One primary concern of International Political Economy is the identification of winners and losers. How should these winner and losers be identified and on what basis? Question 4 BSc International Business and Politics International Political Economy Final Exam 19.12.2016 Emma Due Bitz Course coordinator, Duncan Wigan Number of pages: 8 (excl. front page and reference list) Number of characters: 22.654 (excl. front page and reference list)
The idea that global change generates winners and losers is generally recognised, however, what is meant by winners and losers depends on one s perspective and little attention has been given to the theoretical underpinnings behind identification of winners and losers (O Brien & Leichenko, 2003). In the following this paper is going to explore the concept of winners and losers in the context of two aspects of global change: economic globalization and environmental change. Global environmental change is not a recent phenomenon. Ever since the post war concerns over the health of the global environment has increased leading to several environmental treaties (Dauvergne, 2014). For some reason, however, the environment has not been of major concern to international political economy (IPE) scholars until the 1970s (Clapp & Helleiner, 2012). Since then more attention has been devoted to the environmental implications caused by liberalized and expanding international trade, and to the activities of industrial and resource focused transnational corporations (Clapp & Helleiner, 2012). The historical process of capital accumulation and the pursuit of economic growth has contributed to current global environmental degradation that affects everyone. Global environmental change goes beyond national borders and are transnational in character. The environment thus becomes an important area of IPE due to the complex linkages between the environment and the global economy. As economic globalization and environmental change is wide-ranging and thereby refer to processes occurring at a global scale with extensive consequences, this paper will, due to the limited scope, largely focus on the relationship between trade and environmental degradation. Furthermore, it will argue for a complementary use of theories in order to identify winners and losers, as different theories have a different focus in respect to the units of analysis that influences the variety of actors to be observed (Broome, 2014). First, this paper is going to give a brief description of the relationship between economic globalization; trade, and environmental change; degradation, after the post war and later extend the argumentation for a complementary use of theories. Subsequently, this paper will perform different theoretical perspectives to international political economy (IPE) with the object of identifying winners and losers, while simultaneously support these perspectives with empirical evidence. Ultimately this paper is going to conclude that economic globalization, originally initiated to foster economic growth and trade liberalization, produces environmental degradation which influences winners and losers. The end of the second world war was the beginning of a new era for the world economy, where sustainable development and economic growth was of high priority. This period saw an increase in 2
both the volume and type of trade. In addition, a series of trade liberalization agreements were conducted, tariffs were gradually reduced and in the 1970s an effort was made to address non-tariff barriers to trade (O Brien & Williams, 2010). Furthermore, the creation of the WTO in the 1990s marked the next step in trade as countries increasingly embraced liberalization in services and agriculture. Alongside these multilateral trade initiatives, also regional agreements were negotiated among neighbouring countries (O Brien & Williams, 2010). However, as trade agreements began to disturb national political economies, trade agreements became the subject of general national and international debate. Furthermore, concern has been expressed about its environmental and social effects. Environmental degradation became a major problem due to the poisoning of the natural environment caused by the pursue for resources and economic growth (O Brien & Williams, 2010). Economic growth, trade liberalization and corporate globalization are the main contributors to the global environmental crisis and greenhouse gas emissions have increased by 70 per cent between 1970 and 2004 (Broome, 2014). These forces allocate environmental effects unequally. While the rich are made better off, the poor are confined in ever-worsening environments (Dauvergne, 2014). Trade liberalization expands economic activity leading to economic growth. As the scale of global economic activity rises, environmental change/damage will occur. Furthermore, the competition among companies will intensify leading to a race to the bottom in environmental standards (Dauvergne, 2014). In general, environmental challenges is difficult to control as the effects cross jurisdictional boundaries. The key issue becomes the relationship between trade and environment, as a potential conflict between multilateral trade rules and multilateral environmental protection is one of the most controversial challenges between environmental activists and those favouring trade liberalization (World Bank, 2002). This paper is going to embark upon a comparative evaluation of three rival schools of thought in IPE, namely neoclassical economics, institutionalism (regime theory) and Marxism. These theories that form the theoretical framework for further analysis is chosen to perform the diversity of actors in IPE and to give a more comprehensive identification of the winners and losers. The neoclassical approach constitutes a cost-benefit analysis that builds on costs and benefits derived from the exogenously and ethically unchallengeable preferences of dispersed and self-oriented individuals whose decisions have a jointly impact on the environment (Adaman & Özkaynak, 2002). The institutional approach rejects the utility-maximizing behaviour and believe that market mechanisms are extremely 3
