International Economics Update
March 2002
Copyright (C) 2002 The International Economics Network
http://www.internationaleconomics.net

Marginal Notes.

It's the Environment, Stupid: Confessions of an Former Skeptic

It is perhaps easy to dismiss environmental concerns as the purview (and luxury) of rich nations. Environmental awareness was nothing more than a passing footnote, a fancy that the rich nations of the world enjoyed - not a concern of developing countries struggling to raise their living standards. The stark realities of the consequences of continued ignorance of the environment by the world at large dawned upon my stubborn psyche. The scarcity of natural resources, and their unabashed use in a manner that often did not fully consider concomitant costs, was a steely reality. Existing technologies, whose continued operation served to erode the already fragile biosphere, had to be replaced with technologies that were not only economically viable but also environmentally coherent. The abject poverty of a large proportion of the world's population was inextricably linked to the future well being of all the peoples of the world. Although the Multhusian melodrama of a global population explosion seemed like an excessive (and obsessive) fear, demographers remain divided about the rate, and more importantly, the impact, of human population growth.[1] Sustainable development - so often tossed around in academic circles but rarely given due attention - could not merely remain a textbook concept. It had to be confronted, debated, effected.

However, closer examination of the global impact of human behavior on the environment gradually erodes that possibly oversimplistic belief. The issues addressed immediately began to challenge my assumptions - long ingrained as an economist - on the benefits and costs of free trade, the insatiable drive to improve GDP per capita, the mechanisms that translate theoretical studies into practical reality.

Take, for example, the case of global warming. At the Earth Summit meeting in Rio de Janeiro in 1992, world leaders signed a pledge seeking to maintain greenhouse gas emissions at roughly 1990 levels by the year 2000. In 1996, a United Nations-commissioned Intergovernmental Panel on Climate Change further lent further credence to this issue in its conclusion that there was a “discernible human influence” on the global climate.[2] The implications were clear - left to their own devices, private firms and governments would either underestimate the costs of industrial production, or even in perfect understanding of the underlying costs, fail due react appropriately due to a desire to free ride on the efforts of others. The residue of this oversight - whether deliberate or incidental - could irreparably threaten the progress of countries and livelihood of individuals all over the world.

The international offspring of this effort to reverse global warming - the Kyoto Protocol - was established in 1997, and a full 170 nations agreed to voluntary reductions in greenhouse emissions to 1990 levels. Yet, as of today, diplomatic frictions, bureaucratic foot-dragging and political interests have combined to result in not a decrease, but an increase in emissions of 10 percent or more in some cases. Evidently, the strategic choices of countries governs the behavioral outcome of nations with regard to environmental issues; as a result, a system that is both compatible with sovereign economic incentives as well as feasibly realized at an international level is required. Any attempt to glaze over the issue will only delay the inevitable need to address the problem later, and this delay could well introduce new constraints into an already complex situation.[3]

The benefits that accrue to the market as an efficient allocation mechanism, admittedly, remain large. However, there is a need to tamper this frictionless world with real-world rigidities, political realities, and environmental externalities. Any thesis of the way the world works that glosses over these facts will remain necessarily incomplete, and wholly unsatisfactory. Worse, it might lead to policy decisions that are erroneous at best and disastrous at worst.

If, then, a measured skeptic such as a myself can, when presented with the undeniable facts, be converted, then perhaps there is hope that, one day, many others will come to a recognition of the truths surrounding the environment. And while you may not find me picketing Starbucks any time in the near future, you will, however, have one more voice seeking to axe the path dependency that we find ourselves in, and hoping to preserve a beautiful world for our children's children.

References

Houghton, J.T., Y. Ding, D.J. Griggs, M. Noguer, P.J. van der Linden & D. Xiaosu (eds). Climate Change 1995: The Science of Climate Change. Cambridge: Cambridge University Press, 1996.
----, Climate Change 2001: The Scientific Basis. Cambridge: Cambridge University Press, 2001.
Nordhaus, W.D. "Global Warming Economics", Science 294, no. 5545, Nov 9, 2001, pp. 1283-4.
United Nations Population Fund. The State of World Population 2001: Footprints and Milestones: Population and Environmental Change. New York, NY: United Nations Publications, 2002.

