Should poor countries remain poor?

Stock vs flow approach.

The Industrial Revolution in North-Western Europe, studied in innumerable papers and books, happened largely “endogenously” by building upon the Commercial Revolution of the Middle Ages, putting science to direct economic use and creating new technologies. The Industrial Revolution in one corner of the world had been however accompanied, or perhaps even accelerated, by the four “bad” developments elsewhere.

The first was colonization of many non-European parts of the world. European nations imposed political control over most of Africa, Asia, and Oceania, and employed it to exploit natural resources and cheap (or forced) domestic labor. This is the so-called “unrequited transfers” whose extent is widely debated although there is no doubt that it was substantial. Angus Maddison puts it, from India to the UK, and from Java to the Netherlands, between 1 and 10 percent of the colonies’ GDP per year. Utsa Patnaik thinks that it was much larger and that it contributed significantly to the British take-off by funding up to 1/3 of funds used for investment.

The second “bad” was trans-Atlantic slavery  that added to the profits of those who controlled the trade (mostly merchants in Europe and the US), and those who used the transported slaves in plantations in Barbados, Haiti, Southern United States, Brazil etc. This was clearly another huge “unrequited” transfer of value.

The third “bad”, as argued by Paul Bairoch and Angus Maddison among others, was that Northern countries discouraged technological advances elsewhere by imposing rules favoring themselves (bans on production of processed goods, Acts of Navigation, monopsony power, control of internal trade and national finances etc.). They are summarized in the term “colonial contract” coined by Paul Bairoch. Countries as diverse as India, China, Egypt and Madagascar come under this heading. “Deindustrialization and the fact that profits from exports have probably been appropriated by the foreign intermediaries have caused a catastrophic decline in the standard of living of the Indian masses.” (Paul Bairoch, De Jericho à Mexico, p. 514) 

These “bads” have been, and continue to be, debated and while learning about each of them is to be encouraged, they do not have direct political or financial consequences on today’s world. The ideas, floated from time to time, for monetary compensation for such ills are far-fetched and unrealizable. Nor is there any ability to clearly identify the “culprits” and the “victims”.

However this is not the case with the fourth “bad”, the accumulation of CO2 in the atmosphere, and thus climate change, which is largely the product of industrial development. The fourth “bad” is today’s problem. It is not a simple past injustice that can be studied and debated, but regarding which nothing else can be done. The reason is that fresh industrial production continues to add to the problem of climate change. To the extent that the former Third World nations are now in the process of catching up with the “old” rich world, it is the fast-industrializing countries in Asia, as well as those who have recently discovered large deposits of oil (like Guyana), who may be significantly adding to the stock of CO2. Certainly, much more than they have done in the past. China, for example, is today the largest emitter of CO2. (It is not at all obvious that countries should be the main “parties” to this problem because it is the rich people who are the most important emitters. This is an issue I discussed here, and that for now, I leave out.)

If newly developing countries are then held responsible for their share of annual emissions (that is, for their share in the annual “flow” of emissions) as if the responsibility for the previous “stock” of emissions does not matter, this would slow the growth of the new industrializing countries and impose unjust costs on them. The emissions that exist are a “stock” problem. It is because in the past, the world, i.e. the currently rich countries, have made so many emissions that we face the problem today. In other words, climate change cannot be treated as a “flow” problem alone, and not even primarily so.

This holds especially true for countries that are poor today and that have not contributed to the emissions in the past. Shaming them means slowing their growth and undermining poverty reduction in the world. A poor country that is emitting 100 units of CO2 this year cannot be treated as a rich country that is emitting 100 units of CO2 this year. The rich country is more responsible because of its past emissions. (Whether the net accumulated stock of its emissions is directly proportional to its today’s GDP I do not know—but that it is positively correlated is acknowledged by all.) Thus, by any concept of fairness, the rich country would either have to commit to much lower absolute annual emissions than a poor country (which by itself would reduce income of the rich country) or to compensate poor country for all the income that it would have made through oil production or industrial output that it forgoes in order to reduce emissions.

Rich countries would either have to emit (on per capita basis) much less than poor or developing countries –ideally, in proportion to which they are responsible for the “stock” of emissions—or to compensate poor countries for any loss of income that comes from voluntary reduction of production.  

This means that rich countries must either reduce their income levels, or transfer significant resources to the developing countries. Neither is politically feasible. The first scenario would imply GDP per capita reductions of a third or more. No political party in the West can win votes by suggesting income declines that exceed several times those experienced during the 2007-08 recession. The second scenario is likewise unlikely since it would involve open-ended transfers of billions if not trillions of dollars.

As rich countries cannot do either of these two things, and wish to maintain some moral high ground by speaking about the problem, we are treated to the spectacles like the recent interview on BBC where the President of Guyana was lectured about the possibility of Guyana emitting millions of tons of CO2 into atmosphere if its new oil deposits are exploited. Before the recent discovery of oil, Guyana’s per capita GDP was some $6,000 or in PPP terms about $12,000; the first number is one-eighth of that for the United Kingdom, the second, a fourth. Guyana’s life expectancy is 10 years less than that of the UK and the average number of years of schooling 8.5 vs. 12.9 in the UK.

The conclusion is thus: if rich countries are unwilling to do anything meaningful to address climate change and their responsibility for it, they should not use moral grand-standing to stop others from developing. Otherwise, one’s seeming concern with the “world” is just a way to shift the conversation and to maintain many people in abject poverty. It is logically impossible to (a) hold moral high ground, (b) to do nothing in response to past responsibilities; and (c) to claim to be in favor of global poverty reduction.