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Leontief
Prize
"Reconciling
the Economics of Social and Environmental Sustainability"
Remarks
by Paul Streeten
on the occasion of his receipt of the Leontief Prize
at Tufts University, on November 13, 2001
Since the
definition of "development" incorporates our positive
value judgments, including those about the environment,
there can be no conflict. For if there were a form
of development that would be accompanied by a degradation
of the environment, and if a clean environment is
part of our definition of "development," we would
not call it development. It is I like the well-known
verse about treason by Sir John Harrington:
Treason
doth never prosper; what's the reason? For if it prosper,
none dare call it treason.
Economic
growth versus environment?
The problem of "growth versus the environment" is
wrongly posed. Growth is simply the inter-temporal
dimension of any strategy. Production, consumption,
poverty reduction, income redistribution, employment,
environmental protection, must each have a time profile,
and this may give rise to inter-temporal tradeoffs.
Economic growth is a side-effect, not the aim, of
a rational economic policy. It could be that sustainable
development calls for more, not less growth. It certainly
calls for differently composed growth. For, although
zero growth is not an option (it requires resources
to maintain capital and therefore only delays exhaustion),
unless sustainable development is consciously pursued,
zero or negative growth could well be the result.
With technology
given, four options should, theoretically, be considered.
First, we may abstain from producing as much as we
otherwise would, in order to reduce pollution and
raw material exhaustion, which are closely linked
to the pattern of production. We opt for fewer goods,
in order to be saddled with fewer bads.
Second, we
devote resources that would have produced goods to
produce products that combat pollution: more anti-bads.
Whether this implies stepping up the rate of growth
of national product, slowing it down, or changing
its composition, depends on conventions of national
income accounting. Much that is now counted as part
of net national income should be deducted as intermediate
production, as anti-bads, required to combat the bads
produced in the course of generating the NNP. There
is something to be said for the foundation of a Society
for he Promotion of Anti-Bads.
Third, we
may step up the production of goods, notwithstanding
the fact that they aggravate pollution, to a degree
that compensates for the growth of pollution: more
goods to make up for the growth of bads.
Finally, we
may produce different products, with different characteristics.
These are not as attractive as those that would have
been produced without regard to pollution, but with
the compensating merit that they carry with them less
pollution: goods that are not quite so "good," but
that generate also fewer "bads." Cars may travel more
slowly, but are also less polluting. Compared with
these four options zero growth, sometimes advocated,
would be not only a blunt, but also an ineffective
instrument for achieving a sustainable environment.
In practice,
it is normally much cheaper and more effective to
take preventive action before the creation of bads
than to compensate for their generation or to produce
instruments to combat them. Just as it is easier to
build distributional objectives into the growth process,
or protection of the poor into the adjustment process
ab initio, so it is more effective to build environmental
objectives from the beginning into the direction and
composition of growth.
In addition,
there is much evidence that some previously polluting
agents can be used profitably and harmlessly, so that
no trade-off arises. It points to the existence of
unexplored and unexploited profit opportunities, which
can be seized as a result of environmental regulation.
Effluents, previously discharged into rivers, have
turned out to have commercial uses. When unexplored
and unexploited profit opportunities are discovered,
bads can be transformed into goods. This may require
some expenditure on technical research. In other cases,
cheap substitutes can be used to replace damaging
substances. Du Pont, the world's largest producer
of chlorofluorocarbons (CFCs), had discovered some
equally cheap substitutes, which made the provisions
of the Montreal Protocol of 1987 (signed by 57 countries),
for the protection of the ozone layer (which protects
us from certain types of cancer), acceptable. International
Business Machines Corporation, America's largest source
of CFC-113 emissions had reduced its emissions in
May 1991 by 95 per cent from the 1987 level. In the
Ottawa Agreement of 1988 some industrial countries
bound themselves to reduce the volume of CFC emissions
by the end of the century to half the 1986 level.
The leading
electronics companies have moved more rapidly than
expected to phase out the use of industrial cleansers
that damage the ozone layer. CFCs are used, in addition
to air conditioners, refrigerators and foam insulation,
to clean circuit boards and sensitive electronic components.
Now cheaper, more effective and less damaging alternatives
have been discovered, including warm, soapy water.
Some companies have developed circuit boards that
need no cleaning at all.
Solvents used
in the manufacture of pressure-sensitive tape were
replaced with solventless raw materials, reducing
1,100 tonnes of solvent emissions and saving $1.5
mill. on one factory alone. On another tape-making
line, an inert condensation type solvent recovery
system recycles about 2,500,000 lbs of solvent previously
emitted in the atmosphere at an annual saving of $
750,000 in solvent, production and energy costs. Modification
of a plant boiler to burn high-hydrocarbon exhaust
from a maker saved a million dollars in add-on pollution
control and is likely to recover $ 270,000 of energy
annually. Ammonium sulphite produced in reactors during
the formulation of iron oxide, previously discharged
through a waste water treatment plant into a river,
is now concentrated in a vapour compression evaporator
and sold as liquid fertilizer worth about $271,000
a year; savings in pollution control equipment totaled
$1 mill. Examples could be multiplied.
