#Raisina Files: Why Asia must clean up its environmental act for the region to develop

By Vikrom Mathur and Tanoubi Ngangom

I. The Asian boom

Growth, Poverty, Environment

The rise of Asia is a central theme in global economic discourses today. Through economic globalisation, countries of the region currently enjoy high to moderate growth rates. Presuming that they sustain this growth momentum, Asia’s GDP will grow by $157 trillion in just 40 years, and will constitute 50 percent of the global GDP by 2050. Seven countries — China, India, Indonesia, Japan, Republic of Korea, Thailand and Malaysia, will drive this process and will be responsible for about 91 percent of Asia’s total projected growth.

However, despite the consistent performance for at least the past two decades, and the associated optimistic forecasts, the region continues to be plagued by basic issues of hunger and poverty: Two-thirds of the world’s ‘hungry population’ reside in the Asia-Pacific region. In terms of overall poverty, more than 700 million Asians still live below the international benchmark of $1.25 per day.

The explosive growth has also left an environmental crisis in its wake. 700 million individuals have to be pulled out of poverty but the environmental carrying capacity of our cities, rivers and landscapes is bursting at its seams. Rapid urbanisation along with corresponding processes of industrialisation has led to severe deterioration in air quality. A staggering 24 percent of the total burden of disease in the Asia-Pacific is attributable to environmental risk factors. These risks are most acute in China and India. A red alert was issued in Beijing in December and schools shut down, as pollution levels were 10 times higher than those recommended by the WHO. In India, the situation is no better, with 13 of the top 20 most polluted cities in the world located in the country.

A host of other environmental challenges are constraining development in Asia. Deforestation, soil erosion, desertification and land degradation are disproportionately impacting on the poor. Water is a growing concern in South Asia: Poor domestic management of water resources, along with pressures from population growth and industrialisation, have led to daily water shortages along with increased vulnerability to floods and droughts. Global warming is expected to further exacerbate the development challenge of the region. Given the vast population, rapid rate of urbanisation, and the existence of vulnerable ecosystems such as small island countries, major river systems and long coastal lines, Asia is expected to bear a disproportionate cost of climate change.

Representational image. Reuters

Representational image. Reuters

The poor are most adversely affected by the environmental challenge. In urban areas of Asia the poor live in slums on marginal lands without proper access to social services and the natural resource-dependent livelihoods of farmers are under maximum stress. Securing the Asian century rests on how effectively the region can sustain growth while protecting the environment and ensuring that benefits of growth accrue to all, especially those who still lack basic standards of living.

Sustainable development is now part of the economic and political discourse worldwide. The definition of the Brundtland Commission — ‘development that meets the needs of the current generations without compromising the ability of future generations to meet their own needs” — is generally accepted. It suggests an equal consideration of economic, social and environmental goals. The grand narrative of sustainability needs to brought down to earth; it is a complex multidimensional concept which provides the normative orientation for societal action but the rhetoric needs to be replaced by strategies, policies and practical ways of finding that elusive balance. Social, economic and environmental systems are complex and interlinked. It’s difficult to predict how they will interact and change. Sharing the benefits of growth and cleaning up our environmental act will be central to sustaining development to avoid collapse and surprise.

Environmental degradation continues to scar Asia’s economic miracle. Civil society groups and publics in Asian countries are demanding better environmental standards from their governments. Economic growth is driven by private businesses and three broad sets of strategies have emerged to ensure that growth is aligned with environmental objectives: regulations, laws and standards; economic policies and market incentives to support environment-friendly business practices; and voluntary private sector initiatives to improve environmental performance in response to public and investor pressure.

II. Cleaning up the environment

Environmental degradation continues to scar Asia’s economic miracle. Civil society groups and publics in Asian countries are demanding better environmental standards from their governments. Economic growth is driven by private businesses and three broad sets of strategies have emerged to ensure that growth is aligned with environmental objectives: regulations, laws and standards; economic policies and market incentives to support environment-friendly business practices; and voluntary private sector initiatives to improve environmental performance in response to public and investor pressure.

