Bill Totten's Weblog

Friday, January 29, 2010

You Can Have Progress without GDP-led Growth

Interview of Pavan Sukhdev

by Tom Levitt (January 22 2010)

Deutsche Bank economist Pavan Sukhdev is heading up the groundbreaking TEEB (The Economics of Ecosystems and Biodiversity) report and doing for nature what Sir Nicholas Stern did for climate change - valuing it.

Tom Levitt: Why are we putting a value on nature, why don't we just close off and protect it?

Pavan Sukhdev: The Ecologist may say that but there are a hundred thousand other people who are social NGOs and politicians looking for votes at the next election who will say, ah ha! that is just an ecologist talking who loves nature and does not care for your well-being because guess what I have built a railroad, built a bridge, given you a job and provided you with an electricity connection.

That is the person the Ecologist needs to answer, by saying ecology - in other words natural capital - used properly can also give you the jobs that you seek.

Forest maintained can also provide the poor with the fresh water that they want and guess what, yes you need to build bridges but you can do that in a way that is more earth-friendly, less carbon intensive in manufacture and creates some local opportunity as opposed to just profits for the builders who built the bridge. You have to have counter arguments that are being made explicitly or implicitly because sometimes this is not even said and people just go-ahead and destroy and there is no question of listening to the ecologist because he is "just a greenie who loves nature".

People are not even looking at the economic value of the conservation alternative or the natural capital value of nature.

TL: Do you think politicians and economists actually understand the terms 'ecosystem services' and 'biodiversity'?

PS: A lot of them do. You can go back to Obama's acceptance speech when he talked about: 'harnessing the power of the wind and the waves, harnessing sunlight, freeing ourselves from the shackles of oil'.

He was talking about a better understanding of nature and what it brings to us and how we can leverage it into our economies better instead of the way we do it now, which is to dig it from the ancient sunlight buried millions of years ago.

TL: Could those same politicians and economists also name their country's natural assets?

PS: Some perhaps could but yes, nature is still seen as a specialist subject. They are not seeing it as natural capital. That is basically what is missing.

They are seeing it as a sector, for example the forestry sector, that has profitable opportunities with sustainable management and they know it makes seventeen per cent returns. But they just see it as a sector.

What I am trying to say out here is that hang on, it is not just a sector: it is like saying that physical capital is just a sector. The fact that it is a capital upon which all other natural capital rests is something that is not properly appreciated.

The irony is that the poor would list nature as their key asset. The level of awareness in the village is there. They know climate change is happening; that the flowers flowered at a different time last year than ten to twenty years ago. They know something is going wrong. They know that water is only available to them only after they have drilled an extra ten or twenty feet into the ground.

They know things about nature that the average city dweller does not and I think that says a lot.

TL: So how will understanding the value of nature enable the market to protect rather than just trade it?

PS: You can quantify the value of something but you do not necessarily have to imply that it becomes tradable. I value my wife and daughters tremendously, but that doesn't mean that they become marketable commodities: I would not buy or sell them!

What you buy and sell is stuff that is able to be identified, privately owned and marketed. A market does not sell a public good. Pigs will fly before markets trade public goods. The only way you can get a public good into the marketplace is to first create a private liability or private asset.

Carbon dioxide and greenhouse gas emissions are public bads that have been made into private bads by setting targets at the national and company level so that they become a private bad and therefore a liability and you can start trading them.

TL: What needs to happen to make this work?

PS: It needs a willingness to pay. It needs a sense of commitment amongst global leadership that we are in this together and we really need a Copenhagen-type deal.

I don't think the onus of responsibility should be on the UN. The G20 controls eighty to 85 per cent of economic production and 75 to eighty per cent of global emissions. The UN is a vehicle where people can meet but why should they wait when the G20 meets twice a year. The leaders can meet and decide in a smaller group.

If a group like the G20 moves in the right direction then it will be so much easier for the remaining 172 countries to follow.

TL: How can you mainstream these ideas?

PS: Basic poverty needs to be addressed, in other words food and shelter. Otherwise there is no point in discussing the finer qualities and the environment.

