To understand the challenge of environmental governance today, we examine four broad trends. Economic globalization has placed new demands on environmental management across national borders and has raised new questions about the appropriate roles of the private sector and of international organizations in environmental governance. Increasing democratization of political systems around the world and the growing acceptance of “good governance” norms have opened the door to public participation in decision-making in a manner never possible before. At the same time, the rapid growth of nongovernmental organizations such as environmental groups and other public interest advocates has helped organize and enable the public to participate. Finally, the proliferation of new information and communication technologies is allowing social movements to coordinate at the global level and helping the public to hold governments and corporations accountable for their environmental performance. In addition, continuing armed conflict around the world poses an obstacle to stable and thoughtful governance (see Box 2.1 Armed conflict: Killing governance).
Economic globalization, liberalization, and privatization
Economic globalization-the growing integration and interdependence of national economies-has redefined our relation to ecosystems and extended the reach of our environmental decisions. The average consumer in London, for instance, can sit on furniture built from Asian forests, sip wine from South Africa, dine on Thai shrimp or New Zealand lamb, and set the table with cotton napkins from Egypt.
With some regional variations, the same is true in any number of cities large and small throughout the world, and, increasingly, in many rural areas. Globalization today is defined by growing access to goods and services from all over the world, large flows of capital between countries, and technological advances that can make vast distances a negligible factor in business decisions. Remote rain forests, mountains, and ocean ecosystems can be readily connected to commercial transactions and consumer choices thousands of miles away.
The world has experienced periods of globalization before, but never of the magnitude, complexity, and speed that have occurred since about 1980 (World Bank 2002b:23-24). Just as the development of the steamship aided the economic globalization of the late 1800s, communication and transportation breakthroughs are enabling today’s consumers and businesses to tap far-flung goods, markets, and investment opportunities at reduced costs. Between 1920 and 1990 the average cost per ton for ocean cargo transport fell from $95 to $29, while the cost of a three minute telephone call from New York to London fell from $244.65 to $3.32 (Frankel 2000:46). The Internet has had a similar impact on the transmission of data and the management of global enterprises. Factor in developments like cell phones, containerized shipping, and overnight air freight, and the world seems to be shrinking and national boundaries fading.
New technologies are only one important factor in the increasing integration of world economies. Changes in trade and investment policy, as well as the changing role of the state in controlling the economy, are crucial as well. By the end of the 1990s, most countries, including those in the developing world, had implemented measures to liberalize domestic and international trade, lower tariff barriers, reduce the size and functions of the state, privatize state-owned enterprises, and introduce market economies.
One clear result has been the increasing importance of trade in the world economy. Trade now accounts for some 58 percent of the global economy-up from just 27 percent in 1970 (World Bank 2003). Notably, this bonanza has extended beyond high-income nations to include at least some of the developing world. Trade doubled as a percentage of the national economy (i.e., the trade/GDP ratio doubled) in 24 developing countries between 1980 and 2000 (World Bank 2002b:5). Brazil, China, Hungary, India, and Mexico are standouts among countries whose participation in global trade and investment increased (World Bank 2002b:5). Industrialized countries, too, are pursuing economic integration with greater fervor than ever. In January 1999, the European Union committed to a common currency-the euro. Research suggests that adopting a common currency can more than triple the volume of trade (Rose 2000:57).
But globalization has brought more than a trade boom. In fact, one of its most significant impacts has been, not from the movement of goods, but from the movement of money-in the surge of private investment capital from the boardrooms and investment banks of wealthy nations to developing nations. In 1991, private finance and official development aid (the total value of grants, loans, and other assistance) to developing countries were approximately equal at about $60 billion each. By 2000, private finance had multiplied by a factor of four, to $226 billion, while development aid had decreased by half to $35 billion (World Bank 2002a:32).
One factor driving this explosion in private North-South capital flows was a wave of policy changes promoting liberalization and privatization in the economies of developing and transition countries. Barriers to the free flow of trade and finance across national borders fell, while privatization of state-owned corporations and the creation of new stock markets in developing countries provided new opportunities for investors in industrialized countries. Then in 1997, with the advent of the financial crisis in Asia, and subsequent financial turbulence in Brazil, Turkey, and Argentina, both investors and recipient countries learned the downside risks of increased integration with the global economy.
Effects on environmental governance
Global integration has posed several challenges for environmental governance. These include the outpacing of environmental regulations by economic growth, the increasing power of the private sector to shape economic and environmental decisions, the environmental impacts of economic instability, and questions about the transparency and accountability of such international financial institutions as export-import banks, the World Bank, and the International Monetary Fund (IMF).
