Networks: Innovation, growth and sustainable development

4. Growth, Equity and Poverty

The growth of scale-free complex networks generates inequalities in most of their key parameters. In the internet, this is seen most notably in the number of links per node and the number of visitors per website. These follow “power-law” distributions with large numbers of nodes with few links and a few with many, much like the distribution of wealth in a popu- lation. Globalisation fundamentally changed the scale of networks in which we live – more, and more varied contacts, both socially and in trade. The Internet added and complemented this by fundamentally broadening and speeding-up our networks. These changes naturally change the distribution of wealth: Smaller national and regional trading networks have a much smaller range of wealth, so globalisation has made the rich richer simply because of the larger scale of the trading network. In addition, the rich end of the global wealth distribution exists in most countries and stretches national wealth distributions. Faster and wider trading on the Internet opens new opportunities and makes a few people richer faster, and may even increase inequalities, but is unlikely to change the poverty of billions, and puts new down- ward pressure on the wages of the least skilled in the USA and the EU. Network effects are therefore likely to be responsible for much of the perceived increases in inequalities in the last 20-30 years: Policies to tackle poverty must therefore address the extent to which the poor can engage with society’s networks of wealth creation.

Despite a higher probability of large fluctuations than would traditionally be expected (in equity and bond markets), complex networks are fundamentally robust, and their long-term behaviour is therefore relatively predictable. Assessments of probable world growth and pro- sperity to 2050 by the OECD and the International Futures system, both using “agent-based” simulations, are very similar. Individual countries and regions go through crises, but overall changes in key global parameters such as employment rates, GDP and energy-use are projec- ted to grow continuously over the next 40 years, as they have over the past 40 years: World GDP could be 4-times larger by 2050, but with major increases in Green House Gases concentrations and losses in bio-diversity.

However, the long-term resilience and adaptability pose new challenges to policies for sustainable growth. Because of the interconnectedness of so many parameters, no single policy measure (such as shifts in government expenditure) has a direct and linear impact on outcomes: The system adapts, sometimes in ways that were not intended. It is resilient to change. This makes “impact assessments” of single policy initiatives ineffective, and makes “cost-benefit” analysis a poor basis on which to base policy choices. Only complementary portfolios of policy measures can have significant impact, as we had shown in 2005 with the International Futures simulations. Greater investment in education, innovation, non-fossil energy and social equity could all contribute to greater and more widely-shared prosperity in 2050. A combination of increased investment in research and innovation, notably in “net- working technologies”; education, health-care, and non-fossil energies, could significantly improve prosperity, equity and governance by 2050. The most effective long-term policies build around a small number of dominant drivers of change, and complement them with flanking policies to enhance adaptation.

Other policies must now focus on the intensity of links: the connectedness of people and businesses: Trade liberalisation widens and strengthens collaborations and trade, but must be accompanied by coherent regulations – banking rules, labour laws, product-safety specifica- tions etc. The value of such approaches has been demonstrated by the increased connectivity of the European research community as a result of collaborations through EU research pro- grammes. Not only has this reduced the fragmentation of research in the EU, but even small universities now have close links to the world’s best researchers. This widens the range of new ideas that can be exploited, increases the number of skilled people that can contribute to leading-edge innovations, and helps provide a critical mass of new investment to take ideas to marketable services.

5. Climate Change: a Game-Changing Threat, but with Network Solutions

The greatest challenge to continued growth and prosperity, and therefore to peace and justice, is climate change: Climate change is already beginning to disrupt regional climate systems and has increased the frequency of disruptive extremes. If these changes continue, large numbers of people will be displaced and large costs of protection and recovery will be imposed on the society. We are heading in this direction.1 The most recent assessments from the OECD indicate that, with current policies, world energy demand in 2050 will be 80% higher, with still 85% supplied from fossil fuels.2 This would lead to a 50% increase in greenhouse gas (GHG) emissions, with CO2 concentrations reaching 650ppm by 2050, and global average temperature rising by 3-6 degrees C by 2100,++ and worsening air pollution. The OECD report recommends environmental taxes and emissions trading; valuing and pricing natural assets and ecosystem services; removing environmentally harmful subsidies (to fossil fuels or wasteful irrigation schemes), and encouraging green innovation.

Assessments of policy options with the International Futures system in 20053 showed that a broader combination of increased investment in research and innovation, notably in “networking technologies”; education, health-care, non-fossil energies together with a global carbon-emission price, would be needed to stabilise CO2 concentrations (at about 500ppm) by 2050. However, these measures would have to be implemented by most major countries: Action by the EU alone would have little effect.

