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Rome G8+5 Legislators ForumItalian Chamber of Deputies, 12

th- 13

thJune 2009

Club of Rome Presentation:Concerted Strategies to meet theEnvironmental, Economic and Development

Challenges of the 21st Century

GLF/2.2

29th

May 2009

Contents

I. The Global Context: Strategic Challenges of the 21st Century.

II. Critical Issues which will determine the Future

1. Environmental Challenges: Climate, Ecosystems, Energy,Oceans and Fresh Water.

2. Development Challenges

III. Economic Challenges: Rethinking the Path of HumanProgress

1. Root Causes of the Economic, Environmental andDevelopment Crises

2. Rethinking Globalisation and World Development.3. Redefining Growth: New Models and Strategies for

Sustainable Economic and Social Progress.

Background paper 1

Strategic Challenges and Critical Issues:Identifying the Root Causes of the Environmental, Economicand Development Crisis

R. Martin LeesSecretary General, The Club of Rome

GLF/2.229

thMay 2009



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Notes:

This Background Paper focuses on the diagnosis of the challenges facing humanity in three key areas – Environment and Climate; World Development; and

Economics and Finance. It demonstrates that the crises emerging in each of these areas have common roots. The elements of an integrated approach in response to these three connected crises are outlined in Background Paper 2, (GLF3,) including an outline of a number of Lines of Action.As these two Papers cover such an extensive range of issues and are therefore relatively long, they are complemented by a Policy Overview,(GLF4)

The background papers are based on the interim results after one year of research and consultation in the programme on ANew Path of World Development. They reflect the broad views of the Club of Rome but do not engage its individual Members.



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Introduction

Over the past forty years, the Club of Rome

has been concerned to understand and toevaluate longer term challenges andopportunities and to take account of theirinter-relationships, within a systemic view ofthe realities of today and of the prospects forfuture generations. In a new phase of itsactivities, approved at its 40th Anniversaryassembly in Rome in June 2008, the Clubhas launched a three year, internationalprogramme of collaborative research andconsultation to define the elements of “ANew Path for World Development.”

The NPWD programme takes account of thecomplexity and interconnectedness of criticalglobal challenges by focusing its analysis onfive manageable “clusters” of interconnectedissues within a coherent systems framework:Environment and Resources; Globalisation,Economics and Finance; InternationalDevelopment; Social Transformation; andPeace and Security. (For further information see website: www.clubofrome.org .)

As the first step in its new programme, theClub convened a small, high-level expertconference on “Managing the Interconnected Challenges of Climate Change, Energy Security, Ecosystems and Water” inWinterthur on 6th and 7th November 2008,drawing on its independent status, itsworldwide networks and the expertise of itsinternational and interdisciplinarymembership.

The analysis and proposals developed at theWinterthur Conference were then used asinputs into a Policy Dialogue convened byGLOBE International and the Club of Romein the Palace of Westminster, London, on26th and 27th January. Adding an economicdimension, the Dialogue focused on thetopic: “Framing 2009`s Global Challenges in the Context of Global Economic Crisis: Developing a Response to the Interconnected Challenges of Climate Change, Energy Security, Ecosystems and

Water.” The Chairman`s Summary waspresented to Prime Minister Gordon Brown

in his capacity as Chairman of the meeting ofthe G20 held on 2nd April.

It is within this context that the Club of Romeconvened a high level conference in Viennaon 16th and 17th April, under the patronage ofH. E. Dr. Heinz Fischer, Federal President ofAustria on the topic: “Concerted Strategies to meet the Environmental and Economic Challenges of the 21st Century.”

Drawing on this preparatory work, the Clubof Rome has the privilege to present itsconclusions and proposals to the AnnualAssembly of the G8 + 5 Legislators Forum in

Rome on 12th June.

I. The Global Context: StrategicChallenges of the 21st Century.

1. In 1972, the report commissionedfrom MIT by the Club of Rome, “Limits toGrowth”, outlined a number of scenarios forthe longer-term future of humanity and theplanet and suggested how effective policiesand cooperative action could contain thethreats to the future. Today, the issuesraised by the Club are more urgent andthreatening than they were some 40 yearsago.

2. It is increasingly clear that, for anumber of identifiable reasons, the currentpath of world development is generatingsuch dangerous imbalances, inequities andenvironmental consequences that the

prospects for peace and progress are now inquestion.

• In the opinion of scientists across theworld, the threat of catastrophicclimate change is real and only earlyand concerted action by the worldcommunity will avert the risk ofmassive impacts.

• Humanity is overusing the ecologicalcapacities of the planet by around35%: we are living not only off our

biological revenue but off our capital.The ecosystems on which humanitydepends are in decline, particularly



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forests, oceans and productive land.Just as we will leave financial debtswe will also leave vast biologicaldeficits to be managed by futuregenerations.

• The era of cheap oil is coming to anend. Competition for resources of allkinds, particularly energy, water andproductive soils will increase.

• The needs of a growing worldpopulation, compounded by the risingconsumption and waste of a growingmiddle class, will put added strain onthe resources of the planet alreadyunder intense stress.

• Rising inequalities in income andwealth, coupled with poverty, hunger

and exclusion, if not resolved, willtrigger migration, unrest and conflictacross the world.

3. We face an array of interconnectedchallenges on an unprecedented scale. Ifthe current path of world developmentcontinues, then a “business as usual”scenario can be summarised as follows: if,after recovery from the present recession,the material consumption, resource use andemissions of the developed countries

continue to increase as anticipated; if thepoverty, deprivation and exclusion of themore than 2 billion people with less than $2per day are not ameliorated; if 2.3 billionadditional people are to be added to worldpopulation by 2050; if an additional 2 billionpeople from emerging economies will jointhe middle class with the correspondingpatterns of consumption and waste, then theecological and environmental systems of theplanet will break down under the increasingimpacts of human activity. There will be littleprospect for stability, progress and peace.

4. Humanity has the capacities tomanage these challenges successfully – ifconcerted and early action is taken. But thiswill require a positive, motivating vision forthe future, new ideas, effective leadership,new patterns of partnership and cooperationand a radical reordering of the economicsystem. This was the central message of“Limits to Growth” in 1972. Recognising that

a radical change of direction is now urgent,the Club of Rome has launched a three yearprogramme of international research andconsultation which, in late 2010, will propose

the elements of A New Path for WorldDevelopment.5. The scale of these challenges is notonly recognised by governments and civilsociety, but also increasingly by the businesscommunity. A recent global survey byPricewaterhouseCoopers concludes: “In thelong term, half of CEO’s do not believe thatgovernments and businesses will be able tomitigate the risks created by global trends.CEO’s see worldwide political and religioustensions increasing, the gap between richand poor growing and a new set of countriesemerging to challenge the group of eightindustrial nations. Added to thesechallenges are the scarcity of key skills,climate change, the depletion of natural

resources and the potential for over-regulation by government.”

6. It is in this context that we now face afinancial crisis and a deepening recession.Two issues arise. Can we recover so as toreturn to the previous path of economicgrowth? And should we return to theprevious path?

7. It seems clear now that the major,radical changes which have taken place in

the world systems of finance, economics andproduction will not be easily reversed. Asexpressed by Mukesh Ambani, Chairman ofReliance Industries, India, “The lastdownturn was a cyclical downturn. This is astructural downturn. When you have cyclicalevents, things go up and come down. Whenyou have a structural event, somethingfundamental changes. Our own view is thatthis is going to shake up fundamentals in awhole host of global economic areas.” Theextent of the financial crash was made clear

by Lawrence Lindsey, former Director of theUS National Economic Council, on 11th March who pointed out that some $23 Trillionin wealth had been destroyed through thedeclines in stock markets alone. Further, theproductive system is now facing wrenchingchange throughout the world: “Autoproduction is down by two thirds comparedto 2005 and, in China, 20 million migrantworkers have so far lost their jobs.” (IHT11/3/09). ILO estimated, in March 2009, that job losses in 2009 worldwide will approach52 million. The depth of these structuralchanges is such that it is therefore unrealistic



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to expect that we can return to the previouspath of growth.

