How do we expect the next dominate economy to dramatically slow it self down and pay an “environmental tax” for the benefit of all others? This is the underlying question that is being asked. China’s biggest concern is that of keeping the economy growing and pulling the majority of its people out of the poverty level. Why? China can not afford to have social and political unrest that is continuously building because of the widening gap between rich and the poor.
The New York Times article “ China and US Hit Strident Impasse at Climate Talks” suggests it is all about the negotiating tactics, payments needed, monitoring required, etc. This is not the point that China is on. They need to grow their economy and the faster the better. It is by design a very opaque governing system that can make pretty awesome decisions very quickly when it decides to make a change. This systems needs to deliver a better standard of living to its people so it survives. China is unlike any governing body in the world.
The compromise that must be made can only be done by understanding China’s need to succeed is far greater than its concern for the global climate issues. As the article in The WSJ “Naked Copenhagen” states, the Wests reduction of CO2 emissions are irrelevant compared to what is being asked of the developing economies. The developed world needs to understand that a small sacrifices it must make are far easier then the heavy burden of having half your population not being able to do more then live at or below the subsistence level.
I fully believe that with hard work that some compromise is possible, but it may be that the biggest changes of behavior may only come when the actual disasters are upon us.
All of us are worried, anxious, and probably very skeptical of what can happen in Copenhagen this month. The early pontiffs were very negative on the prospective outcome, particularly with the US and China not committing to anything concrete before hand. It almost makes you believe the scenario in Ultimatum, the book by Matthew Glass, that the only solutions will be employed when mega disasters hit in 2030 time frame and the US and China have to agree.
But there is a new trend growing and strong. Corporations are leading the charge. They are becoming long term thinkers because they realize that the viability of their business is at stake in the not too distant future. This realization is occurring both at the board level and increasingly shareholder level. An insightful Op-Ed piece in the New York Times, “Will Big Business save the Earth” points out some of the massive movement that is occurring. Jared Diamond writes about “a few examples involving three corporations — Wal-Mart, Coca-Cola and Chevron — that many critics of business love to hate, in my opinion, unjustly.”
Wal-Mart the biggest retailer in the world, is working hard to reduce its waste and impact throughout their entire supply chain. A monumental effort which will reach deep into every process from packaging waste to the green House gases emitted from the farmers whose food then sell. Coca Cola is really worried about Water. Arguably the next next commodity to cause Global unrest. It will need clean fresh sources close to its customers and will have to restore and enhance the environment to continue to extract the water it needs. Then there is Chevron, whose environmental practices are becoming a model for the working in highly environmentally sensitive areas, that the author goes on to site ” Not even in any national park have I seen such rigorous environmental protection as I encountered in five visits to new Chevron-managed oil fields in Papua New Guinea.”
The future might well lie in the economics of the corporations who need a viable sustainable world to survive and grow rather then the politics of the world.
A sad story is continuing to unfold in Dubai
A fanatic building boom is hardly ever a good event. How can we just build without thinking through the issues of what economics support the development. The building up of Dubai is a classic case of Hubris. The idea was good, transition off of oil based economy and build a the next economic drivers, but the execution was over the top.
My partners and I attended an investment conference for major assest managers of pension funds both public and private in Dubai in late spring of 08. Managers from all over the world came and heard many pitches of how to manage going forward. Now no one new of the pending financial crises to come, but the tone was very negative on US equities, big on Asia assets and really big on Real Estate in the Gulf Coast Countries. The wisdom was very clear, “It is the only place in the world where you can build it and they will come,” and continued with ” There is almost no limit to our ability to absorb and deploy capital into real estate with great returns.”
It was like a dream the words were incredible. We looked at each other, reflected on the massive construction projects we saw that were doing on from Dubai and all along the road to Abu Dhabi. There seemed to be more construction cranes in the region then all of China. We had heard this before several times in our investment careers and new the top had come. The best add of the week was on a billboard on a magnificent building. “buy an apartment and get a BMW 750. Amazing! How could these smart investors be saying this. It is one thing to play along, it is another to talk this talk. Well now one year and half later they can’t pay up on the debt. This is the beginning of some ugly scenarios in Real Estate still to come.
Which brings this discussion back to planning a world where we can live within the means of the planet. Where a city and the communities that live in them become as much self sustaining as possible and an integral part of a larger world. This takes careful planning an deliberate execution, but it also takes time. It is hard to just buy in and expect it to all work.
Just heard a fantastic talk by Jeremy Siegel, Economist and Wharton Professor. He is looking a some great data that suggests a much speedier recovery for the country and the world. He is expecting a 4-5% growth in GDP in the first half of 2010. That this was only a moderate recession if you take out the fact that banks way over-leveraged with uncertain assets.
He argues that the long standing predictor of Standard of Living is productivity. Which is in tern defined by Land/Labor/Capital and Technology. And yes in the short term companies have and will squeezed the cost out of the system of supply, inventory and labor; but inventions, discoveries, and innovations will prevail and drive the medium and long term growth.
The Audience, all graduates of the Management & Technology undergraduate program of University of Pennsylvania reunion, was thrilled, yet very skeptical that it could all be so good. Then I remember the old adage “that the market will always do what will embarrass the most people. Lets hope so.