interrelated with social institutions. Instead, it stresses the importance on non-market deliberative interactions in forming public policies with respect to environmental issues (Adaman & Özkaynak, 2002). The Marxist approaches have different theoretical backgrounds yet each one s primary concern relates to social class dynamics of exploitation. Together these theories will aid to explore how the distributive process and outcome of global economic and environmental change should be identified. It is furthermore important to acknowledge that the theoretical approaches do not contradict the results of one another but instead place different emphasis on actors authority, position and importance. Liberal economic theory, of which neoclassical economics is a variant, takes its point of departure in the analysis of individuals wants and preferences and has constructed a powerful explanatory framework on this basis (O Brien & Williams, 2010). In the context of global economy, it focuses on the behaviour of individuals, firms and states. Individuals are viewed as self-interested and their aim is to increase the benefits of economic exchange for society. In addition, firms are viewed as a source of economic wealth and the state is viewed with hostility since it brings politic into the realm of economics (O Brien & Williams, 2010). It is furthermore believed that if individuals can freely engage in production, exchange and consumption everyone will benefit, therefore it is also highly important that the state does not distorts these benefits and add costs to participants in the market. From this perspective, the transnational corporation (TNC) is a positive force, bringing advantages to both home and host countries. TNCs represents an ideal mix of technology, managerial skills and capital. They boost their home countries economies through the transfer of capital, technology and market access (O Brien & Williams, 2010). Neoclassical economics provides one of the most complete and detailed picture of relationship between trade and environmental degradation. It locates the economic explanation of the degradation of nature, here expressed in terms of the abuse of natural resources, in a lack of markets for environmental goods and services (Adaman and Özkaynak, 2002). Therefore, the absence of such a market becomes responsible for the failure of people to appreciate the otherwise positive prices of environment friendly products (Adaman and Özkaynak, 2002). Within the theoretical framework of neoclassical economics, the overuse of natural resources is in part due to a lack of well-defined property rights. It is argued, that resources are too easily accessible to its users (Adaman and Özkaynak, 2002). Hardin (1968) termed this problem the tragedy of the commons. Ruin is the 4
destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the common. Freedom in a common brings ruin to all. Moreover, pollution will continue as long as economic agents, here defined as the ones responsible for activities of production and consumption, neglect the impact it has on third parties. In addition, neoclassical economists argue that environmental degradation will alter itself into a loss of efficiency (Adaman and Özkaynak, 2002). Neoclassical economists would argue that globalization of free trade based on the principles of comparative advantages in the long-run will help weak economies to minimize pollution. Even though trade might lead to environmental degradation in the short run, as air and water quality will be deteriorated, in the long run environmental standard will perpetually growth (Dauvergne, 2014). This is commonly supported with the Environmental Kuznets Curve (EKC), demonstrating that pollution will rise along with economic growth during the early stage of a country s industrial development (Dauvergne, 2014). Thus, focus should not be on pollution controls but rather on trade liberalization as this creates industrial growth and per capita wealth. Once the per capita income reaches high enough levels, pollution will fall (Dauvergne, 2014). However, it is important to understand how higher incomes affect environmental quality through overconsumption and waste of resources. Winners and losers are identified in terms of prices and factor returns; wages and rents (O Brien & Leichenko, 2003). Due to the specialization of production, abundant factors in each country will experience increased demand for their services and increased returns and hence are clear winners under trade liberalization. The scarce factors in each country will become losers, as they are instead left with reduced demand and returns. If comparative advantage lies in weak environmental regulations, developing countries will benefit while the environment will suffer. Regime theory argues that nation-states are the central actors in global negotiations, where the public have only a minor or supportive role in shaping outcomes. It further believes that organizations, institutions, habits, norms and rules play a central role on economic performance i.e. resource allocation, income distribution and growth. Regime theory echoes the values of liberal institutionalism, which anticipates international institutions to be a force in global politics (Khan, 2016). As Keohane (1984) argues they are created to reduce uncertainty, minimize transaction costs and prevent market failures. As environmental change is a global phenomenon and thus is expected to be in the interest of all, international organisations are believed to take on an active role. A hegemon 5
