Larissa Eisenstein, Jesus
Beltran
3/12/99
There are two diametrically opposite
sides to the great debate between protecting the environment versus allowing
for increased economic growth and prosperity regardless of ecological impacts
upon our environment. Many claim that
maximizing profit while minimizing ecological damage is politically and
structurally impossible. On one side,
there are economists insisting that it is too costly to impose policies that
limit or prohibit pollution. They claim
that reducing pollution cuts firms’ profits, resulting in a lessening of the
nation’s overall output. On the other
end of the spectrum are the environmentalists who claim that harming the
environment through the emissions of pollutants and widespread habitat
destruction decreases productivity in the long run. The latter argument relies on the assertion that increasing
productivity year after year—as economists would like to see happen—would actually
only decrease productivity in the long run as resources are depleted. Exploring the relationship between developed
and developing countries allows us to see where the greatest problems lie. From this relationship, we can better
determine the policy actions that need to be implemented worldwide in order to
satisfy both sides of the environmental/economic divide.
State of the Economies of the World
While the economies of the countries
of the world are seeing monetary growth overall, their environmental welfare is
rapidly decreasing. From 1965 to 1980,
middle income countries such as Chile and Argentina experienced GDP growth at
an annual rate of about 6.1%, while low-income countries such as India and
China saw an average growth of 5.4%.
High-income countries experienced an average of 3.7% growth (World
Development Report, 1993). From 1980 to
1991, however, middle-income and high income countries dropped off to 2.1% and
2.9% respectively while low-income countries increased growth to 5.9%. Viewed as a positive increase for these
lesser developed countries, the externalities that are a byproduct of this
growth are ignored.
Economic growth at low levels of
technology tends to be heavily reliant upon natural resources. Much of the
environmental destruction in developing countries is facilitated by the
interference (whether well intentioned or profit-motivated) of developed
countries. In certain cases, developed countries act as mentors to help
facilitate positive growth in impoverished and infrastructure-weak countries. In others, profit seekers contribute to the
problem by establishing manufacturing hubs in countries where labor is cheap,
environmental protection laws are nearly non-existent, and resistance to
industrialization is low. Worldwide, the total of cultivated land is estimated
to have increased 466% over the past two centuries—the result of mass forest
clearing and destruction of habitats.
Much of this destruction is occurring in developing countries, yet they
see little of the economic benefits but experience all of the environmental
costs.
Many economists assert that there is an inverted U-shaped relationship between measures of environmental quality and per capita income. As income goes up they observe increasing environmental degradation to a point, after which there is a reversal of the trend and environmental quality improves thereafter (Arrow et al., 1995). On the surface it makes sense to say, therefore, that as developing countries progress further and further along the path of development the state of the environment will eventually improve from the dire conditions that many environmentalists decry so vehemently (Grossman and Krueger, 1995). However, this U-shaped relationship holds for only short-term effects without considering the longer run. Additionally, the U-shaped curve applies only to certain pollutants and not to many non-renewable resources.
It is these non-renewable resources that form the earth’s resource base that we rely upon. While there is evidence that supports the idea that increased economic growth may be associated with increased attention to environmental protection, there is also evidence which refutes any claim that the Earth’s resource base is capable of supporting economic growth indefinitely .
In the event that non-renewable resources are not consumed completely, they become more costly to use each time one additional unit is consumed since each unit consumed lowers remaining available supply; increasing marginal costs of future use. Even in a best case scenario where all other costs remain constant and demand is constant, the marginal costs raise overall price to the consumer. This price increase continues on in perpetuity until the resource is exhausted or demand for it decreases enough to allow it to regenerate at the rate nature allows.
In a comparison between developing and already developed countries, developed countries are recognized as the more energy efficient of the two (Duraiappah, 1998). This means that statistically speaking, every year developed countries are responsible for the least amount (measured in percentage share per country) of pollution emissions due to relatively clean technologies and (for a rising number of them) environmental policy regulation.
However, every one of these countries was once underdeveloped. So at one point, each emitted huge amounts of carbon, deforested at rates surpassing those of natural regeneration, and otherwise abused their environment wantonly. Though it may be said that these countries are protecting their environments now, it is more accurate to say that they are protecting what is left of their environments after such large-scale destruction in the past. Therefor, with regard to the developing countries, they are approaching the maximum point of their inverted “U” of development. In other words, they are almost at the bottom point with respect to the state of their environment. Soon, many rain forests and other natural non-renewable resources will be transformed into agricultural land and cities. Once lost, these whole ecosystems cannot be replanted like a Christmas tree farm. From newly extinct species to global warming, the effects will be spread far and wide across the globe.
Both environmentally destructive
behavior and intense population growth in these countries can be attributed
mainly to low levels of technology.
