Cutting out a Sustainable Economy

The choice of who allocates resources is crucial. We see spectacular examples of government mismanagement. The market should be left free to allocate resources. Markets alone can assemble and convey essential information about security and value. Prices and profits will work to maximize production and minimize resource use.

Market mechanisms are sufficient to protect forests, for instance. Growing scarcity will drive up the price of wood, reduce consumption, as well as prompt landowners to plant more trees in anticipation of higher prices.

Traditional economics asks how to produce what for whom. Sustainable economics examines these same questions, but includes future generations in the ‘for whom.’ It asks how irreplaceable resources—water, air, soil, and fish and wildlife—can be adequately conserved. It also recognizes that economic mechanisms that do not efficiently and equitably satisfy human needs are not likely to be sustainable.

Sustainable economics analyze issues complicated by politics, ideology, and nationalism. It tries to ascertain what works to make resource use more efficient. How do people behave in relation to their, natural resources? How does a country’s economic system alter its prospects for survival? Measuring national performance in food security, energy efficiency, environmental pollution and equity can form the beginnings of an answer.

The issue is not socialism versus capitalism; it is the efficacy with which economic systems achieve their intended ends. Ideally nations could be graded for degree of market orientation and assessed for changes in resource use. But no one has invented a grading system for economic philosophy or environmental sustainability. It is instructive, nonetheless, to categorize nations as centrally planned or not and to assess their resource-use efficiency. A centrally planned economy is one that through price controls, state ownership, or allocation of capital effectively, managers more than half of a nation’s industrial and agricultural production.

From the end of World War 11 until a few years ago, centralized state planning has served as a model for almost half the world. Newly independent developing countries faced with the choice between centralized control and market orientation usually chose the former. That their foreign ruler had been capitalists turned them against market systems, while the tradition of colonialism eased the transition to tight central control. In the postwar era, many military states and even most market-orientated nations also expanded the role of government in the day-to-day management of their economies.

The world today is at a turning point in economic management. The abrupt Chinese shift to market mechanisms is the most dramatic example, not only because of the vast number of people affected, but because of the reform’s spectacular early successes. Many African nations, plagued with agricultural decline, have begun to extend market incentives for agriculture. Latin Americans, burdened with debt, have moved to sell off state-owned companies. Meanwhile the Soviet Union, its confidence in uninterrupted growth shaken, is debating the need for economic reform. Ironically, although Western governments have also begun to sell off state-owned concerns, they increasingly subsidize private agriculture, restrict trade, and permit concentration of economic power in industrial conglomerates.

The efficiency with which nations produce food and consume energy provides a useful indicator of their progress toward sustainability. Countries of all political stripes seek to avoid excessive dependence on food imports. Air and water pollution and land degradation are closely associated with agricultural production and energy-use efficiency. Thus, if market pricing and competition provide greater efficiency, both economists and environmentalists have a stake in the changing role of the market in the world’s economies.

Some environmentalists reject both markets and bureaucratic planning as incapable of dealing with the crisis of sustainability. Putting a sober twist on an old joke: ‘In capitalism, man exploits man; in socialism, it’s the other way around,’ they say both exploit nature. But important differences exist between systems, as shown by comparing their efficiency in agricultural production.

Agricultural production can critically affect the consumption and disruption of resources—water, wood, and air. Soil erosion and deforestation can result from low agricultural productivity if new, marginal lands are pressed into production to make up for lost potential. Overuse of chemicals can cause water pollution. Efficiency is consequently an essential ingredient of agricultural sustainability. Economists define efficiency, roughly, as maximizing output while minimizing input. When farmers produce a given value of grain with a least-cost combination of land, labor, fertilizer, and machinery, production is efficient. When grain production increases faster than consumption of the inputs, productivity and the outlook for sustained production improve. When productivity declines, a society is headed for trouble. Inflation, the need for costly imports, even famine can result.

Land and labor productivity, two partial but important measures of performance, reveal several advantages of market orientation. Crop production per hectare is generally higher in market-orientated countries. Of course, factors others than the economic system affect these ratings, such as rainfall levels, inherent soil fertility, and farm price policies that may either encourage or discourage farm efficiency. Japan’s population pressure, for example, has pushed it to increase land productivity, but this explains only about a third of the more efficient record it has than the Soviet Union. The remainder is attributable to policies that, among other things, keep prices high, encourage larger numbers of people to farm, and keep farm size low. Similar policies have placed market oriented Hungary even higher in land productivity.

