From: harelb@math.cornell.edu (Harel Barzilai)
Subject: ANALYSIS/DISCUSSION: "Full Cost Accounting"
Followup-To: alt.activism.d
Originator: daemon@pencil.cs.missouri.edu
Organization: ?
Date: Thu, 3 Sep 1992 18:59:22 GMT

[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 
  (612) 379-5980 Fax:(612) 379-5982 
  (Institute for Agriculture & Trade Policy) 
         
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aztoxics                                EcoNet 
  Michael Gregory, P.O. Box 1896 
  Bisbee AZ USA 85603 
  (602) 432-7340 
  (Arizona Toxics Information) 
  Keys: trade, mexico, pesticides, mining, pollution, prevention 
         
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Xref: sparky misc.activism.progressive:6203 alt.activism:15798 talk.environment:3464