- INTRODUCTION
- ECONOMIC GROWTH AND THE ENVIRONMENT
- ECONOMIC ASSESMENT
- TRADE LINKAGES
- UNEQUAL TERMS OF TRADE AND THE IMPACT IT IS HAVING ON THE CARIBBEAN AND LATIN AMERICAN ENVIRONMENT AND ITS PEOPLE
- THE ENVIRONMENTALIST'S ARGUMENT
- CONCLUSION
The objective of this paper is to analyze "Economic Growth and the Environment" published in May 1995 in the Quarterly Journal of Economics. Authors Gene M. Grossman and Alan B. Krueger, argue that they have found no evidence that environmental quality deteriorates steadily with economic growth. They attempt to prove that environmental degradation and income have an inverted U-shaped relationship, with pollution increasing with income at low levels of and decreasing at high levels. I will utilized outside resources to criticized their economic models. Furthermore, I will introduced additional evidence that these two economists, the Harvard Business Review, The London Business School of Economics, the Journal of Environment and Trade and many in the environmental community fail to address key issues when doing their research and writing their case studies.
The second part of this paper will address the environmental community's argument of how further trade liberalization is likely to exacerbate environmental problems. I will prove that although many environmental accidents have occurred and dirty industries have migrated, the radical solution to stop all free trade is not the best option for preserving and restoring the environment. A better alternative is the feasible implementation of sustainable production controls. Trade intervention may be appropriate, however when the goods being exported are dangerous, such as hazardous chemicals to third world countries which do not have the proper technology to dispose of.
The evaluation of both debates will be useful to trade and the local community. Much of the economic literature is inaccessible to non-specialists, and in my view, the accessible portion of the literature has typically not been representative of the whole problem. The public and students of international economics are therefore receiving a distorted picture.
Despite all the research done by both communities, neither group has made any progress in resolving these issues. Part of the problem lies in differences of methodological approaches. In addition, many of these research papers, economic and environmental case studies continue to misinform us about the many underlying causes which create the friction between free trade and the environment. For example, the Latin America economy in the 1980's went through a major economic crisis with extraordinary social and environmental costs. Despite numerous international and state sponsored development projects, poverty, food scarcity, malnutrition, health deterioration, and environmental degradation continue to be widespread problems.8 Also, the involvement of United States in providing weapons to the government to murder and torture individuals who fight for social justice have also contribute to the economic crises.9
Additionally, political corruption, racial bias against indigenous peoples, the debt to the IMF and World Bank and the overwhelming power the Catholic Church has over Latin Americans are underlying causes that lead to social and environmental problems. One of the main roots of these problems is the economic debt crises. I have chosen the economic profile from the World Fact Book and highlighted the size of population, GDP per capita, inflation rate, unemployment rate, illicit drugs production, and external debt.
Some of the findings are shocking, for
example Haiti has 60% unemployment, Nicaragua's GDP per capita is only
$1,700 and their external debt is $11.7 billion, and Jamaica's inflation
rate is 25%.10 These countries were obviously not included as
examples in Krueger & Grossman research. I will only mention a few
of them since I'm supposed to focus on the empirical economic evidence.
I feel it is my obligation, however to mention some of the many other causes
behind the friction between international trade and the environment.
This is a study done by Grossman & Krueger to find out whether continued economic growth brings greater harm to the earth's environment. Their paper addresses, the empirical issue using panel data on ambient pollution levels in many countries. This examination of the empirical relationship between national income and measures of environmental quality began with their first paper of the environmental impacts of NAFTA in 1993.7
The paper is easy to follow until part III titled "Methodological Issues", and part IV titled "Conclusion." It will be in these sections that I will start bringing outside sources to help me better understand and provided accurate criticism to their graphs.
Krueger & Grossman use panel data
from the Global Environmental Monitoring System's (GEMS) to investigate
the relationship between the scale of economic activity and environmental
quality for a broad set of environmental indicators. This data is used
to measure to water quality in river basins around the globe.
