PCDForum Column #28,    Release Date March 1, 1992

by Herman E. Daly

Agenda 21, an international program of action, will be one
of the official products of the June 1992 UN Environment
and Development Conference (UNCED) in Brazil. I
recently reviewed the draft chapter of Agenda 21 on
International Policies to Accelerate Sustainable Development, the document’s first substantive chapter, to be
submitted to the UNCED PrepCom IV in New York City
in March 1992. It is a disappointing document–the unison
snoring of supine economists in deep dogmatic slumber.

The chapter’s theme is “promoting development
through trade.” Its actual thrust is to promote international
trade and global economic integration as a self-evident
good and then call the result “sustainable development.”
Hopefully more thoughtful minds will prevail before
Agenda 21 is finalized in Brazil, as the old dogma has itself
become a serious threat to our planet.

The entire argument of the chapter is based on the
invalid and unsubstantiated premise that “An open trading
system, which leads to the distribution of global production
in accordance to comparative advantage, is of benefit to all
trading partners.”
The widely misunderstood and misapplied principle of comparative advantage rests on the
assumption that capital is immobile between nations. In
today’s world nothing could be clearer than that capital is
highly mobile internationally, often moving electronically
with the speed of light. Consequently, the confident assertion that an open trading system will benefit all trading
partners is utterly unfounded. As David Ricardo, one of the
founders of modern economics, clearly explained, if capital
can cross national boundaries then it will seek absolute
advantage (profitability), just as it does within a nation,
draining some countries of both capital and jobs and
leaving them worse off.

Furthermore, international capital mobility, coupled
with free trade of products, generally stimulates competition among countries to reduce wage, health, worker
safety, and environmental standards–all in the name of
reducing costs. For example, the country that requires
businesses to internalize external environmental costs into
the prices of their products–a measure properly advocated
by the chapter–will be at a disadvantage in free trade with
a country that does not. Such a country is clearly justified
in placing a compensating tariff on imports from a country
which does not so internalize these costs. This is not
“protectionism” in the usual sense of protecting an inefficient industry. Rather, it is the protection of an efficient
national policy of internalization of environmental costs.

So-called free trade might more accurately be called
“deregulated international commerce” to emphasize its
affinity with other recent experiences with deregulation,
such as the U.S. savings and loan industry and leveraged
corporate buyouts.

A similar contradiction is found in the chapter’s
recommended reduction of Northern tariffs on all products
of export interest to developing countries–without consideration of the consequences for the working class of the
Northern countries. The idea that the working class of
developed countries should enter into direct competition
with the low-wage masses of the Third World is quite
popular among Northern capitalists. Yet, even while the
working classes in the North are expected to sacrifice their
high-wage jobs in the name of free trade, the chapter
argues that the North as a whole (presumably the capitalist
class) must consume ever more to provide markets for
Southern products and raw materials. Growth for the poor
is indeed necessary, but without making ecological room
for it by reducing resource consumption by the rich, and
restraining population growth, it cannot happen.

The chapter consistently equates exports with economic efficiency. Yet Southern countries generally would better
serve their people by using available resources to produce
for their own needs–including basic food requirements–rather than exporting to the North in exchange for luxury
consumer goods used only by elites.

The chapter correctly, but timidly, recommends that
Third World debt service burdens should be reduced. Yet
it embraces the system of deregulated international commerce that gave rise to the unrepayable debt and calls for
flows of new lending to the same countries.

No where do the authors of this Agenda 21 chapter
acknowledge that in fact the economy is an open subsystem
within a finite, closed and nongrowing ecosystem. Instead
they engage in a circular argument that trade promotes
growth, growth funds environmental protection, a sound
environment helps growth, which in turn helps trade. This
spiraling positive feedback loop is their vision of “sustainable development”. They have missed the point of the
whole discussion, as have all too many other authors of
contemporary treatises on sustainable development.

Herman E. Daly is Senior Economist, Environment Department,
World Bank, 1818 H Street, Washington, D.C. 20433. This
column was prepared and distributed by the People-Centered
Development Forum. The views expressed here should in no way
be attributed to the World Bank.

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