Concern for the environment is as old as civilization. History abounds with examples of the wide variations in human understanding of the environment and in our ability to maintain it in a healthy condition. Those societies that managed to provide their material, cultural, and spiritual needs in a sustainable manner were those that succeeded in reconciling their needs and aspirations with the maintenance of a viable environment. Whenever the outer limits of the physical environment were exceeded, civilizations declined or even vanished.
Concern for the environment is as old as civilization. History abounds with examples of the wide variations in human understanding of the environment and in our ability to maintain it in a healthy condition. Those societies that managed to provide their material, cultural, and spiritual needs in a sustainable manner were those that succeeded in reconciling their needs and aspirations with the maintenance of a viable environment. Whenever the outer limits of the physical environment were exceeded, civilizations declined or even vanished.
As signs of irreparable damage to the environment have threatened both the inner limits of basic human needs and the outer limits of the planet’s physical resources, we have witnessed a quantum jump in concern for the environment over the last two decades. The Stockholm Conference in 1972 turned a new page in the book of human concern for the environment. We have seen intensive discussion of interactions between the environment and development. A few examples suffice.
Environment and Development
The capacity of the earth to produce vital renewable resources must be maintained and, whenever practicable, restored or improved. The protection and improvement of the human environment is a major issue which affects the well-being of peoples and economic development throughout the world.
Human beings must come to terms with the reality of resource limitation and the carrying capacities of ecosystems and must take account of the needs of future generations.
—IUCN/UNEP/WWF: World Conservation Strategy (1981)
In essence, sustainable development is a process of change in which the exploitation of resources, the direction of investments, the orientation of technological development, and institutional changes are all in harmony.
—WCED: Our Common Future (1987)
Environment and Economics
For society as a whole, environment is a part of its real wealth and cannot be treated as a free resource. Environmental issues may come to exercise a growing influence on international economic relations. They could influence the pattern of world trade, the international distribution of industry, the competitive position of different groups of countries, their comparative costs of production, etc. Some environmental actions by developed countries are likely to have negative effects on developing countries’ export possibilities and their terms of trade.
—Founex Report (1971)
Environment and International Relations
If the multiple bonds that characterize interdependence are convincingly present in any field, it is in that encompassing development and the environment, but the transition is not occurring smoothly and harmoniously; it is turbulent and beset with conflict.
—South Commission: South Report (1990)
Where We Were and What We Achieved
I do not wish to seem overdramatic; but I can only conclude that the members of the United Nations have perhaps ten years left in which to subordinate their ancient quarrels and launch a global partnership to curb the arms race, to improve the human environment, to diffuse the population explosion, and to supply the required momentum to development efforts.
—U Thant: UN Secretary-General (1969)
How far did we move to heed this warning? Specifically, how much have we improved the human environment? These world statistics provide the answer:
In 1969 the world’s population was 3.7 billion. In 1990 it reached 5.3 billion, and it is still growing by 1.7 percent a year.
In 1989, $850 billion was spent on arms, while official aid to developing countries was just $34.1 billion and the developing countries paid $59.5 billion in interest on loans. Since the end of World War II the world has spent about $20 trillion for military purposes. Developed countries have doubled their defense spending since 1960, and developing countries increased expenditure more than sixfold with the concomitant impact: misuse of human and natural resources, and the impact of war on the environment and natural resources. This region has seen some of the worst of these impacts.
Today, it is estimated that over 200 tons of carbon dioxide are released each second and 750 tons of topsoil are lost; every day, 47,000 hectares of forest are destroyed and over 16,000 hectares of land become desert; between 100 and 300 species become extinct; and 40,000 children die of disease and malnutrition. As this goes on, more than 1 billion people in developing countries are living below the poverty line.
The studies by the Club of Rome, the establishment of the United Nations Environment Program (UNEP) following the Stockholm conference of 1972, the reports of the Willy Brandt, the Olaf Palme, and the Gro Harlem Brundtland Commissions, the Charter of Nature, the two World Conservation Strategies, the Global Strategy for the Conservation of Biodiversity, and several other efforts were all steps toward responding to these problems and toward establishing a firm link between the environment and development and toward giving real operational meaning to the term sustainable development that was coined by the Governing Council of UNEP 17 years ago. All this culminated in the Rio Conference on Environment and Development in June 1992. Agenda 21 was adopted at that conference by almost all governments of the world, including more than 100 heads of state and government. Agenda 21 puts under one roof the whole effort of the past 20 years. It covers almost every aspect of human endeavor and puts it within the context of what makes it environmentally sound and sustainable. Most of Agenda 21 is directed to governments, and it sets the tone for what needs to be done.
The Arab world cannot proceed with sustainable economic development while protecting the environment and its natural resources in isolation from the world around it.
Changing World Scene
The world has not been standing still while the debate on the environment and development has gathered momentum and while ideas, concepts, and issues have been emerging, clarified, and reiterated. The two decades since 1972 have witnessed major political, economic, and social changes. The global political and economic landscape has altered—not gradually—but in a number of dramatic and unforeseeable upheavals. As a result, the ideological and economic world maps of the seventies and eighties are no longer accurate in the nineties; the geopolitical assumptions that accompanied them do not hold true today; and the predictions of social change on which they were based have been proved inaccurate. The most dramatic and obvious political changes have been the most recent ones: the movement to democratic pluralism and the drastic economic, social, and political changes in the former Soviet Union and the countries of Central and Eastern Europe.
The change from an essentially bipolar world in which two superpowers and their supporters faced each other across an ideological and political abyss has created both opportunities and uncertainties. It may be some time yet before a new geopolitical map is finally drawn, but the nature of that map and the world it represents will owe more to the fundamental causes of those changes than to the changes themselves. The radical optimism of the early 1970s gave way under the pressure of the global economic recession that followed the second oil shock in 1978. The belief that institutional solutions could be found to human and social problems was replaced by a more individualistic, inward-looking, market-oriented philosophy.
