The Ecological Consequences Of Global Trade, Production And Finance

Globalisation is a remarkable achievement by man which has allowed companies to design products in North America, source materials in Africa, assemble products in Asia and sell them around the world. For business and progress, it is arguably the largest step forward since the industrial revolution more than one-hundred years ago. Although, similar to the industrial revolution, there have been numerous unintended ecological consequences that are associated with globalisation, chief among which being global warming. Now that, in 2018, we have the technology and expertise to minimize the effects of global warming on the worlds ecosystems, advanced nations like Australia and the United States must make a concerted effort to minimize those effects. In this essay I will detail the ecological consequences associated with globalisation, many of which pertaining to the effects of global warming and natural resource depletion. This will serve as a stark reminder that our progress as an advanced and global society is not without cost.

Over roughly the last half-century, coinciding with the rise of global trade, production, and finance, average surface temperature of the globe across land and oceans has risen significantly to 14. 74 degrees Celsius in 2017. That is 0. 84 degrees above the twentieth century average of 13. 9 degrees. In fact, not since 1976 has the global temperature been cooler than the twentieth century average. Given the rise of global trade and production during this time period, these statistics are alarming but not surprising. Carbon dioxide and other gasses are produced by the burning of fossil fuels such as oil and coal to power airplanes, trucks, manufacturing plants, etc. These gasses have a greenhouse effect. They trap heat near earth’s surface which in turn increases the average global temperature. It is widely accepted in the scientific community that the rise in global temperatures are directly related to recent human activity. This recent human activity can be attributed to global trade, production, and finance.

Global warming is a problem. The evidence is clear. Some say it is the biggest issue facing the next generation and that we are reaching a critical time where we must reverse course and reduce emissions in order to preserve our planet for future generations. With global warming comes many negative ecological side-effects. All of these side-effects can be devastating but perhaps the most pertinent are the changes in ocean conditions and sea levels. Due to higher global temperatures and greenhouse gas emissions, the oceans have changed. The changes are small but significant. Oceans are more acidic and warmer than ever. The warmer and more acidic ocean water is having adverse affects on sea-life. Killing off entire species, relocating others and therefore decreasing the ocean’s biodiversity. Look at the Great Barrier Reef, it is a shell of what it once was due to recent human activity which indirectly acidified and warmed the ocean. In addition to the changing ocean conditions, sea levels are also rising. The primary cause of sea level rise is the melting of polar ice. “Arctic sea ice has declined by about 10 percent in the last 30 years” which has contributed to a rise in sea level of “between 10 and 20 centimetres in the past hundred years”. This rise in sea level threatens to flood coastal communities around the world and reverse some of the global progress countries worked so hard to achieve.

The effects of global warming are not the only significant ecological consequences of global trade, production, and finance. Another and possibly equally significant ecological consequence is the depletion of the world’s natural resources. “Any expansion of markets and economic activity inevitably leads to faster depletion of scarce natural resources”. Globalisation is driving our world forward but it is also depleting our precious natural resources. Natural resources are being depleted at an alarming rate due to the sheer volume of resources required to support a globalised world along with the lack of sufficient recycling efforts in developing countries. The top three non-renewable resources are oil, coal and natural gas. These are all fossil fuels. They do contribute to global warming but there is no denying their importance to society and global development. Developing countries want to improve their economic outlook so many turn to liberalised trade practices to stimulate economic growth through (mostly) increasing their production and exports to other countries. This increase in production will lead to the increased use of resources and inevitably the depletion of those resources. According to liberal trade theory this is admissible given the efficient pricing and therefore use of such resources. Liberal trade theory states that “all externalities and social costs must be internalized for the global output to be brought into balance with environmental costs”. It is possible for resources to be priced efficiently and therefore utilized efficiently. In this case, the use of such resources is acceptable. But, “if resources are unpriced or under-priced or externalities are not taken into effect due to market or policy failures, resources will be misallocated and therefore free trade would not maximize global social welfare”.

