CRITICAL READING-DVST 8701

The Perils of Free Trade (H. Daly, 1993) vs The Case of Free Trade ( J N Bhagwati, 1993)

Resti Pujihasvuty-2101814 To begin with, I will give short summaries to the key reading about free trade according to the articles by Herman E. Daly and Jagdish Bhagwati which have differential views in this essay. There are two main points going on debate between some economists who see nature as handmaiden to humankind and environmentalists who assert nature as autonomy as well as two of the great causes of the conflict in 1990s, trade and environmment (Herman E Daly, 1993). The real debate between two is over what kind of regulations should be instituted and what goals are legitimated. In particular cases, sometimes they represented for against free trade, on the other hand, they also have their own argument which cant be reconciled. Firstly, the term of international commerce as we know as free trade isnt always good policy and it gives many disadvantages to the environment (Herman Daly, 1993). Some environmentalists believe that free traders seek to maximize profit and production without considering that represent hidden social and environmental costs. They also argue that when growth has made people wealthy, they will have the funds to clean up the and it is increasing environmental cost faster than benefits from the production, so its making poorer not richer. According to the article by Herman Daly, free trade position is grounded in the logic of comparative advantage by David Ricardo, the British economist, in the 19th century which tells us why it is better to cooperate than to compete. It tells us that even if economy A were superior in all respects (as regards productive capacity) to economy B, then it would still repay for the two economies to trade if economy A specialized in those products for which its superiority is greatest (its comparative advantage) and

CRITICAL READING-DVST 8701

The Perils of Free Trade (H. Daly, 1993) vs The Case of Free Trade ( J N Bhagwati, 1993)

Resti Pujihasvuty-2101814 economy B concentrated on those products for which its inferiority is least (its comparative advantage). This specialization will increase production but not assure that all the participating countries will get benefits. He also observed that countries with difficult technologies, customs, and resources will incure different cost when they make the same products. For instance, free trade causes inefficiencies contrary to the implication of comparative advantage, because it involves the simultaneous import and export of the same goods. Furtheremore, the arguments for free trade run afoul of the three basic goals of all economic policies ; The efficient allocation and the fair distribution of resources which are known as traditional goals of neoclassical economics, and the maintainance of a sustainable scale of resources is associated with view point of ecological or steadystate economics. In neoclassical economics, the efficient allocation of resources depends on the counting and internalization of all costs and most of them have assumption that the economy is the total system and nature is subsystem. On the other hand, steady state economics means that the input of raw materials and energy to an economy and the output of waste materials and heat must be within the regenerative and absorptive capacities of the ecosystem (Herman Daly, 1993). In my point of view, Daly looks like want to deconstruct neoclassical economic theory and set forth a more holistic model such as steady state economy. Daly also said that international trade increases competition and reduces costs in two ways: by increasing efficiency or by lowering standards. Lowering standards mean externalizing some of costs, a company can save money by lowering its standards for

CRITICAL READING-DVST 8701

The Perils of Free Trade (H. Daly, 1993) vs The Case of Free Trade ( J N Bhagwati, 1993)

Resti Pujihasvuty-2101814 pollution control, worker safety, wages, health care and so on. Consequently free international trade encourages industries to shift their production activities to the countries that have the lowest standards of cost internalizaton. On the other hand, Daly argued that free traders generally praise the fairness of antidumping tarrifs in goods at price below their production cost including the costs of environmental demage and community welfare. Secondly, another perspective is contrary to the first main point that free trade is such an efficient policy which should help environmentalism so the fear among environmentalists that free trade will increase growth and growth might have possibility to harm the environment is misplaced (Jagdish Bhagwati, 1993). Bhagwati said that growth as an economic effects enables governments to tax and to raise resources for a variety objective including pollution control and the general protection of the environment. For example, free trade enables technology to reduce the pollution elsewhere to be imported. However, one must consider that growth affect not only the demand for a good environment but also the supply of the pollution. To understand and solve the genuine conflict between trade and the environment, economists describe a distinction between two kinds of environmental problems, those are intrinsically domestic and intrinsically transnational. The problem for example pollute a lake within its border is should be intrinsically domestic, for instance it polluts a river that flows into another countries is should be intrinsically transnational. Another examples are acid rain and greenhouse gases which contribute to global warming (Bhagwati, 1993). In that case, thats problem cause international

CRITICAL READING-DVST 8701

The Perils of Free Trade (H. Daly, 1993) vs The Case of Free Trade ( J N Bhagwati, 1993)

Resti Pujihasvuty-2101814 concern because diversity in environmental standards may affect competitiveness which have a possibility to make governments imposes lowers standards of environmental protection. Morover, it causes environmental groups worry and for consecuently, dramatized by H. Ross Perot in his criticsms of NAFTA, that factories will relocate to the countries whose environmental standards are lowest and governments subsides of a particular industry to foreign producers through lower standards are sometimes unfair trade so the subsidy would be calculated such as the way dumping calculations of environmental protection. On the other hand, international differences in environmental standards are natural in each country, for example if two countries share the sama environmental objectives, the specific pollutions they would attack and the industries they would hinder, will not be identical. Furthermore, each country will have less of industry whose pollution relatively more than other countries do (Bhagwati, 1993). According to both of these articles, free trade causes some environmental problems for each countries but not all environmental problems which based on many examples from the article by Bhagwati, are local, some are trully global such as climate change because of greenhouse effects and the depletion of the stratospheric ozone. Those issues require cooperative and mutilateral sollutions. Moreover Daly said that economists need to make a distinction between growth and development. Development without growth is sustainable development and steady state economy will be reached and still continue to develop greater capacity by increasing the

CRITICAL READING-DVST 8701

The Perils of Free Trade (H. Daly, 1993) vs The Case of Free Trade ( J N Bhagwati, 1993)

Resti Pujihasvuty-2101814 efficiency of its resources use, by improving social institutions and by clarifyng its ethical priorities. Finally, although there are many arguments which are discussed and debated between economists and environmentalists, in my point of view, both of these articles are giving many persuasive views by providing theories to support their arguments. However, the linkages between changes in economic and environmental degradation are not easily to predict and very complex. Freeing up trade would raise many issues especially for opponents of free trade counter who argue that free trade will lead to environment problem and on the other hand the proponents of free trade including some economists argue that it is the quick way to reduce the poverty. Besides that, they can use their economic power to cope with all the problems of environment not by lowering environmental standards but maximize efficiency. References : Bhagwati, Jagdish. N. 1993, The case for free trade, Scientific American, November 1993, pp. 18-23. Daly, H. 1993. The perils of free trade, Scientific A merican, November 1993, pp. 24-29