The drastic change in the economies in transition was accompanied by two major developments in the market economy countries. The European integration in the 12 countries of the European Community (EC) and the move by the countries of the European Free Trade Association (EFTA) to join the European Community. The impact of this integration on developing countries, including a number of the Arab states, is well covered in Mr. Langhammer’s paper.
I want to quote only three points from that paper: The former socialist countries increasingly concentrate their export supply on items that are also supplied by developing countries and they enjoy more generous access to the markets of the EC. Given the economic and cultural proximity of Eastern and Western Europe, there is reason for concern that the Europe agreements have a trade-diverting potential to the detriment of developing countries. The association agreements with the former Czech and Slovak Federal Republic and with Poland and Hungary put all Arab countries in a less favorable position with respect to access to EC markets than before the collapse of the socialist system.
North American Free Trade Agreement (NAFTA)
This agreement imposed the environmental standards of a highly developed country like the United States on a developing, though industrializing, country like Mexico. It blurred the demarcation between developed and developing countries.
The search for greater economic efficiency has led not only to the phasing out of the “command economies” worldwide, and particularly in Eastern Europe, but to a parallel deregulation of the financial, manufacturing, and service sectors in the West. One result has been a freer movement of capital between countries and between sectors. This globalization of production was also boosted by profound technological changes, particularly the rapid development and spread of information technologies.
Knowledge has suddenly become a business asset even more valuable than physical or financial resources. The traditional transnational corporation has been transformed from a collection of semiautonomous local affiliates into a widespread network of production and operational facilities that could be monitored and controlled centrally in real time. At the same time modular production developed, with specialized firms producing just one module of a total product or service. As a result, many large corporations have come to depend on the small knowledge-intensive enterprise that spends a large proportion of its income on research and development. These changes, among other things, have further reduced the ability of national governments to influence the activities of transnational corporations to achieve social or environmental goals.
Although the flight of capital from already undercapitalized countries in the South has continued, there have also been waves of foreign investment in those economies that took advantage of the changed economic scene and gradual dismantling of the rather shaky protectionist measures instituted in many developing countries to nurture their emerging industries. The emergence of global markets and economic interdependence has largely been fueled by the extraordinary growth in trade since World War II. In the 40 years since 1950, world manufacturing output increased sevenfold. Between 1950 and 1973, export volumes from industrialized countries increased by 10 percent a year. Since 1984, the volume of world merchandise trade has consistently risen at a higher rate than growth in world outputs. However, both the trade boom and the growth in the global economy have been highly selective, bypassing most developing countries, including a number of Arab states. Although there has been a significant increase in developing country exports of manufactured goods during the last two decades, it is mainly accounted for by the relatively small number of newly industrializing economies in Southeast Asia, and, despite this increase, developing country exports are still only 15 percent of world trade in manufactures (UNCTAD, 1990).
The few value-added products that are generated in developing countries are often blocked by lack of market access, as developing country commodity exports are affected by the “new protectionism” that followed the recession of the early 1980s. Nontariff barriers, voluntary export restraints, direct and indirect subsidies, and other obstacles have made developing country access to northern markets extremely difficult. According to the World Bank, the percentage of imports from countries of the Organization for Economic Cooperation and Development (OECD) covered by nontariff barriers almost doubled between 1966 and 1986. Moreover, the percentage of trade affected by highly restrictive nontariff measures is greater for developing countries than for industrialized countries. Subsidies on agricultural produce within the OECD are in the vicinity of $300 billion a year. The cost (in 1990 dollars) to the global South in 1980 of trade protectionism in developed countries has been estimated at about $55 billion (World Bank, 1991).
Over the past 20 years, both the World Bank and the IMF have shifted development priorities from import substitution to exportled growth accompanied by severe structural adjustment programs. For most developing countries, including those of the Arab world with scant industrial capacities, there is little to export but natural resources, making them almost totally reliant on commodity exports. However, commodity prices have fallen steadily since the early 1970s. By 1986, average real commodity prices were at their lowest recorded levels in this century (with the exception of 1932, the trough of the Great Depression). The World Bank forecasts that commodity prices are unlikely to rise during this decade, with intensified South-South competition in saturated markets. The effects on developing country economics of trade protectionism and commodity price collapses are compounded by external debt.
Although the world economy has grown considerably during that period, much of the growth has been in countries that were already consuming an inordinate share of the world’s resources. Many of the least developed countries had little economic growth and a substantial fall in per capita production during the 1980s.
These changes have been coupled with regional conflicts that have plagued the Middle East as well as much of Southeast Asia and Africa for the last two decades. As a result, glaring anomalies in global patterns of resource consumption have been made worse, the standard of living of the poorest half of the world’s population has fallen even further, and the incidence of famine and disease in the poorest countries has increased. This includes a number of Arab countries. Poverty leads to increased environmental degradation and therefore to a vicious downward spiral of poverty and loss of productive capacity.
Economic instruments have come to be considered alternative to, or complementary to, regulatory instruments for the proper management of the environment and of natural resources. A comparative analysis of the results of direct regulation and economic incentives in the United States concludes that the former is more expensive than the latter (Lollar, 1990).
The main thrust of economic instruments is to “internalize” those external environmental costs that are not usually taken into consideration in the cost-benefit analyses on which investment decisions are based. Generally speaking, and according to OECD (1989), economic instruments are
charges, based on the so-called polluter pays principle (PPP) voiced soon after Stockholm (OECD, 1975) and imposed on effluents, products, or users, sometimes as a tax differentiation;
subsidies, as grants, soft loans, or tax exemptions, to encourage compliance with the regulations (particularly useful with small-scale enterprises);
deposit-refund systems that promote better waste collection and better management; and
market-creating instruments, for example, trade in pollution permits, in recyclable waste, or insurance policies.