Theory
According to the London Business School of Economics, relationships like the one shown in figure 1 (next page) are derived from reduced form models that show how some measure of environmental degradation depends on income per head. Therefore this model does not explain why the environmental variable depends on income per head. They merely described how income per head and the environment shows that sulfur dioxide emissions per capital are related.11
The Journal of Environment & Development published an article in December 1996, which determined that Grossman and Krueger (1993,1995) measured the relationship between a broad range of environmental indicators and income and suggested the inverted U-shaped relationship between pollution and income levels. Figure 1 plots some of the regression equations estimated in these studies and all pollution indicators have been transformed to a common index equal to 100 for a per capita income level of U.S. $8500. As determined by the study of the Journal of Environment and Development there are many exceptions for the inverted U-shaped relationship.12
As reported by Peter Thompson and Laura A., there are problems in evaluating the significance of Grossman & Krueger studies. The first one is that the nature of the sample varies widely across studies and pollutants. Grossman & Krueger (1993, 1995) are measuring only urban air quality and water quality at selected sites. Dissolved oxygen data are from 57 rivers in only 27 countries, fecal coliform data are from 52 rivers in 25 countries, sulfur dioxide and suspended particulate matter are based on the same data.IBID
The London Business School of Economics also indicated that there a number of problems with the data, one of them very little data are available. According to their study the data for the different kinds of air pollution examined by Grossman and Krueger (1995) cover just 19-42 countries over the years 1977, 1982, and 1988. Therefore one should be wary of using statistical analysis of so few observations to make sweeping generalizations. 11
According to the London Business School of Economics, table 1 tells us that not every environment variable obeys the inverted-U shape and that, for some measure of environmental degradation, the relationship with income per head is not robust. A more detailed investigation of the literature reveals other important irregularities. 11
The Harvard Business Review had and article in Jan./Feb. 1997 titled, "Sustainable Business Strategies." Their conclusion about the scale of income effects in the environment is clear; neither theoretical predictions nor empirical evidence indicate any dependable "U-shaped" relationship between pollution and income. According to this article, "Rising incomes do not necessarily nor automatically produce greater environmental quality at any particular break-over point. To the contrary, current evidence supports the environmental community's concern about scale effects: the more industrial development and growth, the more pollution." The research also states that trade is not the primary source of growth, and also not the primary source of negative scale effects. But trade is probably important as a channel to send technology from rich to poor countries. This trade may lead to positive environmental impacts.4
Another potential problem with the estimated inverted-U relationship according to The London Business School of Economics, is the relationship for SO2 concentrations. The cubic functions estimated by Grossman and Krueger (1995) shows the relationship becomes positive again for incomes exceeding $16,000. Though Grossman and Krueger claim that one can not have much confidence in the shape of the curve in this range because of the small number of observations, this evidence at the very least points to the dangers of extrapolating future trends outside the sample. IBID
A third problem is that Grossman and Krueger studies in 1993 and 1995 used different choices of additional repressor, and one cannot easily evaluate the effect that each additional repressor is likely to have on the income coefficient. 12
The Journal of Environment and Development indicated that even if one takes the graphical results at face value, the contrasts among them highlight the difficulty of reaching firm conclusions in this area.
The relationship for carbon dioxide emission using the inverted-U relationship is also biased. According to the London Business School research, the estimation of these turning points is an artifact of the functional form used to fit the regression. If the coefficient on the squared income term is negative, but the turning point occurs at an income level outside the sample, the quadratic relationship is only showing that emission rise at a decreasing rate, not that emissions will turn down at higher income levels. 11 The Harvard Business Review reported a similar finding. In their view, most of the empirical studies contain serious flaws. Errors made in measuring environmental variables, low power of statistical tests, and inappropriate theoretical frameworks could have biased results away from finding significant interactions4.
Unfortunately, some economists-most prominently in GATT have tended to draw attention only to the results that point most strongly to the existence of inverted-U shaped relationships. According to the Journal of Environment and Development, the General Agreement on Tariffs and Trade's interpretation of the evidence is correct only with respect to SO sub 2 and dark matter pollution. However, and even in those cases in the Grossman and Krueger (1993) study, only 41countries have incomes per capital exceeding the U.S. $8,000 threshold.