Environmentalists
claim that these discoveries have important implications
for other environmental concerns, including the reduction
of the use of fossil fuels, which contributes to global
warming, the elimination of CFCs from aerosol cans,
and the formulation of cleaner gasoline.
Professor
Michael Porter of the Harvard Business School has
shown that environmental regulations are entirely
consistent with maintaining international competitiveness.
In his book The Competitive Advantage of Nations,
he found that countries with the most rigorous requirements
often lead in exports of the affected products. The
reason for this paradoxical conclusion is that regulations
force companies to redesign their technology, to innovate,
and to find new uses for waste products. The result
in the medium to long term is often lower costs and
improved product quality. Processes are adopted that
lower the use of scarce or toxic resources and that
recycle profitably previously wasted by-products.
Three types
of questions have to be investigated:
first, the
relationship between differently composed rates of
population growth and of income per head and the discharge
of harmful substances;
second, the
relation between these substances and the physical
environment;
and third,
the impact of these changes in the physical environment
on the health and well-being of human beings, both
now and in the future.
The first is
technical, the second physical, the third biological
and physiological.
Having answered
these three sets of factual questions, the problem
becomes one of evaluating any remaining conflicts
between higher incomes and environmental degradation
and sharing fairly any sacrifices, either of the environment
or of income, between the partners. Such fair sharing
will involve compensation of poorer countries by richer
ones for accepting measures of environmental protection
that are either more costly or reduce the rate of
growth. This can be done, for example, by issuing
permits for emissions in excess of their needs to
low-income countries, which they could sell to the
high income countries, who will want to use more permits
than they have been initially allocated. A system
of monitoring both the state of the environment, and
individual countries' performance and discharges,
will be needed, as well as mechanisms for penalizing
offenders. UNEP now has a Global Environmental Monitoring
system (GEMS), although it is grossly under-financed.
There is now
firm evidence available to answer the first question,
viz. the relation between income and certain types
of pollution. The main conclusion is that urban SO2
concentrations, and urban suspended particulate matter
levels are lower per cubic metre in high income cities
than in low income cities. It is also evident that
these concentrations have been falling in high income
and middle income cities between 1980 and 1989.
This has led
to the notion that there is an environmental Kuznets
curve. Just as income inequality first rises as nations
get richer and later falls, so environmental pollution
first rises and beyond a certain point falls. The
reason for this is that as societies become richer,
the structure of their production changes towards
less polluting activities and they can afford to demand
and achieve a cleaner environment. They can either
change their methods of production, or export dirty
industries to low-income countries. But this much-debated
issue is controversial and not fully established.
Sustainable
Development and Time
Does the fact that natural resources that are inputs
into the economy are finite impose a limit on sustainability?
Optimists and pessimists are divided. So far, looking
at history, the optimists have won. The optimists
have argued that the decline of existing resources
will always tend to be compensated by new resource
discoveries, innovation in extraction, transport and
processing, and substitution of human capital (new
tools, new knowledge and new skills as a result of
technical progress) for natural capital. As long as
substitution of tools and knowledge for non-renewable
natural resources continues, consumption can be sustained
for ever. The pessimists say that natural resources
and human capital are interdependent and complementary.
Knowledge can
appear in three forms: disembodied knowledge in blueprints,
designs or articles or books; knowledge embodied in
equipment or physical capital; and knowledge embodied
in human skills or human capital. Disembodied knowledge
is not reduced by use or the passage of time and can
be accumulated without limit. If disembodied knowledge
can be substituted indefinitely for natural resources,
growth can continue perpetually. If it has to be embodied
in equipment, perpetual growth is impossible, for
some natural resources will always be needed.
Knowledge embodied
in people through education has shown two opposite
trends: the new technological revolution has simplified
some jobs and made them easier. But others require
more education and higher skills. Production technologies
become ever more complex. (Sophisticated mining and
processing technology is replacing axes to provide
fuel, and nuclear reactors are replacing open fires
to burn it.) Knowledge to protect the environment
is also becoming more complex. Ever longer education
has been and will be needed in order to just maintain
a constant living standard of a constant population.
Since our
life spans are limited, the finite knowledge that
people can create, absorb, and apply can ultimately
set a more serious limit on growth than the finite
stock of oil or the capacity of the atmosphere to
absorb carbon dioxide. The ever more highly educated
workforce, which is cited as being good for competitiveness,
may be a warning of future global unsustainability.
This point has been relatively neglected in the literature.
Information
already greatly exceeds our ability to process and
absorb it. According to David Shenk, the excess of
available information causes stress, memory overload,
compulsive behaviour and attention deficit disorder.
It is also bad for the health of the community. The
global village is increasingly fragmented into specialized
territories, with magazines and advertising catering
for ever smaller specific audiences. This cultural
splintering can break up communities.
Is it the
case that only the most recent additions to knowledge
are relevant, in which case time would not set a serious
limit, or does the educational process require ever
longer time and greater capability? What would be
the effect of the growth of knowledge and hence of
specialization on social cohesion? Would it be possible
for any one person to understand all the issues that
affect sustainability?
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