11 Jan 10 The Asian influence and ‘Our Common Future’

The year 2009 marked the diminishing western dominance (and the emerging Asian influence) in the global socio-economic policy making arena. Two of the key events during the year that demonstrated this weakening grip of the developed nations were – 1) G20 formally replacing G8 as the main body for intermediating global economic policy; and 2) the lack of a consensus at the UN Climate Summit in Copenhagen (due to refusal by many developing economies to buy-in rich countries’ stance on carbon emissions). So what do these events mean for international economics going forward?

  • The world order is changing (at least economically) and G20 is emerging as an alternative group of nations that will have stronger influence in international forums on policy making. There will be lesser involvement (influence) of the western powers in the third world and frontier economies. The US and the European Union have their domestic economic (and financial) problems to deal with and I feel it would be superficial to expect greater contribution from the developed countries (over and above what they usually contribute to development programs in the least developed economies) for the global economy. Policy analysts are talking more about South-South investments.
  • COP15 resulted in the Copenhagen Accord that does not have the acceptance of many participating countries. While it was disappointing that political interest (read vested nationalist interest) influenced and prohibited countries from arriving at a consensus agreement (many see the Copenhagen Summit as a failure), COP15 brought to fore the emerging collective influence of the developing economies in international negotiations. And I feel that more of this collective clout will be demonstrated at the next round of Doha Trade negotiations at the WTO in March 2010.

Asian influence will be crucial in shaping ‘Our Common Future’(1)

I believe that politically, economically and environmentally, the Asian influence cannot be ignored. In fact, the Asian influence will only grow bigger in the years to come. The economic problems (recession and the financial crisis) of the developed economies have indirectly promoted the Asian influence in the G20 structure. Also, the progress on climate talks and related crisis-mitigation will depend on how Asia develops (invests and adopts sustainable growth) in the next decade.

  • The Asian region accounts for around 60% of the global population (Indian and China together represent around 40% of the world’s population). As industrialization and urbanization gains further momentum (A Mckinsey report estimates that China is expected to add 350m people in its urban centers by 2025 – there will be 220 cities with more than 1m people each by that period), the time is crucial for creating incentives for investing into clean technology and greener way of doing things.
  • International Energy Agency (IEA) statistics shows Asia’s CO2 emissions at 31% (China alone contributes 21% carbon emissions) of the global emissions. This is expected to become more than 50% in the next two decades.
  • Asian region will witness significant amount of investments in the year to come. In an effort to encourage private participation and foreign capital flows in core sectors, governments have developed FDI-conducive policy frameworks. China and India together, currently attract more than US$100bn of FDI every year and these two countries are expected to deploy a combined US$1.5tr on infrastructure developments alone over the next 5 years.

These developments are indicative of the significant influence Asia will have on the global economy going forward. ‘Our Common Future’ then is dependent (to a great extent) on how Asia progresses.

We have to be ‘climate smart’

Sooner or later, the politics and economics of everything will be influenced by the environmental changes. At an individual level, the way we do things (exploring, procuring, producing, moving and using our scare resources) will have to be ecologically benign and much more efficient. Some consolation (short term) could be that climate crisis is high on the radar of global policy (more than 100 heads of state attended COP15) and there is greater awareness across the world on climate change than what was a few years ago. But we need some action now. We have to be ‘climate smart’.

Asia has a big role to play and has to act responsibly. One cannot escape the greater responsibility that comes with increasing power. The policy makers have to accommodate environmental protection in their growth agenda. In fact, the order of the adjustments will have to be the other way round – growth models will have to be suitably modified to address environmental concerns and leave as little carbon footprint as possible.

(1) Our Common Future – the term used in this post is taken from and inspired  (in every sense of the word) by the Brundtland Report, published in 1987 that laid the foundations of the concept of Sustainable Development.

Ribhu Ranjan Baruah

Ribhu was a project manager at ValueNotes, managing a team that met the research needs of a global investment management firm. He has since moved on to pursue opportunities in impact investing.

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