The Journal of Environment and Development
also stated the following, "Because of the contrasting relationship between
GDP and the various measures of environmental quality, one cannot draw
any clear conclusions about the income-environment relationship. To do
so, one would have to be able to construct a set of weights to combine
all pollution measures into a single index. The problem is that the weights
used cannot be independent of the country to which they are applied, and
therefore could not be used in cross-country regressions."12
Trade Linkages
If trade is liberalized, output of the pollution-intensive industries could shift from rich countries to poor, and the growth accompanying trade liberalization would then be reflected in an increase in emissions in poor countries and a reduction in emission in rich countries according to Grossman and Krueger (1995). This shift in the composition of production could be a response to the relatively weaker environmental standards in poor countries, but it could just as easily reflect other sources of comparative advantages exploited by a more liberalized trade regime, according to the London Business School of Economics. They also determined that whatever the underlying causes of the shift, if trade liberalization were the reason behind the inverted-U, the emission levels in poor countries would not follow the same inverted-U estimated in the literature. 11 The inverted-U would thus be a bad predictor of how environmental degradation will change with growth. As Grossman and Krueger point out, "Further development patterns could not mimic those of the past".7
The Journal of Environment and Development stated that if trade liberalization were to increase incomes (to equal $8,000) in every country, in more than 70% of the countries one must predict a deterioration of air quality. They are also not the only ones who object to the GATT's use of the Grossman and Krueger evidence. They give an example of how, Arrow, Bolin, Costanza, and Dasgupta (I assumed they are also economists) observed that while (the result) do indicate the economic growth may be associated with improvements in some environmental indicators. They imply that neither economic growth is sufficient to induce environmental improvement in general, nor that the environmental effects of growth may be ignored.
Therefore by definition, some countries will always have comparative advantage in labor-intensive dirty industries and some countries will always be pollution intensive (Taiwan) no matter how rich the world gets. In this case, the inverted-U shaped relationship between GDP & pollution is not static, rather, the curve shifts to the right as world income rises, and countries will remain in the same relative position of the curve. Locked into a global structure of unequal pollution distribution due to economic trading disadvantages many countries have against industrialized nations according to the Journal of Environment & Development.4
As reported by the London Business School of Economics, the movement of pollution from rich countries to poor countries need not be driven by differences in environmental standards. The movement of production could simply reflect comparative advantage.11
The theory of comparative advantage is a positive theory about the patterns of trade: a country will tend to export products that use intensively factors of production with which it is relatively well endowed, and import those products that are used intensively in scarce factors. The mechanism that translates relative factor scarcity into trade patterns is, of course, the pricing mechanism and this is also can be applied to the pricing of the environment.13
This is a perfect place to bring up the special report in 1992 by Frontline regarding the international trafficking of hazardous waste. The U.S. has introduced stringent regulations regarding the disposal of hazardous waste and thereby impairs the comparative advantage of it's corporations. Since these corporations make pollution.
intensive products, and create 500 million tons of hazardous chemical waste every year which is very costly to dispose, they have lost their comparative advantage since the price to produce that good has now risen. This will caused to their exports to fall and the production of the pollution-intensive commodity will be reduced. The corporations have two alternatives: they can relocate or sell their toxic waste to third world countries.
They can relocate to Mexico, where environmental laws are very lenient and poorly enforced, and they are provided an abundant supply of inexpensive labor and they are not taxed for the first two years. But the environmental policy set in the U.S. negatively affects the environmental quality in Mexico. According to aforementioned Frontline special there are over 5,000 maquiladoras in Tijuana and most of them are American and Japanese. According to NAFTA, the maquiladoras are supposed to get rid of the hazardous waste in the United State or in Japan, but a very small percentage of the hazardous waste makes it back to the U.S. where we have the proper technology to get rid of it. The question is where is all that hazardous waste going to?
According to Frontline report, most of it ends up in the Tijuana municipal dump, and in the sewer system. This is threatening the water supply and the health of two million people in Tijuana. Well water is the only supply in the villages & local residents say their children suffer from the pollution in the water. The children and adults get warts all over their body and their hair falls out.2
Grossman & Krueger are confident about their estimates and regarding how pollution problems will actually abate once a country reaches a middle income level. They also fail to find a significant impact of ECC on the size of the maquiladora in 1993. But in 1995, Mexico was again, somehow not included in their paper. They also fail to include in their example islands from the Pacific and Caribbean region. Obviously they saw Frontlines special report and discovered that Ford Company, one of the main financial supporters for their research, was mentioned in the report. Ford Company is also one of the major polluters and their toxic waste and hazardous scrap metal is sold to Taiwan, Mexico, Philippines, China, Vietnam, and Indonesia.