Total world commercial energy consumption in 1970 was 5,000 million tons of oil equivalent (TOE); in 1990 it was 8,100 million—an increase of 62 percent. This increase is much slower than the growth from 1950 to 1970. In 1950 total commercial energy consumption was 1,650 million TOE; in 1970 it reached 5,000 million—an increase of 203 percent. This trend was accompanied by a lower share of oil and a higher share of natural gas, coal, and nuclear energy.
Developed countries, which constitute 22 percent of world population, use 82 percent of total world commercial energy. Developing countries, with 78 percent of world population, use 18 percent of total commercial energy. Per capita commercial energy use in OECD countries is ten times that in low- and middle-income developing countries. Between 1970 and 1990 average energy intensity in developed market economy countries fell by 29 percent. In Eastern Europe and the former U.S.S.R. it fell by 20 percent. Thus, in all developed countries there was a decoupling of the levels of energy use and economic well-being, which did not happen in developing countries. On the contrary, energy intensities in developing countries increased by 30 percent during the same period.
Total world manufacturing value added (MVA) increased from about $2,500 billion in 1975 to a little under $4,000 billion in 1990 at constant 1980 prices. The share of the developing countries only increased from 10 percent in 1970 to 14 percent in 1990. Developing countries have the largest share in those industries in which natural resources play the most important role (for example, petroleum refining and mining). Between 1980 and 1985 four of the five manufacturing sectors known to be most energy intensive as well as material and pollution intensive (iron and steel, nonferrous metals, nonmetallic minerals, chemicals, pulp, and paper) grew twice as fast in developing as in developed countries. Developing countries are expected to increase their share of “smokestack” industries. Attempts to lure industry away from urban centers in developing countries were not successful. The major difficulty was the high cost of providing the necessary infrastructure away from the major urban centers.
There is a global trend away from the treatment of discharges to cleaner production. During the second half of the seventies, the concept of “low and non-waste technologies” (LNWT) emerged. The emphasis became the development and promotion of technologies that produce either less harmful discharges or none at all. As more attention was focused on the development of “clean” technologies—and as their economic and risk reduction benefits were demonstrated—-the concept of “cleaner production” finally emerged. The comparative degree is now preferred, since there is no clear-cut distinction between “clean” and “dirty” production methods or products. This concept now encompasses the whole life cycle of a product (from “cradle to grave”), covering product design, production process, and management practices right up to the disposal of the discarded product. The concept could be clarified through a hierarchy of substitutions at different levels that contribute to achieving the goal (Huisingh, 1989):
The process level, modifying the process to make it more environmentally sound (for example, producing less pollution or waste).
The component level, adding a new component providing an advantage without changing the overall process (for example, “end-of-pipe” treatment plants).
The subsystem level, substituting a better subsystem for an old one (for example, an electric motor in place of a gasoline engine in a car).
The system level, substituting a whole system or one function for another (for example, mass transport system for private cars).
The value level, questioning the very premise on which products or services are provided. This is the most difficult, since it impacts on culture, social organization, and value systems.
There is another global trend toward the fast development of new, high-technology-intensive industries such as microelectronics, information technology, and biotechnology. Developing countries—including the Arab world—have yet to infiltrate these new technologies.
Understanding the Environment
Advances in Natural Sciences. The science of ecology began with Haeckel in 1866. It developed rapidly in the following decades. But the modern view of interacting socioeconomic/ecological systems has its roots in the work of W.I. Vernadsky in 1926. Vernadsky warned of the increasing rates and scales of environmental transformations taking place, and he dreamed of a time when the biosphere and the technosphere would be in harmony. Modern concepts of sustainability and sustainable development demand such harmony.
During the 1970s and 1980s much has been learned about the global nature of environmental systems. Particularly impressive are the insights gained into the biogeochemical cycling of elements essential for life, notably carbon, nitrogen, oxygen, phosphorus, and sulfur. This cycling has been called the environmental life-support system by Tolba and White (1979).
The last two decades have seen considerable advances in understanding the behavior of geophysical and ecological systems and of plant and animal populations and in developing a capacity to model them mathematically. New concepts have emerged: the carrying capacity of a region, the sustainable yield of a renewable resource, the assimilative capacity of a watershed or airshed, and the resilience of an ecosystem. Within the engineering sciences, the idea of industrial metabolism and material flows has been pursued by Ayers (1989), Stigliani (1990), and others.
A new scientific discipline—environmental toxicology (or ecotoxicology)—has been born in the medical field.
Advances in Social Sciences. Social scientists are making increasingly important contributions to our understanding of the environment. One such contribution led to the birth of the subject of “ecological economics,” a subject that valiantly attempts to blend economics with ecology and that is attracting a great deal of attention from economists. In the World Bank and elsewhere a serious attempt has been made to produce country environmental issues papers to identify the major stresses on the environment in particular country situations, to be supplemented by country environmental action plans aimed at improving country environments through economic policies and other instruments. Refinements have also been made in measuring environmental impacts of projects, with attempts made to reduce or eliminate environmental damage through redesigning projects or even dropping them altogether.
Progress has also been made in incorporating environmental externalities in project analysis. Formidable efforts were made to change the United Nations System of National Accounts so that environmental change is incorporated in economic measurements of income and wealth. This has been an initiative sustained for many years by UNEP jointly with the World Bank. The new United Nations System of National Accounts, to be articulated later this year, will contain a set of national satellite accounts in which adjustment to the national accounts can be made to reflect environmental degradation.
Daly, Goodland, and El Serafy—all of the World Bank—edited a book, Population, Technology, and Lifestyle (1992), in which they further developed the concept of throughput, and in which they urged the developed countries to contain their throughput, deriving their growth to the extent possible from enhancing productivity and restructuring production to give developing countries the chance to grow as well as to develop with the aid of increased throughput. The concept of “steady-state economics,” also associated with the name of Daly, has also been fruitful in this regard. Greater attention is now being paid by development agencies to indigenous peoples and to the preservation of cultural property.