Ranking nations by agricultural labor productivity shows a dramatic advantage for market economies. European countries enjoy labor productivity rates often double of countries like Poland, Cuba and Lithuania.

Labor productivity naturally tends to be higher when farmers earn high incomes, which in turn indicates higher levels of development, a central goal of economic policy. Strictly regulated prices reduce profitability for farmers, and deprive them of capital to invest in machinery and fertilizers to raise productivity.

Land productivity says little about the ‘total factor’ productivity of an agricultural system, which also takes into account inputs of labor, fertilizer, and machinery or animals. Efficiency can be distorted and productivity diminished by poorly crafted policies. For example, high price subsidies and protective trade barriers account for part of the relatively high land productivity in Japan. Consumers bear the cost of these distortions, paying almost three times the import price of food commodities.

Total factor productivity is relatively easy to determine in a perfectly competitive economy. Ideally, price signals instruct farmers on how much to spend on production, and they maximize their earnings by choosing the least-cost combination of labor, land, machinery, and fertilizer. According to microeconomic theory, they produce at the level at which the cost of their last, or marginal, unit of production—their most expensive ton of grain—just equals the price they receive. They maximize profits in this case, making efficiency and productivity almost synonymous. In non-market economies, on the other hand, prices of resources usually do not reflect their scarcity, and so resources must be allocated by plan, a fact that directly affects productivity.

In Europe resource efficiency in agricultural sector is frequently undermined by heavy farm production subsidies, both with trade barriers and direct budgetary expenditures. The United States is by no means unique among market-oriented countries in failing to adjust agricultural policies properly.

Common Market countries’ agricultural policies drive prices one fourth above world market levels on most products. Such subsidies hurt not only domestic consumers but also exporters of developing countries who could produce more efficiently and sell cheaper. The policies have the aim of preserving and sustaining the farm sector and its way of life. Cut the goal could be equally well served without the damage caused by price distortions if governments substituted direct income transfers for agricultural price supports.

Western nations, nonetheless, have long satisfied basic and fiber needs, and government policies have played a major role in this success. When policies such as minimum price supports are introduced in order to ensure food security and stabilize markets—this is, when supports are set below international market levels—they can be useful. When supports exceed world market levels, however, they interfere with trade, stimulate environmentally disruptive over production, waste taxpayers’ and consumers’ money. These distortions, like their more pervasive counterparts in planned economies, have political motivations that may well be worthy. But their impact on environmental and economic sustainability cannot be ignored. Ultimately, they become counterproductive.Asif J. Mir, Organizational Transformation

21st Century Crime

Innovation unfortunately brings opportunities for crime. Innovative technologies will transform the future of crime and is likely to occur on two levels: (a) the continuation of traditional, age-old physical crime; and (b) the new form of electronic crime.

The types of household property that will increasingly be targeted by physical crimes are high-value, high-tech electronic and computer products. In the future, traditional physical crime will be counterbalanced, and perhaps surpassed, in scope and social impact by the theft from consumers and businesses of intangible property, in particular electronic services, knowledge, and even identities. These types of thefts will increasingly be committed via computer-based telecommunications vehicles. It is the theft of intangible products and services, through traditional physical means, and more significantly, by way of computer-aided vehicles, that represents the most dramatic change in the complexion of property crime of the future.

Whole new information markets are being opened up as playing fields for computer criminals. Much of the Internet economy revolves around advertising. And using databases of personal information targets much of this advertising. This information is extremely valuable, and could be stolen, and a black market of information created.

Many Pakistanis in urban cities now use ATM cards and credit cards for a large percentage of their purchasing. As we move further from a paper-money society, to a purely electronic economy, new types of crime will emerge. What types exactly will depend on what new forms of security tomorrow's criminals will need to break. Will people be synthesizing voice authorizations? Or even learning to imitate a victim's typing style? All we can be sure of, is that criminals of tomorrow, like those of last century and those of today, will keep on innovating.

