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Sentiments of Ethical Leviathan

Anna Matveeva - Sony Pictures

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The conversation on the role of the state reoccurs in all ages of history for all generations.  It is a central piece in understanding of the moral philosophy constructs of liberty and tyranny.  It is the definitive piece in examining of the political philosophy ideas of democracy and autocracy.  Because of its centrality this conversation expands inevitably outside of utilitarian and into ethical grounds.  On such grounds the role of the state in society has been under diligent examination from the times of the Reformation for restricting the religious liberties of the individual.  From the 17’th century onwards the state has been under continuous assault for restricting the economic and civic liberties of the individual.  Evidently the state has endured, not so much because of its virtues, but simply because of the lack of alternatives.  The strategy of surviving by simply being irreplaceable has prevailed over various reductionist and nihilistic tendencies.  Nonetheless the debate of the moral justification of the role of the state in society has not withered away.  In a new age of global and interconnected risks of climatic, pandemic and financial nature the ethical justification for the intervention of the state in society aimed to protect or restrict its liberties becomes of critical importance. This essay revises some aspects of contemporary understanding of the moral judgement of the state in context of anglophone experiences and philosophical tradition.

Sound the Retreat

In the first quarter of the new century this debate continues to engage vigorously both the academic and the wider public domains.  This expansion of intensity of thought and discourse today is driven by the conditions of four systemic and entangled crises – in credit worthiness, population displacement and migration, climate change vulnerability and human health.  In all of these calamities the state has stepped into a different degree to regulate, remediate, compensate and sanction.  This renewed vigor of activity comes after some notable retreats and most prominently from its role of economic activity manager and regulator.  From the late 1970’s the ability of the state to regulate and restrict the economic liberty of the individual and the corporation has come under intellectual and political offensive by the proponents of liberal market philosophy.  At its core this is an ideological contest on the optimal approach to protecting and promoting the concepts of individual liberty and of the public good.  The critical proposition of the philosophy of liberal markets is twofold.  Firstly, it maintains that the economic liberty of the individual is a necessary and irreplaceable condition for realization of their civic liberty. Secondly, the economic liberty of the individual is a major creative and constructive force which enhances the protection of the public and societal good. When undesirable externalities and conflict may occur as a result of such arrangements of economic liberties, then such issues are always secondary and manageable through the risk redistributive forces of the market. Furthermore, restricting and regulating the creative forces of economic liberty is detrimental to all individual civic liberty and to the societal good in general.  On the opposite end of the thought spectrum the statist philosophical tradition of economic intervention maintains that the economic liberties of the individual are optimally ensured and protected by the institutions of the state.  This tradition further claims that the economic endeavors of the private citizen will inevitably and eventually enter into conflict with the wider public good.  As a rational and self-interested party, the individual operating in this framework, will maximize and retain their benefits and externalize their cost into the social domain. In a society with finite natural resources and capabilities to absorb and remediate negative externality a conflict of burden and shortage emerges. The state with its tools and mechanics of remediation, regulation and sanction is the only fair arbitrator, the only entity capable and equipped to protect the societal good.  The configuration of political and intellectual forces in the late 1970’s was such that it drove into retreat the doctrine of the economic role of the state in society.  The prevailing understanding of the utility of this role was in practical and ideological retreat for 30 years until the arrival of the first shocks to the sovereign, corporate and personal credit markets in the first decade of the new century.

