Sustainable Development

Olav Schram Stokke, Olav Schram Stokke

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781317856511
• Edition: 1
• Topic: Business
• Subtopic: Infrastrutture
• Index: Business

First published in 1991. The European Association of Development Research and Training Institutes (EADI) organised its 6th General Conference in Oslo, 27-30 June 1990. The general theme was 'New Challenges for European Development Research', with particular reference to the changes taking place in Europe, East and West, and to sustainable development. More than 200 papers were presented - in the plenary sessions, in two parallel, special sessions on the two main themes, and in the sessions of 23 working groups and five ad hoc panels. It is from this harvest that the editors of the previous and the present issues of the EJDR have selected contributions. No.2 (1990) focused on the changes in Europe and their effects. The present issue focuses on the other main theme of the conference, sustainable development.

The ‘Non-Polluter Gets Paid’ Principle for Third World Commodity Exports

Henk L.M. Kox*

Introduction

The report of the World Commission on Environment and Development, better known as the Brundtland report, has been a prominent eye-opener with regard to the dual relation between environment and development. It points out how economic growth and the quality of growth are influenced by the ecological issue. Besides, it shows how ecological devastation in many developing countries is amplified by poverty-led behaviour and by the need to secure foreign exchange. Production of primary export commodities is often linked with environmental damage. The current debt situation and adjustment policies force countries to increase their production of export commodities with concomitant further pressure on the biophysical environment. It is for this reason that the Commission expressed ‘the need for more effective instruments to integrate environment and development concerns into international trading patterns’ [WCED, 1987:84].

It becomes increasingly clear that environmental degradation does not respect national borders. From the present state of knowledge about a number of global environmental problems – a weakening ‘green lung’ capacity of tropical rain forests, perforation of the ozone layer and global warming, dwindling of species, and pollution of oceans with potential far-reaching implications for oxygen production by plankton -it emerges that international co-ordination and action is urgently needed. It is likely that the 1990s will see an intensification of attempts to integrate costs of environmental preservation and natural resource use in regular international price systems.

This article argues that the creation of such an economic instrument is feasible for the most important export sector of developing countries, namely exports of primary commodities to OECD countries. This economic device, labelled International Commodity and Environment Agreement, builds upon the remnants of ‘traditional’ commodity agreements but, unlike the latter, is not concerned with price stabilisation. It aims primarily at integration of environmental externalities in the commodity prices paid

by OECD countries. Before describing this instrument, some attention will be given to ecological damage associated with Third World production of export commodities, to attempts to evaluate this damage, and to theoretical insights on integration of environmental externalities in price systems.

Production of Export Commodities and Environment

The period of low prices since 1980 urged many countries to produce and export larger volumes of primary commodities in order to finance their import needs and debt. Prescriptions to increase commodity exports often formed part of the IMF readjustment package for countries with debt problems, thus contributing to further international supply imbalance and depression of export commodity prices. In a basic policy document on Sub-Saharan Africa the World Bank calls on these countries to increase their commodity exports in spite of depressed world markets.¹ Export diversification programmes are difficult to realise and can work only in the longer term. Many countries tried to shift towards downstream activities in the production chain (industrial processing of primary products) in order to improve their export earnings. Slow progress in this field can partly be explained by a limited propensity to invest in these activities by foreign companies, by technological problems, by the structure of international marketing and distribution of processed commodities, and in some cases, by tariff escalation in OECD countries. In the foreseeable future commodity production remains a vital export sector for a vast majority of developing countries.²

Some ecological effects of production of primary commodities have become a matter of international concern by now. This holds for the destructive effects of deforestation in the Amazon region and in South-East Asia. Most of this damage is caused by export of tropical hardwood logs, production of mineral resources with export destinations, and extensive cattle ranching, mostly producing for meat exports.³ According to the FAO agricultural extension for export-oriented agroindustry (for example, groundnuts) may account for 70 per cent of Sub-Saharan deforestation [Le Prestre, 1989:170]. Cattle ranching for export of meat or live animals is also a cause of overgrazing and soil erosion in many arid zones [Myers and Tucker, 1987]. Over-intense fishing of coastal waters and deep sea areas, often by international fishery companies, negatively affects the regeneration capacity of these ecospheres. Sometimes it devastates the coral reefs and the sea bottom [Swaminathan, 1987].

