OPINION> Commentary
Newcomers versus old-timers
By Howard W. Ha (China Daily)
Updated: 2008-07-03 07:37

I am sure we all have experienced the chaos of people rushing into overloaded subway compartments.

For those of us who are already on the subway, there is no reason to move even if there is room in the middle; for us, it is the ill-mannered, aggressive, and ruthless newcomers to blame.

We human beings tend to take what we have for granted and feel threatened when others come to join us. The recent congregation of climate change crisis, food crisis, oil crisis and subprime financial crisis amplifies our innate weakness on a global scale.

Only with the solidarity of everybody on board, can we turn 2008 into a year of opportunity by accommodating the interest of both the newcomers and old-timers.

The first three crises are closely interrelated. The harnessing of oil to the internal combustion engine since the early 20th century set in motion the modern economy in the developed world.

This undoubtedly great progress has come with a heavy cost on our environment. Recently Intergovernmental Panel on Climate Change (IPCC) has reached unequivocal conclusions that the current trend of carbon emission will lead to irreversible disastrous consequences as rising temperatures drive up sea level, multiply extreme weather events while suppressing agricultural productivity and exacerbating water scarcity.

As the world drags its feet on sensible emission reduction agreement, increasing demand for oil and uncertainly in supply has driven the world's oil price to a record high of $140 a barrel. Meanwhile the shortsighted reliance on biofuels in the presence of clear comparative disadvantage has put sharp upward pressure on the food prices, which is already under strain from higher transportation cost.

In each case, there are newcomers to pick on and sometimes rightly so. From 1990 to 2004, carbon dioxide emissions from developing countries grew at a speed four times faster than the OECD (Organization for Economic Co-operation and Development) countries, the old-timers.

Developing countries should do more to reduce its carbon footprint by adopting new green technology because they are and they will be the ones to suffer the most from climate change.

Yet, it does not justify some old-timers' claim that their reduction should be contingent on the participation of developing countries. Collectively, rich countries account for 70 percent of emission since industrial era. Today they still account for 46 percent of total emission with 18 percent of the world's population.

On a per capita basis, rich countries emit almost four times more than developing countries although the gap has been narrowing in the last 15 years. The rich countries are also better positioned to mitigate its emission financially and technologically.

The biofuel episode is a red herring. It does not make economic sense but aggravates the volatility in the commodity market. To make things worse, OPEC (Organization of the Petroleum Exporting Countries), another traditional player, decided to keep oil production constant when it is needed the most. Like any producer, OPEC has every right to enjoy the high price of its product.

However, its aloofness and grim warning about $200 per barrel oil threaten its own status as a reliable and viable supplier.

If the first group of crises is more or less reasonable at least from hindsight, the second crisis, subprime housing crisis originated in the US, caught the world off guard. Who would have expected that a mortgage loan problem could create a modern-era run on the bank in UK, bring down one of the world's most prestigious investment banks in US, and inflict pain on financial institutions and investors around the world?

Equally dramatic is the fact that the capital injection comes from the newly industrialized countries (NICs) and emerging economies as well as the oil-rich countries. It instantaneously triggers the outcry from financial regulators about the national security implications and IMF-led efforts on regulatory code for sovereign wealth funds (SWF) are in full swing.

For the most part, the concern is far-fetched as none of the SWFs has obtained majority stakes and they cannot easily siphon off the money outside other investors and regulators' scrutiny. It diverts attention from the real problem of the subprime crisis: aggressive risk-taking on the part of bankers and inadequate domestic financial regulations.

Lack of coordination and solidarity is at the heart of current crises. There are too many missed opportunities in these areas. Developed countries should steadfastly move away from oil and gas, push further the frontier of green technologies and make it available to developing countries at affordable prices.

It is also in OPEC countries' interest to be actively involved in this process to remain relevant in the long run. Given the concerns regarding SWFs, they should reach out to recipient countries and explain their position thoroughly. They should also embrace international rules and standards in corporate governance and transparency for financial institutions wholeheartedly but they should not be discriminated simply because they are SWFs. The rich world should keep in mind that discriminatory actions or even perceived ones would likely cause a backlash for their investment abroad.

The author is a Harvard-trained PhD in Public Policy

(China Daily 07/03/2008 page9)