"One of the most pressing and complex challenges facing our
generation is the search for a workable synthesis of economic
relations and environmental realities."
-- Elizabeth Dowdeswell
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The Polluter Pays Principle
Poverty and its Impact on the Environment
Industry and Economics
The Growth in International Trade
The Environmental Impacts of Tourism
There are few sets of interactions as intrinsic to human society as those involved in business and the economy. Since the first person traded five chickens for a goat, we have been engaged in business as a means of makings ends meet.
All animate beings on Earth consume as an inherent aspect of life. Historically however, this consumption was usually limited to meeting the immediate needs of basic survival, such as food, housing and the protection against enemies and predators. Since then, economics, and consumption, have become much more complex. After the industrial revolution-which began in the North and then spread to the South-human desires multiplied, and industrialized humanity began to want new things as fast as they could be invented. In the years following, many new "conveniences" such as refrigerators and televisions improved our quality of life, and we started to depend on them. No matter how isolated, most people today ride in automobiles or buses, wear eyeglasses with metal frames, make telephone calls or listen to the radio. All these are products of the industrial revolution.
As there is an intrinsic interconnection between human activity and economic activity, so too is there is an interconnection between economics and the environment. The word "economy" in most European languages is derived from the Greek words "oikos," which means "home," and "nomos," which means "law." Economics-at least in the European languages-could be considered a sort of law of the home, or household management. In the larger sense of the word "home," extending beyond our dwellings to the entire planetary home, the Earth, this word implies that successful economics involves the responsible and efficient care of the Earth's resources.
While there are many uncertainties in both economics and the environment, what is clear is that there is an intricate relationship between the two. It is also evident that there is a need for their integration in order to achieve environmental sustainability. The incorporation of social, environmental and equity issues into economic development is a necessary step to ensure that all people everywhere are able to enjoy a comfortable standard of living and improved quality of life without causing irreversible damage to the environment.
A modern economy consists of a system through which goods are produced from resources, transported, marketed and then consumed. The production, consumption and distribution of these goods are all dependent upon the ecology, or the biosphere, for materials such as timber, minerals, soil and fossil fuels. Likewise, the environment is needed for the disposal or elimination of waste. From an ecological point of view, the modern human economy is a set of interactions of energy and materials that exists alongside and is dependent upon natural biospheric processes.
In the past, this interdependence of economic and ecological processes was often overlooked or unrecognized. The environment was regarded as an unlimited source of resources to be exploited for production, or as a bottomless pit into which wastes could be disposed. When the scale of human activity was small in comparison to ecological processes, it is easy to see how humankind adopted this assumption. Today, however, people are realizing that the interdependence of the environment and the economy cannot be ignored.
Many economists believe that much of the current environmental crisis can be attributed to an undervaluing of the Earth's resources in the global marketplace. On a personal level, we of course value the air, the water, the trees and wildlife. Markets, however, with their emphasis on supply and demand, do not incorporate this value into the prices of goods.
What these prices do reflect is the extracting or growing raw materials, the cost of production, packaging, advertising and transport. What they do not reflect is the environmental costs associated with the production and distribution of the goods. These costs are called "external costs" because they are not borne by the manufacturer. External costs, however, often cause an uncompensated loss of health, finance or welfare on the part of other people or communities not involved in the manufacturing. For example, the costs of air pollution, such as increased rates of lung diseases, are experienced by the community and not borne by the actual polluter. Since these costs (cleaning up the air or paying hospital bills for people with sensitive lungs) are not borne by the polluting producer, they are not reflected in the prices of products. Hence, the producer has no economic incentive not to pollute.
Another example can be seen in a chemical company that discharges
its waste into a river or lake. Since much of this waste is highly
toxic, it causes numerous environmental consequences such as killing
the aquatic life of the region and polluting the community's drinking
water supply. The potential costs of properly disposing of the
toxic waste were saved by the company. Unless the company has
to pay the cost of cleaning up the water, the prices of its chemicals
will not reflect the true cost of producing them. If the company
were forced to pay these costs, its prices would increase, encouraging
consumers to look for other chemicals or substitutes. It also
would encourage the company to find ways of reducing the amount
of toxic waste it produces.
The Polluter Pays Principle
A new concept to deal with the problem of external costs is evolving
in international circles but does not yet have enough support
to be properly implemented. The "polluter pays principle"
states that whoever is responsible for damage to the environment
should bear the costs associated with it. Although the theory
may seem straightforward, in practice it is difficult to enforce
because it is not always obvious who is responsible for environmental
degradation.
