Whither the World: The Political Economy of the Future

Volume 2

G. Kolodko

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137470256
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

The study deals with challenging questions of long-term future of global economy and the mankind. Focusing not only on what happens in the economic sphere but also on cultural, social, political, demographic, technological, and ecological processes. It employs a holistic approach to answer fundamental questions about the course of the future.

Part II (Section B)

Threats and Opportunities: Which Prevail?

8

The Social and Ecological Limits to Growth

The world must slow down. This may sound bizarre at a time of crisis but when the present one is over, to avoid the next one being even bigger, we’d better not try to aim for an exaggerated pace of growth as this can trigger an utter loss of balance. The rate and limits to economic growth is the fifth of the Great Issues for the Future. Why? Perhaps technological progress will indeed prove to be so powerful that we can walk into the future the same way we went through the past: more and faster, but with a falling material intensity and declining energy consumption? Perhaps the economic and environmental Cassandras are wrong to foretell that we will run short of one thing or another?

Well, not only because they are indeed right, but mostly for the reason we all already know: if we don’t want the increasingly tense situation to degenerate into an open conflict, with not only economically far-reaching consequences, in the world of the future we must provide enough room for economic growth in the emancipating societies. To ensure it, rich countries must slow down significantly, and then the whole world will walk the path of a slower rate of output growth than it did in the past. This doesn’t at all mean it will go down to zero but it implies a need for a different approach in addressing this matter.

Most of all, we need to squeeze into the global village, although now we should be rather talking about a global town, as perhaps in 2010, perhaps a year earlier or later, mankind reached another turning point: most of us no longer live in the countryside but rather in a city. And that’s the way it will also be in the future. The urbanization rate in poor and populous countries is so high that it more than eliminates the effect of a growing number of people moving to non-urban areas in more developed countries. The overall urbanization rate, illustrating the rate at which the number of city dwellers is growing, for the world as a whole, is estimated at 1.85 percent in the years 2010–15. This is the result of very high extremes, this value being especially high in the poorest countries, like Malawi (5.3 percent) or Laos (4.9 percent), where migration to a city is seen as a way to improve squalid living conditions and sometimes even to ensure physical survival.

Meanwhile, in affluent societies there’s a growing tendency to migrate to suburban or rural areas; to the country, as they say. Consequently, city populations are also growing in rich countries but this is more the result of the fact that immigrants from overseas are settling in the cities. A lot depends here on the structure of the economy. Where agriculture still plays a major role, immigrants end up in the countryside. By contrast, where they are needed as a workforce in manufacturing, construction and services, they mostly settle in cities. Accordingly, the urbanization rate in the USA is as high as 1.2 percent, although the general population growth rate is only 0.9, and in Greece it is only half this figure, 0.6 percent, with a general population growth rate of 0.06 percent. Curiously enough, the process of cities growing in population has been reversed in the region of European post-socialist economies, where there are fewer and fewer city dwellers; also in addition, several million of them have moved to the West, mainly to cities. In Poland, the urbanization rate is negative and stands at –0.1 for the years 2010–15.

At the times of traditional industrialization, urbanization was viewed as a sign of economic progress. Now, it no longer has to be that way as living in the city doesn’t necessarily improve the standard of living, and sometimes the very opposite is true; the excessive urban overcrowding lowers it. This is happening on a growing scale. Suffice it to say that 37 million people, nearly as many as in the whole of Poland, live in the Tokyo metropolitan area. Anyone who’s ever been to this and similar megalopoleis, knows how it complicates life. How depressing it is to take the jammed concrete road from Narita airport to downtown Tokyo in comparison with the green spacious thoroughfare connecting Dulles airport to downtown Washington, D.C.! At present the world’s ten largest urban areas (Tokyo, Delhi, Sao Paulo, Mumbai, Mexico, New York, Shanghai, Kolkata, Dhaka and Karachi) are inhabited by around 200 million people; as many as the total of those who walked the Earth, according to some estimates, as early as 200 BCE or, according to others, not until 600 CE.