Systemic Interdependence and Transformation

The arrival of systemic economic shocks from 2008 onwards bucked the trend of the retreat of the state from its involvement in market management and regulation. The distributive properties of the liberal market system were clearly not sufficient to prevent the concentration of risk and ruin in some well-established corporate and sovereign institutions. These institutions were significantly large and deeply interconnected in economic networks such that their collapse would threaten wide spread social damage. At times of regular economic growth, of smooth and undisturbed operations of markets and corporate institutions the riskiness of interdependence does not seem evident or essential. At such a time interdependence serves as a mechanism, which channels and allocates risk and resources in what is clearly an efficiently operating market system. This quickly changed during the economic shocks and the extreme and catastrophic developments in the financial system taking place by the end of the first decade of this century. Systemic interdependence rapidly transformed into a source of risk contagion across all aspects of civic life.  The fragility of social networks during shocks severely restricted the economic and civic liberties of the individual in aspects of credit worthiness, wage earning potentials, purchasing power and entrepreneurial initiative.  The financial crisis itself with all of its impacts across the socio-economic fabric of society became the overwhelming violator of the economic liberty of the individual and the corporation – a charge which traditionally was levied on the restrictive and regulatory actions of the state. The full exercise of economic liberty by a small group of individuals and financial firms in its most exuberant form had produced a systemic externality in the form of a large accumulation of risk and ruin in critical corporate and sovereign institutions.  This externality of a most dangerous and undesirable kind deeply suppressed and severely restricted economic activity and by association economic liberty across all sections of society.  The extreme fragility of the system was evident and threatening to drive already existing societal fractures into a full systemic collapse.  At this moment and arguably and literally in the 11’th hour, the state entered the fray and lend its resources to prevent such a fully catastrophic eventuality. There are many technical stories and definitions of the intervention of the state in the financial and economic events of 2008 – 2013.  The definition which allows for examination of the ethical judgement of the state is that of corporate and sovereign debt mutualization.  The ethical intervention of the state is quite evident.  The state explicitly redistributes a negative externality of economic ruin concentrated within one small group of individuals and corporate actors across all of society by means of its fiscal and monetary mechanisms.  This is an explicit moral judgement openly executed by the state on behalf of the wider societal good.  From the perspective of the state as a civic actor, the redistribution of the ruinous burden of excessive debt across society becomes a preferable outcome than a deep societal fracture and collapse.  Stability and preservation of social order become paramount. This is an undeniable ethical judgement which the body of the state has explicitly embraced and exercised on behalf of society.  The threat associated with the role of the state in socio-economic activity in these circumstances is now entirely transformed and is has transgressed from fear of overreach and of restricting liberty to fear of failure to engage and to provide support.  The risk emerging in society at this moment is no longer that the economic liberty of the individual and corporation are being restricted by the state.  It is rather that the state may fail to act in time or that its action may not be sufficient to prevent a complete economic collapse.  The ethical judgement of the state and the state’s intervention based on this judgement are now demanded and fully welcomed by social consensus. It is then only the commitment to the common good, and to its pure survival as part of this concept, which drives the formulation of the ethical judgement of the state and consequently of its actions.  Since economic and civic liberty of the individual are two of the key components of the societal good, the actions of the state are now fully inversed from curtailing of economic liberty to protecting and promoting this human condition.

A Moral Sentiment Revised

The intervention of the state on moral and common good ground and the consensual acceptance of such actions by society create an apparent contradiction with the classical theory of liberty, which cannot be left unrecognized.  Two fundamental schools of thought – of Thomas Hobbes and of Adam Smith define the classical tradition.   The liberty of the individual is at the fulcrum of contention.  The moral philosophy proposition of Hobbes is that the only action which the individual could take to ensure his liberty, both civic and economic, is to fully submit to the state.  It is the state’s task and destiny to protect and ensure the freedom, rights and dignity of the individual.  Individual actions of civic and democratic nature, pursuits of economic and entrepreneurial substance cannot improve on these three essential human conditions. In fact, they are likely to create only discourse, conflict and rupture among social classes, which are to the detriment of the whole of society. The state on the other hand is the only civic institution, which is both entitled by its contract with society and capable by virtue of its resources to improve upon these human conditions.  Adam Smith is no less concerned with the civic and economic liberty of the individual. This is his primary passion and project.  He questions not the entitlement of the state and its contract with the individual in particular and with society in general, nor the resources of the state.  The concerns raised by Smith are about the depth of knowledge of the state, of its intellectual know-how, which if insufficient, would severely impair the effectiveness of its intervention to enrich the liberty of the individual. Much more than this, such intervention may prove to be detrimental to the cause of civil liberty. The concern raised by Smith is towards what extend such intimate and detailed knowledge accompanied by moral judgement could possibly be possessed by a single person, and by association by the body of the state. On the other hand, Smith observes that the actions of the common entrepreneur through the free flow and exchange of goods, services and ideas create social conditions under which the civic liberty of the individual is most thoroughly guaranteed.