Advances in Environmental Monitoring Systems and Data Inventories. Since the early 1970s there has been an enormous growth in public demand for information on the state of the environment. In addition, there has been an increasing requirement by modelers, resource managers, and other specialists for particular kinds of data sets. This has led to considerable interest in the scientific aspects of monitoring.
Advances in Computer Models. Mathematical models have long been used to predict weather, tides, urban air pollution, and many other geophysical phenomena, as well as some ecological processes. In such applications, model performance can easily be evaluated by comparing observations and predictions. But models may also be used to simulate conditions that have not occurred; in fact, comparisons may be made of several alternative “futures” based on a range of possible human interventions in coming decades.
As a result of increasing understanding of complex environmental systems and of advances in computer technology, model performance has improved greatly in the last twenty years. What is surprising, however, is the increased degree of public acceptance of model-derived “futures” like climate change models, acid rain models, and nuclear winter models.
Advances in Resource Economics and Environmental Economics. The current economic paradigm, based largely on economic growth and more loosely on the tenets of capitalism, enjoys continued popularity in spite of recurring bouts of recession and growing pessimism about the future. Daly (1987) makes a useful but often overlooked distinction between growth and development. Growth is an increase in the flows of matter and energy through the economy, whereas development is an improvement in nonphysical characteristics.
Resource economics focuses primarily on methods to broaden conventional neoclassical economics to include the true costs of natural resources, particularly common goods such as air and water, in determining the optimal allocation of resources. Nonmarket valuation methods have been developed that enable economists to determine the cost or benefit attributable to nonpriced natural resources. However, the fundamental precepts of neoclassical economics are incorporated. Environmental economics, similarly following essentially neoclassical tenets, addresses issues of pollution control, standard setting, waste management and recycling, externalities of private enterprises, conservation and use of common property resources, and so on, from the standpoints of providing guidance for the efficient allocation of resources and sound environmental policy.
Resource economics employs a number of tools, which include cost-effectiveness analysis (CEA), benefit-cost analysis (BCA), and models of the impacts of environmental change on the biosphere.
Advances in Ecological Economics. Increasing realization in recent years that resource economics has left out vital economic/environmental linkages has led to the emergence of ecological economics as an alternative (Daly, 1990). Three concepts are essential to an understanding of ecological economics: throughput, carrying capacity, and entropy. Our economy, and indeed our very survival, relies on ecological throughputs. We need water for production and transportation, minerals and soil for agriculture, and so on. At the other end, we rely on nature to act as a sink for our wastes.
The second concept is carrying capacity. Under steady-state conditions, the carrying capacity of an ecosystem can be modeled with reasonable confidence. However, for an ecosystem including people, the real carrying capacity will depend on human consumption patterns (Arizpe and others, forthcoming) and will vary geographically and over decades. Thus, it is difficult to estimate the population that the world can sustain. Erring on the side of caution is therefore desirable.
Another kind of problem arises, because although the carrying capacity of a region can be estimated for cattle or elephants, the estimates for people depend on assumptions about their life-styles.
While natural inputs can be easily identified, and carrying capacity is intuitively understandable, entropy is neither easily identified nor understood. However, it is a very useful “trump card” for ecological economics. “In entropy terms, the cost of any biological or economic enterprise is always greater than the product. In entropy terms, any activity necessarily results in a deficit” (Georgescu-Roegen, 1973). Regardless of how efficient production processes become in terms of minimizing externalities or reducing waste, production will always contribute to the ever-increasing state of entropy in the universe.
The goal of ecological economics might best be described as finding the best ways of living lightly on the planet and striving for a “frugal society” (one that is based on a definition of thrift in terms of economic efficiency, and on achieving environmentally sound economic development) (Goodland and others, 1991).
There are differing views among economists about where the difficulty lies. Norgaard (1989) believes that environmentally sound economic development will not be achieved through adherence to a single dogma such as neoclassical economics; rather, “methodological pluralism” is to be encouraged.
On the other hand, El Serafy, in his comment on this paper, believes that neoclassical economics is perfectly compatible with environmental protection if we realize that the environment is part of society’s capital and if we pay enough attention to the long run rather than to the short run, which has dominated monetary economics and the demand management approaches of stabilization programs. The fault—if there is a fault—does not lie with economics but with those economists who have lost sight of the neoclassical approach of using their discipline to address society’s practical problems. But there are many signs now that economists are moving in that direction.
Natural Resources Accounting. Another major development is the establishment of natural resources accounting. The basic thinking was that current systems of national accounts give an illusion of wealth. The sales revenue of a natural resource like oil cannot be considered wholly an income, since it involves selling part of the capital assets of a country. Natural resources accounting was meant to include in the national accounting system depreciations resulting from the loss of natural resources.
An important study has recently been undertaken by the World Resources Institute. It used the example of Indonesia to indicate that traditional measurements of economic growth greatly distorted actual economic progress. Indonesia’s GNP grew at 7 percent annually between 1970 and 1984, but dropped to 4 percent when a depletion factor for the loss of forests, soil, and fossil fuels was subtracted. Another recent study undertaken in Japan deducted the cost of pollution from income, resulting in a major adjustment of 143 billion yen.
However, all the efforts that have been made over the past several years—led by UNEP in full cooperation with the World Bank—led only to the establishment of satellite accounting systems that express the loss of natural resources in separate accounts rather than including them in a modified national system of accounts. One legitimate reason for the resistance to change the current system of accounts is the essential need for the time series of accounts over long periods of time if meaningful trends are to be identified.
What is needed is a change in our perception of wealth. Natural resource endowments must be included in every nation’s inventory of wealth. True value must be put on the natural patrimony.
