Global Economic Crisis, Recession, and Poverty Linkages

As outlined in the previous section, economic shocks such as the global financial crisis affect both urban and rural poor people's strategies to secure elements of basic livelihood, including the opportunity to earn an income and meet basic human needs, maintain health, and obtain a basic education. The global economic slowdown also poses risks to the governments and their development projects for water supply, food security, human health, and natural resource management—which will may affect the income vulnerabilities of communities. Poverty can be defined as the lack of opportunity to live a decent life, including material needs, education, and health.

3.1 Key Interactions and Critical Linkages

As will be detailed later, many governments are implementing stimulus packages to rescue their economies from recession. If stimulus packages are to be consistent with environmental conservation and poverty reduction goals, there is a need to understand why and how both rural and urban poor secure or fail to secure basic human needs. Specifically, there is a need to understand how such strategies and processes are affected by recession. Practically all developmental activities and economic sectors are affected by the global financial crisis. The critical question for development planners is how effectively responses to the global financial crisis could be targeted for poverty reduction.

In order to identify these complex linkages, two main challenges are to be addressed. The first challenge is that, despite increasing recognition that the global financial crisis and poverty incidence are interlinked (Bauer 2009), the linkages have not been clearly articulated in an environmental sense, and thus are difficult to address effectively in practice. The knowledge is fragmented; however, as was done in the previous section, even with little comprehensive assessment of sectoral sensitivities, the distributional effect of poverty incidence in urban and rural populations could be studied.

The second challenge is that, although it is becoming clear that governments need to integrate poverty reduction into their rescue programs, it is not always clear how this can be done effectively. Several stimulus packages have green job components. But it is less clear what stimulus programs currently emphasizing green investment and poverty reduction should be doing differently from what they are already doing. In short, there has yet been no synthesis of the lessons from the past economic crisis and their practical implications for integrating long-term green growth strategies to poverty reduction. The institutional barriers to integrating environmental concerns in poverty reduction also need to be clearly identified.

Current thinking on recovery from the global financial crisis encompasses two very different approaches, both of which can provide insights for poverty reduction. One approach is based on the assessment of vulnerable sectors and the other is on the end impacts on the projected poor. The studies conducted so far have emphasized the first approach, assessing the ways of reducing sectoral sensitivity to projected future changes. Sectoral adjustments can clearly reduce socioeconomic impacts and contribute to poverty reduction. Adjustments such as change in trade patterns, adaptation of new product servicing models, ecoproduct innovations, technology absorption, and uptake of renewable fuels can mitigate climate change by reducing greenhouse gas emissions. This study does not discuss particular pathways, but they are relatively well researched in other technical papers prepared for this conference.

The second approach to poverty focuses on changing the societal factors and conditions that affect people's capacity to respond to the global financial crisis, including direct employment opportunities, health reforms, and education. Some other conference papers seek to address how vulnerability to economic slowdown is influencing poverty. Figure 6 [ PDF 44.9KB | 1 page ] shows the interface between poverty and vulnerability to economic slowdown and between poverty and low-carbon green growth pathways. According to this two-track approach, the governments and poor communities must adjust their strategies to secure a decent life in the face of the global financial crisis and environmental crises such as climate change.

3.2 Integrating Poverty Reduction Strategies with Low-Carbon Green Growth Pathways

The interlinkages between low-carbon green growth strategies and conventional poverty reduction strategies could be optimized for improved livelihood conditions in the following ways:

1. Strict stand-alone environmental policy measures can benefit as well as harm enterprises, workers, and communities. Adequate analysis of impacts on employment, income, and local development should be conducted to maximize benefits and to anticipate the need for just transitions.
2. Low-carbon green growth pathways should be guided by the principle of equity. They should be an opportunity for countries to broaden access to employment and income opportunities created in the transition to low-carbon economies, which are also resilient to climate change. The integrated vision for long-term cooperative action should therefore provide a framework for a just transition to a low-carbon, sustainable economy. This just transition framework should enhance the opportunities for development, for poverty reduction, for sustainable enterprises, and for access to decent work. This requires a strengthening of capacities and coherent policies to seize opportunities arising from environmental mitigation and adaptation while reducing economic harm.
3. In order to minimize the cost and harms and to realize the potential benefits, environmental, economic, and social policies and programs need to be well informed, broadly supported, and able to engage national and local governments and representatives of employers' and workers' organizations to help design and implement policies.
4. Dialogue will also be essential for dealing with the downside of reducing pollution and emissions. Workers and entrepreneurs should be assured that a green environment for society does not mean unemployment for them. Hence, training, social security schemes, active labor market policies, and programs to diversify economies need to be put in place to soften the blow for them.
5. Labor markets and livelihood vulnerability assessments will provide a good understanding of social, labor market, and enterprise risks and vulnerabilities related to environmental risks such as climate change and the need for adaptation measures. Such a baseline is essential to quantify and qualify the needs for adaptation as well as to tailor interventions and allow monitoring of adaptation programs.
6. New green economic measures might disrupt local economies. The ability of enterprises to maintain or resume economic activity and of people to earn an income will be crucial after a storm, a flood, or a drought. Vulnerability assessments should include socioeconomic information on the structure of local economies, including the size and nature of enterprises and main sources of employment and income, as well as respect for human rights (including labor rights), coping strategies, and access to credit and social networks.
7. Embedding environmental standards and regulations into economic development leads to more integrated and effective capacity building. It provides opportunities to engage stakeholders in design and implementation. Targeted training can help affected individuals to find new economic activities and allow households to diversify their sources of income in line with the mitigation and adaptation strategies.
8. Building solid enterprises able to adapt to environmental risks is important in reinforcing the capacity of a local economy. The existence of a solid fabric of micro and small enterprises helps make local economies able to adapt to a changing environment and flexible enough to resist shocks. Building and maintaining such a fabric requires
   • An enabling environment for small and medium-sized enterprises (SMEs) and micro-enterprises.
   • Targeting of environmentally sensitive value chains.
   • Capacity development programs and business development services to unleash the potential of local economies to adapt to the changing situation.
   • Building up skills of workers and managers to identify and assess changes, to implement early warning systems, and to apply technical skills to improve and adapt technologies to economic changes and to diversify production.
   • Support to local saving, microfinance, and banking as well as consolidating the local banking system, diffusing microfinance programs, and developing financial risk sharing mechanisms.
   • Promotion of public-private partnerships to better engage the local private sector in low-carbon green growth programs.
   • Embedding of mitigation and adaptation to climate change in local economic development rather than adaptation as a stand-alone goal and program.
   • Social dialogue among representatives of workers, employers' organizations, and governments at all levels, to build consensus and enhance efficiency of measures to be taken. This should be the base of any low-carbon green growth program.
9. Social security and safety net programs are important for enhancing the economic resilience of local communities. Vulnerable sectors and areas need social protection programmes and safety nets to cushion against economic slowdown and environmental impacts, particularly in the informal economy.

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