The production of cash crops like soya, cocoa, coffee, cotton, tobacco, rubber, and sugar cane is often linked with abundant use of chemical fertilisers and pesticides, especially when production units are large. Often forests are destroyed by agricultural extension to grow these products. Intensive use of agrochemicals contributes heavily to pollution of the subsoil and surface waters. Moreover, it has cumulative long-term effects in the form of pesticide residuals in animal and human food chains, a diminishing biodiversity, soil erosion and falling ground water levels. The latter two consequences are in their turn important causes of desertification [Redclift, 1989; Barbier, 1989; Mortimore, 1989; Van Amstel et al., 1986; Pearce et al., 1990).

Export mining also contributes to soil erosion by demolition of vegetation and soil structure, especially in the case of open-cast mining (copper, tin, zinc, bauxite). Other metal mining activities create giant waste heaps or dispose of toxic wastes and polluted run-off [Blunden, 1985].

Ecological effects of commodity production are felt mostly by the local population in producing countries, either directly or in the long run. Lagged effects such as soil erosion, or exhaustion of soil and water resources, manifest themselves through regular ‘natural’ catastrophes (land slides, floods, large forest fires, or drought). Similarly, they may appear in the form of a slow process of falling agricultural yields, causing rural impoverishment, departure for urban shanty towns, and depopulation of rural areas. Direct economic consequences of deforestation are not confined to the depletion of future timber sources. It also produces the disappearance of non-timber means of existence for the local populations like medicinal and aromatic herbs, barks (for example, quinquina), fibres, flowers, resins, fats, and other forest products. Only a small part of harmful ecological side effects of commodity production trickles down along the international trade chain to the commodity-importing countries. This may have the form of residues of pesticides, herbicides or fungicides in agricultural commodities. These make themselves felt as health hazards for harbour, transport and manufacturing workers and, ultimately, also for consumers in importing countries.

Other, less direct effects of large-scale environmental degradation in developing countries, like those mentioned in the introduction, are only recently receiving international attention. These long-term, cumulative effects are transnational in character and can only be tackled by international co-operation.

Valuation of Damage

If environmental externalities of export production are to be integrated in international commodity prices, exercises to quantify the costs of environmental degradation in the monetary dimension are indispensable. Several methods exist for measuring the costs of environmental damage. Each offers a different approach for tackling the quantification problems. Three central problems arise. First, ecological effects have no natural unit of measurement. This specially applies to influence on amenities. Second, environmental effects have the character both of externalities and of public goods: they represent no private property, are not sold in markets and their value cannot be assessed in a direct way. The third and perhaps most important issue is that ecological effects, due to their complexity, uncertainty, and to our far from complete knowledge about the complex ecosystems, can hardly be forecasted [Turner, 1988]. Non-linearity of ecological relations means that sudden vehement reactions can occur due to small, gradual changes.⁴

Some methods base their estimates upon valuations derived from revealed or stated preferences of individual consumers [Nash and Bowers, 1988]. Because of the public goods character of ecological effects such valuation efforts seem less appropriate. Moreover, using these methods assumes a large degree of discretionary consumer choice, which is scarcely available at the low absolute income levels prevailing in most developing nations. Preferences are influenced by income and knowledge levels, not only between individuals, but also between nations. Even if ‘The Polluter Pays’, the permission to dump heavily polluted chemical waste in a poor African country is probably more a function of income and knowledge than a function of ‘autonomous’ preferences. The willingness-tobe-compensated is therefore a dangerous standard for ecological valuation attempts in situations where large differences in income and knowledge about long-term effects prevail.

The method mostly applied for measuring environmental effects in developing countries is the alternative costs method. Basically, it tries to valuate unpriced production or resource consumption by using related economic variables that already do have a price at this moment, though sometimes in a different economic space [Ahmad, 1981; Hufschmidt and Hyman, 1982]. With regard to environmental costs of primary export production two variants of this method have been used.