Regulations, Standards and Laws

Most Asian countries now have fairly evolved environmental laws and standards but compliance is the main concern, due to a lack of institutional capacity to enforce them. Capacity varies across the administrative levels—capacity at municipal and local authorities is often the lowest, which is where the most action is needed. Decentralisation of environmental management is an increasing trend across Asia but raises issues of local capacities and conflict across provincial jurisdictions. In India, for example, disputes across provincial borders and river basins have already been witnessed, which complicates top-down efforts towards environmental management and the success of laws and regulatory efforts.

Regulation is however critical to drive environmental modernisation. Regulatory standards drive innovation and compel industry to invest in research and development and improve vehicle technologies. This has been proven in the United States’ White House directives on Corporate Average Fuel Economy standards. Fuel quality standards have to improve in tandem to the technology being used in vehicles. Recent efforts to control pollution in Delhi have also led to a slew of measures demanding use of Compressed Natural Gas (CNG) vehicles in all taxis as well as restrictions on the purchase of certain sport utility vehicles. This follows a Supreme Court directive of 1998, which called for the introduction of CNG as fuel for all public transport in India.

India has also introduced a tax on coal, which serves to create a fund towards investment in clean energy technologies. Moves to increase regulatory frameworks and improve compliance with environmental law in Asia will in the end require more effective mainstreaming of environmental consideration in sector policies related to land use, water and sanitation, urban development and transport.

Economic Policies and Incentives

Economic policies and incentives that push for efficiency, cleaner fuel and energy choices and less polluting technologies hold the key to sustainable and effective environmental action. In India fossil fuel subsidies are being phased out in favour of taxes on coal through initiatives such as the Coal Cess. Market-based instruments incentivise consumers, particularly in industry, to reduce consumption, improve energy efficiency and generate savings. For example, the Indian Bureau of Energy Efficiency launched the Perform, Achieve and Trade (PAT) Scheme in 2012. PAT is a market-based mechanism designed to support improvements in energy efficiency in large industries and facilities through the certification of energy savings, which can be traded.

The scheme resulted in about $5 billion saved in oil imports, based on average Brent crude prices over the three-year implementation period (2012-15), and electricity savings equivalent to the output of five coal-fired power plants. Incentives and market mechanisms are therefore key policy instruments for engaging industry in pursuing environment-friendly business decisions.

‘Voluntary’ Actions

As Asian companies grow they will need to comply with environment laws and standards but they can also be more proactive and become partners in the sustainable development agenda. Stronger engagement with private sector through mandating corporate social responsibility, disclosure programmes, green procurement strategies, eco-labelling of products and encouraging reports on corporate environmental performance can help engage private sector actors in environmental action.

In India, for instance, a law passed in 2014 requires companies to spend two percent of their net profit on social development. While the legislation is a welcome step towards drawing in a wider range of actors in social development efforts, it remains to be seen whether the ruling will simply lead to forced philanthropy with solely symbolic and ‘tick box’ efforts or, worse, fudging of data in order to avoid compliance.

In developed countries the private sector is increasingly under pressure to develop environmentally friendly products and services as a result of growing public preference for the same. Companies are also occasionally forced to source products from the developing world that meet certain minimum conditions with regards to environmental and labour practices. Encouraging eco-labelling to cater to environmentally conscious consumers can at times work better as a strategy than regulation. Voluntary disclosure programmes are also increasingly popular through initiatives such as the Carbon Disclosure Project, an organisation that encourages companies and cities to disclose their environmental impacts to generate data that can change business practices.

Environmental performance is becoming an increasingly important criteria to consumers and stakeholders. Improving standards makes increasing sense, from a business point of view, for private sector actors who are afraid to lose market share or see a lowering in stock price.