Meanwhile, other possible malicious uses of computers have become available. One of the most worrying is the likelihood of terrorists moving online, and engaging in what is called cyber terrorism. The methods of producing terror, destruction, mayhem, and fear will be much more destructive online than conventional methods in the real world.

The terrorists will remotely access the processing control systems of a cereal manufacturer, for example, change the levels of iron supplement, and sicken and kill the children of a nation enjoying their food. They will be able to perform similar remote alterations at a processor of infant formula. The terrorist does not have to be at the factory to execute these acts. He will be able to place a number of computerized bombs around a city, all simultaneously transmitting unique numeric patterns, each bomb receiving each other's pattern. The future terrorist will not have to be strapped to any of these bombs; no suicidal bombings; the encrypted patterns cannot be predicted and matched through alternate transmission; and the number of bombs prevents disarming them all simultaneously. The bombs will detonate.

A cyber terrorist will disrupt the banks, the international financial transactions, and the stock exchanges. Unlikely would be immediate arrest. The terrorist, the perpetrator is sitting in another continent while a nation's economic systems grind to a halt. Destabilization will be achieved.

Advanced telecommunications technology will allow offenders to reach a greater number of victims. There are also fears that the ongoing organization, sophistication, and globalization of crime may pose a greater threat to financial markets, economic stability, and even the national security of target countries.

An important predictor of the types of products and services that will be targeted for theft is the extent to which a product is desired. Products attractive to both consumers and criminals are sometimes called hot products. The characteristics of goods will make them highly vulnerable to theft. These are summarized in the acronym CRAVED (implying products which are Concealable, Removable, Available, Valuable, Enjoyable, and Disposable). Based on this threat assessment, some examples of hot products that may be targeted by offenders in the future include portable digital virtual disk (DVD) players, the wearable personal computer, automobile digital stereo systems, laptop computers, and handheld personal computers.

The Internet will provide computer-literate offenders with new opportunities to commit crimes directly related to networked systems. E-mail abuse, viruses, and hacking are expected to grow in prominence in the future. Companies are likely to face Internet attack from both within (by employees) as well as externally (by hackers). The facilities will be vulnerable to electronic vandalism, and theft and the potential for loss of or damage to such data can be immense.

There is a growing fear that well-organized criminals will launder their ill-gotten gains through e-commerce transactions, sending electronic cash to cyber-accounts located all over the world. With vast wealth at their disposal, criminal organizations will be able to buy almost any kind of technological resource or expertise.

Copyright fraud is expected to greatly increase in the future. In particular, the illegal uploading and downloading of copyrighted materials from the Internet, such as music, movies, and games, etc., will be an area of immense growth. This is accompanied by more traditional forms of piracy, such as illegal copying of software, videos, and computer games. Traditional and Internet-based forms of product piracy are problematic because both are so widespread, hard to detect, and difficult to police.

Technology offers us a chance to beat crime - but it will take innovation, understanding and education. It is today's research and development that will produce the crime-resistant products of the future. We must take every opportunity we can to use science and technology to reduce crime and improve the quality of our lives.

The weakest link in crime control is the lack of education in law enforcement relating to computer-technology crimes. The law enforcement community in Pakistan has not yet devoted itself even to start thinking about technological-aided crimes.

Are Pakistan’s police and other criminal organizations prepared for sophisticated use of new technologies for countering more sophisticated crime of the future that heavily involves computer-related crimes, especially in crimes against modern times? Asif J. Mir, Organizational Transformation

The McWorld raiding the Culture

Today’s global economy has a tendency to insulate consumers from the various negative impacts of their purchases by stretching the distance between different phases of a product’s lifecycle—from raw material extraction to processing, use, and disposal. Yet at the same time, social challenges accompanying economic globalization call for innovative forms of political mobilization across international borders. Shifting to more sustainable patterns of consumption and production worldwide will require pursuing new ground rules in order to forge a global economy based on protecting cultural values.

What we see is the onrush of the economic, technological, and ecological forces mesmerizing peoples everywhere with fast music, fast computers, and fast food—one McWorld tied together by communications, information, entertainment, commerce and especially the culture.

Today, the global spread of McWorld is rapidly bringing the consumer society of USA to the rest of the planet. The globalization of the consumer economy is closely linked with the general economic boom and growth in the movement of goods, services, and money across international borders, which accelerated during the 1990s.