In any market transaction, there is a buyer and a seller, both
of whom benefit in some way from the transaction. If there were
any pollution or other form of environmental degradation caused
by the production of the product, then both are in some way responsible
for it. In other words, the degradation would not have occurred
had either of them refused to take part in the transaction. It
then stands to reason that both parties should in some way pay
the cost of either avoiding the problem or solving it, given that
producing products without harm to the environment often incurs
higher costs.
Some organizations think it quite reasonable to demand that environmental
degradation be paid for in direct proportion to the amount of
benefit obtained from the activity that caused the degradation.
The costs of environmental degradation can thus be included in
market prices through realistic resource pricing as well as through
the use of economic instruments such as taxes and permits. These
measures would "internalize" the external environmental
costs by distributing the costs of environmentally harmful methods
of production and consumption to those that are engaged in the
activity. Once this full cost pricing is implemented, and the
complete costs are internalized, market forces should make heavily
polluting or wasteful industries obsolete and should encourage
environmentally-sound ones.
Poverty and Its Impact on the Environment
Just as inefficient economies and industry can have a negative
impact on the environment, so too can lack of economic activity
or industry impact negatively on the environment. At the Stockholm
United Nations Conference on the Human Environment in 1972, former
Indian Prime Minister Indira Gandhi spoke of the link between
poverty and environmental degradation when she attributed pollution
primarily to poverty and underdevelopment. On hearing this, many
developing countries attending the Conference expressed concern
that environmental goals could detract from their development
objectives.
At the time of the Stockholm conference, an estimated 944 million
of the world's people lived in poverty. Scientists and policy
makers were beginning to witness the environmental degradation
scarring the planet, a result of years of irresponsible industrial
development. The connections between poverty and environmental
concerns had not yet been clearly drawn.
Today we know the connections all too well. About 40 per cent
of the world's population lives in poverty. More than one billion
people are considered absolute poor, and every day an estimated
40,000 children die of disease and malnutrition.
Those who live in poverty are often too preoccupied with immediate
survival to be concerned with environmental issues. They do not
have the luxury of using what resources they have access to in
a sustainable manner. Often, the poor are forced to exploit the
environment due to limited choices of food and fuel. Deforestation,
soil erosion and desertification are environmental problems that
are often associated with extreme poverty.
Environmental degradation and poverty are strongly intertwined,
resulting in a vicious cycle in which poverty causes environmental
stress that, in turn, perpetuates poverty. The only way out of
this vicious circle is along the path of sustainable economic
development and the efficient use of modern technologies.
The traditional economic instruments that measure success in the
market place frequently encourage us to take natural resources-for
food, fuel, shelter and more-without requiring us to replenish
the environment. The present system used to calculate the gross
national product (GNP) takes no account of the depletion and degradation
of natural resources and, therefore, overstates progress and generates
environmentally destructive policies.
In the long term, however, environmental losses creep onto profit-and-loss
balance sheets. They impose heavy burdens on societies as well
as the global and state economies of both developing and developed
countries. Local and national economies from Australia to Zimbabwe
feel the economic stress of degradation when agricultural yields
decline, fish catches fall, and the costs of cleaning up toxic
wastes, providing health care and alleviating hunger begin to
eat away at any profits. The economic system warns us that we
are over-harvesting only when it is too late. In the developing
world, this falling productivity is reducing living standards,
thereby creating more poverty.
As well, the unequal distribution of land, rather than a shortage
of land, forces the poor to exploit marginal environments. Most
agricultural land is concentrated in a small percentage of holdings
usually owned by a privileged minority who use it for export crops,
forcing the poor to unsuitable lands. This pressure on the land
by growing populations leads to a host of environmental problems
such as soil erosion and loss of water sources.
The world has the ability to end absolute poverty, and with its
end a major threat to the well-being of a large and growing number
of people. When the poor are given the means and opportunity to
break out of the vicious circle in which poverty holds them, real
sustainable development will become a possibility.
Industry and Economics
The world's dominant economic systems are based on what we have
begun to realize are two potentially self-destructive and environmentally-damaging
principles: consumption and growth. Most human economic activity
is centred on consuming resources. In addition, this activity
depends on maintaining a growth in consumer activity. Each year,
industry must produce more manufactured goods and extract more
minerals than it did in the previous year in order for the economy
to be considered "healthy."
Though necessary for development and economic growth, industry
also is the cause of many environmental problems. It consumes
37 per cent of the world's energy, and emits 50 per cent of the
carbon dioxide, 90 per cent of the sulphur oxides and many of
the chemicals now threatening the ozone layer with depletion.
Every year industry produces more than two billion tons of solid
waste and 338 million tons of hazardous waste.
Though most industrial activity is in the developed world, the
developing world is doing just that-developing, and often unsustainably.
