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Global constraints on development

Besides the quantitative technical determinant relationships between human activities and the environment, the UN's Agenda 2030 has proposed a range of objectives expressed as Sustainable Development Goals. The three "elephants in the room" are:
  • population numbers, structure, growth rate and size of families
  • income levels and distribution
  • inflationinflation
which are not provided with sufficient emphasis. In reality, these combine to create a significant constraint in achieving Agenda 2030 goals. Human population growth rates increase the pressure on resources and inflation creates a real incomes depreciation treadmill that undermines our ability to marshal resources to solve the sustainability and climate change issues.

The solution involves a broader agreement on constitutional priorities and modes of decision-making to reduce these constraints.

These constraints interact in a simple fashion in a way that undermines the growth in real incomes. The relationship between real incomes growth, population growth and inflation is as follows.

dR = dN dP - dI .. (i)

or

dR = dN (dP + dI) .. (ii)
Where:

dR is the growth in real income; dN is the growth in nominal income; dP is the population growth rate; and dI is the inflation rate or rise in average unit prices.

The impact of population growth and inflation can be dramatic. For example a typical inflation rate in an East African country of 6% and natural population growth rate of 2.8 will result in a reduction of purchasing power of 8.8% each year which is equivalent to a decline in purchasing power of the currency of 37% in 5 years. For real incomes to rise over this period would require a rise in nominal incomes, over the same period of at least 37%, or an annual increase in excess of 8.8%. The table below indicates this rate of purchasing power erosion which rapidly expands inequality and levels of poverty and for those in the lower income segments reduces income to levels below those necessary to sustain the consumption of essential products such as food, maintaining health and wellbeing.

The significant outcome of population growth and inflation

Real incomes erosion as % of 100
at the end of each year
Year 1
Year 2
Year 3
Year 4
Year 5
91.2%83.2%74.8%68.3%62.3%


In the area of international development projects where, according to the Organisation for Economic Co-operation and Development (OECD) and the Open Quality Standards initiative (OQSI), some $215 billion is invested on an annual basis, the project failure rate is around 35% or a loss of around $75 billion each year. A common problem is assessment personnel being unable to determine if projects ate over-optimistic or under-optimistic. One indicator of whether or not a project is feasible and not over- or under-optimistic, is the result of Cost-Benefit Analysis (CBA). In the case of the World Bank, a major funder of economic development projects, it is required that all projects be subjected to CBA. A 2010 report by the World Bank's Evaluation Group reported that only around 20% of approved projects being funded by the Bank had been subjected to CBA. A previous review of the Bank's portfolio in the early 1990s identified the extent of failed and failing projects. In the context of the Green Agenda, according to the environmental attorney, Bruce Rich, who has studied the World Bank environmental track record, the Bank's performance has not been good.

Outside the realm of lower income countries, for example in the United Kingdom the 2% monetary policy target, devaluations and a sliding exchange rate, has reduced the purchasing power of the pound to less than 2% of its value in 1945. During the last decade the "official indices" for inflation have understated the real situation by around 1.5%-2.00%. Whereas population growth is less of an issue the excessive inflation, even under quantitative easing, has created a level of inequality on par with some low income countries. Indeed, today the difference in income levels within countries exceed the differences in incomes between countries. This reflects a significant failure in macroeconomic policies and economic development trends. Yes, nominal incomes are rising but real incomes (purchasing power), in many developed nations, have stagnated for the lower 40% percentile of the population who are using loans and credit to sustain their "standard of living". The flow of new cheap money under quantitative easing has ended creating a boom in real estate prices and share prices subjected to share buy-backs funded on cheap loans, the other boom has been in food-banks, serving poor people, many of them who are in work.

There are, of course, implications here for the mode of exit of the UK from the EU which suggests leaving without a deal is not a good idea. We will follow up on this with more detail.
  We continue to research this topic to prepare more content.  to be continued.....