Sunday, January 14, 2007

Jagdish Bhagwati on Globalization

I recently finished Columbia economist Jagdish Bhagwati's book In Denfense of Globalization, in which he argues that global economic integration (free trade, foreign direct investment, and free movement of capital) alleviates poverty, reduces global inequality, enhances rights, and does not harm, and may actually improve, environmental quality. I won't review the book because it's time consuming, and I have addressed some related ideas in a previous post. I will briefly summarize his points on globalization and the environment, but mostly I wanted to share a passage that caught my attention.

On globalization and the environment, Bhagwati argues:
  1. Multinationals generally have higher, not lower, environmental standards compared to their domestic counterparts. Firms do not generally have vastly different modes of production from country to country. Consequently, if a firm has factories in six countries with varying environmental standards, all six tend to resemble the factory located in the country with the highest standards.
  2. While theoretically possible, there is no evidence for a race to the bottom on environmental standards. That is, countries do not lower their standards in response to firms relocating abroad. In fact, there appears to be, if anything, a race to the top, as developing countries are adopting higher environmental standards as their incomes rise.
  3. The WTO should not make environmental standards a part of free trade deals. First of all, the WTO is small organization whose mission is to foster economic integration, not regulate the environment, labor, and so forth. Secondly, it would not be advisable to "level of the playing field" before trade can occur. Trade functions on differences between countries, including varying tolerance of pollution. Bhagwati offers a provocative example: the US has not signed the Kyoto treaty. Should the rest of world be able to place tariffs on all US goods that require energy? Right or wrong, our decision not sign Kyoto reflects the wishes of our elected government. Likewise, if the people of Cambodia decide they can withstand slightly more mercury in their drinking water than, say, the Netherlands, that is not a reason for the Dutch to place tariffs on Cambodian goods. Finally, barriers to trade are an inefficient way to achieve higher environmental standards. Rather than lobbying the WTO, civil society groups concerned with should work with international environmental agencies and developing country governments to adopt higher standards that meet the needs of local citizens and global environmental problems.
Below is a passage I liked. It reminds me of my own naivete coming out of high school, and how my view of the world has been enriched by critical thinking. Enjoy!
“The very young care intensely for the environment. They rarely think in terms of trade-offs, implicitly ignoring the cost of reaching environmental goals and therefore never having to revise environmental preferences in the light of knowledge about the cost of indulging them. They have an oversimplified view of what must be done. They get upset when, confronting their parents and asking for cloth diapers to be chosen in preference to disposables, they are told that cloth diapers are likely to be washed in detergents and that, if you go yet further back in the chain of inputs, it is possible that a shift to cloth diapers may cause net environmental harm. And they are not alone: several environmental activists get agitated as well by they call “obfuscation,” which any systematic and comprehensive analysis often leads to. And that is precisely, of course, what economists bring to the table. I recall one of my Oxford teachers, Ian Little, a world-class economist, telling me when he had returned from a couple of years advising in Whitehall 'I thought we economists worked with models that sometimes abstracted too much from complexity. But I found that bureaucrats and politicians worked with even simpler, na├»ve models: if x affected y, that was the end of the matter; whereas the economists typically argued, ‘But y will affect z, which in turn will affect x and feed back on y as well.' In fact, the iconoclastic New York Times columnist John Tierney once told me that the greatest amount of condemnatory e-mail he had received was over a New York Times Magazine article showing how recycling programs had actually worsened the garbage problem.”

1 comment:

jacob said...

"Firms do not generally have vastly different modes of production from country to country. Consequently, if a firm has factories in six countries with varying environmental standards, all six tend to resemble the factory located in the country with the highest standards."

i think this is a bit of a joke when you consider:


http://www.vanityfair.com/politics/features/2007/05/texaco200705?printable=true¤tPage=all

which unfortunately is the trend rather than the exception