Globalization and its Risks Preface This book began with a series of lectures I gave in 1999 at the Brookhaven National Laboratories in Long Island, New York, the Pegram Lectures.1 I was asked explain the origin of global environmental problems and propose solutions: a tall order and I thank the organizers and the participants for their probing questions and suggestions, and their passion for the topic. Some of the material in this book goes back much longer, originating in the Model of the Fundacion Bariloche, a computerized model of the world economy was the first to be created within a developing nation. Bariloche is a beautiful town of mountains and lakes located in Patagonia, the South of Argentina, my country of birth. In creating the economics and the mathematics of the Bariloche Model, I introduced the concept of Basic Needs as a foundation for economic development. I worked closely with Latin American scientists led by the late geologist and friend Amilcar Herrera and several physicists and friends including the Jorge Sabato and Carlos Mallman. Basic Needs offered a new perspective on developing nations’ economic development, focusing on ways to overcome dire poverty while averting resource depletion. At the time, the global modeling literature was dominated by the Limits to Growth Model developed at MIT. Specifically, Basic Needs was a response to the Limits to Growth attempt to measure economic progress solely by Gross Domestic Product, and its claims that developing nations could only succeed by depleting the planet’s resources. In the Bariloche model, we proved that by concentrating on Basic Needs we could achieve economic progress in the developing world while averting the depletion of the 1 The Pegram Lectures www.chichilnisky.com 1 earth’s resources. In that sense, the Bariloche Model was truly the first study on global sustainable development. Somewhat unexpectedly, the concept of Basic Needs spread rapidly from the first publication in the mid 1970’s of our book Catastrophe or New Society by the International Development Research Council (IDRC) of Ottawa Canada. The book was translated into 8 other languages and read around the world, and I published several academic articles introducing and developing the concept of Basic Needs while teaching at Harvard University.2 The concept of Basic Needs was taken up by several United Nations agencies and the World Bank, including the UN Department of Social and Economic Affairs (ECOSOC), the United Nations Institute for Training and Research’s Project on the Future, led by M. Phillippe De Seynes, and the United Nations International Labor Organization (ILO) in Geneva that performed a number of country studies led by Mike Hopkins on the feasibility of Basic Needs policies. The Basic Needs approach to economic development was eventually voted by 153 nations at the 1992 Earth Summit of Rio de Janeiro Brazil, as the cornerstone of efforts to define Sustainable Economic Development.3 The influence of Basic Needs was also felt across academia, for example, in Amartya Sen’s work on entitlements that is consonant with the idea of satisfaction of basic needs as a primary end of development policies, and the late Harvard philosopher John Rawls book Theory of Justice, who argues that the welfare of those who are worst off is an ethical priority. 2 Chichilnisky, G: “Economic Development and Efficiency Criteria in the Satisfaction of Basic Needs”. Applied Mathematical Modelling 1977, and “Development Patterns and the International Order” Journal of International Affairs, 1977, www.chichilnisky.com. 3 See G. Chichilnisky, G. Heal and S. Vercelli: Sustainability Dynamics and Uncertainty, Kluwer, www.chichilnisky.com. 2 In 2000 the United Nations introduced its Millennium Goals that focus on monitoring effectively the satisfaction of Basic Needs. The Kyoto Protocol of the United Nations4 is another manifestation of the close connection between global resources and the satisfaction of Basic Needs. In creating the carbon market within the Kyoto Protocol, I aimed at providing a global market mechanism that can correct the missing values in standard GDP measures and uncover the true costs of global resources, while helping overcome the global divide between rich and poor nations. The connection between the carbon market and Basic Needs is at the heart of this book and is developed throughout its chapters. While attracting worldwide attention, the concept off Basic Needs remained more of a hope than a reality, a goal to be pursued but never attained. The increasing importance of markets in the world economy led me to think that the only way we would be able to achieve the satisfaction of Basic Needs was by using markets for this purpose. My idea was to create new global market mechanisms that while achieving profits could at the same time address environmental concerns and the wealth differentials between nations. Through many publications and speeches, I started in the early 1990’s to develop the idea of creating new global financial mechanisms that could achieve the two seemingly opposite goals.5 The idea became a reality in 1997. The Kyoto Protocol is the first international agreement that is fundamentally based on the creation of a new global market mechanism, the carbon market, where the nations of the world trade the rights to use a global public good, the planet’s atmosphere. Representatives from 160 signatory 4 On December 10 1997, representatives from 160 signatory nations of the UN Framework Convention on Climate Change agreed in the Kyoto Protocol to reduce global emissions by 5.2% by 2012. 