Of the many processes that co-determine the character of rich countries, three are of major importance: industrialization, urbanization and motorization. The part of the world aspiring to become emancipated will not be able to reproduce in the future the traditional path of development which in the past brought its rich part to the current state of affluence. Whereas for many years expansion in this area had been seen as a measure and an expression of progress, these days we often see it as a curse. What we dislike is not the fact that we work at a factory, we have an apartment in the city, and out of the window we can see our own car or even two but the fact that other factories pollute the air, there’s a gang of somebody else’s kids screaming in a playground outside our apartment building and other cars get in the way while we’re driving our magnificent machine.

Looking at all this from a bird’s eye view, it turns out that the three “zations” – industrialization, urbanization and motorization – although they have contributed to wealth and, at the same time, are an expression thereof, do not bring happiness and, past a certain point, may actually cause a lowering of the quality of life. The western motorization model is impossible to reproduce in the overpopulated East. The eastern urbanization model may not be copied in the overpopulated Africa where huge urban areas are surrounded by slums the like of Kibera on the outskirts of Nairobi or Makoko in Lagos; its prevailing utter squalor is hard to imagine and impossible to accept. Been there, seen that…

If the sizes of respective countries presented on the map of the future were depicted pro rata not to their geographic area but to the value of their output and services measured by GDP, the shape of the world would be quite different. And while the political map won’t change much over the next few decades (although it will a little), such an “economic map” would look different from the political one, not only at the starting point but also in the future; the outlines of countries and continents would change. North America would become relatively smaller compared to South America, and the Caribbean Islands between them would get bigger. Africa would grow in comparison with Europe, and the eastern part of the latter would become larger and larger, with the western part getting relatively smaller. Looking to the East, Russia, the largest country in the world in terms of territory, would become bigger and bigger; while it takes up as much as 11.5 percent of the world’s land area and generates only 3 percent of its GWP, the latter index will be rising fast, though in the foreseeable future it will not match its share of the world’s land. Even more significant would be changes regarding the economic “area” of India, which would slightly “outgrow” Japan (the GDP of these countries in 2011 stood, respectively, at $4.515 billion and $4.497 billion at PPP, or 5.6 percent of the world’s output), and China, which would, still in this decade, take up a fifth of the world upon passing the threshold of 20 percent share of global output.

So what is worth aiming for? What economic dynamics should we expect in the future? If we limit ourselves to the next fifty years, no more than 2 percent per capita in average annual terms for the world as a whole. It should be emphasized immediately that this is a comparatively high figure in historical terms. After all, it’s two-thirds more than mankind managed over the years 1820–2000. It’s even more than was then managed by countries that have become rich by now. An index like this should be possible if the average growth rate in emancipating countries rises to double the proposed value, especially in the poorest of them, and it drops by half in rich countries. Let’s add that the general rate of 4–5 percent means per capita growth of 2.5–4.0 in less developed economies, while 1 percent in the richest countries means more or less the same per capita amount for people who live there.

If we applied these indices to realities, per capita income in the USA in the next half-century would grow by nearly two-thirds, from the present $51,000 to around $85,000 in 2063 (by the very essence of measurements in the USA, the income measured at PPP is equal to the income expressed in US dollars). Americans would have to wait until 2080 to double it, still at a 1 percent annual growth. Looking at history, this is very fast; considering patience or rather human impatience, it’s a very long time.

Thanks to the additional ecological space for growth, made available for the emancipating economies by the slowdown in the richest countries, they can relatively quickly, historically speaking, double their income. For example, in Mexico it may prove realistic to increase it from the current ca. $15,000 at PPP to $30,000 in just a single generation, which would require 4 percent GDP growth and 1 percent population growth in just 24 years. By 2063, GDP would already be larger by the impressive factor of 4.4, which would yield a figure of over $60,000 per capita, that is, 20 percent more than its current value in the United States. Polish people, with their stable numbers, would need just 18 years to double GDP per capita up to $42,000 at PPP, at a 4 percent growth rate. If they maintained such a dynamic even longer, after 2030, the income per capita would, fifty years from now, amount to an unimaginable $143,000, or seven times the present value. I hasten to add that such a growth is hardly likely, if not outright impossible, and it will be a major success if those countries maintain the average 3 percent growth rate for two generations. Then, half a century from now, there will be nearly $66,000 per Mexican, and an impressive $92,000 per Pole. Even if it doesn’t happen, both of them as well as many nationalities that will no longer be poor by then will complain it’s little as somewhere else the income is higher… After all, it will be higher than it is now both in the United States and in Germany, as well as in many other rich places.