McDonald’s operates 30,000 restaurants in 119 countries and serves 46 million customers each day. Its total revenue was $15.4 billion in 2002. On opening day in Kuwait City, the line for the McDonald’s drive-through was over 10 kilometers long. McDonald's has also spread expeditiously across Pakistan in almost 5 years with 18 restaurants in major cities. Strangely, there is no McDonald’s outlet in Peshawar and Quetta. McDonald’s costs the same in Pakistan as in the US, and given the per capita GDP disparity between the two countries, it is the cheapest food in one country, while being one of the most expensive in the other.

Pizza Hut also operates a chain of outlets in Pakistan and planning further to invest approximately 1 billion rupees in expansion. The money is being used to open 20 new outlets.

Coca-Cola sells more than 300 drink brands in over 200 countries. More than 70 percent of the corporation’s income originates outside of the United States, and its net revenues reached $19.6 billion in 2002.

Meanwhile, corporate strategies focused on boosting consumer demand in Pakistan have lead to increases in purchases of all manner of goods, from cars and televisions to paper and fast food. While it is ethically problematic to suggest that developing countries are not entitled to have the same options for material consumption that have long been taken for granted by western consumers, the global adoption of industrial country–style consumption patterns would place unbearable strains on local cultures.

The 1990s saw the emergence of many important international agreements and commitments embracing the need to transform unsustainable patterns of consumption and production. Agenda 21, the action plan that emerged from the 1992 Earth Summit in Rio de Janeiro, called on international institutions and national governments to promote greater energy and resource efficiency, minimize waste generation, encourage environmentally sound purchasing, and shift toward pricing systems that incorporate hidden environmental costs.

The UN Commission on Sustainable Development has provided a useful annual venue for governments and others to discuss consumption and production issues. The deliberations have produced little concrete action though. There is no voice raised for conservation of social values.

At the 2002 World Summit on Sustainable Development in Johannesburg, South Africa, governments agreed to develop a 10-year framework of programs to accelerate the shift toward sustainable consumption and production. These include offering a better range of products and services to consumers, providing more information about the health and safety of various products, and establishing programs of capacity building and technology transfer to help share these gains with developing countries. The World Summit also generated more than 230 partnership agreements among diverse stakeholders.

The Organization for Economic Co-operation and Development has sponsored a series of meetings and papers aimed at encouraging governments to implement innovative sustainable consumption and production policies.

In all these forums, apart from consumption and production, no emphasis is laid on the issue of social influence. Unfortunately, the limited gains made since 1992 in shifting toward more-sustainable patterns of consumption and production have been largely overwhelmed by the continued global growth of the consumer society. The controversial lifestyle issues continue to haunt.

The breakdown of WTO negotiations in Cancún in September 2003 provided reform-minded governments and activists with an opportunity to push for bringing future trade negotiations into better balance with sustainable development concerns. The way forward, nevertheless, is not yet clear.

Several new initiatives have emerged in the corporate and financial sectors, including the United Nations’ Global Compact, which calls on participating companies to integrate nine core values related to human rights, labor standards, and environmental protection into their operations, and the Equator Principles, which call on leading banks to manage environmental and social risks in their lending operations.

The international trade negotiations can provide opportunities to push for policy reforms needed to promote more-sustainable consumption and production. All the same, WTO rules and negotiations can also be used to protect cultures and social taboos of the host countries of MNCs.

Brands like McDonald’s, Pizza Hut, Pepsi and Coca-Cola are not just cultural aggression but also an expression of power; once America lost its power these will go. It is nonetheless impossible to filter culture. In the past we hated the British raj but gradually adopted its symbols. Today we hate America and don’t want to adopt what we think is its culture. Pakistan must save its own culture to counter the onslaught. There is a need for reform in our culture, but this should not be obfuscated through this hatred or that. The only answer to the American cultural onslaught is the protection of Pakistan’s own culture. www.asifjmir.com

Cutting out a Pro-Poor Budget

In developing countries each time the budget has come, it means the elimination of benefits for the poor and elevated benefits for the rich. The hopes of the governments for making their countries as the most vibrant economies are laudable but the development policies have no relevance to the man in street.

