11 The Environment

and Development
ironmental damage almost always hits those living in
Environmental

UNITED NAIONS, Human Development Report, 1998

poverty the hardest.

chainability must be strengthened as a guiding principle of

Susta
development.
BOUTROS BoUTROS-GHALI, Former Secretary General, United Nations, 1994

The old notion of "development versus environment" has given way to a new view in
uhich.. . better environmental stewardship is essential to sustain
development.
-WoRLD BANK, World Bank Atlas, 1997

Economics and the Environment

In recent years, economists have become increasingly aware of the important
implications of environmental issues for the success of development efforts. We
now understand that the interaction between poverty and environmental degra-
dation can lead to a self-perpetuating process in which, as a result of ignorance or
economic necessity, communities may inadvertently destroy or exhaust the
resources on which they depend for survival. Rising pressures on increasingly
taxed environmental resources in developing countries can have severe conse
quences for Third World self-sufficiency, income distribution, and future growth
potential.
Environmental degradation can also detract from the pace of economic devel-
opment by imposing high costs on developing countries through health-related
expenses and the reduced productivity of resources. The poorest 20% of the
world's populatio is the group that will experience the consequences ofenviron-
mental ills most acutely. Severe environmental degradation, due to population
pressures on marginal land, has led to falling farm productivity and per capita
food production. Since the cultivation of marginal land is largely the domain of
lower-income groups, the losses are suffered by those who can least afford them.
Similarly, the inaccessibility of sanitation and clean water mainly atfects the poor
and is believed to be responsible for 80% of disease worldwide. Because the solu-
tions to these and many other environmental problems involve enhancing the
productivity of resources and improving living conditions among the poo,
achieving environmentally sustainable growth is synonymous with our definition
of economic development.

409
410 Problems and Policles: Domestic

Though there is considerable disgpute concerning the environmental

associated with varlous economic activities, consensus is growing among
opment economists that environmental considerations should form dey
form an inte
part of policyinitiatives. The exclusion of environmentalco
costs from calculategal
cakulatio
for the absence
of GNP is
larygely responsible histeorical of environnental can
erations from development cconomics, Damage to soil, water supplies sid.
forests resulting from unsustainable methods of production can greatly rec and
long-term national productivity but will have a postiVe impact on current (ND
figures. It is thus very important hat the long-lerm iinplICations of environmental
quality be considered in economic analysis. Rapid population growth and
expanding economic activity in the developing world are likely to do extensie
environmental danage unless steps are taken to mitigate their negatíve conse
quences.
The growing consumption needs of LDC populations may have
global implica
tions as well. There is increasing concern in the MDCS that the
destruction of the
world's remaining forests, which are concentrated in a number of
highly indebted
developing countries including Brazil, Mexico, Peru, and the Philippines, will
greatly contribute to global warming and the greenhouse effect. In this chapter, we
examine the economic causes and consequences of environmental
devastation
and explore potential solutions to the cycle of
poverty and resource degradation.
We begin, as in previous
chapters, with a survey of basic issues, including discus-
sions of sustainable development and the linkages among
population, poverty,
economic growth, rural development, urbanization, and the LDC environment.
We next look at the applicability of traditional economic models of the environ-
ment, depict some typical environmental situations, and provide some relevant
data. We then broaden our scope to include issues of global interdependence and
conclude by analyzing the prospects for setting an international environmental
agenda for achieving worldwide sustainable development. Pakistan, with its
declining resource base and its deteriorating natural environment, is this chap
ters case study.

Environment and Development: The Basic Issues

Seven basic issues define the environment of development. Many grow out of the
discussions in the preceding chapters. The seven issues are (1) the concept of sus-
tainable development, and linkages between the environment and (2) population
and resources, (3) poverty, (4) economic growth, (5) rural development, (6) urban-
ization, and (7) the global economy. We briefly discuss each in turn.

Sustainable Development and Environmental Accounting

Environmentalists have used the term sustainability in an attempt to clarity tne
desired balance between economic growth on the one hand and environmental
preservation on the other. Although there are many definitions, basically sustain
 The Environment and Development 411

ability refers to "meeting the needs of the

ing the needs of future generations." For present generation without comprO S-
tainable "if and only if the stock of overall economists, a development patn
over time." Implicit in these capital assets remains constant or
statements is the fact that future growth and
quality of ife are critically dependent on the quality of the environment. The
overa
ural resource base of a country and the nat
quality of its air, water, and land represents
a common neritage tor all
generations. To destroy that endowment
nately in the pursuit of short-term economic indiscrim
goals both
especially. future generations. It is therefore importantpenalizes present and,
that development planners
incorporate some form of environmental accounting into their
For example, the preservation or loss of policy decisions.
valuable environmental resources shourd
be factored into estimates of economic
growth and human well-being
Alternatively, policymakers may set a goal of no net loss of environmental assets.
In other words, if an environmental resource is damaged or depleted in one area,
a resource of equal or
greater value should be regenerated elsewhere.
An example of environmental
accounting is offered by Pearce and
Overall capital assets are meant to include not only manufacturedWarford.
capital
(machines, factories, roads) but also human capital (knowledge, experience,
skills) and environmental capital (forests, soil quality, rangeland). By this defini-
tion, sustainable development requíres that these overall capital assets not be
decreasing and that the correct measure of sustainable national income or sus-
tainable net national product (NNP) is the amount that can be consumed with-
out diminishing the capital stock. Symbolically,

NNP = GNP - D,- D,

where NNP* is sustainable national income, D,, is the depreciation of manufac

tured capital assets, and D, is depreciation of environmental capital-the mone
tary value of environmental decay over the course of a year.
An even better measure, though more difficult to calculate with present data
collection methods, would be

NNP GNP-D, -D,-R-.

where Dm and D, are as before, R is expenditure required to restore environmen-
tal capital (forests, fisheries, etc.), and A is expenditure required to avert destruc-
tion of environmental capital (air pollution, water and soil quality, etc.)
In light of rising consumption levels worldwide combined with high rates of
population growth, the realization of sustainable development will be a major
about sustain-
challenge. We must ask ourselves, What are realistic expectations
able standards of living? From present information concerning rapid destruction
of many of the world's resources, it is clear that meeting the needs of a world pop-
ulation that is projected to grow by an additional 3.7 billion in the next 30 years
will require radical and early changes in consumption and production patterns.
We discuss these needed changes later in the chapter.
412 Problems and Policies: Domestic

