The Society and the Environment – The Tradeoff between Economic and Human Wellness Social society within states, as well as trans‐nationally, is said to be increasingly important in moderating the activities of business and influencing governments. But this is not the case in developing nations. Greed and prosperity have overruled the long‐forgotten lower class’s need for safety and security, putting the country in a backward spiral and unable to receive the desired productivity. A simple view of developing nations explains that people are the real wealth of any nation. Social capital in these countries is the greatest form of cooperative capital maximization, and considering the layman has a desperate lack of technology, tools and resources, we find that trust is the most important moral resource one can attain in their communityi. It is here in developing nations that we find development is purely about expanding the choices people have in order to lead the lives they live. It is easy to understand that the main values of people come from their most basic needs. Maslow’s Hierarchy of Needs explains that security and safety are the two enforcing needs for anyone, and these attribute to food and health as well as shelter and employmentii. Without these, many choices are not available. But it is the environment that provides most people with all that they require to live this type of life. “Environment encompasses the natural assets that can be used for economic production (natural resources), the interdependence of living and non‐living components in an environment (ecosystem) and the extent of human activity on the original state of an ecosystem (human‐altered ecology)”iii. The question at hand now becomes an issue. Do social groups within these developing states have increasing importance moderating the activities of business and influencing governments? Intuitively the answer is yes. The people are the responsibility of the government, and the government generally controls business. But despite the existence of international humanitarian laws and human rights agreements, governments address the issue of poverty (lack of those basic needs [rights] to survive) by increasing economic production in the belief that the benefits will trickle down to the poor eventually. We now also see that in developing nations, where countries are reliant on heavy industries that are yet to be developed properly, economic production requires the most intensive use of natural resources, which are often unregulated. This unregulated use of public goods disturbs population cycles, health and environment and builds on the already prevalent inequities. This unregulated practice also relates strongly to game theory and path dependence. Public goods such as clean air and forests can be enjoyed by everyone, regardless of whether anyone will choose to contribute to it. Under ordinary circumstances no one has any incentive to contribute to it until the resource is almost depleted, so therefore once it is gone, everyone loses out. It seems that these developing nations are stuck with the tragedy of the commons as well. These social groups lack the power to moderate business and influence governments to change regulations Lincoln Smith ‐ 306192454 1
considering that both government and business profits immensely from exhaustive destruction of natural resources. In most cases mining and lumber industries cause the most destruction to natural resources, but they are also the most profitable. As these businesses are competitively trying to get ahead in both global and local sense, you see that they are never going to limit their reaping of common resources, such as fresh water. This tragic truth leads to enormous common losses, but individual gains. Since communities are powerless against this exhaustive destruction of their common property (public goods) they then find themselves in a prisoner’s dilemma. If the public chooses not to act, they lose out greatly. Otherwise they can compete for personal gains, but eventually also lose out due to the first mover advantage of business. Both business and society find that they would be better off if they were both to cooperate. But given the lack of a trustworthy mutual commitment, we find that each individually has an incentive to defect. Each then rationally expects the other party to defect leaving them with the ‘sucker’s payoff’i. We could say that it is then in the government’s best interest to create contracts and pay for the transaction costs to enable cooperation, but when extreme corruption is prevalent we find that even though the government body has the power to uphold these regulations and contracts they choose not to for individual gains. Given this it may then be right to say that developing nations have lower levels of ‘moral resources’, such as trust, as their risk of default and defect are much higher. This quantifiable resource is diminished through the nature of local business and government and society itself. We may even be able to say that there is a vicious cycle whereby business and government deny society the empowerment of moral resources and as a result society denies itself this righti. As these major factors of social capital cannot always be upheld by local governments, the 1994 International Conference on Population and Development necessitated governments to, at the soonest time possible, allow access to reproductive health services as a crucial factor in achieving sustainable growth based on gender equality. This conference also put emphasis on the interactions between the populous, constant development and increasing economic output. It also stressed that poverty and gender inequities are affected by key demographics of nations, including population growth and age structure. Most interestingly this conference stated that “unsustainable consumption and production patterns” overuse natural resources, exhaust the environment and reinforce povertyiv. Unfortunately the solution to this, as already explicated, is too easy. Third‐party enforcement would require a neutral party with the ability, at no cost, to be able to measure the differing factors of the contract and compensate the injured party to such an extent where it would be extremely costly to violate that contract. These conditions are extremely difficult and seldom, if ever, met in practicei. So given that society and business cannot even be upheld by a third party, it must be safe to say that in developing countries in practice society cannot sway the activities of business. Government on the other hand will likely see the need for a call to action, but will be powerless to do so. The UN’s Human Development Report in 1996 quite clearly stated that human development does not necessarily follow economic growthv. We could however infer from this document that human Lincoln Smith ‐ 306192454 2
