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Pew Research Centre in the States specialises in exploring social and demographic trends. Its latest piece of research (which shows trends from 1973) shows that the average American no longer has the same attachment to their tumble dryer, microwave, dishwasher or even T.V than they did three years before. The microwave in particular, has taken an hammering. In 2006, 68% of those surveyed argued that their microwave was a necessity, this has now fallen to 47% of Americans. The T.V – a seemingly staple product in the houses of the more fortunate, is now regarded as a necessity by 52% of people, from 64% in 2006, this is particularly prevalent amongst young adults. The proportion of people who regard TV as a necessity is the lowest its been since the same question was asked 35 years ago.

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Despite these possibly positive signs for the environment, the recession has done little to impact the love of the car – with 88% of Americans rating the car as a necessity (down only 3% from 2006). It would be interesting to compare this data to other countries, where public transport links and cycle lanes are seen to be particularly effective, where geographical distance is not so significant and urban planning is not based on the use of a car. Despite the reluctance to give up the car other changes in spending habits and technology uses are likely to have a positive impact and these changes in attitudes towards luxuries and necessities have been across the board – not just amongst those who have been worst hit by the recession, such as the unemployed.

It may be that as soon as the recession is over that our idea of necessities shift once again and for that reason it is imperative that regulatory change is implemented on the back of this positive move toward thrift. One of the most tangible is the UK government’s plan to have smart energy meters in all homes by 2020. According to the Guardian, the new meters will send information on real-time electricity and gas use in households and small businesses direct to utility companies, eliminating the need for customers to stay at home for meter readings or to receive over-estimated bills. Previous studies have shown that smart meters encourage homeowners to cut their energy use by 3-15%, although experts warn that the technology requires consumer education and is not an “install and forget” energy-efficiency measure like loft insulation. They will play an important role in highlighting the amount of energy used by everyday household appliances, showing a surge in energy usage, for example, when the kettle or T.V is switched on. However, some of the most obvious financial gains will be for energy companies who will save time and money by being able to calculate energy usage remotely – let’s hope they invest these savings in developing low-carbon technologies. Although a necessity, smart energy meters won’t solve the issues of climate change alone.

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Several of Sustainableslump’s posts have discussed the impacts of the recession on buying habits and society’s value towards consumption. Whilst on the surface this might not seem like an issue that directly affects the developing world, our purchasing practices can profoundly shape the livelihoods of others that dominate the production of the goods that fuel our seemingly endless appetite for shopping.

Consumption and the recession provides the perfect example of just how complex and correlated all the factors involved in the complicated interplay between sustainable development and the recession really are.  

For example, whilst some experts believe that the recession could boost responsible retailing and decrease some of the environmental damage associated with radical economic growth, growth in sales for ‘lower end’ retailers such as Lidl, Aldi and Primark and falling sales in Organic produce suggest that for a proportion of the market ‘sustainability’ and ‘quality’ just aren’t relevant decision-making factors.

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Some trends suggest that consumers are beginning to return to ‘older’ values of quality over quantity and in regards to fashion in particular, of classic and high quality over cutting-edge and ‘quick’ fashion pieces churned out by the Primarks of the world.

In both these circumstances, however, it may be that the developing world loses out – if shoppers in the west are buying less (albeit of a better quality), factories will have to close and unemployment will inevitably rise. If cheaper retailers come to reign supreme downward price pressures on the market as a whole could occur as retailers compete in ‘a race to the bottom’, putting pressure on labour costs, production costs, margins and ultimately the value accrued by producers in the developing world.

In so many ways the recession brings up more questions about the relationship between economic growth and sustainable development than it could ever answer.  Let’s hope that effective measurement and research will make some interesting conclusions once the market recovers…..

Nudging – a relatively recent buzzword, involves slightly changing the playing field to make it easier for us, or more tempting for us as so called ‘rational economic agents’, to make changes to the way we act, without us feeling any pressure or force to do so, as we might through official legislation. Choice is maintained – we can still do the opposite, but it becomes more attractive for us to make choices that indirectly, but very purposefully, have positive impacts for the environment or society – or most commonly practised for the benefit of  businesses.  A business example is a magazine subscription. If your subscription continues automatically for the next year without you having to actively renew it (such that you have to ‘opt out’ rather than ‘opt in’)  larger subscription rates are achieved than in a scheme where you have to make the effort to sign up to each year.