Population, Resources, and the Environment

Much of the concern over environmental issues stems from the perceptiontha
may reach a limit to the number of people whose needs can be met by theeare nat we
finite resources. This may or may not be true, given the potential for new terhs
logical discoveries, but it is clear that continuing on our present path of accele
ing environmental degradation would severely compromise the ability of presen erat-
and future generations to meet their needs. A slowing of population
growth ratee
would help ease the intensification of many environmental
problems. Howeveever,
the rate and timing of fertility declines, and thus the eventual size of
world pon
lation, will largely depend on the commitment
nomic and institutional conditions that are conducive
of governments to creating eco
to
limiting fertility (see
Chapter 6).
Rapidly growing Third World populations have led to land, water, and fuelwood
shortages in rural areas and to urban health crises stemming from lack of sanita-
tion and clean
water. In many of the poorest regions of the globe, it is clear that
increasing population density has contributed to severe and accelerating degra-
dation of the very resources that these
growing populations depend on for sur-
vival. To meet expanding LDC needs, environmental devastation
must be halted
and the productivity of existing resources stretched further so as to
benefit more
people. If increases in GNP and food production are slower than
growth, per capita levels of production and food self-sufficiencypopulationwill fall.
Ironically, the resulting persistence of poverty would be likely to perpetuate high
fertility rates, given, as we discovered in Chapter 6, that the poor are often depen-
dent on large families for survival.

Poverty and the Environment

Too often, however, high fertility is blamed for problems that are attributable to
poverty itself. For example, China's population density per acre of arable land is
twice that of India, yet yields are also twice as high. Though it is clear that envi-
ronmental destruction and high fertility go hand in hand, they are both direct out-
growths of a third factor, absolute poverty. For environmental policies to succeed
in developing countries, they must first address the issues of landlessness, pover-
ty, and lack of access to institutional resources. Insecure land tenure rights, lack of
credit and inputs, and absence of information often
prevent the poor from mak
ing resource-augmenting investments that would help preserve the environmen-
tal assets from which they derive their livelihood.
Hence preventing
tal degradation is more often a matter of environmen
providing institutional support to the
poor than fighting an inevitable process of decay.' For this reason, many goals on
the international environmental
agenda are very much in harmony with the three
objectives of development articulated in Chapter 1.

Growth versus the Environment

If, in fact, it is possible to reduce environmental
destruction by increasing the
incomes of the poor, is it then possible to achieve
growth without further damage
 he Environment and Development 413
to the environment? Evidence
mental destruction are the billion indicates that the worst
has even been suggested that richest and billion perpetrators on of envirO
the bottom poorest people ear It
billion middle-income people billion are more
destructive than all
status of the poorest group combined. It follows that increasing the
as the income and
would provide an
environmental
econom
consumption levels of everyone else in the windfal. However,
there is likely to be a net increase in economy also risE
ing consumption demand while environmental destruction. Meeting increas
mum wil be no small task. keeping environmental degradation at a
min

Rural Development and the Environment

To meet the expanded food needs of rapidly growing LDC
mated that food production in populations, it is estthe
developing countries will have to double by
year 2010. Because land in many areas of the Third World is being heavily
taxed by existing populations, meeting these over
output targets will require radical
changes in the distribution, use, and quantity of resources available to the agri
cultural sector. And because women are frequently the caretakers of rural
resources such as forests and water supplies and provide much of the agricultur-
al supply of labor, it is of primary importance that they be integrated into envi-
ronmental programs. In addition, poverty alleviation efforts must target women's
economic status in particular to reduce their dependence on unsustainable
methods of production.
The increased accessibility of agricultural inputs to small farmers and the
introduction (or reintroduction) of sustainable methods of farming will help cre
ate attractive alternatives to current environmentally destructive patterns of
resource use. Land-augmenting investments can greatly increase the yields from
cultivated land and help ensure future food self-sufficiency.

Urban Development and the Environment

Chapter 8 demonstrated that rapid population increase accompanied by heavy
rural-urban migration is leading to unprecedented rates of urban population
national growth. Consequently, few gov-
growth, sometimes at twice the rate of
ernments are prepared to cope with
the vastly increased strain on existing urban
water supplies and sanitation facilities. The resulting environmental ills pose
numbers of people exposed to them.
extreme health hazards for the growing
of the existing urban infra-
Such conditions threaten to precipitate the collapse
for epidemics and national health crises.
structure and create circumstances ripe
the fact that under existing legislation,
These conditions are exacerbated by
This makes private household investments risky
much urban housing is illegal.
urban populations ineligible for government ser-
and renders large portions of
vices.
industrial emissions, and poorly ventilated house
Congestion, vehicular and environmental costs of urban
hold stoves also inflate the tremendously high contamination of existing
of ill or diseased workers,
crowding. Lost productivity
414 Problems and Policies: Domestic

water sources, and destruction of infrastructure, in addition to increased

d
expenses incurred by people's having to boil unsafe water, are just a few of fuel
costs associated with poor urban conditions. Research reveals that the urhothe
ronment appears to worsen at a faster rate than urban population sizeincre
so that the marginal environmental cost of additional residents rises over ti

