May 3, 2009

The missing link

Poor countries are facing conditionalities that demand monetary solutions to much more complex problems of development
By Zubair Faisal Abbasi
A lot of debate has been generated in Pakistan and elsewhere in the world around the social and environmental impacts of climate change. Scientific estimates and frightening stories of increased flooding, irregular rains, shortening winter and long periods of drought make a string case for climate change mitigation and adaptation strategies. The advocacy for the success of such measures ranges from outright denunciation of economic growth and modernity to escalating development of technological solutions for green-development.
The current thrust of 'growth stimulus' packages in the United Kingdom and United States appears to be tilted in favour of building technological solutions for low carbon intensity development path, without paying much head to the agenda of de-growth politics. However, the situation of the least-developed countries (LDCs) and developing countries in the context of these climate change debates is interesting.
In fact, the LDCs and developing countries are caught in layers of 'triple injustices'. Sajay Vishist, representing Centre for Trade and Development (Centad), argues that firstly, they are not responsible for a large part of carbon emissions; secondly, they are the worst affected (especially the people living in tropical and sub-tropical zones); and thirdly, they have the least capability to engineer and execute adaptation- and mitigation-based development models.
While there is an acceptance of global equity principle under the United Nations Framework Convention on Climate Change, which calls for common but differentiated responsibilities, the thrust of global commitments is far removed from any meaningful commitment by developed countries. In fact, emissions of green-house gases have been reduced in transition economies, but major developed countries have shown an increase in emissions. The US, Canada, New Zealand, Japan and the Netherlands stand in the line of environment culprits.
In the LDCs and developing countries, the debate around climate change is dominated by de-growth environmentalists. For them, the processes of industrialisation-based economic growth did a huge disservice to the world; development in the sense of economic prosperity is an illusion, and beyond the carrying capacity and fragile ecosystems of the Earth. These arguments, however, do not take the agenda of economic change vis-a-vis climate change too far in the context of the LDCs and developing countries.
In fact, the LDCs and developing countries need a sustained economic growth path and technological capability to ensure success of adaptation strategies, both at the local community and corporate industrial levels. In other words, the agenda of climate change adaptation and mitigation needs both improved governance of economic change strategies as well as strengthening of institutional arrangements for technological capability acquisition. Such an important area of strategic intervention should not be left only to de-growth anti-modernity environmentalists.
The case in point is to mainstream climate change adaptation and mitigation strategies while developing industry, trade and technology (ITT) polices. In Pakistan, this issue is not mainstreamed as economic change and development strategies, though it can ultimately build sustainable national capacities to adapt and mitigate adverse impacts of climate change. Predominantly, these are neoliberal policies with strong liking for structural adjustment based on liberalisation, privatisation and stabilisation.
The debate around the role of the state in technological capability acquisition, which formed the core of industrial development strategy, has been set aside. Interestingly, when the UK, France, Germany, Japan and the US were at comparable levels of economic development, they were using all the 'bad policies' of infant industry protection, subsidies and investment management for human and physical asset building of local technological capability development. Most of these ladders of development have now been denied to the developing countries with imposition of conditionalities that demand monetary solutions to much more complex problems of development.
As a result, a major casualty in the LDCs and developing countries are public sector development programmes, which are central to the development push in these countries. For example, rather than increasing and streamlining opportunities of relevant human capital formation through state action, funds for the Higher Education Commission (HEC) have recently been reduced in Pakistan. In short, a strong resolve by the state has been the missing link since the country started experimenting with structural adjustment programmes (SAPs) about three decades ago.
In direct contrast to the 'dictated' approach of the LDCs and developing countries, US President Barack Obama advised his economic managers to "think of what's happening in countries like Spain, Germany and Japan, where they're making real investments in renewable energy." He argued that "they're surging ahead of us, poised to take the lead in these new industries. This is not because they are smarter than us, or work harder than us, or are more innovative than we are. It is because their governments have harnessed their people's hard work and ingenuity with bold investments -- investments that are paying off in good, high-wage jobs."
Similarly, the Center for American Progress, a think-tank with close ties to the Obama administration, called last year for the government to spend $100 billion on various green initiatives. The reward, it calculated, would be two million jobs. In a sharp contrast, even conservative estimates claim that the current SAPs in Pakistan will render at least two million people jobless or below the poverty line in the next couple of years.
In a bid to reduce fiscal deficit, the International Monetary Fund (IMF) has asked the Pakistani government to restrain public expenditures, the burden of which will naturally fall on the poor. It has asked for reduction in the country's fiscal deficit from 7.4 percent of gross domestic product (GDP) to 4.2 percent, through lowering public expenditure, gradually eliminating energy subsidies, raising electricity tariffs by 18 percent and eliminating tax exemptions. Similarly, in Hungary, the IMF has targeted fiscal deficit reductions from 3.4 percent of GDP to 2.5 percent through a fiscal consolidation plan, which involves freezing public sector wages, placing a cap on pension payments and postponing social benefits.
Dr Ha-Joon Chang, in his recent articles in the Guardian, has clearly identified this approach as "economics of hypocrisy"; in the US, the state has nationalised the 'sick' banking industry while providing 'growth stimulus' under protectionist 'Buy America' policy. Such measures will increase the fiscal deficit of the US to about 5 percent of GDP. These are primarily 'bad policies', forbidden for the LDCs and developing countries. The same were also denied to East Asian countries during the 1997-98 economic crisis, when they were asked to keep surplus budgets and let their banks go down the drain.
The IMF claims to have increased social safety nets under a new SAP in Pakistan. However, Bhumika Muchhala, who works with the Third World Network, argues that "in Pakistan the cumulative increase in social spending is 0.3 percent of GDP, whereas the reduction in public spending amounts to 3.2 percent of GDP. While the IMF can accurately say that social safety spending is being doubled in Pakistan, from 0.3 percent to 0.6 percent of GDP, it is overshadowed by the fiscal deficit reduction required by the IMF, from 7.4 percent to 4.2 percent of GDP."
Considering economic change strategies with weak (and skewed) public sector development programmes, increasing poverty and lack of an independent ITT policy, the chances that the state and society will be able to respond effectively to the challenges of climate change are rather bleak. However, the dark forces of 'triple injustices' mentioned above can be converted into opportunities if governments in the LDCs and developing countries invest in the development of technology acquisition platforms for green technological capabilities under climate change adaptation and mitigation strategies, because a way to go beyond de-growth environmentalism is also embedded in this approach.

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