Expanding the time horizons of economic practices riveted to quarterly results, monthly mortgage payments or trade figures, and yearly national income accounts is extremely difficult. A first step is the integration of environmental priority into every dimension of macro- and microeconomic practices. Environmental considerations must be built into decision making, from industrial planning, research and development priorities, trade and agricultural subsidies, and tax policies.
Economics seem to remain ill equipped to do that. This problem is not new. Two centuries ago, Adam Smith, in The Wealth of Nations, isolated the difficulty of estimating the market value of natural resources. He wrote, “Things which have the greatest value in use—such as water—have frequently little or no value in exchange.” Although the environment is embodied in all goods and services exchanged, the environment is not itself exchanged. It therefore avoids a market price and a market value. The upshot is that natural resources are treated as “gifts” of nature rather than as productive assets. Economics seem to have enormous difficulty placing a value on anything outside of mercantile activities. As a biologist, I find it difficult to understand that so many economists confine value to exchange, at the expense of nonmarket values like biological diversity or clean water.
While natural endowments like climate and port access were crucial to production specialization and comparative advantage in classical economic theory, resource scarcity or pollution-sink capacity were largely irrelevant in the industrial revolution. Once a natural resource was depleted, a lake polluted, or virgin forests exploited, new water sources were found and new soils were cultivated. The environment was virtually ignored, because it seemed without limits. Resources were incorporated as a free good in production methods; pollution was ignored as a market externality. “Land” has been all but banished from economic priorities—particularly in neoclassical economic models. Instead, economic development is viewed almost exclusively as a function of capital.
Therefore, while industrial plant, machinery, and buildings are treated as productive capital whose value depreciates over time, the natural wealth of nations, including the Arab world, is not so valued. Because the natural regenerative capacity of soils, forests, freshwater, and fisheries is overestimated, they are dangerously undervalued.
It is only when countries begin to assess the task of rehabilitating damaged ecosystems that something like the true cost becomes apparent. In the face of widespread ecological damage, it is clear that too many economists have ignored one simple fact. Ecosystems provide the foundation upon which all economic systems depend. There will not be any economic systems unless economists everywhere, including those in the Arab region, take a long, hard look at present environmental realities. Economists must find a realistic symmetry between the price of goods and services and the cost they entail to society by way of natural resource inputs and end-of-pipe pollution.
Putting a price tag on the environment is not a new idea. Keynes’s teacher, Professor Pigou, is credited with being the inventor of the “polluter pays” approach. In his view, the environment was not a free good. Those who used it—either by way of resource inputs or polluting outputs—must pay for it.
Under standard accounting practices, the Exxon Valdez spill and the environmental deterioration that resulted from the Middle East war may be calculated at year-end as an increase in national GDP because of the jobs created for the clean-up and the capital expenditure for repairs. Such a gain in income is of course an illusion when set against the perhaps irreversible damage to the marine environment. Economic development functions like ecological deficit financing—by which the immediate return of income growth obscures the potential of long-term economic sustainability. The challenge is to standardize depreciation values to soils, water, and air. Put another way, reform is needed to include natural resource endowments and environmental factors systematically in calculations of gross national product.
The main obstacle is that no consensus yet exists in the economic fraternity on how to “price” a renewable resource accurately. Take soil, for example. To most of us it is a layer of mineral particles that can be used to grow crops. It is in fact a living community of roots and organic and microscopic life—a water storer and dispenser. It is a portfolio of capital that can be conserved in perpetuity, or by removing protective vegetation or irrigating it improperly, this living resource can be mined and destroyed in the space of a few years.
We may not be able to put a true value on such a resource, but this does not mean that we should not try. We recognize that the tools at our disposal are imperfect and we must work hard to improve them. We can therefore be encouraged that there is a rapidly growing body of opinion beyond what might be termed the environmental constituency that we must tread a different path. Germany, France, the Netherlands, Norway, Canada, and Australia are already moving toward natural resource balance sheets, as are the World Bank, the International Monetary Fund, and a few other lending institutions.
Such reforms in economic tools will take time. But we cannot proceed as if time is on our side. It is not. Two important tools are urgently needed. The first is indicators of national wealth, which can reflect quality and changes in underlying natural resource bases, and second, the means of quickly assessing the impact of environmental decisions on international trade.
Policy Instruments for Environmental Management. Careless technology coupled with inadequate standards, controls, and institutional arrangements has often allowed producers and consumers to disregard the costs of environmental degradation. These costs, which are known as “technological externalities” (for example, the emission of pollutants into air and water bodies) are the focus of many studies in environmental economics.
The following are 12 policies that have been used for water, land, and air quality management. The choice of instruments depends on local circumstances and on the particular type of pollutant to be controlled or the resource to be conserved.
Prohibition, for example, harvesting of endangered species, dumping of some toxics or contaminants into an ecosystem.
Regulation, for example, of phosphorus concentrations in sewage effluents to control eutrophication; land-use zoning.
Direct government intervention to modify some ecosystemic feature, for example, building dams to create lakes.
Grants and tax incentives, for example, to industry to install pollution control equipment, or to a municipality to accept solid wastes.
Buy-back programs, for example, government purchase of flood-prone land.
Liability for compensation, for example, U.S. Superfund provisions.
Compulsory insurance, for example, to compensate the victims of pollution for damages.
Effluent charges, for example, fees for waste disposal scaled according to the direct cost of treatment or to the indirect cost associated with deleterious impacts on a receiving ecosystem; effluent charges may be incorporated into “delayed pollution control charges.”
Resource rent, for example, a tax or charge on harvesters of a resource in order to recover a fair return for the owners (all the people) of the resource, and also to foster efficient use of the resource by discouraging overcapitalization.
Management of the demand, for example, through rate structures involving marginal cost pricing and/or peak responsibility pricing to improve overall efficiency of use and to foster conservation.
Transferable development rights, for example, incentives to industry to develop in designated areas.
