and defined the rules, boundaries and goal-posts of financial and economic cooperation. After reconstruction of war-devastated Europe, IBRD morphed into the World Bank Group [IBRD, IFC (1956), IDA (1960), ICSID (1966), MIGA (1988) & WB Training Institutes], which turned its attention to Third World countries. In 1995, WTO replaced GATT. The IMF-WB-WTO triad became the world’s largest generator and provider of knowledge, the fountain-head of economic reform policies and programs.
They prescribed economic reforms founded on the centrality of economic growth as measured principally by the rate of growth of GDP. This ideology for economic progress was taught in all major US and European (and later in Third World) universities, and created a multitude of indoctrinated economists of all nationalities, who educated, trained and advised the leaders and the elite of Third World countries. This ideology of economic growth on a corporate-market-consumer basis is neo-liberalism, promoted annually at the Davos jamboree.
The Bretton Woods international financial institutions (IFIs) were joined by banks like Asian Development Bank and African Development Bank, and IFIs from Japan and European countries. Even lower-tier IFI executives had access to the top-most echelons of governments. Hence, IFIs became the source of finance for development projects in the Third World, and also enablers for preparing project proposals and appointing consultants, to educate and advise corruptible Third World leaders to apply for and receive loans, and solicit foreign investments. Thus, banker-driven debt-economies expanded.
Economic growth as the measure of national progress, became the focus of economic thinking and was institutionalized in countries across the globe, with impetus imparted and momentum maintained using the political-economic clout of IMF-WB and other IFIs. It was accepted worldwide because it suited the elite politician-bureaucrat-corporate nexus (or PBC, sometimes referred to as the “deep state”) which has behind-the-screen control of governments of all countries.
Admittedly, much of the knowledge and the finance provided for projects resulted in creation of infrastructural and other assets in Third World countries. But most of the accruing benefits went to economically better-off sections of society, with neglect of the poorer sections. With grandiose plans for development calling for huge capital investments, and loans from IFIs available on pre-condition of undertaking prescribed economic reforms, many Third World countries sank into debt. Some entered a “debt-trap”, when the outgo of interest on loans exceeded the revenue from projects plus export earnings. Overall, this resulted in growing economic inequality within and between societies.
In admission of this, an internal study group of the International Monetary Fund (IMF) reported in July 2016 [Jonathan D. Ostry, Prakash Loungani & Davide Furceri; “Neoliberalism Oversold?”, Report of IMF Finance & Development, June 2016, Volume 53, Number 2, pp.38-41.] that their decades-long advocacy and practice of economic reforms had serious failings. The Report is titled “Neoliberalism Oversold?”, with the boldfaced sentence: “Instead of delivering growth, some neoliberal policies have increased inequality, thereby jeopardizing durable expansion”. Thomas Piketty’s 2013 incisive best-seller “Capital in the Twenty-First Century” may possibly have triggered the IMF admission.
Need for a different economic model
At a recent meeting of IMF and WB, efforts were made to play down fears of a slowing global economy due a deteriorating trade climate. [Garimella Subramaniam – “Clouds on the horizon: The deteriorating trade climate and the U.S-China conflict are holding back global growth”; Single File column; The Hindu; April 17, 2019; OpEd page].
The key phrases are “fears of a slowing global economy” and “deteriorating trade climate”. Questions which arise are, why should there be fear and who feels fear. Also questions are about what effect a deteriorating global trade climate – stated to be principally about the economic conflict between USA and China – may have on the majority of the 7.2-billion global human inhabitants. Since the talk is “global” let’s view other global matters.
The global economy being the sum of the economies of the countries on the globe, and the economy of a country being the sum of the economies of its constituent states or regions, it follows that at the very root of the global economy lies the economy of every human household. Taking the argument down to the household is justified by the etymology of the word “economy”, which is from the Greek word “oikonomia” referring to household management and thrift.
With eight of the world’s wealthiest persons owning as much wealth as the bottom 50% of humanity, there appears huge justification for an alternative economic paradigm to replace the current one of unending year-on-year economic growth, which has caused unjust and growing inequality within and between nations, leading to political/ military/ economic confrontation between nations and social unrest within nations.
Current economic model
Put simply, even simplistically, the current economic model is founded upon the need for growth of the national economy as a means to generate wealth.