Another example of a nudge might be the idea of ‘framing’. For example, people told that an ice-cream is ’90 per cent fat-free’ are far more likely to agree to a second scoop than those who are told it contains ’10 per cent fat’. Thus a business might sell more if it frames facts in the right way. This can also be put to more meaningful uses.

The book ‘nudge’ is co-authored by Richard Thaler, a professor of economics and Cass Sunstein a professor of jurisprudence, who were both at the University of Chicago when the book was written. The idea is that nudging takes a ‘third way’ between proponenants of interventionism and those of ‘Laissez faire’.

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Thaler and Sunstein use behavioural economics ‘to justify their belief that nudging is truly liberating rather than manipulative or coercive; that is to say, nudges are devices to overcome the unreliable rules of thumb or irrational biases that inhibit us from acting on our own genuine preferences, and are not instruments to make us realise the preferences of others’ (Kerr, 2008).

For the environment, nudges might involve charging a small fee for plastic bags at the supermarket or not having an infinite amount of bags available at the end of a check out. Instead you have to ask the till assistant to give you each bag you require. It might involve having smaller bins to cut down on the amount of rubbish people throw away or having smart energy meters that compares your energy usage to your neighbours. The options are almost endless.

For the economy ‘nudges’ are also thought to be particularly relevant in a recession and to the current banking crisis: ‘This is because, unlike conventional economists, Thaler and Sunstein accept that people act irrationally and banking reform has to be based on the acceptance that markets are irrational too. ‘ As George Osborne from the Conservatives argues:

‘Markets can behave irrationally. The people who make up markets can behave irrationally. This isn’t a failure of capitalism, it is a feature of capitalism’ (The Guardian).

Mr. Thaler believes that carefully applied nudges might help ameliorate some of the problems that led to the financial crisis. However, according to the New York Times ‘some nudges need to be more forceful than others. For example, rigorous public disclosure of leverage (the ratio of debt to capital) would be a burden. But it might be necessary to induce the people who run hedge funds, insurance companies and big banks to behave more sensibly.’ Greater disclosure might allow people to make wiser choices.

Thaler is a fan of electronic disclosure and uses the example of credit cards to show how this might work:

‘Once a year your credit card provider would have to send you two electronic files. The first would be essentially a spread sheet that characterized every way in which the provider can charge you for something, from late payments, to interest rate changes, to charges for currency exchanges. The second file would just be a list of everything you did in the past year that incurred a charge. We predict that Web sites would quickly emerge to translate and evaluate these files so consumers would understand how they were being charged and what they did to incur charges. The web sites would also provide information on alternative suppliers that would be better given the customer’s usage.’

Could ‘nudging’ be the future of sustainable economic growth that avoids future economic crises and makes headway towards environmental progress? Obama and the Tories certainly seem to think so……

An article by the ODI argues that social protection is now a global imperative. It is in all of our interests to ensure that progress made in development over the last decade, particularly towards meeting the Millennium Development Goals isn’t undone by the current financial climate. McCord, from the ODI, argues that in previous crises, a lack of action to protect the poor exacerbated poverty and inequality and had a negative effect on economic growth. The crisis, has reminded us, more than ever, how very interconnected the world is. Countries are no longer immune from financial crisis in another.

The G20 made an commitment to care for the poor through a fund for social protection – McCord suggests ways in which this fund should be put to use. However, she does not deny the difficulties in providing urgently needed social funds when countries are faced with falling revenues – what she calls ‘the paradox facing developing country governments’. Macroeconomic stabilisation and growth strategies will not be enough – they will fail to help the impoverished.

What should be done?

McCord believes we should:

  1. Increase funding flows to the developing world on a medium-term basis. Predictability of ODA (overseas development assistance) becomes even more crucial if developing governments are to take ownership of social protection programs. They should ‘include multi-year ODA packages to safeguard the provision of basic health and services and the extension of social protection for growing numbers of poor’.
  2. Recognise institutional constraints. Many developing countries lack the technical and managerial skills required to develop, manage and implement social protection programmes. This could limit the effectiveness of increased flows of ODA for social protection programmes. As a result money should also be invested in capacity building and institution building.
  3. Rationalise existing social protection expenditure. This could enable governments to improve targetting to the poor, focus on more equitable social protection coverage and harmonise initiatives at the country level to improve efficiency and reduce duplication of effort and resources.
  4. Protect social protection expenditure. The temptation exists to cut health and education budgets during periods of financial constraints. It is essential that expenditures in these areas are protected.