8. Also, we should not commit ourefforts instinctively to achieve recovery to theprevious path of world development as thispath was headed into major dangers andwould have proved in any case to beunsustainable, even in the short or in themedium term. In effect, the scale of thecurrent financial and economic crises offersa unique opportunity to reorient oureconomies onto a path which is lessenvironmentally devastating, more inclusiveand equitable and which can deliver realimprovement in human welfare on asubstantial scale. Such a transformation is

not an option but a necessity if we are tosalvage the future.

9. In facing the major crises of climateand environment, poverty and developmentand finance and economic growth, we havethree possible options:

(i) We could delay action onclimate and development and givepriority to resolving the financial andeconomic crises. But the scale and

urgency of the climate and developmentissues is such that action cannot bedelayed. Whereas the financial andeconomic crises are to a degreereversible, the threats of catastrophicclimate change and ecosystembreakdown are not. Realistically, it ishighly likely at this stage that the need tostabilise the financial system and toarrest the decline in production andemployment will dictate that financialissues will in fact be given priority.

However, once the economic situation isstabilised, the opportunity should beseized to reconsider and reorienteconomic activity onto a more equitable,stable and sustainable path.

(ii) Alternatively, we couldconsider that the issues of economicsand environment can be treatedseparately, in parallel. This is the classicresponse, driven by disciplinary, sectoral,institutional and ministerial divisions:finance ministers will deal with thefinancial crisis; environment ministerswith climate; and development ministers

with development. This will not, however,provide a lasting solution in practicebecause these issues in the real worldare essentially connected.

(iii) Or we could – and we must – recognise the systemic nature andinterconnectedness of the problems weface and try to develop integratedapproaches which recognise the criticalimportance of the links between them.This is a central purpose of the work ofthe Club of Rome.

10. The Chairman of GLOBEInternational, in his summary of the JointGLOBE-Club of Rome Dialogue in London in

January 2009, made the following key points,based on the broad consensus of thelegislators, scientists and experts fromacross the world who participated:

• We face five parallel crises – financial,economic, climate, energy andecosystems – all caused by thefundamental unsustainable use ofresources, whether in the economyor in nature; combined with the realthreat of peak oil

• The political response to the financialcrisis and the outcome of the UNnegotiations in Copenhagen willdetermine whether we continue onthe path of unsustainableconsumption and environmentaldegradation or begin the move to anew economic model with moreefficient use of energy and resources,transformational investment in cleanenergy, and incorporating a realeconomic value for natural capital

and ecosystem services.• The political will for economic reforms,

triggered by the financial crisis,represents a unique window forcoordinated governmental actionacross the major economies; we maynot get such an opportunity again

• As leaders consider public spendingpackages to stimulate our economiesat the G20 Summit in April, we urgethem not to deal with the financial

crisis in isolation, but to take intoaccount the underlying challenges ofclimate change, energy security,ecosystems decline and equitable



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world development; otherwise, ourefforts will ultimately fail

• We believe that climate, energy andecosystems objectives are not onlyconsistent with, but fundamental to,sustainable economic recovery

11. At this time of major transformation,the challenge to societies and enterprises isto embrace the need for change andinnovation so as to revitalise their economiesand provide an improved quality of life andstable employment within the constraints ofthe natural environment. If the massivestimulus programmes now being launchedacross the world simply reinforce establishedfinancial and economic activities, often

energy intensive and polluting, they will befar less effective than if the resources areused to promote innovation and greengrowth and to put the world economy onto asustainable path.

12. We have understood that “businessas usual” is not a viable option in the field ofclimate change. We must now recognisethat this is also true in respect of thedestructive impacts of humanity on thenatural world and also to the path of the

global economy and world development.The strategic dilemma can be seen asfollows.

13. As reported in the IHT on March 12th,Prime Minister Gordon Brown delivered aresounding message in his address to a jointsession of Congress, “a message of faith ina future beyond protectionism, in a worldeconomy that will double in size over thenext two decades as billions of people move

from being simply producers of their goodsto being consumers of our goods, not leastthose produced by new green technologies.So we must educate our way out of thedownturn, invest and invent our way out ofthe downturn and re-skill our way out of thedownturn.”

14. The critical question is whether it isfeasible that the world economy can in realitydouble in size over the coming two decades,recognising the ecological, environmentaland social implications of such an expansion.If this is not possible, then we must find anew path of development. This is a feasible

objective. The direction and the “quality” ofgrowth and of technological progress are notpredetermined by market forces or bytechnological progress. They are socialchoices – a function of the values, cultureand aspirations of each society. We havetherefore the opportunity to choose amongmany alternative futures to improve the livesof both present and future generations. Toachieve such a reorientation of growth wemust have the vision and courage toconceive a new path of progress, to confrontthe problems of transition and to generatethe public support needed to overcome theinevitable resistance to change.

II. Critical Issues which willdetermine the Future

1. Climate, Ecosystems, Energy,Oceans and Fresh Water.

15. Climate change is only one of theintensifying environmental challenges whichthreaten the future, driven by the scale andimpacts of human activities throughconsumption, waste and pollution and theoveruse of the biological resources of the

planet – as anticipated by the Club of Romesome forty years ago. We confront asystemic crisis not only in regard to climatechange but, more broadly, across the fieldsof climate, ecosystems, energy and water: acrisis of the sustainability of human welfareand progress on a fragile planet. It isimportant to note that such broad, global,systemic crises do not respond to ad hoc,partial, or national measures, as we haveseen so clearly in the evolving response tothe financial crisis.

16. In November 2008, The Club ofRome convened the high-level expertconference in Winterthur on the topic“Managing the Interconnected Challenges ofClimate Change, Energy Security,Ecosystems and Water.” These issuesconstitute the first “cluster” of issues to beanalysed in the Club of Rome Programmeon A New Path for World Development. (Seewww.clubofrome.org. For a more extensive presentation of these issues, see the policy notes of the Winterthur and London Conferences.)



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(a) Climate Change

17. Physical evidence and analysis fromall over the world demonstrate that climatechange is moving faster than anticipatedwhile emissions continue to increase in spiteof all efforts and negotiations to date.Concern is rising in the scientific and expertcommunities - which are aware of theevidence and have developed a deeperunderstanding of the science and thesystems dynamics of climate change - thatwe are approaching a tipping point beyondwhich the positive feedbacks set in motionby human-originated emissions, (whichstimulate further rises in temperature), willbecome more damaging than the impact of

the emissions themselves and willoverwhelm our ability to avert potentiallycatastrophic climate change.

18. In spite of inevitable uncertainties anddisagreements, the case is clear that climatechange does represent an existential threatto our civilisation and this within, at best,several decades. According to a growingbody of scientific opinion, the current targetof international negotiations, to containgreenhouse gas concentrations in the

atmosphere to 450 parts per million is toohigh. In any case, it offers only a 50%probability of containing the global averagetemperature rise to 2oC, which impliesdouble this rise in many regions of the world,for example, at the Greenland ice sheet -with major implications for sea level rise.

19. In the light of new evidence andimproved understanding of the systemsdynamics of climate change, scientific andexpert opinion is increasingly convinced that

the target must be no more than 350 ppm ifwe are to be assured that catastrophicclimate change will be averted. (This wouldimply that, over a period of time, not onlymust emissions be cut drastically but also,CO2 would have to be removed from theatmosphere.)

