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Monday, 12 January 1998


Building a New Economy--The Challenge for Our Generation

Worldwatch Institute
State of the World 1998


The global economy is outgrowing the earth's ecosystem, posing a new challenge to the world's political leaders, according to State of the World 1998, the 15th annual report from the Worldwatch Institute, a Washington DC-based environmental research institute.

"If the world economy as it is now structured continues to expand, it will eventually destroy its natural support systems and decline," said Lester Brown, senior author of the report on the earth's health. "But we can already see how to make the transition to an ecologically sustainable economy if we adopt the right policies."

"Just as the challenge is unprecedented, so too are the economic opportunities for the countries and companies that pioneer the technologies needed to get us there," according to Brown and co-author Christopher Flavin. Flavin pointed to the global wind power business, already valued at $2 billion annually and expanding at 25 percent per year, as one of several new growth sectors now emerging.

Between 1950 and 1997, the global economy expanded from an annual output of $5 trillion to $29 trillion, an increase of nearly six-fold. Growth during the seven years since 1990 exceeds that during the 10,000 years from the beginning of agriculture until 1950.

History offers no precedent either for the economic growth or for the growth in consumption of natural resources over the last half century: the use of wood more than doubled, that of paper increased nearly six-fold, fish consumption increased five-fold, water use tripled, grain consumption nearly tripled, steel use increased four-fold, fossil fuel burning increased nearly five-fold, and air and water pollutants multiplied several-fold. The economy continues to expand, but the ecosystem on which it depends does not, leading to an increasingly stressed relationship between the two.

But while all the global economic indicators are positive, the key environmental indicators are increasingly negative. The signs of stress can be seen in shrinking forests, falling water tables, eroding soils, disappearing wetlands, collapsing fisheries, deteriorating rangelands, rivers running dry, rising CO2 levels, rising temperatures, and disappearing plant and animal species. These environmental indicators make it clear that the western fossil fuel-based, automobile-centered economy is not a viable model for the world.

Nowhere are the ultimate limits of the western economic model more visible than in China. "Because China is growing at such an extraordinary rate, it is in effect telescoping history," said Brown. "China is teaching us that the western industrial development model will not work for China because there are not enough land, water, and energy resources for everyone in China to consume at U.S. levels."

For example, China has already passed the United States in the consumption per person of some basic items, such as pork. If the Chinese (4 kilograms per person per year) were to match U.S. beef consumption (45 kilograms), they would need to eat an additional 49 million tons of beef a year. To raise this amount in beef in feedlots would take some 343 million tons of grain a year, the equivalent of the entire U.S. grain harvest. But the world's farmers are already struggling to meet current demand. As State of the World 1998 notes, "Despite the recent return to production of idled cropland, world grain stocks have dropped to the lowest level on record, leaving the world just one poor harvest away from potential chaos in world grain markets."

Transportation provides another telling example. Three years ago, Beijing decided that the automobile industry would be one of its basic growth industries over the next few decades. If China continues along this path, and if car ownership and oil use per person were to reach U.S. levels, the Chinese would burn 80 million barrels of oil per day, well beyond the current world production of 64 million barrels per day.

These examples underline the urgency of restructuring the economies, not just of China, India, and other developing nations, but of the industrial world as well.

"Recognizing the limits of natural systems is often attacked as a call for no growth," said Brown. "But the issue is not growth or no growth: the issue is what kind of growth, and where." State of the World 1998 demonstrates that we already have the technologies to meet the challenge of building an economy that is ecologically sustainable, one whose structure respects the carrying capacity of natural systems. A sustainable economy is one that reuses and recycles materials, is powered by renewable energy sources, and that has a stable population.

A sustainable economy is a demographically stable one. The latest projections show that world population will soar from today's 5.9 billion to 9.4 billion in 2050. All of the 3.5 billion people to be added will come in the developing countries. In many of these countries, the pressures of existing populations on cropland, water, and forest resources are already excessive, even with their still meager consumption levels. Stabilizing population as soon as possible-and well before it reaches 9.4 billion-is the first step to building a sustainable economy.

Converting the existing throwaway economy to a reuse/recycle economy reduces both the environmentally disruptive flow of raw materials from mines or forests to smelters and mills, and the vast one-way flow of discarded materials to landfills. As we have seen in the computer revolution, the economic benefits to companies and countries that are "first-to-market" with innovative technologies can be huge.