The first variant basically counts the costs of environmental preservation that would have been incurred if the same production would have been undertaken in some other country with more advanced environmental regulations. Often the reference country is the United States. What is being measured, therefore, is primarily the amount of economised costs.⁵ By not demanding or by not being able to maintain the same ecological standards developing countries in fact subsidise industries and consumers in OECD countries. Walter and Loudon [1956] calculated that OECD countries for their 1980 imports from developing countries would have incurred direct pollution control costs of $5.5 billion if they had been required to meet the environmental standards then prevailing in the United States. If the pollution control expenditures associated with the materials that went into the final product are also counted, the costs would have mounted to $14.2 billion in 1980. In the same years Third World exports of non-oil commodities to developed market economies amounted to $68 billion [UNCTAD, 1990b], so that it is fair to speak of a considerable hidden subsidy. For two reasons the aforementioned amounts underestimate the ‘real’ costs of ecological damage. First, because they do not count costs associated with resource depletion, and secondly because cost-price increasing environmental regulations in the reference country do not cover all ecological damage. Total ecological costs are, therefore, a multiple of the aforementioned amounts. Ironically, this very ecological ‘comparative cost advantage’ of Third World exporters is an argument for OECD producers to demand protectionist measures against these imports [Ford and Runge, 1990]. In the Uruguay Round of GATT negotiations the use of environmental protectionism has been widely discussed.

A second application of the ‘alternative costs’ method tries to evaluate ecological damage by counting the commercial costs which will be incurred when the destroyed environment has to be reshaped in its original condition. Estimates have been made of total costs of timber extraction and forest conversion in Indonesia during 1982. Cost elements include depreciation of the forest stock, costs of timber extraction itself (including logging damage and fires), and foregone costs of minor forest products. In Repetto, Wells et al. [1987] these costs have been estimated at a total of $3.1 billion, or about four per cent of Indonesian GDP that year. This estimate has been criticised as being too low.⁶ Several studies quantify the cost effects of soil erosion in developing countries [Dasgupta and Maeler, 1959]. Production of export commodities is a major, but, of course, not the only cause of soil erosion.⁷ The United Nations Environment Programme (UNEP) estimated the total global cost effects of desertification in arid zones at $26 billion annually as a consequence of lost agricultural and livestock productivity [Mortimore, 1959]. In Mali foregone farmers’ incomes due to soil erosion are estimated at $31-123 million annually, which is equal to 4-16 per cent of agricultural GDP [Bishop and Allen, 1959]. On-site costs of soil erosion in upland areas in Java are estimated to amount $320 million annually, or three per cent of agricultural GDP. Counting the costs caused by downstream sedimentation of eroded soils would add another $25-90 million [Magrath and Arens, 1987].

Both variants of the alternative costs method can be criticised in some respects. In case of the first method one could remark that a perfect counterfactual case does not exist, so that additional adjustments have to be made. In case of the second method it is obvious that ecological damage will never be solely caused by production of primary export commodities. Moreover, cost-benefit method usually treat irreversible environmental effects of projects no differently from more reversible effects, and the practice of using cost-benefit methods has therefore been criticised for strongly favouring projects with short-term benefits and long-term costs (as is often the case for environmental effects) [Goodland and Ledec, 1987].

Even though some criticism is possible, the estimates made it plausible that ecological costs of commodity production are substantial and that the magnitude of the hidden environmental subsidy transferred to OECD countries, is far from trivial. This would justify an integration of environmental externalities in international commodity prices to be based not only on ecological and/or solidarity grounds, but also on economic grounds.

Cures and Growth Priorities

Abatement of ecological devastation in commodity producing countries has both a stock and a flow aspect. The stock aspects centers around the arrears in ecological ‘reparations’. The flow aspect concentrates on the modalities of a different growth model that incorporates ecological preservation at an ongoing basis, while depletion of non-renewable resources is minimised.

Repair of ecological damage caused by production of primary export commodities in past years will require ample funds for environmental reconstruction and protectio...