Nafziger Economic Development (4th ed)

Pollution

As argued earlier, pollution problems result from divergences between social and commercial costs, divergences arising under both capitalism and socialism. In the late 1980s, more than half the rivers of socialist Poland were too polluted even for industrial use. Stalinism and subsequent state management in the Soviet Union meant cheaply priced resources and ruthless treatment of land, air, and water. Indeed, the former Soviet Union best illustrates the “tragedy of the commons,” in which everybody’s property is nobody’s property. Worldwatch researchers Lester R. Brown, Christopher Flavin, and Sandra Postel (1991:26–27) contend that the world’s worst water quality is in the former Soviet Union’s Aral Sea basin. The accumulation of agricultural pesticides in local water supplies has caused birth defects, miscarriages, kidney damage, and cancer. According to Murray Feshbach and Alfred Friendly, in Ecocide in the USSR (1991:x, 1–25), these pesticides and defoliants have so contaminated the rivers feeding the Aral Sea that mothers in the region who breast-feed their babies run the risk of poisoning them. Furthermore, three-quarters of the former Soviet Union’s surface water was unfit to drink and one-third of the underground water sources were contaminated. Nuclear accidents at Chernobyl and Kyshtym spread radioactive fallout over large hectares of agricultural land and killed thousands of people (see Chapter 19 on the former Soviet Union’s reduced life expectancy). Feshbach and Friendly argue that air, land, and water were systematically poisoned, which also meant a substantial loss of diverse species, another legacy the former Soviet Union still lives with.

Hardin’s tragedy takes something – trees, grass, or fish – out of the commons. The reverse of the tragedy of the commons is pollution, which puts chemical, radioactive, or heat wastes or sewage into the water, and noxious and dangerous fumes into the air. For the firm, the cost of discharging wastes is much less than purifying wastes before releasing it. Without a clear definition of ownership and user rights and responsibilities, an economy “fouls its own nest” (Hardin 1968:1244–1245).

Production and consumption create leftovers or residuals that are emitted into the air or water or disposed of on land. Pollution of air and water is excessive not in an absolute sense but relative to the capacity of them to assimilate emissions and to the objectives of society. Thus, under frontier conditions, with little population density, pollution may not be a problem. As population density becomes more salient, a country can charge a high enough price for use of a resource to limit effluents to a level that can be assimilated without damage to capacity (Panayotou 1993:7; Field 1994:24). Urban air pollution is a major form of environmental degradation. The megacities of the world, urban areas with more than 10 million people, lie under clouds of industrial and vehicular pollution, generated primarily by fossil fuels. This pollution in densely populated areas is often visible, obviously human-made, and poses immediate health risks to people living in the vicinity. The amount of this air pollution depends on pollution reduction efforts, choice of fuels, available technologies, topography, weather, and climate. The most serious health problems result from exposure to suspended particulate matter (SPM), consisting of small, separate particles from sooty smoke or gaseous pollutants. Health consequences

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include a high incidence of respiratory diseases such as coughs, asthma, bronchitis, and emphysema, and increased death rates among children, elderly, and the weak. Particulates, especially the finer ones, can carry heavy metals, many of which are poisonous or carcinogenic, into the deeper, more sensitive parts of the lungs. Sooty smoke from incomplete fuel combustion and vehicle exhaust, especially from diesel engines, are anthroprogenic sources of SPM. Liquid SPM contribute to the damage of buildings, habitat, and fish, as well as humans. Enterprises and vehicle owners can reduce particulate emissions by installing control equipment, such as dust removal equipment in coal-fired utilities, or by switching to fuels other than coal (World Resources Institute, U.N. Environment Program, and U.N. Development Program 1994:197; Grossman 1995:19–50).

The finer, more hazardous SPM and (probably) airborne lead increase with GDP per capita until you get to the levels of middle-income countries, and decrease beyond these levels. Sulphur dioxide (SO2) has a similar relationship to country income, except it begins to decline with lower-middle-income countries. Sulphur dioxide is emitted with the burning of fossil fields from automobile exhausts, nonferrous ore smelting, and petroleum refining. More than 600 million people, including those in major cities such as Beijing, Mexico City, and Seoul, live in urban areas where SO2 levels exceed World Health Organization guidelines. The downturn in SPM, airborne lead, and SO2 levels is not a result of changes in output composition but of tighter government restrictions such as the installation of control equipment, the switching to fuels other than coal, and limits on lead additives to gasoline (World Resources Institute, U.N. Environment Program, and U.N. Development Program 1994:198; Grossman 1995:27–35).