20. Policy makers must recognise thatclimate change will not be a gradual, linearprocess: sudden and dramatic changes areprobable and have occurred in the past.Denial and delay will not only increase thecosts of mitigation and abatement as shownby the Stern Review but will crucially

increase the risk of catastrophic climatechange. Thus, the urgent imperative to limitthe concentration of greenhouse gases inthe atmosphere to a safe level is dictated bythe absolute need to avert the risk ofcatastrophic climate change. Decisions onthe costs and benefits of intervention mustbe seen in this perspective.

21. Through the scale of its impacts onthe environment, humanity is, for the firsttime, putting at risk the prospects of futuregenerations on a global scale: legislation andpolicies must therefore focus on themanagement of risk and the prevention ofcatastrophic outcomes, not only on thepotential costs and benefits of alternative

lines of action.

22. We have less time to act than wehave assumed. Besides the extendedprocess of negotiation, ratification, resourceallocation and implementation, radical andurgent action must therefore be taken inparallel to mobilise the vast potential ofknowledge, technology and resources whichis available now so as to counter theemerging threats to human, national andinternational security.

23. Climate change is not a problem forthe future alone: the impacts are being felttoday across the world, especially by thepoor and deprived. They have not causedthe problem but they do suffer theconsequences. This raises profound ethicaland humanitarian issues around the conceptof climate justice. Through its impacts onrainfall patterns, extended water stress andecosystems degradation, climate change willcompound the consequences of population

growth and of the emerging food and watercrises in fragile environmental conditions,preventing the attainment of the MillenniumDevelopment Goals for hundreds of millionsof people. Besides mitigation, strengthenedand immediate efforts in support ofadaptation are vital, but these must be partof a wider effort to improve human security,to eradicate poverty and to acceleratesustainable development.

(b) Ecosystems

24. Humanity is overusing the biologicalresources of the planet each year by around



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2. Development Challenges

33. Humanity has made remarkableprogress to achieve a better world and toimprove living standards and opportunitiesfor many. Additional hundreds of millions ofpeople are joining the middle class and thenumber of people living in abject poverty – until recently – was in decline. The world’saverage life expectancy is increasing (from48 years in 1955 to an anticipated 73 forthose to be born in 2025, WHO) and illiteracyhas fallen from around 37% in 1970 toaround 18% today, (UNESCO). And we areliving in a time of explosive growth ofknowledge and of the capability todisseminate it cheaply and effectively.

34. But we live in a world ofcontradictions: over 1 billion people live on$1 per day or less, the benchmark ofabsolute poverty; around 1.5-2 billion peoplelive on an income of $1-$2 per day (TheEconomist) – in a $66 Trillion (ppp)economy! And we live in a world of risinginequality: 2% of the world’s richest peopleown some 50% of the world’s wealth whilethe poorest 50% own around 1%. And theeconomic and social progress which is

unprecedented in human history has beenachieved at enormous cost to theenvironment as outlined above.

35. Looking ahead, the single mostimportant fact is that an anticipated 2.3billion additional people will come to live onthis small and fragile planet over the comingforty years. Almost all this increase will takeplace in developing countries where thestresses on biodiversity, ecosystems, waterand resources are already intense. And

perhaps an additional 2 Billion people willaspire to the living standards of the presentmiddle class by 2050. Enormous efforts willbe needed if these trends in populationincrease and rising living standards are notto have devastating and irreversible impactson the ecosystems and environment of theplanet.

36. We are already now facing a foodcrisis which is not only local, national orregional as in the past but is truly global. Inthe view of the World Food Programme, “Weare facing a silent tsunami.” In December2008, around 930 million people were

suffering from hunger – that is before theimpacts of the financial and economic crisesaffected the flows of investment intodeveloping countries. The Institute ofInternational Finance reckons that netprivate-capital inflows into emergingeconomies fell from $929 billion in 2007 to$466 billion in 2008. And 2009 will see only$165 billion flow to emerging economies.This shows a clear and immediateconnection between the financial crisis andthe prospects for development.

37. The US Center for GlobalDevelopment in a recent study concludedthat the climate change impacts on foodproduction arising from changing rainfall

patterns, desertification, sea level rise andextreme weather events could result in a fallin food production in Africa of 28% and of38% in India by 2050, over a period whenthe Indian population is expected to increaseby 400 million. The underlying causes of thefood crisis demonstrate the profoundimportance of the linkages between thecritical issues of climate change, energy,ecosystems and water and their connectionsto population, poverty, finance, credit,investment and trade.

38. A recent report presents the ethicalissues well: “Present climate change iscaused mainly by greenhouse gas emissionsfrom industrialised countries ...average CO2 emissions from fossil fuel burning in theperiod 1950 to 2003 were 5.2 tons perperson per year in the USA, 0.4 tons inChina and less than 0.2 tons in India.However, developing countries aredisproportionately affected by theconsequences of climate change. Due to

high exposure to climate risks and limitedadaptive capacity, they are projected to feelthe bulk of the impacts. Unmitigated climatechange will further increase globalinequalities.”

39. As Pamela Cox, Vice President of theWorld Bank made clear in reference to LatinAmerica: “The region is only producing about6% of global greenhouse gas emissions and just over 10% if we include deforestation.However, it is already suffering hugeeconomic losses due to climate change. It iscruel and ironic that those people who areleast responsible for causing the problem,



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particularly the extreme poor, are also themost vulnerable and the ones with leastresources to adapt.”

III. Rethinking the Path of HumanProgress

1. Root Causes of the Economic,Environmental and DevelopmentCrises

40. The massive and sudden financialcrisis, now coupled with a deep economicrecession, has destroyed confidence in long-established policies, power relationships andinstitutional arrangements. An international

debate is now raging to identify the causesof and responsibility for the crises and alsoto establish the conclusions to be drawn forthe future. For those who reject the capitalistmodel, the crises demonstrate its predictedfailure. For those committed to free marketcapitalism, the system must be reformed andadapted to function better. The radicaldivergence of opinions can be indicated asfollows.41. First, the Economist: “Over the pastcentury and a half, capitalism has proved its

worth for billions of people. The parts of theworld where it has flourished haveprospered; the parts where it has shriveledhave suffered. Capitalism has alwaysengendered crises, and always will. Theworld should use the latest one, devastatingthough it is, to learn how to manage itbetter.”

42. An extreme contrast comes fromBoaventura de Sousa Santos, Director of theSocial Studies Center at the University of

Coimbra, Portugal: “Latin America remainsa key piece in the economic strategy of thetransnational companies and thegovernments of the North. One mustremember that the capitalist system alwaysneeds new spaces for generating economicprofits…In effect, neoliberal restructuringtries to replace existing concepts ofdevelopment and democracy with conceptsof control and security due to its incapacityfor generating solid popular support. This isa consequence of deepening socialexclusion, misery and inequality underneoliberal capitalism…”

43. It is important to recognize thatdifferent societies manage their economiesin very different ways and that the models ofbusiness management are also widelydiverse. In Japan for example, longer-termprospects and profitability are given priorityover short term results, and employees,suppliers and customers are viewed aspartners in a common enterprise, togetherwith shareholders. Thus the pursuit of shortterm profits and the concentration onincreasing shareholder value are not thecentral priorities of business activity.

44. It is the “Anglo-Saxon” model of freemarket capitalism which lies at the heart ofthe present crises. And this model, together

with the values on which it is based, hasbeen disseminated throughout the world, inlarge part through the education of élitesfrom emerging economies and by the strongpressures of the international financialinstitutions. The analysis which follows isfocused primarily therefore on the values,concepts and consequences of the Anglo-Saxon model which has dominated globaleconomic thinking for almost thirty years.