More recent assessments with the International Futures system for the European Commission+++ indicate that a combination of accelerated deployment of “network innovations” (broadband communications and smart-grids), together with a global market price for carbon-emissions, could cut global emissions after 2025 and stabilise CO2 concentrations (again about 500ppm) by 2050. The OECD assessment indicates that global carbon pricing could be sufficient to lower GHG emissions by nearly 70% in 2050 compared to the baseline scenario and limit GHG concentrations to 450ppm, and would slow economic growth by only 0.2 percentage points per year on average.

The potential cost of inaction on climate change could be as high. The recent assessments of the changes in probability of extreme weather by Jim Hansen show the magnitude of change already experienced. If change continues at the same pace over the next 20 years, extreme weather events will impose a major burden on growth and prosperity by 2030. The assessment by Stern in 2008 indicated the cost could be 5-20% of future GDP. More recently, the OECD estimated that the cost could be 14% of average world consumption per capita by 2050. The “World in 2052” assessment by Jørgen Randers of the Club of Rome, published in 2012, estimates that the world could be 40% less prosperous in 2052 than the simultaneous OECD assessment, largely because of assumed lower population growth and the costs of adaptation to and damage from extreme weather.

So far, most government policies, to slow the growth in greenhouse gas emissions at the national, regional (EU) and world levels, have been too narrowly-based and relatively inef- fective. The EU Emissions Trading System is close to collapse from over-generous emission allocations and fraud. In addition, we are now past the time when gradual reduction in emis- sions can alone keep temperature rises within 2 degrees C. We may soon be in the situation where we need to draw-down GHG concentrations to stabilise the climate. What can we then do to improve the effectiveness of public policies to mitigate climate change? And how do our insights into networks and innovation help?

Sensitivity analyses using the International Futures and OECD systems have shown that the three key drivers of change to economic growth consistent with climate stabilisation are 1) a robust carbon-emission price converging to the cost of capture and sequestration, 2) low-carbon energy networks that can accommodate a variety of variable energy sources and assure reliable and affordable energy for all, and 3) accelerated deployment of innova- tions such as high-speed communications to most people and businesses to enable structural change in products, services and lifestyles. Infrastructures are the key to effective networks,and the key infrastructures for low-carbon prosperity are:

• A coherent and robust world “carbon-accounting infrastructure” of monitoring, reporting, labelling and trade, with credits for certified sequestrations, tradable against emissions, with market access by billions of land-users and enterprises. This market must be transparent to investors, companies, governments and individual consumers.
• “Smart grids” for electrical power distribution, with real-time pricing to consumers; and
• High-speed social and business connectivity everywhere, affordable for everyone (mobile and fibre access)

The former could build on the agreements brokered by the World Business Council for Sustainable Development and the Carbon Disclosure project of Institutional Investors. The latter can be rolled out on the basis of the 4th Generation of mobile radio-based systems and fibre in most of the developed world by 2015, and could be affordable for over half of the world’s population by 2020.

6. Concluding Remarks

Our self-organising social networks have structured our societies and economies, and are now reflected in our technology networks. We can now replicate their evolution in computer simulations and can therefore better assess how to deal with the greatest challenges facing us in the next few decades.

Climate change cannot be allowed to run out of control. Its effects will de-stabilise societies and impose huge costs on our economies. Assessments of the effectiveness of policy options to 2050 indicate that a broadly based portfolio of policy changes will be needed, built round a robust pricing of carbon-emissions engaging most businesses and people in the developed and developing world in a new network of carbon trading, with the price eventu- ally set by the cost of capture and sequestration.

1. “Climate Change Report Warns of Dramatically Warmer World This Century” World Bank
2. OECD Environmental Outlook to 2050: The Consequences of Inaction (Paris: OECD, 2012),3746,en_2649_37465_49036555_1_1_1_37465,00.html
3. Barry Hughes and Peter D. Johnston, “Sustainable futures: policies for global development,” Futures 37, no.8 (2005): 813-831
++ The UK Royal Society estimated in 2011 that with 4 degrees warming, half the world’s current agricultural land would become unusable, sea levels would rise by up to two metres, and around 40% of the world’s species would become extinct.
+++ Using state-of-the-art models and tools for the assessment of ICT impacts on growth and competitiveness in a low-carbon economy: DG-Information Society, November 2009.

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