Monday, February 12, 2007

"Trash Exports": Comparative Advantage or Exploitation

For every "globalisation is good for the environment" story there appear to be another 10 that don't shed such an attractive light on this topic - such is the role of the media. However, one needs to carefully study the economics of trash a little more closely.

The news that the West exports high quantities of trash and has done so since the 1960's and 1970's kind of passed me by even though I have been working with detailed trade statistics for years.

I suppose this is because I find it hard to percieve that it can be cost effective to transport rubbish half way around the world. In the international trade and economic geography literature transport costs (iceberg costs) are an important element in modelling international trade patterns. The gravity model result that distance matters is a cornerstone of the emprical trade literature.

So how does the trade in trash fit with the theory. The answer is that this is no ordinary trash. This is a good article and is thus posted in full.

This article is from ChinaDialogue.

Waste exports: the underside of globalisation

Sky TV recently reported that the world's largest container ship, the Emma Maersk, had arrived in south China’s Lianjiao, laden with 170,000 tonnes of rubbish. The local economy has relied on waste recycling for years. As a result, fumes can be seen pouring out of Lianjiao’s chimneys, its rivers are blackened, its soil is contaminated, its water is polluted and trash can be seen piled up like mountains. The story has ignited controversy in both the UK and China.

But this is not a new phenomenon. Western nations started exporting waste to developing countries as early as the 1960s and ‘70s, with disastrous consequences. In August 2006, a boat chartered by a Netherlands-based firm dumped hundreds of tonnes of toxic waste in the Ivory Coast, killing seven and hospitalising 24, with almost 40,000 people suffering to some degree.

The overwhelming opinion of online commentators is that this demonstrated how western countries adhere to double standards with regard to the environment. But waste dumping is not carried out by nations: it is carried out by corporations.

But how can it be economic or profitable? Ah, the avoidance of environmental regulations. The Pollution Haven Hypothesis is alive and well. But, China also gains a raw material - but at what costs?
Exporting trash has allowed firms to earn money from governments in the developed world, cutting government costs and avoiding local regulations, while the exporters earn an additional income from selling the rubbish. At the same time, developing countries get a source of raw materials. China is the world's second largest consumer of plastic; one tonne of synthetic resin costs 11,000 yuan (around US$1,420), but a tonne of imported plastic, discarded in the west, can be bought for as little as 4,000 yuan (around US$515). The work of sorting the waste is hard and dirty, but for many it is more lucrative than the alternative. “We’re poor, so we still have to,” explained one interviewee. “If we plant crops, we can only earn around 2,000 yuan (around US$260) every year. But this work pays much more quickly: as much as 800 yuan (around US$100) every month.”

When there is this kind of profit to be made, there will always be someone willing to risk others’ health by importing trash, and many more who will endanger their own to sort it: it is simple economics.

A nice quote - we now have some "value of statistical life" stuff thrown in there.
Or is it? If the UK had weaker environmental laws, money could be made processing waste there, and nobody would export rubbish to China. Trash ends up in China because developed countries have more robust green laws, greater social supervision and more effective governments; high fees associated with waste processing and pollution emissions have made it uneconomical to process the trash locally.

But the low cost of waste processing and the large profits to be made in China make it a lucrative industry. Meanwhile, government oversight is weak and punishment is mainly in the form of fines that go directly to government rather than compensating the victims of pollution. As a result, companies and individuals involved can keep on polluting.

Globalisation benefits both developed and developing nations, but environmental laws and their enforcement are weaker in poorer countries. This gives richer nations a chance to export their waste and pollution. The economic and environmental differences are, in essence, the result of underdeveloped systems.

Globalisation increases the interaction between different systems, and exposes the gaps between them. In the same way that less-developed systems attract unregulated and risky investments, they also attract waste.

Governments, businesses and the international community should make a sustained effort to prevent the continuation and expansion of this serious problem.

International agreements that invoke the authority of a third party should be implemented. Sponsored by the United Nations or global environmental groups, such agreements would reduce the potential for harm to developing countries. The third party should also be able to help with the costs of environmental protection.

It is also important to control those factors that allow this unregulated trade. In this particular case, the UK government should bear responsibility for not implementing international agreements, take its rubbish back and discuss more effective systems for managing the international flow of solid waste with the Chinese government. Similarly, China should increase the cost of waste production and waste imports to reduce the price differentials: only this can get to the root of the problem. Otherwise, this issue will become intractable, and more problems will arise.

The Chinese government recognises the harm caused, and a law on solid waste is being rushed through the legislative process. Laws and regulations should be enough to improve the management of imported waste and reduce its environmental harm. But many have concerns about their effectiveness; waste processing and plastics are still highly lucrative industries, and the companies at the heart of the industry may just relocate.

The most basic and important measure is to build the public into the new systems. In the west, it is social pressure that blocks interest groups, keeps the government in line and pushes for strict environmental policies. Public movements inspired by environmental disasters in the 1960s and ‘70s led to a solid environmental protection system and a tradition of public oversight of the environment.

NGOs such as Greenpeace, the media, strict laws and responsible local governments must all play a part in helping China's environment to ensure that situations like this do not continue to arise.

Some good economic analysis in this piece that provides food for thought.

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