The major forms of freshwater pollution are pathogens (disease agents, usually microorganisms) in raw sewage, industrial and agricultural contaminants from heavy metals and synthetic organic compounds in drinking water and aquatic organisms, and excessive nutrients in sewage, agricultural runoff, and industrial discharge. In India, 114 towns dump their human waste and untreated sewage directly into the Ganges, so this holy river is among the most polluted in the world. Almost two billion people in developing countries drink contaminated water, the primary cause of the death of children. LDCs discharge more than 90 percent of their urban sewage without adequate treatment. Waterborne pathogens from human and animal feces can cause gastroenteritis, typhoid, dysentery, cholera, hepatitis, amoebic dysentery, schistosomiasis, and giardiasis, which are responsible for a substantial fraction of LDC deaths each year. Fecal contaminants rise with GDP per capita (and industrialization and urbanization) until a country reaches upper-middle- or high-income status, after which these contaminants drop sharply, largely as a result of investments in water and sewage treatment. The relationship among heavy metals, toxic chemicals, and excess nutrients in rivers and income is mixed, although lead, cadmium, and nickel concentrations generally fall with income (Gore 1993:110; Grossman 1995:35–45).

Policy makers need to consider alternative costs of using scarce resources and costs of the damage to the productivity of resource as waste disposal increases beyond a certain threshold. Moreover, prevention is often more cost-effective than rehabilitation, and some environmental costs are irreversible (Panayotou 1993:7).

P0

P1

0

Liters of water

FIGURE 13-2. A Water Shortage Caused by a Low Price.

Consider a resource flow, based on periodic rain and snow, year after year, the basis for a river, which flows down from the mountains, through farms, to a city. State authorities do not face a problem of resource allocation, as long as the river flow exceeds withdrawals of water for use, and the water is not contaminated. However, once water is scarce and users face excess demand, the water authority needs to charge a price and define user rights to the water. Take Figure 13-2, which shows a demand curve for a fixed supply of water (L0) available at zero cost. Here the price where the quantity demanded is equal to the fixed quantity supplied is P0. However, if government only charges a price P1, then the quantity demanded is L1, and the water shortage is L0L1 (Kahn 1995:375–378). This is a frequent problem, as illustrated by irrigation water in Pakistan and southern California, where farmers waste water sold to them at a subsidized price.

No policy maker wants to pay the staggering costs often essential to restore waste sites to pristine conditions. Instead, policy makers try to attain an optimal environmental quality, which considers the tradeoff between the damage that people suffer from pollution and the cost of reducing emission in terms of the resources that could have been used in other ways.

Figure 13-3 shows a marginal damage (MD) function, upward sloping to the right, which indicates the change in dollar (or other domestic currency) cost resulting from a unit change in pollution emissions, measured here in tons per year, but sometimes measured as ambient concentration, such as parts per million. Air pollution damages human health, degrades materials and buildings, worsens the visual environment, and disrupts or destroys nonhuman ecosystems, including crops, animals, insects, and genetic stock.

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$

0

e*

Emissions (tons per year)

FIGURE 13-3. The Efficient Level of Pollution Emissions.

How do we measure dollar cost? Let’s look only at the damage to peoples’ health. The most obvious cost is excess illness or death from diseases such as lung cancer, chronic bronchitis, emphysema, and asthma from elevated levels of pollutants, such as sulfur dioxide, asbestos fibers, and radon emissions (Field 1994:86–88). We can calculate the (discounted) cost of extra days lost from deaths and illnesses (persondays of work lost times the daily output foregone, usually estimated by the daily wage), medical expense, and nonpecuniary costs, such as pain and suffering.

Figure 13-3 also shows abatement costs, the costs of reducing pollution emissions into the environment. The marginal abatement cost (MAC) function, upward sloping to the left, indicates the change in dollar cost to change pollution emissions by one unit (for example, one ton per year). Abatement is defined widely to include all ways of reducing emission, including changing production technology, switching inputs, recycling residuals, treating wastes, abandoning a site, and so forth. Where the MAC curve intersects the horizontal axis is the uncontrolled pollution emission level, where nothing is abated. As the curve slopes upward to the left from zero MAC, the marginal (or extra) cost of the first units of emission reduction is relatively low. Think of a steel plant. The firm might attain the first small reduction in pollution by putting a screen or filter on the smokestack. But as pollution levels fall further, the marginal cost of achieving additional reductions increases. For example, a 30–40 percent reduction in emissions might require investment in new technology to reduce effluents. Reducing emissions 60–70 percent might require new treatment technology in addition to all previous steps taken. A 90-percent reduction might require costly equipment for recycling virtually all pollution emitted in the plant. The extreme option for a single

plant is to cease operations, thereby achieving zero emissions. Thus, the larger the reduction in emissions, the greater the marginal cost of producing further reductions (Field 1994:90–93).

