A Survey of Sustainable Development

Social And Economic Dimensions

Jonathan Harris, Timothy Wise, Kevin Gallagher, Neva R. Goodwin, Jonathan Harris, Timothy Wise, Kevin Gallagher, Neva R. Goodwin

• Publisher: Island Press
• Year: 2013
• ISBN:
  9781597267830
• Topic: Business
• Subtopic: Business General
• Index: Business

Perpetual economic growth is physically impossible on a planet with finite resources. Many concerned with humanity's future have focused on the concept of "sustainable development" as an alternative, as they seek means of achieving current economic and social goals without compromising the ability of future generations to meet their own goals. Sustainable development brings together elements of economics, public policy, sociology, ecology, resource management, and other related areas, and while the term has become quite popular, it is rarely defined, and even less often is it understood.

A Survey of Sustainable Development addresses that problem by bringing together in a single volume the most important works on sustainable human and economic development. It offers a broad overview of the subject, and gives the reader a quick and thorough guide to this highly diffuse topic. The volume offers ten sections on topics including:

• economic and social dimensions of sustainable development
• the North/South balance
• population and the demographic transition
• agriculture and renewable resources
• energy and materials use
• globalization and corporate responsibility
• local and national strategies

Each section is introduced with an essay by one of the volume editors that provides an overview of the subject and a summary of the mainstream literature, followed by two- to three-page abstracts of the most important articles or book chapters on the topic.

A Survey of Sustainable Development is the sixth and final volume in the Frontier Issues of Economic Thought series produced by the Global Development And Environment Institute at Tufts University. Each book brings together the most important articles and book chapters in a "frontier" area of economics where important new work is being done but has not yet been incorporated into the mainstream of economic study. The book is an essential reference for students and scholars concerned with economics, environmental studies, public policy and administration, international development, and a broad range of related fields.

POLICIES FOR SUSTAINABILITY

PART VII

Globalization and Sustainability

Overview Essay

by Kevin P. Gallagher

Globalization is fast becoming a fact of life—too fast for many people to accept. It is transforming trade, finance, employment, migration, technology, communications, the environment, social systems, ways of living, cultures, and patterns of governance. The main features of the current phase of globalization that are discussed in this section are the accelerated integration of the world’s economies through the liberalization of trade and investment regimes; the adoption of structural adjustment programs for many of the less-developed countries; and the diminishing role of the state in developed and developing economies alike.

At the global level the 1990s witnessed a new round of negotiation under the General Agreement on Tariffs and Trade (GATT) that resulted in the creation of the World Trade Organization (WTO). At the regional level, free trade and investment agreements were initiated in Europe, Asia, Africa, Latin America, and North America. Also during that time many structural adjustment programs were adopted in the developing world. While the pace of globalization appears to be increasing, a growing number of scholars and activists, some of whom are represented in this section, are making the case that the current form of globalization is not compatible with sustainable development.

Theory and Reality

Economic arguments for trade liberalization are based on David Ricardo’s theory of comparative advantage. Ricardo argued that different countries with dif ferent technologies, customs, and resources will have different costs to produce the same product. If each country produces and exports the goods for which it has comparatively lower costs, then all parties will benefit. The mutual benefits from trade are said to include greater efficiency in production and higher worldwide rates of consumption. In this model, some groups may lose as a result of trade. However, the net national gains are predicted to exceed losses.

The effects of comparative advantage on factors of production are dealt with in the Heckscher-Ohlin model. This economic model assumes a framework in which all countries have perfectly competitive economies and can make the same diversified mix of products, with perfect factor mobility between industries. In this framework, the Stolper-Samuelson theorem predicts that international trade increases the prices of products in which a country has a comparative advantage. This in turn has similar effects on the country’s demand for, and prices of, factors of production: demand and prices rise for those factors in which the country is relatively abundant.

Under this theory, free trade would lead rich countries to specialize in capital- and skill-intensive products, while poor countries would specialize in unskilled-labor-intensive products. As a result, wages would rise for skilled workers in rich countries and for unskilled workers in poor countries. Conversely, in this simple model, trade should cause employment and wages to fall for unskilled labor in rich countries and for skilled labor in poor countries.