is not sufficient nor required for international cooperation. Therefore, in the environmental regime, the UNFCCC Secretariat, the United Nations Environment Programme (UNEP), the World Bank and other bodies play an essential role in articulating and setting the agenda and discussion (Khan, 2016). In recent years, this theoretical perspective has emerged as a mainstream explanation for international environmental cooperation, where the Kyoto Protocol is claimed be an example of negotiation that reflect the interests of its parties (Meckling, 2011). Emissions trading was part of the agreement, not because of the US s hegemonic status but because of negotiations between the US and the EU; while the EU agreed on market mechanisms, the US agreed to a binding target (Meckling, 2011). As such, it was the UNFCCC that facilitated the protocol s compromise. Thus, from this perspective, institutions can help overcome barriers to cooperation and hence, environmental cooperation is made feasible through the activities of non-state actors. Yet, even though more than 200 multilateral environmental agreements (MEAs) have been accomplished, only a fraction regulate trade or contain trade provisions (World Bank, 2002). Former World Trade Organization director general, Mike More, has explained: Every WTO Member Government supports open trade because it leads to higher living standards for working families which in turn leads to a cleaner environment (Dauvergne, 2014). This tell that the theory s emphasis on reciprocal interests is somehow naïve, as it does not consider the distribution power among the institutions. At the core of the debate, is the potential conflict of trade measures in MEAs and WTOs rules (Wold Bank, 2002). Greenpeace argues that if WTO policies do not acknowledge that there is a fixed limit on the amount of resources to be consumed, this will be a thread to the environment (World Bank, 2002). It is argued that institutions, with the purpose of stimulating neo-liberal market philosophy, help capital formation and maintain the existing order, where environmental change is seen as nothing but a challenge to the dominant mode of capitalist developments (Khan, 2016). Consequently, as a result of corporate power, international capital s response to environmental change is weak (Khan, 2016). International environmental cooperation is likely, yet the forms of cooperation and the institutions created, since they are based on capitalism, will not be able of providing successful solutions to environmental degradation (O Brien & Williams, 2010). Pursuit of economic growth can be counterproductive since such growth commonly stimulates policies which degrade the environment. Within this theoretical approach it is institutions supporting economic growth and trade liberalization such 6
as the WTO rather than institutions supporting environmental sustainability that are identified as winners. Furthermore, the power of such institutions on the international stage creates another group of winners, namely the TNCs. There is no doubt that these have benefitted from trade liberalization. Most of the world s largest TNCs are oil companies, car manufactures, telecommunications etc., and the growth of such corporations have far-reaching effects. Critiques often point out that TNCs put downward pressure on environmental standards as they demand suppliers to continually reduce costs (O Brien and Williams, 2010). The losers are consequently identified as states and institutions that fail to carry through their environmental interests. Furthermore, the economic growth under free trade overrides any environmental gains (Dauvergne,2014). Marxism places its unit of analysis on social class dynamics as class struggle and uneven development are the fundamental forces affecting the international political economy. The theoretical cluster of Marxism holds a variety of different perspectives, yet any genuinely Marxian theory share the following assumptions. First, historical processes of change reflect different modes of economic development and wealth accumulation. Second, world politics begins with an analysis of capitalism. Third, capitalism leads to class conflict between the elite and the exploited class (Broome, 2014). One type of Marxism is Antonio Gramsci s conception of the hegemony that capitalism holds, which led to the emergence of transnational historical materialism (THM) (Overbeek, 2013). This approach can be used to study the transnational social relations at the international level and offer a capitalcentred explanation. THM breaks with state-centrism and locates state formation and interstate politics as moments of transnational dynamics of capital accumulation and class formation. Also, it rejects the reductionism implied in actor-orientated approaches such as neoclassical economics (Overbeek, 2013). THM states that in Western countries, the hegemony power of the ruling class rests on a commonly consent, and not only on the control of the powerful apparatus of the state. Political power is understood to be dispersed and located in the various institutions and relationships in civil society (Overbeek, 2013). Moral and ideas are furthermore shaped by the hegemonic class who transform them into universal ones and thereby bind the subordinate groups into the existing order (Overbeek, 20013). Applying THM, power is reflected in the relationship between social forces. The driving force of capitalism is neither human need, social welfare nor even consumer choice but instead the need for profit and the accumulation of capital. Trade liberalization is the product of a dominant transnational 7