In the last quarter of the 18’th century craftsmen, manufacturers, traders and entrepreneurs or more generally – the middle classes were the champions of civic and economic liberty.  They contended with the formidable powers of the state and of the landed aristocracy.  Their ingenuity in producing goods and their inexhaustible energy in distributing and trading them provided these social classes with incomes and position in society, which ensured their economic and civic liberty in a system, where they were by far not the dominant political force.  It was unimaginable to scholars and moral philosophers of the time that the economic actions of the common entrepreneur would cause a deep and degradative crisis in society.  Rather the opposite, Adam Smith was convinced that vigilance was needed to guarantee that the encroachment of the state and of the large land owners does not threaten the survival of the goods’ producing and trading middle class.  The preservation of economic liberty – a foundation for all civic liberties was at stake. 

The effectiveness of a socio-economic system and the robustness of civic liberty, which it enables matter not only in time of prosperity and growth but also in a time of crisis and threat.  A systemic catastrophe and economic collapse with massive impoverishment and dislocation of populations would destroy all foundation of civil liberty. In our own time, entangled and interdependently destructive forces of financial and credit ruin, health, pandemic and climate vulnerabilities have the potential to bring about such catastrophic futures. When preventing or remediating such outcomes proves to be beyond the powers of market forces the institutions of the state are called upon to intervene. The thrust of such intervention upon society in modern times is impossible without an explicit moral judgement by the state on assumption of its role as guardian of the public good.  The concept of the greater public good once again is at the center of ethical provisioning among private and public actors and institutions. The dual nature of the state precipitates the need for explicit definition of its moral judgment and for examination of the justification of its actions. By its Hobbesian nature the state would be willing to offer protection to the individual from calamity, in return it will require a full surrender of their liberties.  This is a contractual relationship between the state and the individual, or more generally between the state and society, but clearly it is of an unequal nature.  The State in a Hobbesian framework assumes that all civic good and liberty equates with the stability and the health of its institutions and thus that all civic good flows from its own deliberations.  In this paradigm, more relevant to the continental European experiences, the interests of the state and society merge seamlessly and perfectly, while the state holds the definitive prerogative of formulating these interests.

By its duality and by its liberal nature, in parallel the state would recognize that the traditions of Adam Smith and the forces of economic liberty, entrepreneurship and trade are the ones to create the true conditions for material and moral prosperity as core premises of civic liberty. This is the paradigm closer to the political experience of the Anglo sphere.  Yet in the last 70 years, we have many examples and occasions of both traditions failing the common good of society.  The hard, theoretical application of statist or of liberal markets’ principles in dogmatic manner may not be sufficient to address the formation and emergence of multiple and dependent societal risks today.  The notion that institutional tools, mechanisms and policies need to be selected and implemented upon their merit and upon their fitness for purpose for solving particular civic problems rather than on pure ideological grounds is not new.  The critical question though remains if the state with its network of institutions is capable to make such selection and deliberation effectively on behalf of the societal good.  We have come full circle as this is the same question which Adam Smith posed in the Wealth of Nations nearly 250 years ago.  The historical reality and the ethical grounds of the question however have changed entirely.  In its originality Adam Smith initiated the conversation in order to encourage the individual drive for economic and civic liberty and to caution the intervention of the institutions of the state on the premise of their insufficient knowledge to act on behalf of the common good.  Smith doubted the cognitive ability of the Hobbesian state to be an effective moral arbitrator of the societal common good. Some 250 years later the frailty of cognition is not limited to the institutions of the state.  The recent catastrophic events of the sovereign credit and financial crisis were not the first banking and economic crisis to decent upon society.  Despite a rich historical experience, well studied and well documented, the corporate financial sector, as well as some sovereign borrowers found themselves fully unprepared to shore up a multi sector-wide economic meltdown. At that time the charge of failure of cognition, sound business reasoning and moral judgement can be effectively leveled at both private and state economic actors and institutions with the same validity.  Deeper inside the decision-making processes of economic actors – individual, corporate and sovereign, such decisions, which prove to be detrimental to the wider civic good, may be due entirely to lack of knowledge and to information sparsity and asymmetry. Such decisions may very well be fully optimal and well informed from the perspective of a single economic agent. Economic action also comes about as a result of setting of priorities, defining hierarchies of expected and desirable outcomes, based on hierarchies of values of all critical actors involved. Rather than an issue of information asymmetries and market inefficiencies the argument revolves more intensively to organizing priorities of moral sentiment, hierarchies of values in the perception of the public good. The task of structuring and organization of priority of moral sentiments and ethical values would be more equally met if it were to be taken on not only by the institutions of the state but by the wider civic orders. After all recent events and historical examples show that this task is too important to be left to one order of society. When such singular formation of priority of values occurs, whether we rely on the mechanisms and channels of the markets or on the prerogative power of the state the outcomes are often times less than desirable. The institutions of the state, the corporate sector and civil society can work in synchronicity on this hierarchy of moral sentiments only within a stable and democratic political framework conducive to this purpose. A framework which will allow the various orders of society to raise the definition of the public good to the top of the agenda of a revitalized and ethical Leviathan.

