October 2007
Trade Liberalisation: Panacea Or Pandemic?
Last month we discussed the benefits of trade liberalisation on the environment. This month, we take an opposing view and discover whether trade liberalisation is gravely harming the planet.
Let us begin by kicking David Ricardo’s theory of comparative advantage into touch. His original idea of mobile factors of production assumes goods to be mobile but capital and labour to be static. Yet the era of globalisation has lead to highly mobile capital, which allows specialisation of production to distribute harm unevenly through increasing the concentration of polluting industries in some countries and decreasing it in others.
Critics have also targeted trade and the capitalist notion of ever increasing efficiency and production as driving our materialistic nature of consumption. For example, efficiency gains which result in lower prices can cause demand to rise. Moreover, the expansive nature of trade far exceeds efficiency gains (e.g. cars are more efficient, but there are more of them). Indeed, efficiency gains made are invariably measured in monetary, not environmental cost. For example, transporting cheaply produced goods from one area to another does not take into account the environmental costs imposed by the perceived consumer benefit. This externalisation of environmental and social costs, which has lead to the aforementioned pollution havens operates a push-pull effect on the areas.
Where western nations enforce strict environmental controls and less economically developed countries (LEDCs) compete for manufacturing on a cost, rather than skills basis, a race to the lowest common denominator in environmental protection is often the result.
Rebutting the Chicago School Economics promoted as a panacea for all social and environmental problems, noted economist, Professor Herman Daly, regards the damage done by these dyed in the wool Reganites as having trapped us in a vicious circle:
"Environmental degradation is an iatrogenic disease induced by the economic physicians (pro-growth advocates) who attempt to treat the sickness with unlimited wants by prescribing unlimited production. We do not cure a treatment-induced disease by increasing the treatment dosage."
Even the WTO, that bastion of free market liberalism that served Argentina so well at the expense of precipitating the country’s economic collapse, accepts the failure of free market economics in protecting the environment. In a press release on the environment, it was admitted not only that "economic growth is not sufficient for turning environmental degradation around and not all kinds of growth are equally benign for the environment" but also "environmental degradation is driven by market and policy failures".
The United Nations Environment Program largely agreed with this analysis based on the experience of several LEDCs in implementing trade liberalisation schemes. Finding that "although through trade liberalisation, enhanced trade objectives were achieved in the countries studied, there were serious negative environmental, and related social, impacts of expanded trade activity."
Socio-political commentators also point to the emergence of a redefined "Dependency Theory". That is, following the absence of colonial relationships, multinational corporations filled the power vacuum as a tool to extend this relationship bias and so better exploit a nation’s wealth. Essentially, subordinating the people of those states through economic means is the new imperialism.
And this exploitation continues without fear of sanction. Examples of environmental disasters resulting from firms operating in LEDCs with minimal regulatory controls are abound. One merely has to look at Bhopal in India or Ogoniland in Nigeria to realise the ever present dangers presented by unrestricted free trade.
Although mitigated to some small extent by the promise of tough extra territorial environmental legislation on UK based firms following the Trafigura incident, this is only a drop in the ocean, and hardly a real deterrent to polluters.
Ultimately, it is the desire for multinationals to enjoy total economic freedom without the associated environmental regulatory burden that poses the biggest threat from trade liberalisation. As the author notes, the adage "a leopard cannot change its spots" has never been more applicable.
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