Sustainable development and institutional failure: the case of Ecuador.

• Author: Lopez, Franklin

The conservation of resources and the abatement of pollution are among the most important challenges that humankind faces. Sustainable development is defined broadly as resource use that will leave future generations at least as well off as current generations. Clearly, sustainable development will not take place if resources are depleted or exhausted or if the quality of the environment tends to deteriorate. A growing number of environmentalists believe, in opposition to those who believe in a command-and-control approach, that the market is the environment's best ally; hence, they oppose the heavy hand of government regulation and control of resource use. A substantial literature has appeared recently that focuses on property rights as a solution to ecological problems (Hana, Folke, and Maler 1996; Anderson and Higgins 2003; Raymond 2003). As Kenneth Arrow points out, "When private property fails, economists usually think of state intervention, in the form of regulations or substitutes for prices (taxes or subsidies, for example). But human societies have long faced the problems of free access and frequently have created social institutions to regulate them" (qtd. in Hana, Folke, and Maler 1996, xiv). Much research still needs to be done on alternative collective arrangements--those not involving government coercion--to ameliorate environmental problems. Nevertheless, in order to avoid the application of inappropriate remedies, it is important to identify the true sources of the problems before turning to alternative policies.

My purpose in this article is to demonstrate that the sustainable-development problems of Ecuador arise not from market failures but from institutional failures--that is, from dysfunctional institutions and ill-conceived rules and regulations that limit or impede the capacity of market forces to reach optimal solutions. (1)

An Ecological Crisis: The Case of Ecuador

Ecuador is typical of many developing countries. Although it is rich in natural resources, it has a low standard of living, among the poorest in Latin America. It produces approximately four hundred thousand to five hundred thousand barrels of oil per day (until 1994, it was a member of the Organization of Petroleum Exporting Countries [OPEC]), and its estimated gold reserves place it fourth among gold producers. It is the world's largest exporter of bananas and the largest exporter of tuna fish in the Americas.

According to the World Resources Institute (1995), Ecuador is one of the few countries on earth categorized as "megadiverse," owing to the variety of its ecosystems and species. Table 1 shows a comparative representation of the number of species living in Ecuador, as reported by Manosalvas, Mariaca, and Estrella (2002). Considering the size of the country (283,560 square kilometers, or slightly smaller than Nevada), the percentage of species is extremely high.

Manosalvas, Mariaca, and Estrella also report that in comparison with other countries in the Americas, only Brazil has a larger number of species in all categories. Nevertheless, in view of the much smaller size of Ecuador, it is certainly one of the most biodiverse countries in the world.

Within three hours, one can drive in Ecuador from arctic tundra to sweltering beaches, from a temperate pine forest to a tropical wet forest, from a desert landscape to wetlands filled with mangroves. Ecuador is also the most ethnically diversified country in Latin America, a home to large Arab, Asian, Caucasian, African, and Jewish populations. In the Native Indian population, one can find tribes living in very primitive conditions, from those who were recently headshrinkers to the most entrepreneurial otavalenos, known around the globe for the quality of their textiles.

Despite Ecuador's richness and diversity, its gross domestic product (GDP) per capita in 2002 was the same as it had been in 1979; thus, in more than two decades, no improvement took place in the standard of living, at least as measured by this conventional statistic. The government controls directly 71 percent of GDP, (2) a larger percentage than in mainland China at the outset of its reforms. The Index of Economic Freedom published by the Heritage Foundation (2004) classifies Ecuador as "mostly unfree," with a rank of 126, just two places ahead of China. And, of course, Ecuador suffers serious ecological problems, too.

Ecuador's Ecological Crisis, According to Certain Environmentalists

According to the Natura Foundation, an environmental nongovernmental organization (NGO), approximately 50 percent of Ecuador is suffering from various degrees of soil erosion, and deforestation is 45 percent in the lowlands, 48 percent in the highlands, and 8 percent in the Amazon basin. Thousands of acres of forest disappear daily, despite laws that prohibit the cutting down of trees and the exportation of wood. It has been calculated that deforestation amounts to 680,000 acres per year (approximately 2,000 per day), and in less that forty years not a single forest will remain. The Catholic University of Quito (Valencia et al. 2000) has conducted extensive research on the disappearance of endemic species. A summary of its findings is shown in table 3.

According to the same source, the quality of the environment is disastrous. All the soils of Ecuador have suffered the adverse effects of chemical products used in agriculture, from pesticides to fertilizers. Almost all the rivers are contaminated with organic or inorganic material. All the large cities suffer smog problems, and still another type of pollution, city noise, exceeds the seventy-five-decibels level generally considered dangerous to human health.

So goes the litany of Ecuador's ecological problems. Unfortunately, when remedies are proposed, both the diagnosis and the cures are mistaken.

The Standard Diagnosis

According to many Ecuadorian environmentalists, deforestation results from the abandonment of "traditional agricultural techniques and the adoption of foreign techniques" (Santos Ditto 1997). (3) These environmentalists also assert that deforestation springs from the use of timber as fuel, the opening of the frontier for agriculture and cattle grazing, the construction of highways, and similar activities.

These environmentalists affirm that the poor quality of water stems from the indiscriminate use of chemical products, the ill distribution of water property (though the law says that all sources of water belong to the state), and the discharge of industrial and domestic wastes

into the water. The air is polluted by automobile exhausts and industrial gas emissions; the noise arises from irresponsible drivers who care more about their own personal safety than they do about the damage they cause to society. Such claims exemplify an inability to identify correctly the root causes of these problems, and the proposed remedies seem always to be the same: more government control--an ecologically conscious bureaucracy or an environmental Gestapo.

The Standard Remedy

The standard diagnosis encourages efforts to educate the...