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‘Consumptionomics’: can capitalists and environmentalists co-exist?

Feb 02, 2011

by Richard Harris, Citywire

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The numbers used to quantify Asia's growth are so large as to have become almost meaningless, but the contrast between East and West grows starker every day. China recently announced its GDP had grown 10% last year, while the UK economy's output fell 0.5% in the last three months of 2010.

But as Asians become richer, and more like Westerners in their consumption habits, the world is marching ever closer to ecological catastrophe. While development economists have marvelled at the East's increasing prosperity, it has been made possible by ignoring the true cost of our limited natural resources.

Bucking the trend among environmentalists to insist that the West must lead by example and take accountability for its unsustainable ways, Chandran Nair, founder and chief executive of 'social venture think tank' the Global Institute for Tomorrow, argues Asian governments must rethink their growth-oriented policies.

Though governments of developing nations often bristle at being told to reduce their consumption while the West (read: America) refuses to do the same, 'Asian countries need to stop blaming the West for the past and get on with doing things,' Nair says.

Fellow traveller?

One frequent criticism – or perhaps caricature – of the environmental movement is that it is home to those who lost their ideological war in 1989, and use it as a pulpit from which to rail against the evils of free markets and liberal democracy.

Nair doesn't quite throw his lot in with these people ('this is not some kind of Marxist rhetoric' he insists in the interview), but nor does he have time for the notion – advocated by thinkers such as Bjørn Lomborg and Thomas Friedman – that technological innovation, made possible by capitalism, will be our saviour.

Instead, he says, Asian governments must follow policies that emphasise the preservation of natural resources (be they timber, fish stocks, precious metals or whatever else) above economic growth.

'The central duty of the state must be recast – from protecting individuals and their property to protecting natural capital and ecological services,' writes Nair, who goes on to compare China's ability to use 'direct controls' favourably with India's democratic nature.

But while this view is likely to offend many in the West, Nair insists it is far less shocking to people in the East, who do not subscribe to the 'Washington consensus' that liberal democracy and unfettered capitalism are the only routes to prosperity.

Scrapping income tax

One aspect of Nair's agenda may play rather better with fans of the free market: eliminating income tax.

Since the industrial revolution, innovation has focused on increasing productivity per unit of labour, rather than per unit of resources. This made sense in a Victorian world where populations were lower and resources seemingly infinite, but things have changed. Replacing income tax with taxes on natural resources would encourage business to work out how to do more with less.

Nair acknowledges that changing incentives in this way will have problematic outcomes. Raising the cost of water to encourage more efficient agricultural practices, for example, would increase food prices yet further, exacerbating inflation in developing countries.

His argument that resources would be distributed more equitably if the business elite were more constrained doesn't entirely convince, but it's almost irrelevant: if we continue to deplete water resources at ever-increasing rates, he points out, the consequences for the next generation will be disastrous.

How should we be investing in emerging markets?

Double-digit GDP growth has, unsurprisingly, proved alluring to Western investors, who have poured money into Asian stock markets and into commodities despite warnings from history that both areas can be challenging places to make money.

For Nair, the future of investing in emerging markets will place less emphasis on harnessing consumption-led growth through companies making 'ball bearings and Louis Vuitton bags' and more on food, healthcare, education and sanitation.

'True investments in the future will bet on the fact that resources are constained, and that we have a great opportunity to invest socially and responsibily and take long term bets,' he says. 'And that's really the essence of doing business well.'

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