Reflections on a statement by Pascal Lamy, the current state of the economy, decoupling and limits to growth.

Remember how 2011 was going to be the “make it or break it” year for Doha? I guess it broke then, because we are now facing a situation where Pascal Lamy, DG of WTO, has said outright not to expect anything major to happen in the way of trade (i.e. the Doha Round), climate change or on macroeconomic coordination, all due to the current economic crisis (14th of feb, WTO General Council Meeting).

Other than being something of a downer, there is more subtlety to his statement than what one might see at first glance. Why exactly should we assume, as the statement does, that these important things are to be held in a noose by the poor economic outlook? When did the hope for progress in these areas transmute into waiting for “better times” to come along and rescue us, somehow magically sweeping along everything else with it?

If one buys the argument that we are living in a world where physical resources are constrained and likely to get moreso in the coming decades, then there must by necessity also be limits to economic growth along traditional models of resource usage to achieve that growth. Put differently, we are not in a position to expect a prolonged period of unabated growth along traditional models anytime soon. Thus to say that we cannot solve climate change or coordinate macroeconomic policy because the financial times are bad, is essentially to make the argument that to progress in the very areas that would take us away from this narrow and unsustainable view of economic growth, we must first have lots and lots of traditional economic growth! This is an interesting catch 22.

In terms of “realpolitik”, Lamy is right of course. Strong progress looks unlikely to happen in these crucial areas at this point (multilateral trade, climate change & “macroeconomic coordination”). But, unwittingly, such statements go a long way to show how much our mental models still need to change for us to even have a prayer of solving these issues. When blaming non-proggression on the financial crisis it becomes a perfect example of how the truly major and important issues of our time are still mentally construed as something exogenous to the “normal” of continuing with traditional growth models that we are familiar with, and everything else having to adapt to that. Put simply, what in fact are the most important issues is in practice seen as the “other stuff” to deal with once the “real stuff”, i.e. traditional economic growth, is taken care of. The UN in a number of reports have warned against this type of thinking, but it still seems highly prevalent. Quite literally, sustainable development and other important issues are not “core” in our economic thinking to the degree that they need to be for truly positive change to happen in these areas.

Among many environmentalists and environmental economists the argument is often heard, perhaps most famously in the book Limits to Growth, that at some point attempts at continuing on a path of unsustainable economic expansion and growth will lead to a form of perma-crisis that simply does not let up without abandoning traditional growth models. What we now term “crisis” from our expectation of unceasing economic growth will become a state of continued economic contraction that is caused not by inefficiencies or market dynamics, but simply by hitting inherent limitations from conducting unsustainable economic activity on a planet with finite resources. This state, warns the environmentalists, is unavoidable unless the transition is made ahead of time to a growth model that manages to do a “decoupling” of the concept of economic growth and environmental degradation, separating them from each other.

Lamy’s statement shows that we are still a long way off from this fabled decoupling of growth and quality of life from environmental degradation and overexploitation. Indeed, it would seem it is still hard for us to even think about it, steeped as we are in the traditional growth model that currently prevails.

This problem of adapting mental models to account for changing circumstances is at the heart of some of my studies as of late. I’ve come to read much interesting work on the psychological aspects of decision making and now believe that this has a lot of relevance for progress in climate change. Primarily I have looked into the findings of behavioural economics, which I believe holds a lot of keys for understanding some of the subtler aspects of how the mind works when complex decisions must be taken.

It can be pretty grim reading at times. Especially since the impression I get is that environmental progress, and particularly the type that goes toward solving the “ultimate intangible” of climate change, seems to be as much a fight against our own basic psychological wiring as it is a moral struggle.

From reading primarily Nassim Nicholas Taleb and Kahnemann/Tversky, it’s become clearer to me that not only are many of the issues confronting us on the climate side of things technically difficult, but also that they quite literally are psychologically punishing for us to confront. According to much of the recent research that’s been done, our emotional wiring is essentially in an obsolete, or at least very unhelpful, state with regards to dealing effectively with the climate crisis that we face. This due to a rather simple reason: the human population at large does not particularly like dealing with intangibles. A sobering thought I had from this was the following: If our “climate survival” thus depends on us transcending a large part of what makes up our own hardwired emotional system, how good are our chances really? Psychological aspects of environmental and climate work is a field within which I am quite sure there are fascinating discoveries to be made. Hopefully, some of the findings in general decision making theories will find their way to being translated to futhering environmental aims as well.

On a more humorous note and speaking of Lamy, is it just me, or wouldn’t it be better to have a go-getter like him at the head of the UN where dynamism is always needed and to have a “grey eminence” like Ban Ki-Moon heading the stability- and predictability-minded WTO? I would be all for some type of “visiting boss” program instituted here between these two organizations to try out my theory…

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