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SUSTAINABILITY NEWS – Edition 1 How did we arrive where we are? Before beginning our work together on Sustainable Issues – please see: https://www.facebook.com/pages/Sustainability-SierraLeone/1655372608017674?skip_nax_wizard=true&ref_type=sitefooter Part 1 We need to consider how economic policy came to be what it is in 2015. So, we need a brief Economic History discussion. Our journey starts in the US at Bretton Woods in 1944, yes that long ago. It was at this conference that the norms regulating post Second World War international trade and trade where established. The international monetary system created there was based on a gold-exchange standard fixing the US dollar at $35 per ounce, whilst all other currencies were fixed to the dollar. The ‘fixed’ exchange rate system allowed small movements either side of an agreed parity and in the case of a balance of payments problems domestic governments could make small revaluations or devaluations. To assist this system the IMF, IBRD (forerunner of World Bank) and GATT, now the World Trade Organisation were created. All of the above were designed to bring stability to international trade, the opposite of what had taken place prior to the commencement of hostilities in 1939. This stability brought economic growth and this was also advanced by the Marshall Plan and the investment opportunities that were created by the high level of war damage that had been recorded in many European countries and others in the Far East. For a quarter of a century after 1945 the world economy recorded annual GDP growth rates of 5%, some areas were even higher than this. A quarter of a century of strong economic growth seems to have achieved, in part, by public policy intervention, macroeconomic policy focused capital controls, financial regulation and state intervention. This combination would prevent instability and the misallocation of resources and it was felt that the occasional policy failure was better that a succession of market failures. The continued growth of the US market, the emergence of what would lead to the creation of The European Union and obvious success of such nations as Germany and Japan meant that this ‘model’ received wide support. However, as the 1950’s developed two other changes took place. These were the beginnings of ‘independence’ amongst countries previously governed by Colonial regimes and the desire for centrally planned economies to show that they too could provide continued economic growth and prosperity. Growth, as shown in the Harrod - Domar Model the accepted route to economic prosperity and the work undertaken at the LSE that resulted in the Phillip’s Curve being published suggested that economies could be manipulated to ‘trade-off’ unemployment with inflation. However, beneath the apparent trade-off some were noting that capitalist economies were becoming more unstable and that crises would arise – something which the events of the second half of the twentieth century clearly illustrated. The Joan Robinson model of capital accumulation was based on six determinants: Technology Investment policy Savings Competition The wage agreements made within labour markets Financial conditions If these were maintained then growth would continue. It must be noted that in NONE of these economic theories was the word FINITE or ENVIRONMENT mentioned. It was not until 1972 and the publication of The Report on Limits to Growth that the natural resource base of the planet was taken into consideration when designing macroeconomic policies. In 1974 Joseph Stiglitz did publish his findings on continued economic growth when resources are finite – though even such a respected figure as Stiglitz included in his calculations that ‘natural resource depletion would be offset by ‘technological advancement.’ We could discuss the role of capital, interest rate selection in cost-benefit analysis exercises and the real ability of technology to outpace exhaustion in our resource for days and never reach a conclusion. Let’s return to economic history. The Club of Rome produced a short report in 1972 called The Limits to Growth. It noted constraints on continuous economic growth and put depletion and exhaustion of the natural resource base as being central to the debate. The debate that followed the Report’s publication was fierce – some felt it was a ‘dooms day’ scenario, whilst others felt its focus on persistent pollutants was too narrow. It did, however, start a debate on population growth, output growth and the impact these would have on the environment. It also considered nuclear energy to be the solution to energy needs – a suggestion that remains ‘radical’ to this day! Another report, published in Argentina by researchers at Fundacion Barlioche focused more attention on natural resource exhaustion and that fact that at the time two-thirds of humanity was submerged in poverty and exclusion. So, forty years ago a discussion was arising that noted a link between growth and natural capital and depletion of resources and poverty – we are still engaged in that dialogue today. By 1973 the Bretton Woods system of fixed exchange rates had collapsed. The US was experiencing trade deficits and was embroiled in the Vietnam War. The US encountered what has come to be known as the ‘Triffin Dilemma’ – if a nation’s currency is also the world’s reserve that country needs to keep a current account deficit to provide liquidity for the global economy. But this leads to a loss of confidence in that currency. The dollar had to be de-valued and so the fixed rate exchange system disintegrated. The introduction of floating exchange rates led to what has become known as ‘the privatisation of risk’, no longer were the private sector shielded from risk by fixed exchange rates. Those trying to reduce the risk wanted capital flows to be opened up and the modern world of ‘financial instruments’ was born. Another crisis that arose in the early 1970’s was the first major oil price hike. It was the result of action during and subsequent to the Yom Kippur War in the Middle East. Oil prices rose by as much as 4 times that of their pre-crisis level and the oil consuming world became more aware of the fragility of some of the major oil producing countries. The US economy dropped into recession, stagflation arrived (simultaneous rises in BOTH inflation and unemployment), growth rates stagnated, investment fell and a very different set of challenged faced policy makers. The crisis also impacted in developing economies. They were caught in a trap of high debt services payments as interest rates rose and falling resource prices as the developed world reduced its demand for raw materials. This meant that many had to approach such institutions as The World Bank and the IMF for assistance. The now often despised ‘Structural Adjustment Programme’ came into being and policies such as: Cuts to social spending Lay-offs, especially in the Public Sector Selling of State owned firms Large-scale privatisation These were the price that had to be paid to contain aggregate demand, reduce price inflation and ‘balance the books’. As many developing economies know to their cost the outcome of such programmes also contained: Increases in unemployment Increases in inequality and poverty A negative impact on the environment, as resources were exploited to pay off debt and the standards of extraction control were reduced All of this became known as ‘The Washington Consensus’ – tight monetary policies, fiscal policies focused on debt repayment, income policies to reduce aggregate demand, financial deregulation, trade liberalisation, reduced role of Government in economic planning and large-scale privatisation. The above would rule macroeconomic policy and development throughout the nineties and allow globalisation to become the force that it now is. This brings the first part of our brief trip through contemporary economic history to an end. Next time we will examine what has happened in the current century – environmental awareness becomes ‘more fashionable’. Topical Issue – Number 1 What we do today to the agricultural system of the world we determine the history of our future as a species. We struggle to reconcile adequate food production and distribution systems to the need to address improvements in living standards and the environmental sustainability of agricultural systems. Though we manage to grow more than the total population expands by BUT the rate of yield growth is slowing, so has the cultivated per capita area – which show us that we are reaching the limits of the agricultural frontiers in many key areas of the world. Consumption rates of irrigation have led to over-exploitation of aquifers and heavy use of chemicals has been a major contributor to the pollution of both underground and surface water sources. Nearly one billion people live in or are close to malnutrition. You will need to consider issues such as: Soil degradation Bio-diversity De-forestation The economic and social vulnerability of those who work the land Research Topic I am currently part of a project that is noting which seed types are being discovered in archaeological digs that are, or have taken place in various African countries. Some seeds that have been found are from crops no longer cultivated in that country or region – why? The reasons are complex but as part of your sustainability studies why not ask those living in your communities what crops were once grown and why did cultivation stop? Your answers will be of interest to both your own planners and others from countries outside Sierra Leone. Such finds might improve food security, offer new crops to farmers, so improving their incomes and keeping more people in the essential industry of growing food. John 1st June 2015.