45. In this perspective, some of the

underlying causes of the crises we face canbe summarised as follows:

(i) Excessive belief in the“magic of the marketplace”.

(ii) Determination to cut backthe role of government.

(iii) A damaging concept ofeconomic growth.

(iv) Counterproductive valuesand assumptions.

(i) Excessive belief in the “magic ofthe marketplace”.

46. It had long been understood that aprosperous and stable society requires aproper balance between the role of themarket to stimulate innovation and theeffective use of resources and the role ofgovernment as the custodian of the commoninterest. Governments should provide aclear and predictable framework of law, ofsupervision and of regulation within whichthe market could operate so as to achieve abalance between private rights and benefitsand the prosperity of the community. With



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the arrival of Prime Minister Thatcher and in1980 of President Reagan, a new ideologydominated international economic thinking.This confidently asserted that, throughliberalization, privatization and deregulation,market prices should be released from theinterference and control of government andthe energies of the market would thenassure the optimum use of resources toachieve social welfare.

47. Encapsulated in the phrase “greed isgood”, this strong and confident marketdogma encouraged individuals to pursuetheir own benefit regardless of the socialimplications. This philosophy is nowdiscredited. It is painfully clear that it has

failed on critical points both morally and inpractice. It has failed to assure a fairdistribution of benefits, of wealth and incomewithin countries and between countries. Ithas failed to provide a sound and stablebasis for economic progress and worlddevelopment. And it has failed to recognizethe fundamental need to preserve a decentand healthy environment.

48. According to a review by IncomesData Services in the UK, the earnings of the

FTSE 100 Chief Executives rose 167%between 2000 and 2008 while the mediannational average pay rise over the sameperiod for the country’s 28 million workerswas 32.2%. The Financial times made thediverging fortunes of rich and poor evenmore stark: “Merrill Lynch recently paid itsemployees $4 billion in publicly subsidizedbonuses amid a $15 billion quarterly loss.This government-financed bonus pool at onesingle firm was on its own nearly equal to theentire US bilateral aid budget to Sub-

Saharan Africa, roughly $5 billion in 2008.And it roughly matched the sum of all OECDcountries’ support to agriculture in alldeveloping countries.” (4th February 2009).

49. In some countries, these excesseshave triggered a profound shift in publicattitudes to business, for example in the USA.According to a recent MARIS poll, “Amongthe American public, 76% believe thatAmerica’s moral compass is pointed in thewrong direction… More than 90% believethat career advancement, personal financialgain, increasing profits or gainingcompetitive advantage are the primary

factors in business decisions. Only 31%believe that the “public good” is a strongmotivating factor… However, three quartersof Americans think that business can be bothsuccessful and ethical.”

50. The principal consequences of thisexcessive free market approach are:

1. A focus on materialconsumption. Humans havecome to be defined principally asconsumers and growth in materialconsumption is equated withprogress. How this has occurred iswell put by Richard Tomkins: “In theearly postwar years, the idea of

consumer choice was relativelyundeveloped. There was not enoughmanufacturing capacity to meetconsumer demand so manufacturersor governments decided whatproducts should be available andconsumers were grateful for whatthey could get….As economic growthaccelerated, incomes rose butproductivity rose faster still until finally,in the 1950s, manufacturing capacityoutstripped consumption turning the

relationship between manufacturersand consumers on its head….Thebaby boomers were the firstgeneration to be born into an erawhere consumers were placed on apedestal and companies set out tosatisfy their every whim…they definethemselves by making their selectionfrom the ever-increasing proliferationof goods and services on offer:whatever they want, the market willprovide.”

Where consumers fail to consumesufficiently, governments andcompanies strive to stimulate adesired rate of economic growththrough fiscal and monetary policiesand advertising to create demand. Inthis way, economic growth, instead ofbeing an instrument to achieve thehigher goals of humanity, becomesan end in itself, the goal and purposeof human activity: societies becomeaddicted to growth in materialconsumption. However, as the Clubof Rome emphasised some forty



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years ago, it will not be possible tosustain exponential growth inconsumption of a growing worldpopulation, together with theassociated waste and pollution,indefinitely on a finite planet.The current economic recession,which started in the financial sectorhas now extended and is deepeningin the productive sector of theeconomy. The crisis has extendedfrom Wall Street to Main Street. Theexcessive consumption which wasfueling the growth of the worldeconomy, driven by borrowing andstimulated by advertising andincentives, has now declined

dramatically, leaving manufacturingcapacities underutilized across theworld with a consequent rise inunemployment. It is not clear, that,when recovery comes as it will, thestructure and scale of demand willagain reach the previous levels tomatch potential output. This impliesthat a vast overhang of excessproduction capacity and labour willhave to be absorbed, over manyyears. And it underlines the

fundamental importance ofaccelerating investment andinnovation in new economic activitiesto generate employment and to laythe foundations for a new energy-efficient economy.

A headline from the Economist for anarticle on the fiscal policies adoptedby China to stimulate economicgrowth may serve as the last word:“Behave like a Westerner: buy

something you can’t afford.”

2. Reliance on market prices.Central to the free market dogma isthe firm belief that market prices, iffreed from the interference ofgovernment, will assure the optimumuse of resources to achieve socialand economic objectives. However,this has proved not to be the case.As supervision and regulation havebeen weakened, markets have failedto reduce poverty and have indeedaggravated disparities in income andwealth within societies and across the

world. By failing to take account inmarket prices of “externalities” – factors which, however important, aredifficult to quantify and do not fiteasily into economic calculus, suchas the value of natural capital orpublic goods – markets have alsofailed to limit the impacts of humanactivities on the environment. AsLord Nicholas Stern pointed out, theclimate change crisis represents thelargest market failure in history.

3. Dominance of economicsand finance. Overconfidence in themagic of the market place and theeffective role of prices has led to the

dominance of the economic andfinancial aspects of policy in nationalpolicy making. Critically importantissues, such as climate change,environmental degradation, resourcesecurity, social stability and theeradication of poverty are pushedaside by powerful economic forcesand interests. This dominance offinancial analysis and considerationsin the formulation of policy must becorrected if societies are to take

proper account of the issues whichare critical to longer term survival andto move towards sustainabledevelopment.

A further consequence of thedominance of financial and economicconsiderations is that, at a time whenpublic institutions must become moreinnovative, coherent and adaptable tomanage the rapidly evolvingsystemic challenges and risks of the

modern world, their programmesremain dominated by budgetaryconsiderations, aggravating theprocedural and bureaucraticconstraints which stifle innovationand renewal.

(ii) Determination to cut back the roleof government.

51. The Thatcher/Reagan marketideology was based not on one but on twopowerful ideas: to release the energy of theprivate sector and, in parallel, to diminish the



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role of government in the state. Thesustained effort to discredit government wasbest expressed by President Reagan: “Themost frightening words in the Englishlanguage are: “I’m from the government andI’m here to help.” Through liberalization,privatization and deregulation, the influenceof government was to be cut back whereverpossible. The current economic andfinancial crises are, in large part, theconsequence of the weakening ofsupervision and effective regulation withinkey countries. Supervisory and regulatoryagencies of government in many fields, suchas the Federal Reserve, the SEC and theEPA in the United States, have proved eitherunmotivated for ideological reasons or

unable, due to limitations of budget and staff,to fulfill their responsibilities with thedamaging results which we see today.

52. This commitment to diminish the roleof government has had its parallel in asustained effort to reduce the scope andeffectiveness of international cooperation.As a result, the capabilities and effectivenessof the main international organisations havebeen diminished over the past thirty years.But on these institutions depend the

management of global issues, the properfunctioning of the world economy andimprovement in the prospects and livingstandards of the billions in the developingcountries. Thus financial and economicforces and transnational corporations andbanks can operate on a global scale withouta corresponding international capacity andframework of regulation and supervision.