Endnotes

1. See, generally, the report by the United Nations Population Fund (2002).
2. See the various reports by the IPCC, including Houghton et al (1996, 2001). The IPCC website also has full-text access to summaries: http://www.ipcc.ch.
3. There is some cause for optimism. In July 2001, 178 of 179 countries decided to move ahead with the implementation of the Kyoto-Boon Accord (the successor to the 1997 Kyoto Protocol). However, the sole holdout - the United States - could, by its virtue as the world’s largest economy - render the agreement far less effective (Nordhaus 2001).

Website Additions.

The international crisis page (http://www.internationaleconomics.net/crisis.html) has been expanded to include more subheadings for research papers

Interesting Readings.

1. World Economic Forum: The WEF, the world's foremost collection of movers and shakers in the business and financial world, gather in New York in the beginning of February. Big bets: the role of the U.S. in foreign aid ('World Bank Presses U.S. to Increase Foreign Aid', http://tm0.com/IHT/sbct.cgi?s=131847734&i=457331&m=1&d=2253836), Japan's troubled economy ('Japan's Woes Cast Pall Over Forum', http://tm0.com/IHT/sbct.cgi?s=131847734&i=457781&m=1&d=2258698), and the international poverty gap ('UN Leader To Warn of Dangers in Wealth Gap', http://tm0.com/IHT/sbct.cgi?s=131847734&i=459425&m=1&d=2262825). Interestingly, the forum also marks the return of the anti-globalization gang ('Going global: The protesters bounce back', http://news.economist.com/cgi-bin1/flo?y=haH0UZ3l0Mo0xKP0AX).

2. Bubble Bubble, Toil and Trouble: Another Nick Leeson has emerged, and speculative bubbles continue to characterize the free market economies of the world. However, as the Financial Times argues ('Editorial comment: Cold bath after a hot market', http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3IPF5KDXC&live=true), regulation is not a solution for avoiding such episodes, so long as investor psychology continues to be driven by "unreal optimism".

3. The Globalization Story Again: Steve Roach (MSDW) reviews a session in the WEF that pits Fukuyama versus Huntington, in the classic "inevitability of globalization" against "clash of civilizations" debate. Roach adopts somewhat of a middle ground - that whereas globalization will continue to occur, major fixes are required to the current model. He extends these thoughts to include a discussion on the current synchronous world recession ('Global: Fixing the World', http://www.morganstanley.com/GEFdata/digests/20020208-fri.html#anchor0). Of course, not everyone agrees that financial globalization is omnipresent. Fred Halliday offers an alternative view ('Globalisation and Sovereignty', http://www.fathom.com/link.jhtml?cid=726&page=feature&id=121971). Finally, for a slightly more heartening story of the Golden Arches, see this IHT article ('A Russian tonic of supply and demand', http://www.iht.com/articles/49163.html).

4. Mideast Issues: Several readings on issues concerning the Middle East might be of interest: check the Washington Post's 3-part series on the political relation between the U.S. and Saudi Arabia (linked in the News section, http://www.internationaleconomics.net/news.html or under 'Marriage of Convenience', http://www.washingtonpost.com/wp-dyn/world/mideast/gulf/saudiarabia/), and Jerome Seagal's "blueprint" for a new Middle East ('A Blueprint for a New Beginning in the Mideast', http://www.nytimes.com/2002/02/17/opinion/17SEGA.html). Thomas Friedman re-examines the U.S.-Saudi relationship from the ground ('A tribal mentality keeps Saudi Arabia secret', http://www.iht.com/articles/49170.html).

5. Interview with an Economist: The Far Eastern Economic Review conducts an interview with Stanley Fischer, former Vice President of the IMF and professor at MIT ('Interview: Stanley Fischer - An Economic Insider's View', http://www.feer.com/articles/2002/0202_28/p046money.html).

Endnotes.

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