Criticisms of this model are of two sorts. One approach is based on analysis of the costs to the “losers” in liberalized trade, the other on the model’s assumptions. The former criticism was addressed in Volumes 4 and 5 in this series, which covered the ongoing debate over to what extent trade liberalization is responsible for job losses and inequality in the developed and developing world alike. This volume examines the latter criticism: what happens when key assumptions in trade theory break down?

Externalities such as pollution and resource depletion are assumed not to exist in conventional trade models. Since externalities are, in fact, pervasive, trade liberalization can have unintended consequences: nations with lower environmental standards could gain a comparative advantage in “dirty” production, relative to nations with higher standards. This could create an incentive to lower environmental regulation worldwide, an effect that is sometimes referred to as the “race to the bottom.” (Daly 1996, 1999).

A separate problem is that trade theory assumes that every country is capable of moving into any industry in which it could potentially obtain a comparative advantage. Some countries are at a stage of development where they do not yet have the networks of infrastructure, suppliers, and so forth that would allow them to develop the export industries necessary to accrue full benefits from trade. In such cases, the optimal solution may be to protect industries temporarily until a certain level of development is achieved. Import substitution, a development strategy based on protection of key industries from trade pressures, has long been out of favor with economists; recently, however, it has received a new and at least partially sympathetic hearing (Bruton 1998).

Race to the Bottom or Climb to the Top?

While there are a growing number of analysts who share the view that the underpinnings of trade policy do not reflect the goals of sustainability, there is a wide range of opinion regarding the impact of globalization. Some see global economic integration as a crisis for environment, labor, and community; others see it as an opportunity.

Paul Streeten argues that for globalization to be successful, markets should be channeled in a way that allows their energies to flourish. Unfortunately, in Streeten’s view, the decreasing role of the state, in addition to the unprecedented spread of world markets, without a countervailing authority to regulate them, is making the goals of social and environmental well-being harder to reach. While Streeten acknowledges the significant achievements of globalization in promoting economic growth and development, he stresses that it has also contributed to increased inequality and has weakened important social structures and institutions.

Herman Daly argues that there is a clear conflict between the goals of free trade and environmental protection. Daly worries about creating free trade relationships between developed nations with stringent environmental policies and developing countries that do not internalize environmental and social costs through environmental regulation. When free trade partnerships like this are created, he argues that the developing countries will become “havens” for highly polluting industries. Through their lack of environmental regulation, such nations could gain a comparative advantage in pollution-intensive industry. This is particularly alarming to Daly, because as an ecological economist he is concerned that the resulting increases in overall output will push local and global ecosystems beyond their limits.

Like Daly, many of the analysts concerned with the detrimental effects of trade liberalization assume that developed country environmental practice will be jeopardized. The summarized article by James Boyce shows how trade liberalization can also adversely affect sustainable practices in developing countries. Using the same logic of externalities articulated by Daly and others, Boyce illustrates how the North American Free Trade Agreement (NAFTA) has impacted Mexican maize farming. Boyce shows that the higher cost of Mexico’s labor intensive maize farming is indirectly protecting the genetic diversity of Mexican maize—some of the most genetically diverse cropland on earth. Trade liberalization in Mexico, however, has brought dramatic increases in maize imports from the United States that do not include internalization of externalities in their prices. Boyce and others have gone on to document how these imbalances have affected local production, the environment, and poverty in the Mexican countryside (Nadal 2000).

The empirical story on labor and social standards, extensively covered in the previous two volumes in this series, is mixed. “There is a strong case for trade effects as one of the important causes of the declining prospects for low-skilled labor in developed countries, but there is also a strong case for the view that other effects must be of equal or greater importance. Perhaps the most surprising conclusion is the difficulty of precisely defining and measuring the effects of trade and the extent to which the evaluation of these effects rests on a series of subtle technical judgments” (Ackerman 1998). One effect that is difficult to pick up in empirical analysis is the use by employers of the threat of moving overseas as a means to win concessions from workers, even when no actual movement of jobs occurs (Belman and Lee 1992). A more recent article by James Crotty, Gerald Epstein, and Patricia Kelly calls this the “magnification effect,” and adds that stagnant wages and contractionary monetary policies increase the need for communities to bid to attract employment.

