Objective 1: Protecting Common and Public Goods

The first objective of the sustainable state is to protect public and common goods to ensure that all members of its population receive the basic rights of life. This depends on an equal and fair access to resources. A country’s population has equal claim on these public resources; it is the sustainable state’s responsibility to sustainably manage these commons so that each person gets his or her fair share either directly or indirectly.

The state can actively manage these resource stocks by starting with a vision of the economy built on resource management, not on the archaic belief that full resource exploitation delivers growth. It should invest in strong institutions, trusted and reliable monitoring, and independent enforcement agencies. These bodies can monitor how resources are used, granting licenses to private operators to exploit natural resources, using the revenue for the public good. The state can invest in monitoring technology, changing policies if resource overexploitation begins to occur.

More important, these agencies need to have the power to punish companies that “cheat,” and the politicians and community leaders who enable it. Whether they are dealing with poaching, illegal deforestation, wildcat mining, or fishing over quotas, government agencies need to step in quickly to sanction these companies, seize illegally exploited resources, and recover costs to the wider environment.

The need for strong regulators may sound obvious, but even countries with supposedly strong institutions struggle with this. Republican administrations in the US have neglected important agencies when they are in power, starving them of funds, resources, and talent. Government agencies that are vital to the lives of many Americans, from the Environmental Protection Agency to the Department of Housing and Urban Development, are left to wither by Republican governments.5 It has also been suggested that attempts to cut the budgets and staff of individual members of Congress meant that they no longer had the independent resources to create policy—opening up a space for lobbyists and vested interests.6

Even Hong Kong—the city where I am based and a government prized for its civil service—has seen its institutions captured by vested interests. The government’s close links with property developers has stopped it from intervening forcefully in the property market, even as Hong Kong’s housing prices reach astonishing heights.7

Enforcement power is necessary and critical to the success of the sustainable state. An easily evaded management system will fall apart. No one will have an incentive to follow the rules, and the tragedy of the commons will occur.

One problem is that government punishment tends to be reactive to an offense or crime already committed, rather than aimed at preventing illegal resource exploitation before it occurs. This leaves governments with a quandary. These poachers have a stock of (potentially valuable) resources and thus the financial clout to work the system; this breeds corruption, as the government is encouraged, forced, or even “bought out” to look the other way. Punishments, when they occur, are light, often smaller than the windfall profits the poacher or offender will make.

However, we can think of a harsher system that would place much stronger punishments on those who cheat. Any illegally exploited resources would be seized by the state, or all revenues would become government property—no questions asked. More important, any illegally exploited resources would count toward the overall total resource exploitation. Companies would not be allowed to exploit as many resources next time. Some may criticize this as unfair, as it punishes companies who followed the rules, but it would add some punch behind obviously self-serving industry attempts to self-regulate and self-monitor, which currently do not work.

State management of these common resources can take a variety of forms and be exercised to various degrees. For countries with mature industries and resources where a lighter touch may be all that’s needed, the government can simply add its support to industry attempts to self-regulate. For example, industry-led monitoring organizations often suffer from a lack of resources (as big businesses are often and almost deliberately uninterested in funding their watchdogs). The government can provide resources (via some form of taxation or mandated funding) and can ensure that the make-up of these organizations is truly independent. It can also ensure that agreements within an industry have the force of government regulation, adding state enforcement behind industry regulation.

Finally, the state can provide a space where industries can arbitrate and decide disputes over common resources. A “natural resources court” that judges how to equally distribute common and constrained resources and that arbitrates disputes between companies and communities will be one way to add state capacity to industry self-regulation.

