3D: Crisis and the environment
The Nation
Editorial & Opinion
Oct 16, 1998
3D Vision: Let's take advantage of the economic crisis
by James Fahn
If nothing else, the continuing economic crisis has confirmed two long-held suspicions. Firstly, all of us are held hostage to the well-being of the bankers and financiers who dominate the modern economy. The only new twist is that their stranglehold has grown to encompass the entire world rather than mere nations.
Secondly, despite the billions of dollars and lifetimes of research thrown into the study of economics, the dismal science can forecast the future about as well as we can predict earthquakes. It was little more than a year ago that some were predicting a quarter-century long global boom thanks to the benefits of new technologies. More recently, the US government helped to muster US$3.5 billion to bail out a hedge fund which managed to fail spectacularly while being guided by two economists who last year won the Nobel Prize for their work on evaluating financial risk. Whoops!
Despite all the chaos, it is somehow refreshing to hear all the backbiting and criticism the financial crisis has unleashed among the financial elite of both East and West. They are finally acknowledging -- if for different reasons -- what social and environmental critics have claimed all along: that the current globe-girdling economic system is broken and needs to be fixed.
Some politicians and bankers in the West worry that the bailouts of developing countries represent a ''moral hazard'', yet they've never seemed too concerned about all the investment projects whose ruinous social and environmental impacts have gone unattended because the developers have no incentive to look after them. These so-called ''externalities'' are the result of a long-standing moral hazard built into the very fabric of mainstream development.
In Thailand and other developing countries, meanwhile, we hear complaints that the free flow of capital across international borders has proven to be a destabilising force. What about the unregulated economic policies within their own countries? When well-connected businesses gain concessions to, say, log a forest or dam a river, is that not just as destabilising to local communities?
As environmental economist Dr Charit Tingsabadh points out, ''The Thai economy has been 'borrowing' resources from future generations for years without having any foreign creditors forcing them to pay it back''. Still, it is probably too much to hope that policy-makers will see the green light and change the error of their ways. In fact, whenever difficult economic times hit a country, environmental concerns are among the first to be tossed aside. And, according to Dr Anil Markandya, a natural resource economist from the University of Bath in England, Thailand is no different: between June and Nov of last year, total cuts in the government budget amounted to Bt182 billion, or 18.5 per cent, but spending in the energy and environmental sectors was reduced by 33 per cent.
The Office of Environmental Policy and Planning was especially hard hit, with funding for its provincial action plans cut by 35 per cent, and its environmental training programmes, along with those at the Electricity Generating Authority of Thailand (Egat), were cut by 60 per cent. In addition, waste water treatment projects in Samut Prakarn and 28 other municipalities have also suffered budget cuts, along with numerous garbage management programmes. The Royal Forestry Department, meanwhile, escaped relatively lightly, with outlays reduced by only 14 per cent.
This certainly bodes ill for the future, but the immediate impact of the financial crisis is less clear. There simply hasn't been enough time to make conclusive findings. A study by the Thailand Development Research Institute (TDRI), for instance, has recorded some signs of reduced migration from rural areas to the city, and found few impacts from a reverse migration back to the countryside, but these results are only preliminary.
Markandya, who is carrying out a study funded by the Asian Development Bank of the crisis' impact on Thailand's environment, presented his findings at a seminar at Chulalongkorn University last week. He noted that reduced energy demand has led to less air pollution being emitted from Egat's smokestacks, but it is not clear whether this decline has matched the fall in total electricity production -- whether, in other words, Egat is taking advantage of this opportunity to increase its efficiency and phase out its dirtiest power plants.
Most of the evidence regarding current impacts is anecdotal, and was contributed by seminar participants. Many companies, squeezed by the credit crunch, may have postponed potentially damaging development plans, but they have also scrapped or downgraded their planned investments in environmental protection. Meanwhile, monitoring of environmental compliance has been reduced. Shrimp farms, spurred on by increased export profits, are said to be expanding -- with old, unused farms now being reclaimed and new ones being built in inland areas. Forest encroachment is said to be on the rise, and there was some speculation that the illicit trade in wildlife may be growing, too. On the other hand, a US embassy official reported that official wood imports from neighbouring countries have actually declined, perhaps due to reduced demand for wood products in Japan and other Asian markets.
So what is to be done? Markandya argued that we should take advantage of the climate of reform created by the crisis. Thailand's environmental policies are currently too ''command and control'', he argued. So the push for tax reform could include efforts to pursue green taxes: increased fees on the use of natural resources, service fees on potentially hazardous goods such as tyres and batteries, perhaps a congestion charge on inner-city roads, even a carbon tax to replace the fuel tax. These levies would be accompanied by a reduction in other types of taxes, thus creating a ''double dividend'' to help both government revenues and the environment. His other proposals included promoting voluntary compliance schemes (like ISO14000) and clean production technology in businesses, and improving green regulations so that privatisation of state enterprises can move ahead.
Certainly these are worthwhile suggestions, but Markandya's focus on the private sector and the nature of the Thai regulatory system seemed oddly beside the point. After all, Thailand is already supposed to have a green taxation policy -- it is known as the Polluter Pays Principle and was enshrined in the supposedly ''landmark'' Environment Act passed way back in 1992. The only problem is it has never been enforced. Privatisation, meanwhile, might help improve efficiency, but as Dr Mingsarn Kaosa-ard of the TDRI noted, it probably won't have much effect on environmental issues since the companies are likely to be run by ''the same fat cats wearing a different hat''.
What the financial crisis has really shown is that the Thai government lacks both the transparency and the political will to enforce any kind of regulatory system in a fair and consistent manner. It has been content simply to let the economy run on auto-pilot. As a result, Thailand's society and environment have been buffeted by turbulence for years, and now the economy has finally crash-landed with a thud. Even the staunchest Friedmanites acknowledge that economies need some kind of 'air traffic control' -- whether that means regulating the finance industry, managing natural resources properly or numerous other responsibilities
Environmental problems are a classic result of market failures, and because that moral hazard will always be there, solving them requires some kind of intervention by the public sector -- in the form of the state, an NGO, or just a concerned and educated populace. We cannot solely blame politicians for the mess we're in. They are after all elected by the public, and it is the public which howls every time the government levies a user fee -- green or otherwise. If we want a clean and healthy environment, then we will have to help pay for it.
Finally, it is time to re-evaluate Thailand's strategy of chasing rapid economic growth at all costs. As Markandya pointed out, ''In the longer term, Thailand may find that steadier but slightly lower growth [of five per cent or so] is better than high but extremely variable growth.''
Or, as Charit concluded, ''This crisis must force us to consider how to make money more carefully.''