development does facilitate economic growth. Therefore we can clearly say that to avoid irrational outcomes it is necessary not only to trust others before acting cooperatively, but also to believe that others bestow their trust onto youi. This means that in such circumstances of developing nations without the power to build on trust and execute it then defection will remain the stable equilibrium of all parties. Sustainable human‐centered development is the definitive objective of growth. Governments are however not only committed to building this growth, but also committed to globalization and, to a larger extent, business through agreements made in the World Trade Organization. The question is then raised as to whether globalization actually improves the quality of life and gives more people access to the safety and security requirements they need. While globalization lengthens life‐spans through medical technologies, increased income and yield production, it also adds to extensive corrosion of environmental resources and people’s well‐being through a change in consumption and productioniii. So when governments are so indebted to building on business and institutions, we must look at how institutional roles play their part in this puzzle. An institutions main role is to maximize profits for all stakeholders involved. We can clearly see that then it is also their role to reduce transaction costs. So then this means that they will choose to monitor and enforce less to no agreements and empirically will choose not to cooperate in a bid to reduce their transaction costs and to avoid risks of defecti. But we must now see that if the state has coercive force to uphold these agreements, “then those who run the state will use that force in their own interest at the expense of the rest of society”i. A case done by the Annual Poverty Indicators Survey of the Philippines has found that 30% of people in the country do not meet their basic needs to survive, and 13.8% of people do not meet their daily nutritional requirementsvi. Shockingly, 65% of people are without access to a safe water supply and 70% of people have no sanitary toiletsvii. But we must now see how industry has caused (or more correctly – stopped this from not happening). Large scale mining is legal in the Philippines despite significant recorded evidence of extremely hazardous trans‐generational impact to both human well‐being and the ecosystem. In 2004 mining rights was granted to more than 20 mining companies with rights to mine on local soil. About 15% of all mining and mining exploration in the Philippines can be found in areas of high watershed stress, where the demand for water exceeds the available supply by at least 35%ii. So how can the government allow these concessions to be handed out? Well, the government is obviously licking its lips at the amount of revenue and job creation, but cares nothing for the invaluable public goods until it is an issue. In February 2005, “[dead fish] in Luba, Abra were traced to the cyanide tailings from the Lepanto Consolidated Mining Corporation operating upstream in Benguet”viii. Other mining spillage has led to the killing of fish in other places across the Philippines including killing endangered speciesix. When such issues come publicly into view, it is difficult for the communities that live off such land (and rely on this land) to come to common terms with these corporations. Networks of civic engagement allow extremely strong and dense amounts of trust between the community. This means that people are Lincoln Smith ‐ 306192454 3
able to enter into arrangements much more freely and can advantage from mutual benefits more frequently. This is not the case in the communities surrounding these mines, and therefore it leads to tension between business, society and the governments whose supposed best interest is their citizens as well as profit from these institutions. It can be understood that institutions evolve through history, but they do not reliably reach unique and efficient equilibriums. It could be said that this business evolution is led by the steps they have taken in the past (path dependence). People build these businesses through combinations of their social capital. They are more increasingly moderating the activities of these businesses and governments in order to receive greater economic benefits, but these benefits have drawbacks for society. These industries in turn will kill the environment, and as people move away from caring about these free common commodities to push themselves ahead, the long term implications for the government is quite grim considering their common assets are destroyed. Government in developing nations must take action to consider their most valuable intangible asset (their people/labor) and their most valuable tangible asset (their environment). By allowing these to mutually coexist there will be a tradeoff of profit, but the result will be long term sustainability. Mancur Olson states in The Rise and Decline of Nations, that “small interest groups have no incentive to work toward the common good of society and every incentive to engage in costly and inefficient ‘rent seeking’ – lobbying for tax breaks, colluding to restrain competition, and so on”. The worst thing that Olson refers to in our case is that while developing nations have little movement in innovation and revolutionary change, the amount of special interest groups will grow much denser, stopping these innovations and halting economic growth. This principle is counterintuitive to the government’s key interests, leading to strong society with a weak economy. From this we can see that while the government puts pressure on business to improve, society puts pressure on government to improve its course of action, and business puts pressure on society to cooperate. This vicious cycle is counterintuitive and pulls in each direction, greatly decreasing production growth, economic growth and the greatest asset to any nation, social capital. It is in fact not a society leading business and leaving its impressions on government, but instead these forces are in constant struggle against each other. Action plans now need to include the equitable access to resources, strategies and action plans, monitoring, evaluation and accountability, incentives for conservation programs, corporate social responsibility and legislation on land use and use of public goods. The problem lies within the implementation of such strategies. This will be a long and difficult path and will likely send productivity backward before forward. Hence, it will be extremely difficult to convince corporations and government to retain social responsibility and to create a sustainable growth for the wellness of the environment and the economy, hence why this is still yet to happen.
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i
Putnam, R.D., 1993. ‘Making Democracy Work: Civic Traditions in Modern Italy’. Princeton University Press, pp163‐185 ii
Van Wagner. K., 2007. ‘The Five Levels of Maslow’s Hierarchy of Needs’. pp1
iii
Arnell Azurin‐Abaja, M., 2005. ‘Population, Health and Environment: Synergies for Sustainable Human Development’. Accessed Online: http://www.pdfcoke.com/doc/432223/Population‐Health‐and‐Environment‐ Strategies‐for‐Human‐Development iv
United Nations, 1994. ‘International Conference on Population and Development’. Accessed Online: http://www.iisd.ca/Cairo/program/p03004.html v
United Nations, 1996. ‘Human Development Report’. Accessed Online: http://hdr.undp.org/en/media/hdr_1996_en_contents.pdf vi
Philippine Census, 2004. ‘Annual Poverty Indicator Survey’. Accessed Online: http://www.census.gov.ph/data/technotes/noteapis.html vii
Asian Development Bank, 2005. ‘Absolute Number of Poor People has Increased’ Philippine Daily Inquirer. Mar 20. viii
Nordis.net. Accessed Online: http://www.nordis.net///index.php?option=com_content&task=view&id=184&Itemid=99999999 ix
Corpuz, G. 2005. ‘Rare Marine Mammal Dies in Water Contaminated by Mine Tailing’. www.bulatat.com
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