Ivelin Zvezdov is a financial and insurance economist by training. He has masters' degrees from the Universities of St. Andrews and Oxford. He works on natural and man-made catastrophe modeling and product development for the (re)insurance industry. His research interests include climate change and environmental risk, contagion and propagation of systemic risk, sustainable and ecosystems approaches to managing natural resources. Mr. Zvezdov has published research papers on financial and insurance quantitative methods for risk management, and on environmental and biodiversity risk estimation.

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Connectivity now. Boosting flows of people, information, energy, goods and services

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Northern Dimension

On April 8, St Petersburg hosted the 12th Northern Dimension Forum. This forum, established in 2007, is a major annual corporate business event for cooperative policy and brings business directors and potential investors from Russia and the European Union including the Baltics, and Scandinavia.

The forum was organized by the Northern Dimension Business Council in cooperation with the Association of European Businesses, the Graduate School of Management at St Petersburg State University and the Skolkovo Moscow School of Management.

This forum was devoted to the theme: “Connectivity now. Boosting flows of people, information, energy, goods and services.” It was attended by over 400 representatives of Russian and foreign business circles, government agencies and scientific, education and non-governmental organizations.

Leading business experts of the partnerships of the Northern Dimension, the Institute and the Association of European Businesses discussed topical issues and opportunities for promoting cooperation in environmental protection, the circular economy, energy efficiency, transport and logistics, healthcare digitization, efforts to overcome the aftereffects of the coronavirus pandemic and creative industries.

As expected, the forum helps to take another major step forward in discussing many strategic spheres of business between Russia and those regions. There were plenary meetings as well as sessions working groups. Despite the contradictory signals between Russia and the European Union, it was another opportunity to have some fruitful dialogue, especially in the current difficult conditions, – develop solutions on a wide range of cooperation issues in the North of Europe.

On the other hand, business institutions and the entire system of economic relations are still evolving for these years, indicating that there is no alternative to reasonable cooperation. It is however necessary to find common business language in the fields and other spheres of crucial importance for international cooperation.

Russian Foreign Ministry’s report pointed out to a diversified and multifaceted nature of regional cooperation in Northern Europe. It said the important components include the programs of cross-border and interregional cooperation between Russia and EU countries (Poland, Lithuania, Latvia, Estonia, Finland and Sweden), plus Norway.

There are programs underway within the framework of the current budget cycle that involves over 500 Russian project partners, and new programs are being prepared for the next seven-year period.

They reaffirmed their willingness to broaden versatile and mutually beneficial cooperation for the sustainable development of Europe. It emerged from a number of reports during the forum that trade and economic relations are now remarkably expanding between the European Union and Russia.

Over the years, the business growth has been driven by the efforts of the business community. This has also to do with the quality of economic exchanges and investment, businesses’ interest in expanding to new markets, and their confidence that these markets provide drivers for economic growth. Admittedly, trade decreased for various reasons since 2013, it then reached $417 billion, but later shrank to a mere $200 billion.

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North Macedonia’s Journey to the EU

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macedonia

Prime Minister Zoran Zaev’s new cabinet is confronted with a number of economic challenges, exacerbated by the economic hit to the global economy caused by the pandemic In 2021, North Macedonia will take economic decisions that will shape the course of the country’s future.

The issues Skopje faces

Despite a modest population of 2-million, North Macedonia repeatedly makes headlines, often due to apparently  intractable disputes with neighbouring countries. Athens’s trade embargo imposed on North Macedonia in the 1990s marked the start of a 27 year deadlock between the two countries, which ultimately stalled North Macedonia’s accession to the EU. Only recently did Skopje resolve the dispute with neighbouring Greece over its official name which Greece had previously taken issue with due to the fact that ‘Macedonia’ is also a region of Greece, and the use of this name was interpreted by Greece to be an assertion of territorial ambitions in the region.