The second alternative for pollution intensive industries is to export their chemical hazardous waste to third world countries. Of course they do this illegally since, according to the Justice Department it is against the law. The special report by Frontline in 1992, indicated the international problem of hazardous waste. Many of the countries where this hazardous waste was being sent were island like, Haiti, the Philippines, Taiwan, and Indonesia.
Jack and Charles Colbert were sent to prison for 15 years for exporting hazardous chemical waste to third world countries. When Frontline interview them in 1991, they name Ford Company, Chrysler Company, the Pentagon, the U.S. Military, IBM, and others as their main customers. The government and these corporations sold the hazardous material to these countries because it was too expensive to properly disposed of in the United States.
Bill Moyers who was the correspondent for the Frontline special, interviewed Wendy Myers a representative for the EPA (Environmental Protection Agency) and she explained how she was forced to exempt scrap metal and car batteries from the hazardous waste list. The Department of Commerce, the Council of Economic Advisors, and President's Budget Bureau forced the EPA to exempt the scrap metal and the car batteries because there was a lot of money that could be made. 2
Cheap labor and no environmental regulations allowed Taiwan to achieved massive economic growth. GDP per capita is $13,510 (1995) according to the World Factbook Report of 1996. But the island is one of the most polluted islands in the Pacific because the United States has forced them through GATT to take our scrap metal, due to free trade. Part IV in Krueger & Grossman research paper explain that pollution should start going down once per capital income reached $8,000. Taiwan proves their theory wrong, because the air and water are so polluted that if they continue to import hazardous wast their island will be unlivable by the year 2,000. 2
The Taiwanese government informed our government the health problems the recycling of scrap metal and batteries was having on their people. The United States government refused to change. Now, a lot of the factories that were set in Taiwan are moving into the Guandang province of China, where the government can afford to kill a few hundred thousand people while earning a profit at the same time. According to research by Frontline, the hazardous waste industry is a $50 billion dollar a year industry.
Foreign Policy magazine just came out
with their Spring 1997 issue and they have and article tittled "Latin America:
The Growing Fury." The article reports how thousands of people crowded
in a Buenos Aires cathedral to pray to Saint Layetano to find them jobs.
Whole villages of desperately unemployed Mexican men cross the border to
California and Texas. Teenagers (boys and girls) in Bogota, peddle their
bodies. Impoverished patients in Managua carry their own medicines, sheets,
and towels to the hospital. Farmers in rural Bolivia, Colombia, and Peru
find that the only livable wages come from drug traffickers who pay them
to grow coca or poppies. Quechua-speaking Indians stream from rural Bolivia
to La Paz to sell blow dryers on sidewalks.14
According to the article, in cities like Buenos Aires, Caracas, Guatemala City, Lima, and Rio de Janeiro, new waves of unemployment and poverty have created vast urban slums-favelas in Portuguese, villas miserias (miserable villages) in Spanish. Organized violence in Peru is making a comeback as the once-dreaded an nearly destroyed Senderos Luminosos. The Tupac Amaru is another group that displayed Impressive force by holding hundreds of people hostages at an ambassador's residence in Lima. 14
Crime, especially among juveniles and young adults, is exploding throughout the continent. Army units and police are paid by the wealthy to protect their families and private industries.
The article also explains how the Latin American economies have supposedly been growing since 1992. Population on the whole are in worse economical shape in 1997 than they were in 1980 because of poor economic policy. I wonder where all this money is going? Paul Hawken mentions how the United States economy is booming, but so is the underclass. According to the Foreign Policy article, there are now 62 billionaires in Colombia, versus 40 in 1992, but over 60% of the people are poorer then they were in 1980.
What is the cause to so much poverty,
growing unemployment, uncontainable violence, corruption and destruction
of our ecosystems? The economic reforms that were started in the mid 1980's
to alleviate $400 billion in burgeoning deficits by the previous Latin
American leader who adopted the western model with the help of the IMF
(International Monetary Fund) and the World Bank are the cause.IBID
The article states that now Washington and leaders in every Latin American capital are frightened by the economic crises these countries are having. If economic reforms are to be consolidated and popularly accepted in these democracies, the international community will have to focus on improving the lives of the 300 plus million Latin Americans and soon, according to the Foreign Policy article.
According to the Video by the Social Action Center and the Association of Development Agencies for the Caribbean, countries also owed the IMF and the World Bank billions of dollars. Now many of these countries are obligated to give half of what they earn towards the payment of their debt. But what is worse, every year they borrow more money in order to pay back a part of what they already owe.
