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#627 - Sustainable Development -- Part 4, 02-Dec-1998

Sustainable development means achieving human well being without
exceeding the Earth's twin capacities for regeneration (trees and
water, for example) and for waste absorption (carbon dioxide, for
example). As we have seen in recent weeks (REHW #624, #625, and #626),
there is growing evidence that humans have already exceeded both of
these capacities and that further growth in throughput (making more
stuff using more energy) will only make things worse. Of course,
increasing efficiency (making more useful things with fewer materials
and less energy) can buy us a short reprieve. But it appears that we
are approaching (or have already exceeded) the Earth's limits for
handling many kinds of wastes. Sooner rather than later total
throughput (measured as the total number of humans multiplied by their
furnishings and the energy they require) must soon decline or we face a
harsh future with (for example) more big, costly storms and more
poisoned wildlife and people. Recall that hurricane Mitch just killed
over 10,000 people and devastated several national economies.

To bring human economic activity into line with Earth's limits, we will
need to understand the forces that are pushing us in wrong directions.
Chief among these is the drive toward "free trade," according to
economist Herman Daly.[1,2] If there is one thing that most economists,
politicians, and business leaders agree on, it is the desirability of
free trade. Daly, on the other hand, says free trade undermines
environmental standards, drives down wages, weakens our capacity to do
better, and undermines our sense of community.

Free trade is the absence of barriers to international trade. There are
three common barriers: tariffs, quotas, and restrictions on the flow of
capital. A tariff is a tax on goods coming into a country --for
example, a tax on Egyptian cotton imported into the U.S. A quota is a
limit on imports --for example, the U.S. might accept only a certain
number of Japanese automobiles. A third limit on free trade might
restrict the amounts of foreign capital that could flow into a country.
For example, in response to its recent (and ongoing) financial crisis,
Malaysia is now severely restricting the amount of foreign capital that
it will accept.

Almost all traditional (neoclassical) economists favor free trade.
Among economists, free trade has taken on the character of a religious
faith, its power to do good unquestioned. Among traditional economists,
Herman Daly is viewed as a heretic. He believes free trade is bad for
everyone (except transnational corporations) for the following reasons:

** Free trade tends to lower environmental and social standards
internationally. Take the example of two nations: One nation
internalizes environmental and social insurance costs to a high degree
(enforcing strict environmental laws; providing benefits such as health
care and social security). The second nation refuses to internalize
these costs --providing no social security, and throwing toxic waste
into its rivers. Products from the second country will sell for less
and will tend to drive competitors in the first country out of
business. Thus there is a clear conflict between a national policy of
internalizing environmental and social insurance costs and a policy of
free trade. The country that exploits its environment and its citizens
is rewarded. The country that protects its environment and its citizens
is penalized.

Of course if we had a world government to enforce environmental rules
and minimum standards for human well being, this problem would
disappear. But no such government is in sight. Furthermore, the world's
economists cannot even agree on how to measure the costs of
environmental degradation; the vast majority of economists continue to
account for depletion of natural resources as if it were income --a
preposterous and wrongheaded accounting practice that is nearly
universal. (Any business that treated depletion of its assets as income
would be bankrupt in short order.)

One solution would be a tariff on goods imported from countries that
refuse to internalize environmental and social insurance costs. Such a
tariff would aim not to protect an inefficient domestic industry but to
protect an efficient national policy of setting prices to reflect the
full costs of maintaining community.

** Wage levels are set mainly by population size and growth rates.
Countries with large populations, rapidly growing, tend toward low
wages. This is especially true because the laboring class tends to have
a much higher birth rate than the owning class, often twice as high.
Labor is the main cost in most consumer goods. Therefore, cheap labor
means low prices, creating an advantage in trade. Capital therefore
tends to move to low-wage countries. Herman Daly believes that the
effect of unrestricted capital mobility is the same as the effect of
unrestricted labor mobility. If the U.S. had unrestricted borders, we
would enjoy endless cheap labor, but wages would plummet. Unrestricted
capital flow will have the same effect, Daly says. "United States
capital will benefit from cheap labor abroad followed by cheap labor at
home, at least until checked by a crisis of insufficient demand due to
a lack of worker purchasing power resulting from low wages," Daly wrote
in 1996.

Daly's words have a special resonance today when Asian economies have
been devastated by overcapacity for cars, chemicals, and electronics.
As Louis Uchitelle of the NEW YORK TIMES wrote recently, "In an open-
border global economy nearly every car manufacturer, for example, is
trying to have a presence in every market. But when all the factories
crank out more cars than people can buy, down come car prices. Down go
the profits of car companies. Out go the workers. And down go the
number of people who can afford to buy cars. Economies can spiral
downward toward recession, or worse.... The global economy appears, in
effect, to be capable of self-destruction."[3]

The problem of uniformly low wages could be solved by maintaining low
population growth everywhere, plus a fair distribution of benefits,
plus policies to internalize the costs of environmental protection and
social insurance. But even if all this were achieved, Daly says, free
trade would still be harmful:

** Free trade and free capital mobility separate the ownership and
control of businesses, and force labor to become mobile --both of which
undermine human community. "Community economic life can be disrupted
not only by your fellow citizen who, though living in another part of
your country, might at least share some tenuous bonds of community with
you, but by someone on the other side of the world with whom you have
no community of language, history, culture, law. These foreigners may
be wonderful people --that is not the point. The point is that they are
very removed from the life of the community that is affected
significantly by their decisions. Your life and your community can be
disrupted by decisions and events over which you have no control, no
vote, no voice."[4]

** Daly believes that free trade and free capital mobility have created
economic instability by permitting huge imbalances in international
payments and capital transfers resulting in debts that are unrepayable
or excessively burdensome. Efforts to pay back loans while still
meeting domestic needs have fostered government deficits and high
inflation rates, furthering instability. Inflation then takes an
additional toll: currency devaluations, foreign exchange speculation,
repudiation of debts, and bank failures. Thailand, South Korea,
Malaysia, Indonesia, the Philippines. Who is next?