class of corporate bourgeoisie, who has transformed the idea of global capitalism into a transnational accepted reality supressing the global working class. Capitalism is based on competition at every level and hence this perspective suggests, that winners and losers under competitive capitalism reflect inherent biases within the a free-market system. In other words, biases that indeed favour the owners of the means of production (O Brien & Leichenko, 2003). The expansion of capitalism furthermore exacerbates inequalities between the capitalist and the subordinated class, as workers are further divested of control of the means of production (O Brien & Leichenko, 2003). In addition, as capitalism expands, it progressively transfers surplus value from the periphery to the core. This implies that not only are workers the loosing ones, also those who living in rural areas, especially in less-developed countries, as these will be dependent upon advanced countries (O Brien & Leichenko, 2003). Thus, international cooperation lies in strong economic interests of dominant states and the capitalist class. The view through Marxist lenses of the international arena reveals the exploitation process manifesting itself in the operations of TNCs (Adaman and Özkaynak, 2002), where those employed in TNCs operating on a global level become supporters of international capitalism and enjoy profits from global trade. Here, attention is paid to how TNCs are despoiling the world s resources for quick profits and how this lead to pollution havens and double standards (Dauvergne, 2014). Structural inequalities are furthermore identified between the North and the South, as pollution heavens refer to governments using low environmental standards that makes them more attractive to investments. In addition, double standards refer to cases where firms follow one set of standards at home and another one with lower standard abroad. Hence, capitalism is responsible for both the creation and perpetuation of poverty and environmental degradation. Environmental degradation is class costs, because workers are subject to harassment and exploitation and are exposed to more than their fair share of pollution (Adaman and Özkaynak, 2002). Thus, winners are identified as the dominant states and the capitalist class. The struggle to overcome environmental degradation, must in part be a struggle to overcome capitalist exploitation. The pursue for profit maximization leads to an abuse of resources creating even more income inequality and environmental consequences within and between states. Negotiations regarding environmental issues will reflect northern interest and marginalize the southern interests. 8
As little theoretical underpinnings behind the identification of winners and losers in respect to the environment it is somewhat difficult to provide a clear and persuasive argument. However, it is evident that economic globalisation and environmental change is occurring on a global scale and that these changes are distributed unequally both within and across national boundaries. This paper, has approached the question; who are winners and losers and how should these be identified in the context of economic globalization and environmental change, by using different theories. The application of these three contenders as (imperfect) complements has led to different winners and losers yet it is to a large extend a subjective assessment. Moreover, the paper has aimed to give a clear idea of the crucial relationship between trade liberalization, capital accumulation and environment change, and how the desire to combat environmental degradation is almost non-existence. Due to the different units of analysis, winners and loser can be identified as individual, states, nonstates actors and corporations. According to neoclassical economics, reductionism and individualism are unlikely to lead us to an environmentally adapted economy. Environmental change is seen as nothing but a market failure. Winners and losers are subject to specialization and factor abundance. With the rejection of individual-centred explanation, regime theory is said to emphasise the importance of international institutions and regimes in forming public policies with respect to the environment, but due to the weakness of such institutions favouring environmental sustainability, it is allies of international trade that enjoy benefit. Environmental degradation is not entirely neglected however the concern fail to go against trade friendly forces. According to THM, transnational capitalism is responsible for both the creation and perpetuation of poverty and environmental degradation, where winners are identified as the capitalist and exploiting forces and the losers are those who are subjected to it. However, some implications are identified within this paper, as it can be questioned whether this complementary use of theories can deliver a credible conclusion of who the winners and losers are. In addition, due to its very concentrated focus on key issues forcing environmental degradation, the conclusion should not be seen as a replacement for earlier assumptions but rather as a fresh input giving the environment more attention. Moreover, it is important to stress that using other aspects of IPE as case most likely will lead to different postulations and hence different conclusion point. Also, when not ignoring other mainstream theories to IPE such as realism or constructivism, this will might change the picture of winners and losers. 9
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