Why Poverty, Not Affluence, Is the Environment’s Number One Enemy

Written by Jack M. Hollander
Berkeley, CA: University of California Press 2003

Reviewed by J. Bishop Grewell

Global environmental conferences grabbed headlines throughout the 1990s, beginning with the Rio Conference in 1992. Rio developed ambitious blueprints for international forest policy and sustainable development while simultaneously birthing conventions on climate change and biological diversity. While foreign policy changed again with the attacks on the World Trade Center and the Pentagon in 2001, the environment still remains a concern for the global community.

In The Real Environmental Crisis: Why Poverty, Not Affluence, Is the Environment’s Number One Enemy, Jack Hollander hopes to teach environmentalists that the key to protecting Planet Earth both locally and globally lies in understanding that poverty guides the poor. Hollander’s thesis is simple: wealthier nations and peoples improve environmental quality rather than degrade it. This runs contrary to the rhetoric of many environmental organizations.

Professor Hollander is not the first to make such a claim. Bjorn Lomborg made this argument with his 2001 tome, The Skeptical Environmentalist. A host of economists, most notably the late Julian Simon, have argued along the same lines. But Hollander brings credentials to the table that might garner more respect among those in the hard sciences. Neither a statistician like Lomborg, nor an economist like Simon, Hollander was an early pioneer in the environmental sciences when ecological research focused more on ecosystem energy flows. At present, he is Professor Emeritus of Energy and Resources at U.C. Berkeley. He is largely credited with positing the wealthier is healthier argument.

Much of Hollander’s data (as well as his thesis) will be old hat to those who read Lomborg’s Skeptical Environmentalist. Hollander tackles whether we can feed everyone (we can), what to do about fishing problems (affluent nations have technological and institutional solutions available), global warming (affluent nations are prepared to adapt if it is a problem), water scarcity (again technological fixes are available to the wealthy with the proper institutional incentives), and air quality (improving steadily in the wealthy parts of the world). Hollander’s writing on each of these subjects tends to be less interesting than Lomborg’s. (Who would have thought a statistician could write?) And Lomborg’s extensive citations make it easy to pull the original material when trying to sell it to a skeptical audience. Hollander’s citations are comparatively sparse. But Hollander does spare the reader the torture of over 100 pages on global warming – something that Lomborg would have been wise to do.

Where Hollander really brings some fresh air to the “wealthier is healthier” front is on the subject of energy policy. Given Hollander’s extensive background in the field, it should not be surprising that the chapters on nuclear power, fossil fuels, and renewable energy are where he shines. They are the most informative part of the book and also where Hollander’s excitement for the material finally surfaces.

After challenging those who argue we will soon run out of fossil fuels, Hollander moves on to describe the differences in fuel use in the developed and developing world. The developed world employs cleaner fuels such as oil and natural gas while the poor are stuck with dirty-burning fuels such as wood, coal, and animal dung. Adding insult to injury, direct exposure to indoor emissions from these fuel sources create severe health problems and shorten the lives of those in the third world. Poverty is once again the culprit.

Hollander’s discussion of renewable energies is downright fascinating. Wind power and direct solar energy, according to Hollander, actually make a lot of sense for the developing world as they don’t require the large capital investments for transmission and distribution that fossil fuels and fossil-fueled electrical power require. But according to Hollander, extensive subsidies for large-scale renewables in the developed world have swallowed up the investment for small-scale renewables that could work in the developing world. Thus, the wealthy world’s drive for renewables is preventing their development for the parts of the world where renewables could truly improve people’s lives.

As for nuclear power, Hollander believes the environmental benefits could be great, but that the public has confused the dangers of commercial use with those of military use. He acknowledges that certain forms of nuclear power create a risk of providing material for terrorist-type activities, but thinks the public will come around to nuclear power in time. Staying with the theme of his book, though, he notes that nuclear is simply not viable for the developing world.

All of the environmental progress noted in Hollander’s book is wonderful news, but there remains more to do. First, as Hollander points out, “environmental quality will always remain a work in progress” because the bar for acceptable environmental quality will continually move higher as countries attain new levels of wealth and human standards evolve (192). More pressing for Hollander, many countries remain far from even the most basic environmental tipping points. In determining how to get those countries over the hump is where Hollander falters.

He is correct that freedom, democracy, and open markets are important ingredients in wealth creation. Likewise, he is correct that basic human rights and education are important, too. But there are two major failings in Hollander’s approach. First of all, he has not learned from fifty years of failed development policies. He thinks foreign aid must continue. Hollander believes it can work if it is to on-the-ground assistance to the poor rather than the large, project-focused development of the past and if everyone basically tries harder (194-196). Fifteen minutes with many a Peace Corps volunteer, however, will reveal this is patently false.