This dispute affected the country’s other diplomatic ventures. In 1999, North Macedonia was one of the first post-Yugoslav signatories of the NATO membership action plan, only to have its accession vetoed by Greece in 2008.  Ultimately, North Macedonia’s Stabilization and Association Agreement with the EU has not been the diplomatic catalyst that Skopje hoped would ease  localised tensions and draw it into a closer relationship with Brussels.

Under the leadership of Nikola Gruveski (2006-2016), corruption and state capture were endemic in North Macedonia. Gruveksi was averse to opening negotiations with mainstream governments in Greece and it was not until the centre-left Social Democratic Union of Macedonia ousted  Gruveski out of power, that there was a breakthrough. Gruveski’s successor, Zoran Zaev, capitalised on Greek Prime Minister Tsipras’s reformism to broker the controversial Prespa Agreement which settled the name dispute. Two years later, North Macedonia was finally admitted to NATO, demonstrating that Greece was the final hurdle to NATO membership.

A tamed economy

However, North Macedonia soon found that NATO membership was not a passport to joining the EU. Internal ethnic tensions have created friction with EU member states. Relations with Bulgaria soured during the election campaign for July 2020 during which the campaigns of both main political parties played on anti-Bulgarian sentiment..Zaev managed to gain power by agreeing to a coalition with the main part of the Albanian minority.  The new cabinet’s economic hurdles, specifically fiscal redistribution, could be exacerbated by renewed ethnic tensions between the Slav majority and the Albanian minority. Should tensions reach the levels of the 2001 civil conflict, the deepening of this fracture would   slow down reforms and deter investments.

Bouncing back after the fall

The Balkan countries suffered greatly during the Great Recession due to their proximity to the Greek economy at a time when Athens navigated the worst slowdown of recent history. As Greece’s second largest export partner, the RNM was particularly hard hit(Figure 3a). The region had barely entered recovery before lockdown measures crippled world economic growth. In addition, North Macedonia’s small internal market is heavily reliant  on external demand which the crisis has depleted. In Q1-Q2 2020, exports fell by 22.3% and industrial production by 14.6% compared to the same period of the previous year. Thus, GDP fell by 14.9% in Q2 of 2020 and another 3.3% in Q3 contrary to the  projected 3.2 percent growth (Figure 7). Whilst forecasts suggest growth of 5.5% in 2021, the unpredictability of the pandemic’s economic influence may yet compromise this figure.

Meanwhile, rating agencies downgraded North Macedonia’s national debt, in turn raising financing costs. the RNM’s debt was downgraded by some rating agencies, raising financing costs. Fitch, the American credit rating agency, as well as  Moody’s, another US-based credit rating agency, both value North Macedonia’s debt as a non-recommended investment asset to be reserved for short-term gain. Since May 2020 the outlook has been negative, suggesting the situation will worsen. Yet, with one of the comparatively smallest debt-GDPs of the region, these ratings are still the best in South-Eastern Europe after Bulgaria meaning the RNM has a relatively solid economic base (Figure 4).

The country’s effective response to the pandemic is in part the reason that North Macedonia is economically stronger than some of its neighbours. The caretaker government introduced a furlough scheme, worth approximately 5.5 percent of GDP, as well as a helicopter money initiative. Going forward, the government is prioritising policies that will stimulate economic growth such as slashing parafiscal charges and cutting VAT. Yet, since North Macedonia lacks the economic resources to commit to long-term reform, recovery will be slow.

North Macedonia’s Shifting Demographics

North Macedonia is contending with mass emigration in tandem with declining fertility rates  (Figure 5) — both of which reduce human capital. The official estimate of two-million residents is dubitable, with some experts hypothesising an actual figure of approximately 1.5 million. Inaccurate projections of a state’s total population jeopardises effective government decision making. In the RNM, where the resources are redistributed amongst ethnic groups pro quota, this makes fiscal management particularly difficult. If, for example, the proportion of Albanians of the total population was lower than estimated, then this group will be receiving more public resources that they are entitled to.

Given that the EU acts in a starkly-protectionist way by restricting trade with third countries, greater cooperation is in the RNM’s interest. In fact, Brussels could reduce trade barriers in the context of a stronger association with Skopje even before the latter formally joins the Union.