The use of resources to the degree they are being used today is only permissible if they are efficiently priced which will lead to fair allocation and efficient use of those resources. The efficient price can only be determined through a free market. I appreciate the logic of the liberal trade theory in this scenario but in the real world I fail to see even one example of resources being efficiently priced. It feels too idealistic. First of all, how is one to determine if a resource is efficiently priced? Determining the ‘maximum social welfare’ seems qualitative and subjective in an economic function that can be (and should be) quantitative and objective. Financial markets can be emotional and irrational and as long as the price of these resources is being determined by traders many miles (or kilometres) away in a commodity trading pit on Wall Street. Detached from the actual use of these resources, there is the inevitable risk, or even eventuality, that the prices agreed upon will be inefficient for the given market. Many developing nations are endowed with great quantities of natural resources. In an effort to grow economically and become globally competitive, many attempt to exploit those resources with “low-cost specialised labour in non-sustainable production activities” which is allowable in those countries due to the “low demand for environmental quality”.

On the other hand, developed nations are relatively less concerned with becoming globally competitive (because most already are) so they are free to have more concern for environmental quality. Galeotti is saying that developing nations use their bountiful resources in an unsustainable way in an effort to become globally competitive. This means they will deplete those resources quickly and possibly use them in a way that does not recognise environmental quality as an important issue. Developed nations are not as concerned with economic growth so they are free to have concern for environmental quality which includes the preservation of resources. This concern for environmental quality is a luxury afforded to only developed nations who can afford to invest in it.

An important aspect of environmental quality is clean, fresh, drinkable water. Water is undoubtedly the most precious and valuable resource to man even though it may not be priced as such. As the supply of clean, fresh water diminishes, this may begin to change. As populations of developing nations explode around the world, more clean, drinkable water is required than ever before to support this population growth. As humans are diminishing the global clean water supply to support our growing population, global warming is also having a negative effect on the the clean water supply. Droughts around the world are becoming longer and more severe due to the rise of global temperatures which is taking away the main source of clean water for many under-developed communities around the world, rain water. To support these communities, western nations and organisations are making an effort to ship vast quantities of bottled water to these communities. Problem is, the price of expelling the energy and resources in order to get clean water to these communities is increasing and may not ‘maximise social welfare’ when looking at the problem through a liberal trade theory lens. But what is the right price? And how do we determine this right price? Is there even a right price? There is no ‘right’ price for water because it is vitally important to life. I think this is why water (for the most part) is not a tradeable commodity. All people have the right to clean, fresh, drinkable water. And yet, not all people have it. But at what cost could we conceivably get water to those desperate communities? That sad part is, someone, somewhere, will have to look at the numbers and determine if it is economically feasible to give these people a basic human right. Due to the diminishing clean water supply, I fear water may become more expensive. Based on the basic laws of supply and demand, the price of water must go up, and possibly drastically depending on preventative measures taken by international. This will put clean, fresh, drinkable water out of reach financially for a large portion of the world’s population. That is why developed nations must lend a helping hand in developing technology to make the most out of what fresh water there is left. This can include desalination machines and more advanced water recycling efforts in under-developed and developing countries. These will not only help save the lives of millions but when the time comes, it will be critically important to have the technology when clean water is in short supply in their own country.