The efficient level of pollution emission or minimal social cost is where marginal damages are equal to marginal abatement costs (that is, where emissions are e ). Why? Emissions higher than e expose society to additional damages whose costs are in excess of abatement costs reduce (MD > MAC). Emissions lower than e mean that society incurs extra abatement costs in excess of foregone damage (MAC > MD).

The government needs to enforce and administer emission regulations, and firms need to keep records of abatement costs and emission reductions. To analyze minimal costs from society’s viewpoint, you should include transactions costs, such as enforcement and administrative costs, in the marginal abatement cost function; the result is that the efficient level of emissions increases (or moves to the right) (Field 1994:93–100).

To achieve minimal social cost (MAC = MD), the government’s pollution control board might charge individuals (such as automobile consumers) or firms a price that approximates the marginal social cost or damage of pollution. Once prices are set for sources and amounts of pollution, the polluter can adjust in any way it pleases, either by finding the cheapest means of reducing or eliminating pollutions, or paying fines. Using a market system to charge for pollution spurs private firms to make socially efficient decisions (Ruff 1993:20–36).

Contingent Valuation

The ability to place a monetary value on pollution discharges or other forms of ecological degradation is a cornerstone of the economic approach to the environment (Hanemann 1994:19–43). But a damage function relating the cost to the amount of, say, pollution emissions, although conceptually straightforward, is often difficult to measure.

Contingent valuation – some suggest hypothetical valuation is more accurate – uses questionnaires from sample surveys to elicit the willingness of respondents to pay for a hypothetical program, such as a public good (for example, the environment). Economists can use interviews to simulate a market to determine how much people would pay for additional quantities of a public good. Values revealed by survey respondents may allow economists to draw a market demand schedule (Portney 1994:3–17).

But it would not work to approach people at a mall in Sao˜ Paulo, Brazil, ask them to drop their shopping bags, and inquire about how much they are willing to pay to preserve the tropical rain forest in the Amazon River basin or a penguin in the Antarctica. W. Michael Hanemann argues that people are more willing to tell you whether they would pay some particular amount in increased taxes than to specify the maximum amount they or society generally should pay for the program. A self-contained referendum is preferable. The enumerator should ask the Brazilian

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voter a concrete question such as: “If it costs you $10 taxes annually for the next twenty years for a program that will preserve 50 million hectares (124 million acres) of the Amazon River basin rain forest, would you vote for it?” The survey should use different dollar amounts for different respondents so as to trace a demand schedule that indicates willingness to pay at various prices (Hanemann 1994:22–24).

Economists have some objections to the contingent valuation method. Answering survey questions requires effort, so that some people become impatient, uninterested, or tired. Different people perceive the same questions differently, and the choice of words is so important in conveying meaning. People may respond by making up answers rather than evincing true economic preferences, whatever these may be.

How important is scope? Do people respond the same when you ask about preserving one rain forest or two rain forests, or one rain forest, then another rain forest? Peter A. Diamond and Jerry A. Hausman (1994:45–64) argue that contingent valuation surveys do not measure the preferences they attempt to measure. For example, the sequence in which a question is asked helps determine the answer: People asked a first question to pay to preserve the visibility at the Grand Canyon were willing to pay more than those asked the third question about the canyon. How much people were willing to pay to save the seal depended on the sequence of questions about seal and whale preservation. People’s stated willingness to pay does not aggregate. Thus, people are willing to pay more to preserve three wildernesses separately than the three together. Diamond and Hausman conclude that contingent valuation is deeply flawed. At a minimum, contingent valuation surveys need to be pretested so that the questions are as precise as possible. Even with careful preparation, the contingent valuation method can only find an approximate value for what is invariably difficult to measure precisely. The more you rely on measurable costs (for example, medical costs plus wages foregone for a certain number of person-years lost from air pollution), the more confidence you will have in your valuation (Hanemann 1994:27–28, 34–36).