There are steps the government can take to encourage citizens not to emigrate . The first and most crucial step would be to improve the education system. Overall, North Macedonia spends much less of its GDP than the average EU country on education. As a result, few people complete their secondary-level education, and therefore either end up in low-paying jobs or unemployed, andare forced to emigrate for work. Another step would be investment in the underfunded Research and Development (R&D) sector. In fact, North Macedonia’s budget allocates only 0.36% of GDP to R&D, compared to an EU average of 2.2% and neighbouring Bulgaria’s 0.77%. Research and development is essential to creating high-paying  jobs, driving productivity, and boosting the economy through innovation and market competition.

Infrastructures as the drive for future growth

The silver lining in North Macedonia’s economic strategy is infrastructure development. This especially true for roads and highways. Grueveski’s administration was instrumental in the investment into road infrastructure,  starting works for two new highways in 2014.

Still, roads can be rather useless if they do lead nowhere. Thus come trade infrastructures. In addition to new road, the building of new border checkpoints and crossing points with Greece and Bulgaria, will bolster the trade infrastructure that North Macedonia shares with the EU, thereby driving trade with a global economic powerhouse. These investments will also reduce the RNM’s dependence on the Yugoslav-time north-south arteries, which currently present a barrier for the development of the “functioning market economy” that is a requirement for EU membership. To achieve this goal, the RNM needs to improve, road connections towards the west (with Albania) and the east (with Bulgaria, an important trading partner). Building better connections within the country and with non-Yugoslav neighbours will boost the country’s internal cohesion by making it easier to move from one part of the country to another proving supplemental infrastructures to foster international trade.

Figure 6 Highways represent a key segment of the RNM’s investments.

A secondary and related benefit of improving connectedness with EU trade routes is reduced economic dependence on Russia. This should reduce Moscow’s potential diplomatic leverage in future disputes in the region. As a matter of fact, pulling out of Moscow’s orbit is almost a precondition to full membership in the EU — which would bring in more funding opportunity and increase financial stability. Yet, Russia’s main asset is not trade tout court, but energy. In fact, the Balkans serve as  a strategic crossroad for oil and gas coming from Moscow and Baku through Bucharest and Ankara. Thus, North Macedonia should also consider developing its energy infrastructure as a route to closer integration with the EU. In order to reduce the Western Balkan’s dependence on Russian fossil fuels, the region needs investments. For cash-strapped countries, like North Macedonia, the opportunity to make real progress in this field may come from ‘green’ funds the EU has earmarked for energy projects in both current member states and candidate countries . In addition, Greece has established an LNG terminal on the Aegean to which links the RNM is planning to adjoin its grid. There are also talks of an electric-grid link to Albania, through which the RNM could import as much as needed and even export eventual surpluses.

Forecast: The RNM can make it… with some help

Without radical reform, the extant corruption, bureaucracy and public-sector inefficiency will stymy growth in the coming years. Luckily, the EU might be the answer to Skopje’s economic woes. The Union is expected to grant €3.3 billion to Western-Balkan countries to kickstart economic recovery following the pandemic. The package does however come with strings attached: the country will have to accelerate progress towards regulatory harmonisation with the EU. This is a notoriously difficult and resource-consuming task, which may hinder other reforms.

Furthermore, North Macedonia must confront pre-pandemic economic struggles. The government could revert to coalition infightings and therefore prolong the process of economic reform. For investors, a cautious approach is recommended, in preparation for positive economic developments.

Acknowledgments The Author thanks Charlotte Millington, parliamentary researcher at the UK House of Commons specialising in European politics and international security for her suggestions.

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How to incorporate the environment in economic ventures for a sustainable future?

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We are in the phase of world history where economic development and protection of environment must go side by side. People living in the developed part of the world will hardly want to give up their current lifestyle and people living in the developing part want to be more like the developed but in this process, we cannot separate environment from economy. Environment provides the incentive for economic growth and prosperity; providing the raw materials and resources we need for production of goods, certain climates and temperatures are required for the growth of specific plants and are very crucial to agriculture industry and the environment is what absorbs the pollution and waste we produce from all this industrialization. Protection of the environment means we mark ourselves safe from economic degradation and provide safe space for healthy functioning of economic and social activities. If we preserve the environment we control the risks of drought, heat waves, cold spells and floods, regulate the air quality, the temperature, the climate, the clean supply of water, the contamination of soil, cycling of nutrients in the ecosystem and management of carbon. Since agriculture can be regarded as the primary industry, crucial to feed people, people who then operate other industries, it is very important to safeguard the environment that feeds us and nurtures us and the environment that we live and grow in. Today, the world economy is facing serious environmental hazards. Climate change, loss of biodiversity and ecosystems are some of the global problems that need immediate collective action by states since this issue engulfs the whole of mankind. Therefore, economists and environmentalists have in the recent years taken this subject with full zest. How can economic growth and environmental protection go hand in hand? Environmental policies integrated with economic policies can be implemented and pursued by states to ensure sustained and prolonged environmental human well-being and continued simultaneous economic growth for states both at the national and international level, ending in a win-win situation.