The IMF and the World Bank are official lenders. The IMF's headquarters is in Washington D.C. and most of the money it has belongs to Japan, the U.S., Britain and Germany. This institution was set up to provide short term loans, at low interest rates when a country's currency was having short term falls. The World Bank was set up to provide low interest loans to countries for economic and social infrastructure development and now they also lend for the balance of payments.
In the 1970's when the prices of petroleum doubled, then doubled again, it put a lot of pressure in the Caribbean and Latin American countries. Oil producers had abundant supply of money and they put it Japanese and American Banks. These banks in return offered Latin America and Caribbean countries loans at low interest rates. Many of these countries used the money to improve the economic and social infrastructure but others went on a spending spree and started buying foreign goods.3
In the 1980's recession hit, and the banks wanted their money, the IMF and the World Bank bailed out these countries under a set of conditions:
- The country had to devaluate their currency. Local products like coffee, sugar, bananas, and cocoa became cheaper to the foreign market, mainly the United States and Europe since they are the main importers of these goods. The catch was that foreign products like medicine, pesticides, farm machinery and auto parts became more expensive.
- They had to reduce government spending on social services. They had to stop subsidizing medicine, education, food, and utilities.
- Deregulation. Let the market forces take over.
- Privatization of industries instead of public. Banking, transportation, communications, etc…
- Free Market economy. Let foreign goods come in. No tariffs, quotas, or trade restrictions.
- No control of profits.
- Controls wages and keep them low. Do not enforce labor unions. Manufacturing plants in free trade zones could get away with paying very low wages, having horrible working conditions, no health benefits. Sweatshops!
- Export produce to earn foreign money to pay for the debt. Regardless if their people were starving.
- Since the banking industry was privatized they can get away with charging high interest rates. Most of the banks are American owned.
Angry frustrated and confused, people turn to desperate measures such as riots or overturning the government. Nicaragua's Sandinistas overthrew the corrupt government, although it took them seven years since the Contras were given weapons and aircraft by the U.S. government. The Sandinistas set up new terms for the Fruit Company to work under. The Fruit Company now called Chiquita did not like the terms and they left Nicaragua three years later.15
Ronald Reagan tried to crush the Sandinistas government by imposing an embargo in 1985. He thought that by applying economic pressure he could set up a new government that would protect the corrupt American industries. Bananas which accounted for half of all exports and were all sold to the U.S. had to be sold to the European market. Chiquita Company tried to run the Sandinistas out of business by glutting the market with bananas and causing the price of bananas to drop from $11 to $6
a box once the bananas arrived in Belgium. The Sandinista Government has now created alliances with Belgium and Russia. Trade embargoes have proven to not work and not only Nicaragua suffered but American companies suffered also. 3
Many of the Caribbean countries have turned to other methods of work in order to survive. The most lucrative is growing, processing, and trafficking drugs. The Colombia, Cartels have now invested billions of dollars in these countries. Many of the money is laundered by buying and selling vacation resorts, banks, and businesses. Coffee, sugar, cocoa, bananas, and flowers are being substituted for coca or poppies fields instead.
According to an article by the Washington Post in 1992, "Colombian Indians culture is Threatened by Heroin Industry." Guambianos, Wounaan, Orewas, and Paez Indians have resisted cultural pressure from the outside world for 500 years, preserving their customs, dress and communal village structure in the face of overwhelming odds.
Leaders of the Indian groups say the
heroin industry is the most serious threat to their cultures since the
Spanish conquest because the estimated 300,000 Indians here in the state
of Cauca and Choco states are ill-equipped for the plunge into the capitalist
world of drug trafficking. Nor are they prepared for the violence resulting
from bloody infighting among drug traders and their paramilitary squads,
often backed by corrupt local military and police commanders, marxist guerillas
seeking to use the crop to finance their activities, and police forces
seeking to eradicate the poppy harvest.16
The Colombian government has authorized the aerial glyphosate spraying of at least 15,000 hectares of opium poppies. The Justice Minister, Fernando Montealegre, does not care about the ecological risk. This type of spray, however, turns the property into wasteland. The rivers are poisoned, biodiverstiy is reduced and many Indigenous peoples have died because they were drinking the water.