The transition to a reuse/recycle economy is already under way. In the United States, where the steel industry is now dominated by modern, electric-arc steel furnaces that feed on scrap metal, 55 percent of steel output is from scrap. Similarly with paper. Instead of cutting trees, paper companies now are negotiating long-term contracts with local communities to buy their scrap paper. This shift helps bring demands on forests down to a sustainable yield level.

To illustrate, the small, densely populated U.S. state of New Jersey has little forested area and no iron mines. Yet there are 13 paper mills that use only wastepaper and eight steel minimills that rely almost exclusively on scrap.

Collectively, these paper and steel mills market more than $1 billion worth of products each year, providing both local jobs and hefty tax revenues. Renewable energy production is expanding at a breakneck pace. Wind generation-the world's fastest growing energy source during the 1990s-is expanding by 25 percent a year. In contrast, the markets for coal and oil are expanding at only 1 percent a year. Installed wind electric generating capacity reached an estimated 7,600 megawatts by 1997. In Denmark, wind turbines already generate 6 percent of the nation's electricity.

An inventory of U.S. wind resources by the Department of Energy indicates a vast national potential, with three wind-rich states alone-North Dakota, South Dakota, and Texas-having enough harnessable wind energy to satisfy national electricity needs. A similar inventory in China indicates that it could easily double its current electricity generation by harnessing wind energy.

Early leadership in wind energy production came from the United States and Denmark. More recently, Germany and India, new wind superpowers, have surged into the lead. Tomen, a Japanese firm, plans to invest $1.2 billion in the installation of 1,000 large wind turbines in Europe over the next five years.

With the cost continuing to decline as technologies advance and as the scale of turbine manufacturing increases, wind promises to become a major power source. A second highly promising source of electricity is the photovoltaic cell, now the source of electricity in some 400,000 homes, mostly in Third World villages. The latest advance, a photovoltaic roofing tile, is becoming competitive in buildings already linked to a grid. Japan, a leader in solar cell manufacturing, has announced plans to install 4,600 megawatts of rooftop generating capacity by 2010, an amount equal to the generating capacity of Chile.

New energy efficient technologies are rapidly entering the market, ranging from new lighting technologies that cut electricity use by three fourths to Toyota's hybrid engine. Now on the market in Japan, Toyota's new entry in the environmental sweepstakes doubles fuel efficiency to 66 miles per gallon and cuts carbon emissions by half.

As the energy revolution gains momentum, some of the largest gas and oil companies are buying in. Enron, a large U.S. natural gas company, has made a strong move in renewables with its acquisition of Zond, the largest wind power company in the United States, and its investment in Solarex, the second largest U.S. manufacturer of photovoltaic cells.

British Petroleum and Royal Dutch Shell are also investing in renewable energy resources. BP has announced a commitment of $1 billion to renewable energy, starting with construction of a $20-million solar-cell manufacturing facility in California. Shell plans to invest $500 million in solar cells and sustainable forestry plantations in developing countries to fuel local power plants.

The key to effective change is not simply more R&D. There are plenty of technologies now ready to go, technologies badly in need of modest market incentives. The most efficient way to restructure the economy is to restructure the tax system. "We should be reducing personal and corporate income taxes while increasing taxes on environmentally destructive activities, such as carbon emissions, the generation of toxic waste, and the use of virgin raw materials," said Brown. The report details how several countries are already using tax policy to exploit the inherent efficiency of the market to steer their economies in an environmentally sustainable direction.

State of the World 1998's other co-authors outline policy responses to a number of other current environmental challenges, including sustaining the world's rapidly disappearing forests, halting the decline in biodiversity, promoting sustainable fisheries, and recycling organic wastes. Co-author Hilary French argues for redirecting international private capital flows into cutting-edge, environmental technologies that will enable developing countries to leapfrog the destructive phases of western industrial development, moving directly to sustainable economies.

The gap between what we need to do to reverse the degradation of the planet and what we are doing widens with each passing year. How do we cross the threshold of political change that will shrink this gap, reversing the trends of environmental degradation that are undermining the economy and promoting social disintegration?

Access to information and political leadership are both essential to crossing the threshold. The world's media giants have a special responsibility to disseminate the information needed to fuel change on the scale required and in the time available.

Although leaders everywhere have a key role to play, the United States is uniquely positioned to lead, simply because of the global dominance of its economy. If the United States does not lead, the world economy will suffer as its ecological base deteriorates.

History judges political leaders by whether or not they respond to the great issues of their time. For Lincoln, the challenge was to free the slaves. For Churchill, it was to turn the tide of war in Europe. For Nelson Mandela, it was to end apartheid. For Bill Clinton and today's other world leaders, the challenge is to build a new economy.

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