Rehan (Year 12)
Editor’s note: Rehan, now in Year 13, wrote this essay in year 12. Developing economies face a critical choice between prioritizing environmental sustainability and pursuing economic growth, with climate change posing an urgent global threat that demands economic transformation. CPD
Currently, the greatest threat to developing economies is climate change, and it presents the immediate need to change how we operate economically. The problem is accelerating, with 2023 being the warmest year on record, as the average temperature was 1.48°C above the pre-industrial average, and this trend is projected to continuously increase (The Economist, 2024). Global carbon dioxide emissions were estimated to exceed 40 billion tonnes in 2023, with fossil fuels emitting around 37 billion tonnes, setting record levels (University of Exeter, Stanford Doerr School of Sustainability, 2023). Moreover, global warming causes several deadly natural disasters, such as the destructive cyclones in Malawi in 2023. This natural disaster not only brought torrential rain, floods, and devastation, but it significantly worsened cholera outbreaks across the country (Bahaji, 2023). This example not only shows a fraction of the problem, but it demonstrates the severity of this crisis globally, and will only continue to worsen if countries do not change how they conduct economic activity.
Fortunately, countries are beginning to respond to the crisis, by implementing new sustainable methods for development, most notably the integration of renewable energy. For instance, India is currently in the middle of a ‘green boom’ led by the private sector, as they plan to invest around £200bn into green hydrogen plants, whilst the government is committed to reaching a nationwide net-zero goal by 2070 (The Economist, 2022). The United States reduced their carbon dioxide emissions in 2023 compared to 2022, due to significant decreases in the dependency and use of coal (University of Exeter, Stanford Doerr School of Sustainability, 2023). Furthermore, COP28, the UN’s climate summit, has been very effective and successful, with promises made to triple global renewable energy by 2030, as well as to double the annual rate of energy efficiency improvements (Wijesinha & Barbarà, 2023).
These are examples of how countries are coming together to collectively prioritise sustainable economic activity, to benefit the wellbeing of future generations. The UK government has set aside £90bn in private investment by 2030 to aid the switch to more environmentally friendly alternatives, leading to an optimistic net-zero goal by 2050 (Hands, et al., 2021). In 2021, The UK government also proposed the ‘Net Zero Strategy’, a comprehensive report on the government’s plan to reduce the dependence on fossil fuels by supporting the change to sustainable energy and green technology. The strategy includes a series of investments with the purpose to of assisting the transition. For example, the government has committed £124 million to the Nature for Climate Fund, to help restore 280,000 hectares of peat by 2050 and plant at least 30,000 hectares of woodland per year (Hands, et al., 2021).
However, the most significant drawback to this vast increase in investment into sustainable development is the opportunity cost of prioritising economic growth. The objectives of sustainable development and strong short-term and long-term economic growth can contrast and contradict each other, as sustainable change tends to sacrifice short-term profits and efficiency for more environmentally sound practices to be viable in the future.
The crux of the question focuses on developing economies specifically, so to answer the question accurately, not only must we weigh up the benefits and drawbacks between both objectives, but we must also apply both to the context of the general situation that developing countries experience to see which is most suitable.
A developing economy is defined as a country with a low human development index, poor GDP per capita income, and less common periods of economic growth. In these economies, poverty and unemployment are often high; the infrastructure is poor and inefficient; and there is frequent overpopulation and extreme scarcity of resources. As a result, the citizens of these societies are dependent on effective government policies to sustain a better life due to insufficient income to live by.
In a developing country, increasing GDP is critical to increasing the quality of life of its residents. Despite the arguments against GDP as a measure of quality of life, it has more importance to emerging markets and developing economies (EMDEs). Economic growth can provide solutions to many of the problems faced by EMDEs, such as increased employment and decreased poverty. Economic growth is how a developing economy becomes advanced and competitive globally, so naturally, it takes precedence above any other macroeconomic objective. However, this next period of growth is extremely important, as we are at the frontier of a new economic era, in which exponentially increasing technology advancements, sustainable infrastructure and efficient resource management will fuel maintainable economic growth. However, despite the desperate need to change our practices around the world, some countries currently cannot do this. Therefore, this presents the trade-off between these two macroeconomic goals.
By prioritising economic growth, the economy benefits from an increasingly competitive private sector, leading to domestic businesses gaining more market share in global industries. The increased competition from overseas firms drives demand for more efficient methods of production, distribution, and direct sales. Furthermore, increased competition encourages entrepreneurs to innovate, which further provides new, higher-quality goods and services to consumers, leading to further profits for businesses. However, doing this without the concern of environmental stability and resource management may promote unethical and unsustainable business practices, exacerbating the economic problem of scarcity. For instance, in Brazil, many overseas companies buy soybeans from Brazilian municipalities that have been ravaged by illegal tree clearing. Studies have shown that around 95% of tree clearing on soya farms in Mato Grosso, a state in the Amazon rainforest from 2012-2017 was illegal (The Economist, 2020). Furthermore, among the 15 municipalities in Mato Grosso that have the most illegally deforested land, Trase estimated that 60% of the total harvest was purchased either by a private Brazilian firm named Amaggi or by the American agribusiness Bunge and Cargill (The Economist, 2020). In 2014, Brazil experienced an economic crisis, showing that at this time, economic growth would have been a high priority for the government, with hopes to reach the previous levels of growth it saw between 2004 and 2010 (World Bank national accounts; OECD National Accounts). Not only does this show a lack of social responsibility from the Brazilian producers, but it also shows a lack of corporate responsibility from the domestic overseas companies that receive their supply from these producers, as they actively operate unsustainably for growth and short-term prosperity. Therefore, one significant drawback of prioritising economic growth is the lack of importance placed on sustainability, leading to illegal, harmful practices taking place globally.