The Global Environment

As total world population grows and incomes rise, net global environmental
degradation is likely to worsen. Some trade-offs will be necessary to achieve sus.
tainable world development. By using resources more etticiently, a number of
environmental changes will actually provide economic savings, and others will be
achieved at relatively minor expense. However, because many essential changes
will require substantial investments in pollution abatement
technology and
resource management, significant trade-offs between output and
environmental
improvements will occasionally become necessary. The poorer the country, the
more difficult it willbe to absorb these costs. Yet a number of issues, including bio-
diversity, rain forest destruction, and population growth, will focus international
attention on some ofthe most economically strapped countries in the world.h
the absence of substantial assistance to low-income countries, environmental
efforts will necessarily have to be funded at the expense of other social programs,
such as education, health services, and employment schemes, that themselves
have important implications for the preservation of the global environment.
Exactly what sacrifices need to be made and who should make them will con-
tinue to be matters of great controversy. Nowhere was this more evident than at
the second United Nations Conference on Environment and Development
(UNCED)-the so-called Earth Summit-held in Rio de Janeiro in June 1992 and a
follow-up conference in Kyoto, Japan, in 1997 (see Chapter 18). Most cumulative
environmental destruction to date has been caused by the First World. However,
with high fertility rates, rising average incomes, and increasing inequality in the
Third World, this pattern is likely to reverse sometime in the twenty-first century
It is thus unclear how the costs of global reform should be divided. Apportionment
of responsibility for reducing environmental damage essentially hinges on the
manner in which the question is framed. For example, if a limit is placed globally
on levels of per capita pollution emissions, the approach would clearly favor
lower-income countries that have much lower per capita consumption levels.
Conversely, if international pressures try to limit the growth rate of per capita
emissions or even to impose limits on the growth of national emissions, any
movement in that direction would tend to freeze Third World incomes at a small
fraction of those of their First World counterparts.

The Scope of Environmental Degradation: A Brief Statistical Review

The most pressing environmental challenges in developing countries in the next
few decades will be caused by poverty. These will include health hazards created
 415
The Environment and Development
by lack of access to clean water and
stoves,
stoves, and deforestation
deforestation and es sanitation,
don, indoor air pollution from
and severe pollution from Dbiomass
re
households lack economic alternativessoilto degradation-all most common l
11.1 summarizes the principal health unsustainable of
and productivity patterns living rron-
mental damage in the Third World. It divides consequences
this damage into seven
or
env
water pollution and water caegl
scarcity, air pollution, solid and hazardous wastes,
degradation, detorestation, loss of s
biodiversity
In the 19805, per capita levels of and atmospheric chang8es.
arable land fell by 1.9% annually,
worsening land
shortages, which have forced many of the poorest ontoleading
land with extremely limited cultivability. It is estimated that over 60% of margna
estpeoples residing in developing countries struggle for survival on the poor
agriculturduy
marginal soils. This trend is greatly worsened in some areas of the Third World by
strong inequalities in the distribution of land, which force an ever-growing
landless workers onto increasingly taxed, ecologically sensitive soils. The class
growing
intensification of cultivation on fragile lands leads to rapid soil degradation
ot
ana
loss productivity. Roughly 270,000 square kilometers of soil lose virtually
their productivity each year. An area the size of India and China combined, or
all of
about 1.2 billion acres, has been significantly degraded. The resulting annual loss
in agricultural productivity is estimated to be between 0.5% and 1.5% of annual
worldwide GNP As a result of rapid population increases and the failure of agri-
cultural production to keep pace, per capita food production declined in 69 coun
tries during the 1980s (see Chapter 10).
An environmental problem shared by both the urban and rural poor is the
sanita-
prevalence of unsanitary conditions created by the lack of clean water and
It has
tion. This in turn contributes greatly to the spread of infectious diseases.
been estimated that waterborne pathogens that contribute to typhoid, cholera,
80% of all dis-
amoebic infections, bacillary dysentery, and diarrhea account for
ease in developing countries and for 90% of the 13 million child deaths each year.
sanitation rose by 135
Yet the number of people living without clean water and
environmental conditions
million during the period 1970-1984, and deteriorating
in a number
were cited as a contributing factor to the spread of cholera epidemics
the 1990s.
of countries in Latin America and Africa in
rural-urban migration make it difficult to
Rapid population growth and heavy who need them. For example, to provide
extend urban services to many people
Latin American cities by 2030, the numbers
clean water to all urban dwellers in this figure
have to be increased by 250%. Though
served by public facilities will needs must
1.2 billion rural individuals whose
itself is staggering, it excludes the would require 400%
for the provision of sanitation
also be met. A comparable aim On average
and rural communities, respectively.
and 900% increases for urban households are located in
world, 72% of all new urban
throughout the developing at 92%, most of which
the proportion is even greater,
shanties or slums. In Africa,
services.
have no access to public of Third World citizens.
take a high toll on the health
Airborne pollutants also and manure is closely related
biomass fuels such as wood, straw,
Dependence on
and the boiling of water cre-
biomass fuels for cooking
to poverty. The burning of
to which 400 million to 700 million
levels of indoor pollution
ate dangerously high
416 Problems and Policies: Domestic

TABLE 11.1 Principal Health and Productivity Consequences of Environmental Damage

Environmental
Problem Effect on Health Effect on Productivity
*********

Water pollution and More than 2 million deaths Declining fisheries; rural
water scarcity and billions of illnesses a year household time and
attributable to pollution; municipal costs of providing
poor household hygiene and safe water; aquifer depletion
added health risks caused by leading to irreversible
water scarcity compaction; constraint on
economic activity because of
water shortages
Air pollution Many acute and chronic Restrictions on vehicle and
health impacts: excessive industrial activity during
urban particulate matter critical episodes; effect of acid
levels are responsible for rain on forests and water
300,000 to 700,000 premature bodies
deaths annually and for half
of childhood chronic
coughing; 400 million to 700
million people, mainly
women and children in poor
rural areas, affected by
smoky indoor air
Solid and hazardous Diseases spread by rotting Pollution of groundwater
wastes garbage and blocked drains; resources
risks from hazardous wastes
typically local but often acute
Soil degradation Reduced nutrition for poor Field productivity losses in
farmers on depleted soils; range of 0.5% to 1.5% of gross
greater susceptibility to national product (GNP)
drought common on tropical soils;
offsite siltation of reservoirs,
river-transport channels, and
other hydrologic investments
Deforestation Localized flooding, leading Loss of sustainable logging
to death and disease potential and of erosion
prevention, watershed
stability, and carbon
sequestration provided by
forests
Loss of biodiversity Potential loss of new drugs Reduction of ecosystem
adaptability and loss of
genetic resources
 417
he Environment and Developnent

TABLE 11.1 (continued)

Environmental

Problem Effect on Health

Effect on Productivity
Atmospheric changes Possible shifts in vector-
Sea-rise damage to coastal
borne diseases; risks from
climatic natural disasters; investments; regional
changes in agricultural
diseases attributable to ozone productivity; disruption of
depletion (perhaps 300,000 marine food chain
additional cases of skin
cancer a year worldwide; 1.7
million cases of cataracts)

