An Ecological PerspectiveBy Jonathan Harris

“Holy Trinity” of concepts embodied in traditional economic thought as essential for the improvement of human welfare:

Economic growth Limited resources and waste absorption capacity of the environment

Technological progressUnintended environmental consequences-disruptive impact of technological

innovations such as intensive agriculture, large scale power production of nuclear energy and auto technology

Free trade:The international application of an unregulated free-market system

Based on David Ricardo’s theory of comparative advantage,

The formal model of free trade = mutual benefits from trade in the form of greater efficiency in production and higher consumption overall

However….groups whose incomes are linked to import-competing industries may lose as a result of trade

These groups’ losses are justified because the overall national gains (in the form of increased incomes in export industries and lower prices for raw materials and consumer goods) exceed the losses of the smaller groups

Two criticisms of the formal model of free trade:

~the model’s assumptions are unrealistic

~there are limitations to the model

~the model’s assumptions are unrealisticThe assumption: Free trade will necessarily bring net gains to trading countries

Conditions necessary for this to be true:

Perfect competition in all factors and product markets, Full employment in all trading nations,

Labor mobility between industries in all nations,“Well-behaved” production functions in all industries,

Immobility of capitol across national frontiers

…in the real world, none of these hold true, so the case for Free Trade is simply that the conditions do not deviate too far from the model’s assumptions/alter the main conclusion

~there are limitations to the model

Imperfect competition(monopoly/oligopoly) in international trade

= use of strategic trade policies for gain

Structural unemployment

= income declines in import competing industries,

not export competing industries

Mobility of capitol across frontiers

= substantial job loss & wage inequality

…even after acknowledging the flaws in the system, the standard model remains…

Environmental Externalities

: Damage from pollution

: Long term resource depletion

: Overuse of common property resources

: Insufficient provisions of environmental public goods

…none of which are taken into account in the free trade models…

Appropriate Gov’t policies = pollution or resource depletion taxes

= public management of common property resources

= public funding or subsidies for environmental preservation

The harmonization of environmental standards (easier said than done)

~commonly suggested, but strays from definition of “free trade”=unregulated free market system

~creates a supernational authority

~allows corporations to slide by without penalty:

--GATT(General assoc. on Tariffs and Trade) found US regulations on dolphin protection to be in violation of its free trade rules

--Denmark’s reusable bottle law overturned by European economic court of Justice

--Numerous US and Canadian regulations for forests and fishery protection, pesticide management, acid rain reduction, and recycled paper content have been challenged based on US/Canada free trade agreements or GATT rules

Trade and Sustainability—an alternative perspective

No systematic alternative has been presented, so the rejection of free trade appears to imply a descent into policy chaos and uncontrolled projectionism

Identifying the real problem:

The formal trade theory focuses on short-term consumption benefits w/ fixed resource endowment—never taking into consideration long term issues of sustainability, growth and the social & institutional impacts of trading patterns

What would a model of trade and sustainability entail?

Natural resources as capital: when taken into account, nations are currently diminishing long term wealth because they are concerned with boosting current, conventionally measured welfare by exporting natural resources and increasing industries that are resource-intensive

…instant gratification does not = sustainable…however…

In theory, private property rights should induce natural resource owners to take account of natural capital depreciation and to conserve resources that are expected to be in short supply in the future…

But the nature of many resources being “common property” results in the plundering of national heritage for short term benefit.

Short term vs. Long term costsThe standard trade theory considers welfare effects from short term production of energy without including environmental damage as a cost to long term production

Short term-the lowering of energy prices, assuming that it would higher the consumer’s gain

Longterm-lowering energy costs undermines conservation and alternate energy development as well as promoting investment in fossil fuel dependent capital stock and increasing carbon dioxide emissions

Including long term costs imposed on nations experiencing environmental depletion could give a different perspective based on future costs rather than immediate gain

What’s good for the market…is…only good for the market?

~ “common property” cannot be protected by the group as easily as it can be abused by the system that aims to gain from it

Example: If erosion depletes soil productivity by 1% per year, but intensive agricultural production for export can increase revenues 20%, economically—it makes sense for farmers to continue erosive practices

~Long term responsibility = public responsibility--localization of power

~ making exception for environment means putting sustainability first, free trade second—opening “pandora’s box” on trade system

~1996 report of WTO committee on trade & environment:--unsolvable tensions between preserving trade system and enforcing

regulations about environment

Suggestions:

--Compatibility of free trade and environmental protection

--institution reform of WTO (take better account of environmental isues)

--invoke trade measures in support of environmental goals extending beyond national boundaries, keeping in mind fresh water systems, carbon cycle, ocean food cycle, ozone depletion—environmental externalities

--establishment of a global environmental organization to counterbalance the WTO’s one-sided emphasis on trade.

Social & Developmental Issues:

~ large scale social disruption and increased inequality

~ As globalization of economics proceeds, the social costs become more evident--ripple effect moves farmers to urban sprawl, creates unmanageable urban areas, expanded trade causes breakdown of communities damaging to social cohesion

~ social problems multiply, income inequalities

~ transnational corporations benefitting from the exploitation of weakened labor unions and less effective gov’t control

~ NAFTA agreement stating intention for all parties to pursue the harmonization of environmental issues--never followed through

Strategy for Free trade & Sustainability

~ Create a balanced view of the relationship between economic growth and the environment: should acknowledge both the greater pressures placed on the environment by rising economic output and the possibility of policy changes leading to “greener” economies

~ strategies will need to be specifically included in trade policies and trade agreements of all levels from global to local:

Global—the creation of global organization to counter balance WTO Regional level—no single deviating principle for future trade

requirements, but guidelines National & Local—reassert power of democratic decision making, increase local powers to control trade and capitol flows and

activities of international corporations

…there will still be benefits from trade in terms of increased efficiency, technology transfer, and the import/export of sustainably produced products. But in the future, the effects of trade must be evaluated in terms of social and ecological impacts and the structure of regional or global trade agreements must reflect these assessments…