Economic Globalisation and the Environment

Notes (28/04/08): Sorry for the poor quality images in this document, not sure what happened to the higher resolution figures. Essay written in 2006 for an undergraduate course on Global Environmental Policy.

Harold Laski, the famous British philosopher, had once said that socialism is a hat that has lost its shape because everybody seems to be wearing it. I think the phrase globalization falls in the same category.¹

The impact of trade practise on the environment is more noticeable than the impact of the environment, and environmental regulation on trade. This essay will define economic globalisation and contrast it with the more ambiguous “globalisation”. I will then summarise, and discuss the main arguments in the globalisation-environment debate, in particular the relationship between economic growth driven by globalisation and pollution. Lastly, I will attempt to demonstrate that economic globalisation dominates the globalisation-environment dialogue due to the asymmetry of the influence of trade in environmental degradation. In this essay, I have not differentiated between economic globalisation and trade liberalisation, as these terms are often used interchangeably in the literature.

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Economic Globalisation

Globalisation is the historical process of global integration that includes economic integration, political interaction, flows of information and technology, and culture². Economic globalisation is a subset of globalisation³ that encompasses the global integration of economies, particularly in relations to trade and financial flows, and may include the movement of labour and information (or technology) across borders⁴). It also refers to organisational structures, such as the World Trade Organisation (WTO), that are associated with trade and financial flows⁵. Economic globalisation is related to the production of goods and services: “a set of processes leading to cross border integration of factor [sic?], intermediate products, and final product markets along with an increasing salience of multinational corporations in economic activity”⁶. Prakash argues that it is multinational corporations, not states, who are the primary agents although denying that there are currently “stateless” Multinational Corporations (MNCs)⁷.

In its ideal form trade liberalisation will channel economic activities to the lowest-cost producers⁸. However, for the lowest-cost producer to have the lowest environmental cost, natural and environmental resources must be priced correctly⁹. An example is valuing old growth forests as a reservoir for biodiversity, and not just a source of pulpwood. If there are market failures, such as agricultural subsidies for pesticides, then free trade will act to maximise efficiency, but at a cost to the environment as producers will ‘externalise’ these costs by displacing them to governments and the public¹⁰. The cost can include ongoing health problems and the price of clean up resulting from the industrial accidents, such as the 1984 gas leak in Bhopal, India. Trade liberalisation is the poster-child of economic globalisation, and this link between trade liberalisation and environmental degradation is one of the reasons economic globalisation figures prominently in the globalisation-environment debate.

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Economic Globalisation and the Environment Debate

Frankel claims, “no aspect of globalization worries the critics more than its implications for the environment”¹¹. Economic globalisation dominates the globalisation and environment debate because it is considered a driving force behind environmental degradation in the modern world. Although, “not all forms of economic activity do equal environmental harm”¹², Panayotou¹³ identifies several ways in which globalisation can affect the environment, principally through economic growth. These factors include: accelerated infrastructure development and industrialisation with associated resource consumption and pollution; the diffusion of capital and technology, which “depending on their environmental characteristics relative to existing capital and technology, the environment may improve or deteriorate”; exacerbation of market failures and “policy distortions”. In addition, globalisation can marginalise economies causing “poverty-induced resource depletion and environmental degradation”.

Dauvernge categorises the debate on how globalisation is affecting the global environment into “optimists” and “critics”¹⁴. At its simplest, the argument is based on economic growth: optimists argue that economic growth is beneficial to the environment as it provides the wealth to pursue environmental projects¹⁵ while critics argue that economic growth is driving an increase in consumption of natural resources and filling “waste sinks”; potentially exceeding environmental capacity to assimilate waste without toxic contamination¹⁶.

Optimists argue that economic globalisation provides a positive “net ecological impact”¹⁷ by increasing economic growth and promoting global cooperation between states. However, they argue that this requires states to eliminate subsidies¹⁸, for instance agricultural subsidies, which are seen to promote intensive and wasteful practice. Optimists tend to maintain that “science and human ingenuity” will provide solutions to environmental change, as the ‘Green Revolution’ of the 1960s proved high-intensity farming as a solution to the food crisis of the mid-last century¹⁹. They contend, “[T]he process of economic globalisation itself will spread higher standards to the world because of its ability to generate economic growth”²⁰. The argument follows that the resulting rise in real incomes correlates to a rise in the “demand for environmental quality … Under the right conditions, this can translate into environmental progress”²¹.

The contraposition is the critic’s view that economic globalisation produces a negative net impact²². Critics often see economic globalisation as the dominant issue in the globalisation-environment debate because they considered it the driving force behind environmental degradation in the modern world. Critics typically take one of two positions in regards to globalisation-environment: Roe classifies these as the “green counternarrative” and the “ecological counternarrative”²³. The green counternarrative calls for a stop to economic globalisation based on what is known: that it is inherently destructive, as it results in an increase in consumerism and development, and environmental costs are not accounted for by the market²⁴. The ecological counternarrative opposes economic globalisation based on the lack of knowledge about crisis points in the environment (such as catastrophic climate change)²⁵.