With a lot of respect to the Millennium Development Goals (MDGs), we still haven't succeeded in that and I think part of the reason for that failure is that we never bothered to see the connections. You can't deprive families of the basics and promise them a job in a factory and somehow expect that to be alright.

Unfortunately, that seems to be the model of development that most countries are going for. They are depriving the poor of something - nature's goods and services - and trying to provide something else.

If families have the basics they can save a little bit and put it into a child's education and that is how the next generation become more educated, capable and involved. I've seen this happen on the ground, it is how real development works.

It does not work by deprivation first and addition later. It works by simultaneous conservation of what you have and adding later.

TL: Can we have progress without economic growth?

PS: You can in some circumstances but you can't in others. What I am talking about is lifecycle. It is possible for a pupa to become a butterfly but it is not possible for a caterpillar to become a butterfly without first being a pupa.

At a certain stage I believe that almost any society can reach stages where progress does not result in, or correlate with, getting bigger, that is GDP, but progress relates to quality of life as in improved environment, relationships, reduced poverty, inequalities, better protected ecosystems.

I do believe society can get better, people can get happier and economies can get more robust whilst not actually increasing GDP, production or growing in the classical way.

TL: So what's the vision?

PS: The 'green economy'. It will come in stages, an evolutionary process. But it needs to be encouraged in that direction.

The green economy is the only sustaining economy. It is one that values its natural resources properly and uses them sparingly and for the right intent.

It makes use of its natural capital rather than wasting it. To suggest that you can burn capital and think you have done a good job is wrong. If you were cold you wouldn't pull out a window frame or door from your house and burn it. Every time you want a new jersey, you wouldn't rip up your carpets.

But we do that within a bigger context in terms of natural assets and that attitude has to stop.

Tom Levitt is the Ecologist's news editor

Pavan Sukhdev, a senior banker at Deutsche Bank, is currently on secondment to the United Nations Environment Programme to lead the agency's Green Economy Initiative, which includes The Economics of Ecosystems and Biodiversity study (TEEB), the Green Economy Report, and the Green Jobs report.

Pavan brings extensive experience from finance, economics and science to these projects. He has already shown himself to be a financial innovator. As a career banker, he founded and went on to Chair Deutsche Bank's Global Markets Centre in Mumbai, a 300+ person cutting-edge front-office which does leading-edge work for Global Markets in London, New York and elsewhere. Pavan has also held positions with Deutsche Bank as Head of Global Markets Finance for Asia-Pacific, and later Chief Operating Officer of the Bank's Global Emerging Markets Division, a leading and multiple award-winning markets division represented in over thirty countries across Latin America, Eastern Europe, Asia, the Middle-East and Africa.

Pavan was instrumental in the evolution of India's currency, interest rate and derivatives markets from 1993 till 1998. He was a member of several Reserve Bank of India (RBI) committees for the development of India's financial markets, including the Sodhani Committee on Foreign Exchange Markets. In 1997 he co-founded FIMMDA, India's association for fixed income markets, money markets and derivatives. He championed the introduction into India of the Overnight Index Swap (OIS), which is today India's most liquid traded interest rate swap instrument.

Pavan has written for newspapers and magazines (Economic Times, Indian Express, Sanctuary) to popularize the concept and measurement of green economic growth. He has also lectured frequently on these and related topics at forums such as IUCN (Geneva and Asia), the International Society for Ecological Economics (ISEE), Confederation of Indian Industry (CII) and more.

Pavan pursues long-standing interests in environmental economics and nature conservation through his work with environmental organizations in India and Europe. Beyond his contributions to TEEB and the Green Economy Initiative, his work in this area includes: founding and serving as Director of the Green Accounting for Indian States Project, an initiative of the Green Indian States Trust (GIST); serving as President of Conservation Action Trust (CAT); co-founding and now serving as Trustee of India Environment Trust (IET).

In his spare time, Pavan also manages a model rainforest restoration and eco-tourism project in Tarzali, North Queensland, Australia, and an organic farming and eco-tourism venture in the Nilgiri hills of south India.

Bill Totten


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