Transferable individual quotas, for example, rights to emit specific quantities of pollutants or to harvest specific quantities of fish or wildlife.
Environmental Impact Assessment (EIA). an EIA is “an activity designed to identify and predict the impact of an action on the biogeophysical environment and mankind’s health and well-being, and to interpret and communicate information about the impacts” (Munn, 1979), where an action could be a proposal to construct a large engineering work, or to implement new legislation, policies, or operational procedures with environmental implications. In the 1970s, EIAs generally did not include assessments of socioeconomic impacts. Today, some jurisdictions include these factors within EIAs, whereas in others separate socioeconomic impact assessments (SIAs) are required.
Management of Risk and Uncertainty. Risk assessment has emerged as a significant tool for environmental decision making (Miller and others, 1986). It has also helped to focus public attention on health and environmental issues and has been instrumental in clarifying the role of public participation and conflict resolution in the environmental field.
Environmental Audits. Environmental audits have become an integral part of the EIA process (Munro and others, 1986). For large engineering works, these audits should cover the construction, postconstruction, and decommissioning phases, that is, a time period of at least forty to fifty years. For assessments that have a bearing on international conventions/treaties (for example, on acid rain, stratospheric ozone depletion, or shared water resources), environmental audits may need to continue for a century or more, merging into programs of general monitoring.
Regionalization and Globalization of Environmental Issues
In the past twenty years countries realized that all of their environmental ills result from either development or lack of it, and that most of their environmental problems cannot be solved at the national level but rather require full international cooperation at the regional or global levels. Examples abound.
For the Arab region cooperation at regional or subregional levels is a must for regional seas: the Mediterranean, the Red Sea, and the Gulf or for shared freshwater resources such as the Nile, the Euphrates, the Jordan, the Nubian Sandstone aquifer, and so on.
Global issues include ozone depletion, transboundary movement of hazardous wastes, trade in endangered species and in toxic chemicals, climate change and global warming, loss of biological diversity, and transboundary movement of air pollution. Since the early seventies, all these issues have forced governments, which otherwise are totally different economically and politically, to sit around the same table to agree common actions to save their common heritage, land, air, water, sea, and, above all, to save the human health and well-being of their peoples. In these negotiations, once the environmental problem was identified, it became apparent that the major issues to be addressed were the impacts of any proposed agreement or treaty on the economic and social development of the negotiating states as well as on trade to and from these countries. This is more concrete proof of the intricate relations between the environment and development.
The Arab World
It is true that the Arab world is quite homogenous with respect to language, culture, and most of its traditions. However, the variations between the Arab states regarding economic and social indicators are enormous.
The size of populations in the Arab states range from about 0.5 million to over 50 million, with all the in-betweens.
The annual rate of population growth varies between 0.2 percent and almost 4 percent.
Access to safe drinking water in 1988 ranged from 50-100 percent in urban areas and from 20-100 percent in rural areas. Access to sanitation services ranged from 30-100 percent in urban areas and from 5-100 percent in rural areas.
Commercial energy consumption in 1989 ranged from 1 gigajoule per capita to almost 600 gigajoules
Freshwater withdrawals range from 28 cubic meters to 4,575 cubic meters a year and represent anywhere from zero to 660 percent of the available annual internal renewable water resources. Of course, the withdrawals include desalination capacities.
Illiteracy, except for Jordan and Lebanon, where it is about 20 percent, ranges between 40 percent and 75 percent of the adult populations of the rest of the Arab states.
Per capita gross national product varies from $170 a year to more than $18,000 a year.
The land areas of Arab states vary widely, from 10,000 square kilometers (Lebanon) to more than 2 million square kilometers (Saudi Arabia, Algeria, and Sudan).
The total external debt of the Arab states varies from zero to about $40 billion.
Urban populations in the Arab countries as a percentage of the total population range from just over 10 percent to more than 95 percent.
Land with no inherent soil constraints in the Arab world ranges from as low as 10,000 hectares (Bahrain) to more than 90 million hectares (Algeria).
The Arab world has reserves of a limited number of major metals, but the amounts vary widely.
These are some of the indicators that show the wide differences between the Arab states. They are of course in addition to variations in climate, topography, and availability of agricultural and pasture lands and forests and of mineral and other natural resources and energy sources.
What I want to say here probably complements the variations in investment policies described in Mr. Ghassan El-Rifai’s paper. All these variations have to be kept in mind when making recommendations for action by the Arab states.
The above discussion clearly shows that in planning its future economic development the Arab world has first to prioritize what needs to be done according to the variations that I and others have mentioned; second, to identify activities that can be implemented to achieve specific targets in specific periods of time, costed, and the sources of funding identified. Institutional reform will have to go hand in hand with this exercise to ensure the proper follow-up of these activities that are by necessity multidisciplinary and multisectoral. Third, it must plan its development with the aim of passing on to future generations productive opportunities of equal or greater value than the existing capital portfolio. This is easy to state, but immensely difficult to achieve because, in essence, the transfer of three types of capital is being discussed: (a) critical natural capital such as biogeochemical cycles and species diversity—that is, the vital processes that sustain the life support systems of the earth; (b) natural resources—forests, marine life, topsoil, and air; and (c) artificial capital such as technology. The Arab region also has to ensure that development does not end in a deterioration of its natural resource base, which varies from one Arab country to another.
Those who receive official development assistance have to live with the fact that the new developments in Eastern and Central Europe and the former Soviet Union are most likely to lead to a diversion of sizable sums of aid from developing countries, including a number of Arab states, to neighbors in Europe.