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Wealth and the Environment

The redistribution of wealth linked to economic globalisation is a key theme in explaining the dominance of economic globalisation in the globalisation-environment debate. A number of authors identify that economic globalisation brings with it some profound structural change to the system “within which theoretical political projects are performed”²⁶ and by extension, environmental policy²⁷. These changes include “the generation and distribution of wealth”²⁸. They argue that economic globalisation is associated with an increase in individual and national wealth, as measured through per capita income and Gross Domestic Product (GDP). The increase in wealth, as a product of economic globalisation, is important in the globalisation-environment debate as critics and optimists have differing views on its impact on the environment. Optimists see this income increase as a driver for improving environmental quality²⁹, while critics associate it with an increase in consumption, and therefore increased demand on natural resources and waste sinks³⁰. The link between income and environmental conditions is described by the Environmental Kuznets Curve (see Figure 1), which shows pollutions as a function of per capita income. Harbaugh and Levinson et al³¹ dispute the validity of the empirical data used in describing the inverted-U of the Environmental Kuznets Curve on the grounds that the turning point, and the inverse-U shape is sensitive to slight changes in data, and additional country-specific variables change the shape altogether³² (see Figure 2 and Table 1). This is critical as many of the proponents who argue economic globalisation is beneficial for the environment in the long term, use the Environmental Kuznets Curve as evidence.

Proponents of economic globalisation, and trade liberalisation, claim that economic growth results in increase per capita income. This increase in income first results in worsening environmental degradation later followed by an improvement as governments and businesses have the financial means to respond to public demands for better living conditions³³. This change in pollution versus income per capita is known as the Environmental Kuznets Curve (see Figure 1). However, it is argued that this trend also results in movement away from heavy industry to service and knowledge industries³⁴. It is also argued that economic globalisation, in particular the movement of knowledge (environmental standards) and technology across borders, may bypass the worst of the Kuznets Curve³⁵. However, Frankel admits that economic growth is not enough in an international system to improve environmental practice³⁶. The Kuznets Curve also does not account for the displacement of waste from one community to another³⁷. Typically, this is from rich to poor communities but not always; for example both Mexico and Canada have increased imports of hazardous waste from the United States since the implementation of North American Free Trade Agreement (NAFTA), a regional trade agreement³⁸. Another criticism of the Environmental Kuznets Curve, is that it does not account for irreplaceable losses (such as loss of biodiversity), or for the “potential for cumulative ecological change to erupt into a sudden and uncontainable crisis” (such as global climate change), and is only restricted to a limited range of pollutants, for example, it does not account for C02³⁹.

Figure 1: Generalised Environmental Kuznets Curve with peak typically at US$5000-$8000⁴⁰

Figure 2: Plot of regressions different data sets for sulphur dioxide using data from Table 1⁴¹

Table 1: Effects of Changes in the data on Sulfur Dioxide Regressions (Random Effects Model)⁴²

Critics also contend that economies can become ‘stuck’ along the Kuznets Curve, and not reach a point where pollution begins to decline⁴³. The Kuznets Curve approximates a relationship between national income and pollution⁴⁴. Economic globalisation acts as a ‘driver’, indirectly affecting the environment by theoretically driving economic growth, which results in higher incomes that correlate with differing levels of pollution. Pollution is a reflection of consumption; in particular of the rich, developed ‘North’ where degradation is driven by over-consumption⁴⁵.

Opponents of economic globalisation argue that an increase in income expands the “ecological footprint” of each person by increasing consumption, and associated increase in the demand for natural resources and infrastructure⁴⁶. This threatens the “sustaining middle”, that segment of the world’s population that “approximates sustainability”⁴⁷. This is due to trade liberalisation in the emerging markets of the global “South” increasing consumption⁴⁸. One reason for this is due to the trade liberalisation model that promotes “least-cost” production of goods. Least-cost are often inexpensive and disposable goods that are cheaper to mass-produce than repair⁴⁹. This is opposed to the durable goods used by the “sustaining middle”⁵⁰. The propagation of the ‘throwaway society’ through globalisation results in increased loading on natural resources and the disposal of waste (both in production, and post-consumption). In addition, economic globalisation “separates authority from responsibility with serious environmental and social costs”⁵¹; market failures externalise the cost of environmental degradation onto governments and the public as discussed previously.

