By: Pietra Rivoli Issue: Global Trade Section: Collaborator Profile
In 1999, extensive and sometimes violent anti-globalization protests brought the meeting of the World Trade Organization (WTO) in Seattle to a halt. The so-called “Battle in Seattle” was a spark that led to a spate of similar protests around the globe. Over the next several years, dozens of similar protests stymied meetings of a variety of multilateral organizations in North America, Europe, and Asia.
Photo: John G. MabangloWhile it was easy to see that the protests were rooted in anger and dissatisfaction, it was more difficult to see clearly what, exactly, the anti-globalization protestors were against.
The anti-globalization movement was not a single movement, but was instead an amalgamation of causes brought under a single umbrella.
One target was clearly the policies of the World Bank, International Monetary Fund (IMF) and WTO, all of which had free trade agendas. But the protests targeted not only the policies, but also the alleged anti-democratic processes with which these organizations operated. Another visible target was the multinational corporations with their far-flung global supply chains. These supply chains encouraged a “race to the bottom” in global labor standards, according to the protestors, and fostered the proliferation of “sweatshops” in poor countries. And the anti-globalization movement also contained a variety of labor constituencies, many of which had suffered from competition with low wage labor in other countries.
Interestingly, while the anti-globalization protests on the evening news seemed at the time to be comprised of a variety of “fringe elements,” a decade later many of the demands of the protestors had not only been met, but had become standard operating procedure in corporations and multilateral organizations. By 2009, while some protests continued, the stage had quieted considerably.
A very visible segment of the anti-globalization movement, however, was alive and well in 2009: the environmental movement. Liberal trade, the protestors argued, imperiled not only working conditions but also the environment. A staple of the news in 1999-2005 were protestors dressed as sea turtles or polar bears, signifying the threat to the natural world from rapidly globalizing exchange of goods and services. These concerns continue to dominate debate today.
Which leads to the question: Is international trade a friend or foe of the planet?
A FOE
The arguments that link liberal trade to deterioration in the environment are straightforward. First, international trade increases the overall level of economic activity on the planet. More trade leads to higher incomes, and therefore to more production and more consumption, all of which consumes more energy and generates more waste, while increasing climate-threatening emissions. Further, the transportation involved in getting goods from one country to another carries its own environmental costs.
This argument linking increased trade with environmental harm is known as the scale effect: since trade increases the scale of economic activity it will carry environmental costs.
A second argument that links liberalizing trade with environmental degradation is the “race to the bottom” or “pollution haven” story. In a competitive market, producers operating at the lowest cost structure will have an advantage. What if, however, producers in a given country have low costs because environmental protection standards are weak? In that case firms will seek to locate production where environmental regulations are weakest and costs lowest. The result will be environmental degradation enabled by international trade.
If either or both of these arguments hold, it makes sense that those concerned with the environment might at least be sympathetic to the anti-trade message of globalization’s skeptics. Sea turtles and trade are on opposite sides, and to side with trade is to side against turtles. Perhaps, however, there is hope for the turtles in a liberal trade regime.
A FRIEND
Though the logic linking trade to environmental degradation has an appeal, there are opposing forces at work. Indeed, a careful reading of the research to date suggests that the net effects of international trade on environmental quality are actually positive.
How might this be? First, clean technologies are rapidly evolving today, with innovative products related to wind power, solar power, clean coal, and so forth. Without international trade, many of these technologies would be “trapped” wherever they were produced. Free trade enables the environmental benefits of emerging environmental technologies to spread. It is precisely this reasoning that has led both the World Bank and the World Trade Organization to encourage countries to lower the trade barriers applied to environmental technologies. Perhaps not surprisingly, research suggests that countries with borders more open to trade are quicker to adopt clean technologies.
Second, there is much evidence that suggests that the richer we become, the more environmental quality we demand. While the very poor are more concerned with survival, the wealthy are willing to pay for clean water and air. This dynamic has clearly been at work in Europe and the U.S. in recent decades: the richest countries predictably have the most stringent environmental regulations. Economist Arik Levinson found that for the 30-year period ending in 2002, total pollution emitted by U.S. manufacturers fell by 60 percent, even as manufacturing output rose by 70 percent. Levinson concluded that the drop in emissions was the result of stricter environmental regulations, not from “dirty” industries shifting abroad.
Windmills Of course, trade is one of the primary means of generating economic growth and therefore increasing income. If, as Brian Copeland and Scott Taylor write, “higher real incomes generate a greater ability and willingness to implement and enforce environmental regulations, then the logical trade linking trade liberalization and environmental destruction is broken.”
Third, despite many dozens of empirical tests, researchers have been unable to find convincing evidence that production flows to “pollution havens.” This may be because large corporations “export” their own production methods when manufacturing abroad, either because using a single model is more efficient or because they are concerned about reputation effects. Or, it may be that the “pollution haven” effect is simply dominated by the myriad other factors that enter into the location production decision.
Not long ago I spoke with a former executive of a global textile concern. A story he conveyed illustrated the potential for a “race to the top” in environmental standards, in which multinational corporations might be part of the solution rather than part of the problem. A developing country was seeking to attract investment from the firm, but the firm was reluctant to invest because the environmental standards in the country were too….lax. The company did not wish to compete with local firms who were bound only by the low standards, but it did also not wish to contribute to environmental degradation itself. The firm agreed to invest only when the country’s government agreed to raise the environmental standards to meet those of the company’s home country. At least in this instance, the global corporation was part of the environmental solution rather than the cause of the problem.
A final reason for optimism regarding the link between globalization and environmental quality is the so-called “California effect.” For many years California had the strictest emission regulations for autos in the U.S. Of course, an automobile manufacturer would not reasonably design different cars for different states. Instead, firms design cars for the state with the strictest regulations, in this case California. Here, therefore, we have a “race to the top” story that is at least as compelling as the race to the bottom story. Firms that wish to export to the U.S. have an incentive to produce cars to meet the strictest standards. Without international trade, such firms would have no incentive to “raise the bar” beyond that required by regulations in their home market. To succeed in international trade often means producing for the customer with the strictest requirements. The environmental effect, of course, is a “trickle down” of these standards to producers worldwide.
Will liberalizing trade be enough to save our planet? Of course not. None of the arguments above are meant to minimize our environmental challenges, only to suggest that the forces of trade and globalization can be harnessed for environmental sustainability, rather than assumed to be a part of the problem.Water drop on a leaf with The Earth reflected inside. Earth picture from Nasa at http://earthobservatory.nasa.gov/
One other factor also comes to bear on this debate. Not all political systems are equal when it comes to the relationship between trade and the environment. One of the world’s most successful exporters – Germany – is also one of the cleanest countries. Yet another export powerhouse – China – is an environmental basket case. Why the difference? Surely the income gap between the two countries is part of the explanation. A more important factor, however, may be that German environmental policies reflect the will of its active and sophisticated electorate. In a country such as China, however, where the one party state is not accountable to an electorate, the citizens’ environmental preferences and demands are more difficult to know and to respond to, and are often subjugated to other priorities of the leadership.
I believe that when all of the arguments and evidence are weighed, we may safely conclude that globalization and trade are a net plus for our environmental challenges. If we add democracy to the mix, the future is more promising still. When citizens have an economic livelihood and a democratic choice, they will increasingly demand – and pay for – environmental quality.
Pietra Rivoli is Professor at the McDonough School of Business at Georgetown University. Her recent book, The Travels of a T-shirt in the Global Economy, has been translated into 14 languages and has won numerous awards.