The Arab world should spare no effort to establish its own natural and social scientific base and technological base. In this case a pooling of such resources of highly trained individuals may prove beneficial. Such a scientific and technological base should be geared to choosing the most appropriate and environmentally sound technologies available; developing local technologies based on local and traditional knowledge and applying the new science, using the best of the old and the best of the new; thrusting the Arab world into the arena of new technologies: microelectronics, information technology, and biotechnology; developing the most appropriate ways and means of using the renewable natural resources: land, water, and forests, particularly shared water resources; developing methodologies for applying the new economic tools that guarantee that development is sustainable; and developing the most credible data bases on what is happening to the environment and its natural resources in each of the Arab countries as a basis for proper policy decisions.
The Arab world should achieve public consensus by sharing information and interpretation of data. It should formulate long-term policies and not only short-term plans. The latter are no longer useful because of the enormous developments in understanding the relationships between people, resources, the environment, and development. This will probably be the most difficult part, because of the huge uncertainties about natural resources, potential needs, prices, monetary instabilities, and so on, although the new techniques of managing risk and uncertainties should help.
In planning for future economic development, the policymakers in the Arab world will have to follow the new and most logical concept, which states that “minimizing future regret is wiser than maximizing present benefit.”
SALAH EL SERAFY
This is a comprehensive paper by a world expert on the environment who has been at the helm of the United Nations Environment Program (UNEP) for many years and who speaks authoritatively on the subject. The paper fits well into the framework of the seminar as it is usefully slanted toward development.
The paper’s main message—and it has several—is that in the Arab region we should be aware of the fact that we are part of the global environment and that we should behave with this fact consciously in mind. More specifically, we should heed the injunction—captured at the end of the paper—that to minimize regrets in the future, we should be careful not to harm the environment now. It is inevitable that we pay for the harm we do to the environment sooner or later, and if we imagine that we can get away with the reduced costs of production and consumption by harming our environment in the short run, we will eventually have to pay the price. Also, it is cheaper and more efficient to charge such damage as a cost to current activities, rather than to wait until the damage has been done, when the cost of repairing the environment is likely to be higher, and some of the damage will be irreversible.
Mr. Tolba rightly views his paper as a contribution to the sustainable development that he so strongly urges. He is aware that sustainability looks different to different people, and it is to his credit that although he comes to the subject from the direction of natural science in which he was trained, the paper contains much that belongs to the realm of the social sciences, diplomacy, and institutional development, as well as much wisdom that reflects years of experience in a globally pivotal place.
Since I have been asked to be a discussant, let me try, if I can, to find weaknesses and omissions in the paper. I must warn, however, that I am in general agreement with the tone and thrust of this paper.
I wish that the paper was better structured. It begins with a regional focus, namely, a brief account of the great disparity of conditions, income levels, population and its growth, education, and health and sanitation among the Arab countries. I wish Mr. Tolba had also added the great variety of natural resource endowments among them: space, climate, water, mineral deposits, soil, and the like. The second section, “Environment and Development.” shifts suddenly to a global perspective, with emphasis on the great attention given progressively by the world to environmental issues over the past two decades. Here Mr. Tolba advances his argument quite effectively through a series of succinct quotations about the importance of the environment for national economic performance, as well as its contribution to determining international comparative advantage. These quotations include one from the South Commission regarding the harmony that should exist internationally between development and the global environment; the alarm signaled by the Secretary-General of the United Nations in 1969 urging nations to subordinate ancient quarrels to improve the human environment, diffuse the population explosion, and reduce the arms race so that development could receive focused attention. Mr. Tolba shows how very little has been done in response to such wise counsel, though he devotes a section to a number of notable steps taken in the past few decades, including convening the Rio Conference on Environment and Development. He reminds us that it was the Governing Council of UNEP that coined the phrase sustainable development” some 17 years ago. This concept, which unfortunately does not lack enemies, has contributed to many constructive initiatives, particularly in the economic sphere.
After that, the paper largely proceeds along global lines, with the injunction that the Arab world has no alternative but to pursue its development sustainably and in harmony with global norms. Reviewing the global scene, Mr. Tolba mentions the collapse of the former Soviet Union and the bipolar world, the discredit of planning and the rise of market-oriented approaches, the strong movement toward regional economic and political integration, as well as the great technological strides made recently, including the revolution in information and communication technology. Endorsing Mr. Langhammer’s views, he is pessimistic about the impact on the Arab countries of developments in the former eastern bloc; greater competition with Arab exports; the proximity of Eastern Europe to markets of the European Community (EC) to the detriment of Arab exports and those of developing countries; and the likely favorable treatment of imports into markets of countries of the Organization for Economic Cooperation and Development (OECD) at the expense of developing countries. He is also wary of the impact of the North American Free Trade Agreement between Canada, the United States, and Mexico, fearing that this will blur the demarcation between developed and developing countries (without saying why this is necessarily bad), and he is apprehensive that this agreement will impose the environmental standards of a highly advanced country (the United States) on a less developed nation such as Mexico, and may thus affect Mexico’s drive to industrialize. A critic would find some contradiction between this last statement and Mr. Tolba’s earlier statements to the effect that the Arab world should follow the global environmental initiatives, presumably including standards, which I think is more sound advice.
The paper then attends to some interesting general issues and trends, including the growth of knowledge as an asset (perhaps more valuable than physical or financial resources); the worldwide integration and centralization of the transnational corporation caused by the revolution in communications, thereby reducing the powers of national governments in the developing world; the extraordinary growth until recently of world trade, albeit affecting only very few of the developing countries; and the great barriers that have been set up against exports from developing countries in the markets of the richer countries.
Turning to the Arab world, Mr. Tolba notes the paucity of manufactured exports, and the overwhelming reliance of the region on the exports of primary commodities whose terms of trade have seriously deteriorated at a time when the debt problem has also become serious and the regional conflicts have worsened.
In this part of the paper, which perhaps illustrates again my strictures about its structure, Mr. Tolba goes back to global themes, mentioning the drive among economists to internalize the environmental costs of activities in line with the “polluter must pay” principle; the introduction of fiscal and other incentives to encourage energy savings and compliance with regulations for reduced pollution; and the development of devices such as trading permits and auctions for rights to pollute that are fixed in their aggregate.