The U.S. and other international donors have attempted to focus on more localized projects. Furthermore, it would be difficult to find anyone more dedicated to making development work than the Peace Corps volunteers that I’ve spoken with over the years. Neither effort nor scale of projects is causing aid to fail. The problems with aid are more inherent. They cannot be fixed through tinkering.

Joshua Hill, who is currently a PhD candidate in Economics at George Mason University, served in the Peace Corps in Togo for two years (2000-2002). He identifies three problems with development assistance that are particularly telling. First, development assistance creates a culture of dependency. Second, it diverts the “best and brightest” away from creating wealth to managing aid. Finally, foreign aid’s annual hand-outs retard the development of the institutional systems needed for a lasting improvement.

During his tour in Togo, Hill was assigned to spur local entrepreneurs into small business. But there was sparse demand for his services because locals were still recovering from a pounding development hangover left by a half-century’s overindulgence in foreign aid. Twenty years ago, locals would have responded to Hill by asking why they should struggle to create an enterprise when they could sit around in the shade, drink the local brew, and wait around for the next development check. But with cutbacks in aid, a few wish to engage their entrepreneurial spirit. The inertia of a dependency culture is hindering the progress as even knowledge of how to act like an entrepreneur has been lost. Corruption further discourages entrepreneurship as formal businesses become subject to bribery demands by local bureaucrats.

The bureaucracy is by no means evil, but its members are also part of the culture of dependency. During the “golden” years of development, there was no incentive to seek the long term growth that comes from institutions grounded in the rule of law rather than the rule of lawlessness. As bureaucrats and government officials could rely on their next foreign aid check, they had no need to raise money through internal taxes. Without a need for tax income, there was no reason to encourage the businesses that could provide that revenue. Thus, no time was spent developing the rule of law, the property rights, and the contracting systems that lead to the long term growth of private business. When the aid stopped flowing, many officials turned to bribery as a means to their own survival.

The second problem, diversion of the “best and brightest,” derives from the Siren’s song of development salaries. The best paying jobs in developing countries exist as government jobs (often funded by foreign aid) or as aid jobs themselves. Even if aid amounts are small for the giving countries, they are enormous to the receiving countries. Aid and government jobs pay premiums upon premiums above local private jobs. It should be no surprise that the “best and brightest” citizens of developing countries seek the higher paying aid positions. This leaves few skilled workers in the private sector. The entrepreneurial spirit dies as the “best and brightest” specialize in distributing wealth and no one works to create it. “Clearly, we want social workers in a country,” writes Hill. “However, most countries pay them considerably less than stock brokers or lawyers…” Yet, in the developing world, foreign aid has created a system where everyone seeks social work positions, because the pay scales are off the chart. This perversion of the labor market has had disastrous repercussions for wealth creation in the developing world.

Finally, foreign aid retards the development of institutions that create wealth: democracy, contracting, property rights, and other rule-of-law components. For instance, Hill argues the micro-lending programs currently in vogue distort market signals. It is difficult to get credit in impoverished countries, not because the return is too small for international lenders, but because a lack of enforceable property rights and a miserably weak rule of law make it too risky for lenders to provide credit. After all, credit card companies lend small amounts to clientele every day --- size doesn’t matter, the institutions do. Micro-lending removes the incentive to fix the institutions.

If a country and its people will be given credit through the aid process without reforming the problems preventing private credit, then why should the country expend time, effort, and money on reform? Cheap credit exacerbates the problem by masking the informational signal that institutional problems exist.

This leads to a second criticism of Hollander’s work: He underestimates the importance of property rights and the rule of law in the wealth creation process. As Hernando de Soto so eloquently explained in The Mystery of Capital, property is essential to wealth creation. Without property, small business cannot offer the collateral necessary for securing capital to get up and running. Small businesses also need to know that sales made to consumers will be paid off. Clear property rights allow entrepreneurs to extend credit to consumers, so that purchases of goods and services can be made in the first place. Without property rights, only extralegal enforcement such as strong men can provide the necessary insurance to help the market blossom. And strong men cost money.

Property is also important because successful businesses require investment by the owner. But if the investment may be taken away on a whim, i.e. if property ownership is not clear, the risks are too high to make the necessary investment. Corruption, a product of a lawless society, creates huge burdens in the form of bribes and red tape that make it easier for entrepreneurs to give up and collect aid checks instead of pushing forward with building a new way of life for themselves and their countrymen.

After more than a decade of experiments and a growing amount of data on what it takes to stimulate economic growth, Milton Friedman has modified his position. Now he says: “It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law. What does it mean to privatize if you do not have security of property, if you can’t use property as you want to?” Without the rule of law and secure property rights, growth is unlikely to occur. Free market discipline may be necessary for economic growth, but there is growing evidence that markets must be prefaced by the rule of law and secure property rights (xvi).