SOurce World Bank, World Development Report, 1992: Development and the Environment (New York: Oxford University
Press, 1992), tab. 1. Reprinted with permission.

people, mostly women and children, are exposed each year. Smoke and fumes
from indoor stoves are believed to contribute significantly to the 4.3 million child-
hood deaths each year from respiratory diseases and to an ever-larger number of
chronic respiratory illnesses (see Table 11.1).
In urban areas, other sources of pollution pose serious threats to physical well-
urban
being. According to the World Health Organization, 1.3 billion people live in
areas with unsafe levels of airborne pollutants. Yet it is projected that by 2030,
manufacturing in developing countries will expand to 600% of current levels,
vast-
maintain current
ly increasing potential concentrations of pollutants. Just to
conditions much worse
urban air standards until 2030 (which means conceding to
countries), average emis-
than those existing in the urban centers of developed
would have to be reduced by
sions from LDC industries and electric generators
90% to 95% per unit of output.

Two Villages
Rural Development and the Environment: A Tale of
environmental degradation interact, let take a
us
To clarify how rural poverty and
Third World villages, one in Africa and the other in
brief look at two hypothetical
South America.
semiarid landscape, has been
of the African village, located in a
The population and cultivating
that cutting the remaining trees
warned by international "experts"
worsen the hardships
that they already endure. The advice
marginal land will only which remains obtaining the basic
runs counter to
each family's first priority,
trees
different functions, but most
fulfill many
necessities for survival. Here would be impossi-
firewood for cooking. Without wood it
important, they provide or boil water. result of the
As a
foods, make cornmeal (posho),
many trees for
ble to prepare
use by a rapidly growing
population, the cutting of
of land
cultivation, the soil is increasingly
intensification
the clearing of marginal land for
firewood, and
418 Problems and Policies: Domestic

exposed to destructive environmental forces. The loss ofvegetation, which

ccation
mitigate the destructive impact of heavy winds, rain, and desicca by the elps
sun,
leads to more rapid erosion of precious topsoil needed for cultivation. Good viola.
are more difficult to obtain and the consequences of drought years are mrields
intense. Desertification-encroachment of the desert into areas where erosi
has been most severe-threatens to consume even the more productivelandsion
As a result of the loss of precious topsoil and declining output, there arefew
crops to bring to market to barter for necessities. In many households there is lese
food for the children. And yet the family must spend longer hours trying to
obtain
enough income to survive. There is little paid work to be found locally, thoueh
some households earn a small amount of additional income by
sending family
members to work on larger, more prosperous farms.
It is generally the job of women to collect enough firewood for the
day's cook
ing. It may take several hours to walk to and from an area where it is available.
adding considerably to the day's work. Though this is a relatively inefficient use of
woman's time, there are no alternative forms of fuel sold in the local market, and
even if there were, there would be insufficient household funds with which to
pur
them. In fact, many women spend additional time collecting preciousfire
wood to make charcoal, which can then be sold in the cities for the equivalent of
a few pennies, which helps buy household necessities. The low opportunity cost of
a woman's time perpetuates the wasteful use of forests and worsens local environ-
mental conditions."
Consider now another hypothetical village, this time on the edge of a vast rain
forest in South America. The great majority of farmers here are newcomers, drawn
by government promises of land and prosperity. The public resettlement program,
which distributes property titles to settlers willing to clear the land, is designed to
reduce the overcrowding of cities and stem the flow of rural-urban migrants. In
contrast to the African village, this settlement has no shortage of rainfall, wildlife,
or trees. in fact, the forest is an obstacle for migrant farmers and is regularly
burned to make room for cultivation.
Though burning the forest may temporarily provide the landless witha modest
source of income, the land, like 90% of rain forest soil worldwide, is very infertile
and can sustain intensive cultivation for only a few years. Complementary inputs
and farming know-how that might help improve levels of output are in short sup
ply, and yields begin to drop rapidly after the first few years. Settlers are then
forced to burn their way deeper into the forest. Because the settlers are located on
marginal soils and must constantly seek new fertile ground, with little prospect of
rising above a subsistence existence, the government program may be antidevel-
opmental in the long run. Household incomes remain low and unstable, there is
litte or no gain in average productivity, and the migrating population leaves envi
ronmental devastation in its wake, further reducing the productivity of all.
Though heavy urbanization is leading to rapid demographic changes, at pre-
sent the majority of the very poor live in rural areas similar to the two villages we
described. Frequently, 70% to 80% of the poor in LDCs reside in the agricultural
sector, where economic necessity often forces small farmers to use resources in
 The Environment and Development 419

ways that guarantee short-term survival but reduce the future

environmental assets. Unsustainable productivity ol
nomic necessity. In periods of patterns of living may be imposed oy c
hungry farmers have been known prolonged and severe food shortages, desperay
to eat the seeds with
planted the next years crop, knowingly paving the way for which they woula nav
future disaster.
tendency of impoverished peoples to degradebecau
it happens more slowly, the
tural resources on which they agricul
depend for survival is less dramatic, but it is "Ou
vated by similar circumstances.
Ine causes and
consequences of rural environmental destruction
by region. However, persistent poverty is frequently the root cause. Thevary Breauy
majority or
the poor in developing countries survive on
the meager yield obtained from culd-
vation of small plots of land whose soil
may be too shallow, too dry, or too sanay
to sustain permanent cultivation. If the land is not in some
way replenished
through either shifting cultivation or the use of manufactured fertilizers, it
becomes exhausted and yields decrease with successive harvests. But the poor
generally do not have the wherewithal to increase the productivity of the land by
allowing it to lay fallow or by making onfarm investments in irrigation and tertil
izer. In addition, where fertility rates are high and children provide a vital eco
nomic contribution through wages or on-farm labor, population and the intensi-
ty of cultivation are likely to increase over time, speeding the rate at which the soil
becomes exhausted.
One immediate result of this type of environmental pressure is soil erosion.
With little plant cover to protect it from wind and water, precious topsoil may be
blown or washed away, further reducing the productivity of the land. This process
food
of environmental degradation leads to persistent declines in local per capita
production and may eventually lead to desertification. This phenomenon is likely
and may force the remaining local
to spur increases in rural-to-urban migration
where the same process is repeated.
population onto even less fertile land,
and environmental destruction is
Another factor in the cycle of rural poverty
cut in the Third World is used as fuel for
deforestation. The vast majority of wood
has two potentially devastating environmental impli-
cooking. Loss of tree cover rural populations. Deforestation can lead to a
cations for predominantly poor lower
maladies that, over a period of time, can greatly
number of environmental
increase rural hardships. On a day-to-day
basis, however,
agricultural yields and
firewood means that w o m e n must spend large portions
the increasing scarcity of
time from other important activities such as
of the day in search of fuel, diverting fuel shortages are sufficient
care. In the worst cases,
income generation and child such as manure, which are
biomass or natural fertilizers,
to require the burning of
for maintaining crop yields.
important on-farm inputs on a local scale can quickly
escalate
Environmental degradation that begins elevations
For example, clearing of vegetation
at high
into a regional problem. altitudes. Soil that has been
cultivated lands at lower
the exposure of
and pollute drinking water. Plants help
may increase
rains may silt rivers
carried away by heavy reserves
down through the soil into underground
retain rainfall, which percolates of plants during dry
turn tapped by a variety
called groundwater. The water is in
420 Problems and Policies: Domestic