The majority of the people in poor countries yearns for a pro-poor budget. Promoting pro-poor growth requires a strategy that is deliberately biased in favor of the poor so that the poor benefit proportionally more than the rich.

In general a pro-poor budget is one that takes into account the needs of the poor. It is one that seeks to make a difference in the lives of the poor. It is one that would impact positively on the poor so as to enable them to actively participate in and benefit from the process of development. A pro-poor budget would enable the poor to have increased opportunities In order to be healthy, educated, productive and responsible people. Such a budget would have to have a deliberate bias so that the poor would benefit proportionately more from government expenditure than the rich.

The first step in achieving a pro-poor budget is the identification of who the poor are. The understanding and measurement of poverty has evolved over time. Today it is generally accepted that poverty is not only a money related deprivation, but a combination of several deprivations that result in lack of well being. Consequently budget provisions must respond, to this complex situation of poverty. This is no easy task. In formulating a pro-poor budget there is need to have up to date information of the levels, intensity and types of deprivations that make up poverty.

There are many reasons, both practical and strategic, to establish a conceptual linkage between gender and poverty for promoting gender-sensitive budgets. It would be a mistake to simply equate the two categories. Gender imbalances and inequalities should run across every social, economic and political classification. The exclusion and deprivation experienced by the poor is not the same, and tends to be even more acute for women than for men. Gender allows us to stop envisioning the poor as a homogeneous category of people, whose needs can be addressed in a uniform way.

Pro-poor growth should direct resources disproportionately to the sectors in which the poor work (e.g. agriculture), areas in which they live (underdeveloped regions), factors of production which they posses (such as unskilled labor), outputs, which they consume (such as food), translated into strategy of pro-poor growth - employment generation combined with price stability of goods and services which are essential items. Policies need to be designed to reflect concerns of poverty.

In order to address poverty effectively the budget will need to have more direct rather than indirect means of taxation. This would help reduce prevailing high-income inequalities and help spread the benefits of economic growth.

Pro-poor growth means that the poor benefit disproportionately from economic growth. This is to say the proportional income growth (i.e. their income growth rate) of the poor must exceed the average income growth rate. The per-capita income growth rate of the poor must exceed growth rate.

Three obvious policy messages emerge. First, policies to promote growth should help the poor although they could do so more if they made growth pro-poor rather than neutral as it currently is. Second, reducing initial inequality, particularly asset inequality, should receive highest priority, due to its triple effect on poverty. Third, reducing gender inequality should equally be of highest concern to policy makers that want to achieve pro-poor growth.

It is clear that pro-poor growth that directly reduces poverty must be in sectors where the poor are and use the factors of production they possess. The vast majority of the poor is in rural areas, a majority depends directly or indirectly on agriculture for their livelihood, and the factor of production the poor possess and use most is labor, sometimes land, and even more rarely human capital. Thus pro-poor growth must be focused on rural areas, improve incomes and productivity in agriculture, and must make intensive use of labor. These things are nearly tautological, but often forgotten and are clearly not reflected in public policies or in the allocation of public funds by national governments or donors.

Heavy investment in the human capital of the poor will yield two benefits on poverty reduction. It will increase economic growth and it will make growth more pro-poor. The record of East Asia is a good illustration where high human capital accumulation promoted growth and poverty reduction.

Beyond a concern for increasing average incomes and reducing poverty, there is a greater appreciation for a need to enhance the security for the population if one is to ensure sustainable pro-poor growth. The security of the poor is threatened by physical threats. Thus, the poor are forced to avoid risks that may carry high rewards, can get trapped in cycles of poverty and insecurity, and are regularly pummeled by shocks that militate against sustainable reductions in poverty.

Our budget-makers need to remember that real enemy is poverty and deprivation, that their key weapon is their skill and professionalism and that their modus operandi is their humility. They are the custodians of a value system that defines our objective as demonstrating every single day that we are a caring democracy.

Attaining a pro-poor budget is a big challenge. It requires a bottom-up approach; that ensures that poverty eradication is a central issue and not a donor driven requirement. The principles of equity and accountability with particular attention to efficiency and effectiveness have to be continually respected at each stage of the budget process. www.asifjmir.com