53. For some thirty years, attitudes tointernational cooperation and to the role of

international cooperation and governancehave been heavily influenced by theskeptical views of a limited number ofpowerful Western countries. Theyconfidently advocated the market dominatedapproach to development enshrined in theWashington Consensus. The credibility ofinternational action and of international lawhas suffered in consequence.

54. The pressures of reality, in particularthe global and systemic nature of the criseswe face, have now demonstratedunambiguously, even to the most powerfulcountries, that international cooperation and

action are essential to the resolution of trulyglobal problems. A strengthened frameworkof international cooperation is by no meansan alternative to effective national policy andaction. The challenge to internationalgovernance is to define a new balance andrelationship between internationalcooperation and national action to meet thechallenges of the dynamic, interdependentworld of the 21st Century.

55. The world is visibly entering a periodof transformation in the structure of powerand influence which have been establishedsince the Second World War, and in theunderlying concepts, relationships andmechanisms which drive the world economy.

This opens up many opportunities for newideas and approaches to global governanceand to the management of critical globalissues. This transformation emerged clearlyat the Davos meeting of the World EconomicForum in January 2009. Premier WenJiabao and Prime Minister Putin argued thatthe two rising powers must play a bigger rolein a new economic order. “Mr. Wen madescathing comments about the inappropriatemacroeconomic policies of some unnamedcountries and about the unsustainable model

of development characterized by prolongedlow savings and high consumption. He alsoattacked financial institutions and their blindpursuit of profit and their lack of selfdiscipline.” (FT 29/1/09).

56. The excessive belief in the efficiencyof market prices coupled with the calculateddiminution of the capabilities of governmenthave together led not only to the currentcrises with their massive human and

economic consequences but also to deepimbalances and vulnerabilities in the worldeconomy and in the environmental,ecological and development systems.

(iii) A damaging concept of economicgrowth.

57. From the above brief review, it can beconcluded that the models and strategieswhich drive the present path of economicgrowth are deeply flawed. This lies at theroots of the financial, economic,environmental and development crises which



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today destroy the lives of millions andthreaten the prospects of future generations.The key weaknesses can be summarised asfollows:

1. The failure to take properaccount of externalities. Thediscipline of economics is strong andconfident in its methodology and judgments as to what can be properlyincluded in an economic analysis andhow the analysis should beformulated and carried out. Issuesfor which data is weak and cannot bereadily quantified or where marketprices do not exist are generally notincluded in the analysis. In

consequence, issues of the mostprofound importance have beenneglected. For example, theecosystems services and the naturalcapital on which humanity dependshave no simple market price andhave been largely ignored. This isalso the case in regard to the impactsof economic activity, waste andpollution on health and to the realvalue of the energy and materialresources on which economic activity

depends. In these circumstances,what are considered to be social orenvironmental externalities mayprove to be profoundly moreimportant than the issues actuallyincluded in an economic analysis butas they have no market price, theycan be ignored.

Another dimension is the failure totake account of efficiency in the useof increasingly scarce resources. As

phrased by Dr. Schmidt-Bleek,“Already natural thresholds forecological security have beenexceeded in respect especially ofgreenhouse gas emissions, theextinction of species and thedepletion of renewable resourcessuch as water, forests and fish. Forthese reasons, the most fundamentalrequirement for moving towards asustainable human economy is to“de-materialise” human economicactivities and reduce as far aspossible the environmental impacts of

resource use.” (Declaration of the Lindau Group, 31/10/08.)

2. The failure to account forpublic goods. Clean waterand air, ecosystems services,unpolluted oceans rivers andatmosphere are all public goods onwhich we together depend. But thesehave no simple market price and arenot generally included in economicanalysis. Thus emissions can bepumped into the atmosphere andpollution into rivers and lakes at nocost to the individual polluter.Enormous efforts are being made tocorrect this anomaly, for example

through a tax on carbon emissions,and strengthened national andinternational regulation.

3. The failure to account forthe interests of future generations.For conceptual and methodologicalreasons, classical economic analysisputs a higher value on early ratherthan longer-term benefits, favoringprojects and investments which offerearly returns and discounting future

costs and benefits. However, as timegoes by, massive longer term costscan accumulate, driven by issueswhich have been neglected such asthe accumulation of greenhousegases in the atmosphere, overuse ofthe biological resources of the planetor the rising levels of inequality andexclusion.

Thus, future generations will berequired not only to pay down

massive financial debts and torestore neglected infrastructure butalso to pay for the restoration of afunctioning environment, presumingthat the damage and losses have notbecome irreversible and to invest inthe development of an equitable andpeaceful world.

4. The failure to achieve socialinclusion and fairness. Poverty,deprivation and exclusion continue toexist in spite of the accumulatingwealth of a growing world economy.In effect, the established model of



15

growth, if uncorrected, has proved toaggravate social and economicdisparities and divisions. Poor,deprived and unemployed people donot participate effectively in themarket. Models and strategies foreconomic progress must therefore beadapted and complemented by publicaction to reduce inequity and povertythroughout the world.

5. The failure to recognize thesystemic nature of global anddomestic problems. The criticalissues confronting the world todayare interconnected and systemic intheir nature. They cannot be

resolved by ad hoc, partial andsectoral measures. But the rigorousmethodology of economic analysiswhich has been largely derived froma different tradition, finds it difficult toadapt to the new interdisciplinary,systemic approaches which are nowvital to understand and act on thecritical issues of the modern world. Itis therefore of first importance thatthe teaching of economics shouldadapt to produce a generation of

new-style economists familiar withand open to the behaviour andproperties of systems and committedto take proper account of social andenvironmental dimensions in analysisand in the formulation of policy.

(iv) Counterproductive values andassumptions.

58. Concepts, strategies and behaviourare, of course, driven by the fundamental

values, culture, assumptions and aspirationsof individuals, groups and societies. Thebeliefs, values and behaviour which havebrought the world to the present crisis willhave to change if a new more equitable andenvironmentally sustainable path for humanprogress is to be found. Roger Cohendefines the crisis in values most directly:“....there is a surfacing of shame about theextent of our spend-spend-spend excesses.The check on this spending spree stands at$2.6 trillion in American personal debt – astaggering sum…As Bill Clinton might havesaid, “It’s the culture stupid.” The culturethat said that the most patriotic act was to

shop, that sent the best and the brightest toWall Street to concoct toxic securities, thatsaid there was no need to balance individualrights and community needs…Goodbye to allthat.”

59. Associated with this distorted valuesystem, a number of implicit assumptionshave become enshrined in the publicconsciousness, at every level. It is widelyassumed for example that:

• living standards and personal wealthwill continue to rise in Westerncountries indefinitely, based onnever-ending economic growth.

• rising economic growth will somehow

resolve the problems of abjectpoverty and deprivation withinnations and in the world communityas a whole and also, the poor andexcluded will wait patiently until thisoccurs.

• the paths of economic growth and oftechnological progress are objectivelydetermined and cannot therefore bechanged: whereas they are in factdriven by social values and choice.

• the anticipated increase in world

population of around 2.3 billionpeople in the next forty years willsomehow be safely absorbed.

• the degradation of ecosystems anddeepening environmental threats canbe mastered in due course associeties become more wealthy.

• global warming will prove to be aslow and linear process which can beresolved when it becomes politicallyand economically feasible forgovernments to take effective action.

• the price mechanism andtechnological innovation will ensurethat energy and resources willcontinue to be available.

• local and national problems, whichare politically more immediate,should be given priority over theinternational issues which nowthreaten the future of humanity as awhole in an interdependent world.