** Free trade appears to loosen the constraints of the ecosystem, but
this is a false picture. We must all live within the absorptive and
regenerative capacities of the ecosystem. Trade allows us to import
environmental services (including waste absorption) from elsewhere.
Within limits, this makes sense. New York City cannot grow its own food
and must import it from elsewhere. But, Daly says, free trade leads to
a situation in which every nation is trying to live beyond its own
absorptive and regenerative capacities by importing these capacities
from elsewhere.

It requires 12.6 acres of land per person (5.1 hectares) to create the
flows of materials and energy needed to maintain an American lifestyle,
and Europeans require nearly as much. But if you divide all the good
land on Earth by the present human population, you find there are only
3.7 acres (1.5 hectares) available per person. This tells us that
everyone on Earth will never be able to enjoy the hedonistic lifestyle
to which we are accustomed.[5]

Secondly, if you divide all the good land in the U.S. by the current
U.S. population, you find that we have only 6.9 acres (2.8 hectares)
per person. This means each of us is "borrowing" 12.6-6.9=5.7 acres
(2.3 hectares) of someone else's land to maintain our lifestyle.[5] (Is
this one reason why we spend $250 billion each year --5 times as much
as any other country --maintaining our armed forces?)

Thus we in the overdeveloped north face a number of uncomfortable moral
realities: with at least a billion people not getting sufficient food
calories each day to maintain subsistence, they require economic
growth --not merely development --to meet their needs. Yet growth is
already stressing the planet's capacity to regenerate itself and absorb
our wastes. It appears that the overdeveloped north will have to stop
growing (and perhaps shrink) before the south can take its rightful
place at the world's table.

Daly acknowledges that the roots of this problem are much deeper than
free trade ideology. But, he says, "The point is that free trade makes
it very hard to deal with these root causes at a national level, which
is the only level at which effective social controls over the economy
exist.... [T]he unit of community is the nation --the unit in which
there are institutions and traditions of collective action,
responsibility, and mutual help, the unit in which government tries to
carry out policies for the good of its citizens...."

Daly favors not free trade but regional trade among national
communities that share similar community standards regarding wages,
welfare, population control, environmental protection, and
conservation. "True efficiency lies in the protection of these hard-won
community standards from the degenerative competition of
individualistic free trade, which comes to rest only at the lowest
common denominator," he writes.[2,pg.235]

Today a growing movement of workers, environmentalists, consumers,
farmers, and social activists worldwide is urging an alternative to the
destructive practices called "free trade." Instead of free trade, they
are promoting fair trade. Fair trade is a concept developed in the U.S.
(and elsewhere) in the 1940s. Fair trade is international trade based
on bedrock principles: workers are paid a fair wage--whenever possible
not a minimum wage but a family-sustaining livable wage; the business
unit is the cooperative or producer association; raw materials are
locally derived and managed in a sustainable fashion; fair trade
organizations respect the cultural identity of their trading partners;
and they insist on public accountability for their business operations.
[6] Different. Very different.

--Peter Montague National Writers Union, UAW Local 1981/AFL-CIO)


[1] Herman E. Daly, BEYOND GROWTH (Boston: Beacon Press, 1996). ISBN 0-

[2] Herman E. Daly and John B. Cobb, Jr., FOR THE COMMON GOOD [Second
Edition] (Boston: Beacon Press, 1994). ISBN 0-8070-4705-8.

[3] Louis Uchitelle, "Global Good Times, Meet the Global Glut," NEW
YORK TIMES November 16, 1997, Section 4, pg. 3. And see William
Greider, "When Optimism Meets Overcapacity," NEW YORK TIMES October 1,
1997, pg. A27. And see William Greider, ONE WORLD, READY OR NOT: THE
MANIC LOGIC OF GLOBAL CAPITALISM (New York: Touchstone Books, 1998).
ISBN 0684835541.

[4] Daly, BEYOND GROWTH, cited above in note 1, pg. 163.

[5] Mathis Wackernagel and William Rees, OUR ECOLOGICAL FOOTPRINT;
REDUCING HUMAN IMPACT ON THE EARTH (Gabriola Island, British Columbia,
Canada: New Society Publishers, 1996). $14.95 plus $3.00 shipping from:
New Society Publishers, P.O. Box 189, Gabriola Island, B.C., Canada V0R
1X0; telephone (604) 247-9737.

[6] Learn about fair trade on the world wide web:
http://www.fairtradefederation.com/ab_princ.html and

Descriptor terms: herman daly; growth; economic development; free
trade; fair trade;