seasons in arid regions. A loss of vegetation leads to a decrease in the rate at whi..
groundwater is replenished. The subsequent drop in the water level leads tohich
level leads the
eath of plants with shallow root systems,
including young trees. This self-perpet.
uating process can spread the malady to previously unaffected regions. Not
prisingly, the increase in natural disasters associated with environmental deor sur
dation, including floods, droughts, and mudslides, can have a
on both the local and the
devastating pact
regional agricultural economy. Inda and Bangladesh
provide prime examples of this phenomenon.

Traditional Economic Models of the Environment

Privately Owned Resources
We will review some common economic models
of the environment in
with highly developed monetized markets. In each countries
model, the market's
failure to
account for environmental externalities is the
exception
neoclassical theory is then applied in order to cure or
rather than the rule,
and
circumvent an
inefficiency3
Neoclassical theory has been applied to environmental issues to
determine what
conditions are necessary for the efficient allocation of
resources and how
failures lead to inefficiencies and to market
corrected.
suggest ways in which these distortions can be
Figure 11.1 demonstrates how the market determines the
tion of a natural resource. optimal consump-
Finding the optimal market outcome involves maxi-

Figure 11.1 Static Efficiency in Resource Allocation

MC

0
Q*
Units of resource
 421
Development
Ihe Environment and

mizing the total net benefits to society from a resource, which is the ane fference
between the total benefits derived from a resource and the total costs to prou
ers of it. This is equal to the shaded area in
providing Figure l11.1. Total
fit is maximized when the marginal cost of producing or extracting one more un nenit
of the resource is equal to its marginal benefit to the consumer. This occursa
where the demand and supply curves intersect. In a perfectly competitive marke
the "invisible hand" will ensure that Q" is the quantity produced. The margina
cost curve in Figure 11.1 is upward-sloping because extraction costsincreasea
resource becomes more scarce. The resulting producer surplus, or profit, is caueu
a scarcity rent. In the diagram, the producer surplus is area aPb, and the co
to
sumer surplus is area DPb. Together they vield a maximum net benefit equal
Dab. even
If resources are scarce and are rationed over time, scarcity rents may arise
when the marginal cost of production is constant, as in Figure 11.2. The Fig. 11.2
and
OWner of a scarce resource has a finite volume of a resource
X to sell (75 units)
can charge a higher price
knows that by saving a portion of it for future sales, she must
intertemporally (over time)
today. The price of a good that is being rationed consumed in
the value of the marginal net benefit of the last unit
equate present
between obtaining the next
each period. That is, the consumer must be indifferent units has 75
owner
unit today or tomorrow. Figure 11.2, assume that a resource
In
available. If she is willing to offer only 50 units for sale today, the market price tor
resource is
is The scarcity rent collected by the owner of the
the scarce resource P, and marginal cost.
the shaded region in the diagram between price
equal PabP,
to effect andis
these rents that creates the rationing
It is the owners ability to collect

Resource Allocation over Time

Figure 11.2 Optimal

MC

0
50 75 Q
Quantity
422 Problems and Policies: Domestic

thus necessary to ensure the efticient allocation of resources over time, In tho
ne
absence of scarcity, all of the resource will be sold at the extraction cost P= MC, 75
units will be consumed at one time, and no rents will be collected.
The proponents of neoclassical free-market theory stress that inefficiencies in
the
allocation of
resources from impediments to the operation of the
result
market or imperfections in the property rights system. So long as all resources are
free
privately owned and there are mo market distortions, resources will be allocated
efficiently. Perfect property rights markets are characterized by four conditions:
1. Universality-all resources are privately owned.
2. Exclusivity-it must be possible to prevent others from benefiting from a pri
vately owmed resource.
Transferability-the owmer of a resource may sell the resource when desired.
nforceability--the intended market distribution of the benefits from
resources must be enforceable.
Under these conditions, the owner of a scarce resource has an economic incen
tive to maximize the net benefit from its sale or use. For example, a farmer who
owns his land will choose the levels of investment, technology, and output that
maximize the net yield from the land. Because the value of the land may be used
as collateral, any viable on-farm investment can be financed by obtaining a loan
at the prevailing market rate of interest.
f the foregoing conditions are not met simultaneously, inetficiencies are likely
to arise. Thus the way to correct the misallocation of resources is generally to
remove any market distortions. A number of models have been designed to
explain apparent inetficiencies in resource allocation. We will now look at two
simple models of inefficiency arising from imperfections in property markets. We
will also explore the limitations of these frameworks for addressing Third World
environmental issues.

