MAIN PAGE | EVENTS & PROGRAMS | 2002 | IGM | AVAILABLE SPEECHES | LOREN COX
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2002 | IGM | AVAILABLE SPEECHES | LOREN COX
Striving for Growth
in a Challenging Environment PBEC 35th International General Meeting
Kuala Lumpur, Malaysia May 3-7, 2002 Loren C. Cox While PBEC covers the entire Pacific basin, today's comments will particularly reflect my personal experience in the Asian region. I visited Asia for the first time in 1962, and have had the opportunity both to live here and to travel to and within the region some 100 times over this 40-year period. However, I believe my comments will apply in general to most PBEC member economies. I would like to touch on three broad matters in my remarks today:
Government and Business; Building on the Past and Toward the Future For those of you in my age range (which will remain unstated), I think most will agree that changes in your economies over the past 40 years have been quite remarkable, and virtually all have been for the better. Educational opportunity, prospects for employment, improvements in health and life expectancy, increases in social mobility, and quality of the environment are among the beneficial changes that have occurred. From the 1960s until the mid-1980s, governments of economies in the region made most of the investments in physical and social infrastructure, and steady progress was notable. However, as a result of these accelerated expenditure programs, investment resources were strained and sovereign debt often had risen to uncomfortable levels. By the 1980s, encouragement was growing for external investments, which coincided with interests by companies from more industrialized countries in expanding facilities on a global basis. The timing of these increased business investments was mutually beneficial. Basic infrastructure was in place due to earlier government programs, and this allowed corporate investments (by both domestic and foreign companies) to focus on core business interests-which in turn expanded employment opportunities for citizens and revenue streams for governments. By the 1990s, further direct external investment was encouraged as national economies moved toward liberalization of a range of activities including energy, transportation and communications infrastructure, as well as service sector businesses including banking and other financial areas. There is little dispute that the above sustained investments by governments and domestic and foreign companies contributed substantially to increased standards of living in most economies. Moving from Traditional to Modern Environmental Concerns While such steady progress in upgrading the quality of life is justly noted, so also interest has increased in continued progress in many areas-including the environment. In the past, environmental focus by governments was directed primarily toward health matters, including such areas as safe drinking water supply, waste treatment facilities, disease vector control and public health education. As industrial activity grew (providing jobs and revenue for health and other activities) emissions were added to the air and water, thus bringing some level of modern health risks even as the more severe traditional health risks rapidly diminished. While it can be argued that this was a justified and reasonable trade-off, there is no doubt that politics of the environment is an increasingly important feature of modern life everywhere. Because of citizen concerns, both companies and governments of economies in the Pacific basin will need to give attention to this growing interest in quality of the environment. An American politician once said, "all politics are local", and I believe that most politics of the environment are also local. Some economies in the Pacific basin will continue to promote rapid industrial growth, accepting for a time the trade-off between diminished traditional morbidity/mortality risks and increased modern risks. But it is likely that all economies here will face internal pressure for more stringent environmental controls (especially in urban areas where traditional risks are in the sharpest decline and modern risks on the rise). One only has to look at OECD economies to see a similar historical evolution. While private sector activity throughout the Pacific basin has made major contributions to increased standards of living, some of that activity is now criticized for contributing to a decline in environmental quality. Businesses are being pressed to reduce emissions or even to close productive facilities. This pressure on business illustrates one of the key points I want to make in these brief remarks. Business leaders must rigorously ensure that their facilities fully comply with local and national laws and regulations. However, it is governments that must set policy frameworks-such policy-making is not the role of business. While business must have a role in helping governments understand available technologies and costs of proposed laws or regulations regarding environmental controls, the private sector is concerned primarily with even-handedness in setting and enforcing policies. Incorporating Key Factors in Setting Policies: Economics, Technology and Science Though most environmental issues are local, in recent decades there has been an increase in international policy proposals on matters considered of global concern. These include such agreements as Law of the Sea (regarding seabed mining) and the Montreal Protocol (to phase out CFCs to protect high-altitude ozone). The most recent proposal is the issue of climate change (or global warming, if you prefer). Since one of my research groups at MIT concentrates its work on both the economics and science of this complex matter, I will say just a few words on that disputatious issue. That the climate is warming is not in dispute. Indeed, there has been a general warming trend for the past 10,000 years-since the last Ice Age-though there have been periods of rising and falling temperature. The advent of modern thermometers some 150 years ago has recorded a temperature rise of approximately .6 degree C. This record coincides roughly with the Industrial Revolution, so some argue that such human activity is the cause. Others suggest that recovery of the natural warming trend from the Little Ice Age (c. 1400-1800) accounts for this recorded increase. Despite much passion from each perspective, the data is incomplete and contradictory and likely to remain so until we have a much better understanding of how the climate system operates. To get this better understanding will take both time and money. The current major climate change proposal is the Kyoto/Marrakech Protocol, and I know this audience is aware of its major provisions. Less well understood by many is how very complicated it may be to undertake meaningful reductions of greenhouse gas emissions. An example is the "rush to gas", since burning methane (CH4) releases less CO2 than does combustion of oil or coal. However, CH4 is a more powerful greenhouse gas than CO2, is rapidly growing in atmospheric concentration, and is longer lived than previously thought. The extended life is due in part to lowered levels of its major scavenger, the hydroxyl radical (OH-), produced by photochemical smog. As this smog is reduced for environmental reasons, less OH- is produced, giving longer life to CH4. Similarly, sulfur dioxide (SO2) is being reduced due to concerns about acid rain, and thus thought to be an environmental benefit. But these tiny sulfur particles also reflect incoming UV radiation, thus having a cooling effect on the global climate. Removing this sulfur will amplify warming from either natural or human causes. The above examples are given to illustrate the technical complexities of making policy in this matter, and avoiding unintended consequences is a serious problem due to our weak understanding of the climate system. Equally important, policies to reduce carbon fuel use quickly in any part of the global economy will reduce economic growth for the global economy. Such domestic and international economic impacts are among the reasons cited by the current US Administration in rejecting the current Protocol. While views about the need for urgent action differ, there may be merit in exploring at least a minimum international policy framework that does not distort decisions about where to invest, what technologies to chose, or what fuels to use. The current stock of global energy and transportation infrastructure has been put in place for beneficial public purposes, and premature disposal of it will carry heavy economic and social costs. So also will policies that force use of immature technologies purported to have less impact on potential warming. It is my personal view that excessive preoccupation with CO2 has distracted attention from other important greenhouse gases, especially those created by man for a range of special purposes (i.e. CFCs, PFCs, HFCs, SF6, N2O). As a first step in modulating potential human impact on climate, it would be far less expensive and economically disruptive at global scale to seek more climate-benign alternatives to these compounds. The above comments will confirm that I have no final answers to the complex task of balancing environmental concerns and economic growth, but I hope they may give you some slightly new perspectives. I am impressed by the work of your PBEC Environment Committee, which has touched on several areas in my remarks. Their work shows that PBEC is committed, as it must be, to being a good citizen and a good neighbor. I believe that business must always strive to play an active part in finding affordable and workable environmental policies. Human progress is a work in progress, and I wish you well in discharging the important role that business will play in this process. |
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