A article by ODI’s Dirk Willem te Velde argues that the G20 should consider a global fiscal stimulus, ‘with a significant part for early disbursement to poor countries‘. Growth revisions made by the IMF up until February 2009 calculated losses of more than $50 billion in Sub-Saharan Africa and $750 billion in developing countries as a whole. Few developing countries can afford the kind of fiscal stimulus needed to ‘address a crisis originating from the developed world’, despite the fact that many developing countries possess larger reserves than they may have done previously. Willem te Velde argues that a ‘rainbow’ coloured set of stimuli should be implemented to help the developed and developing world cope with the recession. Blue – represents market forces, green environmental considerations and red – Keynesian state intervention.

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1) The blue:

Accelerating support for the private sector (on the supply side) by creating an appropriate framework for investment. Investing in infrastructure. However, to ensure that the outcomes are desirable and socially beneficial, global trade rules need to be implemented.

2) The green:

Implement green stimulus to correct the significant market failure that the price of energy does not reflect the cost of its environmental externalities. If this were to change, trade and growth strategies would not exacerbate climate change and might contribute to positive changes to help meet the urgent and necessary CO2 emission targets. Secondly, there are information-related market failures relating to the adoption of  green technology and technical change.

Further stimulus could go to measures to ‘help people adapt to the realities of climate change’.

3) The red:

Market intervention – inject finance into the economy to stimulate consumption and demand. This could stabilise the macroeconomic situation in the short-term. These could include tax reductions of government transfers or public investment support for growth orientated policies.

Willem te Velde claims that developed countries should have significant interest in supporting this fiscal stimulus for developing countries. Firstly because the crisis originated from the developed world. Secondly because growth in the developing countries has contributed a great deal to previous growth in the developed – for example through China’s large importation of goods and services from developed countries. The flip side of this argument is what hurts the developing world will exacerbate the crisis for the developed world. Not supporting developing countries, when they do not have the resources to implement such fiscal stimulus, may encourage a ‘beggar thy neighbour’ or a protectionist attitude to be adopted by the developing world, which may further negatively affect the developed world.

How much is needed?

The IMF believes that 2% of GDP could be enough and WIllem te Velde believes much more needs to be given to Aid for Trade and for investment in infrastructure.

What is clear, I think, is that the economic crisis is very much a global one and will require a global solution. Although the temptation exists for countries to retreat inwards and concentrate on their own, erecting invisible, but very real walls, this will achieve very little in the long run and is likely to lead to protracted decline.

I recently attended an event hosted by the ESRC which explored the recession and the green economy. It asked how we can best move to a ‘green economy‘ – an alternative economic model that incorporates social and environmental concerns – whilst also stimulating the economy and helping to move out of the depths of a recession.

A statistic quoted by Professor Paul Ekins was perhaps the most powerful ever cited in relation to the impacts of climate change on humankind: ‘if current emission pressures continue, by 2100, the world will only be able to support 1 billion people. The projected population for 2100 is 9 billion.‘ As a result of our inability or unwillingness to act 8 billion people may effectively cease to exist. This is worse than any prediction previously made and yet it represents the current trajectory, we are moving, like a juggernaut, along. He argues that we now face a low carbon imperative.

Developpement durableEkins argues that a transformation to a low-carbon economy is the biggest challenge facing human kind, but one that we must face with urgency and strength. The UK is already way behind other parts of the world. China, for example, will have put in place 100 GW of wind power by 2020. The UK will have 1.7 GW. Low carbon technologies will be at the heart of the next industrial revolution. Germany is also way ahead of the UK, providing increased jobs, outputs and exports through its transition to a low carbon economy. Ekins says there are three priorities for the UK government:

1) Fiscal stimulus (in the short term only) –

Support employment and skills which benefit from and contribute to developing a low carbon economy. Incentivise private investment in low carbon technologies. All public investment in a fiscal stimulus package should support low carbon objectives, even if this is not their primary purpose. For example, all hospitals should be built to the highest environmental standards. There should be no support for high carbon industries. We cannot continue with a business as usual approach. This needs to be a transformation. Increasing the energy efficiency of building stock is one of the greatest opportunities for labour intensive measures – contributing to economic growth. The government can also set an example by changing laws relating to double glazing on listed buildings and transforming their own to ‘low carbon friendly’ buildings.

