0.12 Natural capital & Sustainable development introduction  (Page 4/12)

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Market failure does often lead to environmental degradation, but so does public failure - the role of bad government policies in causing resource waste and environmental damage. The ill effects of public failure are almost always unintended.

Early on in the author’s work in Indonesia it became clear that market failure played a relatively small role in degradation of Indonesia’s then huge tropical forest estate, all government owned. Public failure was largely at fault: the governments’ own timber royalty and tax policies served to deeply underprice Indonesian tropical wood, leading to grossly excessive harvests. Had Indonesia tripled its taxes and royalties on tropical wood in 1975, deforestation thereafter might have been manageable. These taxes and royalties were in fact increased by 75% in the late seventies, but that was too little, too late, owning to the role of poverty in deforestation, of which more, later.

When considering water scarcity problems in Asia and Africa, Latin America, the states of Florida and California, it soon becomes apparent that, after droughts, the prime reason for water scarcity is not market failure, but public failure. There has been a pervasive tendency of government to underprice water resources so that they are shamefully wasted, especially in agriculture (see the example on Aral Sea in the Soviet Union). This vulture is now coming to roost, and not just in Lima and Mexico City, but in Atlanta, Las Vegas and Los Angeles.

Economists are increasingly coming to realize that for affluent countries such as the U.S., the most serious environmental problems are caused at least by five factors:

1. Affluence, leading to wasteful consumption, especially of underpriced resources such as water
2. Market failure
3. Encroachment on fragile watersheds and beaches as for example by building vacation homes and housing developments on steep slopes in Aspen or Jackson Hole
4. Our addiction to disposable plastic bottles for water
5. And over harvest of our fisheries

In sharp contrast, however, most, not all, of very serious environmental problems in poor countries have their main origins in poverty and government failure. We will see that there can be little doubt that poverty by itself or in combination with public policy failure has been the main cause of tropical deforestation.

Consider the Haiti/tragedy/catastrophe (Figure 12-2)

The island of Hispaniola contains two nations: Haiti and Dominican Republic. Sixty years ago, both were about equally forested. No more. Satellite photos in 1997 reveal a deeply disturbing catastrophe. You could actually see the border between Haiti and Dominican Republic. Decades of extreme poverty has driven extreme deforestation in Haiti, leading to local climate change, drought, severe erosion and disappearance of arable land. And what has driven poverty in Haiti? Very bad policy by two generations of the Duvalier family and their henchmen.

Poor landless Ghanaians, Haitians, Ivoirians and Indonesians infringe on the tropical rain forest, and practice primitive slash and burn agriculture, not because they are ignorant, but because they have no other options.