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Scramble for Natural Resources, Financial Crisis and Sustainable Development SID, Theatre Concordia, The Hague, 11/12/2009 Rick van der Ploeg University of Oxford en Universiteit van Amsterdam

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Climate Change, Scramble for Natural Resources, Financial Crisis and Sustainable Development SID , Theatre Concordia, The Hague, 11/12/2009. Rick van der Ploeg University of Oxford en Universiteit van Amsterdam. OVERVIEW. Global financial crisis Global climate crisis - PowerPoint PPT Presentation

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Page 1: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Climate Change, Scramble for Natural Resources, Financial

Crisis and Sustainable Development

SID, Theatre Concordia, The Hague, 11/12/2009

Rick van der PloegUniversity of Oxford en

Universiteit van Amsterdam

Page 2: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

OVERVIEW

• Global financial crisis• Global climate crisis• Natural resource curse?• Food crisis• Action Plans• Global Challenges

Page 3: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

I. GLOBAL FINANCIAL CRISIS

• Asset price bubbles: housing equity, dotcom.• Long period of low interest rates after dotcom.• Credit booms with worsening lending standards for

tens of millions of households.• Systematic risk build-up: subprime and loans in

foreign exchange.• Greed, greed, greed .. Excessive leverage.• Regulation and supervision failures: does not keep

up, especially for derivatives.

Page 4: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Novel features of this crisis• More opaque: securitization, banks ‘surprised’ by

large exposures to housing sector via SIVs, conduits, trading books.

• Global financial integration: large capital flows, cross-border positions, more connection between markets incl. wholesale funding.

• Higher leverage in lots of sectors/markets.• Central role of excessive borrowing by

households in the US and UK: complicates restructuring.

Page 5: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Lessons from crisis

• Avoid regulatory arbitrage leading to shadow banking system and excess leverage, so coordinate financial regulation/supervision.

• Regulation did not keep up with changing financial landscape of credit creation.

• Need stronger (macro) risk management.• Avoid pro-cyclical regulation and boom-bust

cycles.• Global imbalances (China vs. US) & need

integrated macro and monetary policies.

Page 6: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Dire Consequences for developing countries

• Global recession and decline in world trade means more difficult to export to OECD.

• Private capital flows dry up: in 2007 lending US$410 billion, but in 2009 repatriating 60US $ billion.

• Less foreign aid (especially if indexed to GDP)• Falling commodity prices (terrible for non-diversified

countries)• Less remittances from guest workers• Developing countries took some time to be hit, but are

now hit very hard, even though roots of crisis are in the rich economies.

• Russia is now shrinking by 8% per annum.

Page 7: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 1: Net Investments in Emerging Economies(flows, billion US $, IMF, 2009)

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Page 8: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 2: Foreign Aid as Percentage of GNP (1970-2007)

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Sub-Sahara Afrika Zuid Azië

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Burundi (rechter as) Zambia (rechter as)

Page 9: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 3: Sharp Falls in Commodity Prices Figure 4: Sharp Falls in Remittances

Page 10: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

New Global Cooperation• Some good stuff: China, India will get a bigger

say in IMF and World Bank.• Global fiscal stimulus. Better financial

regulation• Many good words at G20, but ....• Bad stuff: Global imbalances are hardly

addressed if anything they are aggravated, so dollar and pound remain fragile unless China and Germany spend even more.

• No structural reforms to pay for current fiscal stimulus in US, UK and elsewhere.

Page 11: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

II. GLOBAL CLIMATE CRISIS• Since 1750 both world population and production

per person has risen tenfold. Hence, gigantic pressure on environment.

• World population will go from 6.6. to 9 billion in next forty years and all these new people need to eat, to be housed and to transported.

• During coming decades CO2 concentration in atmosphere may double: global warming.

• And it is anthropogenic – caused by human beings (Crutzen). Half of CO2 caused by vehicles, industry and especially coal-using energy companies. Rougly 20% caused by deforestation. Methane via cattle also important cause of greenhouse gas emissions.

Page 12: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Risks of global warming• Rising sea levels, more hurricanes, destruction of

natural habitats, acidification of oceans leading to destruction of coral reefs and plankton, infectious diseases of hitherto unknown diseases, massive shortages of water (only 2.75% is fresh water and three quarters of that in icecaps etc.), desertification

• Much of burden falls on developing countries, who were not even responsible for global warming.

• Risk of tipping points and irreversible thresholds. Need not only mitigation, but also adaptation.

