Sustainable Development

Development that meets the needs of the present without compromising the ability of future generations to meet their needs.

Presentation—Forum of Economists, IFMRBalázs Horváth, UNDP Bratislava Regional Center

Development—The Big PictureSustainability: the framework for understanding development

• Seeking to sustainably raise people’s welfare in a globalized world • Talk takes a global view; not about Uzbekistan; some about region

In a nutshell: sustainable development is a useful, simple overarching framework for understanding development

Growth is a prerequisite for welfare improvement, but not sufficient• Higher income must be equitably distributed• Must not be at expense of stocks of physical, human & natural capital• The government, market & community initiatives each have a role to

play; each have inefficiencies (luckily, in different aspects)• Need a patchwork of policies adding up to a critical mass globally.

BackgroundWorld population: 7 billion today; predicted to reach 9 bn by 2050…

2.6 billion lack basic sanitation

1.3 billion no access to

clean water

1.1 billion lack

adequate housing

900 million have no access to modern health care

The Richest 20% consume 83% of the world’s resources

The Poorest 20% consume 1.3% of the resources

1.6 billion lack access to electricity

925 million are undernourished

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If we keep current production & consumption patterns Two Planets Needed by 2050

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Since 1990, our Ecological Footprint exceeds Earth’s bio-capacity;

Bottom line: We are not doing so well, and business as usual

will not work: rising environmental, social and

economic tensions, volatility.

2002 2050

4

1900 2100

Development is sustainable if human capital, knowledge capital, natural capital and produced capital that society

disposes over do not decline over time (Arrow et al., 2004).

Economic, social & environmental pillars—interdependent

Three-legged stool: any leg weakdisbalance» Economic: Iceland, Ireland, Greece » Social: Tunisia, Egypt» Environmental: Central Asia, Maldives, Bangladesh

Framework for analysis, and for robust policy ideas• Synergies, trade-offs and feedback loops among the 3 pillars• Short-term gains versus long-term losses

The sustainable development framework

Economic: Issue of traditional growth path;

GDP, capital stock, and debt;government’s role: provision of public goods, regulation, energy

pricing

EnvironmentalBiodiversity, water, food,

energy, climate change impact

SocialSocial inclusion, access to jobs, health, education,

good governance, culture

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New

patterns of growth; Pricing to take account of the

environmental externalities; Proper valuation of

ecosystem services, including of irreversible dam

ages

Green (and decent) jobsPoverty-environment nexus; Social impact of ecosystem damage; Social inclusion effects of pollution, and of environmental disasters.

Some Considerations• Interaction of flows & stocks: e.g., rapidly running down the

natural resource base (depleting natural capital) raises ST income flow, but lowers income path & HD level in M<

• It takes far less to avoid losses than to reverse them; some losses (e.g., in biodiversity) irreversible;

• Critical, complementary roles of

government, the market & society;

At issue: intergenerational equity.

Globally, policies, private sector incentives, market failures outcome inconsistent with sustainability

No single policy instrument can reset incentives for all to live & invest sustainably; goal is a critical mass of globally consistent changes in policies, institutions, regulation & community initiatives.

Necessary ingredients:• Energy repricing: remove fossil fuel subsidies, price in externalities• Regulation where markets fail, ensure contestability whenever possible; licensing• Allow markets, community initiatives to function where they work best

• Assign property rights, then trade in externalities (R. Coase)• Common property regimes (E. Ostrom)• Direct government activities (e.g., nuclear power, national parks). • Redistribute gains from reduced waste & revenues from energy repricing to

strengthen social protection (social pillar).

Elements available: build up critical mass of policies “wedge-by-wedge”

Perfect policy mix or global coordination is not required:• policy mix to tip the balance toward sustainability in billions of

decisions about current and future actions • Global coordination to yield a coherent patchwork of national policies

This is possible: consider ECIS region’s experience in past 20 years:• most countries have seen rapidly rising inequality;• real-life example: raising relative energy prices & changing incentives

& institutions can result in an absolute reduction in CO2 emissions even while GDP grows substantially.

Elements of the Policy Mix I. Institutions and Governance

Effective national, regional and global institutions are needed to

• reconcile horizons given costs & benefits including externalities

• facilitate global collective action transcending national borders (Doha)

• transfers to align broader & local/national incentives (within US, EU)

• facilitate local/national/global capacity building; technology transfers

• ensure stakeholder involvement, transparency, public participation• common property regimes (Elinor Ostrom)—self-management by a local

community can overcome “tragedy of the commons” common goods sustainably managed without privatization or state administration.

Elements of the Policy Mix II. Common property regimes:Protect the core resource; allocate the fringe through

community norms of consensus decision-making (Elinor Ostrom).

• Rules limit withdrawal from the common resource system to avoid overuse.• Access to the resource is monitored; not free• Common-pool resources are not public goods: outsiders excluded.

• 8 design prerequisites for a stable CPR arrangement:– Clearly defined boundaries– Congruence between appropriation rules and local conditions– Collective-choice arrangements allowing participation of most stakeholders– Effective monitoring by or on behalf of the appropriators– Graduated sanctions for violating community rules– Effective, low-cost conflict-resolution mechanisms– Recognition of rights to organize– Larger CPRs can exist as nested layers of small, local CPRs.

• No examples of common property regime to resolve overuse on global scale on its own.

Policy Considerations I. Mancur Olson’s Logic of Collective Action: Small Groups

Can Prevail Over Very Large Ones• Large groups: high costs of organizing collective action; Small groups: low costs. • Individuals in large groups gain less per capita from success than in small groups

Powerful lobbies with huge, immediate gains prevail over large groups where the individual gains are minor or far-off

even if

LT cumulative gains for the large group dwarf the total gains of the small group.

• Further complications: costs and benefits across generations living now and yet unborn; groups with common interests that fail to vote [as a block].

Policy Considerations II. Political Economy of Low-Carbon Reforms: Curse of Differing Horizons

• Typical: front-loaded costs• Back-loaded benefits• It’s a no-brainer, right? • But now Assume elections in year 2

• Let’s examine time profile:• Net benefits from year 3; • Cumulatively from year 5• Very likely: will not happen

Policy Considerations III. Global adjustment to low-carbon life will happen—the only choice is how

Will our generation facilitate a smooth adjustment path?

Failing to adjust is a decision we opt for a “bumpy ride” with accelerating climate

change and abrupt adjustment as binding constraints are reached.

Effective collective action toward sustainable development implies a smoother path that

• alleviates social conflict;• stimulates technology improvement & diffusion; hence• facilitates both adaptation and mitigation;• is far more in line with intergenerational equity.

• Rio+20 Conference: countries acting together to ensure

sustainable development. It can be done; Uzbekistan

can make an important contribution; UNDP can help.

Policy Considerations IV. Higher Energy Prices: Necessary Part of Sustainable Development* Climate change threat makes prompt collective action worthwhile (even as insurance) 

* Price lowered by subsidies; not reflecting externalities, depletion wrong signal, distorts toward CO2-heavy activity

* Energy versus food

* Renewables

Coordination: only appropriate price

signals can help fundamentally alter

consumption & investment decisions

of billions

phase in CO2 "sin tax", or

charge for traded carbon credits.

What is needed?

* Targeted social support for the poorest (higher revenues from sin taxes can cover this)

* Globally coordinated & enforced energy price change with no offsetting subsidies

* Effective regulation to avoid free-riding & guide reallocation of fossil fuel rents

* Relative prices also matter in setting incentives right.

Thank You for Your Attention

Questions, Comments Most Welcome