Inclusive Growth and Green Growth as MarketFriendly Growth

Inclusive Growth and Green Growth as Market-Friendly Growth Strategies for Sustainable Development Hyun-Hoon Lee Professor Kangwon National University 1

References 1. Jeffrey Sachs, The Age of Sustainable Development, World Bank Talk (March 9, 2015) http: //jeffsachs. org/category/topics/sustainable-development/ 2. Jeffrey Sachs, The Age of Sustainable Development, Coursera http: //live. worldbank. org/age-of-sustainable-development 3. OECD, Key OECD Documents on Green Growth http: //www. oecd. org/greengrowth/keydocuments. htm 4. International Policy Center for Inclusive Growth, “What is Inclusive Growth? ” http: //www. oecd. org/greengrowth/keydocuments. htm

Contents 1. What is sustainable development? 2. What have been done by the international community? 3. Current status of sustainable development in the world? 4. Key Concepts of Inclusive Growth and Green Growth? 5. Strategies for Inclusive Growth 6. Strategies for Green Growth 7. Framework for Sustainable Development 8. Epilogue 3

1. What is Sustainable Development? o As an individual, what is the ultimate goal? § More money? § Answer: Happiness of individual (personal well-being) o As a nation, what is the ultimate goal? § Large GDP? high income per capita? § Answer: Happiness of the people (national welfare or sustainable development) 4

1. What is Sustainable Development? Nation’s Welfare (Happiness) § A nation's welfare can increase when the following conditions are met. (1) Economic growth (Y): Increase in paid consumption of goods and services: (2) Environmental protection (E): Increase in unpaid consumption of environmental services: (3) Social equity (S): Decrease in desire (Increase in income equity) § i. e. W is a function of YES (W = Y*E*S), where Y = income, E= environmental sustainability, and S = social equity. 5

1. What is Sustainable Development? o Sustainable Development meets the needs of the present without comprising the ability of future generations to meet their own needs. o The concept of UN’s Sustainable Development has the three components “The achievement of sustainable development requires the integration of its economic, environmental and social components at all levels. ” 6 (United Nations Division for Sustainable Development)

2. What have been done by the international community? o Brundtland Report, 1987 § Also known as "Our Common Future", submitted by World Commission on Environment and Development (WCED), which was founded in 1983 § Alerted the world to the urgency of making progress toward "sustainable development”. § The report also highlighted three fundamental components to sustainable development: environmental protection, economic growth and social equity. § Following the recommendation of the report, the UN General Assembly decided to establish the United Nations Conference on Environment and Development (UNCED). 7

2. What have been done by the international community? o Earth Summit, 3 -14 June 1992, Rio De Janeiro § The first UNCED, also known as the Rio Summit. § An important achievement was an agreement on the Climate Change Convention which in turn led to the Kyoto Protocol. § Produced the Rio Declaration consisted 27 principles intended to guide future sustainable development around the world. § Also produced Agenda 21, which is a comprehensive blueprint of action to be taken in every area in which humans impact on the environment. § Established Commission on Sustainable Development (CSD). 8

2. What have been done by the international community? o Millennium Summit, 6 -8 September 2000, New York § 55 th Session of the UN General Assembly § Adopted the Millennium Declaration and Millennium Development Goals (MDGs) – Target year: 2015 9

2. What have been done by the international community? o World Summit on Sustainable Development (WSSD), 2 -4 September 2002, Johannesburg, South Africa (Rio+10) § Also called Earth Summit II and nicknamed "Rio+10". § Adopted the Johannesburg Declaration; but U. S. president George W. Bush boycotted the summit and did not attend. 10

2. What have been done by the international community? o Earth Summit 2012: UN Conference on Sustainable Development (UNCSD), 20 -22 June 2012, Rio De Janeiro, Brazil (RIO+20) § Two themes: (1) a green economy in the context of sustainable development poverty eradication; (2) institutional framework for sustainable development § Adopted the outcome document entitled “The Future We Want” § Sustainable Development Goals (SDGs) are to be adopted and will serve as the successor framework to the MDGs after they expire in 2015. 11

2. What have been done by the international community? o United Nations Sustainable Development Summit 2015, 25 -27 September 2015, New York § Adopted Sustainable Development Goals (SDGs) as the 2030 Agenda § Unlike the MDGs, which were drawn up by a small group of experts, SDGs have been drafted by and Open Working Group. § SDGs will be new development agenda for the period 2016 -2030 12