Page 13: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 5: Environmental Hazards and Global Warming Necessitate Adaptation

Source: Edenhofer, presentation at Climate Summit, Munich, May 2009

Page 14: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam
Page 15: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam
Page 16: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam
Page 17: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

CLIMATE CHANGE AND WAR• Using high-resolution paleo-climate data 1400-1900, we

see that cooling impedes agricultural production, leads to price inflation, war outbreak, famines, population decline.

• Extra dimension to Malthusian population dynamics and Darwinian survival of the fittest.

• But strong historical links between civil war and temperature in SSA. Global warming leads to 54% more armed conflict by 2030, that is 393,000 more battle deaths. Need to direct aid to combating climate change.

Page 18: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam
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Page 20: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam
Page 21: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Why should we act now?• Climate science is fraught with uncertainties,

temperature could go up by 1.1 or 6.4 degrees Celcius. So why bother with limiting to 2 degrees? Tough to get political support.

• Better safe than sorry, especially as the cost should be as little as 1% of global GDP (contrast with 5% for bailout of banks). Insurance policy!

• But without a credible carbon tax of 40$ not 13$ based on a cap and trade system, the costs will be much higher!

• And many silly policies have to be abandoned: fuel subsidies, corn-ethanol subsidy.

Page 22: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Size of the carbon challenge• To cut US GHH 14% below 2005 level by 2020 and 83%

by 2050 requires 1 to 6-7 Giga tons of CO2 cuts.• One Giga ton reduction requires 320 zero-emission

500 MW fired-power instead of coal-power plants, 127,500 wind turbines, conversion of 5.4 size of Iowa for biomass production, new forests 2.5 times the size of State of Washington.

• During 2000-7 emissions have fallen by 7% in US but have risen by 10% in India, 21% in Canada (tar sands!) and 45% in China.

• 80% of GHG emissions until 2050 will come from developing countries. Need China and India in a new Super Kyoto.

• Problem is coal, not oil/gas! Much higher CO2 content.

Page 23: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam
Page 24: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Ineffectiveness of carbon policy?• Carbon leakage: if Kyoto countries put a price on CO2

emissions, some of it will be shifted to producers especially if fuel demand is elastic and supply inelastic. Gift to non-Kyoto countries! Renders CO2 policy ineffective unless it truly is a global deal incl. at least China and India. ‘Carbon leakage’.

• There may allow be pollution flight via dirty FDI.• If gradual CO2 tax ramp is politically infeasible and

government subsidizes renewables (solar, wind, biomass), rational oil/gas owners will deplete faster to avoid capital losses and thus brings global warming forward. ‘Green Paradox’

• Unless renewables so cheap that oil/gas is left in situ.• Higher prices induce substitution towards abundant dirty

coal (if it is not included for political economy reasons), CO2 intensive tar sands, and unsafe nuclear energy.

Page 25: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 6: Coal Reserves dominate Gas and Oil Reserves

unconventional and conventional resources and reserves (respectively, 894 and 227 for oil) biomass + CCS (240; zero emissions; 400 ppm-eq scenario) under the ground. Estimated additional consumption (737 for coal), coal + CCS (192 for coal; zero emissions; 440 ppm-eq scenario), estimated consumption (227 for coal; 400 ppm-eq scenario) andcumulative historical consumption in atmosphere. Source: Edenhofer and Kalkuhl (2009)

Page 26: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Tough dilemmas• Alternatives to oil/gas are dirty or unsafe.• Perhaps better to make it more attractive to keep

oil/gas under the ground.• Never enough space to to sequestrate all CO2

emissions: empty coal mines and oil/gas reservoirs offer only tenth of space.

• Even in EU carbon trading covers only 40% and mistake of grandfathering was made. New Super Kyoto needs to be coarser, but more comprehensive at global level.

• Tipping points and irreversible thresholds: Knightian uncertainty rather than risk.

Page 27: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 7: Tipping Points in the Earth System

Source: Lenton and Schnellnhuber (2007)

Page 28: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Core of Stern Review• Must allow for prudence in avoiding extreme

events/fat tails. Precautionary principle.• Global temperature predicted to rise by more than 3

degrees Celsius unless CO2 GHGs stabilized at 550 ppm CO2e.

• Case for immediate action rather than policy ramp tough to make with IAM’s unless discount rate close to zero (0.1), a low CRRA (1.0) and low growth rate of consumption are used (1.3%), mitigation costs are downplayed (1% GDP rather than double), and global climate benefits (5% rather than 0-3% GDP) a century ahead are played up. Interest rate equals 0.1+1.0*1.3=1.4% and benefit-cost ratio is 4.5. Immediate climate mitigation action is no brainer!

