Tuesday, January 21, 2014

Any plausible pathway to sustainable development must involve the state

By Chandran Nair, The Guardian, UK

States cannot abdicate responsibility and rely on the private sector to lead sustainability; their choices will be the central narrative of 21st century

The consensus about sustainable development is that business should take the lead. Governments are meant to get out of the way or, at most, provide enabling conditions for the private sector. This conclusion, however, relies on a number of simplistic assumptions about the efficiency of markets and the intrinsically negative role of the state and regulation.

The private sector is roughly two thirds of the world's economy, and might seem to matter more than governments in terms of its contribution to unsustainable practices and what it can do to solve major sustainability problems. But this is a limited and dangerous way of thinking about sustainable development in the 21st century.

The primary objective of corporations is growth and expansion. This makes them wholly unsuited to leading the way on regulations for the public good that are by definition about limits and restrictions.

There is little incentive for corporations to properly price the resources they consume, which is a key factor in the current epidemic of overconsumption by a small minority in a greater context of scarcity for most. Coal-fired electrical plants do not charge their customers for the cost of polluting the air, nor do electronics companies include in their prices the social cost of production in Asia and Africa, nor the cost of disposing of these devices once they are deemed obsolete.

To think that businesses can redefine the economy alone is to also miss a key feature of many of today's fastest growing economies. On China's stock market, 80% of the market capitalisation is made up of state-controlled companies, in Russia it's 60% and in Brazil it's 35%. Of the world's top 25 oil companies, 18 are nationally owned. It goes without saying that these companies will respond to the state on which they are so dependent.

Moreover the world's population continues to rise. The strain that this puts on resources is compounded by rising consumption levels throughout the developing world, particularly in Asia. Were China and India to reach western levels of car ownership, estimates suggest they would have 2bn cars between them. Keeping that number of cars on the road would require 120m barrels of oil a day, four times OPEC's current output, to say nothing of the disastrous effects on the environment. It is unclear how corporations could even begin to act to mitigate such trends.

Business can do little to address the problem of economic inequality and inequality of access to resources. Citizens of developing countries have poor access to their own natural resources, which are often bought up by large corporations or richer nations. Left alone, these issues will only compound the long-term challenges of sustainable development.

Neither is it right to foster an over-reliance on intergovernmental organisations, even those as important as the UN. The non-binding nature of the vast majority of international agreements obstructs their effectiveness, the Kyoto protocol being a classic example. Not only is the world's second largest polluter, the US, not a signatory, but countries are free to leave without penalty, as Canada did in 2011.

The second problem is that geopolitics often derails potentially valuable agreements, especially given that most of the major international bodies are dominated by western nations. Should any developing nation attempt to stand up for itself, it is portrayed as derailing international cooperation.

Any plausible solution must involve the state. We need more effective government institutions. The specific form of a state's political system will be less important than its institutional structures, and their capability to generate and implement policies that can realise the changes necessary in resource and environmental management.

The state will need to be active in its intervention and tough in its regulation. This will include not just taxes and tariffs but, when necessary, strict limits placed on resource use or consumption. At the heart of this is tackling the underpricing of resources and other environmental assets such as clean air and water. Left unchecked, this exploitation will result in large scale disenfranchisement and social unrest, something that only states, not corporations, have the mandate to prevent.

None of this is to say that states are flawless, or that state intervention is always successful, or that the private sector has no role to play. New business models that are both socially beneficial and commercially viable will go a long way towards tackling the problem. Technological innovation, properly regulated, can also make a difference. But none of this can come at the price of states abdicating their responsibility to their citizens and hoping that the private sector will come to the rescue.

State-led governance in a century defined by resource constraints is vital to balance the essential need to use resources to better billions of lives, with the equally important need to avoid the potential environmental catastrophes that come with reckless exploitation. The choices states make will be the central narrative of the 21st century.

Any plausible pathway to sustainable development must involve the state