Global Policy Forum

Q & A With Kemal Dervis,

International Herald Tribune
August 13, 2008

This week we're very pleased to present Kemal Dervis's answers to your questions. As Dr. Dervis requested, there are several questions about the role of climate change in economic development and the challenge of coordinating economic policy in the international sphere. I found his comments on the compatibility of a "green" agenda and long-term economic growth especially interesting. Please feel free to leave your comments below.

Q1. If climate change really portends such dire consequences for the environment and for the health - even the survival - of all living things, does it make sense to allow developing nations special economic conditions and privileges to "catch up" with wealthier nations for their past pollution sins? Isn't it far more practical and important for China, India and other developing nations to build their transportation and industrial infrastructures upon future-oriented models of conservation and efficiency than for advanced economies to have reforms of their existing industries and infrastructures forced upon them - particularly when such reform is in their economic interests anyway?
Gary Henscheid

Q2. In developing industrial countries such as India and China, if you force the climate change agenda upon them, would that not run counterproductive to poverty reduction? And should developing countries such as India and China grow their economies internally or externally first?
Michael Windfield
United States

A. As Mr. Henscheid and Mr. Windfield have questions which relate closely to one another, I have taken the liberty of answering both of them with one response.

Historically, the richer, more developed countries produced the majority, roughly two thirds, of the heat-trapping gases currently in the atmosphere. I don't believe it is unfair to refer to the primary responsibility of these countries to address climate change. They have a historical debt and, being richer, they have more resources with which to solve the problem. And while emerging countries now as a group emit more than the rich countries, they still emit much less in per capita terms: about five tons per capita for China and two tons for India, compared to thirteen tons per capita for the richest countries, with some emitting significantly more. The poorest countries in sub-Saharan Africa, Asia and South America emit less than one ton per capita.

It is nonetheless true that, looking forward, we cannot solve the problem without strong participation in mitigation by the rapidly growing emerging countries. International cooperation will be required to find an acceptable medium-term burden-sharing framework. It is quite true that often it will be more efficient to put in place the new low carbon production processes in the developing countries rather than in the rich countries. But, at this stage of our know-how, production with the low-carbon technologies still costs significantly more than the old carbon-intensive ones, and the rich countries shoulder some of the cost of these investments, even if they take place in the developing world. A cap-and-trade system functioning across borders could achieve both reasonably efficient investment allocation and resource flows to the developing countries. The same could be achieved by internationally harmonized carbon taxes, provided some of the revenues are allocated to cross-border transfers that help clean production in the developing countries.

I believe that a strong response to the climate change problem is fully consistent with, even a requirement for, long-term economic growth, poverty reduction, and development across the world. Of course, pursuing a low-carbon path will not be free. There are short-term and even medium-term costs, and these costs could be quite significant. The debate as to who should bear these costs is difficult, but we should bear in mind that the long-term benefits may also be huge and could extend to everyone. In addition to protecting our planet from possibly devastating long-term climate changes, the technological revolution triggered by the transition to a low carbon economy could set in place growth multiplying effects and knowledge breakthroughs that bring about additional economic and social benefits, as we have experienced during other technological revolutions.

Finally, let me add that the energy price explosion that we have experienced over the last few years should be both a warning and an opportunity. A warning, because it signals that there may be serious sustainability problems for the world economy; our natural resources - and the atmosphere is one such resource as are fossil fuels and fresh water - are not infinite. We must manage them carefully. An opportunity, because the price of oil, which has more than tripled in real terms since the beginning of the decade, may have overshot, in a short-term perspective at least. This should make it easier to introduce some form of carbon pricing that could put a floor to the user cost of fossil fuels if and when the price of oil falls significantly. Such a policy would reduce the excessive volatility in energy costs that we have experienced and encourage long-term investments in energy efficiency and clean technologies.

Q. Isn't nuclear energy the most practical, viable way to end the disparity between developmentally disadvantaged nations and at the same time to succeed in the protection of the environment?
Bill Nicholson
United States

A. It is true that nuclear energy is a much cleaner source of energy, in terms of carbon emissions, and if there were no other problems, would provide a major answer to the challenges we now face.

There are, however, at least three major issues. One, the challenge of safely storing and disposing of nuclear waste, has not really been solved yet. Two, there is still the risk of accidents, and, while a lot of progress has been made in making nuclear energy production safe, the catastrophic nature of possible accidents makes it imperative to achieve complete safety. Citizens in most countries rightly remain concerned about accidents, even if their probability is very low. Finally, and perhaps most importantly, the line between civilian and eventual military use of nuclear facilities is not an easy one to draw firmly. Many believe that proliferation of nuclear weapons is one of the biggest challenges facing the international community in the 21st century. In this context we should remember that the Nuclear Non-Proliferation Treaty actually calls for the reduction and, in the long term, elimination of existing nuclear weapons stockpiles. We are very far from such a goal. Therefore, a significant expansion of nuclear energy, as a component of a comprehensive sustainable development strategy, can only become feasible if these three issues can be fully addressed and resolved.

