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Text File | 1994-05-02 | 45KB | 836 lines

<text> <title> The Greening of Eastern Europe </title> <article> <hdr> Global Affairs, Spring 1992 The Greening of Eastern Europe </hdr> <body> James M. Sheehan--research associate at The Competitive Enterprise Institute in Washington, D.C. The unvarnished truth about Eastern Europe's disastrous condition--both economically and ecologically--is fast becoming conventional wisdom. What once was the breadbasket of Europe is now its basket case. The degradation of the Eastern European environment is arguably the most advanced of anywhere on the globe; indeed, the revolutions against totalitarianism included "green" organizations dismayed over the potential health effects of a deteriorating environment. Setting an increasingly hyperbolic tone, the national assembly of the Yugoslav republic of Montenegro proclaimed itself the world's first "ecological state" in September 1991. (Radio Free Europe/Radio Liberty, Daily Report, September 26, 1991, p.6.) A group of citizens in Bulgaria threatened not so long ago to seek "ecological asylum" in other countries. As the new governments of Eastern Europe stabilize politically, they will have to clean up the contaminants inherited from former communist regimes and modernize the incredibly inefficient and polluting industrial infrastructure. Initial estimates of the costs of environmental cleanup for the region range into the hundreds of billions of dollars. Cleanup of the Danube River alone may cost $10 billion, according to World Bank environmental specialist Stephen Lintner. These enormous sums have led many in the West to argue the necessity of massive infusions of state-to-state aid. But a number of misconceptions about the fragile process of transition threaten to cause such foreign aid to be misappropriated for a kind of Potemkin environmentalism: all facade, and no solid foundations. Myths About Foreign Aid to Eastern Europe Foreign aid officials in the West are currently providing extensive guidance to the newly democratizing Eastern European governments in an effort to insure that their emerging market- oriented economies will contain sufficient safeguards for the ecology. Foreign aid programs administered by U.S. officials include numerous provisions designed to encourage the enactment of strict environmental standards and regulations. America's answer to the environmental damage of socialism, surprisingly, is a re-institutionalization of bureaucratic state control. Or perhaps it is not so surprising, when one considers the bureaucratic culture of those formulating the policy. As new commercial codes and regulations are drawn up by Eastern European parliaments, U.S. officials are urging them to constrain economic growth for environmentally "sustainable development" and to establish vast social welfare safety nets to handle the unavoidable economic displacements that result. Yet if four decades of Eastern European history demonstrate anything, it is that nothing can be worse for the environment than central planning. An economy cannot run effectively with control from the center. Similarly, an ecological protection plan cannot operate effectively if it is dependent on the decisions and actions of diverse and generally autonomous (and irresponsible) bureaucracies. The prevailing theme of the recent revolutions against communism holds that free markets based in sound property rights offer the best prospects for both the economy and the environment. However, these economic and environmental values in Eastern Europe are threatened by a veritable honor roll of myths inspiring American efforts to support the transition to market economies--half-truths invoked in order to justify continued and massive government interference. Myth 1: Western assistance for the environmental cleanup of Eastern Europe will create an enormous new market that will reignite the regional economy. Fact: The environmental cleanup of Eastern Europe will have little positive impact on the economies of that region insofar as the cleanup is directed by government authorities. The money spent on the cleanup will be redistributed wealth--whether provided externally or from within. No wealth is created by this vast "new" market. To the contrary, the damage to the environment is a systemic result of limitations on economic efficiency through command and control. For any effective cleanup of the region, it is critical that resources be allocated efficiently. These crippled economies have nothing to spare. Much of the funding for the proposed aid effort will come from the U.S. and the European Community, either in the form of direct assistance or taxpayer-subsidized loan guarantees. That money, in turn, will be directed toward firms with proven experience in cleanup technology, giving western corporations a decided advantage. For the West, government assistance justified for Eastern Europe winds up as a state subsidy benefiting western cleanup technology firms, whose need of such assistance is questionable. In the East, countries will be saddled with increasing debt which they are unlikely to be able to pay back. In addition, there will be little incentive for indigenous innovation: western aid will undercut local prices, competitiveness, and initiative. Myth 2: The enactment of stringent environmental laws is necessary to develop the overall perception of "social progress" in Eastern Europe's transformation. Fact: Depressed economies are the predictable result of slow growth policies, and they will more likely perpetuate a perception of stagnation and decline. If western firms are to clean up Eastern European contaminants, a dependence on the West will result. No indigenous industries will be able to compete with the more advanced, subsidized western firms. The dependence of an entire region on the West would be a detriment, not an advantage--both in reality and perception. Stringent environmental regulations would also choke off foreign investment that is not subsidized. Sound, calculated investments, made for their potential to realize profits, are the only type that can sustain wealth and job creation in the long term. Historically, government transfers have tended to become institutionalized and to claim an ever-increasing share of a nation's resources. Myth 3: Eastern European governments must coordinate national industrial policies and control foreign investment to ensure that environmental concerns are taken into account. Fact: In the previous communist regimes, trade protectionism was a chief culprit of environmental destruction. In keeping out western industry, indigenous technology was protected from competition. Antiquated, environment-polluting technology was thus preserved in its most destructive form, with no incentive for innovation. The often-repeated argument runs that capitalism will export its pollutants to Eastern Europe, where regulations are more lax. But in truth, a reduction in trade barriers like tariffs, quotas, and foreign investment taxes predictably would diminish pollution by accelerating the phaseout of inefficient technologies and encouraging the transfer of needed managerial expertise. Myth 4: A global environmental strategy would first direct funds to regions in greatest crisis, namely Eastern Europe. Fact: This is analogous to saying that all social programs would be more effective if funds were transferred to only the poorest of the poor. It ignores the role of incentives in cleaning up the environment. If individuals are allowed to own resources, these assets will directly benefit from wise management practices. By focusing responsibility for resource management on governments, environmental foreign aid lessens the urgency of meaningful economic reforms and fails to generate the competitive pressures to adopt cleaner technologies. The perverse set of incentives that it introduces winds up puni