OVERVIEW

Changing today's consumption patterns-for tomorrow's human development

World consumption has expanded at anunprecedented pace over the 20th century,with private and public consumptionexpenditures reaching $24 trillion in 1998,twice the level of 1975 and six times that of1950. In 1900 real consumption expendi­ture was barely $1.5 trillion.

The benefits of this consumption havespread far and wide. More people are betterfed and housed than ever before. Livingstandards have risen to enable hundreds ofmillions to enjoy housing with hot water andcold, warmth and electricity, transport to andfrom work-with time for leisure and sports,vacations and other activities beyond any­thing imagined at the start of this century.

How do these achievements relate tohuman development? Consumption isclearly an essential means, but the links arenot automatic. Consumption clearly con­tributes to human development when itenlarges the capabilities and enriches thelives of people without adversely affectingthe well-being of others. It clearly con­tributes when it is as fair to future genera­tions as it is to the present ones. And it clearlycontributes when it encourages lively, cre­ative individuals and communities.

But the links are often broken, and whenthey are, consumption patterns and trendsare inimical to human development. Today'sconsumption is undermining the environ­mental resource base. It is exacerbatinginequalities. And the dynamics of the con­sumption-poverty-inequality-environmentnexus are accelerating. If the trends continuewithout change-not redistributing fromhigh-income to low-income consumers, notshifting from polluting to cleaner goods andproduction technologies, not promotinggoods that empower poor producers, notshifting priority from consumption for con-

OVEI{VIEW

spicuous display to meeting basic needs­today's problems of consumption andhuman development will worsen.

But trend is not destiny, and none ofthese outcomes is inevitable. Change isneeded-and change is possible.

In short, consumption must be shared,strengthening, socially responsible andsustainable.• Shared. Ensuring basic needs for all.• Strengthening. Building human capabili­ties.• Socially responsible. So the consumptionof some does not compromise the well­being of others.• Sustainable. Without mortgaging thechoices of future generations.

Human life is ultimately nourished andsustained by consumption. Abundance ofconsumption is no crime. It has, in fact,been the life blood of much humanadvance. The real issue is not consumptionitself but its patterns and effects.Consumption patterns today must bechanged to advance human developmenttomorrow. Consumer choices must beturned into a reality for all. Human devel­opment paradigms, which aim at enlargingall human choices, must aim at extendingand improving consumer choices too, but inways that promote human life. This is thetheme of this report.

The 20th century's growth inconsumption, unprecedented in itsscale and diversity, has been badlydistributed, leaving a backlog ofshortfalls and gaping inequalities.

Consumption per capita has increasedsteadily in industrial countries (about 2.3%

Trend is notdestiny-change ispossible

The new humanpoverty index(HPI-2) shows thatsome 7-17% of thepopulation inindustrial countriesis poor

2

annually) over the past 25 years, spectacu­larly in East Asia (6.1%) and at a rising ratein South Asia (2.0%). Yet these developingregions are far from catching up to levels ofindustrial countries, and consumptiongrowth has been slow or stagnant in others.The average African household today con­sumes 20% less than it did 25 years ago.

The poorest 20% of the world's peopleand more have been left out of the con­sumption explosion. Well over a billion peo­ple are deprived of basic consumptionneeds. Of the 4.4 billion people in develop­ing countries, nearly three-fifths lack basicsanitation. Almost a third have no access toclean water. A quarter do not have adequatehousing. A fifth have no access to modernhealth services. A fifth of children do notattend school to grade 5. About a fifth donot have enough dietary energy and pro­tein. Micronutrient deficiencies are evenmore widespread. Worldwide, 2 billion peo­ple are anaemic, including 55 million inindustrial countries. In developing coun­tries only a privileged minority has motor­ized transport, telecommunications andmodern energy.

Inequalities in consumption are stark.Globally, the 20% of the world's people inthe highest-income countries account for86% of total private consumption expendi­tures-the poorest 20% a minuscule 1.3%.More specifically, the richest fifth:• Consume 45% of all meat and fish, thepoorest fifth 5%.• Consume 58% of total energy, the poor­est fifth less than 4%.• Have 74% of all telephone lines, thepoorest fifth 1.5%.• Consume 84% of all paper, the poorestfifth 1.1%.• Own 87% of the world's vehicle fleet,the poorest fifth less than 1%.

How rewarding is today's pattern ofconsumption in terms of human satisfac­tion? The percentage of Americans callingthemselves happy peaked in 1957-eventhough consumption has more than dou­bled in the meantime.

Despite high consumption, poverty anddeprivation are found in all industrial coun­tries and in some they are growing. Thisyear's Report presents a new index of

poverty in industrial countries-a multi­dimensional measure of human deprivation,on the same lines as the human povertyindex presented in Human DevelopmentReport 1997 for developing countries butmore appropriate to the social and economicconditions of the industrial countries.

The new human poverty index (HPI-2)shows that some 7-17% of the population inindustrial countries is poor. These levels ofdeprivation have little to do with the averageincome of the country. Sweden has the leastpoverty (7%), though ranked only thirteenthin average income. The United States, withthe highest average income of the countriesranked, has the highest population shareexperiencing human poverty. And countrieswith similar per capita incomes have very dif­ferent levels of human poverty. TheNetherlands and the United Kingdom, forexample, have HPI-2 values of 8% and 15%,despite similar income levels.

HPI-2 shows conclusively that under­consumption and human deprivation arenot just the lot of poor people in the devel­oping world. More than 100 million peoplein rich nations suffer a similar fate. Nearly200 million people are not expected to sur­vive to age 60. More than 100 million arehomeless. And at least 37 million are with­out jobs, often experiencing a state of socialexclusion. Many conclusions about depri­vation apply to them with equal force.

Ever-expanding consumption putsstrains on the environment-emissionsand wastes that pollute the earth anddestroy ecosystems, and growingdepletion and degradation of renewableresources that undermines livelihoods.