Poorer countries cannot reproduce the growth path of the rich countries. The future of the former will not be exactly the same as the past of the latter. South America will not become the same as the North, Africa will not become Europe, continental Asia will not become Japan or Australia. The differences will decrease but they will still continue to exist. The Czech Republic may catch up with Austria, South Korea with Japan, Argentina with Canada, but India won’t catch up with the United Kingdom and nor will the Congo with Belgium or Paraguay with Spain. What will be of key importance here is not the gap itself but the process of bridging it constantly and visibly. Mexico doesn’t have to catch up with the USA but it should stay on the trajectory of faster growth and of diminishing the still immense development gap. Likewise, Latvia does not have to outstrip Sweden, but the distance between them should be reduced systematically. It’s just the way things are: bridging the gap between the poor and the rich sometimes contributes more to social satisfaction increase than an absolute growth in income.

We don’t compare immediate neighbors here but in the conditions of an advanced globalization everybody becomes everybody’s neighbor. The demonstration effect is so powerful that even if somebody is over the hill and far away, it is becoming less and less of an issue. The Emirates or Qatar are beyond the seven seas for the Nepalese or Pakistanis but it’s as if they are around the corner. Austria and Switzerland are over the hill for Bosnians and Albanians but it’s as if they were across the street. The United States and Canada are over hill, over dale for Guatemalans and Bolivians and yet so close.

Or perhaps we’re in not only for the end of a growth era but actually for an era of decline? Such black scenarios are also being presented.¹ We can describe these as black ones because a global economy suffering from a structural recession would undoubtedly aggravate problems that we’re bedeviled by as it is, and the situation, from being conflict-prone, would transform quickly into an actual conflict. It is hard to imagine the future world of declining output as a peaceful one. However, we are not in danger of experiencing a permanent recession. The world without economic growth is not a realistic vision but an unreal illusion. The economic growth, once initiated several centuries ago, will continue for two major reasons: because it is desirable and, within specific limits, possible. It’s all about the “specific limits”.

What does it all mean then on the global scale? The present global income is, in gross terms, ca. $85 trillion at PPP. Huge numbers become abstract. And it’s hard to be bothered by abstracts. Since none of us knows what $85 trillion (that is to say $85,000 billion, or $85 million million) stands for, let’s explain, to make it easier: it’s five times as much as the one generated by the United States or the whole of the European Union, or a hundred times as much as Poland. If per capita GDP of rich countries grew, in average annual terms, 1 percent over the next half-century, and that of emancipating economies, by 3 percent, in 2063 the GWP would amount to as much as $310 trillion at PPP, that is, almost four times the present amount. This is a colossal change.

What’s the reason behind it? Well, let me repeat that these days the rich part of the world and the one on its way up each generate more or less around half of the output of the entire globe. The former is inhabited by around a billion, and the latter, by some six billion people. Starting from the present $40 trillion at PPP and climbing at 1 percent per year, rich countries will produce, half a century from today, 65 percent more, or $66 trillion. Meanwhile, emancipating countries, by increasing their output by 3 percent per head and at the same time by increasing the number of those heads by 0.7 percent in average annual terms (which, assuming a stable population in today’s rich part of the world, will give a world population of 9.5 billion in 2063), so by increasing the total output by 3.7 percent per year, will be producing, half a century from today, six times more, as much as $246 trillion. The total would be $310 trillion at PPP and the ratio of the part of world output produced by emancipating countries to the output of those already rich would change from the current 1:1 to nearly 3.7:1. Such an increase in the total income in fifty years requires an average total global growth rate of 2.7 percent per year, or 2.1 percent per inhabitant, assuming that their total number will rise at the rate of 0.6 percent.

