Globalization is Green

Sorry for the late post, but time and migraines wait for no man.

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? this!

1 Response so far »

  1. 1

    Globalization - chartreuse, perhaps? | said,

    February 8, 2008 @ 3:45 am

    […] The Undercover Economist and while I enjoyed it as much as Will did, I am still not convinced that Globalization is Green. The book did provide a lot of food for thought and it made me rethink why I have such a gut […]

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