dancing beneath the diamond sky

And we'll dance beneath the diamond sky with one hand waving free Silhouetted by the sea Circled by the circus sands With all memory & fate Driven deep beneath the waves Let me forget about today until tomorrow... Hey Mr Tambourine Man play a song for me...

Sunday, October 08, 2006

iPods for us, Toxic Sludge for them

I was outraged to read the recent news headline (well, not actually headline, amazingly enough: just a little piece of “also happened in another corner of the world last week”) about the Dutch merchant ship that dumped a tanker full of toxic waste onto one of the world’s poorest and most strife-ridden countries – causing almost a 100,000 people in the Cote d’Ivoire to seek immediate medical attention. Close on the heels of this article was an op-ed piece (in the New York Times, by Bob Herbert- "Poor, black and dumped upon") that comments on how a disproportionate fraction of toxic waste disposal sites in the United States are located in or close to areas inhabited by blacks, poor whites and other ethnic minorities.

We study in any “Principles of Economics” course that one of the failures of the free-market system is that it doesn’t know what to do about the externalities it creates, of which pollution and toxic waste are prime examples. What I failed to appreciate until now however, was that the scale of the problem has shifted into a completely different league: with increasing globalization and world becoming a smaller place – these externalities have now become international. Are the poor countries of this world (like my own, for example) going to become dumping grounds for global waste?

The biggest irony of all this is something that comes out of an environmental expert’s analysis of the Ivory Coast affair: to quote, that “environmental regulation in the North has made toxic waste disposal so expensive that companies are now looking to the South.” This brings us back to one of the fundamental questions in law & economics and any of the social sciences, really: what are the consequences of government regulation? Can we ever really fully comprehend or foresee all the positive and negative externalities that regulation will have on the different parties involved in the social welfare function ? – a question that has become horrendously complicated now that the “social” in the social welfare increasingly means more than just your own country but as far as even - the West Coast of Africa.

I am tempted to say that a market-created externality can only be kept in check by a market-imposed punishment: investors will have to stop rewarding companies that act irresponsibly. But that brings us to the thorny issue of: if all the economic actors in the grand scheme of the free market are naturally driven to act in self-interest, then maybe self-interest points you in the direction of short-term profit maximization, and towards doing whatever it takes to keep your investors happy by delivering positive earnings growth quarter upon quarter, even if that means dumping your toxic waste cheaply in an ignored country in West Africa that no one cares about and which doesn’t have the teeth to bite anyone – because at the end of the day, it makes your 2006 2nd quarter results look better. And that’s what companies are meant to do, ultimately – generate wealth for investors. That’s how the engine of the market should work, and that’s how it chugs toward the greater satisfaction of “everyone”s needs.

What a tangle ! Are we ever going to find a way to fix the ills of the free-market system, or is anyone who even tries immediately and irrevocably condemned to be labeled a Marxist and thereby ignored, calumnied, and consigned into oblivion by the Establishment ?