Runaway growth in consumption in the past50 years is putting strains on the environ­ment never before seen.• The burning of fossil fuels has almostquintupled since 1950.• The consumption of fresh water hasalmost doubled since 1960.• The marine catch has increased fourfold.• Wood consumption, both for industryand for household fuel, is now 40% higherthan it was 25 years ago.

I IUlV1AN DEVELOPMENT REPORT J998

Rapid consumption growth for some, stagnation for others, inequality for all-with mountingenvironmental costs

1975

World GDPWorld populationFood in Africa

Cable TV in China(1990-95)

Televisions in Latin America

Radios in Africa

Electricity in South AsiaMcDonald's restaurantsin Arab States (1991-96)

Telephones in Arab States

Cars in East Asia

Relative growth­income, populationand consumptionPercentage Increase, 1975-95

,I

60%share

t20%share

+

I

IT

20%share

tCerea/s

Consumption is distributed inequitablyShares of world consumption, 1995

..~

•

tt

,. .. .- I',

Source: World Bank 1997d; ITU 1997b; UN 1996c and 1997b;

FAO 1997a and 1998; UNESCO 1997d.

22.7

Source: CDIAC 1996; UN 1996c and 1997b; UNESCO 1997d; World Bank 1997c

Per capita CO2 emissions, 1995Metric tons yearly

USA

Canada

Germany

Japan

South Africa

Mexico

China

Brazil

10.3

.,

I. 5.7

1950 60 70 80

Industrial countries

East Asia

South Asia

Latin America & Caribbean

Arab StatesSouth-East ASia & Pacific= Sub-Saharan Africa

90 95

OVERVIEW 3

Poor people andpoor countriesbear many costsof unequalconsumption

4

Yet growth in the use of materialresources has slowed considerably in recentyears, and much-publicized fears that theworld would run out of such non-renewableresources as oil and minerals have provedfalse. New reserves have been discovered.The growth of demand has slowed.Consumption has shifted in favour of lessmaterial-intensive products and services.Energy efficiency has improved. And tech­nological advance and recycling of rawmaterials have boosted efficiency in mater­ial use, now growing more slowly thaneconomies. Call this dematerialization. Theper capita use of basic materials such assteel, timber and copper has stabilized inmost GECD countries-and even declinedin some countries for some products.

So, non-renewables are not the urgentproblem. It is two other crises that arenudging humanity towards the "outer lim­its" of what earth can stand.

First are the pollution and waste thatexceed the planet's sink capacities to absorband convert them. Reserves of fossil fuels arenot running out, but use of these fuels isemitting gases that change the ecosystem­annual carbon dioxide (C0

2) emissions

quadrupled over the past 50 years. Globalwarming is a serious problem, threatening toplay havoc with harvests, permanently floodlarge areas, increase the frequency of stormsand droughts, accelerate the extinction ofsome species, spread infectious diseases­and possibly cause sudden and savage flipsin the world's climates. And although mate­rial resources may not be running out, wasteis mounting, both toxic and non-toxic. Inindustrial countries per capita waste genera­tion has increased almost threefold in thepast 20 years.

Second is the growing deterioration ofrenewables-water, soil, forests, fish, bio­diversity.• Twenty countries already suffer fromwater stress, having less than 1,000 cubicmetres per capita a year, and water's globalavailability has dropped from 17,000 cubicmetres per capita in 1950 to 7,000 today.• A sixth of the world's land area-nearly2 billion hectares-is now degraded as aresult of overgrazing and poor farmingpractices.

• The world's forests-which bind soiland prevent erosion, regulate water sup­plies and help govern the climate-areshrinking. Since 1970 the wooded area per1,000 inhabitants has fallen from 11.4square kilometres to 7.3.• Fish stocks are declining, with about aquarter currently depleted or in danger ofdepletion and another 44% being fished attheir biological limit.• Wild species are becoming extinct50-100 times faster than they would natu­rally, threatening to tear great holes in theweb of life.

The world's dominant consumers areoverwhelmingly concentrated amongthe weU-off-but the environmentaldamage from the world's consumptionfalls most severely on the poor.

The better-off benefit from the cornucopiaof consumption. But poor people and poorcountries bear many of its costs. The sever­est human deprivations arising from envi­ronmental damage are concentrated in thepoorest regions and affect the poorest peo­ple, unable to protect themselves.• A child born in the industrial world addsmore to consumption and pollution over hisor her lifetime than do 30-50 children bornin developing countries.

• Since 1950 industrial countries,because of their high incomes and con­sumption levels, have accounted for wellover half the increase in resource use.• The fifth of the world's people in thehighest-income countries account for 53%of carbon dioxide emissions, the poorestfifth for 3%. Brazil, China, India, Indonesiaand Mexico are among the developingcountries with the highest emissions. Butwith huge populations, their per capitaemissions are still tiny-3.9 metric tons ayear in Mexico and 2.7 in China, comparedwith 20.5 metric tons in the United Statesand 10.2 in Germany. The human conse­quences of the global warming from carbondioxide will be devastating for many poorcountries-with a rise in sea levels,Bangladesh could see its land area shrink by17%.

I IUil-iAN DEVELOPMENT REPORT 1990

• Almost a billion people in 40 developingcountries risk losing access to their primarysource of protein, as overfishing driven byexport demand for animal feed and oilsputs pressure on fish stocks.• The 132 million people in water­stressed areas are predominantly in Mricaand parts of the Arab states-and if presenttrends continue, their numbers could rise to1-2.5 billion by 2050.• Deforestation is concentrated in devel­oping countries. Over the last two decades,Latin America and the Caribbean lost 7 mil­lion hectares of tropical forest, Asia andSub-Saharan Mrica 4 million hectares each.Most of it has taken place to meet thedemand for wood and paper, which hasdoubled and quintupled respectively since1950. But over half the wood and nearlythree-quarters of the paper is used in indus­trial countries.