Page 29: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Weitzman critique• With triplet of twos, interest rate of 2+2*2=6%

(discounted benefits 100 years from now are 100 times less!) and benefit-cost ratio of 0.1. So no action on climate change.

• But with 50-50 outcomes, equivalent interest rate would be 2% not 3.7% ((1.4+6)/2!).

• IAM’s correspond to market interest rate: problem for Stern Review.

• Investment climate beta matters. • If benefits of climate change are perfectly

correlated with economy a century ahead, then appropriate interest rate to use is risky rate of return, say 7%.

Page 30: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

• However, if benefits are not correlated (e.g., natural landscapes, biodiversity), use risk-free interest rate of 1% and thus case for immediate action is much stronger. The latter is especially important for developing countries.

• If investment beta is half, appropriate interest rate to use is 1.7% per annum which is not that different from the Stern Review. Case for immediate action rather than policy ramp may not be so bad.

• Alas: Relationship to Mehra-Prescott puzzle. If financial crisis drives premium on risky assets really down to, say, 0.1%, then case for immediate action disappears.

Page 31: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

III. NATURAL RESOURCE CURSE?• Dutch disease: not so much decline of traded

sector and loss of learning by doing as absorption constraints. So need home-grown capital (infra, education, ..) to alleviate them.

• Addiction to unsustainable policies: import substitution, excessive borrowing, welfare state, consumption, erosion of tax bases

• Rent grabbing, corruption• Wars & conflict fuelled by oil, diamonds, gold,

but also less FDI if there is a lot of • Corruption curse for mining FDI and resource

curse for non-mining FDI.

Page 32: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Volatility quintessence of curse for developing countries

• Volatile countries have lower growth• Developing countries more volatile than

developed countries.• Countries with poorly developed financial

systems more volatile.• Landlocked countries more volatile.• Resource-dependent and less diversified

countries more volatile

Page 33: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 8: Volatility Correlated with Low Growth in GDP per Capita

Equatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial GuineaEquatorial Guinea

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Fitted Values (slope = -.247***; Adj. R2=.14; n=150)Landlocked countries

Page 34: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 9: Resource-Rich Economies Are More Volatile

Bahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, TheBahamas, The

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Page 35: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Does volatility harm growth?• No: Precautionary saving.• No: investors demand higher expected return.• Yes: more uncertainty-induced planning errors.• Yes: less irreversible investment.• Yes: less innovation if volatility in resource prices

lead to liquidity constraints to bite more frequently, especially if financial system is not well developed.

• Yes: excessive borrowing & induced boom-bust cycles in fiscal policy.

• Ultimately an issue to be settled empirically.

Page 36: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

What if sub-Saharan Africa was more like Asian Tigers?

• Higher investment, so 0.43% growth bonus.• Lower population growth rate (Sachs), so also

0.43% growth bonus.• Higher human capital, so 0.46% growth bonus.• Lower volatility: 2.98% growth bonus!!• Volatility is high as SSA is more landlocked,

less financially developed, less open and more dependent on (point-base) natural resources.

• And high with current account restrictions, open capital account, ethnic polarization.

Page 37: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Resource-Rich Africa versus South-East Asian sample mean South-East Asia Resource-rich Africa Difference on volatility

on yearly GDP/capita growth rate

GDP per capita growth 1.49% 4.04% 0.25% -3.79%Mean equation

1st lag GDP per capita growth 0.221*** 1.48% 4.00% 1.07% -2.94% 0.65%Average investment share of GDP 1970-2003

0.045* 17.26% 24.45% 14.96% -9.50% 0.43%Average population growth rate 1970-2003

-0.478*** 1.72% 1.86% 2.75% 0.89% 0.43%Initial log per capita GDP 1970 -0.014*** 8.362 7.747 7.129 -0.619 -0.87%

Initial human capital 1970 0.002** 4.140 4.049 1.476 -2.574 0.46%Volatility (σi) -0.971** 4.04% 3.43% 6.02% 2.59% 2.98%

Initial point-source resources 1970 0.050* 4.35% 4.32% 13.13% 8.80% -0.44%Initial financial development 1970 -0.018** 29.07% 26.89% 14.43% -12.47% -0.22%

Variance equation

Initial point-source resources 1970 1.621*** 4.35% 4.32% 13.13% 8.80% -0.41% 0.52%Initial diffuse resources 1970 0.801 7.27% 11.08% 10.52% -0.56% 0.01% -0.02%

