Living within limits

Chandran Nair
The South China Morning Post

Asia must reject consumption-led growth and start putting constraints on the use of resources, writes Chandran Nair.

The last 30 years have seen more people rise out of poverty than at any time in recorded history, mostly due to Asia’s rapid economic development. This development has been largely fuelled by meeting rampant consumption needs in the West – a seemingly unquenchable thirst for cheap Asian-made goods – and relentless application of the growth-led economic model to Asia itself.

Since the financial crisis, leading economists and policymakers have been urging Asia to make a conscious effort to consume more to help restore global imbalances. This is a view shaped by conventional wisdom and hypocrisy, given that at the same time there are calls for all, especially Asian giants such as China and India, to reduce the growth of carbon emissions and other pollutants. This outdated view conveniently refuses to acknowledge the contradictions, the uncomely effects of consumption and the possible limits to growth.

Try, for example, imagining a world by the middle of this century in which 4-5 billion Asians are consuming like Americans, which is what they are being told to aspire to do. As Asia rises and expectations increase, the 2 billion Asians now at the margins of the consumption economy will radically transform global demand and supply, not only for nonrenewable commodities such as oil and coal but also for renewables such as food.

Take cars as an example. China is already the world’s biggest car market and many hope India will follow suit. Car ownership in China is around 150 per 1,000 people and in India it is only around 30 per 1,000, compared to an OECD average of 750 per 1,000. If both China and India reach Western ownership levels, as the auto industry hopes, there will be up to 1.5 billion cars just in these two countries – probably requiring almost all of Opec’s daily oil output just to drive them. Technology and green cars are offered as answers to these concerns, without acceptance that these are likely to remain toys for the richer.

In light of the evidence to date, Asian governments and policymakers must take stock and reject the consumption-led “growth at any cost” model which has driven the global economy to date. They must question the ideological faith of the business-as-usual advocates in finding solutions through supposed innovations in technology and finance, all aided and abetted by free markets.

Nonetheless, rejection will not be enough and they will need to develop alternative policy plans.

This means shaping policies around the following core principles:

First, resources are constrained – economic activity must be subservient to maintaining the vitality of resources.

Second, resource use must be equitable for present and future generations – collective welfare must take priority over individual rights.

Third, resources must be re-priced and productivity efforts should be focused on resources and not people. That means more people using less material.

Two key mechanisms available to governments in Asia are pricing and limits.

First, pricing – through the imposition of taxes and fees, and the removal of subsidies along all parts of the value chain so that externalities are factored into the price of goods. This will enable governments to start to put a true price on the goods and services provided by the environment, much of which has been a free ride for industry. They should start to tax not just carbon emissions but also the use of critical resources such as water and minerals.

Second, limits – putting caps on the use of resources, including, where appropriate, outright bans. In this regard, tough action must be taken on forests and fisheries, action that will include the fight against corruption. Relying on markets to work is to hark back to a failed ideological premise promoted by the West.

These actions will have a direct impact on the most egregious forms of consumption. They will force companies to adapt to a new resource pricing and consumer reality.

Most importantly, they will begin to change behaviour and expectations, and allow more to have a fairer share of limited resources. Under these conditions, land, water and biodiversity would be distributed, used and priced in relation to promoting industrial agriculture and food production such that palm-oil-based cookies, for example, were not so exaggeratedly underpriced any more.

If Asia, especially China, India and Indonesia, does not lead the way then we need to accept that the threat of climate change and other looming environmental challenges will only get worse, and we are going to live in a very bleak world.

Asian governments will need to demonstrate that the actions they take are not only necessary but are equitable and will benefit the majority, and are therefore legitimate. They should make it clear that it does not mean saying that people will be poor or that they cannot aspire to be prosperous. It means that their expectations have to be aligned with the constraints under which all societies will have to operate – but Asian ones (almost certainly) first of all. Needless to say, suggesting a future where economic policy is framed around limits, restraint and restrictions is to invite controversy and even ridicule, but Asian governments must start now. They have no choice. They will be held accountable and responsible, not just by their citizens but by the world.

Asian political and business leaders must now grasp the mantle of leadership for a resource-constrained world, as others cannot. This requires a rejection of the current model of consumption-led economic growth, which thrives on underpricing externalities. This will also require them to be politically bold at home. For this reason, the future of the 21st century will depend as much on decisions taken in Beijing, Delhi and Jakarta as in Washington or London.