The poor are most exposed to fumesand polluted rivers and least able to protectthemselves. Of the estimated 2.7 milliondeaths each year from air pollution, 2.2 mil­lion are from indoor pollution, and 80% ofthe victims are rural poor in developingcountries. Smoke from fuelwood and dungis more dangerous to health than tobaccosmoke, but every day women have to spendhours cooking over smoky fires.

Leaded petrol, used more in developingand transition economies than in industrialcountries, is crippling human health, per­manently impairing the development ofchildren's brains. In Bangkok up to 70,000children are reported to be at risk of losingfour or more IQ points because of high leademissions. In Latin America around 15 mil­lion children under two years of age are atsimilar risk.

These environmental challenges stemnot only from affluence but also from grow­ing poverty. As a result of increasing impov­erishment and the absence of otheralternatives, a swelling number of poor andlandless people are putting unprecedentedpressures on the natural resource base asthey struggle to survive.

Poverty and the environment are caughtin a downward spiral. Past resource degra­dation deepens today's poverty, whiletoday's poverty makes it very hard to care

OVER\1E\X·

for or restore the agricultural resource base,to find alternatives to deforestation, to pre­vent desertification, to control erosion andto replenish soil nutrients. Poor people areforced to deplete resources to survive; thisdegradation of the environment furtherimpoverishes them.

When this reinforcing downward spiralbecomes extreme, poor people are eitherforced to move in increasing numbers to

ecologically fragile lands. Almost half theworld's poorest people-more than 500million-live on marginal lands.

The poverty-environmental damagenexus in developing countries must be seenin the context of population growth. In thedeveloping world pressures on the environ­ment intensify every day as the populationgrows. The global population is projected tobe 9.5 billion in 2050, with more than 8 bil­lion in developing countries. To feed thispopulation adequately will require threetimes the basic calories consumed today,the equivalent of about 10 billion tons ofgrain a year. Population growth will alsocontribute to overgrazing, overcutting andoverfarming.

How people interact with their environ­ment is complex. It is by no means simply amatter of whether they are poor or rich.Ownership of natural resources, access tocommon properties, the strength of com­munities and local institutions, the issue ofentitlements and rights, risk and uncer­tainty are important determinants of peo­ple's environmental behaviour. Genderinequalities, government policies andincentive systems are also crucial factors.

In recent times environmental aware­ness has been increasing in both rich andpoor countries. The rich countries, withgreater resources, have been spendingmore on environmental protection andclean-up. The developing countries, thoughthey have fewer resources, have also beenadopting cleaner technologies and reducingpollution, as in China.

The world community has also beenactive on environmental problems thatdirectly affect poor people. Such areasinclude desertification, biodiversity loss andexports of hazardous waste. For example,the Convention on Biological Diversity has

Competitivespending andconspicuousconsumption turnthe affluence ofsome into thesocial exclusion ofmany

5

Globalization iscreating newinequalities andnew challenges forprotectingconsumer rights

6

near-universal signature, with over 170parties. The Convention to CombatDesertification has been ratified by morethan 100 countries. But the deterioration ofarid lands, a major threat to the livelihoodsof poor people, continues unabated.

And there are other immediate environ­mental concerns for poor people, such aswater contamination and indoor pollution,that have yet to receive serious internationalattention. Global forums discuss globalwarming. But the 2.2 million deaths yearlyfrom indoor air pollution are scarcelymentioned.

Rising pressures for conspicuousconsumption can turn destructive,reinforcing exclusion, poverty andinequality.

Pressures of competitive spending and con­spicuous consumption turn the affluence ofsome into the social exclusion of many.When there is heavy social pressure tomaintain high consumption standards andsociety encourages competitive spendingfor conspicuous displays of wealth, inequal­ities in consumption deepen poverty andsocial exclusion.

Some disturbing trends:• Studies of US households found thatthe income needed to fulfil consumptionaspirations doubled between 1986 and1994.• The definition of what constitutes a"necessity" is changing, and the distinctionsbetween luxuries and necessities are blur­ring. In the 1980s Brazil, Chile, Malaysia,Mexico and South Mrica had two to threetimes as many cars as Austria, France andGermany did when they were at the sameincome level 30 years earlier.• Household debt, especially consumercredit, is growing and household savings arefalling in many industrial and developingcountries. In the United States householdssave only 3.5% of their incomes, half asmuch as 15 years ago. In Brazil consumerdebt, concentrated among lower-incomehouseholds, now exceeds $6 billion.

Many voice concerns about the impactof these trends on society's values-and on

human lives. Do they further deepenpoverty as households compete to meet ris­ing consumption standards-crowding outspending on food, education and health?Do these patterns motivate people to spendmore hours working-leaving less time forfamily, friends and community?

And is globalization accelerating thesetrends in competitive spending and risingstandards?

Globalization is integrating consumermarkets around the world and openingopportunities. But it is also creatingnew inequalities and new challenges forprotecting consumer rights.

Globalization is integrating not just trade,investment and financial markets. It is alsointegrating consumer markets. This has twoeffects-economic and social. Economicintegration has accelerated the opening ofconsumer markets with a constant flow ofnew products. There is fierce competitionto sell to consumers worldwide, withincreasingly aggressive advertising.

On the social side local and nationalboundaries are breaking down in the settingof social standards and aspirations in con­sumption. Market research identifies"globalelites" and "global middle classes" who fol­low the same consumption styles, showingpreferences for "global brands". There arethe "global teens"-some 270 million 15- to

18-year-olds in 40 countries-inhabiting a"global space", a single pop-culture world,soaking up the same videos and music andproviding a huge market for designer run­ning shoes, t-shirts and jeans.

What are the consequences? First, ahost of consumption options have beenopened for many consumers-but manyare left out in the cold through lack ofincome. And pressures for competitivespending mount. "Keeping up with theJoneses" has shifted from striving to matchthe consumption of a next-door neighbourto pursuing the life styles of the rich andfamous depicted in movies and televisionshows.