Q. Your UNDP has the Millennium Development Goals on its agenda as anti-poverty programs under the UN. Now you have several unexpected events like oil and gas price rises, global financial turmoil and food price rises which are denting your MDG. Another angle on the issue is climate change: clamors and demands for restrictions on air, land and sea transport, and technology upgrades for reducing emissions - an anti-movement to the globalization process, putting a premium on developing countries. How are you harmonizing these conflicting demands without jeopardizing international cooperation or obstructing growth and anti-poverty programs?
S Lakshma Reddy

A. Making progress towards the Millennium Development Goals (MDGs) while we face crises such as the current global financial turmoil and the rising cost of energy and food will be a huge challenge. Initial estimates indicate that more than 100 million people will fall back into extreme poverty because of the increase in food prices alone, unmatched by increases in their already meager income - a serious setback for the MDGs. There will be secondary effects on the other MDGs: children and particularly girls will drop out of school as families may no longer be able to afford even minimal transport costs, health care will suffer and deforestation may accelerate as the poor desperately look for cooking and heating fuel.

While globalization has facilitated a long period of rapid growth and also poverty reduction in many parts of the world, particularly in East Asia, the problems we currently face are serious and indicate that globalization can also amplify economic problems and vulnerabilities. The farmer in Africa who faces large energy-cost-induced increases in the price of fertilizer or the slum dweller, who can no longer afford even a subsistence meal, are in no way responsible for the energy often wasted in the rich countries and driving up prices, or the huge mistakes made by some financial institutions slowing down world growth. And yet, the most vulnerable people, thousands of miles away from where these mistakes were made, have to bear the consequences.

Failures in regulation and excessive behavior by managers in the financial sector have led to a major slowdown in the U.S. economy, which has in turn spilled over into the global economy. The inter-linkages in our financial markets create vulnerabilities which threaten development, as we saw during the Asian financial crisis in 1997 and which we experience with much greater force today. So there are problems of regulation and stability. There is also the problem of inequality. Understandably, there has been a negative reaction against the kind of globalization and technological changes that continue to concentrate wealth at the top and increase the gaps between rich and poor, both within the rich countries and within many fast growing developing countries. We must consider whether or not this type of globalization is sustainable, which leads naturally to the question below.

Q. Is capitalism sustainable? Is the future in regulation and redistribution, so as to help 6.6 billion people - the poor - to catch up with the 0.05 billion rich?
Kelvyn Richards

A. Even very strong supporters of "capitalist globalization" believe that greater and more effective regulation is needed to make what some call "financial capitalism" sustainable. The market economy has brought the world huge benefits and we need to avoid the bureaucratic and centralist mistakes of the past. What we need to invent and develop are regulatory mechanisms that, on the one hand, don't stifle private initiative and the creative energy of a market economy, but on the other hand, are very effective in their correction of the market failures that lead to excesses and misallocation of resources. We must also remember that democratic societies can only function well if the results achieved by the market economy are politically acceptable. The current global financial crisis provides a stark example of the consequences of missing and misguided regulation in the market economy. The renewed environmental challenge is another example of the need for powerful public policy to complement and guide the work of markets.

One of the biggest challenges for policy today is that the domain of the nation state and economic activity no longer overlap. Much of the existing economic activity has a regional and often global nature to it, while the economic policies of countries generally stop at their borders. Somehow in the 21st century we must bridge the gap between the need for effective global regulatory and redistributive policies and the nature of political representation.

Q. How would you judge the success of organizations in the field of development (i.e what would be your criteria for evaluation)?
Melody Atil
United States

A. There are two challenges in the evaluation of development organizations. One is that development is by its very nature a long-term process, so evaluating progress in terms of monthly or annual targets is not meaningful. One has to take at least a five- to ten-year horizon to measure progress in development. The second challenge is that development is all about national and indigenous local capacity-building. The job of an effective development organization is to help developing countries build their own capacity and their own programs. That, of course, makes it harder to evaluate the exact role of a development organization itself, but the need for evaluation remains. What must be evaluated is the contribution of the organization to national results.

Several UN organizations support teacher training programs, for example. A good evaluation of such a program would not be one which tries to measure how much was spent on training per teacher, but one which would measure the improvements in student scores in achievement tests over time that can be traced to the improved capacity of teachers. Such evaluations are difficult but not impossible to design.

More Information on Social and Economic Policy
More General Analysis on Poverty and Development
More Information on Climate Change
More Information on the Millennium Summit and Its Follow-Up


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