SDGs 13 https: //sustainabledevelopment. un. org/sdgsproposal

SDGs 14

SDGs § Action-oriented? § Concise? § Easy to communicate? § Limited in number § Aspirational? § Global in nature? § Universally applicable to all countries 15 https: //sustainabledevelopment. un. org/topics/sustainabledevelopmentgoals

3. Current status of sustainable development? o There are no internationally agreed sustainable development indicator, but § Happiness Index (Sustainable Development Solutions Network, Happiness Foundation) § Better Life Index (OECD), Happy Planet Index (New Economics Foundation), Gross National Happiness Index (Bhutan) § Human Development Index (UNDP) Need for a development of SD index Also need for a development of measurements of SDGs 16

§ Ranking of Happiness Index 2012 -2014 Helliwell, J. R. Layard and J. Sachs eds. , World Happiness report 2015

3. Current status of sustainable development? o Economic Growth § GDP per capita § GDP, ppp § GDP per capita, PPP 18

§ World GDP per capita - Trend Angus Maddison, "World Population, GDP and Per Capita GDP” http: //www. ggdc. net/maddison-project/data. htm

§ World GDP per capita http: //en. wikipedia. org/wiki/Geography_and_wealth

§ Korea GDP per capita - Trend

3. Current status of sustainable development? o Environmental Sustainability (Biocapicity vs. Ecological Footprint) § Biocapacity of a country: the total usable biological production capacity in a given year of a biologically productive area of a country. Similar to environmental carrying capacity § Footprint of a country: the total area required to produce the food and fiber that it consumes, absorb the waste from its energy consumption, and provide space for its infrastructure. Similar to environmental pressure 22

■ World’s Biocapacity vs. Footprint Source: Global Footprint Network

■ World’s Biocapacity vs. Footprint § 24

■ Korea’s Biocapacity vs. Footprint

3. Current status of sustainable development? o Social Inequality § Income inequality - Gini Coefficient, Theil Index, General Enthropy Index, etc. - Rate of return on capital vs. rate of economic growth (Thomas Piketty Right, 2013, Capital in the Twenty-First Century) § Gender inequality - Gender Gap Index (World Economic Forum) - Gender Inequality Index (UNDP’s Human Development Reports) 26

§ Global Income Inequality – Trend The Economist, 2012, “For richer, for poorer”, October 13.

§ Gini Coefficient – Comparison of individual countries

§ Korea’s Gini Coefficient - Trend OECD, Economics Surveys: Korea 2012

§ Gender Gap Index - World Economic Forum, World Gender Gap Index 2014

§ Gender Gap Index - Korea World Economic Forum, World Gender Gap Index 2014

3. Current status of sustainable development? l The UN has pursued sustainable development (SD), but with not much success. World’s ecological footprint has been rapidly increasing, thus degrading environmental sustainability. In many countries, economic growth has contributed to a decline in the poverty, it has also been accompanied by rising income inequalities. 32

4. Key Concepts of Inclusive Growth and Green Growth? o Traditionally, § The three pillars of SD have been thought separately and policies have not been designed and implemented synthetically. § Also, the three pillars of SD have been often viewed as contradictory, or environmental sustainability and social equity have been viewed as residual outcomes of economic growth, § Accordingly, in many countries, economic growth was taken up as the first goal and environmental protection and social development were dealt with as secondary goals. o But, § Three pillars can be enhanced via synergy creating policies. § i. e. , while pursuing economic growth, social equity and environmental sustainability can be enhanced. 33

4. Key Concepts of Inclusive Growth and Green Growth? o Inclusive Growth § Socially equitable growth § i. e. , Economic growth that allows people to contribute to and benefit from economic growth. § Socially equitable growth has been termed as “shared growth”, “pro-poor growth”, “broad-based growth” and more recently “inclusive growth”. o Green Growth § Environmentally sustainable growth § i. e. , Economic growth which is consistent with environmental sustainability. § Environmentally sustainable growth has been termed as “sustainable growth”, “clean growth”, and more recently “green growth. ” 34

4. Key Concepts of Inclusive Growth and Green Growth? l The Green Growth Initiative and Inclusive Growth Initiative should constitute two important “strategies” to achieve the ultimate, long-term goal of Sustainable Development. 35

4. Key Concepts of Inclusive Growth and Green Growth? o Evolvement of Inclusive Growth § India adopted theme of 'towards faster and more inclusive growth, ' in it’s Eleventh Five-Year Plan, which runs from 2007 to 2012 § ADB’s framework for inclusive growth in Strategy 2020 (April 2008). § OECD’s initiative for inclusive growth. o Evolvement of Green Growth § UNESCAP adopted as a new growth paradigm at Asia-Pacific Ministerial Conference on Environment and Development (MCED V), (March 2005). § Korea adopted “Low Carbon Green Growth” as a long-term growth vision (August 2008). 36 § OECD adopted Green Growth as a new work agenda (July 2009)

