[Reblogged from Environmental Scientist]  

Today’s US$80 trillion annual global economy delivers livelihoods for billions of people. Economic growth over the last half a century alone has lifted hundreds of millions of people out of poverty, unlocking resources for improved health and education, and enabling us to address many of the objectives embodied by the Sustainable Development Goals (SDGs, or Goals). Yet despite such successes, the global economy will have to change dramatically if we want to meet the Goals by 2030, or indeed at all. ‘Business as usual’ will not only fail to deliver, but may actually move us away from our collective aspirations.

WHAT’S THE CURRENT FINANCIAL SITUATION?

Today’s global economy delivers much that is needed, and much to admire and desire. But it also has many unintended negative effects. Income inequality within nations has risen rapidly over recent decades. New manifestations of poverty have become an embedded part of many middle and upper income, as well as so-called developing countries. Decades of excessive consumption, powered by low cost production in China, has resulted in significant global economic and financial imbalances, and has accelerated environmental damage and climate change. Such consequences of this period of globalisation have contributed to an unemployment crisis in many developed countries, soon to deepen and broaden as automation removes hundreds of millions of job opportunities. Populist politics in this context is an unsurprising outcome, along with retrograde views about everything from political rights to environmental stewardship.

So on the eve of this phase of globalisation, we must count its costs as well as plentiful material benefits. Most pressing is that the ecosystem on which we all depend is in a precarious state. An average of 26.4 million people have been displaced from their homes by natural disasters every year since 2008 – equivalent to one person every second.[1] It is estimated that 6.5 million premature deaths result every year from exposure to poor air quality linked to energy production processes[2] and 21 of the world’s 37 largest aquifers have passed their sustainability tipping point.[3] Greenhouse gas emissions add energy to the Earth’s system at a rate equivalent to the detonation of four nuclear bombs every second.[4]

Needless to say, environmental and climate challenges translate into social, economic and ultimately political stresses. Migration from the Middle East to Europe has many roots, one of which is the impact of climate change on regional livelihoods, communities and security. Resulting migration into Europe has in turn impacted the political climate, influencing critical turning points such as Brexit and more broadly the rise of political movements averse to the pursuit of global public goods.

The global economy has to pivot towards an inclusive, green, climate-resilient pathway, and quickly. Some vital signs offer optimism: falling costs of clean technology have led to an upsurge in investment, notably in solar energy; and increasingly, planned coal-fired power stations are being shelved, notably in China and now also in India. Low cost battery technology will soon be with us, opening massive opportunities for investments in a new energy system that will deliver clean, low-carbon, distributed power that will light up our homes and hospitals, and drive our cars, trains and eventually our planes. Intersecting and amplifying these developments is the digital revolution that will transform our relationship with our physical world, and our use of natural capital. The ‘internet of things’ (enabling the cradle-to-cradle digital tracking of everything we produce and use), combined with localised production enabled through automation, holds out the prospect of building circular economies for everything from cars to shirts, enabling us to reduce the use of new natural capital to almost, if not actually, zero.

WHERE ARE THE WEAKNESSES?

Humans’ technological prowess however, is matched by our weak track record in creating large-scale collective action for the common good, and our inimical capacity to resist or compete away changes that could benefit us all. An estimated US$5-7 trillion a year is needed to realise the SDGs, mainly for low-carbon, productivity enhancing and infrastructure investment in developing countries. Yet today, the global US$300 trillion financial system has failed to channel peoples’ savings into these investments, profiting more by having them languish in pension funds earning paltry or zero interest rates, and thus threatening the security of tomorrow’s pensioners. Indeed, such low interest rates are attributable in large to the efforts of central banks to reboot the global economy through easy money policies that, in practice, have mainly benefited the owners of financial assets. Such owners are the very richest one per cent, whose visible enrichment has underpinned the populist economics that makes international cooperation so difficult.

Realigning the global economy with the SDGs is not like drawing a blueprint for a car, or designing a building. Hundreds of billions of transactions every day trade billions of products, made by hundreds of millions of businesses, across hundreds of thousands of different legal and policy jurisdictions. In so complex and dynamic a system even the simplest and best-intended policy measures can have the most unexpected consequences. Reaching agreement at a global level is painfully difficult at best and often seemingly impossible, which illuminates the astonishing success of the Paris Agreement on climate, and the universal embrace of the Goals themselves. Yet making things happen quickly at a greater scale is tough, highlighting the considerable challenge in implementing the Goals and the Paris Agreement in a meaningful timescale.

WHAT DOES THE FUTURE HOLD?

Transforming the global economy, at scale and in time, is possible. Watchers, entrepreneurs and activists might keep their eyes on the following five areas to assess or contribute to progress. Narrative, first and foremost, counts. We need to make the Goals everyone’s dashboard, from national accounting to business reporting, and from the teachings in churches, temples and mosques to the curriculum of every classroom. Moreover, such a narrative needs to offer a vision of how success in reaching these Goals can be integral to the next phase of globalisation.

Second, we need to align the global financial system, the lifeblood of the global economy, with the Goals. The UN Environment Programme’s Inquiry into Design Options for a Sustainable Financial System, an initiative launched in 2014 to explore how financial and capital markets could more effectively internalise sustainable development into decision-making, has demonstrated beyond any doubt the critical importance of this agenda, and the practicality of advancing it.

Third, we need to harness the power of knowledge, notably the capacity of clean technology to deliver green, zero marginal-cost energy, and the penetrating influence of digital technology. The nexus between the two, for example, has proven potential in delivering distributed renewable energy at scale to poor communities through the use of mobile payment platforms, increasingly combined with big data, crowd-funding and blockchain.

Fourth, we need to reinvent the means to ensure an equitable distribution of income, especially as automation undermines the role of many labour markets in recycling the financial fruits of production. Ideas like ‘basic income’ for all may have come of age, both for reasons of equity and to secure macroeconomic stability.

Finally, we need to evolve new forms of accountability. The pillars of democracy and good governance are threatened on many fronts, from the dynamics of populism through to the intrusive aspects of big data and artificial intelligence, and, internationally, as multilateralism reinvents itself to meet the challenges of a new era of globalisation.

[1] Internal Displacement Monitoring Centre (2015) Global estimates 2015: People displaced by disasters. www.internal-displacement.org/publications/2015/global-estimates-2015-peopledisplaced-by-disasters

[2] International Energy Agency (2016) World energy outlook special report 2016: Energy and air pollution. www.iea.org/publications/freepublications/publication/weo-2016-specialreport-energy-and-air-pollution.html

[3] Alexander, R., Ehrlich, P., Barnosky, A., García, A., Pringle, R. and Palmer, T. (2015) Quantifying renewable groundwater stress. World Resources Research, 51 (7), pp.5217–5238.

[4] King, D., Schrag, D., Dadi, Z., Ye, Q. and Ghosh, A. (2015) Climate Change – A Risk Assessment. Cambridge: Centre for Science and Policy.