60. All these assumptions will have tochange if humanity is to surmount the risksand threats ahead. And in this perspective,the role of education and public information



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of every kind and at every level is criticallyimportant. The financial, economic andclimate crises are already having significantimpacts on behaviour and attitudes in manycountries, particularly in regard to personalconsumption and the acceptance of the hugeinequalities in wealth and income as beingnormal. If this evolution in values becomespermanent – which is by no means sure – itwill help greatly to reorient social andeconomic progress onto a new path.

61. From this brief analysis, one keyquestion emerges. What in fact constituteseconomic growth if so many critical aspectsare not properly included in itsmeasurement? The financial crisis has

demonstrated clearly that the appearance ofgrowth over many years may be a mirage, abubble without substance, if it is based onthe soaring accumulation of domestic andinternational debt. The apparent gains inwealth have now evaporated.

62. In effect the fundamental question is:“Is the growth in GDP real if it ignoresenvironmental degradation, the growingthreats of climate change, rising levels ofpollution and their effects on health, the

destruction of natural capital, the depletion ofnon-renewable resources, the depreciationof infrastructure and the aggravation ofpoverty and exclusion?”

63. In this perspective, efforts are inprogress across the world to reconsider thecalculation of growth and particularly of GDP,to include such aspects which are vital tohumanity but not properly included in theeconomic calculus on which strategies andpolicies are largely based.

2. Rethinking Globalisation andWorld Development

64. In November 2007, H. E. Dr. HorstKöhler, Federal President of Germany andformer Managing Director of the IMF, invitedthe Club of Rome convened an internationalconference in Schloss Bellevue, Berlin, onthe topic “Policy Challenges in the Next Phase of Globalisation.” President Köhlerphrased the issue, in summary, as follows:

65. “Globalisation has indeed providedmany benefits but we cannot allow the

process to be driven by the interests of thestrong: it must work to the benefit of all or itcan tear this world apart…. We need apolicy to achieve order and development forthe whole planet. It is, simply stated: oneworld or no world. We cannot continueindefinitely on the present path. Humanity isusing the resources of the planet as if wehad another one in reserve. It hasunfortunately taken many years for themessage of the Club of Rome to berecognized. We do need internationalcooperation in research, technology andpolicy to protect the environment and theclimate. But we need more than this, atransformation in our lifestyles. Would it notbe good to know that our restraint can

provide more for the disadvantaged and forfuture generations?”

66. Millions have undoubtedly benefitedfrom globalization, but millions in bothdeveloping and developed countries havenot. Benefit for many has come at a cost forothers while many are altogether excludedfrom the process. The perception in largeparts of society and public opinion that thebenefits of globalization are not fairly shared,drives a strong backlash against

globalization in many countries. This isreinforced by evident and growing disparitiesin wealth and income. Newsweek reportedon 12/11/2007 that “The often grotesqueproportions of income inequality are givingpause to even some of the most ardentbelievers in the international trading system”quoting former federal Reserve chairmanAlan Greenspan: “The issue of thepresumed justice of the rewards ofcapitalism has created angst in all peopleinvolved in market economies.”

67. A further reason for the deep concernabout globalization is the apprehension that,if the present consumer-driven patterns ofeconomic growth continue unchanged andare further extended to vast numbers ofadditional consumers, the environmental,ecological and social consequences will bedisastrous.

68. While globalisation has stimulated asustained period of growth of the worldeconomy through the global integration ofthe movement of goods, capital and jobs, thefinancial and economic crises have starklydemonstrated the downside of this rising



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level of interdependence. As the Economistphrased the issues: “The downturn has beensharpest in countries that opened up most toworld trade….Can one be too dependent ontrade? How far should one liberalisebanking? Is there a trade-off between takingadvantage of good times and providingshock absorbers for bad ones?” (21/2/09).

69. The profound debate now in progresson globalisation reflects the diverse values,concepts, opinions and aspirations of thesimilar debate on national economic strategyoutlined above. The intensity of this debatecan be seen from an analysis by WaldenBello of the Philippines. He characterises asa move towards what he terms Global Social

Democracy, GSD, a proposal made byGordon Brown when Chancellor that there isa need for “alliance capitalism” betweenmarket and state institutions which would“secure the benefits of the market whiletaming its excesses” and which “captures thefull benefits of global markets and capitalflows, minimizes the risk of disruption,maximises opportunity for all and lifts up themost vulnerable.”

70. He then continues: “Even before the

full unfolding of the financial crisis, partisansof GSD had already been positioning it as analternative to neoliberal globalisation…butGSD shares neoliberalism’s bias forglobalisation… promising to promote it betterthan the neoliberals. This amounts tosaying…that an inherently socially andecologically destructive process can bemade palatable and acceptable. GSDassumes that people really want to be part ofa functionally integrated global economywhere the barriers between national and

international have disappeared. But wouldthey not in fact prefer to be part ofeconomies that are subject to local controland are buffered from the vagaries of theinternational economy?”

71. The critique of globalisation is nowextending into the area of mainstreambusiness and economics. Writing in theFinancial Times, Gideon Rachman presentsthe issue thus: “The 2009 meeting of theWorld Economic Forum is taking place at atime when the “globalisation consensus” isunder strain as never before. Theinternational financial crisis has undermined

one of the central ideas behind thatconsensus – the idea that internationaleconomic integration provides a path tosteadily rising prosperity. Instead, at themoment, the globalisation of the economyappears to have done the opposite – spreading a dangerous economic virusaround the world and creating the threat ofanother global depression.”

72. The strong market-orientedphilosophy of the past thirty years hasimpacted in similar ways at the internationallevel as at the national level. The sameconcepts, methodology and assumptionshave driven globalisation and haveundoubtedly stimulated trade, financial flows

and investment, leading to a period ofsustained economic growth at a faster rateoverall in emerging economies than indeveloped economies. But this neoliberalapproach has also generated fundamentalproblems at the international level:

• The reduction of barriers throughliberalization, deregulation andprivatization which has freed theforces of the market has createddangerous vulnerabilities. It has left

national economies victims of forcesbeyond their control. It hasaggravated the instability of theintegrated, global economic system,generating the synchronizedslowdown in both rich and poorcountries together and increasing thescale of the global recession. Theidea that developed and theemerging economies were “de-linking” has proved false.

• It has led to an over-dependence onexport led growth, ignoring the needsof those not engaged in industrieswhich are connected to world tradeand investment. The combination ofexpert and élite focus on the role offoreign direct investment, combinedwith the aim of “export at all costs”has led to the neglect of investmentin agriculture and poverty reduction.Spending on farming as a share ofpublic spending in developingcountries fell by half between 1980and 2004 (The Economist.) Inparallel, assistance to poor countries



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to improve farming practices and tobuild up agricultural infrastructuresuch as transport networks, irrigationsystems, dams and extensionservices fell from around 18.7% ofODA in 1979 to 5.2% in2006,(OECD).

• The process of globalisation hasbeen accompanied by rising levels ofinequality as, according to RobertReich, former US Labor Secretary,“the top 10 or 20 percent is pullingaway from the rest because ofeducation, job skills andconnections.” The integration ofChina and India into the global

trading system has effectively addedmore than a billion workers to theworld’s labour force, thus placingdownward pressure on real wages.At the same time, intensifyingcompetition, rapid adoption of newtechnologies and freer capital flowsare diminishing labour’s bargainingpower. According to ADB, the rich-poor divide in China, as measuredby the Gini coefficient, nowresembles Latin America and is

thought to be above that of theUnited States. And, while the rapidgrowth of international information-based activities in Bangalore hasattracted world attention, accordingto a World Bank survey, some 45%of Indian children are malnourished.