With less technology, more manpower is needed for the same amount of
output, resulting in demand for larger families. In addition, little technological know-how leads to less
efficient production and more waste.
With this in mind, many economists argue that developed countries are
the least responsible for the environment’s problems worldwide since as
economies improve along with technology, population growth tends to decrease
(less labor-intensive work lessens demand for large families) and reliance on
natural resources decreases (Duraiappah, 1998).
Though
true in many respects, this assertion does not hold in the sense that it is the
developed countries that are forging the paths for others to follow. If one
looks at current environmental trends in developing countries, it is clear that
destructive behavior is ongoing. One well-documented example of this behavior
is deforestation. Rates of
deforestation may not be the same as they were years ago, in fact they have
reduced, but the same practices are being used to gross profit from the vast
natural resources available to the people of these regions. While developed countries introduce programs
to regulate the deforestation of these developing regions, many of their
inhabitants may argue that their livelihood is more important than any
regulation brought before them. While
this may be difficult to comprehend from the ‘developed country citizen’ point
of view, one can take a step back in history to see why these inhabitants feel
they must practice environmentally destructive behavior.
The original European settlers of the
United States did to North America what is now being done in developing
countries. In one lifetime,
approximately 85% of the primary, old-growth forest of the U.S. were
destroyed. That 85% is approximately
the size of Europe itself. (Mackenzie,
1998) European settlers had no other
way to amass capital than to take it from their natural resources, and
inhabitants of developing
countries are in the same predicament.
Following the path that was taken centuries ago by now developed
countries, they are emulating an old formula for “development” that will bring
the earth to environmental ruin.
Upon obtaining independence, most
developing countries have traditionally followed a model for development that
is centered around one goal, transition from a backward agrarian economy to an
industrial one. Industrially developed countries boast of better health care,
security, infant mortality rates, etc, etc, - essentially a better “standard of
living.” Understandably, developing
countries set this as their goal yet they take an oblique approach. They follow an outdated model. This model can be characterized by the
attitude of the ruling government towards four main issues: physical capital,
agriculture, trade, and the market. For
the purpose of this paper, only the first two issues will be discussed as it is
they that most relate to environmental degradation and its link to
economics.
The
traditional model of development suggests that a developing country amass
physical capital as rapidly as possible.
Methods of amassing capital include exploiting available resources or
saving and investing what little money is available. The intent is to give a country the resources needed to begin its
process of building the infrastructure necessary to embark upon
industrialization. While this may sound
positive, it is almost impossible to do when starting with the conditions that
developing countries face. They simply
cannot save or invest what little money they have. Thus they resort to exploiting their resources - resulting in
environmental disaster.
Further clarifying the traditional
model of development, government planners take a negative stance on
agriculture. They structure policies
that protect industry and turn the terms of trade against agriculture. In a race with other developing countries,
government planners take any step they deem necessary to promote the growth of
industry within their borders.
Again, this is a problem for several reasons. Some of the cultures within these borders are agrarian in their nature. Taking a people from their way of life becomes yet another issue government planners must confront. Even more importantly regarding the issue of industrialization, government planners often fail to realize the full economic potential of agriculture. With the right planning and investment in technology, agriculture can be extremely profitable – even more so than countless industries.
In summary, developing countries tried
to arrive at an industrial state by sticking to four beliefs they thought were
necessary: a rapid accumulation of capital, policies promoting industry over
agriculture, a response to import protection and state controlled markets
(Schulz, 1983). While many developing
countries still follow this doctrine, it is clear that it isn’t the best
possible one given today’s conditions.
Current economists tout an updated plan that boasts of the
following: physical capital
accumulation in the terms of investing in education and training for citizens
of a developing nation, the promotion of agricultural enterprises that have a
promise of growth and profitability, trade outside of national borders and a
reliability on the market as the dominating factor in making financial
decisions. While this plan may be
better than the old, it cannot be given the dominating importance that the old
one was.
Repeatedly, developing countries have
tried to “develop” by following the steps of the developed. Repeatedly, they have failed. A reliability on outside thought appears to
be a major factor in decision making.
This would be a good place to start when analyzing current situations
and making future plans. If outside
ideas have taken the industrialization process no further, and have caused
environmental decay, why stick to them?
Developing countries should take a close look at the history of their
region and mold a new style of development that is specific to their people.
Going where none
have gone before gives developed countries greater responsibility to tread
carefully as they forge on forward. By
leading developing countries along an environmentally sustainable growth path,
perhaps many destructive practices can be avoided in the future.
