Global Economy

Driven by the gathering sense of a climate crisis, the notion of "green jobs"-especially in the renewable energy sector-is now receiving unprecedented attention. Currently about 2.3 million people worldwide work either directly in renewables or indirectly in supplier indus­tries.¹ Given incomplete data, this is in all like­lihood a conservative figure. The wind power industry employs some 300,000 people, the solar photovoltaics (PV) sector accounts for an estimated 170,000 jobs, and the solar thermal industry, at least 624,000.² More than 1 million jobs are found in the biomass and biofuels sector.³ Small-scale hydropower and geothermal energy are far smaller employers. (See Figure 1.)

Renewables tend to be a more labor-intensive energy source than the still-dominant fossil fuels, which rely heavily on expensive pieces of pro­duction equipment. A transition toward renewables thus promises job gains. Even in the absence of such a transition, growing automa­tion and corporate consolidation are already translating into steadily fewer jobs in the oil, natural gas, and coal industries-sometimes even in the face of expanding production. Many hundreds of thousands of coal mining jobs have been shed in China, the United States, Germany, the United Kingdom, and South Africa in the last decade or two.⁴ In the United States, coal output rose by almost one third during the past two decades, yet employment has been cut in half.⁵

A handful of countries have emerged as leaders in renewables development, thanks to strong government support. A study commissioned by the German government found that in 2006 the country had some 259,000 direct and indirect jobs in the renewables sector.⁶ The number is expected to reach 400,000-500,000 by 2020 and then 710,000 by 2030.⁷

Spain also has seen its renewables industry expand rapidly in recent years. The industry now employs some 89,000 people directly (mostly in wind power and PV) and another 99,000 indirectly.⁸ Denmark has long been a leader in wind development. But with policy support there less steady in recent years, the number of domestic wind jobs has stagnated at about 21,000.⁹

In the United States, federal policies have been weak and inconsistent over the years, leaving leadership to individual state governments. Still, a study for the American Solar Energy Society found that the U.S. renewables sector employed close to 200,000 people directly in 2006 and another 246,000 indirectly.¹⁰

India's Suzlon is one of the world's leading wind turbine manufacturers, further strengthening its position through its 2007 takeover of Germany's REpower.¹¹ Manufacturing of wind turbine components, production of spare parts, and turbine maintenance by Suzlon and other companies are helping to generate much-needed income and employment in India.¹² Suzlon currently employs more than 13,000 people directly-about 10,000 in India, and the remain­der in China, Belgium, and the United States.¹³

China is rapidly catching up in solar PVs and wind turbine manufacturing and is already the dominant force in solar hot water and small hydropower development.¹⁴ According to rough estimates, close to a million people in China currently work in the renewables sector.¹⁵ To some extent, these numbers reflect China's low labor productivity compared with Western countries. This seems especially true in the solar thermal industry, which is thought to employ some 600,000 people.¹⁶

The leaders in renewables technologies can expect considerable job gains in the near future in manufacturing solar panels and wind tur­bines for both domestic and export markets. Jobs in installing, operating, and maintaining renewable energy systems tend to be more local in nature and could thus benefit a broad range of countries.

For instance, Kenya has one of the largest and most dynamic solar markets in the developing world. There are 10 major solar PV import companies, and the country has an estimated 1,000-2,000 solar technicians.¹⁷ In Bangladesh, Grameen Shakti has installed more than 100,000 solar home systems in rural communities in a few years-one of the fastest-growing solar PV programs in the world-and is aiming for 1 million by 2015, along with the creation of some 100,000 jobs for local youth and women as solar technicians and repair and maintenance specialists.¹⁸

Four countries-Brazil, the United States, China, and Germany-are leading in biomass development. Brazil's ethanol industry is said to employ about 300,000 workers.¹⁹ Indonesia and Malaysia are leading palm oil producers; a small but growing share is being diverted there to biofuels production. Malaysia has an estimated half-million people employed in the palm oil industry (and another million people whose livelihoods are connected to it)-many of them Indonesian migrant workers.²⁰ Indonesia is itself planning a major expansion, and optim­istic projections speak of 3.5 million new plantation jobs by 2010.²¹

Following a wave of initial enthusiasm, there are now rising doubts about the environmental benefits and economic impacts of at least some types of biofuels, however.²² And the jobs that are being created need close scrutiny as well. Biofuels processing typically requires higher skills and thus is likely to offer better pay than feedstock production and harvesting. But most jobs are found at sugarcane and palm oil plantations, where wages and working conditions are often extremely poor.