In several emerging market countries such as Indonesia and China, where international investment drove high rates of economic growth in the 1990s, the pace of economic development strained the institutions and regulatory frameworks designed to protect the environment. In China, for example, local officials were given a mandate to promote economic growth. They did not, however, face much countervailing pressure from environmental regulators to invest in pollution control equipment and clean manufacturing processes, or to enforce environmental regulations. As a result, uncontrolled industrialization has significantly worsened China’s environmental conditions and increased related impacts on human health (Davis and Saldiva 1999:15; World Bank 1997:5-28; Lieberthal 1997:4-5).
Privatization of formerly state-owned assets and functions also created environmental governance problems in many countries. Since the mid-1980s, governments have increasingly transferred some of their powers to the private sector-to manage natural resources and provide services such as drinking water supply, wastewater treatment, and electric power. Water services are a good example of this trend. Private water companies have existed for nearly four centuries, but public authorities controlled water supplies and provided sewage treatment in the vast majority of jurisdictions until the 1980s (Brubaker 2001:1-2; Gleick et al. 2002:23-24). However, by 2000, national, provincial, and local governments in 93 countries had begun to privatize drinking water or wastewater services (Brubaker 2001:1). In 1997, the Asian capitals of Jakarta and Manila awarded contracts to privatize their water services-just 2 of the 33 major water privatizations that year (Owen 2001:17). From 1995 to 1999, governments around the world privatized an average of 36 water supply or wastewater treatment systems annually (Owen 2001:17). Likewise, privatization has proceeded in the electric power sector, with some 40 percent of developing countries allowing the entry of private power producers into their electric utility systems by 1998 (Bacon 1999:8).
The potential benefits of privatization are both financial and practical. Privatization brings ready sources of private capital to invest in systems that are often cash-starved and in poor physical condition. Done right, this can bring better and wider service, greater efficiency, and increased financial viability. But the reality of privatization has been much more mixed and has prompted local backlash, even civil uprisings, in a number of locations. Decisions to privatize rarely involve public consultation and often have unpopular social repercussions, including job losses and price increases (Dubash 2002:x-xv).
Moreover, many governments are not prepared for the regulation of new private utilities-which are often monopolies-that is required to protect both social and environmental goals. Absent vigorous regulatory oversight, privatized utilities may not adequately consider environmental impacts when new infrastructure is built or when land use decisions are made. For instance, the decision to build a coal-fired power plant or to tap non-renewable water supplies may turn on short-term economic considerations such as ease of financing or the rapid recouping of investment, rather than long-term outcomes for the surrounding natural and human communities. For these and other reasons, the issue of how much state power should be put into the hands of private companies and what kinds of social and environmental obligations these companies should take on, is one of the most controversial governance topics today (Dubash 2002:x-xv; Gleick et al. 2002:29-39).
The economic and political instability resulting from the financial crises of the 1990s also challenged environmental governance structures. In Indonesia, for example, the breakdown of law and order and high unemployment following the fall of the Suharto regime in 1998-coupled with pent-up resentment of state control over natural resources-led to an explosion of illegal logging and wildlife poaching in the country’s protected areas. At the same time, the economic collapse limited the government’s ability to fund environmental protection and diverted the attention of normally vigilant public interest groups to the pressing issue of helping the newly impoverished (FWI and GFW 2002:60-64). Weak environmental governance institutions-including government agencies, community-level organizations, and public interest groups-render ecosystems extremely vulnerable to economic and political disruption.
Finally, globalization has illustrated potential conflicts between the roles of institutions such as the IMF, the World Bank, and bilateral export credit agencies in promoting liberalization and privatization, and the part they play in global environmental governance. First, how can the activities that these organizations fund be made consistent with sustainable development? There are many instances where projects supported by these institutions promote unsustainable practices. For example, a World Resources Institute study found that export credit agencies in developed countries-which bankroll foreign projects intended to develop export markets abroad-were supporting energy projects with high greenhouse gas emissions in developing countries. This was in direct conflict with the professed desire of developed countries to encourage developing countries to lower the growth rates of their greenhouse emissions (Maurer and Bhandari 2000:1-6).
Second, there is concern that international financial institutions are not sufficiently open and accountable to the communities affected by their decision-making. While the World Bank and other multilateral development banks have introduced strong reforms related to information disclosure, public consultation, and appeals mechanisms, most export credit agencies and trade bodies remain closed to public participation and scrutiny (see Box 2.2 Open accounts? The transparency of multilateral development banks).