Economy & Trade

Greening Economic Growth

Jan 19 2018 - When I hear people in Pakistan talk of how we really need to focus on economic growth now and on cleaning up later, I cannot help thinking about the Mexican finance secretary’s reaction in 2000 when he heard that environmental degradation was costing his country about nine per cent of gross domestic product per annum. I still remember him holding up one hand and pointing the other hand downwards and summing it up as (to paraphrase): you mean we are pushing the country up through our policies to promote growth with one hand, and pulling it down, through environmental degradation, with the other hand?

Kulsum Ahmed

We talk a lot about sustainable development these days, but to their great credit, the Mexicans went into action in 2000. They initiated an internal discussion on what they needed to do to modernise their environmental sector and to integrate environment into economy-wide policies. They realised that the physical environment was principally affected by actions in other sectors, and so, among other steps, they developed a new programme focused on sustainable development, which placed accountability for environmental sustainability on (initially) 13 different federal sectoral entities, as well as state and local governments. The programme also emphasised the citizen’s right to information that would allow one to know the state of the environment in which one lived and how one’s welfare was affected. Mexico also established an environmental unit in the finance ministry with the particular mandate of designing and proposing fiscal instruments to support environmental policy implementation and promote behaviour change. The programme resulted in the Mexican government becoming much more agile at using a forum of multiple sectors to generate comprehensive solutions to environmental problems, gathering environmental data and sharing it with the public, as well as creating the right fiscal incentives to facilitate behavior change.

Most finance ministers don’t think that environment is their business at all, but increasingly we are discovering that it is. Why do I say this? Economic growth is defined in most textbooks as “an increase in the capacity of an economy to produce goods and services, compared from one period of time to another”. The value (rather than the quantity) of the goods and services is calculated based on current market value, adjusted for inflation and compared across time periods. The unit of measurement is either gross national product (GNP) or gross domestic product (GDP). So, in effect, economic growth is viewed as a proxy for an increase in aggregate productivity.

Most economists will tell you that there are five main ways to generate long-term economic growth. The first is a discovery of new or better economic resources. The second is to create more jobs and to grow the labour force (Side note: women coming into the labour force, together with men, in many countries after the Second World War had a major positive effect on their economic growth. The Quaid clearly had this figured out. In a speech at Aligarh in 1944, he said “Another very important matter which I want to impress upon you, is that no nation can rise to the height of glory, unless women are side by side with you.”). A third is to increase investment in infrastructure and physical capital. Fourth is to create superior technology or products. And fifth is through increasing skills of labourers, and so increasing their productivity.

Most finance ministers don’t think that environment is their business, but we are discovering that it is.

What does all this have to do with environmental degradation? The latter affects citizens’ health, causing early deaths in some cases.

Indeed, according to the recent Lancet Commission on Pollution and Health’s report, almost one in four premature deaths in Pakistan is attributed to pollution. In other cases, it causes illnesses that prevent people from reporting to work. Finally, in Pakistan, repeated bouts of malnutrition and environmental diseases (such as diarrhoea) in children under the age of two years results in reducing children’s IQ levels and their educational and cognitive performance. All this taken together means that the country’s productivity is lowered rather significantly.

A case study on Pakistan in a World Bank book, Environmental Health and Child Survival, tried to estimate the cost of disease, using 2005 data, in terms of loss of productivity, early mortality and health costs associated with environmental factors, such as lack of clean water, inadequate sanitation, poor waste disposal, indoor and outdoor air pollution, vector-borne diseases, such as malaria, and problems arising from industrial chemicals and wastes. It also included malnutrition-mediated indirect effects of environmental risk factors. The estimated annual cost of direct and indirect impact of environmental risk factors for Pakistan came to almost 9pc of GDP per annum. In comparison, our annual GDP growth in 2005 was a high 7.7pc, according to World Bank data. Just think how much higher it could have been.

It seems to me that a major input to achieving greater economic growth, that we can directly affect, are our people. Clearly, a healthy and educated people lead to both a better workforce and budding entrepreneurs, so that old businesses can be more productive but also new businesses can generate jobs and superior technologies and products. So many countries focus on improving the pillars of health and education as they move up the development ladder from low- to middle- to high-income economies. In Pakistan, as in most other developing countries, environmental degradation is the third pillar of that stool, as it directly affects both health and education outcomes. In addition, pollution results in unnecessary healthcare expenditures, an expensive option for a country with insufficient budget.

Pakistan’s former finance minister, Shahid Javed Burki, often mentions that today’s Pakistan is a very young country, with more than 50pc of the population under the age of 25 years. By his calculations, in the cities, more than 75pc of the population are under the age of 25 years old. These youth, and their energy and enterprise, have the potential to raise Pakistan up. At the same time, it seems that we are holding them down, by lowering their productivity, because of poor air and water quality. Why can’t we improve the physical environment and green our economic growth? After all, it will only make our youth even more productive and our country even richer. Let’s not please ever say again that we have to grow first and clean up later.

The writer is an environmental sustainability and climate expert, and a former practice manager of the World Bank’s Environment and Natural Resources Global Practice.

This story was originally published by Dawn, Pakistan

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