The Brazilian sugarcane industry has historically been marked by exploitation of seasonal laborers and by the takeover of smaller-scale farms by large plantation owners, often by violent means.²³ The prevailing piece-rate system leaves many Brazilian plantation workers earning a pittance, and some end up in debt bondage. Living conditions are often squalid.²⁴ In Indonesia, too, poverty is common among plantation workers, who face unsafe working conditions, frequent denial of their rights, and intimidation by employers.²⁵

The expansion of plantations for biofuels also threatens to come at the expense of rural jobs and rural communities. Oil palm companies seeking to acquire land in Indonesia's West Kalimantan, for example, have been found to hold out false promises of jobs for local communities.²⁶ A 2006 study of the area found that small farming systems provided livelihoods for 260 times as many people per hectare of land as oil palm plantations did.²⁷

According to the Woods Hole Research Center, India could create some 900,000 jobs by 2025 in biomass gasification.²⁸ Of this total, 300,000 jobs would be with manufacturers of gasifier stoves (including masons, metal fabricators, and so on) and 600,000 would be in biomass production, processing into briquettes and pellets, supply chain operations, and after-sales services.²⁹ Another 150,000 people might find employment in advanced biomass cooking technologies.³⁰

While biofuels are now subject to more critical reviews on a number of fronts, the future looks promising for wind and solar. Global Wind Energy Outlook 2006 outlines three scenarios-conservative, moderate, and advanced-for future worldwide wind energy development, assuming different rates of investments and capacity expansion.³¹ (See Figure 2.) Global wind power employment is projected to grow to as much as 2.1 million in 2030 and 2.8 million in 2050 under the advanced scenario.³² Solar Generation IV, a 2007 report by the European Photo­vol­taic Industry Association and Green­peace International, similarly projects world­wide solar PV developments via three scenarios.³³ By 2030, as many as 6.3 million jobs could be created under the best case scenario.³⁴ (See Figure 3.)

Expanding the role of renewables helps make other sectors of the economy, such as transpor­tation and buildings, more sustainable-thus greening additional jobs to some degree.

For many poor people in urban areas, the primary means of economic survival is the production or sale of goods or services through semi-legal or illegal ventures, known as the informal economy.1 Conservatively, informal employment accounts for half to three quarters of all nonagricultural employment in developing countries: 48 percent in North Africa, 51 percent in Latin America, 65 percent in Asia, and 72 percent in sub-Saharan Africa.2

In the 13 principal metropolitan areas of Bogotá, Colombia, 58.5 percent of workers are classified as informal.3 In Bolivia, the informal sector provides an estimated two thirds of the gross domestic product (GDP), and in Peru the figure is 58 percent.4 Because of the sheer number of workers, clients, budgets, and transactions involved in informal markets, legality is marginal; informality is the norm.5

The greatest increase in the informal economy since 1990 has occurred in sub-Saharan Africa, Latin America, and Central Asia— often accounting for more than 50 percent of GDP.6 (See Figure 1.) The last few years have seen a continuation of this trend, with Africa and Latin America having the highest levels of informality.7 In contrast, in Europe the growth of informality is slowing and even declining in the wake of extensive microeconomic reforms, while in East Asia, where firms face smaller regulatory and tax burdens, the informal economy remains stable at fairly low levels.8

The weight of such markets becomes clear when considering that economic power is concentrated in the cities. The purchases made by urbanites, who cannot live off the land, form the foundation of national economies.9 Although 60 percent of the labor force in India is in the agricultural sector, for instance, they produce only 20 percent of the GDP, while the 28 percent of the population working in services provide 61 percent.10

Several factors combine to create the unique yet common pattern of informal markets. First, exaggerated government intervention in civil society and economic activity often creates “hyper-bureaucratization” that deters citizens from pursuing a legal path.11 For example, it is virtually impossible for 90 percent of Tanzanians to enter the legal economy.12 A poor entrepreneur who obeyed the law would, over 50 years of business life, pay $91,000 to the national government for licenses, permits, and approvals and spend 1,118 days in government offices petitioning for them.13A private company can only be incorporated in Dar es Salaam and would cost nearly $2,700—almost four times the average annual wage of an ordinary Tanzanian. 14 Similarly, in Peru the constant increase in sales taxes—which went from 5 to 15 percent from 1978 to 1987 and today stand at 19 percent—favored expansion of the informal sector.15

Second, governments lack the resources to meet the demands of urbanization and enforce laws. Heavily indebted governments with limited tax collection and with convoluted and uninformed bureaucracies cannot provide adequate social expenditures.16 Rapid urbanization in developing countries has created pressures that have constrained the capacity of cities to provide adequate employment, waste disposal, water supply, food supplies, and housing.17 Urbanization itself has thus bred new types of economic arrangements and social conditions.