Recent studies from the World Bank and the General Agreement on
Tariffs and Trade (GATT) conclude that the amount of "dirty"
industrial output in developing countries has grown steadily over
the past two decades. They also suggest that this has more to
do with the stage of industrialization of those countries than
any other factor-including the desire of some industries to migrate
to them primarily because of their lower environmental standards.
The good news is that industries are beginning to recognize the
need to prevent wastes from being generated in the first place
before treatment and storage are necessary. Some companies have
demonstrated economic and environmental benefits from introducing
cleaner production as an integral part of their environmental
management system.
Limited financial resources and lower profit margins, however,
sometimes make it difficult for business and industry to make
the protection of the environment a priority. When looking at
profit and loss statements, sales growth is often a matter of
survival. Capital investment alternatives are usually decided
upon by calculating the immediate return on investment. Because
there is a need for measurable evaluation criteria, traditional
business models emphasize short-term results instead of long-term
opportunities that are afforded by incorporating environmental
principles into the plan. To counter this tendency, the shareholders
in many corporations are pressuring management to produce short-term
profits while at the same time accounting for social or environmental
costs.
In countries with a choice of consumer products, communities often
advocate supporting those companies with good environmental policies
or boycotting those with hazardous environmental principles. When
companies experience dramatic drops in their sales because the
public disapproves of their environmental policies, they often
reconsider their practices.
This strategy, however, is most practical in developed countries
where consumers have a choice of products. In developing countries
the scenario often is much different, and there are not so many
options for consumers. Some of the problems that do exist are
a lack of awareness, inappropriate labelling of products and inadequate
environmental legislation. Where environmental legislation does
exist, its enforcement is often weak. Because of light fines or
minimal punishment, it is often cheaper for companies to continue
to break the law than it is to protect and clean up the environment.
Crossing Borders: The Growth in International Trade
The formerly separate economies of the world are increasingly
merging into one gigantic and interdependent economy. The implementation
of the Uruguay Round of GATT and the establishment of the World
Trade Organization (WTO) is expected to generate billions of dollars
each year for the global economy and will bring profound changes
to the contours of international trade and markets. The WTO intends
to weave national economies into the expanding global economy.
This fundamental change in the way the world conducts its business
will mean that environmentalists, and those with environmental
concerns, should both monitor and search for ways in which the
environment could suffer from irresponsible business and industrial
practices.
An integral component of the new global economic order is the
concept of mutual interdependence and the idea of "comparative
advantage." The idea is that a country or region that produces
certain commodities well, and at the lowest price, should concentrate
its activity on those items and rely on trade for the balance
of its needs. According to this concept, for example, Costa Rica
should produce coffee and trade it for sugar, which Brazil might
be better at producing.
While this concept holds certain advantages, it also causes problems,
some serious enough to threaten open trade within and between
nations. Among these are the problems of security of supply of
goods or services between nations. Global trade increases the
need for transportation and distribution, thereby creating more
pollution as goods are transported over greater distances. As
well, a global economic system of trade could undermine the ability
of communities at the local level to be self-sustaining. Farmers
and other primary producers, unable to compete in the global marketplace,
could be pushed into poverty.
All nations have strengths, or potential strengths, that could
be developed through cooperation across borders. To ensure equitable
benefits and global equilibrium, some economists say that all
contributions to increase open world trade should be seen as positive,
even if they are not uniform and fair in providing direct benefits
to all countries.
One practice that could effectively contribute to the objective
of sustainable development would be to evaluate the activities
of transnational corporations (TNCs). Through providing opportunities
for employment, investing in the community and purchasing local
inputs for their production processes, TNCs often contribute positively
to the economic development of their host countries. Typically
they also export a high percentage of their outputs, thereby earning
foreign currency for their host country and positively contributing
to its balance of trade.
While in general, TNCs positively influence the economic and social
development in the host country, there are examples where this
is not the case. If they are able to get away with it, some TNCs
overexploit resources, both human and natural. Moreover, many
developing countries let TNCs operate in ways that would never
be tolerated in developed countries. In the worst cases, the desire
of developing countries for economic growth and foreign direct
investment by TNCs can even override their strongest concerns
for environmental protection and human safety.
Fortunately, an increasing number of companies are endorsing voluntary
codes of conduct, such as the International Chamber of Commerce's
Business Charter for Sustainable Development, which strongly recommends
improved environmental performance through sound environmental
management. National codes like Japan's "Charter for Good
Corporate Behaviour" and its "Global Environmental Charter"
have also encouraged TNCs to conduct their operations in a responsible
and conscientious manner, both at home and abroad. Still, much
remains to be done to ensure that TNCs contribute to the establishment
of fairer economic systems which do not threaten our global environment.