However, there will be some resources for which there is no freemarket way to provide fair access, so state institutions, or heavily regulated companies, must determine how to apportion access. The success of these measures depends usually on the maturity, competence, and stability of the institutions. In some cases, nationalization may be the only option, ensuring that only the state has the authority to (sustainably) manage these resources. Nationalization also ensures that the revenues from resources are in state hands, which means they can be reinvested for future generations. There is already a model for this: oil-exporting states have long used state oil companies as a way to invest in public services. The usual argument against this approach is that nationalization leads to the “resource curse,” where countries abundant in natural resources have seen lower economic development than resource-poor countries. But this happens only because the state is weak: a weak state sees resources as a source of easy revenue rather than as “seed capital” (to borrow a business term) for future growth. When the state is strong, it can transform resource revenues into a foundation for future development. Of course, some states have done this better than others. Some state oil companies are public in name only: Petrobras, the Brazilian state-owned oil company, acts more like a private company (and often bribes the government). Other oil-producing states, such as the US state of Alaska, directly share oil revenues to their populations in the form of dividends, which can have little long-term benefit. Finally, other states, such as Bahrain, Abu Dhabi, and the Nordic democracies, have invested oil revenues into long-term public and social services, improving quality of life even as oil reserves begin to deplete.

There are clearly several mechanisms through which to manage common resources. But letting them be exploited by an unregulated free market prevents these finite resources from contributing to long-term economic development and the equal well-being of people.

Objective 2: Defining a Path toward Moderate Prosperity

In developing countries, the state is obliged to help bring the majority at the bottom up to a basic standard of living, while also constraining inappropriate and rent-seeking resource appropriation and consumption at the top to prevent resource overuse and overexploitation. When a large segment of the population sits at the bottom of the income distribution, the country is more difficult to manage. It is in the state’s interest (and arguably in the interest of the ruling elite as well) to lift the living standards of this part of the population, as a moral, political, and economic imperative. Take away the drudgery, and populations will thrive in almost all spheres of human endeavor.

The simplest way to do this is to directly provide cash or resources to poor families. One of the most successful antipoverty initiatives is Bolsa Familia, the initiative by President Luiz Inácio Lula da Silva to reduce poverty in Brazil. Bolsa Familia combines short-term poverty alleviation with long-term investment in public health and education. The Brazilian government offers direct cash transfers to poor Brazilian families in exchange for keeping their children in schools and ensuring they were up-to-date on vaccinations. At its height, Bolsa Familia covered over twelve million Brazilian families, making it one of the largest such programs in the world.

Governments can also take greater control of certain sectors of the economy to ensure that economic opportunities exist throughout the country, rather than just in a few central locations.

For example, China relied on “town-and-village enterprises” (TVEs) in the early stages of its economic reforms. These were community-owned enterprises that provided much of the initial growth that eventually fueled China’s economic boom a decade later. Unlike purely private corporations, which were still largely distrusted in Communist China, the TVEs combined public and collective ownership to ease their operation. Nominal public control meant that these enterprises could be brought together to fuel economic development.

A smaller-scale example is Malaysia’s Federal Land Development Authority, or FELDA. This was a program launched in 1965 to resettle poor Malaysian farmers (mainly indigenous Malays who had been left behind by British colonial rule) into newly developed areas, and organize them into smallholder cash-crop farms. Priority was given to those rural residents who did not own farmland themselves. Originally designed around cooperatives, FELDA soon instituted a policy whereby plots of land would eventually be granted to the resettled residents farming them.

FELDA has since been hailed as one of the most successful land redevelopment and resettlement policies in the developing world. Settlers gained access to both land—a source of wealth—and a steady source of income, guided by state support and advice. In return, the state grew a stronger agricultural sector, which provided useful initial capital to Malaysia’s early development.

It should be noted that FELDA focused on cash crops such as palm oil over more socially beneficial products like fruits, vegetables, or staples. FELDA has also since created large private sector entities, such as FELDA Global Venture Holdings, that engage in large-scale industrial plantation farming of palm oil, straying from rural (re)development. However, FELDA, at least initially, showed how wise government management, intervention, and resource allocation can lead to an objectively better outcome both for the economy as a whole and for individuals.

Objective 3: Allow Societies to Prosper within Hard Resource Constraints

In addition to helping the bottom, governments must also focus on constraining the top. Much of elite consumption places excessive costs on the rest of the society, which are not covered in the market price. The government needs to work to “internalize” these costs and ensure that they are included when a person decides to consume something.