Regional Cooperation

Shared efforts at environmental protection are key given that rivers, forests and mountains do not confine themselves to national boundaries. Asian countries are already working together to: share rivers, for example cooperation in the Ganga and Mekong basins; manage contiguous forest areas, such as expanding Indian and Bangladeshi cooperation on the Sunderbans; and manage shared oceans, for example through the Indian Ocean Rim Association. There is also noticeable evidence of ‘regional-think’ about global problems like climate change, such as through the Association of Southeast Asian Nations (Asean) and South Asia Co-operative Environment Program climate initiatives.

Regional responses are not only needed where natural resources are shared but are also useful to share knowledge and best practice on localised but common issues. There are several successful examples of regional/sub-regional projects, such as the programme on Asian Brown Cloud run by the UN Environment Program to study seasonal haze in Southeast Asia; Asean’s Agreement on Transboundary Haze Pollution and Framework for Environmentally Sustainable Cities; Acid Deposition Monitoring Network in East Asia; South Asia’s Malé Declaration on Control and Prevention of Air Pollution and its likely Transboundary Effects; regional cooperation to control dust storms in Northeast Asia. The Indus Treaty on water sharing between India and Pakistan also stands alone as a success story in an otherwise tense relationship between the South Asian neighbours.


III. Sharing growth

The Asian growth story is based on leveraging surplus labour for low-cost manufacturing: In fact, this phenomenon has earned the continent the moniker ‘Factory Asia’ in the global market. The East Asian tigers relied on such an economic model. The spectacular economic growth of China is rooted in a similar model — the share of labour income in total national income has declined drastically in under a decade (from 60 percent in 2000 to 43 percent in 2009). Various other Asian countries, including Vietnam, Thailand, Indonesia and Bangladesh, also depend heavily on the supply of low-wage labour.

The very factors responsible for the unprecedented growth in Asia are also feeding rising inequality in the region. The focus on cost-competitive manufacturing means that human resource investment would prove counterproductive by pushing up labour costs. However, the age structure of the Asian population will shift dramatically over the next 40 years, highlighting how unsustainable the current models are. This is something that India, too, will have to contend with. The Indian model, though, must address an additional challenge. Despite it already experiencing the working-population explosion, India has been unable to generate proportionate employment. The country’s growth has been largely due to a small, highly-skilled portion of the labour force engaged in the services sector, which contributed 72.4 percent to the GDP in 2014-15. India’s economy then suffers from the same challenge — under-investment in the major portion of its working population.

Sustaining economic growth in the future will depend more on output per worker than the actual number of workers, which calls for alternative economic models that are not beholden to labour surplus. While market-oriented reforms have created an economic boom, these market forces themselves are not sufficient. Addressing the development challenges of Asia requires a three-pronged strategy: redistributing income; investing in social sectors; and strengthening social protection.

Redistributing Income

The current framework has resulted in high income-inequality across the region. Because low-cost manufacturing is based on extremely cheap labour, workers earn paltry remunerations, while factory owners and managers are able to reap much higher profits. In the case of India, highly-skilled workers employed in the productive services sector earn relatively higher incomes in comparison to the rest of the labour force. A recent report by the Peking University shows that the top one percent of Chinese households owns one-third of the country’s wealth while the bottom 25 percent owns just a single percent of the total wealth. The situation in India is worse — the richest one percent of the population owns 53 percent of the total economic pie.

Inclusive development will require the creation of an efficient taxation system that is able to capture the entire spectrum of the population and leads to more balanced wealth distribution. Apart from satisfying the reallocation objective, higher taxes also mean larger revenue for increased expenditure on social sectors like health and education.

Investing in Social Sectors

Rising inequality in Asia is not only limited to income; the region is also witnessing widespread disparity in access to health and education facilities, which further widens the income gap. For instance, the probability of poor children (lowest income quintile households) staying out of primary/secondary schools is five times higher than their richer counterparts (highest income quintile households). In terms of health, infant mortality statistics for poorer households are 10-fold that of wealthier ones. This is because countries in Asia generally have parallel health/education systems — a high-quality, well-regulated one much like those in western economies catering to the wealthy, and a much more basic one for poorer households. There is a need to build a bridge between these two realities, and this calls for active state intervention to create more comprehensive systems that are able to provide certain minimum quality standards. This will not only bring about better quality of life, but will also dramatically increase the likelihood of obtaining productive employment.

