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Tuesday, June 7, 2011

A new, sustainable growth model for Asia


By MICHAEL SPENCE

MILAN — Led by Asia, the share of the global economy held by emerging markets has risen steadily over recent decades. For the countries of Asia — especially China and India — sustainable growth is no longer part of a global challenge. Instead, it has become a national growth-strategy issue.

Over the next few decades, almost all of the world's growth in energy consumption, urbanization, automobile usage, airline travel, and carbon emissions will come from emerging economies. By mid-century, the number of people living in what will be (by then) high-income economies will rise to 4.5 billion, from 1 billion today. Global GDP, which currently stands at about $60 trillion, will at least triple in the next 30 years.

If emerging economies try to reach advanced-country income levels by following roughly the same pattern as their predecessors, the impact on natural resources and the environment will be enormous and probably disastrous.

One or several tipping points would most likely bring the process to a screeching halt. Energy security and cost, water and air quality, climate, ecosystems on land and in the oceans, food security and much more would be threatened.

At present, almost any standard measure of the concentration of global economic power would show a declining trend. If that continues, the result will be a world in which each country's contributed pressure on natural resources and the environment will make sustainability a major global challenge. To change course, global agreements that impinge on growth would be needed, along with systems that ensure compliance.

The trend in concentration will reverse about a decade from now, owing to the size and growth rates of India and China, which together account for almost 40 percent of the world's population.

Although their combined GDP is a relatively small fraction of global output (about 15 percent), that share is rising rapidly. By mid-century, India and China will account for 2.5 billion of the 3.5 billion additional people with advanced-country incomes. By themselves, they will cause global GDP to at least double.

For India and China, sustainability is no longer mainly a global issue; it is a domestic challenge to long-term growth. Their growth patterns and strategies, and the tradeoffs and choices they make, with respect to lifestyle, urbanization, transportation, the environment and energy efficiency, will largely determine whether their economies can complete the long transition to advanced-income levels.

There is a growing awareness among policymakers, businesses and citizens in Asia that the historical growth paths that their predecessors followed simply won't work, because they don't "scale" to a world economy that is triple its current size.

As a result, these countries will have to invent new growth patterns to reach advanced-country levels of development. They are too big to be "free riders," so the incentives relating to sustainability are becoming internalized as national priorities. Perceptions are rapidly coming into line with the reality that sustainability must become a critical ingredient of growth. The old model won't work.

No one knows how to achieve sustainability at three (or more) times the size of the current global economy. That objective will be determined by a process of discovery, experimentation and creativity, with tradeoffs along the way. But the incentive to ignore these issues is gone.

The large, high-growth emerging economies have certain advantages. Integrating sustainability into growth strategies and policies is in their self-interest, and it is consistent with their long-term time horizons. The legacy assets that one finds in advanced countries — the way cities are configured, for example — don't have to be replaced to the same extent. China's 12th Five-Year Plan lowers the growth forecast (to 7 percent) to create "space" to deal with issues like equity, sustainability and the environment. A new growth path has been discovered.

The emergence of sustainability as a crucial element in growth strategies in the world's future largest economies is an extraordinarily positive development. But how could a tripling of global GDP and a fourfold expansion of the world's high-income population be good news?

Well, it depends on what one thinks the alternative is. Slow global growth would benefit natural resources and the environment, but that won't happen unless the world's resource supplies and environmental underpinnings collapse.

As Asians drive growth toward more sustainable patterns, they will increase the incentives for others to do so by generating new technology, lowering the environmental cost of growth and undercutting the argument that leadership incurs various costs but few benefits.

Michael Spence, a Nobel laureate in economics, is professor of economics at New York University's Stern School of Business and senior fellow at the Hoover Institution, Stanford University. © 2011 Project Syndicate


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