Take golf courses, for example. The huge amount of space required for a full-size golf course could be put to several other purposes with much greater social value, from housing to farming. Yet these tracts of land are put aside for an elite sporting activity enjoyed by a select few. And that just concerns the land: maintaining the course also consumes a great deal of resources. One golf course in dry California, for example, uses as much water in one day as a family of four does in five years (and specifically a US family, who likely consumes more water than the average household in the developing world).8

Tackling consumption inequality is different from tackling income or wealth inequality. Although these are likely to be correlated, one can easily think of a middle-class household consuming far beyond its (or society’s) means, even if the family’s income is not particularly high in the grand scheme of things. Perhaps they splurge on a second car, or engage in energy-inefficient lifestyles. The same can be said of corporations and private businesses. Like individual consumption, corporate consumption is probably correlated with corporate size—but not necessarily in all cases. Some sectors have external costs much greater than their overall size. Chapter 1 pointed to ranching—a sector dominated by smaller suppliers rather than massive corporations, yet the cause of huge external effects from deforestation, agricultural pollution, and underpriced meat.

Income and wealth inequality and its corporate counterpart, monopolization, are important issues that need to be tackled by governments. And they are very likely related to consumption inequality. But they are not the same thing, so the policy responses need to be different.

One straightforward way to internalize the external costs of overconsumption is taxation. This would increase the market price of a good or service so that it better reflects what it would cost if external costs were included. Many industries have an environmental impact far in excess of their revenue; in other words, their external costs are far greater than the private benefit of companies. Taxation would help close that gap.

Imagine that a government knew exactly how much a good “should” cost (by accounting for externalities), then used taxes to ensure that the good sold at that price. Revenue would be directed toward policies meant to reduce the externality and ameliorate any harms. It would provide a direct incentive for companies to find a more sustainable way of producing things: if the “true cost” of a company’s product has truly been made smaller, then that company can undercut the price of its less sustainable competitors. Some goods may never be able to be priced both sustainably and competitively. They may drop out of the market—which will be precisely what is needed in a resource-constrained economy.

The benefit of taxation is that it provides revenue for state governments, which can fund efforts to help the bottom. But there are other mechanisms to restrict overconsumption. Quotas and licenses are one way to limit consumption of certain goods and services: both Singapore and Hong Kong, for example, institute high vehicle license fees to discourage vehicle ownership. Licenses can strictly delineate the total sustainable amount of a product that can be allowed in an economy. Cap-and-trade systems largely work on this principle: a government decides how much carbon is allowed to be released each year, then sells portions of that to businesses, who can then sell these portions among themselves. Cap-and-trade systems have stumbled as an attempt to control carbon emissions, but if anything, their failure has been due to the “and-trade” part of the equation: attempts to build a functioning market in carbon permits have, for various reasons, been difficult to sustain. But a more forceful cap system, less attached to a marketplace, may do well: the government would decide the capped level of emissions and decide the best avenue to distribute the “stock” of emissions among different sectors of the economy.

Of course, there may be some goods and services that exert enough harm on the majority that there is no way to recoup their cost. In this case, the government can use the “nuclear option”: outright bans on some kinds of consumption.

In most countries, the archetypical example is weaponry—guns, specifically. It is difficult to think of any positive social upside of mass gun ownership, whereas the social harms are easy to quantify. This is why most countries—with the significant exception of the US—have expansive, if not total, bans on privately owned arms.

In between help for the bottom and constraint at the top lies the middle: moderate prosperity. This is a standard of living that goes beyond the basic, and thus the government is not obliged to directly provide it. At the same time, this level of prosperity does not go as far as the exuberant overconsumptive standards of living seen at the top, and so does not warrant government action to control it. It lies in between: an achievable and, more important, sustainable aspiration for populations in the developing world.

The economic activities that encourage moderate prosperity may require state assistance and investment to get started. The state needs to invest in alternative revenue models and economic activities that can succeed within hard resource constraints.

Certain small-scale sustainable activities may be economically feasible only when built on already existing infrastructure. By “infrastructure” here I mean the array of businesses and services that support agricultural, manufacturing, and service businesses (especially small-scale businesses operated on a sustainable basis). This infrastructure reduces the costs of doing business, making small and medium-size enterprises viable; large corporations avoid these barriers through economies of scale and direct funding.