Environmental Policy Options
Due to the neoteric awareness of
environmental issues as related to the economy, traditional economic models
have not taken the costs of environmental degradation into consideration when
calculating losses from productivity under abatement policies (Barrett,
1990). All that is taken into
consideration is the cost of abatement technologies. This leaves the benefits of a cleaner environment unaccounted for. It is more than possible that in the long
run these benefits to society will offset and even exceed the costs of
implementing abatement and other environmentally friendly programs worldwide.
Assuming that this argument is
accepted by the countries of the world, how can they be environmentally
responsible while maintaining growth?
In terms of what individual countries can do within their borders,
environmental policies can take the form of research subsidies, emissions taxes
or tradable permits (Pekelney, 1993).
Benefits for each of these policies even out though they are distributed
among society differently. Subsidies
are most liked by firms because they are simply given the incentive to research
new technologies without command and control mandates ordering them to make
changes. However, the money for these
subsidies must come from taxpayer’s pockets.
Essentially, taxpayers pay firms not to harm them. With emissions taxes, firms are directly
held responsible for their actions. For
every additional amount of pollutants emitted above a given level under this
policy, the firms must pay taxes. So
the taxpayers and government benefit under an emissions tax (unfortunately, the
thought of a “tax” is not popular with voters even when the tax will be to their
benefit. Contrarily, “subsidy” does not
have such a foul ring to it and voters are much more likely to agree to this
even though they will be the losers with such a policy!).
The third policy option allowing for
tradable permits is the best compromise.
Firms are allotted (or must purchase through an auction) a certain
number of permits, each allowing for one unit of emissions. Once allotted, these permits are tradable among
other firms. This policy rewards firms
that don’t pollute by allowing them to sell the use of their permits to firms
that do pollute. The environment and
society at large benefit by being exposed to less contaminants.
Because the biosphere is communally
owned, it is imperative to involve more than just a few countries in the
abatement process in order to have a significant positive effect on the
environment without having to depend on just a few countries to handle the
abatement load alone. However, as many
economists and non-economists alike will agree, users of a communally owned
resource tend to abuse the privileges extended to them through communal
ownership by overusing the resource and not taking responsibility for the
consequences. This is the problem of
‘free-riders.’
A prime illustration of this
free-rider “tragedy of the commons” is the situation many fisheries are
currently facing (Safina, 1995).
Overfishing and pollution have taken their toll by exhausting the seas’
supply of marketable fish. Experts now
believe that the fishing limit had been reached decades ago, though the results
are just beginning to become evident.
Because there is no owner of the sea, per se, fishing companies have
given no thought of there being a limit on the number of fish to be
caught. As a result, wild fish have
been harvested at rates that surpass their natural reproductive rates. As the population declines, fishing does
not. Too few fish have now been left in
the sea to maintain spawning stocks.
Almost all of the 200 fisheries the Food and Agricultural Organization
monitor are fully exploited (Norse, 1991).
The fisheries would only need a year or two to rebuild their fish
populations, but fishermen have families to feed and mortgages to pay so they
cannot afford to allow the fish populations to restock. Even if an agreement were to be reached that
restricts the amount of fish harvested (which is a policy now being
implemented) per fisherman, there will always be free-loaders who take
advantage of this slowdown to catch more fish themselves, driving the others
out of the market. This is an example
of the ecological cycle being slower than the economic cycle, and the effects
of this relationship.
When this “tragedy of the commons” is
applied to world environmental policy, the free riders are generally the lesser
developed countries which actually do the majority of the damage to the
environment (Barrett, 1990). There is
no world government empowered to intervene for the good of all, so poorer countries
free ride since it is in their best interest to reap the benefits of an
environmental policy at the economic expense of others. When all parties cooperate, the benefits are
largest for the whole, but smaller for each individual country (since they have
abatement costs to contend with). Therefore, it is in each country’s best interest to free ride as
long as others do not. Unfortunately,
if everyone thinks this way, there will be inaction all around. The most effective way to combat this free
rider effect is for countries to pressure the others into compliance,
withholding trading or economic assistance if they continue to free load.
Popular thought seems to hold that
productivity growth will slow with the increase of environmental protection
(Reppetto, 1997). Proponents of this
belief state that the cost to implement abatement programs and restructure
factories to comply with strict environmental regulations will force
competitive companies under by raising costs for firms and bringing prices up
for consumers. These economists are not
taking into account that there are significant costs associated with a polluted
environment (Barbera and McConnell, 1990).
To measure welfare of the nation, economists generally rely on GNP
statistics, equating the country’s overall welfare with economic
wellbeing. This is based on the
assumption that dollars are directly correlated with welfare and that
maximizing GNP therefore maximizes welfare.
For this to be true, the dollar cost
of environmental degradation must be measured and accounted for within this
framework. How does one go about
putting a dollar value to blue skies, open land, and clean rivers? What price do we pay for mass deforestation,
tainted well water, and crowded cities?