The environment and the people will continue to be sacrificed with free trade due to the unequal terms of trade. In order for the Latin American and Caribbean countries to preserve their environment and the social safety of its people, the IMF and the World Bank must provide a more sensible economic strategy which will provide for the rebuilding of certain key areas like education, agriculture and health. 3
In addition the governments must follow
the four key factors of economic success that Japan & South Korea have
followed.
- Education.
- Savings. The entire country is encouraged to save up to 20%. Their savings are not taxed up to a limit of about $40,000.
- Stable government. No candidates that are corrupt like Salinas or Samper, both of them had large contributions by the drug Cartels.
- Population control. This will be difficult to achieve since 90% of these countries have been brainwashed by the Catholic Church. Which is one of the largest and wealthiest legal organized corrupt, egocentric organizations in the world. They prohibit the use of contraceptives and forbid abortions.
First, the public needs to understand that there are at least three kind of environmentalists; the opportunist environmentalist, the green environmentalist, and the natural capitalist like myself. I do not see anything wrong in making lots of money as long as it is made in a sustainable way and I am not destroying the environment or taking advantage of people.
The first group, the opportunist environmentalists are certain agricultural businesses, political constituencies including labor, small businesses, large corporations, and consumer groups. They wake up one morning and decided to lobby under the environmental platform. The most recent, example, occurred during the negotiations of NAFTA, when many workers realized that their jobs were going to be lost to the Mexicans. The Mexican people have no choice but to work for low wages, under poor working conditions since their economy is in shambles and they owed the IMF and the World Bank over $155 billion, according to the CIA's (Central Intelligence Agency) 1996 report. 17
According to the Connecticut Journal of International Law, Pat Buchanan, Ralph Nader, and Ross Perot were the opportunist environmentalist favorite candidates because they promise to keep their jobs at home if they were elected. The companies that did not, or could not relocate to Mexico also like what these three candidates were promising them. They promised that cheap Mexican products would not be allowed to enter the U.S. market. The businesses also lobby the government using the excuse that Mexico had a comparative advantage because the businesses set up there would not have to follow such stringent environmental policies and provide adequate working conditions to the employees. IBID
The second groups are the green environmentalists and most of them belong, work, or donate money to non-profit environmental organizations. Some of these groups are more green than others, and I have had the opportunity to be working part time as an independent contractor for one of them. One of the problems with the greener ones or extremist is that they refuse to take donations from corporations, multinationals, or transnational unless their products are 100% biodegradable.
The second problem with this group is that they don't have or understand international economics or international business. Therefore they do not understand that by running a local business out of business or forcing them to relocate their business will not solve the problem.
Most of the greener NGOs (non-governmental organizations) have operating budgets of under $1 million. This means they are not sustainable and must depend on grants, public donations, and some of them government donations. But they are important to have since they do the dirty work and they are good at it. This is the group that boycotts, pickets, and prints negative publicity against unethical companies like Maxxam Corporation. Maxxam Corporation is trying to log the Headwater ancient redwood forest.
I did a research paper title "Profitable Pointers for Non-Profits" and from what I discovered only 19 American environmental organizations generated over $1.4 million a year. Most of these organizations have extensive networks with businesses, politicians, and even foreign diplomats. They also accept money from corporations like Philip Morris, Nike Inc., Mobil, Dupont, and automobile companies. Some of these NGOs are considered international, multinational, and transnational like the World Wide Fund (U.K) is the largest environmental organization in the world has an operating budget of over $800 million. Nature Conservancy's revenues in 1996 were almost $400 million.18
These groups have CEO's entrepreneurs, and business tycoons on their boards of directors, like Michael Eisner, CEO of Walt Disney, Charles Hedlund, retired president of Exxon Middle East, and Nicholas J. Pritzker, President of Hyattt Development Corporation.
These multinational NGOs try to work with businesses and to come up with green plans, and now sustainable plans for corporations, Chevron, MacDonalds, and Hewlett Packard. They take the time to inform the CEO's of some large multinational corporations about the importance of preserving the environment and in return they learn what these multinationals are competing against in the global market.
The third group is entrepreneurs like Paul Hawken, the owners of Ben & Jerry's ice-cream, and progressive management funds that invest in sustainable businesses.
