The three-way tug: climate, prosperity, and poverty
Dani Rodrik in this article discusses the complex challenge facing the global economy, namely the new trilemma which suggests that it may be impossible to simultaneously achieve three critical goals:
1. Combating climate change
2. Boosting the middle class in advanced economies
3. Reducing global poverty
According to Rodrik, under current policy trajectories, any combination of two goals appears to come at the expense of the third. In particular, the U.S. and Europe are promoting substantial investment in renewables and green industries to combat climate change. At the same time, there’s a focus on restoring the middle class by promoting labor’s bargaining power and reshoring manufacturing. These policies, while addressing climate and middle-class concerns, may inadvertently hinder development prospects for poor countries. As a matter of fact, developing countries fear that these new industrial policies and regulations from advanced economies could be discriminatory and impede efforts to replicate the East Asian nations’ export-oriented industrialization. Potential solutions include:
- Focus on Services: Rodrik suggests that the majority of future middle-class jobs will come from services, not manufacturing. This could reduce trade tensions between rich and poor countries.
- Climate Cooperation: Addressing climate change will require significant cooperation from developing countries, as their emissions are rising rapidly.
- Green Transition Policies: Rich countries should promote green-transition policies that poor countries see as part of their growth strategies, not just as costs.
Rodrik emphasizes that climate change is an existential threat, a stable middle class is crucial for liberal democracies, and reducing global poverty is a moral imperative. He argues that overcoming this trilemma requires formulating new policies that can address all three goals simultaneously, moving beyond the current framework that seems to impose difficult trade-offs.
A New Trilemma Haunts the World Economy
By: Dani Rodrik – Harvard University
Reconciling climate goals and poverty reduction
In this paper Lankes et al. examine the relationship between climate action and poverty reduction. Their key findings are:
- Climate change disproportionately impacts poor and vulnerable populations. Without action, climate change will dramatically increase poverty across many dimensions.
- There is no inherent trade-off between climate action and poverty reduction. Well-designed climate policies can drive sustainable, resilient, and inclusive development that reduces poverty, especially in emerging markets and developing economies.
- Standard economic models often fail to capture the full dynamics and potential benefits of climate action. New approaches are needed to analyze systemic change and distributional effects.
- Key areas where climate action can impact poverty include:
– Resource extraction and fossil fuel phase-out
– Carbon pricing and fossil fuel subsidy reform
– Creation and distribution of green jobs
– Access to and local effects of low-carbon technologies - Effective policies should combine climate action with:
– Increased investment in physical, human, and natural capital
– Social protection and labor market policies
– International financial and technological cooperation - More research is needed on strategies to rapidly drive technical, behavioral and systemic change that also reduces poverty. However, the urgency of climate action means policy and research must advance simultaneously.
- Taking weak or no climate action would be the worst option for ending global poverty, given the severe impacts of unmitigated climate change on poor populations.
The paper concludes that climate action and poverty reduction can be mutually supportive with good policy design, but this requires an integrated approach addressing multiple dimensions of sustainable development.
The Relationship between Climate Action and Poverty Reduction
Authors: Hans Peter Lankes, Rob Macquarie, Éléonore Soubeyran, Nicholas Stern
From: Grantham Research Institute on Climate Change and the Environment, LSE