Gross domestic product (GDP) is a measure of total economic production, representing the market value of all goods and services, including personal consumption, institutional purchases and sales, and adding exports and subtracting imports. GDP is generally accepted as a comprehensive yardstick to assess a nation’s economic growth, and its year-on-year growth indicates economic health.
The generation of wealth (money, precisely) by economic growth accrues to the upper economic echelons, and this is expected to “trickle down” to people who live (if that’s the right word) in the lowest economic layers of society. This has not happened in any country. Rather, economic disparity has widened.
Politics is slave to economics
Every government attempts to gain political advantage by claiming a higher GDP growth-rate as demonstrative of better performance. Opposition political parties always attempt to play down government’s performance by contesting these figures. Even Left-oriented economists question the validity of (7%) GDP growth rate claimed by the BJP-led NDA-2 government [“The problem with cherry-picking data” – Arun Kumar; The Hindu; April 24, 2019; Edit page], but do not question the economic model.
Thus, economists across the political spectrum have been and are on the GDP-growth-rate-bandwagon, and routinely quarrel about figures of GDP growth-rate, questioning the computation methods or the validity of the statistical data used for computation. There appears to be no understanding that the economic model has failed to reach economic benefit to people at the bottom of the socio-economic heap of humanity, political promises notwithstanding. Apart from the economic model generating economic disparity and social unrest, it is unsustainable from other perspectives.
Politics is driven by an economic model that cannot address the here-and-now economic needs of food-shelter-health-education-jobs of vast numbers. Hence, elections and voting are a cruel charade, a drama scripted by parties and persons across the political spectrum, to distract attention from the real-life economic miseries of the invisible millions, with promises of good days in the future.
“The key agenda must be to accelerate growth” is an article by none less than former Chairman of the Economic Advisory Council to India’s Prime Minister, the title and content of which indicates the mindset. [C.Rangarajan; “The key agenda must be to accelerate growth”; <https://www.thehindu.com/todays-paper/tp-opinion/the-key-agenda-must-be-to-accelerate-growth/article27280720.ece>; The Hindu; May 29, 2019]. Elections change governments but the economic growth ideology remains, and its implementation maintains momentum, even accelerates. Politics remains slave to economics, and the PBC nexus remains in control regardless of which political party or tall leader is in power.
Economic growth – existential threat
Continuous economic growth year-upon-year is growth compounded, and the size of an economy growing at say 7%, would double in ten years. The energy demanded, acquired and consumed to enable such economic growth would also approximately double.
Former RBI Governor C. Rangarajan said (2016) “The potential to grow at 8 to 9 per cent at least for a decade exists. We have to make it happen” [emphasis supplied]. Thus by 2026, with government’s concerted effort, the size of the economy, the energy consumed and global warming (GW) gases emitted for such growth would have more than doubled for India alone.
At global level, this worldwide energy (mostly fossil fuel) consumption year-upon-year which is integral to economic growth, has resulted in atmospheric CO2 rising to 415 ppm, a level not exceeded for the last 3-million years. This is accelerating GW and climate change (CC), which are existential threats to all life-forms. The direct cause-and-effect relationship between economic growth and GW-CC is undeniable.
Maintaining corporate control
India’s New Economic Policy formulated in 1991 by (then) union finance minister Dr.Manmohan Singh, was specifically about IMF-WB-orchestrated economic reform including structural adjustment, all based firmly upon unending economic growth. NEP-1991 was effectively furthered by the thousands of opinion-, policy- and decision-makers in governments and Indian institutions of higher education, who were trained in foreign universities and WB Institutes. These persons have had and continue to have easy access to, and disproportionate influence in, the corridors of power in central and state governments, regardless of the political party in power.
Such trained persons were and are in positions of power at various levels in various ministries, and they promote the mind-set of ideas, policies, proposals, plans and projects to yield targetted rates of GDP growth so that India may “progress”. This mind-set has proposed and promoted capital- and machine-intensive mega-projects, which need to acquire land, water and mineral resources. For this, state and/or central governments, with help from the deep state, circumvent, bypass or amend laws enacted to protect people or the environment from such projects. But governments justify such projects by touting economic growth, a sales pitch which has always satisfied all political persuasions.
