Climate change requires flexible economies

We need to address the fundamental impact that climate change will have to our economies as well as to our environment. Identifying and filling so-called “missing markets” in developing countries becomes critical to ensuring that future climate-based shocks do not have an exponentially larger impact on future economic growth globally. Fortunately a suite of potential solutions exist, it is a case of relocating them from Canary Wharf to Bobo Dioulasso.

It is unequivocal that however shocks, risks or threats manifest, the benefits accrue disproportionately to the rich while the costs fall disproportionately to the poor. The poor in any society, particularly developing countries, tend to be those with a less buoyant ‘structure of opportunities’ facing them, and experience more “missing markets”. This is usually evident in poorer access to information, credit and other means of alternative production/ livelihoods.

Regardless of the underlying reason for climate change, it is a shock, risk and threat. Hence, we can expect it will impose costs disproportionately highly on the poorest people, and any benefits there might be will tend to accrue to the richer people.

But how should the developed world address these concerns? If we intend to secure sustainable development:

• Environmentally, we need to be clear about the causes of climate change and efficiently/ rationally address these.
• Socially and economically, we need to find ways to create a new pathway of development that insures the poorest from these shocks.

For the latter, building a stronger ‘structure of opportunities’ in rural areas of developing countries is a starting point and by:

• being creative with our development/ donor money and
• nudging the appropriate industries to provide services where the business case appears weak – credit, insurance, information flows

we stand a good chance of producing more flexible developing economies, more able to adapt to the scale of climate change shock.