Third, as businesses are unable to create jobs as fast as demand increases, people must find a way to survive outside of regulated employment. 18 And fourth, many national and international companies prefer informal employment relations that allow them to be flexible during production cycles and that reduce labor costs.19

Thus it is not uncommon to visit an emerging market and perceive chaotic and unregulated yet bustling economies. Dharavi in India, the largest and most established of Mumbai’s slums, by one estimate houses up to 10,000 small factories, almost all of them illegal and unregulated.20 The factories provide an income for the approximately 1 million people who live in an area barely half the size of New York City’s Central Park.21 Although the concentration of businesses could easily deter consumers, the large scale at which informality occurs yields an estimated $665 million in annual revenue.22 On a national scale, in Haiti untitled rural and urban real estate holdings are together worth some $5.2 billion—four times the assets of all the legally operating companies in Haiti, nine times the assets owned by the government, and 158 times the value of all foreign direct investment in Haiti up through 1995.23

As the economic potential is great, the economic loss is equally substantial. Workers and enterprises receive little if any legal protection or worker benefits, they are the target of bribery, and they often face competitive disadvantages in terms of larger formal firms in capital and product markets.24 Variations in incomes are great: in Bolivia, the owner of a small informal business might have an average income 12 times the national minimum wage, while informally paid workers and domestic servants make around half the minimum wage.25

Furthermore, there are indirect costs to informality. The unsafe working conditions found in the unregulated businesses of Dharavi, India, for example, are common throughout the world. In dark unventilated foundries, workers ladle molten metal into a belt-buckle mold held between their bare feet.26 In another warehouse, men smeared from head to toe in blue ink strip the casings from used ballpoint pens so they can be melted down and recycled; few wear gloves or other protective gear, despite exposure to solvents and other chemicals.27 Environmental and health hazards are just one of the realities workers have to withstand to be able to produce with minimal resources.

The indirect costs also exact a hefty social price. Even though the informal market has local arrangements that help keep track of transactions, the legitimacy of these informal rights is still too locally politicized compared with those that are protected by national law.28 The inability to determine the rightful owner of resources creates or exacerbates conflicts throughout the world.29 In Bangalore, India, extortion exists even in hospitals: new mothers have their infants whisked away by an attendant who demands a bribe.30 If you want to see your child, families are told, the price is $12 for a boy and $7 for a girl.31 Such new “enterprises” are the result of a combination of a real need and a lack of regulation.

The lack of regulation distorts economic and social systems. With little or no unbiased and standardized regulation, most potential assets in emerging markets have not been identified or realized, there is little accessible capital, and economies are constrained and sluggish.32 It is not surprising, then, that extensive preliminary research shows that countries with a sophisticated legal and political system and stronger protection of physical and intellectual property rights experience higher economic well-being.33

In 2007, gross world product (GWP)—the aggregated total of all finished goods and services produced worldwide—was expected to grow 5.4 percent to $72.3 trillion (in 2007 dollars).¹ (See Figure 1.) This estimate reflects actual purchasing power in countries (that is, in purchasing power parity or PPP terms). The market exchange rate GWP, which is based on straightforward monetary terms, was expected to reach $53.4 trillion, an increase of 8 percent since 2006.² The projected growth of GWP (PPP) in 2007 was revised downward from earlier estimates due particularly to economic disruptions in the U.S. housing market, which also had ripple effects in other countries, particularly within Europe and in Japan.³ Even with this late-term contraction, growth in 2007 was still expected to be higher than the average since 1970.⁴ (See Figure 2.)

