PCDForum Column #28,    Release Date March 1, 1992

by Herman E. Daly

Agenda 21, an international program of action, will be one of the official products of the June 1992 UN Environment and Development Conference (UNCED) in Brazil. I recently reviewed the draft chapter of Agenda 21 on International Policies to Accelerate Sustainable Development, the document's first substantive chapter, to be submitted to the UNCED PrepCom IV in New York City in March 1992. It is a disappointing document--the unison snoring of supine economists in deep dogmatic slumber.

The chapter's theme is "promoting development through trade." Its actual thrust is to promote international trade and global economic integration as a self-evident good and then call the result "sustainable development." Hopefully more thoughtful minds will prevail before Agenda 21 is finalized in Brazil, as the old dogma has itself become a serious threat to our planet.

The entire argument of the chapter is based on the invalid and unsubstantiated premise that "An open trading system, which leads to the distribution of global production in accordance to comparative advantage, is of benefit to all trading partners." The widely misunderstood and misapplied principle of comparative advantage rests on the assumption that capital is immobile between nations. In today's world nothing could be clearer than that capital is highly mobile internationally, often moving electronically with the speed of light. Consequently, the confident assertion that an open trading system will benefit all trading partners is utterly unfounded. As David Ricardo, one of the founders of modern economics, clearly explained, if capital can cross national boundaries then it will seek absolute advantage (profitability), just as it does within a nation, draining some countries of both capital and jobs and leaving them worse off.

Furthermore, international capital mobility, coupled with free trade of products, generally stimulates competition among countries to reduce wage, health, worker safety, and environmental standards--all in the name of reducing costs. For example, the country that requires businesses to internalize external environmental costs into the prices of their products--a measure properly advocated by the chapter--will be at a disadvantage in free trade with a country that does not. Such a country is clearly justified in placing a compensating tariff on imports from a country which does not so internalize these costs. This is not "protectionism" in the usual sense of protecting an inefficient industry. Rather, it is the protection of an efficient national policy of internalization of environmental costs. So-called free trade might more accurately be called "deregulated international commerce" to emphasize its affinity with other recent experiences with deregulation, such as the U.S. savings and loan industry and leveraged corporate buyouts.

A similar contradiction is found in the chapter's recommended reduction of Northern tariffs on all products of export interest to developing countries--without consideration of the consequences for the working class of the Northern countries. The idea that the working class of developed countries should enter into direct competition with the low-wage masses of the Third World is quite popular among Northern capitalists. Yet, even while the working classes in the North are expected to sacrifice their high-wage jobs in the name of free trade, the chapter argues that the North as a whole (presumably the capitalist class) must consume ever more to provide markets for Southern products and raw materials. Growth for the poor is indeed necessary, but without making ecological room for it by reducing resource consumption by the rich, and restraining population growth, it cannot happen.

The chapter consistently equates exports with economic efficiency. Yet Southern countries generally would better serve their people by using available resources to produce for their own needs--including basic food requirements--rather than exporting to the North in exchange for luxury consumer goods used only by elites.

The chapter correctly, but timidly, recommends that Third World debt service burdens should be reduced. Yet it embraces the system of deregulated international commerce that gave rise to the unrepayable debt and calls for flows of new lending to the same countries.

No where do the authors of this Agenda 21 chapter acknowledge that in fact the economy is an open subsystem within a finite, closed and nongrowing ecosystem. Instead they engage in a circular argument that trade promotes growth, growth funds environmental protection, a sound environment helps growth, which in turn helps trade. This spiraling positive feedback loop is their vision of "sustainable development". They have missed the point of the whole discussion, as have all too many other authors of contemporary treatises on sustainable development.

Herman E. Daly is Senior Economist, Environment Department, World Bank, 1818 H Street, Washington, D.C. 20433. This column was prepared and distributed by the People-Centered Development Forum. The views expressed here should in no way be attributed to the World Bank.

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