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Environmental Regulation and Trade

There is an inherent asymmetric relationship between trade and the environment. Economic globalisation claims to increase individual and national wealth. This increase typically leads to an increase in consumption, which requires inputs from the environment through extraction of natural resources, and use of the environment as a sink for waste and pollution. Nevertheless, environmental policies designed to protect the environment can affect trade by imposing a “least efficient” model on production. The dichotomy of trade and environment leads to the dominance of economic globalisation in the discussion of globalisation and the environment. There is no dispute that there is a link between economic globalisation and the environment; however, the degree that they influence each other, and in what ways, is. The effects of economic globalisation on the environment were covered previously under “The Globalisation and Environment Debate”. This section will mainly cover the impact environmental regulation can have on economic globalisation, in particular trade.

Domestically, a nation-state can attempt to control the environmental impacts of methods of production, extraction and processing of natural resources, through regulation. However, when these regulations are extended extraterritorial to imported products, and therefore into the realm of economic globalisation, it can raise trade issues⁵². An example is the 1991 USA-Mexico Tuna-Dolphin trade dispute⁵³ where the United States was accused of using environmental policy is a cover for a protectionist agenda. In 1991, United States implemented ‘the US Marine Mammal Protection Act’ that placed an embargo on imported tuna. The embargo was placed on tuna caught with fishing nets that resulted in incidental slaughter of dolphins⁵⁴. Mexico challenged the Marine Mammal Protection Act through the General Agreement on Tariffs and Trade (GATT). The GATT disputes panel ruled in favour of Mexico, declaring that the embargo was inconsistent with GATT Article XX – the general exceptions clause of GATT⁵⁵. This demonstrates the role of international organisations associated with economic globalisation such as the World Trade Organisation (WTO). In this case, the institutions actively pursued the reduction of environmental regulation when they conflicted with an international trade agreement.

The WTO clearly states that it is not an environmental protection agency, its “competence in the field of trade and environment is limited to trade policies and to the trade-related aspects of environmental policies which have a significant effect on trade”⁵⁶ . Their position appears to follow that of the Tokyo Round Agreement on Technical Barriers to Trade, which discussed the degree environmental controls could potentially limit trade. It calls for “non-discrimination in the preparation, adoption and application of technical regulations and standards, and for their transparency”⁵⁷. Therefore, a nation-state can impose environmental standards, such as labelling, so long as they do not discriminate between domestic and foreign sources⁵⁸.

The actual extent of environmental policy on trade, outside of the political arena, is debated: Panayotou states that there is evidence that environmental standards and enforced controls only have a restricted effect on trade, as “environmental controls costs are a very small fraction of production costs”. The result of this is any comparative advantaged gained by negligent environmental standards is inconsequential compared to the resource endowment, technology, labour, infrastructure and macroeconomic policy⁵⁹ of a state.

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Conclusion

Due to the interrelatedness of trade and environment issues, as demonstrated in this essay, a complex set of narratives, and counter-narratives have developed in the Globalisation-Environment debate⁶⁰. Economic globalisation plays such a dominate role in globalisation-environment debate because they are interconnected, with economic globalisation as a frame for environmental and social issues, such as over-consumption, the relationship between wealth and environmental degradation, and the uneven distribution of environmental problems related to income between North and South. Finally, economic globalisation dominates the globalisation and environment debate because it has an unbalanced, asymmetric relationship with environmental issues. The processes driven by economic globalisation, such as economic growth and the associated increase in global production and consumption, have a greater influence over the degradation of the environment, than environmental regulation currently has over trade.