2) Leveraging private investment

The UK is currently an unattractive destination for low carbon investment. Spain has reduced its investment in wind farms because of a lack of support from the UK Government. There needs to be the right mix of revenue support, capital grants, tax incentives, partnership investments and revolving funds.

3) Environmental tax reform

15-20% of tax revenue should come from green taxes by 2020. We need a green tax shift. This would give us a robust carbon price across all taxes and would lead to a large reduction in carbon emissions, an 450,000 increase in jobs and only a 0.5% reduction in GDP.

Ekins argues that the 2009 budget reveals some inkling of a tax reform. For the first time since 2000, fuel taxes will provide their greatest revenues. The trend to date has been falling revenues from fuel. But this needs to go further. Skeptics have argued that moving to a low-carbon economy would be fruitless because we would merely be buying ’embedded carbon’ – buying imported products that have been produced using high carbon processes elsewhere. This would mean that whilst our direct actions would signify a move to a low-carbon economy, our purchasing habits might not be so benign in their impact.

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Ekins argues that undoubtedly we need a global response and a global framework to prevent some countries drastically cutting their greenhouse gas emissions whilst others continue using carbon intensive technologies regardless. However, the UK can and must, work unilaterally and become a ‘first mover’, setting an example to the rest of the world about what can be achieved and prove we are commited. There are likely to also be ‘first mover advantages‘ in doing so. Emerging markets will then follow suit.

Robert B. Zoellick, president of the World Bank Group argues that now is the moment to ‘seize opportunity from crisis’. He believes this can be achieved through multilateralism, through ‘reforming and empowering’ the institutions already in place.

He celebrates Keynes as a crucial founder of multilateralism – through the creation of the cornerstones of the World Bank Group, the International Monetary Fund and the World Trade Organisation during the era of World War two and argues that like Keynes we should ‘not shrink away from unifying ideas and actions’ despite the current crisis. He argues that ‘unlike crises in the past sixty years, this is a global crisis’. It therefore demands a global solution. He believes that multilaterlism can magnify the advantages, and temper the downside risks of economic interdependence. It can provide an important monitoring system and control and ensure that the global economic system, particularly trade, is mutually beneficial for all parties.

 He paints a bleak picture of the global context that frames his thoughts and the urgency with which he believes we must act:

The World Bank’s latest estimate of global economic growth in 2009, released today, forecasts a contraction of 1.7% compared to economic growth last year of 1.9%. This would be the first decline in the global economy since World War 2. We also face a 6% drop in the volume of world trade in goods and services, the largest decline in 80 years…just as our economy once helped to lift hundreds of millions out of poverty, today there is a risk of development in reverse, as our interconnected world transmits negative shocks with greater power and velocity.’

Zoellick recommends that as a first step, the G20 should ‘endorse a WTO monitoring system to advance trade and resist economic isolationism, while working to complete Doha negotiations to open markets, cut susbidies, and resist backsliding. We are already seeing creeping protectionism – measures taken at the expense of other countries: ‘Buy this’ or ‘buy that’ campaigns’.

Drawing more seats to the table

It is important, however, that multilaterism serves the interests of developing countries and that open markets aren’t enforced blanketedly on developing countries without their consent and participation in decision-making and an assessment of country-specific and developmental factors.

In Zoellick’s opinion developing countries can be a key part of the solution to the global economic crisis. However, their economies need support from the developed world to ensure that social programs aren’t negatively impacted by the recession and that development and poverty gains achieved aren’t undone. He has called on developed countries to invest 0.7% of their stimulus packages in a Vulnerability Fund to help developing countries.

He proposes supporting developing countries to invest in infrastructure, building productive capacity to pay back loans. This will boost global demand.

