Mother Nature and Macro-Financing

Sustainable development. During my business education and my relatively short time here in Tegucigalpa, Honduras (I am in week two of a three month internship), I have heard this term more times than I am able to count and yet when I sat down to write a blog about it, I realized that my knowledge of sustainable development was embarrassingly small. So I set about to change all of that, but what I found led me to remember a conversation I had just a few days ago.
It was an argument about development in which I made a relatively uninformed statement to the effect: “The third-world will always be the third world.” At the time that I made this declaration, I was merely referencing the fact that the continued growth of first world economies will continue to outstrip the accelerating, but feeble, growth of most developing economies. This thought surfaced again, however, as I began to compare development models of societies during the 19th and 20th century to modern theories of sustainable development as they apply to emerging economies. Now, while anyone who knows me would agree that I am an avid supporter of sustainable development, I want to use a few paragraphs to play devil’s advocate while providing no real solutions to the points I will raise.
Development in Western societies during the 19th and 20th century was rapid and no one can dispute that. The industrial revolution, mass manufacturing, the internal combustion engine, and other technological advances served to perpetuate unprecedented economic growth. This development was far from sustainable, however. But what does that mean? This rapid development was aided, in part, by the postponed payment of external costs. External costs, or externalities as they are known in economics, are the costs of a transaction that are not directly incurred by the parties involved. Take the operation of a gasoline engine, for example. During the 19th and most of the 20th century, the costs of operating an engine were merely the purchase price, maintenance costs, and fuel. Today, however, externalities are considered, and emissions standards require that most owners and operators of gasoline engines pay fees that offset their pollution’s impact on our environment. In effect, the first world economies were benefited by macro financing from Mother Nature. So this raises an important question: Could development during the 19th and 20th century have been so burgeoning if society had been saddled with the cost of externalities?
Let’s snap back to the 21st century where developing economies are being told that they must grow in sustainable ways. We run a serious risk of derailing opportunities for exponential growth and hampering the economic benefits it would bring to millions, if not billions around the world.
We can take this argument a step further by introducing Kuznet’s curve which showed that, over time, the income inequality in a developing country will rise until a critical point at which it will begin to decline. A developing country’s wealth will naturally become concentrated during early stages of development as most money is being spent on the building of infrastructure. Kuznet argued that eventually, as infrastructure development begins to taper, wealth will become more evenly distributed as resources are freed to improve education and implement social programs. Once again, on a very basic level, sustainable development may mean protracting the Kuznet curve, as external costs (that otherwise would be paid in the future) drive up the costs of development.
Why is this important? The imposition of external costs could cause the impoverished within a developing country to remain in poverty longer than necessary. The resources that would otherwise be devoted to education and social programs will be tied to paying externalities. While I do not advocate the abolition of environmental standards or sustainable development, we must keep in mind that modern development models may not breed the immediate exponential growth seen in prior centuries.

Derrick Nation

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