Such growth is enjoyed in the years 2012–13 by Brazil, an economy at a medium level of development, which generates only 3 percent of the global output. A slightly lower growth rate, of slightly over 2 percent, is experienced by the USA, a large economy at a high level of development, which generates 20 percent of the global output. In the future, growth by 2.1 percent a year will be certainly too little for Brazil whereas for the USA, it will be certainly too much. Let’s bear in mind that there must be enough raw materials, other minerals and energy, enough disposal sites for waste and garbage all over the world, and that people are supposed to work to generate that income rather than fighting one another because some won’t have the means to generate it…

We are talking about huge changes here. An annual growth rate of 1, 2, or 3 percent may seem insignificant to some, especially in the light of the irrationally inflated appetites from the pre-crisis times. It is, however, impressive in historical terms. And, at the same time, it’s a very ambitious objective from the future perspective. To enable it to come true, the material and energy intensity of production must be falling constantly, to a much greater degree than before. Without it, even the growth scenario of 3 percent here and 1 percent there will turn out to be overly optimistic or just unreal.

The world economy will slow down for two fundamental reasons. Firstly, it will be forced to do so by the ever more palpable shortages of natural resources. Secondly, this will be achieved deliberately through strategies and policies to slow down the production dynamic, a goal the most advanced countries will follow in their best interest, that is to ensure a conflictless development of the whole world. In other words, the future slowdown in growth will be in part objectively forced, and in part subjectively desirable.

The issue of the rate of economic growth and the limits to it is now on the agenda for at least the third time. For the first time it was introduced two centuries ago by the English pastor and scholar, Thomas R. Malthus (1766–1834). Apart from his spiritual mission, he studied political economy, mainly with regard to the future. He went down in history because he formulated a view that reality later proved wrong but, at the same time, he focused his attention on one of the most important questions we are still facing, namely: what are the limits to economic expansion? Incidentally, it’s fascinating and quite intriguing that it’s sometimes much easier to go down in history of social thought by being wrong than by being right. To make it happen, though, you need to be wrong about important issues and in an attractive way.

Malthus cautioned that sooner or later there must come a time when further economic growth will no longer be possible and, in particular, the growth in humankind will be arrested because of a lack of food and the spread of diseases that will get out of control. Most of all, it was a common view that it’s impossible for the increase in food production to keep up with the increase in the world population and thus the process will have to be stopped. To Malthus the arrested population growth was an unavoidable future as it would be impossible to produce food for the coming hundred million people. Back then, in 1800, there were less than a billion of them, over seven times fewer than today. If somebody had told Malthus that in two hundred years’ time such a crowd could be fed successfully, he would dismiss it as an utterly unrealistic forecast, the same way today somebody would frown upon a view that in two hundred years the Earth will easily have enough room for seven times as many of us, that is the absurd 50 billion people.

Malthus was mistaken, because he didn’t make adequate assumptions as to the possible scale of extending arable land acreage and especially as to the salutary effects of the great technological progress which contributes to a regular crop increase and less wastage in storage and distribution as well as to a revolution in food processing. Clearly, good futures studies were lacking back then and there was also a limited supply of imagination. However, Malthus was right to assert that there would be no universal abundance in the future. And, sadly, that’s actually the case. Several billion people are undernourished, hundred of millions are starving, and thousands die of hunger every day. It didn’t happen back then, in Malthusian Britain, but it’s happening these days somewhere else, especially in Sub-Saharan Africa. In many countries and regions, not only on that continent, food production is not growing fast enough to keep up with demographic growth and people regularly have empty stomachs. Malthus’s greatest contribution to political economy was focusing his attention on the remote future, emphasizing the unavoidability of quality changes; as he predicted, the fact that something has never happened before by no means implicates that it will definitely not happen in the future. Also in this respect, we must not make the mistake of applying a simple extrapolation. Since we have lived to see 1800, we will also easily live to see 1900, a contempora...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Part II (Section B) Threats and Opportunities: Which Prevail?
• Part III Escaping Forward
• Notes
• Index