Another significant benefit of economic growth is the decrease in poverty experienced by society as a whole. As businesses earn more money, they can invest to improve or increase their factors of production, expanding economic activity. This leads to decreased unemployment, and by utilising more factors of production, the economy can operate closer to its production possibility frontier curve, as well as increase aggregate demand through increases in investment and exports. People experience an increase in their incomes during economic growth, meaning that they can spend money on goods and services to increase their utility. This increase in consumption further increases aggregate demand, demonstrating the multiplier effect. However, this also possesses significant drawbacks in reality, most notably an increase in inequality of income. Economic growth in a free market, developing economy essentially gives power to private businesses; they can exploit communities as a whole, in various ways such as child labour, extremely low wages, or dangerous work environments for the sake of reducing costs and maximising profits. In this way, vulnerable communities become marginalised, and much of the lower class can become worse off. This shows the clear flaw in the ideology that increasing GDP induces a better quality of life for all. For instance, Bangladesh is one of the most corrupt countries in the world, as even in the public sector, commission drives people’s desires rather than the communal needs of society. Bangladesh is the second largest clothing exporter after China, and the industry is valued at $29 billion, however, the manual labourers who create these products only receive around $0.35 an hour (Volodzko, 2019). This shows the vast, problematic pay disparity between those with the same skills in Bangladesh and workers in economically developed countries like the US. This unethical, but profitable predicament drives multinational businesses like H&M and Walmart to produce in these countries, exploiting the local workers (Volodzko, 2019). However, Bangladesh relies on these foreign nationals to bring business and jobs to the country in hopes of economic growth. This infestation of foreign business has overwhelmed the country, and Bangladesh lacks the capacity and infrastructure to meet the demand. As a result, working conditions have dropped significantly, and those in vulnerable situations essentially become forced to accept these jobs for survival.
On the other hand, investment into a sustainable framework can stimulate a much more maintainable level of economic growth in the long term. Improving current manufacturing and distribution processes to become more sustainable significantly reduces the problem of scarcity and finite resources. Furthermore, sustainable development can inspire innovation for environmentally friendly alternatives to products, e.g. electric cars and renewable energy, which further boost and improve the economy. For example, the New Climate Economy report in 2018 by the Global Commission on the Economy and Climate, states that bold action against climate change via infrastructure improvements could yield a direct global economic gain of US$26 trillion by 2030 compared to business-as-usual (The Global Commission On The Economy And Climate, 2018). This shows that developed countries with the ability to enact change can bring global benefits by prioritising sustainable development in their plans now.
However, this significant increase in government spending on sustainable practices for the long term disregards short-term needs in the economy, particularly in developing countries. This is because the investment would take a long time to show initial benefits, so short-term predicaments may escalate if not treated efficiently and quickly, which can be detrimental. Moreover, it takes a substantial cost for the investments into the framework of an economy to enact significant change. The Global Commission on the Economy and the Climate predicts that globally, countries will invest US$90 trillion into infrastructure by 2030, all to drive the changes needed to make it (The Global Commission On The Economy And Climate, 2018). For developing countries in particular, they may not have the opportunity to carry this out, as shocks to the economy, such as rising oil prices can jeopardise the country if not dealt with via effective policies from the government. Therefore, prioritising investments in sustainable infrastructure has significantly large costs, which may not seem feasible in the short term.
In the global context, the easy answer is to place importance on sustainable development, as in the long run, this leads to a new era of sustainable, balanced and inclusive growth for every economy. However, in the context of an individual developing country, the trade-off becomes vastly more complex. It comes down to the severity of poverty the economy is experiencing, as this determines how well the economy can cope with a serious investment into sustainable infrastructure, which carries the burden of significant costs. Therefore, I believe that a developing country should currently place a higher importance on economic growth. This provides many benefits to their society as a whole, and in the short term will be far more effective than sustainable development.
However, I believe that developed countries with the ability to aid EMDEs should do so to improve and revolutionise their existing framework. There are a few examples of this, including cooperation between the UK and Indonesia to help Indonesia reach its low-carbon goals set out in its Low Carbon Development Initiative. In this, £27.2 million will be given to Indonesia to cultivate economic growth by making sustainable changes to their existing infrastructure (Foreign, Commonwealth and Development Office; Trevelyan, Anne-Marie, 2023). This is a clear example of governments coming together rationally to combat the problems posed by climate change, which forecasts sustainable economic growth for all parties.
Reference list
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