Common Property Resources

fa scarce resource (such as arable land) is publicly owned and thus freely avail
able to all (for, say, farming or grazing animals), as is the case with a common
property resource, any potential profits or scarcity rents will be competed away,
As
we have noted, neoclassical theory suggests that in the absence of scarcity
rents, inefficiencies will arise. Using a somewhat different framework, we will
investigate the misallocation of resources under a common property system.
Figure 11.3 describes the relationship between the returns to labor on a given
piece of land and the number of laborers cultivating it.
Suppose for the moment that title to this piece of land is privately held.
Conventional wisdom tells us that the landowner will hire additional labor to work
the land until the marginal product of the last worker is equal to the market wage,
W, at point L'. The workload is shared equally among the employees, each or
whom produces the average product. However, assuming decreasing returns to
Jabor, each new worker hired reduces the average product of all workers. The mar-
 423
Development
The Environment and

Figure 11.3 Common Property Resources and Misallocation

APL

AP*H

W
W

MPL
L* Lc
Number of laborers

minus
thus equal to his average product
additional worker is additional
each other workers. If
an
ginal product of across all
than his
in
decrease the average product W, will be greater
the his cost to the producer, landowner. A
hired beyond L', a net loss
to the
employee is difference will represent
and the with a total output
equal to average
marginal product, workers, rents collected by
maximizer will
thus hire L' L'. Scarcity
workers,
profit the number of
by
product AP* multiplied AP*CDW. of c o m m o n
the landowner
will equal
land will be lower under a system
from the entire
total net benefit worker is able to appropriate
Society's owned, each workers. Worker
If land is commonly the average product of all
property. is equal to workers are
attracted so
of his work, which until enough
labor
product exceed the wage which point the
continue to the wage, at
income will level of
falls to the either rise or fall
(depending on
product may
that the average
total farm output in Figure 11.3),
the
Though as drawn
force equals L negative-it
is negative
Because we are
whether MPL is
positive or workers is
below the wage.
to
of the
additional
elsewhere with
productivity equal
marginal product be employed when marginal product
all workers could welfare must fall
that social
assuming follows that of the c o m m o n
than W, it collected at L.
The implication
or greater is will lead
scarcity rent privatization of
resources

W. No where poSsible
falls below model is that of resources.

resource
an efficient
allocation
property welfare and
increase in aggregate
to an
424 Problems and Policies: Domestic

Itshould be noted here that these neoclassical

models
are stricty concerned
with efficiency and do not address issues
related to equity. Income distribution is
considered to be relevant, and the theory
is unconcerned with the distribu.
not
from national resources accrue to a few
tional issues arising when all scarcity rents
private owners.

Limitations of the Neoclassical Common Property Framework

be
questioned
can
The conclusions drawn from this model of common property
one shared with the Lewis model dis-
on a number of grounds. The first problem is
assumes that full employment
cussed in Chapter 3. The common property model
drawn away from more productive
prevails and that every additional worker is
is at least as great as the
employment elsewhere, where his marginal productivity
where substantial urban unem-
wage. A closer look at Third World economies, forces us to reject
ployment exists alongside widespread rural underemployment,
this assumption. If new arrivals were previously on family farms where their mar
was not available,
ginal product was below the wage but alternative employment and social
their marginal product might actually rise, pulling up average product
welfare.
Another unrealistic assumption of the model is that landowners tend to maxi-
as dis-
mize profit and will thus choose the optimal level of production. In fact,
cussed in Chapter 10, large landholders are frequently not the most efficient pro
ducers because they may hold land for purposes other than cultivation. A perfect
property market is consequently not a sufficient condition for the efficient use of
land. The same may hold true for other natural resources regarding which a vari-
of social, political, and economic factors may militate against the socially opu-
allocation. In addition, by forcing small farmers onto marginal land, the con-
solidation of land into the hands of a few large landholders may intensify existing
population pressures in areas already threatened by deforestation or desertifica-
tion.
But probably the most important criticism of the model from a development
perspective is that it fails to address the vital issues of equity and basic needs.
Simply put, neoclassical market efficiency can be achieved even in a highly dual-
istic economy where extreme poverty and extraordinary wealth exist side by side.
If the primary goal of development is to raise incomes sufficiently so that house-
holds may meet their basic needs, the distribution of the benefits from scarce
resources rises to primary importance. And although neoclassical theorists have
sometimes suggested that an optimal outcome may be achieved through the tax-
ation and then "lump sum redistribution of the gains accruing to the owners of
scarce natural resources, the historical record for such efforts is not
This is especially true where the authorities responsible for legislatingencouraging
and coordi-
nating such redistributions are also the owners. Thus the
of resources does not large-scale commercial
privatization necessarily ensure an
improvement in stan
dards of living for the impoverished majority.
Revond the standard neoclassical arguments, there are
wOacons why individuals making use of publicly owned a number of alternative
resources may make iner
 Development
425
Ihe Environment and

ficient use of them within the context of Third World farming Family
farmers, who, as we saw in Chapter 10, are
of land, may be reluctant to make generally the most etfiCIE re afraid
of losing tenure on the common land-augmenting investments they aeient
if
property plot. Thev may also have insu
funds to hire additional labor or
of collateral, a factor that
purchase complementary resources dutredit
frequently excludes the poor from competitive edit
markets (see Chapter 17). It is therefore possible that conferring
extenaed
cy rights or ownership of land to family farmers would raise productivity. The re
evant question for the property rights structure is then, Who should obtain
tnue
theland if privatization is to occur? A simple auction of publicly owned land to the
highest bidder is unlikely to be consistent with development objectives.

