Monday, August 15, 2011

Climate Change, Reverse Dutch Disease, and Third World Industrialization


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Climate change is one of the "great pessimisms" of the 21st century, to quote Matt Ridley - author of the "The Rational Optimist: How Prosperity Evolves (2010). Indeed, it is the primary threat to humanity's vision of a bright future of technological prosperity. And for very good reasons. According to the Intergovernmental Panel on Climate Change (IPCC), a global average temperature increase of 1–4°C (relative to 1990–2000) may result to partial de-glaciation of the Greenland ice sheet. Add to this the possible contribution of partial de-glaciation of the West Antarctic Ice Sheet, sea level may  rise by 4 to 6 meters (13 to 20 ft) or more, with disastrous consequences to small island states and coastal settlements.

A farmer takes water form a dried-up pond to water his vegetable field on the outskirts of Yingtan, Jiangxi province. Photograph: Stringer Shanghai/Reuters. From here.
Moreover, weather patterns across the globe will be disturbed, radically changing livelihoods and economic activities. A particular climate-induced economic change we ought to be watching is the transition of some developed countries from having a humid continental or tundra climate to tropical or rain-forest, simultaneous with desertification in agriculturally-rich developing countries. This is already happening now, as climate change render previously agriculturally-viable lands to lands not fit for horticulture.

This gave me an insight. While it is true that this will have debilitating effects on the economies of the South, I can also see an economic opportunity which we developing countries can maximize - at least in the medium-run.

Reverse Dutch Disease

This opportunity is the fact that countries of the North, previously compelled to develop an industrial and manufacturing base due to lack of natural resources and arable lands, will now see an increase in relative profitability of agriculture in their countries. Although some other factors must come into play, this may cause a shift of economic activity of the North to agriculture, as they become afflicted by the so-called "Dutch disease" - the relationship between the increased economic activity dependent on natural resources (such as arable land) with the decline of the manufacturing sector.

At this point, there is favorable global economic environment for Southern countries to transition from export-led agricultural sector to an agricultural sector attached to a domestic industrial base - a local market-oriented industrial economy (which will be developed through various mechanisms of state intervention, e.g. import substitution, protectionist trade policy, etc.) that can more efficiently feed our population. In fact, we may be forced to, because of possible drastic decrease in agricultural yield due to climate change.

For instance, even as merely 1.2% of the US economy is engaged in agriculture, it is in fact a net food exporter because of its manufacturing base which invests its surplus in technologically advanced agribusiness. Not that we want US as a model (there are other models to follow on top of other indigenous models in the Philippines, like the Organopónicos system of urban organic gardens in Havana, Cuba and the periurban agriculture development in China - located at the Modern Agricultural Science Demonstration Park in Xiaotangshan), this is just to illustrate that we need not have a large agricultural sector to be food self-sufficient. In fact, food self-sufficiency is often a factor of a robust post-harvest industry and service economy that is much larger than the agricultural sector.

But more than being forced to become food self-sufficient, this is an opportunity to transition towards a an industrial (not in the smokestack, 20th century meaning of the term, but one that is more technologically advanced and incorporating our knowledge of the ecosystem) economy as previously advanced economies experience "re-agriculturalization" and possible decline in industrial and service activities.  Hopefully, the accumulated surplus of their previous industrialization process will be transferred to us through trade as we trump them in manufacturing.

Development Space and First World's Climate Debt

But won't engaging in industrialization worsen climate change? Shouldn't the South be joining the global effort towards climate change mitigation by reducing their carbon emissions - which means foregoing carbon-based energy production and manufacturing?

On this, I say that it is but fair for developing nations to engage still in carbon-based industrialization because in the first place, they weren't the ones which were responsible for climate change to begin with. According to the Third World Network (TWN) - a non-profit international network of groups involved in development issues, Third World and North-South affairs - with less than 20% of the population, developed countries have produced more than 70% of historical emissions since 1850, far more than their fair share based on equal per-person emissions.

Thus, if there are the ones who have to engage in massive mitigation, it is the so-called Annex I countries to begin with - rich and industrialized nations made prosperous by emission-intensive industrialization process. In fact, developing countries reserve the right for "development space" since we haven't maximized yet our claim for the "atmospheric space". We can, and should,  transition from export-oriented agriculture to domestic market-based manufacturing. And climate change will provide an impetus for that through the reverse dutch disease.