These businesses include, but are not limited to, cold chains, payment processors, banks, vocational schools, and arbitrators. Each of these reduces the costs of doing business. For example, a network of cold chains across the country, especially in rural areas, will reduce wastage in fresh produce and helps the rural economy by increasing productivity. Payment processors allow money to be transferred in a trusted way across large distances, reducing transaction costs. Arbitrators can help resolve disputes between enterprises, increasing trust between different businesses. All of these “smooth” the creation of new small businesses. One key effect of this is the slowing of the unhealthy (yet deemed almost inevitable) trend of urbanization in the developing world, leading to megacities that are increasingly becoming unlivable.

In the developing world, however, we have a “chicken-and-egg” problem. An economy built on small and medium-size enterprises will not arise naturally without these foundational services. But these services may need a critical mass of private economic activity to survive. After all, a payment processor cannot make money if there are no payments to process.

If the private sector cannot create this infrastructure and the foundational services, the strong state must create them. Banking, for example, has long been understood as one of these foundational economic activities that can unlock greater development in other sectors of the economy; this is what spurred the focus on microfinance and the current development focus on “financial inclusion.” Yet, despite the centrality of banking to our current conception of no-holds-barred free-market financial capitalism, governments have long used state banks to create a managed financial system that apportions capital for a country’s future development. Germany created a system of government banks throughout the country as it industrialized, allowing for broad-based economic growth; China’s state-owned banks lent money to state enterprises at preferential rates, jump-starting industrial growth.

States need to invest in these industries and this infrastructure because it must provide alternatives to those currently working in unsustainable industries. These people are often themselves poor, not benefiting from the goods they (unsustainably) produce. Thus, if governments are to ensure that basic needs are met for the whole of their population, they must ensure that these workers are given sustainable opportunities to earn an income and engage in fulfilling work.

Despite its removal from most mainstream discussions of economic development, strong state governance in central roles has been a feature of the history of some of the world’s most developed economies.

As mentioned earlier in the chapter, the New Deal in the US was a form of extended government activism in the economy. However, despite the proof that strong state governance had helped the American economy, the United States turned toward the underregulated, trickle-down economics it follows today.

Later, as the US was turning away from activist state government, many of its experts went to the postwar economies of Japan and Germany. Berlin, Tokyo, and Seoul (as South Korea also tried to recover from both World War II and the Korean War) worked with major corporations to give them (managed) market power in exchange for their assistance in meeting each country’s economic objectives.

A smaller, but no less important, example is Singapore in the 1970s and 1980s. Since its independence in 1965, Singapore has grown from a small Third World country to a First World city-state with a quality of life equal to, if not exceeding, living standards in the West. Despite the city’s reputation as a free-market utopia, Singapore invests heavily in public services. The Singaporean government uses its power to manage socially and critically important sectors of the economy: the city has created a publicly managed system of cheap and widespread housing finance to encourage home ownership, and directly negotiates with drug providers and medical practitioners to control medical costs (leading to cheap health care).

Finally (and first mentioned in chapter 1), we have the developmental states. These countries used protectionism, state support, state investment, and, in the case of China, direct state ownership of companies to build globally competitive manufacturing sectors. Whereas other developing countries focused on import substitution—building local industries that would replace imports—these countries focused on the export market, developing industries that would sell to the developed world. They attracted foreign investment due to their lower input costs, yet rather than relying on it perpetually, instead used it as a first step to gain necessary expertise and experience with foreign business practices and techniques.

These countries were largely successful in building strong, developed economies, but they unfortunately focused on high-growth, high-consumption models of development that are unsustainable in the long term. They also wedded development to a narrative of overconsumption (i.e., the American Dream, and potentially the China Dream), which makes it difficult to shift toward a more moderate lifestyle. Although these countries do recognize the costs of consumption, they are still largely focused on alleviating pollution and environmental damage, and not on the resource management and controls needed in a true sustainability agenda.

The lesson we should draw from past examples of state strength is that consistent state intervention and management in the economy can achieve social and economic objectives. These countries actually achieved the goals they set out to achieve (even if these goals were ultimately unsustainable). By contrast, countries that hoped the free market would achieve these goals have largely seen disappointing results.

Rather than use the tools of state management to foster a high-growth, high-consumption economy, the sustainable state in the developing world will turn those tools toward the management and sustaining of resource stocks for more equitable development, wealth creation, and the welfare of future generations.