Arid and Semiarid Lands

A desert is a region supporting little vegetation because of insufficient rainfall (less than 25 centimeters or 10 inches of rain annually) and dry soil. About 23 percent of the earth’s land area is desert, or arid land, and an additional 20 percent is semiarid. In 2005, about 14 percent of the world population (910 million people) lived in arid or semiarid lands. According to U.N. estimates, about 100 million people live on almost useless lands – lands damaged by erosion, dune formation, vegetational change, and salt encrustation. Perhaps 60 million of these 100 million people, because of their dependence on agriculture, face the gradual loss of their livelihoods as fields and pastures turn into wastelands.

LDCs risk large amounts of nondesert land being turned into desert. When you disturb imperiled ecological systems with increased human activity, you can disrupt infiltration of rainwater, increase surface runoff, lower groundwater levels, dry up

surface water, and lose topsoil and soil nutrients, perhaps contributing to hunger and even famine (U.N. 1990:87–88).

In the last half-century, particularly since the late 1960s, the Sahara Desert has expanded southward into the areas of the African Sahel (parts of Mauritania, Senegal, Mali, Burkina Faso, Niger and Chad). Such encroachment in Africa, as well as in the Middle East, Australia, and the Americas, results more from irresponsible land use patterns – deforestation, overgrazing, overcultivating, and shortsighted farming practices – than from climatic fluctuations (Eckholm and Brown 1977, updated by author).

Tropical Climates

Geographically, the tropics lie in a band 2,500 kilometers (1,560 miles) wide on each side of the equator, but climatically they are wider. There are three types of tropical climates, all hot but widely varied in rainfall. The wet equatorial climate, a band 1,100 kilometers (690 miles) wide centered on the equator, is characterized by constant rainfall (190 to 300 centimeters, or 75 to 120 inches, a year) and humidity. A monsoon strip, alternately wet and dry, lies 1,100 kilometers on either side of the wet equatorial tropics. Still farther north and south are the arid tropics, about 1,600 kilometers (1,000 miles) wide, where rain-fed agriculture is practically impossible.

In 1945, the geographer Ellsworth Huntington contended that different climates, through their direct effects on human energies and achievement, determined different levels of civilization. He argued that the highest level of achievement is affected by the degree to which the weather is moderate and variable. Following strong reaction against his theories, few recent scholars have tried to explain or even declare a relationship between climate and human achievement. At present, they do not know if hot tropical weather has a direct adverse impact on our work efficiency, creativity, and initiative.

However, Andrew W. Kamarck (1976) enumerates other less questionable notions about why economic underdevelopment occurs in the tropics and why latitude (distance from the equator) is correlated with the level of economic development. There is no winter in the tropics. Weeds, insect pests, and parasitic diseases that are enemies to crops, animals, and people are not exterminated. This disadvantage outweighs any benefit that might accrue from luxuriant plant growth. Intestinal parasites occur in nearly all domestic animals in the tropics. They retard the development of young animals, reduce yields of milk and meat, impair the working capacity of draft animals, and kill many infected animals. For example, trypanosomiasis, a disease carried by the tsetse fly, inhibits farm and transport development because it attacks cattle and transport animals in much of tropical Africa. Gigantic swarms of locusts can fly over 1,900 kilometers (1,200 miles) nonstop and attack crops anywhere from West Africa to India.

In the tropics, soil is damaged by the sun, which can burn away organic matter and kill microorganisms, and by torrential rains, which can crush soil structure and leach out minerals. And when the lush tropical vegetation is removed, soil deteriorates

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unless recent alluvial or volcanic overflow replenishes it. Thus, reddish and yellowish brown laterite soils predominate in large parts of the humid tropics.

Disease is also a factor in economic underdevelopment in the tropics. This region offers far more hospitable conditions for human disease than the temperate zones. The incidence of parasitic infections in temperate zones is much lower than in the tropics, because winter kills most parasites. At least three-fourths of the adult population of the tropics is infected with some form of parasite. In fact, infectious, parasitic, and respiratory diseases account for about 44 percent of the deaths in LDCs but only 11 percent in DCs. For example, about 200 million people suffer from bilharzia, a disease carried by a parasitic worm, that may produce severe, irreversible liver damage, an enlarged spleen, and a bloated abdomen, while the rest of the body becomes emaciated. River blindness, a fly-borne infection, affects approximately 20 million people, mostly in large river valleys in tropical Africa, and causes partial or total blindness. Because constant warm temperature plays a part in this parasite’s life cycle, the fly cannot successfully carry this infection into temperate areas. Amoebic and bacillary dysentery spread more rapidly in tropical areas than in temperate zones. The idea that only visitors “not used to the water” suffer from dysentery is fiction (Hagen 1975:191). Overall, these parasitic diseases substantially impair the health, well-being, and productivity of people living in the tropics.