Property rights not only help the environment indirectly through wealth creation, but they also reduce environmental degradation directly by making individuals and industries accountable for their own environmental conditions while providing them with the power to do something about it. As Bruce Yandle and others explain in You Have to Admit It’s Getting Better, “Rising incomes enable human communities to build advanced property rights institutions that limit environmental decay and reward environmental improvement.” (86).

Here and there, Hollander’s Real Environmental Crisis glimpses the power of property rights and the rule of law. He argues for property rights to protect fisheries. (64). His advocacy of water markets as a solution to water allocation problems assumes property rights even if it they are not explicitly mentioned. (98-99). He even cites The Mystery of Capital, though he seems to have missed the importance of its message. (199-200). Hollander would better deliver his own message if he took a page from my friend Sean Anderson who often reminds me, “Property rights are human rights.”

Maybe foreign aid could succeed if it were directed at developing these property and rule-of-law institutions. Rather than investing in projects, foreign aid could invest in processes, as it has attempted with the last fifteen years of so-called “capacity-building.” But the potential for success from institution-building remains murky and has bore little fruit to this point. A neo-conservative vision of establishing top-down the institutions of democracy, rule of law, property rights, human rights, and other manna from the western canon butts up against history where institutions have been developed from the bottom-up. Ideas may arrive from the outside, but acceptance must be home-grown.

To find out how property rights and the rule of law develop, it helps to look at the early fermentation of these institutions in the developed world. Institutional economists Terry Anderson and P.J. Hill do just that with The Not So Wild, Wild West: Property Rights on the Frontier. As they explain, the tradition of branding cattle in the American West was a successful mix of outside ideas adopted internally to create property rights that blossomed from the bottom-up. In contrast, the top-down efforts of the Homestead Act ignored developing customs and proved a recipe for disaster.

According to Anderson and Hill (148-158), branding was adopted from the Spanish. Ranchers in the American West developed their own brands via custom. The brand and its location on the animal helped settle who owned what cow and allowed cattleman to run their herds together on the open range. Over time, however, a cattleman in the eastern part of a state might have the same brand as one in the western part of a state, which could get confusing if they were both bringing cows to town for sale. To solve this problem, the ranchers lobbied the state governments to set up a registration system to formally recognize the system of branding that they had developed organically. This also reduced conflict as the state took on the role of enforcing property rights through brand inspections. No longer did someone need to shoot the man who stole his cows, because now he could take them to court.

Westerners also developed their own customs for divvying up the vast open lands of the American frontier. The advent of barbwire fencing allowed a quick and easy way to define property rights in land. But the national legislature decided that it could do a better job of settling the lands and passed several Homestead Acts, the first in 1862. Settlers could “claim 160 acres if they resided on the land for five years and cultivated it.” (168). The cultivation requirements led to premature investments in land while for many parts of the West, the 160-acre allotment proved too small to make a living. Starvation, broken legs, uncivilized behavior, and death all resulted from the attempt to impose institutions top-down rather than simply waiting for them to develop on their own from the bottom-up.

Given this dubious history, it makes sense that “capacity-building” suffers problems, because it mimics the social-engineering of the past. The one benefit that capacity-building might offer is an increased emphasis on creating wealth instead of distributing it. Still, improving environmental quality and human well-being through wealth creation would be better trumpeted with a heavy note of caution against planned wealth creation and in support of the organic development of the past.

Hollander does yeoman’s work convincing traditional environmentalists that wealthier is healthier. For some, it is obvious that the poor will consider endangered specie a moniker for lunch and pollution a means to a better life until their lot improves. As Hollander seems to argue, this shouldn’t be surprising when some are even willing to commit suicide to provide for their families. He writes, “Though it would be an exaggeration to link the September 11, 2001, terrorist attacks directly with poverty, a link certainly exists between the immense rich-poor gap and the festering disenchantment, humiliation, and hopelessness that together breed terrorism.” (193).

But for others, the idea that wealthier is healthier remains an anathema. Countering hostility to this idea, Hollander’s book proves quite useful. But he is not ambitious enough in identifying how to make the poor rich. He struggles with how much government development assistance can do and how much progress must simply come from within the poorer nations. The tangible need to do something, anything, seems to prevent him from asking whether doing something might be worse than doing nothing. It is at this point where he needs to reread his own penultimate chapter. The chapter’s title plays on the Hippocratic creed: first, and above all, do no harm to the patient.

In August of 2002, the 10th Anniversary of the Rio Conference was held in Johannesburg, South Africa. Many of the environmentalists who attended were miffed that their vision of pressing problems took a backseat to third-world development. But if Hollander and others preaching “wealthier is healthier” are right, it may have been the first major step in the right direction.

Source:  http://www.abetterearth.org/article.php/1035.html