Managing Sustainability, Globally

It is becoming harder to remain a global optimist. On the one hand, we are faced with a looming tragedy of the global commons due to our inability to resolve, by appropriate collective action, the issues that cannot be addressed at the national level.

In part, that is because the positive, can-do energy that used to be associated with the global institutions created in the aftermath of World War II has dissipated. This suggests that we risk hitting a brick wall uncomfortably soon.

But there is more trouble in the wings. The disaggregation of the real and the financial economies that we have witnessed over recent decades has led to a complete misallocation of financial resources.

Financial investments, to the extent they have been directed to the real economy by financial institutions after the crisis, have not been used to create jobs. As a result, we have seen no growth in employment and rising social stresses across the developed world.

The reason is simple: It has been easier to earn spreads by investing in emerging market sovereign debt than by navigating through the shoals of new banking legislation.

Meanwhile, we have created a system in which the mobility of capital promotes the mobility of industrial employment. When the relative cost of labor is lower in certain locations, jobs are relocated to low-cost manufacturing environments far faster than unemployed industrial workers can be retrained for higher value-adding job opportunities in the developed economies.

So governments have become incapable of providing the protection their citizens reasonably expect from them, having elected them to provide security and enable growth and prosperity. This is exacerbated in times of economic crisis, when both governments and citizens can least afford it, making it even harder to accept and straining public trust in government.

The future seems bleak if we remain trapped in this paradigm. The question is: Can we break out in a meaningful way?

Let’s take climate. Current science suggests that we have somewhere between five and ten years before we lose the ability to contain an increase in global temperatures of 2°C.

Some argue that, in these circumstances, we need to do two things: first, understand precisely how dangerous the situation is, and second, recognize that the third industrial revolution will create a phenomenal range of opportunities for investment, growth and employment.

We don’t know what the pace of that transition will be. We don’t know who the winners and the losers will be. What we do know is that those who commit early and invest significantly will probably be better able to benefit.

Let’s be blunt: China’s market offers scale. No matter how smart a scientist or an engineer you are, you cannot easily achieve scale in, say, the Netherlands.

But you can certainly do so in China. The Chinese leadership is making a series of determined bets on new energy technologies, and they are making significant investments in these areas.

To create a competitive space in new technologies, one needs to allow a thousand flowers to bloom. This approach offers a real chance that something very interesting will emerge.

It is interesting to see how, for their own purposes, the Chinese and the Americans are both pursuing this approach. It is an approach U.S. citizens can buy into because it is a variation on the classic American win-win scenario.

The United States is used to winning competitive races of this sort. It is possible, however, that this time Chinese companies, employing the benefits of surplus capital and lower labor costs, may harvest the fruits of the collective investments by scaling production earlier and driving manufacturing costs lower.

How to measure human welfare?

While we can secure great advantages by unlocking carbon-free technologies, we must also address a more fundamental question: What do we mean by human welfare? This is a question that has engaged western philosophers since the time of Plato.

For decades, however, we have subordinated this question to three letters: GDP, as in gross domestic product. But GDP is not equivalent to welfare.

GDP measures production through a simple equation:

CONSUMPTION + INVESTMENT + GOVERNMENT SPENDING + (EXPORTS — IMPORTS)

A better measure of material well-being, however, would be the level and distribution of consumption and income among households and the stock and distribution of wealth in society.

Beyond material stocks and flows, there are also other things — such as health, education, social ties, political voice, and the quality of governance — that shape and define the quality of life. All these are components of welfare.

That doesn’t mean that everyone in the world will achieve high standards of welfare. It also doesn’t mean that we will eliminate inequality by taking this approach.

But it might help us reach a situation in which accumulation for the sake of accumulation, and in which conspicuous consumption as a status symbol, will no longer be regarded as the measure of human welfare.

That is where we are trapped today. One can tell how wealthy somebody is by looking at his watch, the pearls or diamonds that she wears around her neck, the car that he or she drives, the numbers of yachts or planes that he has, or the luxurious locations in which she has residences.

That is how we measure welfare. That is how we measure status. It is, however, irrational. And if we continue along this path, we will hit a concrete wall. We have run up against limits.

We cannot keep on consuming in the way that the United States has managed to consume over the last 25 years, and which new elites in China, Saudi Arabia, Qatar, Abu Dhabi and Dubai seek to emulate — and even surpass — today.

We have to recalibrate. If we don’t redefine what it is that makes us human and determines our worth in more ethical terms, and in terms of values, we shall have no future.

Editor’s note: This essay was adapted from the author’s presentation at the 2012 Salzburg Trilogue. Hosted by the Bertelsmann Stiftung in Germany, the Salzburg Trilogue facilitates international cultural dialogue by bringing together recognized public figures to consider matters of global importance.