• Globalisation on a “WashingtonConsensus” basis has also led toinstability and to the generation ofenormous financial imbalances

which have caused periodic financialcrises in the global economy. Thecurrent account deficit of the USAwhich exceeded $700 billion per year,the accumulation of around $4Trillion in assets by the Asianeconomies, $2 trillion by China alone,and the flows of financial resourcesfrom oil consuming nations to oilproducers which attained $1.7Trillion in 2007 indicate the scale ofthe imbalances and vulnerabilities inthe international financial system.Many commentators, including PaulVolcker three years ago, have

stressed that the trends in the worldfinancial system were clearlyunsustainable: the depth of thebanking and credit crisis has beengreatly worsened by thesefundamental imbalances andvulnerabilities.

• The deep and rapid changesaccompanying globalisation have putimmense stress on the socialstructures, relationships and culturalfoundations of many societies,leading to identity crisis, polarizationand radicalization of those who rejectthe norms and values of the moderncapitalist world. The exclusion of

hundreds of millions of people fromthe processes and benefits ofglobalisation has provoked abacklash, a broadly-basedcountermovement around therejection of globalisation, or, in thephrase of Walden Bello of thePhilippines, the call for“deglobalisation”, not only indeveloping countries but indeveloped countries also whereprotectionist feelings are growing.

• Just as the institutions andresponsibilities of government havebeen curtailed in many nations, so asustained effort has been made overthe past thirty years to diminish therole of international institutions andof the international supervision andregulation of the vast financial flowsacross the world. This has allowedtransnational corporations andfinancial institutions to operate

worldwide without effectivesupervision or regulation of theiractivities. The global financial crisiswhich originated in East Asia in thelate Nineties triggered an urgent callfor a “new institutional architecture”to improve the governance of theworld economy. Once the crisis wascontained, the pressure for changedissipated, with the results that wesee today.

73. In considering the future path ofglobalisation, another set of factors related toenergy, resources and the environment must



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be taken into account. The internationalstructure of investment and production, theorganisation of international supply chainsand the flow of resources across the worldare a function of the cost of energy and ofother factors of production. As the era ofcheap oil is nearing its end and as a pricewill be put on the emission of CO2 into theatmosphere, the costs of transporting goodsacross the world will rise. In addition, thesecurity aspects of the provision of energyand other vital resources will become of firstimportance as competition for vital butscarce resources intensifies.

74. For these and other reasons, thedistribution of investment, production and

employment between developing andindustrialised countries and the relatedpatterns of trade are likely to be verydifferent as the world emerges from thecurrent crises: another demonstration of thereal links of environmental, economic anddevelopment factors in the real world.

Global governance

75. The massive financial crisis whichhas now emerged will undoubtedly lead to

significant change in the global governanceof the world economy but at an immensefinancial and human cost which could havebeen averted if action had been taken adecade ago following the East Asianfinancial crisis. As new institutionalarrangements are considered it will beimportant to take account in their design ofkey factors in the modern world: a newbalance of power and influence; theenormous scale of the flows of resources inthe international financial system; the

complexity and opaqueness of the world offinance; the speed of change; and the need,as at the national level, to take properaccount of the systemic links between theissues of economics and finance, climateand environment and equitable worlddevelopment.

76. As noted above, humanity has thevast capabilities needed to resolve thethreats to the future: whether it will achievethis depends substantially on its ability toagree on and implement the essential actionin good time through an effective frameworkof international institutions within which the

action of governments, business and civilsociety can be mutually reinforcing.

77. The challenge of establishing asound framework of internationalgovernance and effective cooperation tomeet the issues of the 21st Century and toguide the processes of globalisation onto themost constructive path will not be met bymarginal adjustment to the existingframework. The existing institutionalframework was conceived for a simpler agesome 60 years ago. Its redesign will becritical to success and should be the focus ofintensive and urgent international attention.Accountability, legitimacy, flexibility,resilience, coherence, anticipation and

innovation will be vital factors in thesuccessful management of the systemicissues of an interdependent, rapidlychanging world. We are far from this today.

78. Just as new strategies are needed toreorient economic growth at the nationallevel, so major transformations will beneeded at the international level to assureequitable, stable and sustainabledevelopment. “The world needs arebalancing of trade to end US deficits and

Asia manufacturing surpluses. But theburden of rebalancing is falling increasinglyon developing countries – commodityexporters and those reliant on income fromworkers overseas and labour-intensivemanufactures. …Credit demands from theWest are sucking money out of even themost developed East Asian economies…and forcing less developed ones to paydouble-digit rates to borrow in internationalmarkets. These borrowing costs areunsustainable and threaten a developing

world crisis that will provide another hit towestern banks and further curtail trade.”(Philip Bowring, IHT, 11/3/09. This view wasechoed by the former Japanese vice-ministerof finance, Dr. Sakakibura, “The US has tolive within its means and China and Japancannot continue to export to the rest of theworld as they have done. The world will lookcompletely different once this crisis is over.”(FT 28/1/09)

79. The reorientation of the globaleconomy which is coming must be seen inthe context of the major transformation ofinternational relations now in progress. The



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latest forecast of the US National IntelligenceCouncil broke new ground with its Global Trends 2025. “By 2025, the internationalsystem will be a global multipolar one withgaps in national power continuing to narrowbetween developing and developedcountries. The international system asconstructed following the Second World Warwill be almost unrecognizable…owing to therise of emerging powers, a globalizingeconomy, an historic transfer of relativewealth and economic power from west toeast, and the growing influence of non-stateactors…”

80. As Roger Altman, former US DeputyTreasury Secretary, put it clearly, “The

financial and economic crash of 2008, theworst in over 75 years, is a major geopoliticalsetback for the US and Europe…Over themedium term, they will have neither theresources nor the economic credibility toplay the role in global affairs that theyotherwise would have played.”

3. Redefining Growth: New Modelsand Strategies for SustainableEconomic and Social Progress

81. The previous sections havediagnosed the conceptual, ethical andpractical inadequacies in the current modelsand strategies for economic growth andglobalisation. And they have suggested thedisastrous consequences if these continueunchanged. Background Paper 2 suggestshow an integrated approach can bedeveloped to the economic, environmentaland development crises so as to achievelow-carbon, sustainable growth and

employment within the wider purposes ofequitable world development. This sectionbriefly outlines some of the key issues.

82. In his remarkable book, “The Bridgeat the End of the World”, Gus Speth definesthe challenge as “to bring the reigningparadigm of neoclassical economics into linewith environmental realities and needs.” Atthe Club of Rome Berlin Conference on theChallenges of Globalisation in November2007, Ambassador Anders Wijkman posedthe issues as: “the present economic modelis no longer relevant as it is almost totallyseparate from the natural world and

overwhelmed by externalities. A revolutionin economic thinking is needed if we are tosurmount the economic and environmentalcrises we face.”

83. He then listed a number of key issuesto be resolved. “First, the economicframework must be re-thought to internalizeexternalities. This is an issue more profoundthan trying to ensure that prices reflect truecosts and implies the need to re-thinkbusiness models. Second, how we measurewealth must be reconsidered. We need anhonest balance sheet which reflects ourplundering of natural resources and assignsa real price to ecosystem services. Third,science and education are not conceived to

understand the essential inter-relationshipsand should seek to promote a holisticunderstanding of issues. Fourth, a crashprogramme of research and development onenergy is urgently needed. Finally, theinstitutions of global governance areinadequate to meet the new challenges andmust be strengthened and reformed.”

84. Most recently, President Sarcozy hasinitiated an International Commission,chaired by Nobel Laureates Amartya Sen

and Joseph Stiglitz, with the aim to “rendereconomic data more comprehensive, moreintelligible to the public and more relevant forpolicy makers by taking into account suchfactors as environmental degradation andquality of life.” In announcing thisCommission, President Sarcozy recognizedthat “the threat of catastrophic climatechange should also force policymakers torecalibrate the broader environmental impactof economic growth.” (FT 28/1/09).