Second, protecting consumer rights toproduct safety and product information has

HUMAN DEVELOPMENT REPORT 1998

become complex. Increasingly, new prod­ucts with higher chemical content, such asfoods and medicines, are coming on themarket. When information is not adequate,or safety standards are not strictly enforced,consumers can suffer-from pesticides thatare poisonous, from milk powder that iscontaminated.

At the same time the consumer receivesa flood of information through commercialadvertising. An average American, it isestimated, sees 150,000 advertisements ontelevision in his or her lifetime. Andadvertising is increasing worldwide, fasterthan population or incomes. Globaladvertising spending, by the most conserva­tive reckoning, is now $435 billion. Its growthhas been particularly rapid in developingcountries-in the Republic of Korea itincreased nearly threefold in 1986-96, in thePhilippines by 39% a year in 1987-92. In1986 there were only three developing coun­tries among the 20 biggest spenders in adver­tising. A decade later there were nine. And inspending relative to income, Colombia ranksfirst with $1.4 billion, 2.6% of its GDP

Poor countries need to accelerate theirconsumption growth-but they neednot follow the path taken by the richand high-growth economies over thepast half century.

Not only have consumption levels been toolow to meet basic needs for more than a bil­lion people, their growth has often been slowand interrupted by setbacks. In 70 countrieswith nearly a billion people consumptiontoday is lowerthan it was 25 years ago. It can­not be raised without accelerating economicgrowth-but growth has been failing manypoor people and poor countries. Despite thespectacular growth of incomes for manypeople in Asia, only 21 developing countriesworldwide achieved growth in GDP percapita of at least 3% each year between 1995and 1997-the rate needed to set a framefor reducing poverty.

Some suggest that developing countriesshould restrain their consumption in orderto limit environmental damage. But thiswould mean prolonging the already scan-

OVERVIEW

dalously deep and extensive deprivation forfuture generations.

Developing countries today face astrategic choice. They can repeat the indus­trialization and growth processes of the pasthalf century, and go through a developmentphase that is inequitable, and creates anenormous legacy of environmental pollu­tion. Or they can leapfrog to growth pat­terns that are:• Pro-environment, preserving naturalresources and creating less pollution andwaste.• Pro-poor, creating jobs for poor peopleand households and expanding their accessto basic social services.

If poor countries can leapfrog in bothconsumption patterns and production tech­nologies, they can accelerate consumptiongrowth and human development withoutthe huge costs of environmental damage.They can incorporate many of the availabletechnologies that are not only less environ­mentally damaging but clean-solar energy,less energy-intensive crop production,cleaner paper production technologies.

Leapfrogging technologies will enhancethe prospects for development by savingthe huge costs of environmental clean-upthat many countries are now incurring. Thecost savings will go beyond the direct costsof cleaning up old toxic sites, scrubbing coalpower plants and so on. Health care costslinked to environmental damage can also besaved. And leapfrogging will bypass thelock-in that can result from inappropriateinfrastructure development.

Some argue that the scope for cheap,effective and politically less contentiousantipollution policies is very limited in poorcountries. This is a myth. Many actions havealready been taken. And further optionsexist:• Higher yields can be achieved throughmore intensive agricultural methods ratherthan more fertilizers and pesticides.• Phasing out lead in petrol costs only 1-2cents per litre for the refinery, as Mexicoand Thailand have shown.• Solar power and compact fluorescentlightbulbs can increase efficiency fourfoldand reduce the need for rural electricitygrids.

Developingcountries today canleapfrog to growthpatterns that arepro-environmentand pro-poor

7

Consumption levelsof over a billionpoor people mustbe raised

8

• Clean four-stroke engines can be madecompulsory for motorcycles and three­wheelers, as Thailand has done.

These show what is possible. But to real­ize the potential, more needs to be done todevelop and apply innovations.

Affluent societies in industrial countriesalso face strategic choices. They can con­tinue the trends in consumption of the pastdecade. Or they can shift to consumptionthat is pro-people and pro-environment.

Continuing past trends would increaseindustrial countries' consumption by four­to fivefold over the next half century. Someargue that growth must be slowed and con­sumption downsized. But the real issue isnot growth of consumption but its impactson people, the environment and society. Ifsocieties adopt technologies that diminishthe environmental impact of consumption,if patterns shift from consuming materialgoods to consuming services, growth canhelp, not hinder, moves to sustainability.The strategic choices of rich countries as theworld's dominant consumers, will be criti­cal in determining the future.

AGENDA FOR ACTION

Five goals are central:• Raise the consumption levels of morethan a billion poor people-more than aquarter of humanity-who have been leftout of the global expansion of consumptionand are unable to meet their basic needs.• Move to more sustainable consumptionpatterns that reduce environmental dam­age, improve efficiency in resource use andregenerate renewable resources-such aswater, wood, soils and fish.• Protect and promote the rights of con­sumers to information, product safety andaccess to products that they need.• Discourage patterns of consumptionthat have a negative impact on society andthat reinforce inequalities and poverty.• Achieve more equitable internationalburden-sharing in reducing and preventingglobal environmental damage and in reduc­ing global poverty.

The key is to create an enabling envi­ronment for sustainable consumption­where both consumers and producers have

the incentives and options to move towardsconsumption patterns that are less environ­mentally damaging and less socially harm­ful. People care about the impact ofconsumption on their own health andsafety-and the broader impact on theenvironment and society. But they arecaught up in a system of limited choices andopportunities and perverse incentives.Here's a seven-point agenda for action.

1. Ensure minimum consumptionrequirements for all-as an explicitpolicy objective in all countries.

"Everyone has the right to a standard ofliv­ing adequate for the health and well-beingof himself and his family, including food,clothing, housing and medical care and nec­essary social services ... Everyone has theright to education" (Universal Declarationof Human Rights). These principles of uni­versalism and human rights acknowledgethe equal rights of everyone-women, menand children-without discrimination.They demand governance that ensures thatall have enough to eat, that no child goeswithout education, that no human being isdenied access to health care, safe water andbasic sanitation and that all people candevelop their potential capabilities to thefull extent.