Another aspect of resource depletion that cannot be forgotten is the finite resource that is land. The amount of land required to support the world’s growing population is increasing. This means that previously undisturbed ecosystems are being taken over by man in order for their local communities to survive and grow. This has led to the destruction of the world’s rainforests for logging, plains for farming and rivers for energy. But I wish to focus on a different and underappreciated form of global trade which is having a profound impact on the worlds complex and fragile ecosystems. This form of global trade is international tourism. Younger tourists from developed nations such as the United States, Australia or England are beginning to look for more unique places to visit for their yearly vacation. The usual resort destinations of choice are no longer sufficient for this new group of young and adventurist tourists. These individuals are looking to visit places where few people have gone before, which are “untouched by man”. Ironically, this is pushing rural communities in these desirable locations to modify the landscape to accommodate this new cohort of tourists. Not to mention the amount of waste associated with the growth of tourism in these remote areas. Numerous new beach resorts are sprouting up around Southeast Asia in previously remote and inaccessible locations. This is improving the local economy but is having a terrible impact on the local ecosystems as a result. Wilderness is being destroyed and species are being displaced. This is bringing wild animals into the cities and endangering entire species. In these developing nations, there are few environmental laws protecting certain species or environmentally sensitive areas which, legally, makes it relatively easy to create new resorts in remote locations for young, wealthy, western tourists to visit. These new resorts are appealing to the countries they are located in because they will stimulate the local economy, help the country to grow and become competitive in the global market. Unfortunately, the new global nature of tourism has taken its toll on once remote and pristine locations around the world which is very much an unintended ecological consequence of global trade.

Does globalisation always have to be associated with environmental degradation and resource depletion? No, but unsurprisingly the answer is far from straightforward. It is true and widely accepted that humans have been the main contributor to the rise of global temperatures over roughly the last half-century. Although, many believe that there is a point on the “Environmental Kuznets Curve (a loose U-shaped relationship between income and environmental quality)” in which “further growth tends to lead to an improvement in the environment”. This represents the average income a country must reach and surpass (around $5, 000 to $6, 000) where the country begins to move away from higher polluting sectors (manufacturing) to lower polluting sectors (services) which will lead to an improvement in the environment. I am not so sure. I recognize the fact that service-based industries have less of an environmental impact than manufacturing-based industries but as countries continue to grow, to well beyond $5, 000 to $6, 000 of yearly average income per capita, their citizens become wealthier and demand more discretionary goods. This has a ripple effect not just on the emissions of the country in question but on the rest of the world as well. Some of these discretionary goods are high polluting with a large carbon footprint. The goods I have in mind are the vehicles that make us and our goods move; the vehicles that allowed us to globalise in the first place. These are primarily cars, trucks, busses, airplanes, boats, and trains. All of which rely on the burning of fossil fuels to function. (I understand that electric vehicles are gaining popularity and have ‘zero emissions, ’ but the production process certainly does rely on the burning of fossil fuels, not to mention where the electricity to power them comes from). A lot of these vehicles are produced in developing countries like China, Mexico and India. As countries become wealthier, their citizens demand a greater quantity of these vehicles. The more vehicles demanded, the more vehicles produced and an increase in the amount of greenhouse gasses emitted into the atmosphere as a result of production around the world. In theory, at least judging from my experiences living in the United States all my life, generally, people will want a car for mom, a car for dad, the kids will take a bus to school and they will go on a family vacation once a year and use an airplane to get there. This is the ideal. The wealthier a country gets more people can afford this ideal. Sure more people become concerned with saving the environment as a country gets wealthier but based on my experiences, people are generally unwilling to give up the luxuries that contribute most to the problem.

I am not suggesting that people get rid of their cars, make the kids walk to school and give up family vacation. That would be unreasonable and probably unfeasible given our reliance on motor vehicles as a society. But as countries get richer, why not invest more money and time on finding cleaner and more efficient sources of energy? Ideally, sources that can be utilized by the developing world because developing countries (rightfully so) are less concerned with environmental protection but with their own economic development and improvements in the quality of life for its people. If we can find a sustainable and clean source of energy accessible to developing nations, the ecological consequences of global trade and production can be minimized. Earth’s natural resources can only get us so far. Recently, they have allowed us to live in a more global and connected world. Much progress has been made due to the exploitation of those finite resources but the time has come to look for more sustainable ways to continue this progress.

Now that we better understand the ecological consequences of using and abusing those resources, developed nations must take the first steps in implementing “integrated environmental and trade policies”. These policies will preserve our precious natural resources and minimize the effects of global warming so future generations have a quality environment to enjoy.