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A blog about economics in the South Caucasus.

The Ethics of Empty Stomachs

At the end of Act 2 of Bertolt Brecht’s Three-Penny-Opera, the proletarian petty criminal Macheath and his prostitute Jenny reply to the bourgeois representatives of the establishment urging them to uphold moral standards: “First comes a full stomach, then comes ethics!” This aphorism echoes the widely held contention that ethical behavior is a privilege of those who have satisfied their material needs. How can one expect somebody who is fighting for survival to be decent and honorable? Indeed, when civilization broke down during wars and disasters, human behavior often turned egoistic, primitive, and brute.

This idea has a twin sister in economic thought. The economics version of the argument says that countries first have to become rich before they can afford to protect the environment, enforce high safety standards, and protect its citizens from exploitation. The US economists Michael Greenstone, John A. List, and Chad Syverson in their 2012 paper “The Effects of Environmental Regulation on the Competitiveness of U.S. Manufacturing” (MIT CEEPR Working Paper 2012-13) estimate that between 1972 and 1993, the average annual financial burden of environmental regulations on the US manufacturing sector amounted to 21 billion dollars, or 8.8% of total sector output. So, if environmental protection is that costly, should a poor country like Georgia even think about “being ethical”, i.e. imposing ecological, social, and other restrictions on its economy?

Since 2012, clashes between economics and morals occur frequently, as social protests against economic conditions and all kinds of economic projects surged. In Kazreti, the goldmine workers protested against their employer, there were strikes of bus drivers in Tbilisi and Batumi, and there is an ongoing struggle of firefighters demanding better working conditions. Citizens formed action groups against the Khudoni hydropower plant and against the destruction of the Sakdrissi goldmine, and there are regular demonstrations against the planned hotel in Vake Park, organized by a group called Guerilla Gardening Movement.

Unlike many politicians, we believe that there is no general conflict between economic interests and the desire of citizens to live in a society that enforces safety standards at workplaces, preserves its clean air, and protects its parks and cultural heritage. We think that more often than not, moving towards a society that is livable and attractive has economic advantages that outweigh short-run economic losses.


WHAT DO THE FACTS SAY?

While there are studies like the one cited above that confirm the conventional wisdom, i.e. finding a negative correlation between regulations and economic prosperity, there are also empirical investigations with contrary results. Stephen Meyer, in his 1995 article “The Economic Impact of Environmental Regulation” (Journal of Environmental Law & Practice 3, pp. 4-15), comes to the result that between 1982 and 1992 in the USA “neither national nor state economic performance have been significantly or systematically affected by environmental regulation”. Comparing different US states with different environmental protection laws, he finds that “job growth – not job loss – is associated with stronger environmental policies.”

In his 2008 article "Environmental Quality", published in The Concise Encyclopedia of Economics, Terry L. Anderson surveys different criteria for measuring environmental quality and finds that in the last 20 to 50 years, most of them are improving. This happened despite the great economic progress that was made in these decades (the current total output of the world economy is almost seven times higher than it was in 1960, and almost double as high as it was in 1990). Moreover, based on a comparison of the World Bank’s environmental sustainability index with output per capita, he shows that richer countries on average have a less damaged environment. While at first sight, this seems to confirm that there is no moral with empty stomach, it also shows that a healthy environment is not at all conflicting with economic prosperity. Rather, the opposite is the case!

Of course, adherents of the conventional view will claim that the causality goes from prosperity to environmental protection. Yet causalities, unlike correlations, are difficult to prove empirically. One might as well make a plausible argument that an attitude of valuing, protecting, and cultivating environmental treasures is favorable for economic success.


AND GEORGIA?

According to the 2014 Environmental Performance Index of Yale University, Georgia is ranked 101 out of 178 countries. Regarding the harmful impact of environmental problems on people’s health, Georgia is ranked 73, regarding air quality 110, regarding ecological aspects of agriculture 126, and regarding the protection of biodiversity and habitats for animals and plants 138. Georgia performs best when it comes to the extension and protection of its forests, where it achieves rank 16 in the world.

Let us look at some concrete topics that came up in recent debates.

Soon, Georgia will reintroduce technical inspections of vehicles. There are plenty of cars around in Tbilisi about which one can say without any inspection that they pose safety risks for their drivers and everybody else. So, if the inspections will be serious, hundreds of Tbilisi taxi drivers who cannot afford to change or repair their cars will have to leave the market. Moreover, many cheap regional marshruktas will stop carrying load and passengers. This sounds pretty bad, yet at the same time strict car inspections may give rise to a Georgian car repair and service industry. Such an industry would be a great addition to one of Georgia’s most important economic sectors, namely the import and resale of used cars. Clearly, the economic welfare generated through the car re-import business would be much higher if Georgian intermediary traders would not just bring cars from one place to another, but also add some value.

Every year, Kakheti, one of the main wine regions of Georgia, incurs losses due to hailstorms. When this happens, farmers can lose large shares of their harvest. In Soviet times, hail was prevented by “cloud seeding”, a fairly effective method that has adverse effects on the environment. Should one reintroduce cloud seeding? By refraining from this controversial method, Georgia fosters innovation to find alternative solutions. Recently, it was announced that a local company will produce a net which will cover wine yards. Not only from an ecological perspective, but also economically this may be superior to contaminating clouds. It is a general observation, shown in many studies around the world, that tight regulations can foster apt technological solutions.

The hotel in Vake Park will create some new work places and generate some tax revenue. Yet even in the short run, these benefits are so minor that they do not justify the creation of a precedent for intervening in parks and protected territories. The lack of green areas in the city and the high level of air pollution make Tbilisi in the eyes of many of its residents an unpleasant and unhealthy place. In last year’s Mercer City Ranking, Tbilisi was at the lower end of the 230 surveyed cities. Many Tbilisians considered this unfair, but there are tangible reasons for Tbilisi’s reputation problems. Further sacrificing of parks and green areas will bring Tbilisi to the very bottom of the ranking! Tbilisi has ambitions to be a hub city of the region, full of tourists, international offices, and regional headquarters, and being unattractive and unhealthy can be a huge obstacle for achieving these goals.

Similar arguments, by the way, could be made about non-environmental issues, like the Sakdrissi gold mine and workplace safety standards.

Terry L. Anderson, in the article cited above, reports the empirical observation that when the income per capita of a country reaches about $4,000, air pollution tends to decrease significantly. If this is true, then Georgia, with a yearly income per capita of roughly $3,500, is at the turning point of becoming an ecological society. Do not delay this development based on flimsy economic arguments – having an empty stomach is no justification for being immoral.

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Guest - Zahra on Monday, 21 April 2014 23:47

History of growth associated with development and switch from agriculture to industry and then to service sector. As the more income is generated in service sector, income should not be the best proxy for environmental care. If country gets main part of its income from industry it will have no effect in environmental issues. And there are lots of empirical papers which actually rejects Kuznets curve.

History of growth associated with development and switch from agriculture to industry and then to service sector. As the more income is generated in service sector, income should not be the best proxy for environmental care. If country gets main part of its income from industry it will have no effect in environmental issues. And there are lots of empirical papers which actually rejects Kuznets curve.
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Wednesday, 11 December 2019

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