Strong public action is needed to meetthese goals. This means a mix of public pro­visioning in basic social services and anenabling environment and incentive systemfor private and voluntary action. It means:• Strong public policies to promote foodsecurity-ranging from conducive mone­tary, fiscal, commercial and pricing policiesto institutions and incentives to promotelocal production and distribution.• Priority public expenditures for basicsocial services-education, health, safewater, basic sanitation. Not only should ser­vices be expanded, but access should bemade more equitable. Studies in manycountries show that access favours thebetter-off rather than the poor, and urbanrather than rural populations.• Infrastructure for transport and energyto provide affordable and efficient services

Hurv1AN DEVELOPMENT REPORT 199~

for people, not just economic growth. TIllsmeans, for example, public transport, pathsfor bicycles and pedestrians and energyfrom renewable sources in rural areas.• Incentives to develop "poor people'sgoods"-low-cost housing materials,energy-saving equipment and food storagesystems.• Institutions and legal frameworks thatsecure people's rights to housing, to com­mon property, to credit.

John Kenneth Galbraith wrote 40 yearsago about private affluence amid publicsqualor. Far from narrowing, the contrastshave grown, and to them are added privateand environmental squalor.

2. Develop and apply technologies andmethods that are environmentallysustainable for both poor and affluentconsumers.

Human development can be sustained withpurposeful action. The challenge is not tostop growth. It is to change the patterns ofconsumption and production, using newtechnologies to achieve greater efficiencyand to reduce waste and pollution. Manysuch technologies are already in productionor on the drawing board.

Sustainable growth of consumption andproduction depends on major advances incleaner, material-saving, resource-savingand low-cost technologies. Also needed areconsumption options that are environmen­tally friendly and low cost and affordablefor the poor. But many do not yet exist­these need to be invented. And those thatexist need to be better marketed-goodsthat use less energy and fewer renewables(water and wood), that create less wasteand pollution and that are low in cost. Suchoptions may be available in some coun­tries-the zero-emission car, for example­but not worldwide, or they may be only atthe experimental stage. Public expenditureon research and development in energy hasdeclined by a third in real terms since theearly 1980s. Moreover, less than 10% goesto energy efficiency improvements. The restgoes largely to fossil fuel and nuclear energydevelopment. The case is strong for firms

O\1cR\'lE\X'

and governments to support more techno­logical development and application.

Rather than attempting to pick and pro­mote winning technologies, governmentscan help create a dynamic marketplace toperform that task more effectively. Thestate can require all energy providers­public and private-to supply a fixed mini­mum share of energy from renewablesources-either by generating it themselvesor by purchasing it from other providers.TIlls approach both ensures the introduc­tion of renewable energy sources in themarket and stimulates innovation of moreefficient and lower-cost technologies.

The benefits of cleaner technologies havebeen well demonstrated, as with the reduc­tion of material use in GEeD countries.Many technological solutions already existfor environmentally friendly goods, but cur­rent pricing structures undervalue environ­mental costs and benefits-and thus reducemarket incentives. Increased public supportfor further research and development couldaccelerate the pace of technological progress.

There is a particular need for technolo­gies to meet the requirements of the poor.About 2 billion people in developing coun­tries lack access to electricity. Meeting thisneed through clean, renewable sources ofenergy can reduce poverty and indoor airpollution. The sun and wind are available atno cost to villages that have little hope ofbeing connected to electricity grids.W1l1dpower, now the world's fastest­growing source of energy, meets only 1% ofglobal demand. India aims by 2012 to pro­vide 10% of its electricity from renewables,which could provide half the world's energyby the middle of the next century.

Perhaps most important among tech­nologies for the poor are those for agricul­tural production in ecologically marginalenvironments. Improvements in food pro­duction in much of Asia and Latin Americawould not have been possible without thegreen revolution-the scientific break­throughs that provided high-yielding vari­eties of rice, wheat and maize. The worldaverage yield of these crops has more thandoubled over the past 20 years. But this didnot happen in areas of lower rainfall and inthe more fragile ecological zones, where

A second greenrevolution isneeded-primarilyto benefit theworld's poorest

9

Removing perversesubsidies andimposingenvironmentaltaxes can promoteequitable growth

10

people subsist on millet and sorghum-andon cattle, sheep and goats. The world aver­age yield of millet and sorghum increasedby only 15% over the past two decades.

A second green revolution is needed forthese people, among the world's poorest.But this should not just repeat the first rev­olution-it needs to aim both at increasingyields and incomes and at preserving anddeveloping the environmental base.

The private sector has a critical roletoo-not just to meet the challenges ofsocial responsibility but to produce environ­mentally friendly, poverty-reducing goods.The market for environmental goods aloneis estimated at $500 billion. But for the pri­vate sector to act, it needs the right signalsfrom prices and incentives in the market.

3. Remove perverse subsidies andrestructure taxes to shift incentivesfrom consumption that damages theenvironment to consumption thatpromotes human development.

Many developing countries use subsidies­on staple foods and basic energy supplies, forexample-to help poor people survive andreduce poverty. Yet at the same time, mostcountries tax employment and subsidize pol­lution and environmental damage directlyand indirectly. Such "perverse" subsidies areparticularly common in the sectors of energy,water, road transport and agriculture. Totalsubsidies worldwide in these four sectors areestimated at $700-900 billion a year. Theyare also often distributionally regressive, ben­efiting mostly the wealthy-often politicalinterest groups-while draining the publicbudget.

The absolute amount of subsidies isabout twice as large in the OECD countriesas in the rest of the world. In the OECDcountries agriculture is most heavily subsi­dized (more than $330 billion), followed byroad transport ($85-200 billion). In devel­oping and transition economies the largestsubsidies go to energy ($150-200 billion)and water ($42-47 billion). In the words ofthe Earth Council, "the world is spendinghundreds of billions of dollars annually tosubsidize its own destruction."