On-the-ground challenges by affected populations to such projects, are met with police action in favour of the corporations and against protestors. Litigation is difficult and expensive and out of reach of poor project-affected people, and in any case, usually fail. Sometimes, the affected populations merely demand that extant laws (e.g., Forest Rights Act, Panchayat (Extension to Schedule Areas) Act & Right to Fair Compensation, Transparency in Land Acquisition, resettlement and Rehabilitation Act, 2013) be implemented faithfully, but governments usually win against the people, and corporations have their way. People’s resistance to amendments to weaken such laws has even been labelled as “naxal” or “maoist” to criminalize legitimate protest, and individuals who help (generally illiterate) people affected by the project, are subjected to SLAPP or charged under draconian laws like UAPA. The message as to who-is-boss is unequivocal.
The same economic policy has gained momentum with successive governments, and under the BJP-led NDA government starting 2014, its implementation has been intensified across sectors. Over the years, successive governments have sent top ministers travelling along with corporate honchos, to the annual World Economic Forum at Davos, to decide how to spur economic growth, and how to defeat economic competitors, even as they propose SDGs and negotiate carbon credits. Notwithstanding, the “wisdom” brought home from Davos is that worldwide economic growth is uncertain, and growing economic inequality and climate change are worrying issues. However, questioning the economic growth paradigm is economic blasphemy.
Economist Dr.Rathin Roy “… believes that India’s rapid growth has been essentially powered by its top 100 million citizens. The leading indicators of economic prosperity, he says, are things that these Indians consume – cars, 2-wheelers, air conditioners and so on. Having had their fill of home-made goods, they have now moved to imported luxuries – foreign holidays and Italian kitchens, for example”. [“India’s next government faces economic slowdown”; BBC News; <https://www.msn.com/en-in/money/news/indias-next-government-faces-economic-slowdown/ar-AABumf7?li=AAggbRN&ocid=mailsignout>].
Money generated by GDP growth is used for industrialized production of goods and services which depends upon extraction and consumption of “free” natural capital of resources like minerals, fuel, fresh water & land. This year-on-year (unending) GDP growth demands year-on-year increased consumption of natural capital, while the production processes produce more and more pollution of land, water and air.
Unending consumption of goods and services is highly energy-intensive and directly connected with energy use (burning of fossil fuels, principally oil). It generates GHGs and increases GW. However, the only thing that economists appear to fear is a slowing global economy because the rate at which goods and services are purchased (consumed) is flagging.
Corporate influence on economic policy has resulted in capital-intensive mega projects designed to boost GDP growth, which have countrywide and worldwide effects. The reality of sustained public protests against these projects is a part of the worry brought home from Davos. Still, rather than addressing the causes of protests, state and central governments, influenced by the PBC nexus, ignore, rubbish or suppress them, by police beatings or firings, charging protestors with “war against the state” and sedition, and jailing them under draconian laws or trumped-up charges.
Another method of the PBC nexus maintaining control is the creation of the “revolving door”, by which key executives or scientists in industrial/commercial corporations are manoevred into government administrative posts where they influence policy, and seamlessly revert to the parent corporate sector after a tenure.
On the one hand, the Ministry of Environment & Forests (MoEF) has been re-named with Climate Change (CC) added to its designation (so now, MoEF&CC), and on the other, this same ministry is part of the PBC nexus to slacken environmental laws, rules and regulations so as to enable extractive and manufacturing industries and the hospitality industry to expand into new regions and generate profits. This increases GDP and boosts economic growth, but it is oblivious to the resulting intensification of GW and CC.
It is learned that scientists retiring or leaving the MoEFF&CC are not replaced by scientists, but by bureaucrats, who cannot apply scientific rigour to environmental problems, but uncritically obey bureaucratic and political dictats, making a joke of environmental protection.
In 2008, Prime Minister’s Council on Climate Change, Government of India, issued a 56-page National Action Plan on Climate Change (NAPCC). It states: “Emphasizing the overriding priority of maintaining high economic growth rates to raise living standards, the plan identifies measures that promote our development objectives while also yielding co-benefits for addressing climate change effectively”, and outlines eight missions and three programs for implementation.
NAPCC suffers from a fundamental conflict between the priority of maintaining high economic growth rates – which do not raise living standards but increase economic disparity – even while enhancing the ecological sustainability of India’s development path, as demonstrated below:
(#) “Maintaining high economic growth rates” (raising GDP growth rates) involves not merely higher consumption but growing rates of consumption of all sorts of goods and services. This will raise demand and consumption of oil, and inevitably result in increased GHG emissions and consequent increased GW.
