Free Trade, the Environment and Profit

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Recent electoral results in the southern states of India have swept the ruling Congress (I) Party aside and put power in the hands of regional political parties. This is an unwelcome development to those in the subcontinent with serious environmental concern. In one of the states, the re-named Telugu Desam (land of the Telugus, the old Andhra Pradesh), subsidies to agriculture and other activities are being swiftly revived to reward the voters. The Central Government in New Delhi, whose economic reforms would, it was said, change Indian economy, if not out of recognition, at least to a more progressive future, has cause for alarm. The reforms were top priority before the advent of Hindu fundamentalism in mid-1992 and tilted to a growth rate of five to six per cent in the years to the turn of the century. Deregulation was to open India to the world, and lead to more foreign trade and investment. The 1991 balance of payment crisis with the threat of international default had spurred the Centre to action. Then came the GATT accord of December 1993. Political and social upheavals, many of which are obstacles to progress, escalated. They are taking place on a scale so immense that they are often beyond the comprehension of outsiders and portend grave global environmental consequences.

Let me go back, briefly, to the GATT accord. The euphoria following it were well reported. I give a few examples. The Times wrote, 'The agreement ... offers the road to a sharp rise in international trade'. John Major hailed it as a 'superb' deal for Britain and said it 'provided a platform for recovery, growth and jobs'. President Clinton claimed it would create 'hundreds of thousands of good-paying American jobs' and add billions of dollars to the American economy. France saw it as a victory after its lone opposition to the US on agriculture. Reaction in the less developed countries, more generally known as the 'Third World', was, however, less enthusiastic. In India, to the dismay of the Centre and entrepreneurs, the Hindu nationalists orchestrated mass opposition to embarrass the Delhi government.

In the wider world, debates among economists and environmentalists on the effects of free trade on the global environment sharpened. Some feared that many economists ignored the hidden costs of free trade on the environment and world communities. Others believed these fears were unjustified because any adverse effects from free trade could be mitigated by imaginative action. I am not suggesting that the debates are simply for or against free trade, because, in fairness, they are more about the regulatory devices that are necessary to achieve the desired results. Free trade is traditionally based in international specialisation according to what has been called 'comparative advantage'. It has long been presumed by economists, before environmentalists first appeared on the scene, that it is good for everyone if countries specialised in products for which they have a comparative advantage and traded freely for other products. Those uneasy with free trade say, with much conviction, that this presumption is unsound. They believe that what should receive preference is domestic production for domestic markets.

Free trade seeks to maximise production and profit, and this is fine so long as it is not at the cost of a country's social or environmental good. Free traders claim it makes people richer, which will then give them the means to remedy social or environmental ills. The other view is that untrammelled growth increases adverse environmental changes that more than offset benefits from increased production. India is replete with examples of this. For example, the synthetic fibres industry, which has a huge overseas market, has for years polluted the environment wherever it has established itself and destroyed the livelihoods of many thousands of people who had traditionally been dependent on local natural resources. No attempt was ever made in this industry to include environmental costs into manufacturing costs. …