5. Strategies for Inclusive Growth 1. Creation of synergy between growth and social equity has to be created 2. Management of both supply side and demand side 3. Support for the long-term perspective 4. International Cooperation 37

IG 1. Creation of synergy between growth and social equity o Providing equal opportunities for high-quality education and training § Strengthen human capabilities of all members of the economy, including the disadvantaged and the bypassed. o Providing equal opportunities for employment § Create more employment opportunities and make them accessible to all, including the disadvantaged and the bypassed. o Strengthening “productive” social safety nets § Provide and strengthen social safety nets that can increase (not decrease!) capabilities and incentives of the disadvantaged and the bypassed to take part more actively in productive employment. 38

IG 2. Management of both supply side and demand side o Conventional social equity policy has focused primarily on the consumption side (i. e. , income distribution). § Pro-poor growth has been promoted: providing monetary subsidy to the poor, unemployed, the aged, etc. , thus reducing work incentives o However, supply side management is more crucial for the creation of synergy between growth and social equity. § Equal opportunities for high-quality education § Equal opportunities for high-quality employment §Productive social safety nets 39

IG 3. Support for the long-term perspective o Conventional social equity policy has been conducted on the short-term basis. § eg. o However, the long-term perspective is required. § The public sector needs to bridge the gap between long-term social benefit and short-term social cost to provide extensive training and education opportunities, etc. § The public sector also needs to bridge the gap between long-term social benefit and short-term commercial benefit to promote the active participation of the private sector in “socially inclusive” production activities. 40

IG 4. International Cooperation o International cooperation to support structural reform in developing economies. § eg. o International cooperation for education, training, migration labor, etc. § eg. 41

6. Strategies for Green Growth 1. Creation of synergy between growth and social equity has to be created 2. Management of both supply side and demand side 3. Support for the long-term perspective 4. International Cooperation 42

GG 1. Creation of synergy between growth and environment o Internalization of environmental costs in price mechanism § Eg. 1: Green tax reform: Increase environment-related tax, while reducing income tax § Eg. 2: Subsidy reform: o Investment in environment-related industry § Strengthen the future industry by investing in environment. § Eg. : Subsidy for green R&D o Public investment in environment structure § Increase employment by public investment in environment structure, especially when the economy is down. 43

GG 2. Management of both supply side and demand side o Conventional environmental management has focused primarily on pollution control. § Eg. , o However, management of both supply side and demand side management is also required so as to increase eco-efficiency in both production and consumption process. § Eg. , 44

GG 2. Management of both supply side and demand side l Environmental sustainability can be achieved not just with pollution reduction, but rather with improving eco-efficiency in both production and consumption sides. Determinants of environmental sustainability Flows of Production and Consumption 45

GG 3. Support for the long-term perspective o Conventional environmental has been conducted on the short-term basis. § eg. o However, the long-term perspective is required. § The public sector needs to bridge the gap between long-term social benefit and short-term commercial benefit to promote the active participation of the private sector in environmental R&D. § Creation of new growth engines for the future. 46

IG 4. International Cooperation o International cooperation to reduce barriers to trade and investment in environmental goods and services (EGS). § To ensure environmental sustainability to be consistent with keeping global trade and investment open and free, without raising new barriers to trade and investment. § eg. o International cooperation to expedite green technology transfer to developing economies § eg. 47

8. Epilogue I –Framework for SD Sustainable Development Green growth Inclusive growth 48

7. Epilogue I – Principles of Economics by Mankiw, N. Gregory, 2014, Principles of Economics, 7 th ed. , Cengage Learning.

7. Epilogue I – Principles of Economics by H. -H. Lee Part I. Introduction Part II. Happiness, Welfare, and Sustainable Development Part III. Microeconomics Part IV. Externalities and Market Failure Part V. Macroeconomics Part VI. Sustainable Development in the Longrun § Market and social inclusiveness § Market and environmental sustainability § Inclusive growth and green growth for Sustainable Development

7. Epilogue II – Questions for Review 1. Critically explain Green Growth and Inclusive Growth strategies for Sustainable Development. 2. Explain some market-friendly Green Growth strategies that were not identified in class. 3. Explain some market-friendly Inclusive Growth strategies that were not identified in class.

Hyun-Hoon Lee hhlee@kangwon. ac. kr