Initial financial development 1970 -1.290*** 29.07% 26.89% 14.43% -12.47% -0.47% 0.58%Sachs Warner updated openness dummy 70

-0.693*** 0.374 0.746 0 -0.746 -1.37% 1.71%Distance to nearest navigable river or coast

0.001*** 277.763 90.902 552.571 461.669 -0.86% 1.07%

Estimated volatility 4.04% 3.43% 6.02% 2.59%Countries 62 4 6

Note: Resource-rich African counties are Algeria, Congo, Rep.. Ghana, Malawi, Togo, and Zambia. The South-East Asian countries in our sample are South Korea, Malaysia, Philippines and Thailand. The calculations are based on regression (6a). The effect of each variable on the growth rate (or on volatility) is measured as the effect of changing the respective variable to the sample mean level of the South-East Asian countries, while keeping all other variables constant.

Table 2: Counterfactual Experiments for Resource-Rich and Landlocked Africa

Page 38: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Do developing countries transform their sub-soil wealth into productive

capital?• No: genuine saving is more negative for resource-

dependent countries. Why?• Anticipation of better times: expect higher oil prices,

lower extraction costs in future. Oil importers should save, oil exporters should borrow (Asheim). Against Washington consensus.

• Rapacious rent seeking: interconnected/common pools with imperfect property rights. Distorted Hotelling rule.

• But then also excessive investment, leaving genuine saving properly defined (Arrow/Dasgupta) zero and sustainable consumption too low.

• Negative saving if wasteful conflict, e.g., war or strife.

Page 39: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 11: Negative Genuine Saving in Resource-Rich Countries

Source: World Bank (2006, Figure 3.4). Listen to lecture of Kirk Hamilton.

Page 40: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Table 3: Empirical evidence Impact of Natural Resources on Civil WarsResource measure used Main findings

Onsets and Incidence

De Soysa (2002), Fearon and Laitin (2003), Fearon (2005)

Oil exporter dummy, fuel exports / total exports

Both measures increase war onsets

Collier and Hoeffler (2004), Collier et al. Primary exports / GDP

Increases war onsets (inverted U-shape)Fearon (2005), Bulte

and Brunnschweiler Primary exports / GDP (with further robustness

The effect of primary exports on war onsets seems not very

Lujala et al. (2005), Lujala (2009)

Diamond deposit, diamond production, and oil production dummies

Secondary diamonds increase onset and incidence (ethnic) war, primary diamonds decrease incidence war, (onshore) oil

Humphreys (2005)

Oil production, oil reserves, diamond production

Both oil production and diamond production increase war onsets

Ross (2006)Fuel rents and diamond rents per capita

Fuel onshore and offshore and primary diamonds increase war onsets, secondary diamonds increase onsets separatist wars

Fearon (2004), Ross (2006)

Contraband (cocaine, gems, opium etc) dummy Increases war duration

Collier et al. (2004) Primary exports / GDP

Level not significant. Lower price of commodities exported shortens war

Lujala (2009)Gemstones, oil reserves and production dummies

The presence of these measures in conflict zone increases duration war

Lujala (2009b)

Gem, drug and hydrocarbon production dummies

The presence of these measures in conflict zone increases combat deaths

Duration and fatalities

Page 41: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

IV. FOOD CRISIS• World prices are at or above historical records.• Temporary hike due to adverse weather and harvests

in major grain-producing regions with spill-overs to crops/livestock that compete for same land in 2005/6.

• Very long run: falling food prices due to agricultural productivity improvements such as GM food.

• But also increasing demand for food/feed fuelled by urbanization, economic growth, rapid population growth, switch away from vegetarian diets.

• And due to increased demand for bio-diesel!• OECD/FAO estimates that food prices will be much

higher during 2008-17 than 1998-2007: from beef and pork for 20% to vegetable oils over 80% higher.

Page 42: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Food crisis ctd.• Also food prices more volatile: demand less price-

elastic as people become wealthier, more volatile weather and agricultural output due to climate change, more speculation on agricultural futures markets.

• Policy need to take account of transitory & permanent factors, volatility and global shifts in demand and supply from OECD to poor countries (except for coarse grains, cheese, skimmed milk powder) to address needs of hungry and poor, especially in urban areas of food-importing developing countries.

• Infra, governance, GM, but also stop subsidies on bio-fuels.

Page 43: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Figure 11: Longer Perspective on Food Prices, Ores & Metals, and Crude Oil

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Page 44: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

Food crisis before financial crisis

• In February 2008 food prices rose above the historical record of 1973 & went much higher.