Poor soil and plant, animal, and human diseases endemic in the tropics explain some of their underdevelopment. An exception is the industrialized highlands of southern Brazil. Although they are located in the tropics, their altitudes foster a cool climate similar to the eastern Appalachians in the United States.

No doubt problems of plague (for example, desert locusts, which spread from Ethiopia–Sudan in 1985 through much of the Sahara, Northern Africa, and Saudi Arabia by 1988), disease, and soil can be ameliorated by international cooperative research and centralized services in tropical agriculture and medicine. Clearly, capital transfer or adaptation of existing research and technology from developed temperate countries is limited as a spur to tropical economic growth until these other problems are dealt with.

In 2002, the economist Jeffrey Sachs became director of Columbia University’s Earth Institute and special advisor to the U.N. Secretary General. For Sachs, development economics is wide-ranging, going beyond LDC poverty and IMF–World Bank structural adjustment (Chapters 15 and 19) to focus on tropical agriculture, soil nutrient depletion, infectious disease, biodiversity (see later), and the environment. Knowledge of them is at the center of forging a strategy to attack Africa’s economic plight.

Global Public Goods: Climate and Biodiversity

Many environmental resources are public goods, which are characterized by nonrivalry and nonexclusion in consumption. Globalization breaks down national boundaries for many economic activities, including their goods and bads. Although carbon emissions and rain forest and specie destruction are internal public bads within

an individual tropical country, these forms of environmental degradation also have adverse impact on climate change and biological diversity for other countries, both within the region and throughout the globe. The atmosphere and biosphere are global public goods, as nations cannot exclude other nations from the benefits of their conservation or from the costs of their degradation.

We cannot expect interregional or global public goods to be provided in sufficient quantity by an individual tropical country in the free market, because many benefits spill over to other countries. In tropical regions such as West Africa, the ecology of the desert and the tropical rain forest are interconnected. The climatologists Yongkang Xue and Jagadish Shukla (1993a, 1993b) indicate that afforestation in southern Nigeria and southern Cameroon’s tropical rain forest reduce the drought of the subSaharan border or Sahel, including northern Nigeria, northern Cameroon, Niger, and Chad. In addition, afforestation in this rain forest also affects global climate and stock of species.

BIOLOGICAL DIVERSITY

The earth’s four biological systems – forests, grasslands, fisheries, and croplands – supply all of our food and much of the raw materials for industry (with the notable exceptions of fossil fuels and minerals). Each of these systems is fueled by photosynthesis, in which plants use solar energy to combine water and carbon dioxide to form carbohydrates, a process that supports all life on earth. Brown, Flavin, and Postel (1991:73–74) argue that unless we manage the basic biological system of converting solar energy into biochemical energy more intelligently, the earth will never meet the basic needs of 6.5 billion people.

Sustainability requires a multitude of species and genetic stock with which to experiment. Biodiversity includes genetic diversity, the variation between individuals and populations within a species (for example, the thousands of traditional rice varieties in India); species diversity, differing types of plants, animals, and other life forms within a region; ecosystem diversity, a variety of habitats within a grassland, marsh, woodland, or other area; and functional diversity, the varying roles of organisms within an ecosystem (World Resources Institute, U.N. Environment Program, and the U.N. Development Program 1994:147–148).

Diversity is important for two reasons. First, the diversity of species bestows stability in ecosystems. Species are entwined like a woven fabric; they cannot be seen in isolation from their ecosystem. Examples of this interdependence are the food chain, plant dependence on birds and insects for pollination, the habitat dependency of animals and insects, and the protection of species from natural enemies. Greater genetic diversity means a species is more likely to survive threats such as droughts and floods. Species diversity, the world’s available gene pool, is one of the planet’s irreplaceable resources.

According to the biologist David Hartnett (1994), the connections among species are intricate and far-reaching. Hunters who almost annihilated the sea otter in the United States’ Pacific Coast in the early 20th century affected the rest of the ecosystem adversely. Sea otters fed on sea urchins, which fed on kelp and sea grass. As the sea