Globalization is Green

[cross-posted from GreenCouple.com, where my fiancee and I talk about how we’re trying to live green(er) together]

The Undercover Economist by Tim HarfordI’ve stolen this counterintuitive title from a section in Tim Harford’s interesting economic book (and who thought that phrase would ever be used?), The Undercover Economist. The book as a whole is a great overview of economic thinking applied to a variety of topics, from finding a good used car to pricing coffee. Near the end, Harford attempts to debunk the idea that trade protectionism prevents globalization from damaging the environment. I find most of his arguments very persuasive, although there might be more arguments against globalization that he doesn’t cover. Hardford identifies three main anti-globalization arguments: a “race to the bottom,” transportation costs, and the idea that economic growth inherently hurts the planet.

In a “race to the bottom” view, globalization encourages production in countries that have lax environmental laws. To promote production in their countries, poor areas of the world would weaken their environmental laws, leading to no environmental protection at all. Harford argues against this on multiple fronts. First, he points out that the vast majority of trade is between rich countries with similar environmental standards. Harford also notes that many of the strategies with the most environmental impact, like energy efficiency, also save money (the same is true on an individual level!). In addition to arguing theory, Harford looks at the numbers behind the claim and find that companies are much more likely to invest in polluting industries in rich countries than in poor ones. This counterintuitive claim makes sense when you realize that the most polluting industries, like Harford’s example of bulk chemical processing, require infrastructure like roads that poor countries just don’t have. Finally, Harford looks at two competing situations: the increase in China’s air quality as foreign investments increased and the increase in environmental problems (high-yeild farming, primarily) caused by protectionist agricultural policies around the world.

Even if a race to the bottom isn’t likely to happen, it’s obviously true that transportation costs are high when buying overseas. Harford agrees, but points out that the transport costs of moving a CD player from Osaka to LA is less than that of moving it from LA to Arizona. Of course, buying locally is better yet, but even then there’s the possibility that the transportation costs are very high. To combat the environmental effects of transport, Harford suggests, as he does throughout the book, that a direct cost on externalities like air pollution caused by travel make the most sense. That way, the final cost of the item will give you a direct idea of how much environmental damage it’s done, whether it originated in LA or in Osaka.

Finally, Hardford takes on the claim that globalization leads to damaging environmental growth. For the poorest countries, the environmental problems they face, things like pollution from wood-burning stoves and unsafe drinking water, can be alleviated or eliminated with trade. Developing countries do have increasing environmental issues, but Harford brings up the moral dilemma that this creates: to reduce their environmental impact, we have to keep nations poor, which leads to preventable deaths by the problems poor countries face. Once again, Harford’s solution is a tax on externalities like the US tax on sulfur emissions. This would make cleaner technology even more attractive to developing nations, helping them leapfrog the environmentally worst stages of a developing economy.

Although Harford’s last claim seems the most dubious, I’m willing to grant that it’s better to figure out ways to encourage green economic production than to keep countries from developing at all.

So maybe globalization can be green after all. What do you think?

— terrorfirma

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3 Responses to Globalization is Green

  1. […] with co-blogger and fiancée Maggie. You can get a taste by reading Will’s cross-post below, Globalization is Green, and then check out the rest of their posts to date. They started posting in January, so the […]

  2. Mike says:

    I can’t find a morally acceptable way of denying growth to poor people, I hate farm subsidies as much as the next hippie and I definitely believe that transportation costs are surprisingly low and shouldn’t be treated as an anti-warming silver bullet.

    I’m less convinced that the “race to the bottom” is a myth.

    You say Harford makes these three points:
    1) Most trade is between rich countries with similar environmental laws.
    2) Energy efficiency saves money, so there’s no reason not to do it.
    3) Data show that companies prefer rich, regulated countries to poor, unregulated ones because of their other amenities.

    To which I say:
    1) (a) This feels like cheating: of course most trade occurs between rich countries. Most stuff is consumed and produced by rich countries. That’s why they’re rich! (b) Does he offer evidence that “rich countries” all have “similar environmental laws”?
    2) Of course it’s somewhat cheaper to be energy-efficient. No multinational’s CEO is dumb enough to not already be as energy-efficient as possible. And lo, we continue to pollute, despite the apparent environmental costs, because it’s not enough cheaper. Until we tax pollutants, it never will be.
    3) This isn’t a brake against the race to the bottom. It’s just a countervailing force. It’s plausible that for every $1 you save by locating in a poor, low-regulation country, you could make $99 by locating in a rich, high-regulation one. But what if the split is $10/$90? $20/$80? At some level, the race-to-the-bottom pressure exists … and you can hear American corporations making the race-to-the-bottom argument EVERY SINGLE TIME an anti-pollution bill is passed against their will.

    I haven’t read the book, so I don’t know how many of these arguments Harford addresses.

    I guess my working theory on this stuff is that we need some amount of world government, either through the UN or a more democratic WTO, to set and enforce these standards.

  3. terrorfirma says:

    To be fair, Harford actually makes several more supporting arguments that I didnt cover.

    1a. I agree that the fact that trade is almost exclusively between rich countries doesn’t directly tie into the premise. All it’s doing is giving an upper bound to the problem. Assuming that trade is 99% between the rich and 1% with the poor, the poor countries would have to be polluting 99 times as much as the rich ones for the pollution levels to be equal. So even though it’s harder to reduce pollution in generally green richer nations, it has a much larger impact that may offset the difficulty.

    1b. I don’t remember and no longer have the book. Harford does have a lot of end notes, so I wouldn’t be surprised if he did. If you’re really interested in primary sources, I can check it out from the library again and dig them up.

    2a. Harford would definitely agree with you. He’s a big proponent of taxes on externalities like pollution. However, Harford also thinks that taxing externalities indirectly (as when you limit or tax trade because it might come from a polluting country) is incredibly inefficient and probably ineffective. Again, this isn’t to say that there’s no pollution at all. Harford is merely arguing that pollution in poorer countries isn’t liable to be much worse than the same industries in places like the US.

    3a. I think I explained the argument wrong. It’s not as much about amenities as it is about risk (although part of that is tied in with amenities). If you can save $20 moving to a poor country but there’s a 50% chance of losing everything (your factory was destroyed in civil war or taken over by the state or burned in anti-industrial riots, etc.) then you’re much less likely to move your business there.

    And you’re right that this doesn’t provide any theoretical protection against a race to the bottom. If the risk is low enough or the rewards high enough, people will do it anyway. What Harford attempts to show (and I think does a pretty good job) is that currently, the incentives run the other way for high-polluting industries. Harford also spends a chapter talking about why poor nations are poor that makes the argument that the only way for them to reduce risks would inevitably increase costs to incoming business.

    I know it’s a hard argument to swallow without reading the book because it’s all based on numbers (that I didn’t provide) and not just theory.

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