Natural resources are salient to economic development but at present many prime resources and ecosystems are depleting which poses a grave situation for states and their economies. To tackle this concern, natural resources need to be used in a reasonable manner and adopting and improving technology be propagated in such a way that the use of natural resources is made more efficient and long lasting. Use of newer and modern product designing which meets the needs of the current times, needs to inculcated. The consumption of natural resources beyond the point that hampers economic growth also needs to be avoided. The vitality of technology and innovation in limiting environmental hazards is being stressed, this is also beneficial for businesses and industrialization. This is because preservation of environment is itself a form of economic development and growth. People who come up with the ideas and engineering for environmental friendly products; such as the water and air pollution control, treatment and purification technologies, make money and businesses out of these services, thus contributing to the economy. Similarly, wind mills and solar systems are now a multimillion-dollar business themselves. If environment protection is putting some older technologies and practices out of work, it is also creating incentives for modern technologies and creating more job opportunities in the field. States should thus, make an industrial shift to equipment and products that have a low carbon usage and efficiently use resources. In the real estate sector, places with better and healthier environment and surroundings are priced more than other counterparts for example, a building next to a park or green belt will have higher value than a property which is not next to any place green. This points to the concept of “hedonic pricing.” It refers to the difference in pricing due to the associated environmental aspects, in otherwise similar products. Better environment also contributes to the development of human capital. The presence of a green park will not only add to beauty and better air quality but it will also encourage a lot of people to physically exercise.

Due to the growing scarcity of resources, governments of the world should introduce the policy of “common property regime,” which avers that resources such as land, water, certain habitats and the atmosphere be made common property for all. The problem is that there are no property laws for these resources and people use it as a free dump for human waste and waste products from economic activities. This includes various water bodies for example, irrigation systems and canals, forests, fishing areas etc. Concise and clearly enforced rules should be put in place, exercising the limits put on some activities such as excessive fishing or cutting of forests, putting a limit on the accessibility to these resources, keeping a check on the carbon footprint of some groups, organizations or events or even putting some specifications on their use such as tax or making recycling or reuse mandatory. The shift from already existing practices to newer ones that are more environment-friendly will be costly and it will take time but it is more important now than ever and more beneficial for us in the long run. Environment policies of these sorts reframe the economic structure. The cost of using these resources should be closed in according to the social cost of putting the health of the public at risk. Restructuring of the economic and environmental structure helps a country’s economy by lessening the environmental hazards that the country might face and by making the state more buoyant and resilient in the face of these environmental changes and risks. This can also prove to be a powerful driving force for innovations and ideas.

States are often in the race to increase their GDP. GDP only measures the material values of goods and services and does not take into account the well-being of humans including the health and education quality, living standards, income and environmental conditions. Economic growth, nonetheless, is a prime force for improving human well-being and states incorporate social, political and environmental goals in the well-being domain through these economic activities. The Kuznets curve is a graph to explain the relationship between the growth in economy/GDP and the quality of environment. States can keep this model in mind while reformulating their economic and environmental policies, in accordance to the history of environmental degradation they have endured and the future remodelling they need to follow. It is characterized by an inverted U-shaped relation between GDP per capita and environmental quality. Since we have already crossed the point for environmental degradation, it is now time to think for the decline in the degradation. Initially, when the GDP grows, so does the degradation of environment but after a certain point, the increase in GDP no longer degrades the environment further. This is because at lower income levels, the income is completely spent on meeting the basic survival requirements. When the income increases to a certain point, people and states should start thinking of the bargain that material does with the environment, this should be reflected in their behavioural change. After this point, states should start giving up further unnecessary consumption and focus more on environmental rehabilitation. Another possibility seen through this graph is that industries might see profit in enhancing production quickly, but as demands are met and resources become scarcer, more green, cleaner and resource efficient technology is introduced. Societies, in this way, also go from agriculture-based economy to manufacturing-based economy and finally to service-based economies, releasing the lowest levels of pollution. An example can be of EU rules and regulations. Waste water used to get dumped directly into the streams or rivers, but now it gets treated first before releasing. There are barely any housings left in the EU now that are not connected to solid and water waste disposal and treatment networks.

