NetNews Usenet Archive 1992 #19/NN_1992_19.iso/spool/misc/activism/progress/6263

Text File | 1992-09-03 | 9.7 KB | 213 lines

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From: [e-mail] (Harel Barzilai)
Subject: ANALYSIS/DISCUSSION: "Full Cost Accounting"
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[Via misc.activism.progressive from PeaceNet's trade.strategy]
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Topic 38        Memo #5: Full Cost Acc'g/OPINION?       2 responses
kdawkins        Discussion of trade-related topics.      4:43 pm  Aug 14, 1992
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WHAT IS YOUR OPINION?


Full Cost Accounting - Economic theory suggests that internalizing
the costs of pollution and other environmental and social
externalities in product pricing is an efficient approach to
protecting the environment, improving the terms of trade of
developing countries, and financing environmental investments. But
if internalized costs are absorbed by the consumer, what is the
incentive for companies to change their production processes? What
financial mechanisms will direct the resources generated by the
internalization of costs to environmental protection? What
political instruments will fairly allocate costs in prices and
guarantee that the resources will be allocated appropriately?

Conf?


Topic 38        Memo #5: Full Cost Acc'g/OPINION?       Response  1 of  2
kdawkins
Discussion of trade-related topics.      7:04 am  Aug 28, 1992

COMMENTS ON FULL COST ACCOUNTING -
BY MARIA CLARA COUTO SOARES
Instituto Brasileiro de Analises Sociais y Economico (IBASE) -
Brasil

August 1992

1. The market has been proven to be incapable of satisfactorily
allocating resources for social welfare or environmental
preservation; the profound crisis of today demonstrates this
case.

2. It is assumed that internalizing costs will enable developing
countries to generate additional resources to finance investments
in less polluting production processes. However, there is a prior
problem of relative economic and political power to be confronted
relative to the capacity of developing countries to intervene in
the international market by raising their prices.

3. Internalization of costs cannot ensure that commodity prices in
the international market do not fall. Structural factors have
responsible for the accelerated decline of prices in the past
decade; these include among them technology and recycling which
increase productivity per unit of raw material input, competitive
pressures on export prices of developing countries, and
agricultural subsidies in the US and EC. These factors contribute
to the instability of the international market and make the
negotiation of new or continued commodity agreements enormously
difficult.

4. While the effects of production and trade on society and the
environment are very clear, contemporary analysis lacks the
capacity to consider the issues of economic growth, ecology and
society outside of the theory of the marketplace. This results in
errors like that of assuming the environmental impacts of trade to
be merely a matter of externalities.In other words, it is presumed
that the market functions adequately and the need is to find a
monetary expression of these impacts.

5. Nothing guarantees that the additional resources generated by
the internalization of costs will be effectively transformed into
investment to improve environmental or social conditions. These
resources can be appropriated by the private sector and allocated
for rent-producing investments.

6. The imposition of a tax over the exporting company prices,
would probably mean some decrease in the company profits.
However, this fact does not force the company to make investments
to change the producing process. That is, the mere "cost
internalization" does not make the market able to regulate the
producing activities, be they entrepreneurial or not, in order to
guarantee a higher environmental standard. Once more, it is
necessary to define policies capable of regulating the private
activity in the public field, as it happens in Nature, and the
creation of mechanisms able to give support to the restructuring
of the producing activity.

7. If the internalized costs are absorbed by the consumer, what is
the incentive for companies to change their production processes?
It is probably not possible to reflect all costs in all prices at
each stage of production and consumption, as pricing effects will
vary according to the effective share of each company in the
market. In the case of the oligopolized sectors, it may be
possible but the effect will be to increase the rate of
concentration of capital.

8. For enterprises to decide to invest, they must anticipate a
return on their investment. In the case of environmental
investments, the logic is completely different. As a rule, the
"environmental investment" will not be made unless the state
enforces effective policy measures (regulating and financing
measures, etc.), for this type of investment does not aim at
creating extraordinary profits. The company cannot even expect to
have the invested money back and, in some cases, this means an
increase in production costs.  Yet when states have created such
instruments, many enterprises have transferred their activities to
developing countries to avoid these environmental costs.

9. Developing countries have not yet been able to keep pace with
technological progress in the industrialized countries and it is
difficult to see that the internalization of costs will enable
them to do so.

10. The use of compensatory tariffs, high enough to protect those
producers which have internalized their environmental costs from
competitive pressures based on other producers' externalities, is
a form of private sector protection that does not necessarily
guarantee environmental protection. The goal is not to socialize
private sector investment but rather to divest the public sector
of its costs that benefit commercial enterprise.

11. Financial mechanisms can be developed which would make
resource allocations conditional upon environmentally benign
production, but these only become meaningful  coupled with
political instruments capable of influencing both commercial and
public policy choices. In the same way, resourting to taxes and
fees as instruments of environmental policy in international level
implies the existance of some kind of multilateral deliberating or
intermediating instance . Otherwise, who will define the levels of
taxes and under which criteria?

12. It is not sufficient to attribute a value to environmental
costs through the price mechanism, as these costs reflect factors
that do not pass through the marketplace. Furthermore, the
monetization of these costs would be a matter of subjective and
essentially qualitative evaluation -- not quantitative.
Therefore, the evaluation must be made according to political
criteria based upon factors such as quality of life, the social
value of nature, and the concept of public space.

13. The environmental crisis showed the incapacity of the market
to preserve its own basis of reproducing the current development
model. The proposal of defining moneywise the "environmental
externalities" and incorporate them to the price system does not
solve the incapacity of the market to regulate the collective
interest, since this interest is not a nere adding of individual
interests. The environment is an arena of dispute among different
social actors, with totally different economic and political
power. I believe that the way should be the creation of
instruments capable of deprivatizing the environment and the
implementation of regulating mechanisms for the environment, seen
as a public field. To that end, the state is fundamental.

Conf?


Topic 38        Memo #5: Full Cost Acc'g/OPINION?       Response  2 of  2
aztoxics
Discussion of trade-related topics.      8:50 pm  Aug 30, 1992

One useful approach to directing costs to pollution havens rather than
trade per se may be the ecological tariffs idea (introduced by Borens
as a trade idea last year, but evidently going nowhere in Congress at
present). In shoof a transaction ta x like Gepharudt proposed, the
ecologicall tariff (cf Costanza) would be levied on products produced
without the costs of environmental protection as a way of creating a
"level playing field" for producers who do observe environmentally
sound production methods.

The problem as I see it, as with all "internalization" procedures, is
to figure out what the equivalent pricings would be for diffeerent
products and production methods--but that presumably could be figured
out by the "Commission on Environment, Health and Trade" beingproposed
for implementing the NAFTA.

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kdawkins                                EcoNet
  Kristin Dawkins, 1313 5th St. SE Suite 303
  Mineapolis MN USA 55414
  [phone] Fax:[phone]
  (Institute for Agriculture & Trade Policy)

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aztoxics                                EcoNet
  Michael Gregory, P.O. Box 1896
  Bisbee AZ USA 85603
  [phone]
  (Arizona Toxics Information)
  Keys: trade, mexico, pesticides, mining, pollution, prevention

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