5 Among others a key note presentation to the Annual Meetings of the World Bank in December 1995, Chichilnisky, G. “The Greening of the Bretton Woods” Financial Times, January 6, 1996, Chichilnisky, G. Development and Global Finance, UNESCO and UNDP, New York, Discussion Paper Series No 10, published in New York April 1997. 3 nations of the UN Framework Convention on Climate Change agreed in the Kyoto Protocol to reduce global emissions by 5.2% by 2012.6 In helping create the United Nations Kyoto Protocol’s carbon market and its Clean Development Mechanism, I helped put in place a new global market mechanisms that was self-funded, requiring no donations by any nation, and that could achieve simultaneously the two purposes mentioned above. The Kyoto Protocol’s carbon market is a new global market mechanism that can resolve major global environmental problems of our times, while helping to promote the welfare of countries that have fallen behind in economic development. The idea of a carbon market is straightforward. It is based on limits on nations’ emissions. On a given year, a nation that is above its limits can buy rights to emit from another nation that is below its limits – while the total world emissions remain within the agreed ceilings. This penalizes the bad guys and rewards the good guys, without any tax authority needed as an intermediary. The carbon market creates a ‘price signal’ that encourages clean technology innovation. By deliberate design and for historical reasons, the Kyoto Protocol puts no limits on poor nations’ emissions and they preferentially benefit from the use of the planet’s atmosphere. Furthermore, through the Clean Development Mechanisms the Protocol encourages substantial financial transfers from rich to poor nations.7 These became the 6 December 10, 1997 representatives from 160 signatory nations to the UN Framework Convention on Climate Change attended a meeting in Kyoto, Japan, and reached an agreement, called the Kyoto Protocol, to reduce global emissions by about 5.2% by 2012. Encyclopædia Britannica. Retrieved August 15, 2008, from Encyclopædia Britannica Online: http://original.britannica.com/eb/article-92599. The Kyoto Protocol became international law in 2005 Encyclopedia Britannica Online, http://original.britannica.com/eb/article-92599. 7 In 2006, through the Kyoto Protocol’s Clean Development mechanism, transfers of $8 billion were made from rich to poor nations for projects that reduce carbon emissions, and in 2007, the CDM transfers were $15 billion, see World Bank reports “State and Trends of the Carbon Market” 2007 and 2008: http://mail.google.com/mail/?ui=2&ik=8080ac3fd3&realattid=f_fj9da2lz2&attid=0.1&disp=vah&view=att&th=11b72 62a6b1023ea and http://mail.google.com/mail/#search/World+Bank+Report++2008/11c5d779abf83f6e 4 first real financial transfers from rich to poor nations to take place in many years. Since the Kyoto Protocol became international law in 2006, over $24 billion have been transferred from OECD nations to developing nations for investment in productive projects that reduce carbon emissions.8 These projects helped to advance the cause of sustainable development while reducing the risks of climate change and encouraging the satisfaction of Basic Needs. The carbon market involves trading global public goods - such as the atmospheric carbon concentration. The trading global public goods - of which ‘knowledge’ is another example – represent a critical change in the development of capitalism. The chapter on the new capitalism develops this theme, and explains the hopes for overcoming global economic divisions.. The material in this book was presented at many international meetings of the Organization for Economic Cooperation and Development (OECD) in Paris, France, at a Key Note speech at the 1995 Annual Meetings of The World Bank in Washington D.C., in various meetings of United Nations Educational Social and Cultural Organization (UNESCO) in Paris, France, at the United Nations Industrial Development Organization (UNIDO) in Vienna, Austria, in 1997 at the United Nations Development Program (UNDP) in New York, and in international Conferences and Seminars we organized at the Program on Information and Resources (PIR) that I direct at Columbia University with the participation of the diplomats and negotiators of the United Nations Framework Convention on Climate Change (UNFCC).