Environmental taxes-<:harging for pol­lution, congestion and depletion-haveproved higWy effective in both industrialand developing countries. They have beenwidely used in Western Europe and are thewell-accepted core of green tax reforms­the Swedish air pollution tax and the Dutchwater pollution tax, for example. But notjust in Europe. Malaysia's effluent chargesand Singapore's automobile taxes are wellestablished and effective.

In Europe the social costs of environ­mental damage, unaccounted and unpaid,are estimated to average more than 4% ofGDP Estimates for the United States rangefrom 2% to 12%. Users are encouraged tomake excessive and wasteful use of roadtransport, with private cars most under­priced and most environmentally damaging.

Removing perverse subsidies thatencourage environmental damage, lowereconomic efficiency and benefit thewealthy-and imposing environmentaltaxes instead-<:an be a catalyst for reduc­ing inequalities and poverty and improvingthe prospects for equitable growth.Environmental taxes raise revenues thatcan be used to spend on environmental pro­tection, to reduce taxes on labour, capitaland savings or to improve access to socialservices for poor people.

The policy instruments described abovepresent a win-win opportunity for changingconsumption patterns to reverse environ­mental damage and increase the consump­tion of the poor. Removing water subsidies,for example, would reduce water use by20-30%-and in parts of Asia by as muchas 50%. That would make it possible, with­out large, environmentally destructivewater development projects, to supply safedrinking water to most of the 1.3 billionpeople now lacking it.

Another example: congestion chargescan finance improvements in public trans­port and expand transport options. They canease congestion, save time, lower the costsof public transport and, usually, improve thedistribution of income. Road transport sub­sidies in developing countries amount to $15billion. The increased involvement of theprivate sector in financing, building andoperating public transport systems in the

HUMAN DEVELOPMENT REPORT 1998

1990s is creating pressure to reduce roadsubsidies and increase user fees. Argentinacut subsidies to suburban rail systems by $25million between 1993 and 1995 when it pri­vatized the operation of urban transport.

The benefits of a shift from taxingemployment to taxing pollution and otherenvironmental damage could be consider­able. An GECD study on Norway suggeststhat a revenue-neutral shift would reduceunemployment while encouraging recyclingand reducing environmental damage.

More and more countries are realizingthat old policies and subsidies have adverseconsequences. Thus energy subsidies indeveloping countries have fallen from morethan $300 billion in the early 1990s to about$150-200 billion today. Environmentaltaxes are multiplying. But perverse subsi­dies are still huge, and environmental taxeshave reached nowhere near their potential.Even in the Nordic countries, where someof the most interesting experiments arebeing carried out, pollution taxes and con­gestion charges raise only about 7% of gov­ernment revenues.

4. Strengthen public action forconsumer education and informationand environmental protection.

The expansion of consumer choice has lit­tle significance if choices are based onwrong or misleading information. Strongpublic action to protect consumer rights isneeded to offset vastly unbalanced infor­mation flows dominated by commercialadvertisements.

Consumer rights must be defendedthrough:• Strict standards for consumer healthand safety.• Product labelling about the content andproper use of products and their environ­mental and social impact.• Information and awareness campaignsabout potential health hazards, such assmoking tobacco and the improper use offeeding formula for infants.

Advertising can serve positive purposes,but controls are needed, especially on tele­vision advertising targeting young children.

OVERVIEW

Sweden bans television advertising directedat children under 12.

Where price incentives are inadequate,environmental laws and regulations areneeded. Skilfully devised, controls can beenabling for the consumer, not restricting.But implementation is as important as leg­islation. Strong institutions, free from cor­ruption, are needed to enforce regulationsin such areas as rights to land, security oftenure in housing and accurate informationon consumer goods to protect the interestsof poor people.

Regulation and market interventionscan be mutually reinforcing. Sometimesregulation is needed to initiate action thatcan later be taken further with price incen­tives. At other times price incentives can beused to make a start-with regulation laterto ensure wider compliance, especially afterfostering social acceptance.

A new approach that has gained consid­erable interest and momentum in recentyears is self-regulation through publicizinginformation on industrial polluters. Thisencourages the production of informationabout pollution generation, both as a sourceof incentive for behavioural change and asa benchmark for subsequent regulation. Awell-known example is the US ToxicRelease Inventory, which requires busi­nesses to report the amounts of toxic mate­rials that they put into the environment.Many companies respond by reducing pol­lution to preserve their reputations.

5. Strengthen international mechanismsto manage consumption's globalimpacts.

Environmental damage crosses borders. Sodo shifts in consumption patterns andhabits. Poverty and inequality are issues ofglobal magnitude and thus cannot be tack­led by nations singly. They require interna­tional action.

International responsibilities for ensur­ing the sustainability ofnatural resource usehave been debated in numerous forums.The Kuala Lumpur Meeting of the Partiesto the Basel Convention on the Ban onHazardous Waste agreed to ban the export

Consumer rightsmust be protectedfrom unbalancedinformation flows

11

Strong civil societyalliances should bebuilt to protectconsumer rights

12

of such waste to poor countries. Both theConvention on Biological Diversity and theConvention on International Trade inEndangered Species of Wild Flora andFauna have been quite successful.

Although some of these agreementssometimes fall short of expectations andideals, they are steps in the right direction.The recent Kyoto Meeting on the UnitedNations Framework Convention on ClimateChange has set industrial country targets foremissions of carbon dioxide and proposed aClean Development Mechanism to assistdeveloping countries. Both the financirlgand the institutional arrangement for thismechanism must be dealt with by the globalcommunity. Another problem that needs tobe addressed: the continuing decline of offi­cial development assistance and the mount­ing unsustainable debt of poor countries.