A Caveat: We still need to mitigate

This pragmatic contingency approach does not preclude, of course, our aim to stop climate change from happening in the first place - we have to, but even assuming that we will be able to, climate change at its present state may be hard to reverse and will take time, and we have to see this largely as an adaptation measure (it is still a matter of policy after all, not a spontaneous transition from agricultural to industrial) while the impact of climate change is being felt.

What type of industries? There are many that already take advantage of the recent increase in interest on ecologically-sound activities that addresses concrete needs - like investing in an industrial base that manufactures renewable energy technology and organic agriculture for the middle class market - both of which Taiwan is concentrating on now. We may be a little too late on this global market-wise, but we can always search for different niches on the same industry.

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6 comments:

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Mark Bantigue said...

I like this article very much. It's a cross-section of social responsibility and world development. May I re-post it on P3?

P3, www.p-3.ph, is a crowd-sourced, progressive, online Philippine news magazine that features blogs with perspectives on modern Filipino culture, progress-minded, social responsibility, environmentalism, and tolerance. All articles are submitted by bloggers and freelance writers. The only prerequisite is that the blogger/writer belong to the industry in which she/he writes; e.g. OFW writes on OFW issues, artists write about artist news, etc.

May I feature your blog post? I will provide all the necessary links and description of your blog.

Thanks.

Mark J. Bantigue
P3
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James Miraflor said...

Hi Mark!

Thanks for your interest on my article and my blog. No problem with me.:-) I have seen www.p-3.ph and found it an excellent platform for human interest articles. Keep up the good work!

James

James Miraflor said...

Some comments from my friends in Facebook:

Bonn Juego: Hi James! Thanks for the tag. Nice attempt. I'm not sure though if I got your message right. I find your conceptualization of the 'Dutch Disease' or a 'Reverse Dutch Disease' somewhat confusing. The rich countries, like Holland where the concept was derived, now know how to deal with it not by specializing in agriculture but by diversifying manufacturing activities. They will never ever 'shift (their niche) to agriculture' as you put it.

Meanwhile, instead of focusing our attention on the possible economic changes in the North as well as their possible strategies, it would be much more productive if we work on our local development strategies. Globalization does not entirely diminish the space for building our local technological capabilities.

Sometimes, I wonder if we - in the social movement - could make a different call in the WTO debates. My sense is that if you were a European policy-maker you would also push for agricultural subsidies because you also would like to protect your own people. Would it be possible if we say to the North: Ok, protect your agriculture, but let the South protect their own industries. I believe this will be a very good trade-off.

I have made this proposal sa mga kasama in one occasion before. It was difficult for the farmers to accept this proposal. But the workers - those in the manufacturing industries - somehow understand my point. Unfortunately, we do not have much industries to protect.

James Miraflor: Thanks for reading Bonn! As I said, it is just a possibility, but we can think of a possible trigger on this, and that is, the decreasing agricultural productivity (due to climate change) of underdeveloped countries from which these industrialized import their foodstuff. If only for that, agricultural economic activity will be far more demanded than industry. If this is true, then there is great opportunity to pursue an industrial policy for the South.

But there is a caveat here, and that is if compensating technology will not be made available to currently food-export-oriented economies, like Mekong river countries. In this case, climate change negotiations that would result to developed countries providing the South with agricultural technology so that they can continue their export-oriented path on foodstuffs may in fact be an obstacle to the South's transition to industrialization. Still, there are many other factors involved.

Nice proposal, Bonn, but I would take it further. Why not protect both? I don't think there is a real trade-off for the two given that it is just a matter of unilateral government policy. China did both. We stand to benefit by doing both anyway. However, as you would agree, protection should be selective and calibrated even within sectors. Protect those we are posed to produce and are producing, liberalize those which are input to our production and we don't have interest of producing anyway in the short-run.

James Miraflor said...

Continuation:

Marvin Beduya: Hi, @James, Most technologies that would allow possibly geometric increase in agricultural production are readily available. No need for getting help from developed countries.

Our problem is more on how to incentivize production and how to keep industry-oriented farmers in the farm. Currently, the most obvious alternative for them is to be an OFW. There is also an urban bias in economic policy that affect farm gate prices, for example, because city people are very sensitive to inflation especially in food. Note that all people power in the Philippines followed a period of inflation (from various sources). The classic study on the urban bias and alternatives to correct it is Harris and Todaro (1970 AER). Thus, no Philippine administration had the political will to implement the needed reform.

@Bonn, Hi, it is nice to see how a consideration of nation as unit of analysis subtly changes the conclusion. A thoughtful and patriotic foreign policy then becomes part of the arsenal of governance.

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