Public Goods and Bads: Regional Environmental Degradation

and the Free-Rider Problem
In the preceding discussion, each additional worker who joined those cultivating
commonly held land created a negative externality by lowering the returns to al
other workers without providing any compensation. An externality occurs when
one person's consumption or production behavior affects that of another without
any compensation. The benefits and costs of one's actions are said to be internal
ized when one is made to bear them in full. In the previous common property
problem, the externalities associated with decreasing average product were eas5uy
internalized by reestablishing perfect property markets through the privatization
is not so eas-
of public property. In many cases, the internalization of externalities
of an indi-
ly accomplished. This is especially the case where the consequences
vidual's actions constitute a public good or a public bad. A public good is anything
of which is in no way
thatprovides a benefit to everyone and the availability
Common examples include
diminished by its simultaneous enjoyment by others.
or condition that
clean air and national defense. A public bad is any product
nonexhaustive manner. Air pollution and
decreases the well-being of others in a
water pollution are examples. Intuitively,
it is clear that given human nature and
full costs associated with their actions, too
the fact that individuals do not pay the
The result is a socially nonoptimal out-
much of a public bad will be produced.
come. We will demonstrate
this shortly using a diagrammatic representation.
Let us consider the case of a particular public
bad, regional environmental
deforestation. Increased exposure to the forces of erosion,
degradatio caused by loss of groundwater, silting or pollution of
excessive drying of the soil, regional
climatic changes are all public bads associat-
public water supplies, and potential trees. Whether these trees are on private or
of
ed with the clear-cutting or burning
of protective ground cover, either for culti-
commonly held property, the clearing lead to more widespread regional envi-
vation or for the extraction of timber, may
our analysis, we will translate this public bad
ronmental degradation. To simplify
framework. Environmental conservation through the
problem into a public good
all and is thus a public good.
protection of trees provides a benefit to
The most obvious difference between a public good and a purely private good
resource is determined by summing indi-
is that aggregate demand for the public
426 Problems and Policies: Domestic

Vidual demand curves vertically rather than horizontally,asisthe case for private
summation. The difterence result
goods. Figure 11.4 demonstrates both types ofthe same unit of a public good, bur
the fact that many individuals may enjoy
om consumption good. Through
only one may benefit from a unit of a normal, private
vertical summation we are sure to capture all benefits accruing to all individuals
from each unit of a public good. The marginal cost associated with the preserva
tion of an additional tree is equal to the forestry maintenance cost plus the oppor.
alternative use of the tree, such as
tunity cost of the tree, that is, the most valuable
for firewood, charcoal, animal fodder, or lumber. Figure 10.4 illustrates the prob-

lem of pricing public goods.

Figure l1.4a, the socially optimal number of trees is Q'. It is determined by
theInintersection of the (vertically summed) aggregate demand curve with the sup-
fromn the public good, PyDc, are
ply (MC) curve. At Q, total net benefits to society
maximized. However, due to what we call the free-rider problem, the free market
are able to enjoy the
will not lead to this optimal quantity. Because individuals
of trees provided by others, each will contribute
less than what he or she
beneits
would if acting independently. At a price of Py, the free market will satisfy person
B's demand Q, while not denying person As requirements of Qi that 1s, A can ride

free on B's contribution. The market will therefore provide a suboptimal level of
torest preservation, Qa- To restore optimality (Q* of the public good), some form of
effective solution is to charge each
government intervention is required. The most
consumer just enough per unit, , and P, for individuals A and B, respectively, to
entice each of them to demand the preservation of the optimal quantity of trees,

Figure 11.4 Public Goods, Normal Goods, and the Free-Rider Problem

MC
PM (supply)
PB

PA 0
A A+B

Quantity Quantity
(a) Public good (vertical summation) (b) Normal good (horizontal summation)
 421
ne Environment and Development

Q.Their joint payments, P x Q* for Aplus P, x *for B, represent a ontri-

bution equal to Py X Q", exactly the sum required to purchase the socjally optimal
level of preservation.

Limitations of the Public-Good Framework

The problem with the public-good pricing mechanism is, of course, how to know
which prices to charge. People have no incentive to divulge how much they realy
benefit from a public good because by shirking, they may ride free on the contri
butions of others and avoid paying their full share. A government may be capable
of reducing market inefficiencies, but it is unlikely to be able to produce a perect
allocation of resources due to deficiencies in the information available to 1
Hypothetically, collected fees can be used to provide a public good by preserv
that will
existing forests or managing a sustainable timber production program
supply the community's needed timber. Although charging fees to the people Den

efitingfrom the of a resource

preservation sound practical, it is exceedingy
may
difficult. In a development context, the problems become even more complicar
ed. When the collection of fees entails taxing deeply impoverished populations
It Would
with little or no cash income, such a program becomes an impossibility. meet
who are cutting trees to
be equally difficult to collect payment from people
subsistence needs.
market failures lead to the
Neoclassical theory can be useful for explaining why how
commercialized economies and
inefficient allocation of resources in highly
these theories have limited
these inefficiencies may be mitigated. However, or in
economies
in nonmarket or mixed-market
applicability to problems arising to be able to take advantage
of
where individuals are too impoverished
regions financial rewards from natural
resources.

alternatives that would maximize the

Environment
Urban Development and the

.The Ecology of Urban Siums is similar to that of the poor in

life among the p0or in urban slums
In ways, difficult trade
income is uncertain, and
some
families work long hours, educa-
rural villages; on nutrition, medical care, and
offs must be made between expenditures, to have higher incomes, the
urban dwellers are likely
Though on average,
tion.
of being exposed to dangerous
environmen-

are frequently
at greater risk conditions in an
poorest look at environmental
contrast our earlier
tal conditions. Let us with those of an Asian urban
South American rural community
African and a

shanty. pollutants
Asian metropolis, health-threatening
In a typical urban slum in an
home. Women are scarcely aware
both inside and outside the
are commonplace and boil water may
burn in the home to cook
smoke from the fuels they children. However
that the for the health of their
consequences
have s e v e r e long-term the economie necessity
alone would do little to alter
even if they did, knowledge
428 Problems and Policies: Domestic

accessible fuels. (Conditions resuls

of relatively dirty
withventilation but cheap and
ngcooking
from poor in the home are equivalent to smoking several packst
or
to these fumes f
children are exposed
and women and their
Cigarettes per day,
some children
actually avoid much of this exne
xpo-
long portions of each day. Though
out of school to assist their mothers in
Sure by attending school, many are kept
from an early age, chronic
at home. Thus
market work or the production of goods
and acute bronchitis are a cruel fact of
life. Debilitating and ultimately fatal resni
are commonplace..
ratory infections among the poor
individuals are exposed to harmful pollu.
But it is not only in the home that to high levels of
are constantly exposed
tants. Street vendors and market workers
runs in open
drains along the roads, providing
otherpollutants. Untreated sewageBecause food and drinking water are frequently
a conduit for infectious diseases.
children. Frequent
among young
contaminated, diarrhea is common, especially
KIS

malnourishment, even when food is more plentiful.