(#) Promoting the present development objectives which are based upon economic growth, actually defeat measures to reduce GHG emissions and reduce the intensity of the inevitable effects of climate change. This is incompatible with “yielding co-benefits for addressing climate change effectively”.
The present economic policy and CC are incompatible bed-mates – the former cannot sleep with the window open and the latter cannot sleep with the window closed. Trying to tackle CC while actually working to sustain rapid economic growth is as illogical as trying to mop a floor dry without turning off the tap. The economic growth ideology is clearly unsustainable, and inconsistencies in the “Overview, Principles and Approach of NAPCC” display a regrettable myopia in policy.
The current economic model of endless year-on-year consumption-driven production of goods and services taken at national or global level, has serious downstream effects. Drawing endlessly on the “natural capital” of primary mineral and other finite resources for projects to boost economic growth inevitably depletes it. In turn, it adversely affects the forests, rivers and lakes, land and oceans (the “ecological capital”), which depletes. As natural capital and ecological capital are depleted by projects designed for the production-consumption treadmill, there is inevitable effect on people through displacement and loss of livelihood, which destroys or adversely modifies the social structure of communities and families, creating social tensions and unrest. Peace in society is “social capital”, since development of any sort can only be successful in a peaceful society. But the “sacrosanct” economic growth paradigm results in loss of social capital and this is evidenced by the glaring, growing economic suffering and social unrest in urban, rural and forest areas.
The divergence between money growing exponentially due to year-on-year economic growth, and energy availability remaining stagnant or reducing, can result in collapse of the financial system, ominous signs of which are manifesting in different ways.
Yet economists of all political persuasions, willing prisoners within their ivory tower of economic growth, urge the government-of-the-day to adopt urgent measures to increase consumption of goods and services, and strive for ever higher growth.
World leaders are uncomprehending or ignorant of the cause-and-effect relationship between economic policies and GW-and-CC. They are unable to relate obvious negative inter-societal and intra-societal consequences with economic growth policies, being helpless in the stranglehold of the neo-liberal PBC deep state.
GW-and-CC is a major consequence of the economic growth paradigm. Homo sapiens has brought itself along with a host of other species to the brink of a great extinction.
The way forward
It is not difficult to understand that tackling CC threats is Priority-One among a list of worldwide socio-political imperatives. Survival is not possible without protection, preservation and conservation of natural resources and bio-diversity, for egalitarian provision of the basic needs of water, food & energy, clothing & shelter, and health, education, welfare and employment, for all – emphasizing the word “all”.
This is notwithstanding that tackling CC faces strong opposition from the ruling US administration and ignorance/ indifference/ opposition among most other governments worldwide, since they all represent the interests of their respective PBC nexus more than that of the people whom they represent.
Defeating the entrenched ideology of economic growth involves organizing socio-political initiatives to give primacy to sectors such as energy, food, water, shelter, jobs & employment, health and education. Perhaps the most prominent is a political initiative in USA, called the “Green New Deal”, which bring economics to heel in the larger interest of human societies. The GND “… will convert the old, gray economy into a new, sustainable economy that is environmentally sound, economically viable and socially responsible. It seeks to solve the climate crisis by combining quick action to get to net-zero greenhouse gas emissions and 100% renewable energy by 2030 along with an ‘Economic Bill of Rights’” [<https://www.gp.org/green_new_deal>].
The GND sets a target year and proposes the way forward to meet that target. Unlike the SDGs (which actually encourage economic growth) proposed at Davos, the GND is practical, clear-headed and socially responsible, and deserves the most urgent study in all societies, for implementation.
Leaders and opinion-makers in societies need to acquire the practical wisdom to understand that climate change due to global warming is an existential threat to most living species and certainly to human societes. The threat is growing, not receding. Measures based on that understanding need implementation to mitigate the effects of climate change, and find an easier transition to so-called “deep adaptation” necessary for species survival. Solutions for mitigation and adaptation as a survival route for human societies, clearly lies in rejecting the evil of unending economic growth and adopting non-fossil-fuel-based technologies. Our lives and the lives of future generations depend on it.
S.G.Vombatkere was commissioned as an officer into the Corps of Engineers (Madras Sappers) in 1962. In 1994, President of India awarded him the Visishta Seva Medal (VSM) for distinguished services rendered during military service in the cold, high altitude region of Ladakh. He retired from active service in 1996 in the rank of Major General. E-mail: firstname.lastname@example.org