Many global instruments to tackle envi­ronmental and poverty issues are under­developed-such as environmental tradingpermits, debt swaps and fair trade schemes.These instruments tend to be double-edgedswords, however, and need to be carefullynegotiated so that they do not penalize poornations and make them even poorer.Tradirlg environmental permits should notmean permanently giving away the rights ofdeveloping countries. A coordirlating globalinstitution in the form of the proposedinternational bank for environmental set­tlements is needed to develop and managethese instruments equitably.

6. Build stronger alliances among themovements for consumer rights,environmental protection, povertyeradication, gender equality andchildren's rights.

Consumer groups have been a powerfulforce for protecting consumer rights world­wide. They have helped remove unsafeproducts from the market and promoteproper labelling and the supply of safe andlow-cost goods.

Now consumers increasingly are usingthe power of their purses to push the inter­ests of communities even halfway aroundthe globe. Studies in Europe show that con-

sumers are willing to pay price premiums of5-10% for products that are more environ­mentally sound (in production, operationand disposal).

Businesses are responding to consumerdemand for cleaner, safer products.Evidence from Eastern Europe shows thatfirms exporting to the European Union tendto have cleaner production processes thanfirms that produce for the domestic markets,which are less environmentally demanding.

Conventional wisdom assumes thatenvironmental damage is a necessary con­sequence of economic growth. This iswrong. Environmental damage is a drain oneconomic growth, and it is possible to pur­sue a path to growth that does not damagethe environment.

Poverty eradication, environmental sus­tainability, consumer rights protection-allthese build on one another. Eradicatingpoverty does not require growth that ignoresconsumer rights or destroys the environ­ment. Quite the opposite. Protecting con­sumer rights and protecting the environmentare necessary for eradicating poverty andreducing inequalities.

There is great potential for buildingcloser alliances among the environmentalmovement, the women's movement, themovement for children, consumer groupsand pressure groups against poverty. Alreadytheir central concerns show great conver­gence. Stronger alliances are needed-andpossible-if each movement emphasizes thecommon need for human development.United and mobilized together, these groupscan achieve much more.

7. Think globally, act locally. Build onthe burgeoning initiatives of people incommunities everywhere and fostersynergies in the actions of civil society,the private sector and government.

The growing number and strength of con­sumer and environmental movementsaround the world-includirlg the 2,000town and city Agenda 21s that have beenprepared-reflect the commitment of peo­ple to takirlg collective action. Many opin­ion surveys show that people place a higher

HUMAN DEVELOPMENT REPORT 1998

In the poorer countries many priorities inconsumption still need to be addressed.

value on community and family life than onacquiring material possessions. And manypeople are asking how they can give moreemphasis to human concerns.

Some 100 countries have preparednational human development reports,assessing their present situations and draw­ing conclusions on actions to achieve morehuman patterns of development. Most ofthese plans have analysed needs in the crit­ical areas of education, health and employ­ment, often linking them with opportunitiesfor generating resources from reduced mil­itary spending.

These initiatives in many cases are theoutcomes of successful alliances of the gov­ernment, institutions of civil society andinternational organizations.

Progress has also been made in the areaof sustainable consumption and a cleanerenvironment as a result of civil pressure,public action and private sector responses.The instruments: eco-taxes and subsidyremoval, stiff environmental regulationsbacked by penalties, community efforts forbetter management of common resources(erosion control, reforestation) and moreequitable provisioning of public infrastruc­ture and services.

This shows what is possible. It also showsthat support exists for a cleaner environment,a more equitable society and the eradicationof poverty. Individuals, households, civil soci­ety groups, governments and private busi­nesses-all have a role, and together theircomplementary efforts can build even moreenergy and synergy for action.

• • •

Increases in consumption should beplanned and encouraged-but with atten­tion to nurturing the links, to making surethat the increases contribute to humandevelopment and to avoiding extremes ofinequality. FOlward-looking perspectivesare also needed-to avoid infrastructureand institutions that may lock a country intounsustainable or socially dysfunctionalconsumption.

In the better-off countries-most of theindustrial countries and some of the richerdeveloping countries-the challenge is dif­ferent. The priority to eradicate poverty andensure the basic needs of all remains.Indeed, the failure of the richest countriesto do that is a scandal. But as general livingstandards rise and the proportion in povertyfalls, the balance of attention in economicand social policy needs to shift. Increasingly,the policy focus needs to move towardsenlarging the options for patterns of con­sumption in which human creativity can belived out and carried forward with diversityand fulfilment, with most of the populationat comfortable levels of consumption, wellabove the margins of subsistence. Thesepolicies need to be combined with those ofthe environment and human development.

Recent experiences give considerablehope, with more evidence showing thatchanges in consumption patterns towardssustainable poverty reduction are possible.

Hope brings challenge. The high levelsof consumption and production in theworld today, the power and potential oftechnology and information, present greatopportunities. After a century of vast mate­rial expansion, will leaders and people havethe vision to seek and achieve more equi­table and more human advance in the 21 stcentury?

Increases inconsumptionmust also nurturelinks to humandevelopment

OVERVIEW 13

14

WHAT IS HUMAN DEVELOPMENT?

Human development is a process of enlargingpeople's choices. Enlarging people's choices isachieved by expanding human capabilities andfunctionings. At all levels of development thethree essential capabilities for human develop­ment are for people to lead long and healthylives, to be knowledgeable and to have access tothe resources needed for a decent standard ofliving. If these basic capabilities are notachieved, many choices are simply not availableand many opportunities remain inaccessible.But the realm of human development goes fur­ther: essential areas of choice, highly valued bypeople, range from political, economic andsocial opportunities for being creative and pro­ductive to enjoying self-respect, empowermentand a sense of belonging to a community.

Income is certainly one of the main means ofexpanding choices and well-being. But it is notthe sum total of people's lives.