The U.S. economy was projected to grow 2.1 percent in 2007, nearly 1 percent slower than the previous year.⁵ This significant contraction came in large part from the turmoil felt in the subprime mortgage sector, with foreclosures, reductions in residential investments, and declining housing values reducing growth as well as consumer confidence.⁶ Rising gasoline prices also had a significant impact.⁷ U.S. economic growth is expected to slow further in 2008.⁸

Although the U.S. economy still accounts for 19 percent of the world total, China is closing the gap—now accounting for 16 percent of GWP, up from 15 percent in 2006.⁹ China’s gross domestic product (GDP) grew dramatically in 2007, jumping an estimated 11.7 percent and making up one third of the projected $3.7 trillion in GWP growth in 2007.¹⁰ Increases in exports and investments drove this expansion.¹¹

Growth in China’s GDP, however, has not come without cost. China is increasingly suffering from the externalities of economic growth: politically destabilizing inequality and pollution. Today, only 1 percent of China’s 560 million urban residents breathe air that is considered safe by European Union (EU) standards.¹² Air and water pollution have led to numerous occurrences of social unrest.¹³ And China is now the leading producer of sulfur dioxide emissions and has nearly surpassed the United States in total carbon dioxide emissions (though not in per capita emissions).¹⁴

The European Union now accounts for 21 percent of GWP, which as an aggregate makes it the largest economy in the world.¹⁵ The EU economy was expected to grow 3.2 percent in 2007, having slowed in some countries due to investments in troubled U.S. financial markets.¹⁶

India’s economy was expected to grow 9.1 percent in 2007, accounting for 11 percent of total GWP growth—more than the U.S. contribution.¹⁷ Growth in the world’s second most populous nation was mainly driven by domestic demand.¹⁸

Sub-Saharan Africa was projected to grow 6.1 percent—with this growth coming mostly from oil exports and from the dominant South African economy, which makes up one third of the region’s gross product.¹⁹ Although it is now growing more quickly than in the past, sub-Saharan Africa still accounts for just 2.6 percent of the global economy.²⁰

Per capita GWP was expected to reach $10,956 in 2007.²¹ (See Figure 3.) This was a growth of 4.1 percent—less than total GWP growth because world population increased by nearly 77 million people.²² Yet GWP per capita does not reflect the vast disparity in GDP per person—even when these figures are expressed in purchasing power parity terms. In the United States, GDP per person is $44,974, for example, while in China the figure is $8,780 and in India it is just $4,183.²³

Economic growth is having a direct impact on the ecological systems on which the human economy depends. As the U.N. Environmental Programme’s recently published Global Environmental Outlook–4 notes, human society is using the world’s renewable resources unsustainably, thus degrading farmland and fisheries, rivers and forests.²⁴ And society is risking a significant weakening of the global economy if unsustainable resource use is not addressed. In particular, climate change could reduce economic growth by anywhere from 5 to 20 percent by 2100 if left unchecked.²⁵

These warnings are not new. In 2005 the Millennium Ecosystem Assessment made it clear that nearly two thirds of ecosystem services have been degraded or are being used unsustainably, and indicators like the Ecological Footprint have demonstrated that human society has been living beyond its means since 1987.²⁶ According to this measure, humans are now using the equivalent of 1.25 planets’ worth of resources.²⁷ (See Figure 4.) In short, without dramatic redesign of the global economy to reduce the ecological impacts, growth will most likely plummet—for instance, as extreme weather events disrupt agricultural production, flood coastal cities, and cause devastating wildfires.

Several analyses reveal that if ecological degradation is factored into economic calculations, true growth is much lower. In 2004, the Chinese government designed a Green GDP measure to subtract pollution costs from traditional GDP calculations.28 The estimate for that year found that growth would have been 3.1 percent lower if these costs had been deducted.²⁹ Then in 2007, before releasing its 2005 analysis, the Chinese government shelved this indicator when it discovered that factoring in environmental costs would have reduced growth in some provinces to zero.³⁰

GDP is a poor measure of actual economic progress, as it counts all monetary expenditures as positive—whether the money is spent on useful goods, such as food or durables, or on mitigating social ills that could have been prevented. In the United States, the nongovernmental organization Redefining Progress continues to track its Genuine Progress Indicator (GPI), a measure that provides a better analysis of economic progress by subtracting out pollution and resource degradation, crime, and other economic ills while adding in unmeasured benefits like volunteer work and parenting.³¹ According to the most recent analysis, while U.S. GDP per capita nearly doubled since 1970, the GPI grew just 13 percent.³² (See Figure 5.)

Recognizing that not all growth is good, some governments are starting to question whether economic growth should be a priority at all. Thailand, for example, has been investigating a transition to a “sufficiency economy,” where the focus is on poverty alleviation (that is, targeted growth), economic self-reliance, and resource conservation.³³ While still in the theoretical stage, if some pioneering countries move toward this model, perhaps there will be a shift away from the unsustainable idea that infinite growth on a finite planet is a measure of economic success.