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Bibliography

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1. Aseem Prakash, “Governance and Economic Globalization: Continuities and Discontinuities” (paper presented to the United Nations General Assembly, New York, 1999), 1 [↩]
2. Theodore Panayotou, “Globalization and the Environment” (Working Papers, Center for International Development Harvard University, 2000), 1 [↩]
3. International Monetary Fund, “Globalization: Threat or Opportunity?”, International Monetary Fund (IMF). http://www.imf.org/external/np/exr/ib/2000/041200.htm. [↩]
4. Ibid.; and M. Waters, (1995). “World Class Production: Economic Globalisation”, in Globalization, ed. M. Waters, 66 (London, Routledge, 1995 [↩]
5. Waters, “World Class Production”, 66 [↩]
6. Prakash, “Governance and Economic Globalization”, 1 [↩]
7. Ibid., 4 [↩]
8. Panayotou, “Globalization and the Environment”, 2 [↩]
9. Ibid. [↩]
10. Ibid.; and Jennifer Clapp and Peter Dauvergne, Paths to a Green World: The Political Economy of the Global Environment. (Cambridge: The MIT Press, 2005), 89 [↩]
11. Jeffrey A. Frankel, “The Environment and Globalization”, in Globalization: What’s New, ed M. Weinstein, 3 (unpublished) [↩]
12. Ken Conca, “Consumption and Environment in a Global Economy”, in Confronting Consumption, ed. T. Princen, M. Maniates & K. Conca, 134 (Cambridge: the MIT Press, 2002) [↩]
13. Panayotou, “Globalization and Environment”, 1 [↩]
14. Peter Dauvergne, “Globalisation and the Environment”, in Global Political Economy, ed J. Ravenhill, 371, (Oxford: Oxford University Press, 2005) [↩]
15. Clapp & Dauvergne, Paths to a Green World, 374 [↩]
16. Ibid. 32; and Dauvergne “Globalisation and the Environment”, 372; and Jennifer Clapp, “The Distancing of Waste: Overconsumption in a Global Economy”, in Confronting Consumption, ed. T. Princen, M. Maniates & K. Conca, 156 (Cambridge: the MIT Press, 2002) [↩]
17. Dauvergne, “Globalisation and the Environment”, 374 [↩]
18. Ibid., 371 [↩]
19. Dauvergne Globalisation and the Environment. pp372-3 [↩]
20. Clapp & Dauvergne Paths to a Green World pp28 [↩]
21. Frankel The Environment and Globalization pp33 [↩]
22. Dauvergne, “Globalisation and the Environment”, 375 [↩]
23. Emery Roe & Michel van Eeten. “Three–Not Two–Major Environmental Counternarratives to Globalization”, Global Environmental Politics 4, no. 4 (2004): 38 [↩]
24. Ibid. [↩]
25. Ibid., 39 [↩]
26. Elmer Altvater, “Restructuring the space of economy”, in Global Ethics and the Environment, ed. N. Low. (London: Routledge, 1999) [↩]
27. Altvater, “Restructuring the space of economy”; and Clapp & Dauvergne, Paths to a Green World”; and Panayotou, “Globalization and Environment” [↩]
28. Clapp & Dauvergne, Paths to a Green World, 81 [↩]
29. Altvater, “Restructuring the space of economy”; and Frankel “The Environment and Globalization” [↩]
30. Dauvergne, “Globalisation and the Environment”, 372-3 [↩]
31. Harbaugh, Levinson, & Wilson, ‘Reexamining the Empirical Evidence for an Environmental Kuznets Curve’, 141 [↩]
32. Harbaugh, Levinson, & Wilson, ‘Reexamining the Empirical Evidence for an Environmental Kuznets Curve’, 141 [↩]
33. Clapp & Dauvergne, Paths to a Green World; and Dauvergne, “Globalisation and the Environment”; and Frankel, “The Environment and Globalization” [↩]
34. Clapp & Dauvergne, Paths to a Green World, 382 [↩]
35. Ibid. [↩]
36. Frankel, “The Environment and Globalization”, 33 [↩]
37. Clapp, “The Distancing of Waste”, 161 [↩]
38. Ibid.; and Clapp & Dauvergne, Paths to a Green World, 150 [↩]
39. Clapp & Dauvergne, Paths to a Green World, 383 [↩]
40. Dauvergne, “Globalisation and the Environment”, 381 [↩]
41. Harbaugh, Levinson, & Wilson, ‘Reexamining the Empirical Evidence for an Environmental Kuznets Curve’, 545 [↩]
42. Ibid., 544 [↩]
43. Dauvergne, “Globalisation and the Environment”, 383 [↩]
44. W. Harbaugh, A. Levinson, and D.M. Wilson, ‘Reexamining the Empirical Evidence for an Environmental Kuznets Curve’, The Review of Economics and Statistics 84, no. 3 (August 2002):141 [↩]
45. Conca, ‘Consumption and Environment in a Global Economy’, 135 [↩]
46. Dauvergne, “Globalisation and the Environment”, 372-3 [↩]
47. Conca, ‘Consumption and Environment in a Global Economy’, 135 [↩]
48. Ibid., 152 [↩]
49. Clapp, “The Distancing of Waste”, 162 [↩]
50. Conca, ‘Consumption and Environment in a Global Economy’, 150 [↩]
51. R. Parhlke, “Integrating the Three Bottom Lines through Global Governance”, in Democracy’s Dilemma: Environment, Social Equity and the Global Economy, ed R. Parhlke. 201 (Cambridge: The MIT Press, 2004) [↩]
52. Panayotou, “Globalization and Environment”, 19-20 [↩]
53. Clapp & Dauvergne, Paths to a Green World, 137 [↩]
54. Ibid. [↩]
55. Ibid., 173 [↩]
56. World Trade Organisation, “Trade and Environment”, World Trade Organisation, http://www.wto.org/english/tratop_e/envir_e/envir_backgrnd_e/trade_env_e.pdf, 6 [↩]
57. Ibid., 2 [↩]
58. Panayotou, “Globalization and Environment”, 19 [↩]
59. Ibid., 20 [↩]
60. Roe & Eeten Three–Not Two–Major Environmental Counternarratives to Globalization [↩]