The paper then addresses the subject of energy consumption in a global context, citing the deceleration of world demand for energy since 1970, the small share in this demand of the developing countries, and the reduced energy intensity of OECD production, to be contrasted with an increased intensity in the developing countries. The paper dwells on the topic of industrialization in developing countries, noting that they contribute a very small share (14 percent in 1990) to total world industry; that energy-polluting industries, such as iron and steel, nonferrous metals, and pulp and paper, are growing faster in developing than in developed countries and that their relocation away from congested urban centers in developing countries has proved difficult and costly; and that there is now an established trend for developed countries to seek technologies that reduce pollution rather than attempt to clean up the pollutants after they have been generated. Mr. Tolba signals concern that such new technologies, which have yet to reach the Arab countries, will be costly, and access to them will affect comparative advantage, and hence the international localization of industry. He also notes the rapid growth in the developed countries of less polluting and high-technology activities, including microelectronics, information technology, and biotechnology. Mr. Tolba will probably agree with me that such trends signal important changes in the industrial structure of the richer countries that will cause the polluting industries to migrate progressively to the developing countries.
The paper then reviews major advances that have occurred, including the development of the fairly new science of ecology, which now seeks harmony between the biosphere and economic and social activities. He mentions the great strides made during the past two decades by scientists to enhance understanding of global environmental systems and to advance insights into the biological cycling of elements (such as carbon, nitrogen, phosphorus, and sulfur) essential to life, which he himself has named “the environmental life support system.” He further mentions progress made in understanding the behavior of geophysical and ecological systems, of the plant and animal roles, and the development of new concepts such as the “carrying capacity of a region,” the “sustainable yield” of a renewable resource, assimilative capacity of a watershed or an airshed, and resilience of an ecosystem. He also cites advances in mathematical modeling and the development of a new medical field called “environmental toxicology.”
Mr. Tolba, wrongly, I believe, contrasts the significant scientific advances he mentioned with the lack of “spectacular” strides made by the social scientists in this regard. Although he and I may differ on what is spectacular and what is just important, and on what is conceptual or methodological progress and what is just improved application, I would mention the following. He himself has called attention to the birth of the subject of “ecological economics,” a subject that valiantly attempts to blend economics with ecology and that is attracting a great deal of attention from economists. In the World Bank and elsewhere a serious attempt has been made to produce country environmental issues papers to identify the major stresses on the environment in particular country situations, to be supplemented by country environmental action plans aimed at improving country environments through economic policies and other instruments. There also have been refinements in measuring the environmental impacts of projects, with attempts made to reduce or eliminate environmental damage through redesigning projects or even dropping them altogether. I would also cite the progress made (and mentioned in Mr. Tolba’s paper) to incorporate environmental externalities in project analysis. But I would be remiss if I did not also bring to the attention of participants at this seminar the formidable efforts to change the United Nations System of National Accounts so that environmental change is incorporated in economic measurements of income and wealth. This has been an initiative sustained for many years by UNEP under Mr. Tolba’s leadership, jointly with the World Bank on whose behalf I have played a certain role. The new United Nations System of National Accounts—to be enunciated later this year—will contain a set of national satellite accounts where adjustment to the national accounts can be made to reflect environmental degradation.
Mr. Tolba mentions the distinction between growth and development, which my friend and colleague at the World Bank, Herman Daly, has proposed, and the concept of throughput (the natural material and energy content of economic activities that eventually produces harmful emissions). He will probably be pleased to know that in association with Robert Goodland (also of the World Bank) and myself, we edited a book published in 1992 called Population, Technology, and Lifestyle, where we developed this concept further, and urged the developed countries to contain their throughput, deriving their growth, to the extent possible, from enhancing productivity and restructuring production to give the developing countries the chance to grow as well as to develop with the aid of increased throughput. The concept of “steady-state economics,” also associated with the name of Daly, has also been fruitful in this regard.
To this I must add the greater attention now being paid by development agencies to indigenous peoples and the preservation of cultural property.
I do not share Mr. Tolba’s unhappiness with what he describes as the “single dogma of neoclassical economics.” Neoclassical economics, as I have illustrated in several publications, is perfectly compatible with environmental protection if we realize that the environment is part of society’s capital and if we pay enough attention to the long run, rather than to the short run, which has dominated monetary economics and the demand management approaches of stabilization programs. The fault—if there is a fault—does not lie with economics as such, but with those economists who have lost sight of the neoclassical approach of using their discipline to address society’s practical problems. But there are many signs now that economists are moving in that direction.
The paper then devotes space to enumerating environment friendly policies that have been proposed or applied in many situations, and also mentions practices that have been advocated for environmental impact assessments, risk management, and environmental audits. I have nothing to say on this. I liked the emphasis on regional impacts rather than impacts within an individual country, since much of the environmental harm created is transboundary and even global. UNEP under Mr. Tolba’s able leadership must take pride in the development of several global initiatives, including the Montreal protocol to protect the ozone layer, and the setting up of the global environmental facility.
Of his conclusions, which focus on the Arab region, I liked best the injunction to pool research and development efforts relating to the environment in our region. I wish the paper had elaborated on the damage done to the environment by the recent armed conflicts and mentioned the allied use in the Middle East war of the so-called uranium shells, which, according to recent U.S. press reports, have left radioactive effects in Iraq and perhaps also in Kuwait. I also wish that Mr. Tolba had mentioned the problem of water scarcity in the region and its likely aggravation in future; also petroleum depletion and the economic measures that should be undertaken to address these. I hoped too that he would have touched on endangered species such as the buzzard, which is hunted mercilessly in our region every year.
Having said that, I want to reiterate my admiration for his lucid and comprehensive account of progress and problems. The paper is filled with wisdom and very well serves the purposes of this seminar.
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