If states and the firms operating in those states take up eco-innovations and eco-friendly measures, they will actually be at advantage because investors like banks and various funding institutes are more likely to invest in sustainable businesses that will stay operational a long time, than those that are dependent on the environment in these challenging times. Firms that run on eco-friendly terms will also stay ahead of the taxes and regulations charged on using environmental resources. This will prove to be very cost efficient for them and they will not have to change their action plans according to any new regulations or increases in costs. Greener and cleaner practices and equipment can also truly reduce the waste an industry produces, in turn increasing the output and ensuring sustainability. This adaptation to cleaner practices can also lead to innovations and new ideas and practices starting right from the household or individual level. UK is one of the countries that is high on the ranks of eco-innovations, thanks to general understanding and cooperation among firms to pursue sustainable development. Furthermore, statistics show that companies that are currently focusing more eco-innovations are growing at the rate of 15% annually while their counterparts that are not focusing on the same, are not enjoying any climb in their profits[1]. Most of these businesses (based in Europe) are small to medium scaled and they are adaptable in nature. They are benefitting from the European commission’s stance on promoting eco-friendly businesses. Public Relations advantages and marketing superiority is also pretty clear in eco-innovation ventures.

A commendable example of improving the environmental conditions while also not compromising on the GDP and economic development, is that of China. China has been time and again accused of having a huge carbon footprint, which directly impacts the ozone layer which is communal to all mankind. States that are not even at par with the fumes and industrial waste that China produces, are today in the list of states most affected by climate change and global warming, including Pakistan and many of the Gulf nations. China has thus taken the role of global leadership in the field of environmental protection. China has been standing true to its 2015 Paris agreements on cutting down of greenhouse emissions. It was able to do so by spreading awareness and education from the grass-root level. In the period of only a few years, China has drastically improved the air quality in many of its larger cities. Solid waste management and sorting is a major step taken to restrict illegal dumping of garbage. Restrictive policies and heavy fines are imposed if an individual breaks the rules. Renewable energy generators like the wind and solar panels, have been put to use to meet nationwide energy requirements, which ensures cost effective power. In the year 2017, China nationally introduced the concept of “National emissions trading system,” which formed a market for the buying and selling of carbon dioxide emissions allowances. It regulates the quantity of emissions and carbon footprints that an individual, firm or an event is allowed to produce. All of this simultaneously helps China to become more energy sufficient and assists economic reforms while also improving the quality of ground-level air. Some states in the USA are taking up the initiative of green or clean economy with full fervour. California for example, set a target to achieve carbon neutrality by the year 2045, while the clean energy sector is also opening opportunities for jobs. One of the incentive taken in the goal was stricter vehicle exhaust emission rules[2].Nevada also passed a legislation to increase the energy it makes to up to 50% through renewable energy sources, by the year 2030[3]. Rules and regulations have also bene proposed to reduce the emission of harmful air pollutants including those that are short-lived such as methane, CFCs and HFCs. Developing countries like Pakistan have also addressed the climate issue and the Pakistan Premier launched the “Billion Tree Tsunami” plantation campaign to curb deforestation, an issue rampant in the north of the country. In conclusion of this paper, in light of all the examples and recommendations, I would say that the long term benefits, mutual to all, outweigh the costs of taking a leap from existing economic practices to those that are eco-friendlier.


[1]“Eco-innovation for better business,” Business Green, accessed October 23, 2020, https://www.businessgreen.com/sponsored/2409410/eco-innovation-for-better-business

[2] “California Air Quality: Mapping the progress,” U.S News. November 6, 2019.https://www.usnews.com/news/healthiest-communities/articles/2019-11-06/california-air-quality-mapping-the-progress

[3]Chandler Green. “7 ways US states are leading climate action,” United Nations Foundation. May 30, 2019, https://unfoundation.org/blog/post/7-ways-u-s-states-are-leading-climate-action/

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