• Billions of people eating less, underfed, ill, not sending their children to school. Food riots.

• Why? Rapid demand especially in China and India. Switch to meat diets as it becomes more affordable for millions. Rapid population growth from 6.6 to 9 billion in next 40 years. Bottom billion can simply not compete with subsidized bio-fuels, so loose their farm lands (and destroys rain forests and adds to global warming).

Page 45: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

African prospects gloomy• In Africa population doubles to 2 billion yet hardly

sufficient agricultural land available for rapidly growing number of African households.

• Need Second Green Revolution for Africa, but tough: much strife, conflict, war, diseases, only 4% has access to irrigation, corruption, dysfunctional institutions, patchy road network, disconnected from world trade. Africa is too poor to save and to poor to invest in education, health, infra and agriculture.

• Why no introduction of climate-resistant species like in Asia? Government failure. Distribution of seeds and fertilizers used to gain political power than to distribute foods. In Nigeria credits/subsidies did not reach farmers. During 2001 draught in Ethiopia food did not reach the people due to patchy road network.

Page 46: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

African agricultural prospects gloomy• Lack of knowledge, risk aversion leading to more

predictable food crops with lower return, lack of credit for risky ventures.

• Education not specifically directed at transfer of agricultural knowledge.

• High oil/diesel price pushed up price of fertilizers, irrigation and transport.

• Need bridging credits as farmers have almost no access to financial markets.

• Population growth has continuously reduced average agricultural plot size for small farmers. Makes it even more difficult to get credit.

• Many distortions in food prices: subsidies and import controls give wrong signals. Badly functioning international food markets.

• Difficult for many developing countries to cope with peaks in food demand and supply.

Page 47: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

ACTION PLANS• Action Plan for a Crowded Planet (Jeff Sachs): curb

population growth best way to promote prosperity, via large scale distribution of contraceptive, legal abortion, education especially for young girls, temporary support out of poverty traps, vaccination, malaria nets, antibiotics, clean drinking water, null tariff for basic water needs, water reservoirs to collect rain water and avoid draughts, Green Revolution for Africa incl. subsidized fertilizers & drop-by-drop irrigation, Millennium Villages, Marshall Plan for Africa, moratorium on deforestation and grazing ocean floors, protect extraterritorial fishing zones, meat tax, research into safe nuclear reactors and waste disposal. Critique: to top-down, cannot scale up just like that, ignores rent seeking and corrupt dictators.

Page 48: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

ACTION PLANS ctd.• Action Plan for the Bottom Billion (Paul Collier): invest

in road & rail networks, ports, airports, offer young rebels work, 10 to 20 year commitment to keeping peace in resource-driven wars in fragile states and thus less emphasis on good governance (cf. China).

• Global Green New Deal (UN/Ed Barbier): direct 1% of global GDP to new green infrastructure, helps to revive world economy and realize sustained and inclusive growth reducing poverty as well as carbon dependency and ecosystem degradation. Direct fiscal stimulus at energy-efficient buildings, & transports, renewable energy and in developing countries go for agricultural productivity boosts, freshwater management, sanitation. Reverse perverse fuel subsidies (e.g., cheap gas for Dutch horticulture). Develop global carbon markets via more inclusive CDM.

Page 49: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

GLOBAL CHALLENGES• China is crucial for global deal: biggest expanding

domestic market, big surplus country propping up the dollar, biggest emitter of CO2, scramble for resources in Africa, rising global power factor. India too. China’s population is rapidly ageing, however.

• US should take lead, but big deficit country, fragile dollar, root of financial crisis, CO2 emissions are actually falling.

• Europe ageing old, declining, less relevant continent struggling with migration and the Lisbon agenda, but did take lead in carbon trading.

• Much of Africa poor & hungry, war zone, landlocked, financially underdeveloped, ethnically divided.

Page 50: Rick van  der Ploeg University of Oxford en Universiteit  van Amsterdam

New Global Deal• China less focus on export markets, more focus

on domestic consumption, less CA surpluses, long-run ethics in Africa, key player in super Kyoto, key mover in global governance.

• US gets rid of CA deficits by spending less on armaments and consumption, restores financial confidence, takes lead in super Kyoto, developing clean technology and in helping Africa.

• Global cooperation to avoid costs of extremely volatile commodity prices (avoid massive investments in CO2-intensive synthetic fuels) .

• US, China and Europe cooperate to open markets for Africa, sustained peace efforts in Africa, and combat poverty, disease, infections in Africa.