Zoellick concludes that if develping countries are going to be part of the solution they must have ‘seats at the table’. The G7 was not inclusive enough to suit the ‘economic realities’ of the time. But the G20 has the potential to do so. However, it still excludes over 160 countries. Zoellick argues that multilateral institutions have an important role to play with their ‘broader membership’ in connecting the G20 to the rest of the world.

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‘The World Bank’s Board of Governors made a start this year with a first phase of reform to increase the influence of developing countries, but we must now go further to rebalance voting shares and Board seats. Making those changes will require that both Europe and the United States reconsider old prerogatives and controls. How they do this is a decision for governments. But I would urge them to be bold and far-sighted. The rising stakeholders must also recognise that with rights come responsibilities, including to boost development assistance’.

Reform is indeed long overdue. Lets hope as Zoellick hopes, that governments can be bold and far-sighted resist the temptation to withdraw and look after their own.

The video below from BBC’s Newsnight is an example of just some of the debates raging over the impacts of the recession on ’emerging economies’ and whether the notion of ‘decoupling’ still holds true in an increasingly globalised world. It argues that the impacts of the recession may be minimal for China and India when compared to the West and will neither exacerbate the crisis in the West nor will it help lift the West out of a crisis. However their global growth rates will improve how the global economy looks as a whole. It argues that the way in which the global economy is governed and how economies interact with one another will need to be significantly re-organised. The move from G8 to G10, including India and China is ‘long overdue’ and the balance of power is shifting. China and India and other emerging economies need to be better represented in the global economic system.Vodpod videos no longer available.

more about “A global recession? “, posted with vodpod

A major report published recently by the government’s sustainable development advisor argues, unsurprisingly perhaps to some, that the relentless pursuit of economic growth is one of the root causes of today’s financial meltdown. Not only has the economy finally collapsed revealing serious weaknesses in our financial systems and our management of the economy, but it also failed to deliver growth in a equitable and environmentally sustainable way.

‘Growth has delivered its benefits, at best, unequally. A fifth of the world’s population earns just 2% of global income. Inequality is higher in OECD nations than it was 20 years ago. And while the rich got richer, middle-class incomes in Western countries were stagnant in real terms long before the recesssion. Far from raising tghe living standard for those who most needed it, growth let much of the world’s population down. Wealth trickled up to the lucky few…in the last quarter of a century the global economy has doubled, while an estimated 60% of the world’s ecosystem have been degraded. Global carbon emissions have risen by 40% since 1990 (the Kyoto Protocl ‘base year’). Significant scarcity in key resources – such as oil – may be less than a decade away.’

The report argues that despite the perception that now might not be the best time to question the need for further economic growth (or, indeed a return to better times), a recession is, in fact, the best time to re-assess our value systems and our seemingly relentless desire for wealth. We have reached an important and world-defining crossroads:

‘This may seem an inopportune moment to question growth. It is not. On the contrary, this crisis offers the potential to engage in serious reflection. It is a unique opportunity to address financial and ecological sustainability together.’crossroads

The report argues that we need to ‘address the social logic of consumerism.’ This will be particularly difficult for the West, where consumption represents our society’s dominant value system. The report argues that the structures that dominate our society ‘sends all the wrong signals, penalising ‘good’ environmental choices and making it all but impossible, even for highly-motivated people, to live sustainably without personal sacrifice.’

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The report makes very valid points, but I fear society has walked too far down the infinite path of consumerism and growth, to return with ease to a set of values that rejects consumption and embraces the simple, non-material things in life. Unfortunately something much more dramatic than the recession is needed to bring about systemic change. My fear is that the recession and the widespread fear within society of its possible impact on our standards of living, has only consolidated economic growth as king.

largentNew estimates from the World Bank reported in The Economist show remittances to the developing world continue to rise, and rose to $305 billion in 2008. The Bank’s expert Dilip Ratha argues the sustainability of remittances during hard financial times owes to the relatively small sums remitted [around 5% of a migrant’s income]. Further, while the current crisis is expected to reduce migration from poor to rich countries, as job availability falls and border rules tighten, most remittances are from long-standing migrants whose contribution is over 95% of all flows. 

Assuming these remittances are invested wisely, the buffer this sustainable support gives to ongoing livelihood development in developing countries should remain, further insuring these country’s populations from the severest impacts from the recession.