spells of the illness cause
other diseases. Many of the weakest chil.
making the young more susceptible to
dren die from severe dehydration. Because
the fuels used to cook foods and boil
in the market and consume large
a portion of the daily
water must be purchased
fuel to boil the household's drinking
earnings, there is sometimes insufficient
The costs associated with obtaining
water, increasing the chance of infection.
medical treatment for sick children may be very high, involving the opportunity
cost of time spent traveling to and from clinics and long hours in crowded waiting
the forgone earnings
rooms, in addition to medical fees. For many households,
can be ill afforded. In many of the poorest
households, only boys receive medical
a
more to household income. It is
attention because they are expected to contribute
sisters to survive to adult-
thus not surprising that they are more likely than their
hoobd.
are also exposed to
Children playing in the streets and others working outdoors
levels
the combined emissions from automobiles and factories. Dangerously high
of atmospheric lead are common because few cars are equipped with the expen-
and
catalytic converters now mandated in the West. Due both physical
to
sive
and
mental impairments suffered as a result of exposure to environmental factors
will find
to repeated absence from school, children in the poorest neighborhoods
it difficult to meet basic academic standards. And with many thousands of new
in this urban shanty each year, the conditions are
migrants locating their families
likely to worsen in the future.
The urban centers of the developing world will absorb over 80% of future
increases in world population. Much of the intensification of urban congestion,
however, will result from heavy rural-urban migration. It is expected that by the
ear 2010, the rural population of developing countries will stabilize at 2.8 billion,
at which point rural-urban migration will be sufficient to counteract any addi-
tional population growth. The rapid expansion of urban centers has placed
increasing strain on the resources of developing-country governments attempting
to provide adequate infrastructure and services to their inhabitants.
Though the health implications of environmental degradation are currenty
highest in rural areas, due to rapid urbanization the vast bulk of future increases
in human exposure to unsafe conditions will occur in the cities. Unsanitary envi-
434 Problems and Policies: Domestic

their permanent salinization. Where raw sewage

and isis imnro
is untreated and improperly
and surface water is frequently contaminated.
ery
nated, creating
asposed of, underground water and threatening public health.
ong-term shortages of clean
Foreign-exchange earnings also may be severely
threatened
by contamina.
water supplies. Strict First Worldhealth standards may prohibit theimportattion of
contaminated water. An outbrea
agricultural goods produced with potentialy
billion combined loss in export
cholera in Peru in 1991 led to an estimated $I
of these problems, it is not surrti
tourism markets within a few months. In light
lower than those associated
the costs of preventive measures are mucn
ing that
infrastructure. Investment in clean water and
with lost revenues, resources, and
sanitation can essentially provide economic
returns because relatively small ini
cOsts associated with urban
tial outlays may be used to avert the much larger
crises. It is imperative, however, that efforts provide
to improved urban sanitation
in rural areas. This leads us to Con-
and clean water be carried out simultaneously
of financial feasibility We do
sider needed policy reforms and the crucial question
this in the next section and at the conclusion
of this chapter.

The Need for Policy Reform

action has been taken to reduce
There is growing recognition that insufficient
a
environmental hazards through primary health care, education, and the provision

of services such as clean water and sanitation. According to one estimate, expen-
to main-
diture on these programs will have to double over the next few years just
tain the current situation. But the structure of some existing programs may actu
services are provided.
ally hinder progress. Currently, few low-budget grassroots when community
even though they tend to be more cost-effective, especially
of devel-
about 0.5%
organizations become involved. Annually, $10 billion, or only
80% is spent on
oping-country GDP is spent on sanitation and water services;
and less than 20% is spent on programs
programs costing at least $550 per person,
costing less than $30 per person. Similar patterns occur in the health professions.
or
As a consequence, government schemes tend to reach a relatively select group
who,
constituents while falling far short of providing universal access for the poor,
as we have described, subject to the worst environmental conditions. Uniess
are
governments vastly increase the breadth of the population served by programs
these disparities will tend to worsen with increased urbanization in the future.
To meet their targets in the face of increasing financial shortages, governmen
will have to radically change the manner in which scarce resources are managed
In the past, many policies designed to cure environmental ills have actualy wOrS
ened the problems that they were designed to alleviate. Where scarce resourc
have been provided to recipients at prices far below the cost of provision, artiicl
Scarcities have arisen. For example, on average in developing countries, the price
paid for piped water is only 35% of the total cost of supplying it. Due to rationing
such subsidies frequently benefit only people with higher incomes. The poor are
water from vendors at a
thus forced to buy
t p i p e d water.
price 10 times that of
 The Environment and Development 435

Many governments provide free

with water shortages. The resultwater service at little or no charge, eveen in a eas
is
Jakarta, Lima, Manila, and Mexico the waste of precious resources. In au
half of urban water City, among other Third World cities, more
supplies remain unaccounted for. than
water shortages affect 2 billion Ironically, while chronic
people annually, overirrigation and
have contributed to the
salinization of roughly 25% of all
waterloEEE
reducing its productivity. irrigated
land, greauy
Similar patterns are
repeated for and agricultural inputs. The
price paid for electricity in developingenergy average
countries, which, again, is usually available
only to the relatively well-to-do, represents less than half the cost of
and losses in transmission are three to four times
supplying it,
countries. higher than in industrializea
Better pricing policies and
ments in the allocation of
efficiency requirements would lead to improve
resources, as well as substantial savings on fuel imports.
Fertilizer and pesticide subsidies, which most
tend to promote monocultures that frequently benefit larger farmers,
deplete soils and to discourage the use of sus-
tainable methods such as integrated pest
lead to the contamination of
management. Used excessively, they can
underground and surface water supplies."
Another factor that needs more careful consideration in the
design of environ-
mental policy is the important role of women in the
management of resources.
Through their roles as managers of fuel and water supplies, agricultural producC
ers, and guardians of household health, women control the fate of many of the
world's resources. Yet they are rarely consulted in the design of government ser-
vices or have access to extension programs. Women in the Third World, who com-
monly work 60 to 90 hours a week, will have little or no use for resources unless
they are made easily accessible. Further investments in the educational attain-
ment of women, which is closely related to the health of their children, can thus
greatly enhance environmental efforts.