85. We must move from a concept whichequates growth with an exponential increasein material consumption to a concept ofprogress based on improving the quality oflife and real welfare. And we must movefrom a concept which accepts that growthinevitably implies vast increases in thewealth of a few combined with exclusion andstagnation of the livelihoods of the many to aconcept which favors fairness and inclusion.

86. It is essential and urgent for thereasons outlined earlier in this Note, that thepresent strategies and policies for economicgrowth be radically changed. Such radical



21

change in the content and direction ofeconomic progress is essential if we are toavert the threats of catastrophic climatechange and ecosystems collapse, tomanage equitably and peacefully theintensifying competition for vital resources,and to create a sound and equitable basisfor longer term world development. Toachieve such radical change will require:

• a new vision and ethical framework togive new meaning to the concept ofeconomic and social progress;

• a new balance and partnershipbetween the public and privatesectors and civil society;

• new models and methodology to

analyse and guide decisions on thechoices and risks ahead;• coherent new strategies and policies

to achieve economic, environmentaland development objectives;

• revitalized institutions to anticipateand act effectively on the systemicissues of the modern world.

• Revised curricula and methodologyfor education to produce the skillsand open-minded, interdisciplinarythinking which are now essential to

understand, anticipate and managethe systemic, connected issues of themodern world.

87. Jean Pierre Cotis, a member of theSen-Stiglitz Commission and the head ofINSEE, the Statistics Agency of France,considers that the task is to narrow the gapsbetween objective measures of economicproduction and subjective measures of wellbeing. “GDP was originally intended as ameasure of production and economic activity.It was never meant to measure well being.That is beyond the statistician’s remit.”

88. In 2008, the Club of Rome, togetherwith the European Commission and OECD,convened a conference in Brussels on thetopic “Beyond GDP” to explore these issues.And work is in progress throughout the worldto develop new concepts in variousformulations such as “Green GDP”, “GreenGrowth” and most recently, UNEP’s

proposed “Global Green New Deal”.

89. However, to redefine the models andstrategies for economic growth has

implications far beyond the methodology ofthe calculus of GDP, although this must besubstantially revised. Additional systems ofindicators will be needed to valuedimensions of progress beyond theeconomic, such as natural capital andecosystems services or human well being.The UNDP Human Development Index isone valuable approach which ensures thatthe human dimensions of development arethe focus of development policies. Anotherpositive approach has proved to be theSocial Indicators developed at OECD in theSeventies which have added socialdimensions to economic analysis.

The way towards sustainable growth

90. To achieve sustainable growthrequires that the failures of the presentmodels of growth outlined earlier must becorrected.

• The analysis of choices, risks andopportunities which preparesdecisions on policy andimplementation must take properaccount of externalities, such as the

value of natural capital, the real costof resources etc. This requires notsimply an adjustment to existingtechniques and methodology so as tointegrate such externalities intoexisting economic models but aserious reconsideration of the wholeapproach.

• Through the introduction of pricing,regulation, incentives anddisincentives, the real value of publicgoods must be integrated into policy

analysis.• The interests of future generations

and the longer-term consequences ofpolicies must be integrated into theconsideration of policy options.

• The human and social issues offairness in the distribution of costsand benefits, of income andopportunity must be properlyreflected in the consideration andexecution of policy. This applies both

within societies and at theinternational level.



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91. Besides a revision of themethodology of economic analysis and theaddition of complementary indicators,changes will be needed in the processes ofanalysis and decision- making to make themmore participatory and to ensure thatopinions, concerns and aspirations fromsociety at large are properly respected andconsidered and more effectively integratedinto the formulation of policy. The dominanceof economic thinking must be corrected sothat the environmental, social and humandimensions of policy can be given properattention. And, such rethinking must not onlybe introduced in the public sector but also inthe private sector, in both finance andmanufacturing.

92. Companies will have to focus moreon longer term performance and on thebroader interests of all the partners in theproductive process. They will have to takeproper account of the efficiency with whichthey use energy and resources and of theenvironmental impacts of their activities atevery stage. A strong movement is underway to integrate the concepts of CorporateSocial Responsibility into mainstreambusiness strategy. And many companies

across the world are committed to reductionof emissions, to efficiency in the use ofenergy and resources, to the minimizing ofenvironmental impacts, and to social andcommunity responsibility. It is clear thatthese attitudes and policies are not negativeto growth and profitability but are indeed“good for the bottom line.”

93. Another key challenge to thecorporate community is that, under the neweconomic and social conditions which are

emerging in a transformed economy andwith changing public attitudes, companieswill have to reconsider whether the strategicobjectives of permanent expansion andincreasing market share will prove a viableand socially acceptable basis for corporatesuccess in the longer term.

94. New thinking and new policies areemerging across the world and there aremany examples where energy efficiency,environmental responsibility and socialconcern have improved economicperformance and public recognition. A newpath of economic progress can be found

which responds to the environmental,economic and development imperatives oftoday and tomorrow. The “creativedestruction” now in progress as economiestransform to meet the new conditions hasimmediate costs for individuals, corporationsand societies but it also creates enormousopportunities for innovation and for thecreation of whole new industries.

95. One important, practical example isthe commitment of the Government of Chinato a gradual reorientation of the Chineseeconomy onto a path which should be lessenvironmentally damaging, more sociallyequitable and more regionally balanced.

96. This programme, known as the “allaround Xiao Kang Programme,” is a keypriority in the 11th Five Year Plan. As a firststep, a framework of 40 indicators is beingdefined to make it possible to assessprogress toward a “harmonious society”. Aseries of policies to achieve thistransformation is aimed at innovation andeducation to create the foundations of a newapproach to the “scientific development” ofthe economy which will create employmentand output in new high value-added areas

with greatly reduced impact on theenvironment.

97. As new values, new concepts andmethodologies emerge, the main themes ofa new strategy for economic progress willtake shape. Among these will be:

• Restructuring of the economy onto alow-carbon and environmentallysustainable basis.

• Improved efficiency in the use of

resources and energy.• Greater fairness and inclusion in the

benefits of progress and in theemerging opportunities for theimprovement of welfare, both withincountries and on a global scale.

• The reduction or elimination ofperverse subsidies which aggravatethe environmental and developmentproblems which must be urgentlyresolved.

•

A sustained focus on the generationof employment as the central meansto reduce poverty, hunger andexclusion.



• A renewed focus on the social andhuman resource dimensions ofdevelopment, and on education andcapacity building.

98. If these and other such forwardlooking policies can be implemented then theworld could be at beginning of a newtransformation, based on values, conceptsgoals and relationships adapted to thechallenges of the 21st Century.

99. From the cursory analysis above, it isclear that the three major crises confrontinghumanity, the financial and economic crisis,the development crisis and theenvironmental and climate crisis have

common roots: excessive confidence in therole of the market; the rejection andweakening of the role of government;weaknesses in the underlying concepts andstrategies for economic growth andglobalisation; and, most profoundly, the

values and assumptions which driveattitudes and behaviour.

100. It follows that the three critical issuesof environment, economics and internationaldevelopment are essentially interconnected.They cannot be resolved separately. Theymust be understood and managed together.As President Obama said on 21st February,“We cannot successfully address any of ourproblems without addressing all of them.”And the fundamental values, attitudes andconcepts which are driving the present pathof world development must change so as toestablish the foundations of a new coherent,integrated strategy to manage the systemicissues of the 21st Century.

A detailed documentation of this briefing session will beavailable on www.clubofrome.org/G8plus5

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