Strengthening Social Protection

The third strategy relates to the provision of social safety nets. Existing social security infrastructure in Asia is generally weak, with high out-of-pocket health expenditure being the norm. Out-of-pocket expenditure as a share of total private healthcare costs in India stood at 85.9 percent in 2003; the corresponding figure for China was 76.7 percent.

Designing suitable social protection frameworks for the Asian region requires a better understanding of local realities. Much like the case of health and education, the region’s protection systems are also plagued by a dualistic structure. While those employed in large public and private enterprises are often covered by various social security schemes, the majority of the population who is self-employed and/or works in the informal sector is primarily excluded from such insurance programmes. For instance, public sector employees in India enjoy a range of services — subsidised housing, health insurance, pensions and lifelong pensions for surviving spouses, and maternity and sick leave (1).

Casting a wider net demands an exploration of ways to effectively capture the informal sector workers. Governments in the region recognise this challenge — social protection schemes are oriented towards a different set, which focuses on social assistance. Unlike social security schemes, which tend to disproportionately benefit the wealthier sections, social assistance programmes are specifically targeted towards the poor. Different countries have adopted different types of social assistance: the Philippines model, Pantawid Pamilya, is based on conditional cash transfer to lower-income households. Nepal has a similar cash transfer model. On the other hand, India’s largest social protection programme, the Mahatma Gandhi National Rural Employment Guarantee Act, provides a guaranteed term of employment to every rural household.

Despite the existence of such targeted pro-poor initiatives, actual outcomes remain sub-optimal in the face of large leakages and the inability to effectively target poor households. Tackling this challenge requires extensive financial inclusion efforts that link each household to the formal financial net. This will not only allow transfers to bypass multiple bureaucratic ‘check-posts,’ but will also facilitate expansion of the insurance system.

In striving for shared development, attention must also be paid to the widening of pre-existing social divides caused by economic reforms. Already vulnerable groups such as women or rural residents are now exposed to higher competition, and further marginalised. Targeted policies must be created to ensure that Asian countries move towards better social cohesion.

IV. Another style of life

Political rhetoric that juxtaposes poverty eradication and growth is misplaced: ‘Develop first and then deal with pollution later’ argument should be cast aside. There is no clear blueprint where we can establish targets and navigate and ‘arrive at’ sustainable development because the social, economic and environmental system is complex; uncertainty and surprise is likely to challenge how institutions think. We need to design institutions with new mindsets — ones that can manage the complex dynamics. Technology has been hailed as the panacea to problems of sustainable development and climate change. However, social changes are equally critical. The Delhi odd-even scheme which restricted vehicular use is an important step in that it opens the policy space for more ambitious regulation in the future. Also, it forced citizens to give up certain privileges they take for granted, thereby opening space to further question consumption patterns and potentially change behaviour.

The current modes of production and consumption need to be re-examined and the needs of the weakest in Asia should be at the centre of economic policies. Another style of life that incorporates more socially and environmentally conscious behaviour is vital. A change in mores and values to accompany the potential policy instruments described above will both supplement and broaden the effort to mainstream environmental action with developmental agendas.


Other references

(1) S Guhan, “Social security in India: looking one step ahead,” in Poverty in India. Research and Policy, ed B Harriss, S Guhan and RH Cassen (New Delhi: Oxford University Press, 1992)

This is part of a series of special essays brought to you by Firstpost ahead of the #Raisina Dialogue that begins in New Delhi on Tuesday. #Raisina is India's first MEA sponsored global conclave on geopolitics and geoeconomics, Firstpost is the media partner.

Updated Date: Mar 01, 2016 07:51 AM

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