Current global concerns and humandevelopmentHere is how human development relates to cur­rent global concerns:• Human rights. Human development leads tothe realization of human rights-economic,social, cultural, civil and political. The humandevelopment perspective takes an integratedview of all human rights-not the narrow andexclusive focus on civil and political rights. It pro­vides a framework in which advancing humandevelopment is commensurate with realizinghuman rights.

The 1948 Universal Declaration of HumanRights affirms that "everyone has the right to astandard of living adequate for the health andwell-being of himself and his family, includingfood, clothing, housing and medical care andnecessary social services ... Everyone has theright ... to education ... to work ... [and] tosocial security." Subsequent internationalhuman rights instruments reaffirmed people­centred development as a universal right-iden­tifying as additional dimensions the right tosecurity, participation, freedom of association,freedom from discrimination and exclusion fromdevelopment.• Collective well-being. Individual rights,choices and opportunities cannot, however, beunlimited. One person's freedom can constrainor violate the freedom of many others. As thereaction to the excessive individualism of the freemarket shows, there is a need for socially respon­sible forms of development. Individual and col­lective well-being are intertwined, and human

development requires strong social cohesion andequitable distribution of the benefits of progressto avoid tension between the two. And thepower of collective action is an essential drivingforce in the pursuit of human development.• Equity. Concerns for equity take centre stagein the human development perspective. Thenotion of equity is most often applied to wealthor income. But human development emphasizesequity in basic capabilities and opportunities forall-equity in access to education, in health, inpolitical rights.• Sustainability. Sustainability means meetingthe needs of present generations without com­promising the abilities and opportunities offuture generations. It thus implies both intra­generational and intergenerational equity.Sustainability is an important dimension ofhuman development. Human development is aprocess of enlarging people's choices. But suchenhancement must be for both present andfuture generations without sacrificing one forthe other.

In the 1990s there have been major globaldebates on sustainable development (UnitedNations Conference on Environment andDevelopment in Rio, 1992) and for people-cen­tred sustainable development (World Summit forSocial Development in Copenhagen, 1995).These have a common core, not to be missed,with human development. Human developmentis not a concept separate from sustainable devel­opment-but it can help to rescue "sustainabledevelopment" from the misconception that itinvolves only the environmental dimension ofdevelopment.

All these approaches have emphasized theneed for people-centred development, withconcerns for human empowerment, participa­tion, gender equality, equitable growth, povertyreduction and long-term sustainability.

Measuring human development-humandevelopment indexHuman Development Reports, since the first in1990, have published the human developmentindex (HDJ) as a measure of human develop­ment. Recognize, however, that the concept ofhuman development is much broader than theHDI. It is impossible to come up with a compre­hensive measure-or even a comprehensive setof indicators-because many vital dimensions ofhuman development are non-quantifiable. Buta simple composite measure of human develop­ment can draw attention to the issues quiteeffectively. The HDI is not a substitute for the

HUMAN DEVELOPMENT REPORT 1998

fuller treatment of the richness of the concernsof the human development perspective.

The HDI measures the overall achievementsin a country in three basic dimensions of humandevelopment-longevity, knowledge and adecent standard of living. It is measured by lifeexpectancy, educational attainment (adult liter­acy and combined primary, secondary and ter­tiary enrolment) and adjusted income.

Human poverty indexWhile the HDI measures overall progress in acountry in achieving human development, thehuman poverty index (HPI) reflects the distribu­tion of progress and measures the backlog ofdeprivations that still exists. The HPI measuresdeprivation in the same dimensions of basichuman development as the HDI.

HPI-1The HPI-1 measures poverty in developing coun­tries. The variables used are the percentage ofpeople expected to die before age 40, the per­centage of adults who are illiterate and depriva­tion in overall economic provisioning-publicand private-reflected by the percentage ofpeople without access to health services andsafe water and the percentage of underweightchildren under five.

HPI-2Introduced in this year's Report, the HPI-2 mea­sures human poverty in industrial countries.Because human deprivation varies with thesocial and economic conditions of a community,

this separate index has been devised for indus­trial countries, drawing on the greater availabil­ity of data. It focuses on deprivation in the samethree dimensions as HPI-1 and one additionalone, social exclusion. The variables are the per­centage of people likely to die before age 60, thepercentage of people whose ability to read andwrite is far from adequate, the proportion ofpeople with disposable incomes of less than50% of the median and the proportion of long­term unemployed (12 months or more).

Gender-related development indexThe gender-related development index (GDI)measures achievements in the same dimensionsand variables as the HDI, but captures inequali­ties in achievement between women and men.It is simply the HDI adjusted downward for gen­der inequality. The greater the gender disparityin basic human development, the lower a coun­try's GDI compared with its HDI.

Gender empowerment measureThe gender empowerment measure (GEM)reveals whether women can take active part ineconomic and political life. It focuses on partic­ipation, measuring gender inequality in keyareas of economic and political participationand decision-making. It tracks the percentagesof women in parliament, among administratorsand managers and among professional andtechnical workers-and women's earnedincome share as a percentage of men's.Differing from the GDI, it exposes inequality inopportunities in selected areas.

HOI, GOI, HPI-1, HPI-2-Same components, different measurements

HDI

GDI

HPI-1

HPI-2

Longevity

Life expectancy at birth

Female and male life

expectancy at birth

Percentage of people not

expected to survive to age 40

Percentage of people not

expected to survive to age 60

Knowledge

1. Adult literacy rate

2. Combined enrolment ratio

1. Female and male adult

literacy rate

2. Female and male combined

enrolment ratio

Illiteracy rate

Functional illiteracy rate'

Decent standard of living

Adjusted per capita income in PPP$

Female and male earned

income share

Deprivation in economic

provisioning, measured by:

1. Percentage of people without

access to water and health services

2. Percentage of undervveight

children under five

Percentage of people living

below the income poverty line

(50% of median disposable income)

Participation or exclusion

Long-term unemployment

rate (12 months or more)

a. Based on level 1 prose literacy according to the results of the OEeD International Adult Literacy Survey.

OVERVIEW 15