Green theme clashes with global progress

My comment in this week’s Fund Strategy argues that environmentalist ideas could damage the growth of the rapidly developing economies

It is the same but different. This week’s achievement of a record high by America’s S&P; 500 index was reminiscent of the bubble years that ended in 2000. But important changes have happened since then.

The similarities are easier to spot than the differences. Stockmarkets are at all-time highs after years of growth, the economy is expanding strongly and the investment industry is preoccupied with future themes. There is also one prominent market that is growing particularly fast. Last time around it was the Nasdaq, America’s technology-heavy market, this time it is China’s domestic stockmarket.

But, although the world is not fundamentally different, it has changed significantly since 2000. The clearest change is the rise of China to play a substantial role in the world.

China’s rapid growth spurt dates back to the late 1970s. But it was only earlier this decade, when the world economy was suffering a cyclical downturn, that it reached the stage where it could influence global affairs. Capital flows from China played an important role in subsidising American consumption and maintaining momentum in the world economy.

It is important not to exaggerate China’s importance. The Asian demographic giant has only recently overtaken Britain to become the world’s fourth largest economy. That means, in terms of income per head, Britain is still about 20 times richer. But China, and to a lesser extent other Asian countries, will continue to grow rapidly.

Another key change is the rise of environmentalism to a state of almost universal acceptance. It is striking that the new Schroder Global Climate Change fund is not being marketed as an ethical fund. Schroders argues, with considerable justification, that the overwhelming importance attached to tackling climate change has become mainstream. Meanwhile, Patrick Collinson reports in his weekly column that Invesco Perpetual’s Neil Woodford sees himself as a long-time investor in “green” themes.

What is not widely understood is the pernicious influence of environmentalism. It has become viewed as simply a common sense approach to saving the planet. The desire to question the accuracy or desirability of such a viewpoint has weakened.

Yet the criticisms made of environmentalism a few years ago are even more poignant today. The emphasis on limiting human impact on the planet distorts the economic growth process. Instead of driving to increase human control over the environment the dominant trend today is to support collective restraint.

This is where the two key themes clash. If the developing countries are to achieve the maximum benefit from economic growth they will need to overcome the bane of environmentalism