Although much of this discussion has focused on ways in which nations can derive comparative advantage through economic and institutional means that are harmful to society and the environment, there are also a number of scholars who focus on how comparative advantage can be associated with positive externalities that will result in a “climb to the top” rather than a race to the bottom. These analysts contend that the globalization process, especially in the realm of private capital flows, can be harnessed to achieve sustainable development. Since 1990, Foreign Direct Investment (FDI) has increased from $44 billion in 1990 to over $650 billion in 1998, while official development assistance continued to hover at close to $50 billion (UNCTAD 2000). Private capital flows that are moving to areas where they will enjoy a new comparative advantage often originate from developed countries where environmental and social standards are more stringent. Thus, it is argued, these practices can be transferred to the developing countries where these firms will now concentrate, therefore improving the prospects for sustainable development in the developing world. This more positive view of trade impacts is presented in the article by Daniel Esty and Bradford Gentry, summarized here (see also Gentry 1996).

A well-known advocate of this view is businessman Stephan Schmidheiny, who cites the Mexican privatization of its steel industry as an example of environmental progress through privatization. Altos Hornos de Mexico (AHMSA), the largest Mexican steel plant, was sold to a group of Dutch and Mexican investors in 1991. The Dutch investor supplied international and European environmental certification of its manufacturing standards and installed a state-of-the-art environmental management system (Schmidheiny and Gentry 1997). This approach has promise but falls far short of being the key to sustainable development. Of the FDI flows in 1998-$657 billion—only 25 percent were located in the developing world. Moreover, three nations—China, Mexico, and Brazil—receive almost half of the developing world’s share (UNCTAD 2000). What about the rest of the developing world that receives relatively little private capital? Moreover, massive capital flows to developing countries are not a sustained guarantee; such flows have proved to be erratic and volatile over time. In addition to receiving relatively little investment, most developing countries are minor players in the trade picture as well. Although the value of world trade tripled from 1980 to 1997, the least-developed countries only imported and exported one-sixteenth of all imports and exports in 1997¹ (World Bank 2000).

Dharam Ghai, director of the United Nations Research Institute for Social Development (UNRISD) adds that in addition to the effects of global integration on the environment, working conditions, and job creation, globalization is harming the social fabric in the developing world as well. Expanding on issues raised in Part II of this volume, Ghai emphasizes how the marginalization that is caused from the globalization process can cause internal political divisions and international migration. Similar concerns have been voiced regarding the developed world. Herman Daly and John Cobb, for example, have argued that economic integration is undermining communities on both sides of the comparative advantage divide (Daly and Cobb 1994).

Reassessing Structural Adjustment

Structural adjustment programs (SAPs) are the policy instruments that are most frequently relied on to bring the developing world into the world economy. SAPs are often applauded for achieving their desired macro-economic changes. From a sustainability perspective the question is: At what cost?

The structural adjustment programs that have been prescribed by the International Monetary Fund (IMF) and the World Bank have the stated goals of achieving higher output growth and rising real incomes in the developing world. Structural adjustment policies have sought to bring developing countries into the world economy by adopting a development strategy based on the following : the promotion of export-oriented growth; the privatization of state-owned industry; the elimination of barriers to international trade and investment flows; the reduction of the role of the state as an economic agent; and the deregulation of domestic labor markets.

Even the harshest critics of SAPs acknowledge that it is erroneous to think that developing nations can develop in the context of hyperinllation, ballooning deficits, and extreme poverty (MacEwan 2000). Macroeconomic stability is a key ingredient for sustainability. From a macroeconomic point of view, there is little doubt that adjustment programs are having some positive effects. In most cases, per capita GDP, agricultural exports, and revenues from extractive industries are all on the rise, while budget deficits and inflation have been brought under control. But this is not the whole picture. In two comprehensive book-length studies, authors Lance Taylor, Ute Peiper, and David Reed, show that the social and environmental costs of these programs may outweigh the short-term economic benefits. Taylor and Peiper’s work, while including a chapter on environmental impacts, highlight the social impacts of SAPs. Specifically, they focus on the effects of SAPs on poverty and inequality, gender relations, and educatio...