Still, many or most of these groups have not realized the roots of the problem, such as, explosive population growth, international debt crises, rapid depletion of resources, rapid economic development in emerging economies, and political and social issues that are underlying forces that create terrible environmental burdens. Most of these organizations think that sustainability is only a matter of pollution control and preserving the 20% of the remaining tropical forests that are left are missing the big picture.
According to the Harvard Business Review article, even if all companies in the developed world were to achieve zero emissions by the year 2,000, the earth would still be stressed beyond what biologists refer to as its carrying capacity. Beyond greening lies an enormous challenge, the challenge is to develop a sustainable global economy, an economy that the planet is capable to supporting indefinitely, according to Mr.Hart, director of corporate Environment management Program for the University of Michigan Business School. 4 Corporations, multinationals, and transnationals are the only organizations with the resources, the technology, the global reach, and ultimately the motivation to achieve sustainability.
Therefore the efforts of the environmental community to contain free trade may be counterproductive, even from a narrow environmental perspective. According to the London Business School of Economics, very few people argue that the environment would be best protected by halting free trade and growth. They suggest the solution to environmental degradation lies in institutional reforms that would compel private users of environmental resources to take account of the social costs of their actions.
The survival economy is the traditional village based way of life found in the rural parts of most developing countries. According to the Harvard Business Review study, this group makes up 3 billion people, mainly Africans, Indians, and Chinese who are subsistence oriented and need to meet their basic needs directly from nature. These developing nations will account for 90% of the population growth. According to demographers our population will double within the next 40 years. 4 Half a century ago, three quarters of Costa Rica was covered with forests. But by 1984 only about a third of that forest remained. "During the 1970s, between 30,000 and 60,000 hectares of forest were cleared each year, mostly by ranchers and farmers interested in expanding their pastures and crop lands."19
The survival economy is dangerously lacking in stability and security and people in this economic system have been driven further into poverty as they compete for scarce natural resources. The cause of the problem is that extractive industries and infrastructure development have, in most cases, degraded the ecosystems upon which the survival economy depends. 4
According to Mr. Hart, women and children now spend on average four to six hours per day searching for fuel wood and four to six hours per week drawing and carrying water. Ironically, those conditions encourage high fertility rates because in the short run, children help the family to garner needed resources. But in the long run, population growth in the survival economy only reinforces a vicious cycle of resource depletion and poverty.
As reported by the Harvard Business Review, short-term survival pressures often force these rapidly growing rural populations into practices that cause long-term damage to forest, soil, and water. When wood becomes scarce, people burn dung for fuel, one of the greatest and least well known environmental hazards in the world today. According to the World Health Organization, drinking contaminated water and burning dung together caused 8 million deaths per year.
Therefore, explosive population growth, ethnicity, corrupt governments, foreign debt, failure to understand international business and the impact on American companies are some of the underlying causes that environmentalist community has also failed to address.
The first half of this research paper has shown evidence from different sources that the empirical evidence from Krueger and Grossman contains serious flaws. Errors made in measuring environmental variables, inappropriate theoretical frameworks, unethical sources for data and funding for the study and failure to address or mention some of the underlying economic, political and social causes creates biased results.
The second half of this research paper has shown evidence that the environmental community is on the right track but it has not addressed many of the underlying issues that contribute to the degradation of the environment. Therefore, they must learn how to communicate with businesses. The information they learn from businesses will allow them to develop strategic sustainable plans where everyone will benefit. They need to start thinking like natural capitalists.
Additional problems lie in the interaction between these trade and environmental communities. These two communities have intentionally developed overtime, personal held opinions and values, due to personal, political and eonomical interests. These problems and issues get in the way and these companies and organizations have spend too much time trying to conquer one another. It is time for these two communities to start compromising, swallow their big egos and start working together.
Hopefully, I have provided an unbiased evaluation of both the empirical and theoretical evidence regarding free trade and the environment. It is particularly important that the public and international business students are provided with concrete, sound and unbiased information.
It would be inappropriate if I just critiqued the two theories and did not provide or guide the reader to one of many sustainable solutions. Therefore I have chosen Mr. Stuart L. Hart's "Strategies for a Sustainable World" as one of the solutions regarding the free trade and the environmental problem. His theory will be provided along with this research paper. In addition the Hypercar, a product that meets all three stages of Mr. Hart's sustainable business strategy will be discussed and a copy of how the product is made and where the resources come from will also be provided.
