The solution on climate change will be New Core-driven, with America as swing vote

ARTICLE: "How Bush Shift On Climate Front Alters Dynamics: China, India May Follow If U.S. Cuts Emissions; Regulations More Likely," by John D. McKinnon, Wall Street Journal, 1 June 2007, p. A1.

OPINION: "Capitalism Against Climate Change: If we're going to tackle greenhouse gases, tradable credits are the way to go," by R. Glenn Hubbard, Wall Street Journal, 31 May 2007, p. A15.

The great lesson I took from the economic security exercise we ran with Cantor Fitzgerald atop WTC 1 back in June 2001 on the future of environmental damage stemming from Asia's rise (the first two workshops were "motive" [energy] and "opportunity" [FDI] and this one I described as the "crime" [enviro damage with a focus on global warming]).

The focus on global warming was easy enough to locate. Emerging markets all go through the same curve on local pollution: it rises dramatically and then tops off as per capita reaches the point where people want to breath easier more than they want that extra $100 annually (and yeah, they all reach that point, just like we did in the West).

But what also happens is that the production of global pollution continues upward with development, so the fastest way to get a critical mass of players on global pollution is to encourage as many emerging markets as possible to get over the local/regional hump and see the wisdom and logic and self-interest and connected responsibility in dealing with the global pollution problem.

That's why our "Survivor" game, much like the more elaborate one played years later by Bjorn Lomborg in his "Copenhagen Consensus," came to the very same conclusion: until the local pollution gets conquered through sustainable development, the global pollution problem will always come in last in terms of priorities.

As for shaping that global agenda on global climate change, everyone at our workshop had the same opinion that both Clinton and then Bush had on Kyoto: It would never have any real impact because China and India were excused from the process and their rising impact, much like in demographics, would constitute the tipping point in the process--as in, include them and work on their rise to have maximum positive impact, or exclude them and wrap yourself--Mr. West--around your axle and accomplish little while diverting funds better used on water, diseases, etc. Yes, do the smart stuff to make yourself more efficient in the meantime, Mr. West, but have no pretenses that you can fix this problem from within. Either you fix the rising delta in the East or you have virtually no impact worth mentioning.

But of course, New Core India and China won't budge on this until their model of emergence--the U.S.--makes a similar bid. We are the swing vote. Of course the Euros are on board; they've already aged out of the economic growth process. The U.S., in its infinite youthfulness and hypercompetitive economics and open immigration, has not.

So when Bush finally moves, as he was always slated to do, China and India listen.

Back to Larry Summers' point: fix the rising East.

How to do so?

The conclusion we reached atop WTC 1 in June 2001 is the same one everyone reaches for now: market mechanisms to cap and trade. These markets need to be gradually introduced, because the unintended consequences, already seen in Europe, will be huge. Fortunately, Europe tolerates a lot of economic illogic normally, so its experiment serves greatly to inform.

But we cannot expect similar peculiarities to be easily absorbed in India and China. They need a serious partner in this process who approaches questions of competitiveness in a similar fashion, hence--again--the swing-vote role the U.S. so crucially plays in the process.

Read Hubbard's op-ed for the details. My analysis adds nothing to that. Just keep the larger logic in mind: America's "new core-ness" persists and makes us similar enough to India and China's mindsets and problems that our growing alliance with them on this problem, among so many others, is key to fostering global progress.