Environmentally sustainable competitiveness: a comment.

• Author: Weiss, Edith Brown
• Position: Response to article by Richard B. Stewart in this issue, p. 2039 - Symposium: Economic Competitiveness and the Law

At the United Nations Conference on Environment and Development, held in Rio de Janeiro in June 1992, countries reached a consensus that environmental protection and economic development must be partners to achieve the common goal of environmentally sustainable development.(1) Economic competitiveness must take place within the framework dictated by this common goal.(2) Sustainable development implies that future generations have as much right as the present generation to a robust environment with which to meet their own needs and preferences. Elsewhere I have argued that we hold the environment in common with all generations--past, present, and future.(3) As members of the present generation, we are both trustees of the environment with obligations to care for it for future generations, and beneficiaries entitled to use it for our own economic and social well-being. In brief, each generation has both rights and obligations in relation to the environment.

The notion that future generations have rights to inherit a robust environment provides a solid normative underpinning for the idea of environmentally sustainable development.(4) In its absence, sustainable development might depend entirely on a sense of noblesse oblige of the present generation. Intergenerational rights require environmentally sustainable development by the present generation.

Environmental regulation must therefore be viewed from a long-term perspective. The same is true of competitiveness, since nations and firms may be tempted to pay a heavy price in environmental degradation in order to compete for economic gain. For this reason, competitiveness among countries is not simply a short-term economic issue, but rather an intergenerational one.(5) Future generations may have to pay more for the same goods and services that we receive today because of the increasing funds that must be allocated to cover interest on the national debt.(6) Similarly, if a country degrades its environment or otherwise fails to maintain environmental robustness, it may impose large remedial costs on future generations which will divert resources from other investments and activities. Moreover, contemporary environmental degradation may reduce the natural resource options available to future generations to satisfy their demands, such as by limiting the uses of lakes, rivers and forests. In these ways, today's environmental damage may affect tomorrow's competitiveness.(7)

Sustainable competitiveness, which combines the interests that underlie sustainable development and international competitiveness, puts environmental protection and methods that facilitate economic growth under a common umbrella. If nations adopt sustainable competitiveness as the appropriate context for considering the relation between environmental regulations and competitiveness, several important points in response to Professor Stewart's article emerge.

First, sustainable competitiveness means that environmental protection is not an amenity, or luxury good,(8) to be indulged in after a country has achieved a given level of economic development. Nor is the environment appropriately viewed only in the context of comparative assimilative capacity.(9) Rather, sustainable competitiveness limits the extent to which we can treat environmental conditions as a factor of comparative advantage or as a luxury good. Certain kinds of environmental protection must accompany economic development if competitiveness is to be environmentally sustainable.(10) Actions in pursuit of competitiveness today must be conceived so that we do not borrow from our children and our grandchildren a debt we cannot repay.

Second, Professor Stewart recommends "international harmonization" of standards through international agreements to address transboundary externalities(11) but is skeptical about harmonizing other national environmental standards, largely because of different environmental assimilative capacities among countries. In certain circumstances, however, it is important to develop internationally agreed-upon minimum standards among countries for measures that affect environmentally sustainable development, and these should then serve as a basis for competitive behavior among firms. This applies to transboundary environmental impacts, including those affecting the global commons, as noted by Stewart, but in addition to certain environmental impacts within national borders. At the level of the firm, sustainable competitiveness means concern for the whole life cycle of the production process and the internalization of the full costs of production, as expressed in the polluter pays principle.

Third, as Stewart argues, market-based incentives are promising environmental policy instruments, but, as Stewart does not discuss, they are largely untested. It is important to ensure that such instruments be designed to support the goal of environmentally sustainable development, that the interests of future generations be considered, and that experience with them be carefully monitored and evaluated.

This Comment explores each of these three issues in turn.

1. Environmental Protection as Central to Competitiveness

   The chief obstacle to considering competitiveness and environmental regulation in the intergenerational context is the view raised by Professor Stewart that the environment is an amenity--a luxury for which there is significant demand only when basic needs have been satisfied, and hence an economic good which can be traded off against other economic goods.(12) Lawrence Summers, former chief economist of the World Bank, outlined this view in his memorandum circulated in the World Bank.(13) From this perspective, it is more efficient for some countries to host dirty industries than for others, a factor which Stewart refers to as comparative assimilative capacity.(14) Stewart implicitly endorses this viewpoint.(15) Under this view, industries should migrate to areas with clean air, water, or soils, or with the least stringent environmental regulations. The Summers memo provocatively explored the economic rationale for the migration of "dirty" industries to developing countries.(16)

   One can legitimately argue that a country today should be able to develop in ways that may not be the most environmentally sound provided that the damage can be repaired at acceptable costs later. While people would pay the costs of environmental degradation now, they would in theory generate the wealth to be able to repair it later. Crucial to this argument is the assumption that environmental damage is not permanent: that it can always be repaired later, presumably by investing the fruits of the economic growth achieved by accepting a temporary burden of pollution. Some economic studies have suggested that the empirical relationship between environment and development is an inverted U-shaped curve, in which countries pollute the environment up to the point at which they have become sufficiently industrialized that they can indulge their concern for protecting the environment.(17)

   Some long-term environmental damage, however, cannot be repaired over a period of one or even a few generations. Ozone depletion, loss of biological diversity, contamination of soils by hazardous, toxic or nuclear wastes, and pollution of lake bottoms and ground water aquifers are either irreversible or reversible at unacceptably high costs.(18) Moreover, they affect the robustness of our ecosystems and the integrity of our global environment and create a drag on future economic competitiveness. Actions today that irreversibly degrade the environment, or impose such high remedial costs that degradation is effectively irreversible, burden future generations in that they will have fewer resources to meet increasing demands. No country should have the right to degrade the environment irreversibly for future generations in the name of national competitiveness.

   This argument is also relevant to certain environmental costs that must be met by the next generation. In the medium term of a generation or two, environmental protection affects the health of our children and grandchildren and the state of the environment that they will inherit. If we poison children today through contaminated water or air, these children will become the disabled workers and parents of tomorrow.

   Even from a short-term perspective, the argument that the environment is only an amenity to be traded in the search for competitiveness can lead to later environmental damage that will in turn undermine competitiveness. Moreover, it can result in serious equity problems. The people who bear most of the cost of environmental harm, especially pollution, are frequently not at all the same people who will benefit most from the fruits of growth. On the contrary, the poor and disadvantaged often bear a disproportionate share of environmental costs, especially where there is little social mobility, as in most developing countries. It is they who are disproportionately exposed to toxic chemicals, breathe dirty air, drink polluted water, and are forced by poverty to exploit soils, forests, and other resources in an unsustainable manner. Meanwhile, the benefits of industrialization accrue disproportionately to the wealthy. On grounds of equity, then, environmental protection even in the short term ought to be viewed as important to sustainable long-term competitiveness.(19)

   As a practical matter, however, states are likely to regard consideration of many such intragenerational equity issues as a highly intrusive intervention into their domestic economies, and hence as an unwarranted extension of environmental law. International human rights law may offer an alternative approach for addressing the concerns of those adversely affected.

2. International Minimum Standards as a Basis for Promoting Sustainable Competitiveness

   If we examine the topic of environmental regulation and competitiveness through the...