The Political Economy of the Environment

The Political Economy of the Environment

James K. Boyce

In a provocative and original analysis, James K. Boyce examines the dynamics of environmental degradation in terms of the balances of power between the winners and the losers. He provides evidence that inequalities of power and wealth affect not only the distribution of environmental costs, but also their overall magnitude: greater inequalities result in more environmental degradation. Democratization – movement toward a more equitable distribution of power – therefore is not only a worthwhile objective in its own right, but also an important means toward the social goals of environmental protection and sustainable development.

Chapter 7: The Globalization of Market Failure?

James K. Boyce

Subjects: economics and finance, environmental economics, environment, environmental economics, environmental politics and policy, politics and public policy, environmental politics and policy, european politics and policy

Extract

INTRODUCTION The economic case for trade liberalization rests on its capacity to extend the reach of the market’s fabled invisible hand. As trade barriers are lowered and the world market grows more integrated, producers reallocate land, labor, and capital to those economic activities in which they enjoy a comparative advantage, and away from the production of goods and services which now can be more cheaply obtained from others. The result is a larger economic pie, which in principle – if seldom in practice – can benefit all concerned. With the globalization of the market, however, comes a globalization of market failures, due to the fact that prices do not capture ‘external’ costs and benefits to third parties. Say that country A produces corn more cheaply than country B, but in so doing generates more pollution. In the absence of countervailing policies, trade liberalization will cause production to shift from country B to country A, with a corresponding increase in pollution and its external costs. Similarly, if producers in country B generate higher positive externalities than those in country A – for example, via the conservation of crop genetic diversity – trade liberalization will erode the supply of these benefits. In both cases, the happy ending of a bigger pie, once the external costs and benefits are counted, no longer can be taken for granted. Whether the social gains from trade liberalization will exceed the social losses from the attendant market failures is an empirical question, one which cannot be answered...

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