Unlike typical market goods such as computers or cars, no one is willing
to save up their paychecks in order to purchase a plot of clear sky. The environment isn’t simply a good to
consume at will and reengineer back into existence. It is a complex structure that humans rely on for survival,
though they may never consider it.
A typical 500-megawatt power station
fired by coal doesn’t just produce 3.5 billion kilowatt hours of electricity
per year. Also produced as a byproduct
of the process are:
“…5,000 tons of sulfur oxides, 10,000
tons of nitrogen oxides, 500 tons of particulate matter, 225 pounds of arsenic,
4.1 pounds of cadmium, and 114 pounds of lead, as well as trace amounts of
other minerals embedded in the coal” (Repetto et al, 1997).
Omitting these huge wastes while
calculating productivity is a terrible miscalculation. To generate 5 billion tons of market goods
each year, the U.S. uses more than double that amount of crude material. That is a waste of 5 billion tons of
material each year—not to mention the nearly two billion tons lost to the
environment in the form of emissions and effluents that sully land, water, and
air. Regardless, economists continue to
ignore these enormous externalities when accounting for the nation’s welfare.
Factories emitting noxious pollutants
are doing a disservice to society and should be held accountable. Since firms and individuals maximize profit
in dollars, without a value given to this externality, the damage incurred
slips through the cracks. Eventually,
as ecological abuse becomes more severe there comes a need for less efficient
industry-supplied substitutes (often produced at great societal expense). In essence, the pursuit of short-term
economic gain (as reflected in GNP statistics) often leads to longer-term economic
loss though lost production due to depleted or exhausted resources.
A solution to these problems can only
come through the realization that the environment and the economy are
intertwined aspects of a bigger picture, rather than altogether separate
entities. Thus far, this is not a
conclusion that economists and ecologists have come to agreement upon. A successful synthesis between economics and
ecology has yet to be reached, though it is evident that measuring ecology and
mathematics on the same mathematical scale by giving a dollar value to the
costs and benefits of protecting the environment is not quite making the mark.
With all the evidence in support of
the need to incorporate ecological concerns into the overall economic
framework, finding an exact way to offset environmental externalities still
eludes resolution. The reason is
deceptively simple. As seen with the
example of fisheries, the ecological cycle operates much more slowly than does
the economic cycle. With the rates of
natural ecosystem regeneration much slower than those of consumption, it is no
great wonder that some of nature’s subsystems are threatening extinction. The ideal solution would be to find a way to
equalize the rates. Unfortunately, the
economic cycle is driven by the need to maximize profit, while the natural
cycle requires only the minimum of survival (Safina, 1995). It is unrealistic to hope the environment
will adapt to the human-made economic cycle by speeding up production. Fish will not produce more offspring simply
to keep up with our demand for exotic dishes, nor will trees in forests grow
faster to replace the great number that are being cut down to construct cities.
This leaves the economic cycle the
task of adaptation. With greater
concern for short-term profit over long-term wellbeing, it may be difficult to
convince individuals and firms to look towards the future and accept as
certainty a surmise that one day there will be nothing left if they continue on
as they are. Behind each firm there are
individuals whose lifetimes will be too short to experience this predicted
ruin. Since it is not in their own
interest to accept the full costs they are creating for future generations, the
economy continues to run along the same path of blissful ignorance. Thus, since the nation’s growth remains
strong, economists are satisfied that high GNP is indicative of a high level of
societal welfare.
How long will the economy continue to
grow under this system of thought? Even
though the U.S. has seen a significant improvement in the effectiveness of
environmental policy thus far, we are all under a time constraint. There is only so much population and
industry growth, land use change, and world development that the earth can
withstand. As population grows, most
especially in developing countries that make up four-fifths of the world,
development skyrockets as the quest for a higher standard of living complete
with picket fence and cocker spaniel takes hold of more and more minds.
The common belief that humans are somehow special and separate from the rest of nature contributes to a widely accepted utilitarian view of nature. However, because of the scale of human consumption of ‘nature’s goods’, this view cannot be supported for long. Over the years, this disregard for the impact of human actions upon the environment has resulted in large-scale destruction of natural subsystems (Mackenzie, 1998). As the world population grows, there is increasing demand for energy to satisfy human desires. This results in an ever-accumulating deficit of natural resources as they are depleted much faster than humans and nature permit them to regenerate. Land is converted from forests, swamps, and grasslands to cities, suburbs, and industrial hubs. Roads divide, cities crowd, and human waste destroys whole ecosystems. This environmental degradation is threatening society’s ability to sustain itself through natural resources and ultimately threatens continued human survival.
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