The parallel crises of our times

I took part in a luncheon discussion on the ‘post-carbon’ economy. This very term, ‘post-carbon’, is an obviously optimistic, future-forward theme in a time when oil and coal consumption is surging. Finding consensus here towards far-reaching solutions feels like a distant hope. In fact, our looming ecological crisis mirrors our present economic crisis in disconcerting ways.

Both these crises, for instance, happen to be triggered by market failure. The absence of any accounting when it came to environmental costs, and our failure to price natural resources into the economy have brought about the climate crisis. The financial collapse represents the same case of ‘disastrous optimism’ – our overlooking of ‘negative externalities’ in financial reporting, balance sheets and risk assessment. And in both these cases, we have tried to privatise profits and socialise losses. Our economic and ecological threats also present us with problems that are both global and interlinked, and for any decision to have a meaningful impact, it will have to be shaped by consensus. The US, Europe, China, India, Brazil, Russia and others will have to reach a common agreement despite their conflicting interests and drivers for growth.

These crises present doomsday scenarios as a likely possibility – this is already obvious with the economic meltdown, as growth has collapsed and many countries are now in the throes of a deep recession. But effective action around either of these problems has presented an enormously difficult, complex challenge for governments. State heads and senior economists are painfully aware of the huge imbalances that now exist, and that disaster is all but inevitable if we fail to act.

In his speech at Davos yesterday, the Secretary General tried to strike a note of optimism by pointing to times when countries co-operated in the face of crises to avert them, citing the Green Revolution and global vaccination campaigns.

While these are hopeful examples, our financial and ecological crises are a different animal, in that effective solutions must come with massive costs and painful readjustments in consumption and income for industries and individuals – a fact that governments in the US, Europe and the developing world have been loath to admit. As a result till date, no one is talking forcefully of either carbon taxes, or more effective market correction and oversight.

Finally, both these issues have been instrumental when it comes to highlighting the imbalances that exist on the global stage for developing countries. The developed world has contributed to the bulk of the emissions that have brought about our global warming crisis.

But now that the world economy is nearly as interconnected as global weather systems, developing countries are also suffering from a financial meltdown triggered by a collapse of the banking systems in the West. And the discontent here only complicates our ability to build consensus among countries for immediate, urgent and effective action.

Tragically, it is highly plausible that in a few years hence, we will find ourselves at Davos discussing how to build ‘the post-ecological crisis world’. The present economic meltdown is a testing ground for whether we can find agreement and answers in a difficult time. But it’s also a lesson for us, of the consequences that can come from waiting too long to fix a broken system.

Nandan Nilekani is co-chairman of Infosys, the software services company

Davos blog 2009

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